Will lifting the minimum wage worsen inflation and raise interest rates?

Wages have become the latest battleground in the election, with debate raging about how much extra workers can get paid without sending businesses broke and consumer prices soaring.

On one side, the Australian Chamber of Commerce and Industry (ACCI) is proposing a lift in minimum and award wages of up to 3 per cent.

“Business is doing it tough. They’ve had two years of pandemic where they’ve struggled to keep people in their jobs,” ACCI chief executive Andrew McKellar told RN Breakfast.

On the other is the Australian Council of Trade Unions (ACTU), which is calling for a 5.5 per cent pay increase for the 2.3 million workers covered by awards or the minimum wage.

“Businesses are not just recovering, they’re recovering very well,” ACTU secretary Sally McManus said.

“The bigger risk is that a whole heap of people, ie the one in four workers that are on the minimum wage [or awards]their real wages go backwards, because that means you’ll have less to spend in businesses because they depend on consumer spending.”

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In June, the Fair Work Commission will make its determination about how much extra those workers should get in their pay packets from July 1.

Should the government intervene?

The latest political controversy is whether the federal government should make a submission calling for a specific wage increase.

Labor leader Anthony Albanese has been criticized by the government for saying it should at least match inflation, currently 5.1 per cent.

“No Australian government or opposition has ever put a figure on the rate of the annual wage increase and yet Mr Albanian today has done just that,” Finance Minister Simon Birmingham said.

However, Professor John Buchanan from the University of Sydney’s Workplace Research Center said that is incorrect.

“If you look back at over 100 years of wages policy, governments have usually put in a clear statement of what they think the state of the economy is and what the quantum of the wage increase should be,” he told ABC News Channel.

ACCI’s Mr McKellar said he did not have a problem with the government putting a figure on the minimum wage rise.

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