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Minimum wage rise a ‘risk to the economy’, chamber of commerce head says

Paul Karp

The Australian Chamber of Commerce and Industry chief executive, Andrew McKellar, has responded to the minimum wage decision, warning it is a “risk to the economy” and would add $7.9bn to employers’ costs.

But even more interesting than the usual complaints about costs was McKellar’s proposal to excise 2.5 million award-reliant workers from the annual wage review, leaving it for the 180,000 lowest paid workers on the national minimum wage.

McKellar told reporters in Canberra:

What this highlights is that frankly this national wage case process, the way it feeds into the modern awards, it’s an antiquated process, it’s a process that’s had its day, it’s not compatible with the internationally competitive economy that needs to operate in a flexible way and responding to the circumstances, the competitive challenges and need to drive productivity.

Asked what the alternative is, he said:

You must have [centralised wage fixing] for minimum wages, fine, for the 180,000 people on the lowest wage safety net. But when it flows through to the modern award system it needs to be looked at on a case-by-case basis. We need to get back to much more effective enterprising bargaining, flexible wage setting driven by the market.

This proposal is interesting. It either means that the Fair Work Commission should run separate reviews of minimums in awards on a case-by-base basis, or, that if you’re on an award and want a pay rise you should turn to enterprise bargaining with your employer.

McKellar didn’t clarify the comments after the press conference, but reiterated that the “one size fits all” approach of one wage case deciding the pay of 2.6 million workers “isn’t flexible” and alternatives should be on the agenda at the Albanese government’s employment summit.

Consumer sentiment plunges towards historic low, Westpac survey says

As today’s 5.2% minimum wage increase decision by the Fair Work Commission ripples through the economy, Westpac and the Melbourne Institute have released their latest consumer sentiment survey that points to ongoing falls.

Bill Evans, Westpac’s chief economist, said the 4.5% drop in the index to 86.4 took the gauge towards historic low. It followed the Reserve Bank’s decision last week to hike the cash rate by 50 basis points to 0.85%.

“This read is even weaker than we had expected,” Evans said.

“Over the 46-year history of the survey, we have only seen Index reads at or below this level during major economic dislocations.

“The record lows have been during COVID-19 (75.6); the Global Financial Crisis (79.0); early 1990s recession (64.6); the mid-1980s slowdown (78.7) and the early 1980s recession (75.5),” he said.

“Those last three episodes were associated with high inflation; rising interest rates; and a contracting economy – a mix that may be threatening to repeat.”

Also worrying is the drop in homebuyer interest, which is close to the lowest in more than a decade, during the GFC.

If sentiment is dimming now, though, imagine what it will look like if investors are right about the near-term future track for the RBA’s cash rate.

If the 1.5% rate by 5 July is right, the 65 basis point increase would be the most by the RBA since 1994.

National wage case process ‘antiquated’, chamber of commerce head says

McKellar has gone on to call the national wage case process “antiquated” when asked if he is concerned about future pay rises:

It certainly adds to that pressure at a time when labour is intensely difficult to access. We are seeing record levels of vacancies out there in the work place at the moment. One of the things that this decision highlights, and the commission has tried to really nuance, it is a very complicated decision and there is a number of different elements to it.

What this highlights is that, frankly, this national wage case process, the way it feeds into the modern awards, it is an antiquated process. It is a process that’s had its day, it is not compatible with the needs of a modern internationally competitive economy that needs to be operating in a flexible way and responding to the circumstances.

Chamber of commerce boss says wages should be flexible and ‘driven by the market’

So, what does chamber of commerce boss McKellar propose as an alternative?

For minimum wages, fine, that is the 180,000 people on the lowest wages, the wage safety net. When it flows through into the modern award system, this needs to be looked at on a case by case basis. We need to get back to much more effective enterprise bargaining, flexible wage settings, driven by the market.

Australian Chamber of Commerce and Industry laments minimum wage increase

Now we are jumping into a press conference with the chief executive of the Australian Chamber of Commerce and Industry, Andrew McKellar, who says the increase to minimum wage is a “significant risk” to economy:

It veers very much towards the upper end of the range of possible outcomes that we could have expected to have seen today. In particular, this adds very significant costs to the Australian economy and to business.

By our calculation, this will add $7.9bn in costs to the affected businesses over the year ahead, so that will be a very considerable burden that those businesses will either have to take to the bottom line, or pass onto their customers.

It comes at a time when inflation is emerging as one of the most urgent challenges facing the Australian economy and if we are to address that, if we are to remain competitive, then, clearly, this is not a decision that will help in those circumstances.

‘People will actually be able to buy the food they need for their families’: McManus

McManus is next asked what difference the wage increase will have for households on minimum wage:

For a household on minimum wages, we are talking about an extra $40 a week. That is going to make a significant difference. If you consider the basics.

If you are are on the minimum, all of your wage is spent on the basics. Your grocery bills, your rent, that is your transport costs and your energy costs.

That amount per week is going to mean that people will actually be able to buy the food they need for their families as opposed to having to cut back on that.

McManus: ‘We have always been very mindful of not adding to inflation’

McManus is asked whether the increase will stand the test of time, especially with inflation set to reach 7%. Will another wage crisis hit again?

We were always concerned about what future inflation would be and this moved around the whole time of this annual wage review. It was only yesterday that the reserve bank governor said he thinks inflation will get to around 7% around Christmas.

That is halfway through the pay increase. We were mindful of that problem which is why we were asking for a 5.5% increase and we thought that was reasonable. We don’t know what is going to happen into the future, in terms of inflation, whether or not it is a spike that will quickly come off or whether or not it is going to be something that continues longer than a year.

If it continues longer than a year, obviously, we will need to make sure workers do get pay rises that mean they keep their heads above water. We have always been very mindful of not adding to inflation, that is why we have never asked for a pay increase that is more than inflation and productivity.

We think it is going to make a significant difference to the pressures that low-paid workers are under with cost of living rising.

The union movement fought so hard for this increase across pretty heavy cross winds. We also had to oppose what the employers were arguing for which was very significant real wage cuts at a time when their profits are up 20% and productivity is up as well as unemployment being low.

This decision is one that is reasonable and it is fair. It means that for low-paid workers like Jordan who is with me, he will have a better ability to pay rent and pay for the groceries and to pay for energy bills as well.

The union movement is happy and proud that we have fought for this increase and that it is going to make a big difference for so many workers.

Fair Work boss says rise will not have significant negative impact on economy

Ross continued, saying the approach of the commission was one balanced between the needs to address the difficulties faced by people on low wages, with the needs of the economy:

We accept that the approach we have adopted will result in, albeit minor, compression in relativities.

But that consideration is to be balanced against the need to provide greater relief to low-paid workers in the context of rising cost of living pressures. Given the current strength of the labour market, the adjustments we propose to make will not have a significant adverse effect on the performance and competitiveness of the national economy.