Australia’s central bank demands deeper wage and social spending cuts

Addressing the House Economics Committee for the first time since the Labor government was elected in May, Reserve Bank of Australia (RBA) Governor Philip Lowe yesterday insisted that the workers’ wages must be kept well below the soaring cost of living and that the government must reduce social spending, including for care of the elderly and the disabled.

Philip Lowe, Governor of the Reserve Bank of Australia. [AP Photo]

People cannot continue to use the “national credit card” to pay for such essential services, Lowe said, as if workers and their families have access to too many benefits and should stop asking governments for them.

It’s a message of class warfare – demanding that workers be made to pay for what they are not responsible for: the global inflationary spiral and economic crisis caused by the disastrous policies of “living with the virus” COVID-19 , the dumping of billions of dollars in “support programs” into corporate coffers, and the impact of the escalating US-NATO proxy war against Russia on global commodity prices food and fuel.

The central bank chief said: “I know it’s not a comfortable message for people that we’re going to have real wages falling this year. It’s hard. When interest rates go up and real wages go down, that’s pretty hard, isn’t it? »

Lowe reiterated his earlier insistence that wage increases be kept below 3.5% per year, around half the consumer price index of 7.75% expected by the end of 2022. .

In other words, although it is “tough”, Prime Minister Anthony Albanese’s government and its union partners must continue to suppress workers’ wage demands by stifling or selling out strikes and imposing agreements with employers that reduce real wages, on top of a decade of falling real incomes for workers.

Lowe made a blunt threat. If wages were allowed to rise to give workers “full compensation” for inflation: “We will respond to this prospect with much higher interest rates and a marked slowdown.”

In other words, the central bank is quite willing to raise interest rates so high that the economy collapses into recession with a wave of job cuts, in order to ensure that more income cuts are inflicted on working-class households. There was not a word of dissent from the majority Labor committee members.

Lowe warned that Australia’s official inflation rate is expected to rise further from 6.1% to 7.75% by the end of the year, and that the RBA, like other international central banks, would continue to raise interest rates in order to depress household spending and real estate. wages.

In conditions where five successive monthly increases in interest rates and the soaring cost of living, in particular for food, gasoline, electricity, gas and housing, are already brutally affecting working-class households. With mortgage payments averaging nearly $1,000 a month so far and skyrocketing rents, millions face the risk of mortgage default or eviction.

In the past year alone, as Lowe admitted, gas prices have risen 32% and the cost of building a new home 20%. Electricity and gas bills are now increasing in similar proportions. As the Australian Bureau of Statistics reported this week, a record 900,000 people are working multiple jobs, usually precarious or precarious, as their pay is not enough to make ends meet.

Although he raised the specter of a wage-price ‘cycle’, Lowe conceded that wages have not been a ‘factor’ driving up inflation. He identified “profit margins” as a problem. It was a muffled reference to the price spike by which energy giants have driven the financial elite to reap super-profits from global energy price hikes.

Nevertheless, the workers had to bear the “harsh” consequences. No wage growth could be allowed to reach the levels that Lowe said were far too high in the United States, the United Kingdom and all of Europe. In these countries, central banks and governments “have to find a way to roll this back”, he insisted, even though for workers in North America and Europe, in reality, life becomes day by day intolerably more expensive, which pushes the workers into struggle.

Lowe claimed that if wages were cut this year, inflation would fall next year, paving the way for real wage increases in 2023 and 2024. However, such predictions have consistently proven wrong in the past. Year after year, the RBA and successive governments, both Labor and Liberal-National, have promised relief is imminent, while the share of profits in national income has doubled, at the expense of working people, since the 1980s.

By Lowe’s own admission, the RBA had “made big mistakes before and no doubt will make more.” It was a reference to the central bank’s forecast, until the end of last year, that any inflation would be transitory and its promises to keep interest rates at record lows until at least 2024. – promises that many buyers of new homes in financial difficulty were counting on. .

Lowe also conceded: “A significant source of uncertainty at the moment is the global economy, where the outlook has deteriorated.” The situation in Europe was “very worrying, in particular because of the extraordinary rise in energy prices”, in the United States, the Federal Reserve had indicated that interest rates should continue to rise and “the economy China also faces major challenges.”

Lowe’s complaint about the “national credit card” was a statement that the Labor government should begin, in its budget due October 25, to eliminate budget deficits and public debt. These have increased since massive corporate bailouts and the pouring of huge funds into financial markets began during the global financial crisis of 2008-2009, a process that reached new heights when the pandemic began. in 2020.

The RBA governor said the ‘community’ wants governments to ‘deliver a range of services’, such as ‘high quality aged care, excellent education, world class disability care, fantastic national defence, excellent infrastructure”. It was “understandable”, but “what we haven’t figured out as a community is how to pay for it”.

Lowe said there were only three “tough” alternatives: raise taxes, cut services, or increase the economic “cake” to pay for them. The latter required “hard choices on a host of structural reform issues”. With the Labor government due to present a second budget next May, Lowe said he hoped Parliament would address these issues during his current three-year term.

It is the voice of finance capital giving its orders to the government, and of the unions on which Labor relies to enforce the dictates of the ruling class, as they have done for decades, especially since the corporatist agreements between the unions and the Hawkes. -Keating Labor governments from 1983 to 1996.

There is no doubt about the determination of the Labor and Union apparatuses to respond to the demands of big business. Labour’s misleading election promises of a ‘better future’ have long since given way to the government’s rhetoric of ‘hard medicine’. Unions have already imposed dozens of employer-friendly agreements that keep annual wage increases at 3.5% or even less, but this is fueling discontent and resistance, as evidenced by strikes by nurses, teachers, daycare workers, university staff and many others.

This resistance must be developed and put into perspective. It means making a political and organizational break with labor and the unions to form independent organizations of working class struggle – rank-and-file committees – in every workplace.

It must be linked to building a socialist and revolutionary leadership in the working class, in Australia and around the world. Instead of paying for the crisis of capitalism, the working class must overthrow the entire economic and political order, establish real democratic control and reorganize society on the basis of social need and not private profit.