Government denies minimum wage increase will risk rate hike

The federal government has scoffed at suggestions a rise in the minimum wage could lead to more pressure on inflation and risk further rate hikes.

The Fair Work Commission today announced the minimum wage in Australia would be increased by 4.75 per cent, rising to more than $1000 a week for the first time.

Under the ruling, which will come into effect on July 1, the minimum wage will rise to $1004.90 per week, or $26.44 an hour.

Some experts fear the increase could add more fuel to the inflation fire and cause rate hikes to come sooner and harder.

“Wage pressures will add to already sticky services inflation, as businesses pass on higher labour and input costs, which have remained elevated amid rising goods prices,” financial provider AMP warned, predicting an extra rate hike in November that would take the peak cash rate to 4.85 per cent.

“There is also a risk that the upcoming hike comes sooner, in June rather than August.”

The government scoffed at the suggestion, saying it supported the Fair Work Commission’s decision, which would help alleviate the pressures of the current cost-of-living situation.

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“This is the pay rise that millions of Australian workers need and deserve. This is the sustainable wage increase that the government has called for, and we are pleased to see it delivered,” Treasurer Jim Chalmers said.

“We see decent pay as part of the solution and not part of the problem.”

Minister for Employment and Workplace Relations Amanda Rishworth claimed the minimum wage had risen by $12,000 a year under Labor, and claimed the Fair Work Commission did a good job balancing several factors.

 “It was very clear that it did consider the business conditions currently before us,” she said.

“They were taking into account the uncertainty playing out in the Middle East.”

Two of Australia’s big banks also moved to reassure Aussies the risk of new rate hikes or a higher ceiling for the cash rate would come from the changes.

“Our back-of-the-envelope calculations suggests this will have only a very small direct impact… and so it will not substantially add to the inflationary impulse,” Westpac said.

The bank had already predicted several rate hikes to end the year, peaking at 4.85 per cent.

Commonwealth Bank said the decision “does not shift our broader view on the outlook for inflation and interest rates”.

It previously called on the Reserve Bank of Australia to hold interest rates at their current level of 4.35 per cent to the end of the year.

Too little and too much: Unions and business at odds over increase

Unions welcomed the news millions of Australians will receive a pay rise after the Fair Work Commission raised the minimum wage by 4.75 per cent, but called for more.

This means the annual minimum wage for Aussies has increased to $52,254.80, which is an increase of almost $3000 per annum; the minimum wage previously sat at $49,296.

The hourly rate has risen by $1.49.

It is lower than the 6 per cent increase called for by the Australian Council of Trade Unions (ACTU).

Despite this, ACTU Secretary Sally McManus welcomed the increase, saying it was a “great outcome” for Aussie workers.

“Previous inflation after COVID left low-paid workers behind where they were in 2021 and so today they’ve decided not just that people should keep up with cost of living with inflation, but start to continue to get ahead,” she told reporters.

“Lowest-paid Aussies are the ones that are struggling the most with cost of living and they need this pay rise.”

She admitted she would have preferred to see a 5 per cent wage rise, which would have closed the gap between real wages and inflation.

“We would love the Fair Work Commission to make a decision that catches everyone up immediately,” she said.

“They just don’t want to get there as fast as we want to get there.”

Business groups called the union claims “ludicrous”, instead calling for an increase of 3.8 per cent last month.

“It is significantly higher than expected inflation, and risks disemployment by driving higher wage costs into businesses already under strain from the crisis,” a statement from the Australian Industry Group said.

“We acknowledge the cost of living pressures currently bearing on households due to the inflation spike catalysed by the crisis.

“However, lifting wages to match what is expected to be a temporary inflation spike will exacerbate the long-term negative effects on an already weakening economy.”

Australian minimum wage vs rest of the world

Australia’s minimum wage offering is one of the highest in the world, with its new offering being around $16 an hour higher than the federally mandated minimum wage in the US.

However, while the minimum wage there is only $US7.25 ($10.12) an hour, several states offer baselines far higher than the federal offering.

California’s minimum wage, for example, currently sits at $US16.90 ($23.59) an hour, which is close to what Australia’s previous offering was before today’s increase.

The highest minimum wage is offered by the tiny European country of Luxembourg, which sits at €791.25 per week, or $1284.99.

The minimum wage in New Zealand is currently $NZ23.50, translating to $19.45 an hour.

This means on the minimum wage, New Zealanders can earn $NZ1017.50, or $842.01, a week.