This morning The Conversation published my argument, made last month on this blog, that HELP debt should be indexed at the lower of CPI or 4%. I argue that this is better than the other suggested ‘lower-of’ options, such as the government bond rate, the RBA cash rate, or a wage increase indicator. The Universities Accord final report chose the last option, specifically the Wage Price Index (WPI). WPI measures changes in hourly rates in the same job.

All the CPI alternatives have a relationship with CPI

A problem with all the lower-of proposals, except a fixed maximum, is that they have a relationship to CPI. If inflation starts going up the RBA increases its cash rate and government bond holders want higher interest rates to protect their real value. Workers and unions, often supported by policymakers, seek inflation compensating wage increases.

For wages set nationally, the federal government wants the minimum wage increase linked to inflation this year. If the Fair Work Commission grants this increase, minimum wage and other CPI-driven wage rises will flow through to future WPI figures.

Real wage increases, over-and-above CPI, also push up WPI. Aged care workers have recently been awarded a large real wage increase. Statistics on enterprise agreements show wage increases returning to their normal pattern of exceeding both WPI and CPI.

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