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It’s standard for the demands of unions to clash with those of employer groups. But arguments made before the Fair Work Commission last week over how much the minimum wage should rise in the coming financial year have revealed tensions within the demands of both groups.
The pay bump, which will be announced by the fair work arbiter next month, and which applies to the country’s lowest paid workers from July 1, risks falling short of the higher living costs Australians are facing. But a wage increase that is too high could feed into price pressures that the Reserve Bank and the federal government have flagged will spike in the coming year, amid tensions in the Middle East.
Even if the conflict resolves within months, both the RBA and the Treasury think inflation will climb, hitting 4.8 per cent by June according to RBA forecasts, and 5 per cent according to the latest federal budget.
As usual, the unions are driving a hard bargain. After seeing the numbers from the federal budget, the Australian Council of Trade Unions this month increased its minimum wage claim from 5 per cent to 6 per cent, arguing it is necessary to shield lower-paid workers from inflationary pressures.
Employer groups, meanwhile, want wage rises to be weaker. The Australian Industry Group has proposed an increase to minimum and award wages of 3.9 per cent and the Australian Chamber of Commerce and Industry has put forward the case for a 3.5 per cent increase.
Economists have said the minimum wage decision will be an important influence on wider wage trends, and UBS recently tipped an increase of about 4.25 per cent.
Seven members on the panel for the annual wage review last week asked questions of various stakeholders during public consultations.
An expert panel member at the Fair Work Commission, Mark Cully, queried the unions’ claims that a 6 per cent minimum wage increase would not lead to inflationary pressures for the very people they are supposed to serve.
“Are you seriously contending that there would be no flow-on implications of a 6 per cent [wage] increase to the rest of the workforce?” he asked, noting the risk of “de-anchoring inflation expectations”.
As the RBA often says, inflation expectations tend to be a self-fulfilling prophecy. When people think that more price rises are coming, they’re likely to push forward their spending to lock in good deals and demand more pay from businesses, which may then pass wage increases on to consumers through higher prices.
Other workers not directly affected by the commission’s wage decision would see the 6 per cent wage increase that had been given to award workers, leading them to then seek higher wages, too, Cully said to the ACTU.
“If that risk was to manifest itself, then I’m not sure how it ends up serving your members because the consequence of that would be higher inflation, which eats into their incomes,” Cully said. A second consequence would be higher interest rates, which would also eat into union members’ incomes, he said.
“I guess I’m just puzzled by how blithe you are about the immateriality of seeking a 6 per cent wage increase and it having no material impact on the claims of other workers and on aggregate inflation over the course of [financial year] 26-27.”
The unions’ representatives said they didn’t expect there to be many risks of inflation expectations becoming de-anchored, or of the wage increase flowing through completely to other wages, and therefore to inflation. “The best available research both internationally and domestically is that the main driver of inflation in this period is not wages,” a representative for the ACTU said.
Employer groups were also put on the stand about their submissions, which flagged the difficulty businesses would face to keep their lights on if whacked by the unions’ “reckless” claim for a 6 per cent wage rise: businesses could let workers go or decide to shut up shop if they had to pay that much more for award workers, they said.
But as one of the commissioners said, higher wages generally translated to higher spending, including by customers for the businesses opposing these changes. And while the rate of price growth – peaking at 5 per cent according to estimates – might only be temporary, the prices themselves would remain elevated even after the rate of growth slowed, reducing the affordability of goods and services.
Meanwhile, the government has supported a “real wage increase”, meaning wage growth that is higher than inflation. Much to the chagrin of the commissioners, however, the government officials could not be pinned down on what that really meant.
“If the commission was to award an increase below [the forecast inflation rate of] 5 per cent, would that constitute not meeting the government’s objective of there being a real wage increase?” Cully asked government representatives.
“The government, consistent with past practice, does not have a position as to the specific quantum that the expert panel should award,” a government representative said, saying it also depended on the time period over which inflation was assessed and the exact inflation measure used.
Despite multiple attempts at drawing an answer out of them, representatives for the government remained elusive about the threshold.
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