Generous wages increase demands productivity lift

On the eve of Wednesday’s national account figures revealing how GDP and productivity are faring, the generous 3.5 per cent minimum wage rise granted to Australia’s lowest-paid workers by the Fair Work Commission, above the 2.4 per cent inflation rate, will help millions of household budgets. The decision takes Australia’s minimum full-time wage to a healthy $49,296 a year, one of the highest in the world. It will rise from $915.90 to $948 a week from July 1. Applying in sectors where part-time work predominates, such as accommodation, food and retail, the hourly pay rate will rise by 85c to $24.95.

Anthony Albanese welcomed the decision but he showed a poor grasp of the acute pressures on many businesses. Asked if the change would force up prices, the Prime Minister said: “No, what it will make sure is that people won’t fall behind when it comes to cost of living.” Businesses, he apparently believes, should absorb the full cost. That is despite the fact business insolvencies reached record levels in the six months to December 31, 2024, with hospitality businesses – one of the sectors most affected by Tuesday’s decision – the hardest hit. Some employers – including small business operators unable to pay themselves a living wage – will struggle to meet the new rates.

Council of Small Business Organisations Australia chief executive Luke Achterstraat said that for every dollar increase in the award rate, “employers also face higher levels of workers’ compensation, payroll tax and, of course, another legislated increase in the superannuation guarantee from July 1. There is a limit to how much small businesses could pass on these costs, meaning owners likely bear the brunt”.

The wage decision comes as many firms’ margins are razor-thin and, as we reported last week, private capital expenditure recently recorded its biggest annual contraction since 2020. In the three months to March it slipped by 0.1 per cent to rise by just 0.5 per cent, shocking economists, and dropping by 5.3 per cent in Victoria.

The most important conclusion to draw from the Fair Work decision, as Australian Chamber of Commerce and Industry chief executive Andrew McKellar says, is the need for an effective strategy to increase productivity. The decision to lift minimum wages by 3.5 per cent was “built on an assumption of future increases in productivity, but that productivity growth must be realised”, he said.

Fair Work Commission president Adam Hatcher also acknowledged the problem in his decision. The nation’s poor labour productivity performance was a restraining factor, he said, indicating workers would have done better if productivity were better.

Improving labour productivity must be the overarching aim of the National Workplace Relations Consultative Council, chaired by new Employment and Workplace Relations Minister Amanda Rishworth on Tuesday. Government priorities discussed at the meeting included proposed legislation to protect penalty rates in awards and better support of employees after experiencing stillbirth and early infant death. The latter should be part of any decent workplace. But in many industries penalty rates are an anachronism in the 24/7, seven-day-a-week modern economy. Banning non-compete clauses for employees earning below the Fair Work Act high-income threshold and artificial intelligence in the workplace also were on the agenda. The tripartite NWRCC forum, bringing together unions, employers and the government, needs to drive reforms similar to those that freed up the nation’s IR system in the 1980s and ’90s, resulting in greater workplace flexibility and productivity gains that served the best interests of workers and profits, and encouraging investment.