Minimum wage: Federal Government backs pay rise above inflation

Treasurer Jim Chalmers has promised that an above-inflation pay rise for millions of Aussie workers will not worsen consumer prices.

The Federal Government has written to the independent workplace umpire calling for a boost for three million low-paid employees on the minimum wage and industry award wages.

Those wages are set by the Fair Work Commission annually — with another decision expected next month — and the Treasurer is pressing for a “sustainable real wage increase”.

Yet the Government’s submission stops short of recommending a number.

“This will help around three million workers across the country, including cleaners, retail workers and early childhood educators,” Mr Chalmers said on Friday.

It comes just days before the Reserve Bank’s next decision on interest rates, which may be swayed by improved wage growth and an explosion of new jobs in official data released this week.

The RBA has kept an eagle eye on wages because a major pick up in pay could be a sign cost pressure is returning to the economy, worsening inflation. Rising wages would also influence costs for businesses.

Mr Chalmers said he had consulted RBA boss Michele Bullock and he believed the proposal would not worsen the inflation fight.

“An increase in minimum and award wages is consistent with inflation sustainably remaining within the RBA’s target band, and will provide further relief to lower income workers who are still doing it tough,” he said.

The minimum wage had increased by $143 a week since the Government came to office in 2022, Mr Chalmers said.

Business lobby the Australian Chamber of Commerce and Industry called for a 2.5 per cent pay rise and warned that further increases must be “anchored to productivity growth”.

Retailers also backed a lift of 2.5 per cent, slightly above inflation.

The industry’s lobby group warned retailers were under pressure from low consumer confidence, a tight jobs market and global economic risks amid America’s trade war.

“Implementing significant wage increases under these conditions would place unsustainable pressure on employers and risk unintended consequences such as reduced hours, job losses, or increased prices,” the industry’s submission said.

But the Australian Council of Trade Unions wanted a 4.5 per cent wage increase. Worker pay was slow to adjust following the inflation breakout of recent years.

Economists broadly warn that big lifts to the minimum wage could also flow through to the jobs market, leading to higher unemployment among marginalised groups.

Wages lifted 3.4 per cent over the 12 months to March, according to the latest data from the Australian Bureau of Statistics. That was faster than the pace of inflation at 2.4 per cent.

Education, healthcare and social assistance were among the top performers in the quarter — and analysts slated those gains to government-backed pay deals for aged care and early childhood services.

Those industries have been boosted in recent years by the Fair Work Commission inking significant wage rises bankrolled by the Federal Government.

Commonwealth Bank economist Gareth Aird said on Friday morning that wages and prices had evolved exactly as the Reserve Bank had expected.