Treasury assuming 3.5pc wage rise for low-paid

Treasury is assuming Fair Work will split the difference between union and employer claims.

The minimum wage is set to increase by 3.5 per cent, according to the Albanese government.

Treasury’s wage growth forecasts assume the Fair Work Commission will award a 3.5 per cent minimum wage increase this year, halfway between competing union and employer claims, the Albanese government says.

Appearing before the commission on Wednesday, the government said the 3.5 per cent “technical assumption” was based on the 3.6 per cent March quarter inflation figure and was consistent with its position that the real wages of low-paid workers did not go backwards.

A 3.5 per cent increase would split the difference between the competing claims of the ACTU, which wants a 5 per cent rise, and the Australian Chamber of Commerce and Industry, which is pushing for a 2 per cent increase.

Treasury is forecasting real wages growth over the next four years, increasing from 0.5 per cent in the next two financial years to 1 per cent in the subsequent two financial years.

Matt Cowgill, chief economist with the Department of ­Employment and Workplace Relations, reaffirmed the government’s position that the commission ensures real wages of low-paid workers do not go backwards.

Commission president Adam Hatcher asked what rate of increase the government submission implied. Mr Cowgill said consistent with long-standing practice the government submission “did not put a number on what we are seeking from the commission”.

The ACTU is seeking an extra 4 per cent increase for award-­reliant workers in female-­dominated industries, which is opposed by employers.

While the government made a broad commitment in the budget to spend billions of dollars to fund pay rises, Justice Hatcher said the commission did not yet know the amount of funding available, putting the panel in a “catch 22” as it considered the ACTU’s 4 per cent claim.

He said granting the 4 per cent increase in awards might discourage childcare employers from reaching a multi-employer bargaining agreement currently being negotiated with unions.

Asked by Justice Hatcher what the government position was on the ACTU’s 4 per cent claim, the government noted the importance of gender equality and addressing gender in­equities in the system, but said any increase would need to be considered in the context of the capacity of business and government to fund the pay rises.

During the hearing, Justice Hatcher told employers their bid to limit the minimum wage increase to 2 per cent represented a “real wage cut” for low-paid workers.

He questioned ACCI chief economist Peter Grist about the chamber’s call for a below-­inflation rise.

Mr Grist said containing inflation needed to be the priority and inflation needed to return to the middle of the Reserve Bank’s target range of 2-3 per cent as quickly as possible. “All parts of the economy must play their role in achieving this, including administered wages through this annual wage review,” he said.

At this point, Justice Hatcher asked: “When you say their role. What’s their role? To take a further real wage cut in order to achieve that result?”

Mr Grist initially denied the chamber was proposing a real wage cut but Justice Hatcher replied “Well, you’re proposing 2 per cent, aren’t you?”

Mr Grist: “We’re proposing a 2 per cent increase plus 0.5 per cent increase in the super­annuation guarantee, which will take it to the middle of the Reserve Bank’s target range.”

Justice Hatcher: “Well, that’s a real wage cut. I don’t see how you can argue otherwise.”

Mr Grist: “I agree. It’s potentially a modest decline.”

The commission give its decision in coming weeks.