Minimum wage rise risks inflation: Business
Tuesday, 8 July 2008
Mike Preston, economics editor
The federal minimum wage umpire will further fuel inflation in the Australian economy if it awards an excessive pay rise to workers in its decision today, business groups say.
The Australian Fair Pay Commission will this afternoon announce the results of its 2008 review of the federal minimum wage, based on submissions from government, business, unions and community groups and its own research.
It faces a difficult task balancing the needs of low paid workers with worsening economic conditions and the risk that a pay rise will simply feed into higher prices through inflation.
The complex issues involved are reflected in the very different position taken by business and unions on the pay rise that should be awarded – the Australian Council of Trade Unions arguing for a $26 a week rise to the minimum wage, while the Australian Chamber of Commerce and Industry believes something in the order of $10 a week would be more appropriate.
A key point of disagreement between business and unions is whether a lower wage rise should be awarded given the tax cuts awarded to workers last week.
ACCI workplace policy director Scott Barklamb argues that a $10 increase in the minimum wage would actually result in a $19 weekly pay-packet boost once tax increases are taken into account.
“Part of the AFPC remit is the consideration of incomes and purchasing power for the lowest paid, and that should not be limited just to consideration of the minimum wage,” Barklamb says.
ACCI also argues that any bigger pay rise – and Barklamb says the ACTU’s $26 a week claim falls into this category – will actually undermine workers’ real purchasing power by pushing up inflation.
“Given current economic conditions, inflation is of greater concern than it may have been previously,” Barklamb says. “There is a very real risk that an excessive increase could itself be an inflationary factor.”
John Hart, chief executive of Restaurant & Catering Australia, argues the danger posed by inflation is so great that no minimum wage increase should be awarded.
“We would not regard any pay rise as reasonable at this point,” Hart says. “The interest of the economy is served by prices not going up in an area like ours. Any increase will have to be passed on, and given that tax cuts have already increased take home pay I can’t see how any large increase can be justified.”
But ACTU secretary Jeff Lawrence rejects these views, arguing that workers need a pay boost to compensate for rising costs.
More and more families are having their income eaten away in petrol, groceries and housing costs,” Lawrence says. “Workers are struggling to pay the bills and put petrol in the tank to get to work. They need a $26 a week pay rise."
He says the AFPC should also compensate low-paid workers who have fallen behind in wage terms under WorkChoices.
“The pay of more than a million workers on awards went backwards in real terms by up to $44 a week or around $2000 a year under WorkChoices,” Lawrence says.
SmartCompany will provide an update on the AFPC minimum wage decision following its announcement at 2pm today.
Update: The AFPC this afternoon announced that it has decided to lift the federal minimum wage by $21.66 per week. From the first pay period on or after 1 October 2008, workers on the federal minimum wage will receive $14.31 per hour, up from the $13.74 they are currently paid.
Read more on remuneration and WorkChoices
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