The major expense for State governments are wages. Hence we a lot of caps on public sector wages in the State government sector. In NSW we have had a 2% cap on wage increases since The Liberals were first elected.
When inflation is low this isn't really a problem. Unions grumble but rarely do much as real wages are not falling.
However when inflation starts to rise significantly like it is now ( 5.1% rising to 6-7%) then you get problems. People do not want to have their real wages falling. However State government cannot afford to give their employees wages so they do not fall in real terms because of the impact on the budget.
Most State governments have large deficits. Even those who claim to be in surplus cannot afford to give such wage increases BUT since they have 'surpluses' it is much harder to argue how problematic wage increases would be to their respective budgets.
Thus you have angry workers who have not only been left behind in relative terms but are now are being left behind in real terms. Strikes abound yet State governments cannot offer wage increases to match the CPI because of budgetary constraints.
Sorry I have no answer to this until the RBA eventually brings inflation under control.
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