Pay rise may feed inflation

by 22 Jul 2008

A RECENT move to increase the minimum wage by $22 a week is predicted to increase pressure on both business and inflation.

Employers will have to pay an average of $27 more per employee per week, inclusive of extra costs such as superannuation and payroll. This increase, which was announced by the Australian Fair Pay Commission (AFTC) and is due to come into place on 1 October, 2008, will in turn lead to a “relatively minor”increase in prices – 0.4 per cent – according to the Commission.

However, against a background of already intense inflationary pressures, the Australian Industry Group said that any increase in inflationary pressures is unhelpful and they questioned how economically sound the commission’s decision to increase the minimum wage was.

“The key economic uncertainty is how well the AFPC decision is aligned with these circumstances – and there are clearly risks involved,” said Heather Ridout, CEO of Australian Industry Group.

The government believes the increase is appropriate to the current economic conditions, with, it says, the decision directly benefitting 1.3 million Australians who are in the Federal system and rely on minimum wages. The weekly increase from $522.12 to $543.78 will alleviate pressures from higher interest rates and the rise in fuel and food prices.

The AFPC estimated that the effect of the increase in the Federal Minimum Wage (FMW) combined with the government’s tax and transfer payment changes means that a single worker earning the FMW will see their disposable income increase by 5.7 per cent. For a couple both earning the FMW with two children, their disposable income will increase by 5.5 per cent.

According to Julia Gillard, Minister for Education, Employment and Workplace Relations, there is no implication for wage inflation forecasts because the AFPC’s minimum wage decision is consistent with the assumptions on wage growth already factored into Budget forecasts.

Also welcoming the commission’s decision, the Australia Council of Trade Unions (ACTU) is pleased that the Fair Pay Commission has acknowledged the difficulties faced by working families in making ends meet in a tough environment, and ignored the calls of some employer groups to cap wage rises at levels as low as $10 a week.

“The Australian Fair Pay Commission has recognised its job is to ensure there is an adequate safety net for the low paid, and has explicitly taken account of the considerable financial stress experienced by many low-income households,” said ACTU secretary Jeff Lawrence.

“This decision is better than may have been expected, but there will still be many workers whose real wages will be eroded by inflation. Only getting rid of WorkChoices will ensure long-term relief for all workers,” he said.

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