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Wage rise will damage businesses, say industry and employer groups

Business and industry groups are warning that the Fair Work Commission’s decision to raise the minimum wage by more than 5 per cent will have negative repercussions for Australia’s inflation crisis.

Wage rise will damage businesses, say industry and employer groups
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The Australian Chamber of Commerce and Industry, the Ai Group, the Australian Retailers Association and the Council of Small Business Organisations of Australia all have said that businesses will struggle to survive with the wage rise, and ultimately customers will also pay with higher prices, falling employment and spiralling inflation.

Innes Willox, chief executive of the national employer association Ai Group, said the wage rise will fan the flames of inflation.

There is a major risk that the 5.2 per cent increase that has been awarded to the National Minimum Wage, with increases of between 4.6 per cent and 5.2 per cent to award rates, will fuel inflation and 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,” he 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.

As Ai Group argued for in our submissions, the FWC has [to] take into account the 0.5 per cent increase in the Superannuation Guarantee (SG) from 1 July, the removal of the $450 threshold for SG eligibility and the increase in the Low and Middle Income Tax Offset which will deliver the equivalent of a 1.3 per cent increase in pre-tax income to an employee on the National Minimum Wage over the coming months.

“In its decision, the FWC has confirmed that it has taken into account these factors and awarded a lower increase than it would otherwise have done. Also, the FWC has decided on a delayed operative date for the wage increase for employees covered by particular awards in the aviation, tourism and hospitality industries, as Ai Group argued for. These industries have not yet fully recovered from the pandemic and need this relief. Despite these factors, the decision will be of great concern to many employers.

The decision will result in a $40 per week increase to the National Minimum Wage (bringing the NMW to $812.60 per week) and to award rates below the base trade level, and a 4.6 per cent increase to award rates at the base trade level (C10) and higher. The increase is operative from 1 July 2022 for most employees, and from 1 October 2022 for employees covered by certain awards in the aviation, tourism and hospitality industries.

The Council of Small Business Organisations Australia (COSBOA) CEO Alexi Boyd said that the wage rise would be another point of pressure on small businesses already struggling with increasing input costs.

Ms Boyd said many small businesses already pay above the minimum wage, but for those who do pay the minimum wage, this increase will be felt acutely – especially for those who already have debt accumulated from COVID lockdowns.

“Struggling to pay fixed costs is a difficult and stressful situation to be in. It’s really important that small businesses have access to trusted advisers who can work with them to manage the impact of this pay rise,” she said.

“The rise in the minimum wage is part of a pile-on of increased input costs such as superannuation, energy, loan repayments, rent, and wholesale prices. A lot of small businesses are just absorbing the costs. The latest ABS Business Conditions and Sentiments data released in May showed that 48 per cent of businesses weren’t planning on increasing their prices in the next three months because they wanted to retain their customers or couldn’t due to being on fixed price contracts.

“With the news of this minimum wage rise, some businesses will decide to increase their prices, impacting not just consumers but also the small businesses in their supply chains.”

Ms Boyd added staff shortages continue to be the number one issue faced by small businesses.

“It’s holding them back from operating at their full capacity and bringing in the revenue they need to grow and pay higher wages. We need to address this issue as a matter of urgency,” she said.

Australian Chamber of Commerce and Industry CEO Andrew McKellar said the wage increase is too much amid current economic pressures and uncertainty.

“While some businesses have rebounded strongly in recent months, the reality is we are experiencing a multi-speed economy,” he said.

“Many award reliant business were severely disrupted by the COVID-19 pandemic and are only just beginning to recover. Imposing unaffordable wage increases on these small businesses will put jobs at risk, not create them.

“Throughout the annual wage review, ACCI urged the panel to consider the ability of businesses to afford any substantial increase in wages. The reality is many small businesses do not have the resources to absorb extra costs.

“An arbitrary increase in wages risks triggering greater inflation, raising costs for consumers, and making it harder for businesses to retain workers.

“Having only just begun to recover from the pandemic, 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.

“This annual wage decision imposes an unnecessarily complex outcome on businesses who are already facing a difficult and disparate set of economic circumstances. It’s not what we need in a modern, flexible and international competitive economy where increased focus on higher productivity is needed.

“Again, there will be some delay in wage increases coming into effect in some industries, acknowledging the ongoing challenges many small businesses are experiencing. However, with just a three-month delay for increases in the aviation, tourism and hospitality industries, businesses and jobs are going to be placed at unnecessary risk in what remains a highly uncertain environment.

The Australian Retailers Association (ARA) said the decision to increase the minimum wage could tip some businesses over the edge as costs continue to rise.

The ARA’s submission was for the minimum wage to increase by 3.2 per cent, which took into account the intense cost pressures businesses are under, while ensuring the wages of frontline workers could keep pace with the rising cost of living.

ARA CEO Paul Zahra said the Fair Work Commission’s increase to the minimum wage is the highest since 2006, and it comes during an incredibly challenging economic environment for Australia’s retailers.

“The cost of business is a pressing concern and comes as retailers deal with intense challenges,” Mr Zahra said.

“Acute supply chain issues, staff shortages and the rising cost of energy, fuel and materials is creating unprecedented financial pressure. Whilst the ARA supported a fair and balanced increase to the minimum wage, we fear the scale of this increase could tip some businesses over the edge.

“The Superannuation Rate Guarantee is also increasing from 1 July, which is another cost that businesses have to factor in, on top of the inflationary pressures they’re currently experiencing.

“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.

“Whilst the ARA supports an increase to the minimum wage for our frontline teams, the scale of this increase from the Fair Work Commission could send some businesses to the brink.”

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