The last two decades has seen significant changes in the relationship between labour market institutions and taxation regimes. The traditional relationship between tariff systems and arbitration on the one hand, and arbitration and a ‘residualist’ approach to social welfare on the other, has given way to a view of labour market regulation and taxation regimes as potential substitutes in the pursuit of efficiency and equity goals.

A particularly relevant recent example of this new relationship occurred during the Accord negotiations on quarantining the inflationary effects of the large depreciation of the Australian dollar after its deregulation in 1983. An explicit deal was struck to maintain the real value of wages, in the face of rising import prices, by trading off wage increases for falls in income tax. In this way, after tax income remained relatively unaffected, and the inflationary consequences of the depreciation were held in check.