‘Tip over the edge’: 5.2% wage rise hard to absorb, employers argue

Australia’s biggest employers are reeling from the higher-than-expected 5.2 per cent rise to the national minimum wage, arguing it adds to the list of challenges for pandemic-hit businesses that include surging power bills and supply chain problems.

The decision made on Wednesday by the Fair Work Commission, which reviews the rate every year, means workers on the minimum wage will get $21.38 an hour or $812.60 a week when the new rate kicks in on July 1. The previous hourly wage was $20.33 an hour.

Employer groups are arguing that the new minimum wage will put pressure on businesses that are already facing a host of challenges.Credit:Louie Douvis

Innes Willox, chief executive of the Australian Industry (Ai) Group, which represents manufacturing and construction employers, said the new rate adds “fuel to the inflation fire” and was deeply concerning for employers.

“There is a major risk that the 5.2 per cent increase … will lead to even higher interest rates; even more hardship for people with mortgages, personal loans or credit card debts; and add substantially to the risk of unemployment and underemployment – particularly for unskilled employees,” Willox said.

“The cost increase will be difficult to absorb for businesses that are already struggling to cope with big increases in material and energy costs, interest rate rises, supply chain disruptions and labour shortages.”

Ai Group chief executive Innes Willox.Credit:Alex Ellinghausen

Australian Chamber of Commerce and Industry boss Andrew McKellar said 5.2 per cent was too much for a “multi-speed economy”, echoing Willox’s sentiment that small businesses will find it hard to absorb the extra costs, leading to higher prices of goods and services.

“Many award-reliant businesses were severely disrupted by the COVID-19 pandemic and are only just beginning to recover,” McKellar said.

“Small businesses are now facing surging energy prices, continued supply chain disruptions, the second-worst workforce shortages in the OECD, and the prospect that inflation could reach 7 per cent.

“Imposing unaffordable wage increases on these small businesses will put jobs at risk, not create them.”

Australian Retailers Association CEO Paul Zahra similarly cited the challenges of supply chain issues, staff shortages, and the cost of energy and fuel being faced by retailers.

“We fear the scale of this increase could tip some businesses over the edge,” Zahra said.

The retail sector is expected to see a decline as consumers increasingly put their wallets away amid persistent cost of living and inflation pressures.

“Our economic recovery is uncertain, and with interest rates on the rise and families set to tighten their household budgets, consumer spending is likely to slow in the months ahead posing more challenges for discretionary retailers,” he added.

“The scale of this increase from the Fair Work Commission could send some businesses to the brink.”

Restaurant and Catering Association chief Belinda Clarke went one step further, warning businesses would be forced to shut their doors.

“This is sadly going to mean more business closures,” Clarke said. “I know a lot of business owners will have zero ability to absorb the extra cost.”

In their submissions to the Fair Work Commission, many of these business groups had pushed for an increase at around half the 5.2 per cent rate, or even less: Ai Group had urged for a “modest” 2.5 per cent, while ARA had said 3.2 per cent was appropriate.

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