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Wage hike to add significant costs to Australian economy

The minimum wage increase will ramp up significant cost pressures on businesses during a time of mounting challenges.

15 June 2022 

The Fair Work Commission has lifted the minimum wage by 5.2% which will see workers' hourly pay rise to $21.38 an hour from 1 July, equivalent to a pay raise of $40 a week and taking the weekly minimum wage to $812.60.

The Australian Chamber of Commerce and Industry (ACCI) chief executive Andrew McKellar said the Fair Work Commission’s minimum wage decision would cost businesses an additional $7.9 billion in the year ahead.

“The wage increase awarded by the Fair Work Commission is too much amid current economic pressures and uncertainty,” Mr McKellar said.

“While some businesses have rebounded strongly in recent months, the reality is we are experiencing a multi-speed economy.

“Many award-reliant businesses 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.

“An arbitrary increase in wages risks triggering greater inflation, raising costs for consumers, and making it harder for businesses to retain workers.”

Mr McKellar said a 5.2% rise in the minimum wage would place a considerable burden for businesses on the supply side.

“They are facing great difficulty accessing the labour that they need, there is intense disruption in the supply chain and we are seeing very significant spikes in energy prices at the moment," he said.

“All of these things are adding to pressures on the supply side. They are pushing up input costs and that is feeding through into inflation. The reality is many small businesses do not have the resources to absorb extra costs.

“This annual wage decision imposes an unnecessarily complex outcome on businesses who are already facing a difficult and disparate set of economic circumstances. It’s not what we need in a modern, flexible, and internationally competitive economy where increased focus on higher productivity is needed.”

The ACCI said it had hoped for a more flexible system for wage rises across different industries.

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"One of the things that this decision highlights is that the commission has tried to really nuance a very complicated decision and there are a number of different elements to it," Mr McKellar said.

“What this highlights is that this national wage case process, the way it feeds into the modern awards, is an antiquated process.

“It is a process that’s had its day, it is not compatible with the needs of a modern, internationally competitive economy that needs to be operating in a flexible way and responding to the circumstances, the challenges and the need to drive productivity if we are going to have higher living standards in the future.

“We need to get back to much more effective enterprise bargaining, flexible wage settings, driven by the market.”

The Australian Retailers Association (ARA) warned the minimum wage could tip some businesses over the edge.

ARA CEO Paul Zahra said the cost of business was a pressing concern and comes as retailers deal with intense challenges.

“Acute supply chain issues, staff shortages and the rising cost of energy, fuel and materials is creating unprecedented financial pressure," he said.

"Whilst the ARA supported a fair and balanced increase to the minimum wage, we fear the scale of this increase could tip some businesses over the edge.

“The superannuation rate guarantee is also increasing from July 1, which is another cost that businesses have to factor in, on top of the inflationary pressures they’re currently experiencing.”

 

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