Employers have warned against “unaffordable” wage increases after Anthony Albanese backed a 5.1% minimum wage rise to keep up with inflation.
Despite the warnings, the Australian Industry Group has raised its own submission to the Fair Work Commission from 2% to 2.5%, while the Australian Chamber of Commerce and Industry has asked for low-paid workers to get a 3% rise.
Labour economists have countered that holding wages down now to prevent future inflation amounts to punishing workers with real pay cuts for inflation they didn’t cause.
With inflation tipped to reach 6% by the end of the year, the Australian Council of Trade Unions secretary, Sally McManus, has defended its bid for a 5.5% increase as “incredibly reasonable”.
Cost-of-living pressures and wage stagnation have emerged as the most important issues for voters ahead of the 21 May election, with runaway inflation already triggering a mid-campaign interest rate rise.
On Monday Albanese declined to back the unions’ call but “absolutely” backed a 5.1% increase to keep up with the cost of living.
The Ai Group urged the Fair Work Commission to adopt a “cautious approach in adjusting wages”, warning “an excessive minimum wage increase would fuel inflation and lead to higher interest rates on mortgages, personal loans and credit cards than would otherwise be the case”.
“Higher inflation and higher interest rates would have a particularly harsh impact on the low paid,” Ai Group’s chief executive, Innes Willox, said.
Employers argue the commission must take into account that superannuation is set to increase by 0.5% in July and that the low- and middle-income tax offset is worth 1.3% in pre-tax income to an employee on the minimum wage.
Willox argued that increases of more than 5% were “unsustainable” and there was a “strong precedent” in previous decisions to consider superannuation and tax cuts.
“In the current circumstances, there is a clear risk that a high increase in wages without improved workplace productivity would fuel inflation and increase the likelihood of a steeper rise in interest rates to the detriment of growth and job creation.
“An increase in the minimum wages as demanded by unions would have adverse impacts on the economy, on unemployment, on underemployment and on sentiment, and would be a setback for many low-income households.”
Andrew McKellar, the chief executive of the Australian Chamber of Commerce and Industry, said that “imposing unaffordable wage increases on small business will cruel jobs, not create them”.
“Any increase of 5% or more would inflict further pain on small business, and the millions of jobs they sustain and create. Small business cannot afford it.”
Jim Stanford, the director of the Centre for Future Work, told Guardian Australia that “wages didn’t cause the current inflation”, which he blamed on “supply chains, the oil price spike, and an initial surge in post-pandemic spending”.
“Telling workers they need to just swallow a permanent reduction in earnings, as a result of inflation they didn’t cause, in order to prevent future inflation, is neither fair nor economically justified,” he said.
Stanford is a co-author of a report titled The Wages Crisis: Revisited that finds that since 2013, nominal wages have become locked into a trajectory of about 2% growth a year, about half the rate of before 2013.
Scott Morrison has argued during the election campaign that there is no “magic pen” that can drive wages higher, and only low unemployment can do that.
But the report, also co-authored by professor Andrew Stewart and associate professor Tess Hardy, finds there is no systematic relationship between wage growth and labour demand and that Australia has had among the weakest wage growth in the OECD despite stronger macro conditions.
Stanford labelled the Reserve Bank’s claim that it has seen “early signs” of wage rises as “wishful thinking”.
“Even the RBA sees real wages declining for another two years – not something that should happen if wages were truly reflecting a tight supply-and-demand balance,” he said.
The study blames poor wages growth on factors including the minimum wage falling behind median wages, pay caps on public sector pay, erosion of collective bargaining, underfunding public services like aged care, and wage theft.
