Wed Jun 15

Fair Work Commission gives a 5.2% – $40 a week – increase in the minimum wage

Written by Michelle Grattan, Professorial Fellow, University of Canberra

The Fair Work Commission has announced a rise in the minimum wage of 5.2% or $40 a week, taking it to $812.60 a week or $21.38 an hour ^[1].

The rise will take effect on July 1.

The increase is slightly above the increase the government had publicly supported for the minimum wage, which was 5.1%, the rate of inflation.

But award minimum wages will be increased by less – 4.6%, with a minimum rise of $40 a week. This means workers on award minimum wages above $869.60 per week will get a 4.6% rise, while those earning less will receive a $40 increase. The 4.6% will cut in at trade level.

Only the lowest paid 2% of workers are on the national minimum wage, while a further 23% receive the minimum award rates.

For workers generally the award increases will also take effect on July 1, except for those in aviation, hospitality, and tourism where the increases will take effect on October 1 because of what the commission describes as “exceptional circumstances” in these industries.

The 5.2% rise is above the latest inflation number of 5.1%. But workers face further substantial rises in inflation in coming months.

Reserve Bank Governor Philip Lowe said on Tuesday inflation is likely to increase to 7% by the end of the year.

Employers argued for smaller increases, and the Master Grocers Association and Restaurant & Catering Australia argued for no increase, while the ACTU wanted a 5.5% increase.

The Albanese government said in its submission low income workers should not go backwards. In the election campaign, Albanese said he would “absolutely” support an increase for the lowest-paid to match the 5.1% inflation rate.

The commission said the most significant changes since last year’s decision had been the sharp increase in the cost of living and the labour market’s strengthening. “The sharp rise in inflation impacts business and workers,” it said.

“The low paid are particularly vulnerable in the context of rising inflation.”

Annual wage review 2021-22 decision.

“The panel accepted the need for moderation in order to contain the inflationary pressures arising from our decision,” the commission said.

It acknowledged the increases would mean a real wage cut for some workers on awards and some, though minor, compression of relativities.

“The panel concluded that given the current strength of the labour market the increases it has decided to make will not have a significant adverse effect on ‘the performance and competitiveness of the national economy’”.

The Commission is required by the Fair Work Act to take into account “the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth”.

Reserve Bank Governor Lowe told the ABC that the 7% expected inflation was “a very high number and we need to be able to chart a course back to 2-3% inflation”.

On interest rates, Lowe said it would be “reasonable” for the cash rate to reach 2.5%. But how fast that was reached or indeed, if it were reached, would be “determined by events”.

He said inflation would peak in the December quarter and start to come off “by the first quarter next year”.

“By the time we get into the second half of next year, inflation will clearly be coming down. But in the first quarter, we’ll see lower rates of headline inflation.”

The ACTU welcomed the wage decision but said a better system was needed to deliver wage growth more generally. ACTU Secretary Sally McManus said: “This Annual Wage Review is one tool we have to generate wage growth, but it only affects one in four workers – we need wage growth across the economy.

"Clearly the current system is failing. It is unable to deliver wage increases despite low unemployment, high productivity and high profits. Working people are feeling the serious consequences of nearly 10 years of inaction by the previous government.

"Our country needs to take a fresh look at this problem and address it. It is not acceptable that working Australians and their families continue to go backwards while big business does so well.”

But the Australian Chamber of Commerce and Industry, which argued for a 3% increase, said the rises were too large.

It said the decisions on the minimum and award wages “will hit those industries which have been hurt the most by COVID-19 restrictions and will cost Australian businesses $7.9 billion a year.

"Coupled with the 0.5% increase in the superannuation guarantee from July 1, this is a significant impost for small business.”

ACCI chief executive Andrew McKellar said: “While some businesses have rebounded strongly in recent months, the reality is we are experiencing a multi-speed economy. Many award reliant business were severely disrupted by the COVID-19 pandemic and are only just beginning to recover. Imposing unaffordable wage increases on these small businesses will put jobs at risk, not create them.”