Trade-off a recipe for fiscal anxiety

Australian minimum wage earners to get $40 a week pay rise, Fair Work Commission rules. Picture; AAP

Another year, another national wage case.

Notwithstanding lots of fancy charts and tables, the argument always boils down to the trade-off between meeting workers’ needs and the capacity of firms to afford higher wages.

This argument is undertaken in the context of an uncertain macroeconomic environment. This time, both the Australian and global macroeconomic outlooks are deteriorating.

Inflation is increasing, energy prices are skyrocketing, the stockmarket is being hammered and the prospects for strong growth are quickly disappearing.

Higher unemployment is only a matter of time.

But the Fair Work Commission’s national wage review is necessarily backward-looking. A weekly increase of $40 was awarded to the national minimum wage, which amounts to an increase of 5.2 per cent effective from July 1.

For workers earning above $870 a week, a slightly lower increase of 4.6 per cent is mandated.

Award workers in aviation, hospitality and tourism have had their wage increases delayed until October 1.

The impact of the FWC decision is far-reaching, with some 2.5 million workers paid according to award rates of pay even though the numbers who earn the national minimum wage is quite low – around 180,000.

The economic consequences of the FWC are made more substantial as non-award-covered employees seek to achieve similar gains in their wages.

Unsurprisingly, the ACTU expressed satisfaction with the decision. While similarly welcoming the outcome, the newly installed Treasurer, Jim Chalmers, will be concerned that the large increase could form the basis of a wage-price spiral that will force the hand of the Reserve Bank to lift interest rates higher and faster.

He knows that the only sustainable basis of higher real wages is higher productivity.

There is also the issue about the timing of higher wages this time around and the impact on demand when there are widespread worker shortages and continued supply constraints.

Given that there is already $250bn in accumulated savings arising from Covid compensatory measures out there, some clear economic dangers arise notwithstanding the obvious appeal of addressing the cost-of-living pressures that many workers and their families are facing.

The FWC mentions the increase in the superannuation guarantee rate of 0.5 per cent, the removal of the $450-a-month superannuation threshold – both apply from July 1 as well – and the 2022 budget measures as “moderating factors” – it’s just not clear the extent to which the FWC actually discounted the awarded increases to take these factors into account.

For some small firms, many facing rapidly rising power bills, the mandated increase in award wages will look like a very big ask. We shall have to watch this space carefully.