Dutton doesn't want RBA board compromised

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Australia's peak union body has criticised the make-up of the Reserve Bank of Australia board for not having the know-how when it comes to wage settlements.

But Opposition Leader Peter Dutton believes it would be a disaster to have a union leader, such as ACTU secretary Sally McManus, on the independent central bank board.

"We should not be making politically motivated appointments of union leaders that would compromise the independence of the RBA," Mr Dutton told reporters in Canberra on Thursday.

Ms McManus earlier said RBA governor Philip Lowe "isn't quite in touch with reality" and that he ran a board lacking anyone who participated in the workers' side of wage negotiations or the wage-setting system.

"That's a pretty big problem if you are making assumptions, trying to understand, trying to analyse how things work," she told ABC radio.

"They absolutely have, in my view, very little idea how things work. They don't understand what happens at the bargaining table."

Former ACTU secretary Bill Kelty was on the RBA board in the 1990s.

Such debate comes ahead of Treasurer Jim Chalmers announcing details of a review of the RBA's operations, an inquiry that was backed by the previous coalition government.

Dr Lowe told an event this week that a steady state of wage growth should be about 3.5 per cent, including one per cent labour productivity.

He expects inflation to reach seven per cent this year.

While not commenting directly on the Fair Work Commission's decision to award low-wage earners a 5.2 per cent increase this year, Dr Lowe said there could be larger wage increases in some parts of the labour market for a short period of time.

"But if wage increases become common in the four and five per cent range, then it is going to be harder to return inflation to 2.5 per cent," he said.

However, Dr Lowe has been concerned for a number of years that the rate of wage growth in the two to 2.5 per cent range was too low.

Ms McManus said the RBA governor has "weirdly changed his tune".

"To think somehow the system is going to deliver across-the-board pay increases of five or seven per cent is ... fantasy land," she said.

The wage price index, which gauges annual wage growth across the country, currently sits at 2.4 per cent as of the March quarter.

Ms McManus said workers had been told they would get a pay rise when productivity increased, or when unemployment was low, or when profits were up and companies were doing well, but in each case they hadn't.

"This has to do with a much bigger problem we have got as a country, not related to this year's inflation spike," she said.

"Current inflation has nothing to do with wages."

Employment Minister Tony Burke has made similar comments in recent days.

He believes the 3.5 per cent wage growth rate referred to by the governor would still be a significant improvement on the flatlining wages growth seen over the last decade.

Opposition frontbencher Karen Andrews said while some people are really struggling with cost-of-living pressures, such as rising electricity and fuel prices, businesses cannot afford a wages spiral.

Ms Andrews would like to see the ACTU work closely with businesses.

"It's all well and good to argue for higher pay and conditions, and we do want to make sure that we are a country that is providing high wages and conditions to people, but the balance has to be there," she told Sky News.

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