Australians are experiencing a "great, quiet disaster" as soaring inflation has effectively reduced wages, leading to a significant drop in living standards, according to financial commentator Alan Kohler. The average Australian wage earner was effectively $5,000 per year behind by March 2023, as pay rises over the preceding two years were outpaced by rising prices.
Kohler explained on ABC TV that while pay increases occurred after March 2021, they were absorbed by inflation. He noted that workers are unlikely to recover this lost ground, citing the Reserve Bank's forecast for real wages, which indicates they will not rebound to previous levels. "That was a permanent loss - real wages stopped rising after 2022 and flatlined," Kohler said. "The result is that for three years, real per person disposable income has been going negative."
Compounding the issue, house prices have risen faster than incomes for 25 years, hindering homeownership for a generation. The Reserve Bank's 13 interest rate hikes and increased taxes have further impacted household finances. Kohler highlighted that individuals born in the 1990s are the first Australian generation in history not to be better off than their predecessors, breaking a long-standing trend of generational economic improvement.
Greg Jericho, chief economist of the Australia Institute, echoed these concerns, stating that Australia has experienced the most significant collapse in real wages in living memory. Forecasts suggest it may take until 2037 to return to pre-collapse real wage levels. "The last 5 years have seen the worst collapse in the value of people’s wages in living memory, and forecasts by the Reserve Bank suggest it will take till 2037 to get back to the levels they were before the collapse, which is why we need state and federal governments to take the lead to speed recovery," Jericho said.
Jericho called for public sector wage increases to lead the recovery, noting that public sector wages, which directly and indirectly employ about one-third of the workforce, have averaged around two percent. This, he argued, influences private sector wage norms and can stifle overall wage growth. "The news ahead is not good - the RBA estimates that by the end of 2028, a wage worth $90,000 in 2021 will still be worth just $86,696, and it will take till the end of 2036 for us to get all the way back to 2021 levels," Jericho added.