Accord on prices, incomes, anchors Labor Party's economic strategy

At the heart of Prime Minister Bob Hawke's strategy for bringing Australia out of recession has been the prices-and-incomes accord. A ''social contract'' between the Labor Party and the Australian Council of Trade Unions (worked out while Labor was still in opposition), the accord ties wages to the consumer price index.

In return for steady real wages, tax relief, and government monitoring of prices, the ACTU is committed to refraining from further wage demands.

The accord followed a year-long ''wage pause,'' or freeze, which lasted until last October, roughly half a year into the Hawke government. The pause was itself a reaction to the skyrocketing wages of the early 1980s.

The feeling that the accord is working is widespread - but not universal. ''Full indexation is not desirable,'' says Harris J. Boulton of the Trade Council of the Confederation of Australian Industry in Canberra. ''Real wages have been ahead of productivity growth in calendar 1982 and 1983.''

The first CPI-linked wage award under the accord was 4.3 percent in October; the official announcement of a second half-yearly increase of 4.1 percent is imminent.

''That makes an 8.4 percent increase in six months,'' Mr. Boulton says. This, he suggests, hardly sounds like wage restraint.

But a federal Treasury official calls the accord ''a good balance between the realities of economics and the realities of industrial relations.'' Strikes, he says, have been only half what they were last year.

And in Melbourne, Bill Kelty, ACTU secretary, maintains that given the realities of trade unionism here, indexation is probably the best route to wage restraint.

''The alternative is to determine wage rates in a vacuum, at the worst,'' he says, ''or for us to determine a wage strategy on the basis of the highest capacity to pay in industry. Experience has clearly demonstrated that indexation is a much less inflationary alternative. The times when wages have risen most dramatically - above inflation - have been the times when wages have not been tied to prices.''

Fifty-six percent of Australia's wage and salary earners are union members; in the US, the union share of the work force is some 21 percent and falling. And back in the early years of this century, Australia adopted the ''basic wage'' concept - a minimum but not poverty-line wage, intended to allow a workingman to provide comfortably, albeit modestly, for a wife and children.

Moreover, nearly 90 percent of all workers here have their earnings fixed not by collective bargaining but through arbitration, by a national system of quasi-judicial ''industrial tribunals.''

This system has been in effect in one form or another since the 1890s, explains H.W. Arndt, professor emeritus at the Australian National University in Canberra. Arbitration was seen to be preferable to the rash of strikes then threatening to cripple industry. He notes, ''The basic mission of the arbitration council has always been to keep industrial peace, not to restrain wages.''

Sir John Moore, the usually low-key president of the arbitration commission, has been quoted as saying of the present system, ''To describe it as a mess is a complete understatement.'' A committee is studying the system and will recommend changes next year.

But meanwhile, Peter Dixon, director of the Institute of Applied Economic and Social Resarch at the University of Melbourne, says the accord ''is doing what it's supposed to do.'' He maintains that stimulating demand doesn't lead to recovery, just to increased imports and decreased exports. The key is to control labor costs.

''The most interesting thing that's going on is the trading of tax cuts for wage moderation. This will work because people will say, 'We don't care about our gross pay, we care about what we take home.' ''

Indeed, the ACTU is pushing the government to get on with its tax relief program, with tax cuts for lower- and middle-income people, and at least partial indexation, to protect against ''bracket creep.''

In addition to the natural cooperation between labor and the Labor Party, says Professor Dixon, ''The other thing this government's got going for it is it does recognize that the cost of employing labor is the key element in macroeconomic recovery.'' He faults the Fraser government for trying too long to steer the economy by tinkering with the money supply and the budget deficit.

Professor Dixon also observes that Australia has adjusted quickly to chronic unemployment. In 1960, he relates, joblessness at the then scandalously high level of 2 percent was enough to bring the government of Sir Robert Menzies to within one seat of losing its majority; but Malcolm Fraser held office for seven years with unemployment ranging from 6 to 10 percent.

Unemployment is down a hair from its peak, but still hovering at just under 10 percent, and not expected to fall greatly. Professor Dixon says, ''We need a few people who are prepared to say, 'Look, I don't need a wage increase at the moment; my kid needs a job.' ''

And in a similar vein, Mr. Kelty says, ''There's nothing magical about a 20 percent wage increase if it's accompanied by a 25 percent increase in prices. There's something very positive about a 3 percent wage increase if it's accompanied by no inflation.''

''We've been pleasantly surprised in how (the accord) has held,'' says Ian C. Matheson, deputy managing director at Westpac Banking Corporation in Sydney. ''But we're not so certain how it will go on.'' Health-care costs are being pulled out of the CPI. This change in scorekeeping, so to speak, could lead to an official six months' inflation rate well under that of the past two wage awards, and hence some meaningful wage restraint. But also, Mr. Matheson say, ''it will put pressure on the accord as unions seek to increase their take-home pay.''

You've read  of  free articles. Subscribe to continue.
QR Code to Accord on prices, incomes, anchors Labor Party's economic strategy
Read this article in
QR Code to Subscription page
Start your subscription today