Minimum Wage to increase by 2.5% on 1 July 2015

The Fair Work Commission has awarded an increase to the minimum wage of 2.5%, or $16 per week, bringing the minimum wage to $656.90 per week. The changed minimum wage, which affects 1.86 million Australian employees who are award reliant, will apply from 1 July 2015.

Wage

The Commission decided to also increase modern award minimum wages by 2.5%, stating that the 2014 flat dollar increases had compressed award relativities and reduced the gains from skill acquisition, reducing the ratio of the higher award classifications relative to market rates and average earnings.

In submissions to the Commission before the decision, the stakeholders had presented the following positions:

  • The Unions proposed a $27.00 wage increase per week.
  • The Australian Industry Group (Ai Group) submitted that the increase should be 1.6% ($10.25 a week).
  • The Australian Government, the Australian Chamber of Commerce and Industry (ACCI), and the Australian Business Industrial (ABI) urged the Panel to adopt a cautious approach.
  • The ABI proposed a “modest sustainable increase” while the ACCI and the Australian Retailers Association recommended an increase of no more than $5.70 per week.

Our summary of submissions to the review from various parties can be found here.

The most significant economic factor in the Commission’s decision was the fall in inflation and wages growth, with most recent annual growth rates of 1.3% for the consumer price index, 2.3% for the wage price index and 2.8% for average weekly earnings. This growth was a reduction on already modest growth the prior year. The growth in average annualised wage increases, which reflects bargaining outcomes, was also relatively low at 3.4%. Meanwhile, the unemployment rate has increased from 4.9% in March 2011 to 6.1% in April 2015.

The Commission raised concerns on delays to Australia’s return to trend growth, with business investment yet to pick up the slack from lower mining investment. Yet the Commission also noted that there were no real signs of corporate distress, with low bankruptcy rates, a higher number of business entries than exits and an absence of cost pressures from the labour market.

These factors led the Commission to recommend the 2.5% increase in minimum wages, which was lower than last year’s 3% increase. The net effect of such increases after tax ranges from a 1.9% to 2.2% uplift depending on applicable tax rates, including the Medicare Levy, excluding any offsets and disregarding dependents. If high income earners (for example $100,000 to $500,000) also received a 2.5% increase, the percentage increases in net income would be similar if they do not claim deductions and offsets.

The ACTU was not satisfied with the increase, stating that the decision will bring the national minimum wage to 43.3% of average weekly ordinary time earnings, the lowest on record. The union highlighted that the increase was lower than the latest rise in average weekly earnings.

“This decision won’t relieve the stress on low income households in the face of increasing healthcare, education and childcare costs,” ACTU Secretary Dave Oliver said.

“It’s not good enough when profits are up, productivity is high, executive salaries are up and the Abbott Government delivered a small business bonanza in the budget – but once again workers are left with the scraps.”

On the other side, the Australian Chamber of Commerce and Industry stated that the above inflation increase will work against the government’s budget measures to encourage small business investment and growth, especially when the effect on superannuation is taken into account.

Jenny Lambert, ACCI’s Director of Employment, Education and Training, said: “We hold concerns that this increase is too high against the backdrop of softening labour market conditions and an economy undergoing structural adjustment.

“Most small businesses run on lean margins, operate in a price-sensitive environment and are unable to pass these costs on to consumers. So there is a real prospect it will lead to firms reducing staff numbers or the hours offered.”

The Australian Retailers Association (ARA) called the increase “unmanageable”.

“Many small to medium enterprise retailers are reliant on a minimum wage workforce, and the announcement today to increase wages during this time of low consumer confidence and low growth will sadly result in further job losses and business closures – a very distressing truth for retailers,” Executive Director Russell Zimmerman said.

“The minimum wage increase, coupled with weak trade figures and penalty rates, will only cause further damage to retailers who are struggling to keep their heads above water as it is. While interest rates are currently at a record low (with the Reserve Bank of Australia [in its June decision] deciding to keep rates on hold at 2.0%) and there is support from the recently released Federal Budget, the retail industry cannot simply keep up with excessive wage increases.”

Egan Associates understands that in depressed industries and enterprises, award exempt staff are accepting zero pay increases and in some cases pay reductions. Senior staff up to the executive ranks are placing more value on keeping their job than on pay increases.

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