Federal Treasurer Scott Morrison handed down his 3rd budget with a focus on lower corporate and personal income taxes. Crucial to the affordability of these tax cuts is an optimist view on salary growth. The Turnbull government is banking on faster wage increases for Australian workers, from 2.08% today to 3.25% in 2019 based on Treasury forecasting.
Of course, Treasury forecasting has been a called into question since Wayne Swan was presiding over our public sector finances when, by the laws of Utopian economics, a budget surplus was promised while expenditures increased and revenues fell. Of course, a surplus was never achieved by the world’s best treasurer (circa 2011).
But, underpinning Australia’s return to surplus in 2020 said Morrison, ‘is higher wages and inflation that will contribute to a rise in the level of nominal GDP over the coming year’s’.
The question now is whether the government’s forecasts for salary growth are a little too optimistic?
Before workers start popping French champagne and taking a second mortgage over the house, it might be useful to break down salary growth a little bit more because as we know, the 3.25% growth figure is an average across the entire economy. An average figure might be useful to economists, but it’s akin to taking the average property growth rate for Bondi and applying it to Mt Isa. In other words, different markets have different characteristics – you cannot simply bank on the ‘average’ growth rate.
In Australian workplaces, employees would be naïve to bank on a 3.25% increase because salary growth is dependent on industry, role type, location and seniority. In addition, HR teams and organisations would be foolish to use benchmarks such as the wage price index, inflation rate or ABS data to make salary decisions for their staff. These are averages and employment markets are vastly different across the country.
A benchmark report such as IML’s National Salary Survey is the perfect instrument for effective market data, with a search tool that conveniently narrows down salary growth for job level, job family, industry, location and position.
Here’s just a snippet of information I’ve learnt in the last 5 minutes:
It’s bad news if you’re working in Queensland. Your forecast salary increase is 20% lower than your counterparts in Victoria.
About that investment property, it just might be on the horizon if you’re working in professional services because you’re forecast increase is 4%. This is almost double the salary increase the poor bloke working in manufacturing is receiving. Count yourselves lucky.
The Royal Commission into the banking sector looks to have put the brakes on bank employees’ remuneration. I can hear you all upset about that. Growth is tipped to fall from 3.10% to 2.72% for bank staff. And let the tears flow for our public servants, facing a decline in salary growth for the first time since… well ever.
It’s also nice to be in a management role in 2018. Executives are typically awarding themselves 15% more than salaried staff. The pointy end of the plane are also favouring a performance-based incentive scheme this year as opposed to staff who usually wind up on a sales commission structure.
So, what does all this mean?
Move to Victoria, get a management role, join a professional services firm and make sure you perform. If so, you’ll be rewarded handsomely.