Just when we thought that President Trump’s ‘liberation day’ tariffs (due to be revealed tomorrow), the May 3 election and when we’ll get our next rate cut were the big issues, we learn today that the Albanese Government is backing a bigger-than-inflation wage rise for some three million workers. While the cost-of-living for those workers (let’s call them voters) is more important for Labor, it does put our Government at odds with Reserve Bank Governor Michele Bullock, which means lower paid workers seem to be more important than those suffering hefty interest repayments and praying for lower rates ASAP.

This what the AFR revealed today about Labor’s idea for an above inflation increase for three million workers on minimum rates this year: “Labor’s submission to the Fair Work Commission’s annual wage review calls for an ‘economically sustainable’ lift to the minimum hourly rate of $24.10. It is the first time in four years the government has asked for a real increase to the minimum wage.”

A real increase in wages is where the actual increase in wages is bigger than inflation, which leads economists to call such a development inflationary if there isn’t good productivity. Effectively, productivity lowers the impact of a wage rise on costs to a business, reducing the likelihood of price increases that will push inflation up.

In case you missed it, productivity in Australia hasn’t grown since 2016!

This kind of scenario KOs the chances of rate cuts, which isn’t a good headline ahead of an election.

While the US-based business news website CNBC doesn’t talk much about Australia, the Reserve Bank’s inference yesterday that it was wary about the Trump tariffs and their potential impact on both inflation and confidence has been seen as a story worthy of being told to Americans. And that’s because Wall Street and its finance industry companies and workers are also wary of and worried about these tariffs that will be outlined tomorrow.

This is what CNBC reported overnight: “RBA Governor Michelle Bullock said after the previous meeting “We cannot declare victory on inflation just yet. It is not good enough for inflation to be back in the target range temporarily. The Board needs to be confident that is returning to the target range sustainably.”

The report continued with: “When asked if the February rate cut was a ‘one and done’ decision, Bullock said the market was expecting about three more cuts on top of the February rate cut, but “our feeling at the moment is that that is far too confident.”

So, the Government’s backing of real wage rises might be good for those set to see a bigger-than-expected pay rise, but it is worrying the central bank boss, who might withhold rate cuts for two reasons.

The first reason might be because it fears big pay rises will raise inflation. And cutting rates at the same time would add demand into the economy and that would be inflationary.

The second reason is that the RBA and other global central bankers are worried by the Trump tariffs, which could lead to retaliatory tariff/price rises from the likes of the European Union and China, which would add to global inflation.

And that could be followed by a world economic slowdown or even recession, which would mean the RBA would want a battery of potential rate cuts stored up in case it needs to help the economy avoid a Trump tariff created recession.

The AFR says Employment Minister Murray Watt argues that the Government will be boosting productivity via “Labor’s banning of non-compete clauses for workers earning up to $175,000, merger and acquisitions reform and Treasurer Jim Chalmers’ $900 million incentive fund, which gives grants to states for pro-productivity reforms.”

While the latter two ideas aren’t bad ones, they will be slow burn innovations, which will have no impact on reducing the inflationary effects of real wage rises supported by the Government. Meanwhile, the banning of non-compete clauses suggests stopping companies stopping workers stealing their intellectual property and clients from current employers is great for boosting productivity, but that’s got to be a “you have to be joking” idea!

It looks like business owners and those worried about the interest rates they’re paying should be mindful of Labor’s pre-election commitments. Right now, I’m seeing smart politics from Labor, but it looks like questionable economics.

I’m a big supporter of wage rises, as long as they come with productivity that ensures inflation and interest rates don’t rise, which then kill jobs.