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RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

Is the Reserve Bank Governor Philip Lowe pushing Australia into a recession?

That has now become the biggest question in the Australian economy – as household budgets are squeezed even further by an interest rate rise that almost no-one wanted to see.

Today, columnist for The Saturday Paper Paul Bongiorno, on Philip Lowe, the treasurer and the fight over wages.

It’s Friday, June 9.

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Archival tape -- News Host 1 (7 News):

“Official interest rates have risen above 4% as the RBA hikes rates again-...”

Archival tape -- News Host 2 (7 News):

“The RBA has delivered more home loan pain with another rise to take the cash rate to its highest level in 11 years-...”

Archival tape -- News Reporter (9 News):

“The Reserve Bank hiking the cash rate a further 0.25% in its mission to control inflation…”

RUBY:

Paul, this week there were reports that Australia could be pushed into a recession because of the RBA's insistence that hiking interest rates higher and higher is the only way to bring down inflation. Tell me what we know about whether going into a recession is a real possibility that we should be thinking about.

PAUL:

Well, Ruby, there's plenty of anxiety in Australia about the state of the economy. Well, all eyes were glued to the TVs at 2:30 Tuesday afternoon when the Reserve Bank was reported to have raised rates by 25 basis points, bringing the official cash rate to 4.1% and that's the highest cash rate in 11 years. And that was the 12th rate rise in just over a year. Well, economist Stephen Koukoulas, he was at a business seminar in Brisbane and they all stopped to look at the giant screens in the conference room. And he says there was an audible gasp when the decision was made. He says bewilderment in the room soon turned to anger.

Archival tape -- Stephen Koukoulas:

“The economy's in a lot of stress right now. The RBA is hiking interest rates on a whim, on a fantasy, on…I don't know if it's vindictiveness…”

PAUL:

Koukoulas, who does a lot of work with Australian business as an economic consultant, says the criticism of the bank is coming from everywhere: from the left, from the centre, from the right. It's not only the punters, but he says it's coming from serious economic analysts. They just fear that the Reserve Bank is getting it wrong. Koukoulas says that respect for the RBA has never been lower.

Archival tape -- Stephen Koukoulas:

“It's a curious thing. Thankfully. Dr. Lowe’s only I've got three board meetings to go before he inevitably departs, but boy, he's going to trash the joint on the way out with this really oppressive stance on monetary policy but..”

PAUL:

No, I’ve got to tell you, Ruby, this isn't being helped by the Reserve Bank governor's continuing problems with public communication. He appeared out of touch this week when he suggested if Australian renters and mortgage holders are struggling with interest rate rises, the solution was easy - do more work to earn more money or spend less.

RUBY:

And Paul, all of this, of course, puts greater pressure on the government. Anyone with a mortgage as well as a lot of renters will really feel this rate rise. So, I think it's fair to say the Treasurer, Jim Chalmers, he can't be happy about the Reserve Bank's decision this week.

Archival tape -- Jim Chalmers:

“Okay. Obviously I want to cover off on the interest rate decisions this afternoon, but then also to give you a bit of a sense of the week ahead…”

PAUL:

Well, within half an hour of the Reserve Bank announcement, the Treasurer held a news conference in the Blue Room at Parliament House and his opening remarks were read by many as a veiled criticism of Governor Lowe.

Archival tape -- Jim Chalmers:

“The Reserve Bank's job is to squash inflation without crunching the economy, and they will have lots of opportunities, of course, to explain and defend the decision that they've taken today, my job is different…”

PAUL:

The Treasurer knew full well that the Governor, after earlier criticism, now holds a news conference and gives a keynote address the day after interest rates were announced. Well, Governor Lowe did this on Wednesday. But he didn't resile from the decision. In fact, he says that if they hadn't taken the decision they had, there was a real possibility that inflation would gallop further out of control and there’d have to be higher interest rates and higher unemployment.

Archival tape -- Jim Chalmers:

“It's for the Reserve Bank and its board in the usual way to explain and defend the decisions that it takes independently. But I think out there in the community, people who are under pressure will find this decision hard to cop…”

PAUL:

Now, a lot of the criticism of the Reserve Bank's decision came from people or economists like Koukoulas who said, well, the governor and the Reserve Bank have made the decision before they saw the national accounts, well the national accounts for the first three months, the state of the economy for the first three months of this year, well they came out on Wednesday and they confirmed that the interest rate hikes we've seen, the 12 we've seen are already having an effect on the economy, slowing the economy to a feeble 0.2% growth in the first three months of the year. The Treasurer said in his news conference around midday on Wednesday that cost of living pressures and rising interest rates are squeezing household budgets and slowing growth. Now, this is the whole purpose of the interest rate rises. Stephen Koukoulas says that in his view and in light of these results, he believes the Reserve Bank has interest rates one whole percentage point or 100 basis points higher than they should be, if the governor and the bank want to avoid, and I'm quoting, “trashing the economy.”

RUBY:

Yeah, I mean, the government is limited in terms of what it can actually do here to ease the pressure. It's already committed to go fairly softly in terms of direct support to households or to welfare. And it says part of the reason for that is to not make inflation worse. But the one thing that it's pointed to again and again is that it is committed to wage growth. So can the government keep wages growing to keep up with this squeeze that Chalmers is talking about?

PAUL:

In many ways it's the horns of a dilemma, Ruby. The government is committed to wages growth to get wages moving again, but it's in the context, as we see, of an overheating economy. And it's good to remember that why we're in this situation is fairly straightforward. The war in Ukraine hitting energy prices, energy being a key factor, of course. But not only that, we saw absolute record spending during the pandemic when the federal government, with the support of everybody, spent billions to stop the economy, absolutely falling in a heap. Well, the judgement day or payment day, rather, has arrived and a lot of people are now critical of the government for still pushing for wages to increase. But Jim Chalmers is adamant that they're doing it not only with their industrial relations laws but with the way in which he's approached the budget in a way that is not adding to inflation but is still giving relief to the poorest paid in the economy. And this week - no coincidence - the new industrial laws that Tony Burke introduced last year, well they began to take effect.

So the new industrial laws that came into force this week, which particularly look after the lower paid and women, well, business has taken a bit of lesson from the way they dealt with them; they tried to influence the legislation once it got into the Senate. But there's another big fight brewing over a new agenda that the government has on the wages front. But this time business has decided it won't wait until it sees the laws getting into the Parliament and into the Senate. It will try to pre-empt it and it's determined and we're told it's going to spend millions of dollars trying to spook the government away from its new wages agenda.

RUBY:

We'll be back in a moment.

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RUBY:

So, Paul, it seems like there could be a major fight brewing over the government's latest attempt to improve the bargaining position of workers when it comes to wages. And it all has to do with labour hire. So tell me a bit more about what these arrangements look like in practice and why this is so controversial.

PAUL:

Well, Ruby, the government calls it ‘same work, same pay’. It's committed to this, and it's begun consultations with the unions and with the business representatives. And what it revolves around is this - big businesses in mining, in the airlines, in fact, right across the board have been using a loophole in wage arrangements to rob workers of thousands of dollars of their entitlements. And it works like this: so a big employer, a mine or an airline like Qantas has been named by the ACTU. They have an EBA, an enterprise bargain with their employees and they set wage rates and conditions in a certain way. But they can then get away with paying people they hire through labour hire companies, a less rate of pay.

Archival tape -- News Host (Sky News):

“In a rare show of solidarity, eight business groups have united to campaign against this legislation…”

PAUL:

The business lobby has said, Hang on. What's going on here is you're going to force people who are more skilled or have been working for longer to lose money so that they get the same pay as new entrants.

Archival tape -- News Reporter (7 News):

“From big business…”

Archival tape -- Andrew McKellar (ACCI):

“There are issues here…”

Archival tape -- News Reporter (7 News):

“small business…”

Archival tape -- Matthew Addison (COSBOA):

“No loyalty rewards, no experience rewards…”

Archival tape -- News Reporter (7 News):

“the mining industry…”

Archival tape -- Tania Constable (MCA):

“It’s like a noose around businesses and workers’ necks…”

Archival tape -- News Reporter (7 News):

“From farmers…”

Archival tape -- Tony Mahar (NFF):

“Unfair, unreasonable, and actually unrealistic…”

Archival tape -- News Reporter (7 News):

“and construction bosses…”

Archival tape -- Shaun Schmitke (MBA):

“It will be a disaster. It will hurt mum and dad businesses…”

PAUL:

Well, the Government, Tony Burke and the ACTU Secretary McManus, they say this is simply wrong. McManus says it's just made up. It's not their policy and it never has been their policy. And in fact, Burke and the ACTU can give quite strong examples of what they actually mean.

Archival tape -- Tony Burke:

“I was in the Hunter Valley a couple of weeks ago where one of the miners had worked for years as a casual, doing the exact same job side by side with permanent workforce, but he was employed by labour hire. So even with the casual loading, he was getting a lower hourly rate than the permanent workforce. Now, that's not fair. It's a loophole, it's indefensible and needs to be closed.”

PAUL:

And Workplace Relations Minister Tony Burke. Well, he dismissed the huffing and puffing as, quote, “loopy.”

Archival tape -- Tony Burke:

“Business was running a passionate campaign against a policy that the government's not proposing that the government's not going to do. And to me, that would sound like a bad idea anyway.”

PAUL:

Sally McManus from the ACTU, she was more scathing. She says business groups are completely misleading people.

Archival tape -- Sally McManus:

“What's claimed in these ads is somehow people are going to - less skilled people are going to be paid the same as more skilled people. That's actually quite crazy and bizarre. But I suppose, you know, when you've got nothing, you're going to go for the crazy and the bizarre.”

PAUL:

She says the advertising they've developed is just based on complete falsehoods.

Archival tape -- Sally McManus:

“I suspect what they've done is just tried to do focus groups to try and find some way of selling, you know, a bad idea to people. And finally they've hit on something saying, oh, people don't like people being paid the same as them if they're not as skilled. Well, yeah, fair enough. And that's not what we would ever propose a law would do...”

PAUL:

She says the campaign is actually about hiding the truth by setting up a straw person.

RUBY:

Okay, so Paul what does all of this mean politically? Can we expect the government will announce this policy and pass it, because this week's economic news is urgent? And while this policy is very specific to these labour hire employees, a lot of people are going to want to see some movement, some economic progress, aren't they?

PAUL:

Well, the government is in consultation, as I say. I'm told that behind the scenes things are getting along fairly well, certainly not as stridently as the public campaign we're now seeing from the business lobby. But the government has the numbers in the Senate. The Greens support what the government wants to do here, as does most of the crossbench. So it should fly through the Parliament. What the Government is trying to do is to close a loophole, robbing workers of their entitlements rather than grabbing tax from, you know, from the miners. This is looking after people rather than looking after the revenue. But it seems that one stop business trying to spook the government, trying to scare it away from bringing the legislation into the parliament. I don't think they've got much chance here of succeeding at all.

RUBY:

And just finally, Paul, there are now predictions in some economic circles that the Reserve Bank is going too far with interest rate hikes and that it could tip Australia into a recession. Do you think that is possible? And what would that mean for the government to preside over the first recession in this country since 1991?

PAUL:

Yeah, well, a couple of points there, Ruby. The first is the governor himself admits that the path to avoid a crash landing is a very narrow one. And we've already seen that the Treasurer says that the economy is slowing, but he's taking heart from the fact that it's slowing in a way that was predicted in the budget and he is confident, that is the Treasurer and he has the backing of Treasury and to some extent the Reserve Bank here, that things will begin to improve next year and we'll avoid a recession. Well, we'll all keep our fingers crossed on that one.

But I have to tell you something else. It is by no means certain that just because the economy does turn bad, just because people are hurting, that means voters will dump a government. What we saw in the 1993 election, after the 1991 recession, we had to have voters stuck with the Labor government because they considered that the alternative had no better offer to solve the problems.

RUBY:

Paul, thank you so much for your time.

PAUL:

No, thank you, Ruby. Bye.

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RUBY:

Also in the news today,

The man responsible for the death of gay American mathematician Scott Johnson in Sydney in the late 1980s has been sentenced to nine years in jail.

Scott Phillip White was arrested in 2020 over Mr Johnson's death, decades after the then-27-year-old's body was found at the base of cliffs in Manly.

And Ukrainian authorities have accused Russia of committing ‘ecocide’ over the bursting of a dam in the Russian controlled area of southern Ukraine, describing it as ‘an environmental bomb of mass destruction”.

Thousands have been evacuated from the area, as the UN warns of grave and far reaching consequences.

7am is a daily show from The Monthly and The Saturday Paper.

It’s produced by Kara Jensen-Mackinnon, Zoltan Fecso, Cheyne Anderson, Yeo Choong, and Chris Dengate.

Our technical producer is Atticus Bastow. Our editor is Scott Mitchell.

Sarah McVeigh is our head of audio. Erik Jensen is our editor-in-chief.

Mixing by Andy Elston, Travis Evans, and Atticus Bastow.

Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.

I’m Ruby Jones, see you next week.

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