The Fair Work Commission has handed down a 4.75% increase to the minimum wage and award rates this morning. A risky decision that's going to add to Australia's ongoing inflation problem.
In summary:
💵 Minimum and award wages rise by 4.75% from 1 July (on top of 3.5% last year)
💵 The national minimum wage lifts to $1,004.90 per week, or $26.44 per hour
💵 Around 2.8 million workers, roughly one in four employees, are directly affected
💵 A structural adjustment lifts the lowest award classifications by more than 4.75%
💵 Headline CPI was 4.2% YoY in April
While 4.75% seems like a big jump, the Commission made it clear that it was only trying to keep workers from going backwards in real terms. While a laudable goal, it’s the wrong move in a supply shock. When you match wages to a supply driven inflation spike, you bake that elevated price level into the permanent wage base, and that is far harder to unwind than the shock itself. This makes the RBA’s job of getting inflation re-anchored to the target band harder, and locks them into a bad choice between higher inflation for longer, or higher interest rates in a slowing economy.
This is also not just about the 2.8 million workers directly on awards. Minimum wage decisions ripple across the whole economy. Plenty of enterprise agreements benchmark to award movements, and the decision sets an anchor for wage expectations everywhere else.
For SMEs the timing couldn’t be worse. This lands on top of higher fuel prices, payday super arriving on 1 July, rising insurance, and declining consumer spending and margins. According to the ABS’s Business Conditions and Sentiments survey in May, a third of businesses expected it to be difficult to meet financial commitments in the next four weeks. The more pressure we stack on business, the more cost they have to pass through to prices.