Will Aussies see higher minimum wages as new government takes charge?

Highlights

• Anthony Albanese-led Labor government has long been an advocate of higher wages for Australians.
• The newly elected government believes that they are left to grapple with the challenges created by the previous government.
• With inflationary concerns mounting in the economy, a wage hike needs to match the rise in inflation.

It seems the new government has a lot more on its to-do list than the Scott Morrison-led government. One of the most crucial areas of reform for the new government is the labour market. The newly elected Labor government has promised a bump to wages, despite inflationary concerns lurking in the backdrop.

The newly appointed Treasurer Jim Chalmers has blamed the previous government for not taking up responsibility for a range of economic issues overshadowing Australia. According to him, the recently released GDP data for the March 2022 quarter provides proof of the previous government’s lacklustre performance.

Now, the Labor government will take things over from rough settings, which include a mix of high inflation, rising interest rates and falling real wages. Treasurer Chalmers recently discussed about trillion dollars’ worth of debt that the new government has inherited from its predecessors. Additionally, he expressed concern over slower-than-expected economic growth in the first three months of 2022.

With these challenges dominating the Labor party’s agenda, raising wages at the previously promised rate of at least 5.1% could become a distant reality.

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What is Australia’s minimum wage?

According to the Fair Work Ombudsman, the national minimum wage in Australia is currently AU$20.33 per hour or AU$772.6 per week, as of 1 July 2021. Employees covered by a registered agreement or an award are entitled to the minimum pay rates, which also comprise penalty rates and allowances. These pay rates are supposed to be higher than the minimum wages.

However, the Fair Work Commission is expected to announce a wage hike of around 4% in nominal terms. Millions of Australian workers would be covered under the wage hike, which is anticipated to lift some cost-of-living pressures off households. In monetary terms, a hike of 4% roughly translates to an increase of 81 cents per hour.

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The wage projections have come up as the Fair Work Commission undertakes its 2021-22 Annual Wage Review. A rate hike of 4% is likely to be the highest percentage increase in minimum wages ever announced since 2010. This would definitely be a big boost for households, especially for those struggling to make a living in the current environment.

However, from a broader perspective, an annual revision of 4% in wages is much lower than the annual inflation rate of 5.1%. This effectively means that those surviving on minimum wages might not receive any real hike in wages.

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Labor party’s stance on wage hike

The Labor party has long advocated for higher wages, promising a wage hike at par with rising inflation at 5.1%. However, after the election win, the Labor party has not yet submitted a wage hike estimate that it wants to achieve. Additionally, the party has expressed concerns over the expected wage hike of 4% effectively being a wage cut, compared to rising inflation.

If the value of money is declining at a faster rate than the actual hike in income, then consumers might not gain much from a wage hike. Thus, any wage hike below the annual inflation rate of 5.1% could act as a real wage cut. However, this does not mean that the Australian workforce should be devoid of a wage hike.

Under the present scenario, a hike as high as 5% appears a fair choice for low-paid workers. High fuel prices, soaring costs of living and an unexpected jump in power bills are weighing down on Australian consumers. Though the Fair Work Commission works independently, the government can make a recommendation on the size of the hike.

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