The Fair Work Commission (FWC) has increased Australia’s award and minimum rates of pay by 5.75 per cent from 1 July 2023, a move welcomed by the unions, but the Australian Chamber of Commerce and Industry (ACCI) said it represents a significant burden for small businesses.
The national minimum wage payment will now increase to $22.61 per hour, or $859.32 per week, with FWC saying it consulted with a variety of stakeholders before making the decision.
“While we have taken the submissions made into account, ultimately our statutory task is to make our own assessment of what constitutes a safety net of fair minimum wages,” the FWC said.
“In our consideration, we have placed significant weight on the impact of the current rate of inflation on the ability of modern award-reliant employees, especially the low paid, to meet their basic financial needs. Inflation is reducing the real value of these employees’ incomes and causing households financial stress.
“We have also taken into account the recent robustness of the labour market, and the fact that increases to modern award minimum wage rates will provide a disproportionate benefit to female workers and thus may contribute to reducing the aggregate gender pay gap across the workforce.
“We acknowledge that this increase will not maintain the real value of modern award minimum wages, nor reverse the reduction real value which has occurred over recent years. However, the level of wage increase is what we consider to be justified in the current economic circumstances.”
Australian Council of Trade Unions Secretary, Sally McManus said the increase will be welcome relief for the 2.67 million Australian workers directly affected.
“The union movement fought hard for these increases, which will really help millions of working people to stay afloat. It is a critical increase during this cost-of-living crisis,” McManus said.
“As it does every year, big business pushed hard for a cut that would see Australia’s lowest paid workers go backwards by at least $1350 a year. Today’s 5.75 per cent increase for award workers means they can just keep up with the cost of living. It is a matter of survival.
“There are real people and their families behind the wages and inflation statistics – the workers we rely on to deliver vital services in aged care, early learning, disability care, food preparation and delivery, cleaning, retail and security. People are skipping meals, avoiding the doctor and dreading their next bill. Rents have skyrocketed along with prices of essentials such as bread, milk, petrol and electricity. Today’s increase means these workers can keep their heads above water and not have to cut back even further.
“We call on the Reserve Bank not to raise interest rates again next week as this would obliterate the raise low-paid workers have just gained.”
However, ACCI chief executive Andrew McKellar said the FWC’s decision will add $12.6bn to the wages bill, which represents a significant burden for small business.
“Today’s decision will come as a hammer blow for the 260,000 small and family-owned businesses who pay minimum and award wages,” McKellar said.
“The Fair Work Commission has made a dangerous choice to chase after the supply-side inflation shock that we are experiencing. An arbitrary increase of this magnitude consigns Australia to high inflation, mounting interest rates and fewer jobs.
“Businesses in the accommodation, food, construction, manufacturing, and retail sectors have experienced falling profits over the past two years. The reality is many of the small and family firms in these industries will be unable to absorb this extra cost without raising prices.
“The commission has disregarded the message it conveys to the wider labour market and the influence it holds over entrenching high inflation as the Australian economy faces a worsening outlook in the years ahead.
“A 5.75 per cent increase will make the job of the Reserve Bank more difficult to control ongoing inflationary pressures, inflicting pain on families and small business when they are already down to the wire.”
The Australian Industry Group also had warnings around what the increase could mean for the economy, with Chief Executive Innes Willox saying the balance struck in this decision is “very likely to see unemployment and underemployment push higher”.
Willox added: “While today’s decision in the Annual Wage Review to raise award wages by 5.75 per cent is disappointing, employers recognise the competing tensions involved between addressing cost of living pressures and the difficulties of a large increase in a weakening economy including for the many small and medium-sized businesses who are also doing it tough.
“Nevertheless, at a time when the economy and the labour market are clearly under growing pressures and when productivity growth has flatlined, it is a decision that adds to the risks of an inflation blowout; is likely to see interest rates rise further than they would have otherwise; and raises the likelihood that households will face further cost of living pressures.”
The Australian Council of Social Service (ACOSS) welcomed the FWC’s decision and Chief Executive Cassandra Goldie said: “The Fair Work Commission’s determination today is a positive step towards improving the lives of low-paid workers amid the cost-of-living crisis.
“But more needs to be done to lift the incomes of people with the least, and tackle the causes of inflation. We urge the government to tackle the drivers of inflation at their source and address the skyrocketing prices of essentials like rents and energy. Further interest rate rises are not the answer.”
Economists are also split on what the impact of the wage rise will be on interest rates, with some predicting the Reserve Bank will now push the cash rate up to around 4.35 per cent in the months ahead, and others saying the Reserve Bank has already factored this into its decisions.
Reserve Bank governor Philip Lowe said wages had not been driving Australia’s inflation up to this point.
“Wages haven’t been the driver of inflation, and at the moment there’s no sign of higher prices leading to higher wages leading to higher prices,” he said. “But we’ve got to be vigilant here.”