ECON-DIT

Words by Jasper Roberts

On the 23rd of May 2022 Anthony Albanese was sworn in as the 31st Prime Minister of Australia. After countless weeks of riveting debate, we finally have a newly formed government. It was an election campaign full of surprises, slogans and statistics! Both sides made promises in an attempt to woo the people of Australia. Both parties had some policies and good ideas however one question that was either avoided or not asked at all was HOW these policies and promises were going to be delivered.

If we begin to dive into the Australian Labor Party’s 2022 federal campaign’s policies, it is quite hard to disagree with any of the principal ideas. A 24/7 nurse at every age care facility, doubling the Philanthropy (charity) contribution, a ‘Help to Buy’ scheme for first home buyers, and support for an increase in the minimum wage. They all seemed reasonable and ideas desired by many! However, there is concern about how some of these policies will be achieved. For example, there is currently a shortage of medical and nursing staff, yet the government has promised to put a nurse in every age care facility. Now as beneficial as it would be to analyse every issue today, the focus will be on the Labor Government’s response to inflation and rising cost of living.

The minimum wage is an extremely important and debated topic. Many people who are earning award rates are living below the poverty line. For the 3.2 million Australians in poverty and many others who are continuously struggling to provide for their families, Labor’s promise to increase the minimum wage hopes to match the rising inflation of 5.1% and help these people battle the rising cost of living.

Anthony Albanese pledged to the people of Australia that “workers’ pay should not be allowed to go backwards”, and when asked if he supported a 5.1% rise in the minimum wage (suggested by the ACTU) his response was “absolutely”. This was supported by the rest of the Labor party.

In contrast, when questioned, Scott Morrison stayed very neutral, proceeding to directly state his support in the minimum wage being “independently assessed” by the FWC (Fair Work Commission). Nevertheless, as the election campaign continued in rebuttal to Labor’s pledge, the Liberal party took a very textbook economic stand. As the unemployment rate continues to decrease, supply will fall and wages (price) will increase. Furthermore, the Liberals began to question the consequences of directly raising wages, stating that Albanese shouldn’t be making these promises “without talking to [experts]” in the area.

Labor’s advocacy for a rise of 5.1% in the minimum wage has caused great concern for employer groups nation-wide who also “caution” the automatic increase in wage to match inflation. On the 10th of May NAB released their annual business survey that showed that labour costs growth had hit 3% in quarterly terms. The chief executive of the CSBR Alexei Boyd reflected on similar data and warned that increasing the minimum wage by 5% will “break many small

A commentary on the minimum wage guarantee

businesses”. She persistently outlined that as many businesses are still trying to recover to pre-pandemic levels, many award-reliant businesses will struggle to afford an increase in wages and many jobs will be lost. Additional ‘experts’ believe that high wages will continue to fuel inflation, leading to a steep rise in interest rates, deterring job creation and future growth.

In response to these concerns the ACTU called upon comments from the governor of the RBA Philip Lowe and the Treasury Secretary Dr. Steven Kennedy who both believe that wage rises should match inflation plus an extra 1% for productivity. This seemed logical as labour productivity had averaged 1% p.a. over the past decade. However, an ANU visiting scholar for Tax and Transfer Policy Steve Hamilton says that the inflationary pressure is a “once-off event”. He states that it is externally imposed from the Russian invasion of Ukraine which has caused an increase in the energy costs and pandemic related supply chain disruptions. In conjunction with this, other academics argue that the rising inflation had been a result of an overstatement or misallocation of government support and stimulus during the pandemic. They believed that there was poor oversight and unaccountable excessive spending in some sectors with some businesses doubling their usual annual earnings whilst other industries such as hospitality continued to suffer immensely. The underlying inflation rate excludes all volatile prices such as energy and food and many economists have recently highlighted how it is 3.7%. Interestingly AIG (workers association) believe that the current 2.5-3% annual wage rise coupled with the rise in superannuation guarantees that the government’s increase in low-andmedium-income tax offsets adds up to a total 4.3% rise in wage growth. This outweighs the underlying rate of inflation by 0.6% and therefore AIG believe there is a sufficient level of wage growth.

The Labor government has increased the minimum wage to match the current inflation of 5.1%. Undoubtedly this will help to assist a large number of people working the minimum wage, however some still argue that this will create extra pressures on employers and increase inflation and the unemployment rate.

In Summary, a number of economists consider the current inflationary pressures are fuelled by external factors expected to dissipate in the near future. Furthermore, the rise in superannuation guarantees and the government’s increase in low-and-medium-income tax offsets will directly and indirectly assist to raise wages. Thus, a number of economists are questioning if a minimum wage rise as high as 5.1% is completely necessary given the stimulatory factors already in play.