Annual Wage Review Fair Work Commission urged to not take chances with fragile recovery

“Today, the Australian Industry Group (Ai Group) will file its submission in the Annual Wage Review. The submission will urge the Fair Work Commission not to take chances with the fragile recovery from the pandemic and associated recession and instead promote further jobs growth and additional reductions in unemployment and underemployment. While the Australian economy has bounced back at a faster and stronger pace than had been anticipated, there are many hurdles to a complete recovery. The global pandemic is continuing, there are many global and national uncertainties, and the recovery has been extremely uneven to date. A large proportion of businesses are faced with supply chain disruptions, significantly increased input costs, skill and labour shortages and weak productivity growth,” Innes Willox, Chief Executive of Ai Group, said.

“When setting the level of this year’s minimum wage increase, the Commission needs to have particular regard to those sectors that are struggling and will be severely impacted by an excessive increase. The two sectors with the largest proportion of low paid award-reliant employees (by far) are Accommodation and food services, and Retail trade. These two sectors have been particularly hard-hit by the pandemic and are still experiencing very challenging conditions. Award-reliant sectors are the most heavily impacted by movements in minimum wages. Minimum wage increases need to be set at a level that employers in all sectors can bear. This necessarily requires that the Commission adopt a cautious approach.

“Minimum wage increases are a very blunt instrument. They impose costs on employers that are much higher than the after-tax benefits received by employees from any wage increase granted, both because of the on-costs that result and the tax that is paid by employees on additional pre-tax wages. Also, minimum wage increases cannot be readily targeted to those individuals and households that are in most need of assistance, unlike tax cuts and tax transfer payments.

“Ai Group will submit to the Commission that a modest wage increase of 2% is warranted in this year’s Annual Wage Review. This equates to an increase of about $15.45 per week in the National Minimum Wage (bringing it to $788.05 per week) and about $18.00 per week at the base trade level. When the proposed 2% wage increase is considered alongside the 0.5% Superannuation Guarantee (SG) increase that is operative from 1 July 2022 and the equivalent of a 1.3% increase in pre-tax income that an employee on the National Minimum Wage will receive in coming months as a result of the announced increase in the Low and Middle Income Tax Offset, our proposal would result in the equivalent of a 3.8% increase in pre-tax remuneration for low paid employees.

“The increase that we have proposed would still have us jostling with Luxembourg as the country with the highest national minimum wage in the world.

“The moderate increase in wages proposed by Ai Group will help build on the growth in employment, the increased proportion of the workforce employed in full time positions and the increased number of hours available to people who are currently underemployed. In the past year, the substantial improvements in these areas have boosted household incomes by well in excess of the rise in wage rates as measured by the Wage Price Index. By promoting further gains in employment and hours worked by handing down a moderate wage rise, the Commission can further boost household incomes by well in excess of the percentage increase in wage rates.

“Consistent with longstanding past practice, it is appropriate that the Fair Work Commission take into account the increase to the SG and changes to both taxation levels and tax transfer payments when determining the quantum of any minimum wage increase in the Annual Wage Review. As the Commission has consistently stated, the effect of taxes and transfers on disposable incomes of the low paid are relevant to the needs of the low paid and their relative living standards – two key issues that the Commission is required to take account of in Annual Wage Reviews.

“It is also appropriate for the Commission to implement a delayed operative date for wage increases in relevant awards in the aviation and tourism sector, the accommodation and food services sector, the arts and recreation services sector and the retail trade sector, consistent with the approach in last year’s Annual Wage Review decision. ‘Exceptional circumstances’ still exist in these industries, justifying a delayed operative date.

“The ACTU has proposed a minimum wage increase of 5%. Such an increase would wreak substantial economic damage, destroy the jobs of thousands of employees, reverse the recent strong growth in full-time employment and inflict lower hours of work on many part-time employees,” said Mr Willox.

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