Fair Work Commission tipped to issue inflation-beating $32 pay rise

The Fair Work Commission is ­expected to issue an inflation­beating pay increase of around 3.5 per cent in its annual wage decision on Tuesday.

The Fair Work Commission is ­expected to issue an inflation-­beating pay increase, granting 2.9 million Australian workers a weekly wage boost of at least $32 from July 1. Picture: iStock

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The Fair Work Commission is ­expected to issue an inflation-­beating pay increase of around 3.5 per cent in its annual wage decision on Tuesday, granting 2.9 million Australian workers a weekly wage boost of at least $32 from July 1.

The determination, which affects minimum and award wage earners, could carry an inflationary risk if any outsized increase is awarded, some economists say, given a current backdrop of sluggish productivity growth.

In its submission to the decision, the ACTU has proposed a pay increase of 4.5 per cent, arguing that such an inflation-beating rise would have limited impact given final consumer prices that have dissipated in recent months, despite strong wage gains.

Employer groups, however, have recommended an increase of around 2.5 per cent – the midpoint of the Reserve Bank’s 2-3 per cent target band – which they have justified on the grounds of weak productivity growth and compressed business margins.

The ACTU’s claim would lift the minimum wage, currently $24.10 an hour, up to $25.18 an hour. The employer groups recommendation would increase the rate to $24.70 an hour.

AMP chief economist Shane Oliver said lacklustre productivity outcomes – which dipped 1.2 per cent in the 12 months to December – meant the industrial umpire could not afford to be overly generous in making its decision.

“It has to be careful here,” Dr Oliver said. “The productivity concern, to the extent the commission looks at it, would suggest an outcome closer to the industry groups rather than the ACTU submission.”

Economist Shane Oliver said lacklustre productivity outcomes meant the industrial umpire could not afford to be overly generous. Picture: NewsWire/John Appleyard

He said he still expected the FWC would land on a final outcome closer to 3.5 per cent, noting that while the RBA had previously flagged concerns about anaemic productivity, it hadn’t prevented inflation from declining so far.

“That seems to be a factor in why the RBA has become a bit more relaxed about things, despite the ongoing weakness in productivity,” he added.

Independent economist Nikki Hutley said Tuesday’s determination would also be influenced by the commission’s track record of delivering several inflation-beating wage increases in recent years, which had a cumulative effect on firms’ operating margins.

“In terms of the minimum rate and the award rates we’re talking about, a lot of small businesses are much more affected by these decisions than perhaps some of the larger ones,” she said.

The decision follows evidence in RBA’s business liaison and other private sector surveys that show that wage and input costs for businesses have risen more rapidly than final product prices, placing profit margins under ­pressure.

With the government announcing its support for an ­inflation-beat pay hike for the “lowest paid” in the lead-up to the May election, newly appointed Employment Minister Amanda Rishworth on Sunday said the government was assured that its position was economically ­responsible.

Even as employers flagged rising cost pressures, Ms Rishworth flagged that Labor was open to introducing a portable leave scheme whereby employees’ leave entitlements – including annual and sick leave – were carried between businesses.

The measure has been vehemently opposed by business groups but has received the backing from some unions, including the Australian Workers Union.

“There’ll be a lot of different ideas that come up. Obviously, [we will] consider them as we go through,” Ms Rishworth told Sky News when asked whether she could rule out delivering upon the key union demand.