Wage rise tipped to spur greater living costs
By Rachel Clun and Angus Thompson
Households face higher living costs that could force the Reserve Bank to move more aggressively on interest rate rises after the industrial umpire increased the minimum wage by $40 a week in a decision praised by Prime Minister Anthony Albanese.
The Fair Work Commission raised the minimum wage by 5.2 per cent on Wednesday — taking it to $812.60 a week, the largest hike since 2006 — in a decision it said was grounded in the strong labour market and soaring inflation.
Marlon Kilbey is among the many Australians welcoming a wage rise.Credit:Joe Armao
Albanese claimed the wage boost as vindication for his position during the election campaign saying Australia’s lowest-paid workers deserved a pay raise.
“Many of those people who are on the minimum wage are the heroes of the pandemic. These workers deserve more than our thanks. They deserve a pay rise, and today they’ve got it,” he said in Gladstone, Queensland, on Wednesday.
The highly anticipated decision sparked an outcry from employers, who said it risked creating a wage inflation spiral by adding to the costs of businesses already juggling energy costs, interest rate rises, and supply-chain disruptions.
Economic adviser to Judo Bank, Warren Hogan, backed the decision, saying the strong labour market meant the impact of the higher increase was minimised by demand for workers.
He said there was “no doubt” the decision ran the risk of spurring inflation, but fairness in wage decisions was an inescapable factor.
Hogan acknowledged the rise would put “tremendous pressure on parts of the business community, and we will see a rise in insolvencies in this country”.
KPMG senior economist Sarah Hunter said the wage case had been a challenging decision for the Fair Work Commission because it would add fuel to inflation, but the low-income workers who would benefit directly from the pay rise were the ones most feeling the effects of inflation.
“Many of the inflationary pressures right now are coming through strongest in the categories where people on lower incomes have to spend more of their income, so fuel, food rents,” she said.
Banks and economists expect the RBA to hike the cash rate by a further half a percentage point in June and raise it to more than 2 per cent by December in efforts to reel in inflation which is now expected to reach 7 per cent by the end of the year.
UBS group economists said the wage increase had “significant upside risk”, heightening the likelihood that inflation and wage expectations would rise and businesses would pass on costs.
“This raises the risk of a wage-price spiral, and hence the possibility the RBA will be forced to hike rates more aggressively,” they said.
UBS expects the RBA to lift the cash rate to 2.6 per cent by November, while NAB and the Commonwealth Bank expect the cash rate to peak at 2.1 per cent.
Commonwealth Bank senior economist Belinda Allen said inflation will still be higher than wages growth which will curb consumer spending.
“Even with today’s lift in award wages, real wages growth will remain deeply in negative territory over the course of this year and some of next year,” she said.
Fair Work Commission president Iain Ross said soaring costs of living were key to the commission’s minimum wage rise decision, adding the “present circumstances warrant an approach which gives a greater level of support to the lowest paid” while seeking to contain inflationary pressures.
The 180,000 Australians on the safety net will see a wage increase from July 1, with the umpire deciding on a $40-a-week increase for workers on lower levels of industry awards and a 4.6 per cent increase for those on a higher award bracket.
Ross said the rise would be deferred for the hospitality, tourism and aviation industries, all hard hit by the pandemic, until October 1.
The Australian Council of Trade Unions welcomed the rise. Secretary Sally McManus, who had called for a wage rise of 5.5 per cent, said unions had “fought hard” for the increase against “employers pushing for big real wage cuts”.
A manager at Blackcat Fitzroy bar, Marlon Kilbey, 23, said he was rapt that his wage, currently about $21 an hour, would increase due to a rise in the award.
“It’s nice to be valued as much as any other industry,” he said of the wage increase.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the increase represented a “very significant risk to the economy”.
“By our calculations, this will add $7.9 billion in costs to affected businesses over the year ahead,” McKellar said.
“That will be a very considerable burden that those businesses will either have to take to the bottom line or pass onto their customers.”
When questioned on the additional costs facing businesses, Albanese said that the increase from $20.33 to $21.38 amounted to $1 an hour.
“Let’s be clear about what this debate has been about — it’s about whether people who are on the minimum wage should have a real wage cut,” the prime minister said.
Assistant professor of economics at The George Washington University, Steven Hamilton said there was “no doubt” the wage increase was inflationary as it would have a flow on effect to non-award wages.
“All of that means that inflation will be higher than otherwise, if they had gone with a smaller increase, which means interest rates will rise even faster than before that decision,” he said.
Workplace Relations Minister Tony Burke told Sky News the decision would not have a disastrous effect on the economy.
“It’ll go straight back into the economy, to the very businesses that are saying they’re under pressure,” he said.
Opposition Leader Peter Dutton said he welcomed the wage decision for workers across the country “but I worry about their jobs under this government”.
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