Federal government pushes for a real wage increase for workers
Specific recommendations for a wage increase are being held off by businesses and the government in the wake of the disruption caused by the conflict in the Middle East.
The Australian Industry Group (Ai Group) on Friday said in its initial submission to the Fair Work Commission (FWC) that the economic shocks from the conflict make it difficult to strike a balance between the interests of employers and employees.
"Given the current global and domestic volatility, it would be imprudent at this point to propose a specific number for a minimum wage increase for the Expert Panel to consider as part of its deliberations," said Ai Group chief executive Innes Willox.
"There is a significant amount of economic data to examine in the coming weeks, as well as evidence of the impact of the shock created by the disruption caused by the conflict in the Middle East and measures taken in the federal budget.
"In these circumstances, we will give fuller consideration to what a sensible wage outcome would entail in further submissions."
According to the Ai Group, the conflict in the Middle East is a "moderating factor" relevant to this year's Annual Wage Review.
It noted that the conflict further puts at risk the parts of the economy that displayed fragility, as well as the "incipient" signs of recovery that the economy displayed last year.
"Downside risks emanating from the global economic shock are likely to fall hardest on these parts of the labour market, warranting cautious wage increases that do not risk additional disemployment," the Ai Group said in its submission.
The initial submission comes as the Australian Chamber of Commerce and Industry said earlier this week that it would recommend a 3.5% increase in minimum wage.
This is lower than the five per cent increase that the Australian Council of Trade Unions (ACTU) is proposing.
No specific recommendations from government
Meanwhile, the federal government also did not recommend a specific pay increase, but called for an "economically sustainable real wage increase" for Australian workers.
"The Government's submission does not recommend a specific wage increase, recognising the Fair Work Commission's independent role," a joint statement from Employment Minister Amanda Rishworth and Treasurer Jim Chalmers said.
But the statement recognised the need to raise real wages to help with the cost of living, as well as the impact of the conflict in the Middle East.
"Conflict in the Middle East is compounding global economic uncertainty, and putting pressure on fuel prices, inflation, and on family budgets," it said.
The wage increase is expected to impact around 2.7 million Australian minimum wage and award-reliant workers, who make up around a quarter of the country's workforce.
"Workers are doing it tough right now and that's why we think they should get a sustainable real wage increase," Chalmers said in a statement.
"With fuel prices going up and mounting pressure on families, we're helping with the cost of living in responsible ways."
Would an increase raise inflationary pressures?
The debate on increasing the minimum wage has come with warnings from businesses that it could further raise inflationary pressures and trigger a wage-price spiral.
But an analysis from The Australian Institute, which examined the correlation between minimum wage increases and inflation going back 30 years, found no consistent link between minimum wage increases and inflation.
"The impact on economy-wide prices of even a large increase in minimum and award wages is slightly lower than we estimated in our 2025 report," read the research, which was authored by chief economist Greg Jericho.
"It remains the case that a modest increase, such as the 5% proposed by the ACTU, would have minimal impact on profits and have no significant influence on future inflation."
Jericho added that those on minimum and award wages will need a lift in wages in the likely rise in the cost of living due to the conflict in the Middle East.
"The impact on prices of even a substantial lift in minimum and award wages could be fully offset by a very small reduction in profits," he said.
"Such a reduction would still leave the share of GDP going to profits at levels similar to those before the pandemic, while assisting the recovery of the lost living standards of Australia's lowest paid workers."
