The federal government is advocating for a pay increase for Australia's lowest-paid workers at least in line with inflation, a move business groups warn may "tip Australia into recession".
The Fair Work Commission (FWC) has commenced its annual wage review, ahead of determining the new minimum and award wage rates, which will come into effect from July 1 and directly impact the pay packets of 2.67 million workers, including 184,000 people who receive the minimum wage.
The government will today lodge its submission, recommending the FWC "ensures the real wages of Australia's low-paid workers do not go backwards".
It is a similar approach to that taken by the government in last year's review, after Anthony Albanese committed during the election campaign to "absolutely" backing a minimum wage increase in line with inflation.
Unions have also argued for a wage increase that keeps pace with inflation, advocating specifically for a 7 per cent increase.
Australia's annual inflation rate eased to 6.8 per cent in February — the second month in a row that inflation fell, after hitting the peak of 8.4 per cent last December.
The government has not put a figure on the increase it is advocating, but Employment Minister Tony Burke said low-paid workers should not be earning less in real terms.
"Every Australian deserves a fair day's pay for a fair day's work," he said.
"For too long, the former government asked Australians to work longer for less — we take a different approach.
"We believe the best way to ensure workers can deal with cost-of-living pressures is to ensure they earn enough to provide for their loved ones and to get ahead."
But he made clear the government was not arguing for widespread pay increases along the same lines.
"Our submission does not suggest that across-the-board wages should automatically increase in line with inflation, or that inflation is the only factor the Fair Work Commission should consider," he added.
Under the ACTU's proposal, the minimum hourly rate would increase by $1.50 to $22.88, while the weekly rate would increase to $869.50.
"[The increase] is simply about survival for the lowest-paid workers in our country," ACTU secretary Sally McManus said on Thursday.
"Companies have been posting huge profits, driving inflation through excessive price rises, it's time they conceded they can afford to pay their workers more."
Increase above 4 per cent 'extremely irresponsible'
However, business groups are concerned about the ACTU's proposed 7 per cent increase and fear it will have a negative impact on the economy.
"Absolutely they do need to have a wage increase and we want to see that at a fair level, a sustainable level, one that's not going to add back into inflation," Australian Chamber for Commerce and Industry (ACCI) chief executive Andrew McKellar told The Business.
"Let's see if we can get an outcome from the Fair Work Commission that is in line with that, which is good for business, supports keeping the economy at or near full employment, and gets inflation under control."
The ACCI's submission to the FWC on Friday will suggest that fair level is increasing the minimum and modern award wages by up to 3.5 per cent, with an additional already legislated 0.5 per cent Superannuation Guarantee increase.
In its submission to the FWC, the ACCI wrote the increase was "fair, reasonable and responsible, taking into account the full range of economic considerations before us".
"We have attempted to balance the full range of considerations — the high inflationary environment, the needs of workers, the pressure on household budgets, as well as the increasing cost of doing businesses," the submission argued.
"It was also cognisant of the urgent need to get on top of inflation and quickly return it to the Reserve Bank’s target range of 2 per cent to 3 per cent."
The ACCI's submission to the FWC admitted that its recommended increase was below the current rate of inflation, but any increase in the minimum wage above 4 per cent would add to inflationary pressure.
"We caution that any increase above 4 per cent would be extremely irresponsible in a high-inflation environment," the ACCI wrote.
"This would only add to inflationary pressure and extend the period of high inflation for much longer, leading to much greater pain on Australian households and businesses than is necessary."
'Fuel on the inflation fire'
The chief executive of Australia's peak industry association AiGroup, Innes Willox, said that, while a wage rise was needed, the ACTU proposal was "excessive" and "would tip Australia into recession".
"It's reckless in the extreme, and it could create, unfortunately — for us at a time of a slowing economy — the potential to tip us over the edge into a recession, and nobody wants that," Mr Willox told The Business.
"But nobody also is saying that there should be no wage increase in the minimum wage case.
"This is about trying to find a balance and a proposal for minimum wage increase, which is above where inflation stands today, is just completely reckless.
"The point here is that we don't want to throw fuel on the inflation fire, so we get another series of interest rate increases as well, which puts more pressure on households. So we need to end the pain as quickly as possible."
Mr Willox said the suggested 7 per cent increase in the minimum wage would, ultimately, result in job losses because businesses would be unable to pay their staff the higher rate.
"For many businesses, they just won't be able to afford it," he said.
"Other businesses, it will mean they'll just make very hard calls about future employment, how many hours they allow people to work and make decisions about their future investments."
AiGroup has not disclosed what it thinks the appropriate wage increase should be and, instead, will wait for additional economic data before submitting its proposal to the FWC in May.
The ACCI's Andrew McKellar said the proposed 7 per cent increase would hit small businesses the hardest.
"There's no doubt that cost of living has been going up, but so, too, has the cost of doing business, and it's small businesses, in particular, that are at the cutting edge," Mr McKellar said.
"They're the ones who most commonly pay people on the minimum award wages. They're the ones that are under the most pressure, in terms of profitability. Many of them are going backwards in that regard.
"We're seeing business insolvencies rising quite sharply over the year to date. The risk is that they will face much-harder times if they are forced to absorb an increase, such as the one the ACTU is proposing."
Wage rise won't break the bank, economist says
However, economist Nicki Hutley said claims that a 7 per cent rise in the minimum wage would prompt a recession and cause businesses to cut jobs were "alarmist".
"That's kind of what you'd expect the business community to say, isn't it?" she told The Business.
"We're talking about a teeny, tiny percentage of the workforce, less than 200,000 people, and these are people who are earning $20 or so an hour.
"This is not going to break the bank for most businesses, but we are in coming into a slowdown in the economy, a sharp slowdown and, obviously, there's not a lot of dollars to go around.
"Yes, some businesses are making good profits, not all businesses. I think we need to be be cautious.
"I'm not saying don't give a decent wage rise, but I just think 7 per cent, probably, is a little bit out there."
Ms Hutley said a minimum wage increase alone would not drive up inflation, but it would depend on how the money flowed through to the rest of the economy.
She said that a more reasonable wage increase would be similar to what the FWC delivered last year: a 5.2 per cent increase to the minimum wage, to match inflation, and a 4.6 per cent increase for 2.5 million workers on industry awards.
"It's obviously not keeping up with inflation, but it's a reasonable wage rise. It's certainly well above where you would expect to get in a normal year," she said.
"And, don't forget, we are expecting inflation to trend down and, hopefully, will have a five in front of it by the time we get to the end of this year.
"We do need everybody to have a little bit of pain and, obviously, the lowest-income earners … I'd like to see government support for them in that temporary, targeted way rather than see across-the-board wage rises that could fuel inflation and leave all of us far worse off for much longer."
The FWC is expected to deliver its minimum wage rate rise decision in June.
