Unions had demanded 6% pay increase for lowest paid after war in Middle East pushed inflation higher
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About 100,000 of the country’s lowest paid employees will receive an above-inflation pay rise of 6% from July, as part of the Fair Work Commission’s annual review that also delivered a 4.75% boost to 2.7 million workers on award wages.
As the government and unions welcomed the decision, the peak employers’ association warned that “for some small businesses, this will be too much to bear”.
The FWC president, Adam Hatcher, said on Tuesday morning a “structural adjustment” to pay classifications would lift the rate for “the very lowest paid” from $24.95 to $26.44 an hour.
For someone working a 38-hour week, their weekly wage will climb from $948 to just shy of $1005. Last year’s minimum wage increase was 3.5%, while inflation was 4.2% in the year to April, according to the latest Australian Bureau of Statistics figures.
Hatcher said this year’s decision had been “particularly challenging” in the context of a Middle East conflict that has triggered a global oil shock and a surge in fuel costs.
He said a “fundamental consideration” was that wage rates for most employees on modern awards are lower than they were in mid-2021 and before the post-Covid lockdowns spike in inflation.
The Reserve Bank of Australia forecasts inflation will hit 4.8% by June – or nearly double their official 2.5% target – and Hatcher said “it would now take a wage increase of well over 5% to close the real wage gap”.
The drop in living standards in recent years had hit the lowest paid the hardest, justifying what Hatcher called “additional measures” to protect those at the bottom of the pay scale.
As some economists warned Tuesday’s decision would add to inflationary pressures and potentially force the RBA to push interest rates higher, Jim Chalmers, the treasurer, said the FWC’s determination “strikes a very effective balance”.
“We see decent pay as part of the solution, not part of the problem,” Chalmers said.
“This is the pay rise that millions of Australian workers need and deserve,” he said, adding that the minimum wage had climbed by 30% since Labor came to power in May 2022, or 12% after accounting for higher cost of living.
Roughly one in five employees will be affected by Tuesday’s decision, but they represent only about 11% of the national wages bill.
The RBA and Treasury have warned consumer price growth could push beyond 5% should the Middle East conflict extend and oil prices climb higher for longer.
For now, however, the central bank sees inflation halving to 2.4% by mid-2027.
David Alexander, the Australian Chamber of Commerce and Industry’s head of policy, said the minimum and award wage increases “could be the tipping point for some businesses” if they are unable to pass on higher costs to their customers.
“So this is not good news for the business community,” particularly for small businesses working in industries such as retail, hospitality and accommodation, Alexander said.
But Sally McManus, the ACTU secretary, welcomed the decision, and reminded business owners that workers are also customers – “and if they go backwards, and if they have to cut back, they’re going to cut back on spending”.
My Bui, an economist at AMP, said it was “understandable” for the commission to want to stop workers from going backwards in real terms, and that the decision would only add 0.6 percentage points to wages growth in the next financial year.
But she warned there was a chance it could lead to larger pay claims across other parts of the economy, and that wage pressures would “add to already sticky services inflation, as businesses pass on higher labour and input costs”.
“As a result, we are now forecasting another rate hike in November, taking the peak cash rate to 4.85% for this cycle. There is also a risk that the upcoming hike comes sooner, in June rather than August.”
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