Plan could drive inflation and interest rates up, leaving borrowers paying more
Opposition Leader Anthony Albanese’s proposal for a 5.1% wage hike would spur a rise of inflation of more than two percentage points and drive mortgage interest rates up by 57 basis points, leading to an average monthly hike of $273 on home loan repayments, new research predicts.
The Institute of Public Affairs said that a minimum-wage increase in line with current inflation of 5.1% – which Albanese supports – would spur a 2.25-percentage-point rise in inflation over the next 12 months, lifting it to 7.36%, The Australian reported.
The Opposition’s support for a minimum-wage hike has sparked concern among business groups, and Prime Minister Scott Morrison said Albanese was reckless for proposing the rise.
Albanese stood by his proposal, saying it was only equivalent to “two cups of coffee” for minimum-wage workers.
However, the IPA report said that “an across-the-board wage hike of 5.1% to keep up with inflation would push inflation from 5.1% to at least 7.36% over the 12 months following the wage increase.”
The report said that such a rise would push mortgage rates skyward, taking the average mortgage rate from 4.52% to 5.05%, according to The Australian. Such a rise would “cost the average mortgage holder an extra $273.27 per month in higher mortgage payments, which is $3,279 per year,” the IPA said.
An inflation-linked 5.1% wage hike would also increase the small business rate from 4.75% to 5.41%, The Australian reported.
Last week, Albanese said he would “absolutely” push for a 5.1% wage hike for minimum-wage earners. After some initial confusion over whether a Labor government would formally support the increase to the Fair Work Commission, Albanese said he would pursue a wage hike and Jim Chalmers, Labor’s Treasure spokesman, said “the mechanism” would be decided after the election.
“Scott Morrison is saying wages will always be lower under the Liberal Party. That is what he is making very clear,” Albanese said Friday. “He’s saying if we give people who are on the minimum wage – just $20.33 an hour – we give them an extra dollar an hour, the sky will fall in. What they know about this bloke is that he is not on their side.”
However, IPA director of research Daniel Wild said that Labor’s proposal risked a return to spiralling wages and inflation.
“Rapid and unanticipated hikes to wages risk sending Australia back to the bad old days of spiralling inflation and rocketing interest rates, which will put mortgage holders and small businesses on their knees,” Wild told The Australian.