FWC Annual Wage Review sparks mixed reactions

Yesterday (2 June), the Fair Work Commission’s Annual Wage Review resulted in a 4.75 per cent increase in the minimum wage; now unions, employer groups and industry professionals are reflecting on the anticipated impacts.

In a joint statement, Treasurer Jim Chalmers and Minister for Employment and Workplace Relations, Amanda Rishworth, described the rate as “a real wage increase”, noting that today’s decision is the first time the National Minimum Wage is above $1,000 per week.

“This is needed cost-of-living help for the minimum wage and award-reliant workers, many of whom are in lower-paid roles, work fewer hours, and have fewer financial buffers to fall back on,” Rishworth said.

“This is the pay rise millions of Australian workers need and deserve,” Chalmers added.

However, not every MP was impressed, with senator Barbara Pocock saying that the decision would further erode real wages.

“The Fair Work Commission’s decision today amounts to a real wage cut for millions of Australians. Even with this 4.75 per cent increase in the minimum wage, low-paid workers still face an uphill battle as wages have failed to keep up with inflation,” she said.

“When national rents have risen 2.5 times faster than wages over the past five years, working households fall further behind through no fault of their own.”

The Housing Industry of Australia (HIA) noted the likely impact of additional costs on the sector.

Managing director Jocelyn Martin said: “Each additional cost impost, whether it’s wages, materials or regulatory burden, chips away at their capacity to keep building.”

“HIA recommended a 3.5 per cent increase to the national minimum wage rate this year, with our submission stating this increased rate represents the outer boundary of what is fiscally sustainable in the current environment.”

She also claimed the decision to abolish the C13 classification would add pressure on employers.

This sentiment has been echoed by several employers and business associations, including the Australian Industry Group, with its chief executive, Innes Willox, warning that the increase “will be very hard to bear for businesses under pressure”.

“Outside of pandemic-affected years, this is the highest increase awarded in the era of the Fair Work Act.”

“Employers will clearly struggle to absorb these high wage increases at a time when costs are surging and conditions are deteriorating. This decision will inevitably flow through to more business financial pressure, higher prices and lower employment in the coming months,” Willox added.

Similarly, the Australian Chamber of Commerce and Industry (ACCI) expressed disappointment at the FWC’s decision, echoing the sentiment that rising costs will become increasingly difficult to absorb, especially for small businesses.

ACCI chief of policy and advocacy, David Alexander, said: “Today’s decisions further delink wage outcomes from productivity, and economic activity will suffer as a result.”

“The Reserve Bank has cautioned that when productivity is weak and the economy is operating with excess demand, higher labour costs are more likely to flow through to process rather than be absorbed through efficiency gains.”

The Council of Small Business Organisations Australia (COSBOA) similarly expressed concern about the anticipated cost pressures that the decision would impose, with chief executive Skye Cappuccio noting that many would need to make difficult decisions.

“A 4.75 per cent wage increase is not just a headline figure. It flows through overtime, penalty rates, allowances, payroll tax, superannuation and other employment costs,” she said.

“Many small businesses will now be forced to look closely at prices, rosters, hours and hiring plans. Others will absorb the cost through owners working longer, unpaid hours. That is not because they do not value their staff, but because they have limited options when costs keep rising faster than their capacity to absorb them.”

According to Hays APAC chief executive Matthew Dickason, the decision highlighted growing tension in the labour market.

“Employers are increasingly focused on their capacity to absorb higher labour costs in a period of still-elevated inflation and uneven demand, while employees face ongoing cost-of-living pressure.”

Dickason explained that employers unable to meet expected salaries will need to prioritise career progression, skills development, and additional employee benefits to stay competitive in the labour market.

CreditorWatch chief economist Ivan Colhoun said the central bank was unlikely to be as happy as employee and union groups.

“By delivering a rise much higher than the RBA’s 2.5 per cent inflation target, the decision may well contribute to raising inflationary expectations more broadly. At the margin it makes it a little harder for the RBA to return inflation to 2.5 per cent and gives the impression the different arms of economic policy are working at crossed purposes,” Colhoun said.

Colhoun also noted that adjusting wages based on a forecast higher CPI that may be temporary is a risk, as additional pressure on businesses may prove unnecessary.

Similarly, Econosights said the larger-than-inflation wage increase, while intended to avoid negative real wage growth for workers, risks contributing to inflation, another rate hike, and potential impacts in other parts of the private sector.

“As a result, we are now forecasting another rate hike in November, taking the peak cash rate to 4.85 per cent for this cycle. There is also a risk that the upcoming hike comes sooner, in June rather than August.”