Business Body Warns of Small Business Closures Amid Wage Rise Debate

"Labour demand is also starting to drop away, making it much harder for businesses to employ people"

As the Fair Work Commission embarks on its annual wage review, the possibility of a wage increase for Australians on minimum and award wages has sparked concern among business groups, with the Australian Chamber of Commerce and Industry (ACCI) cautioning that such moves could lead to small business closures.

The Australian Council of Trade Unions (ACTU) is advocating for a five per cent wage increase, arguing that inflation has significantly eroded the real incomes of workers on award wages, leaving them over $5,000 worse off over the past three years. In contrast, the ACCI suggests a more conservative increase of no more than two per cent, citing moderating inflation and the economic generosity extended in previous wage decisions by the industrial umpire.

Low paid workers food industry; Image Source @Canva
Low paid workers food industry; Image Source @Canva

Andrew McKellar, Chief Executive of ACCI, emphasized the challenges facing businesses, including investment stagnation and a growing pessimism within the business community. “Labour demand is also starting to drop away, making it much harder for businesses to employ people,” McKellar stated, stressing the importance of job retention over wage increases in the current economic climate.

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The debate over wage increases comes at a time when Nationals Deputy Leader Bridget McKenzie and others warn that inflationary pressures could negate any benefits of wage rises, putting jobs in small businesses at risk unless government action is taken to curb spending and boost productivity.

Low paid workers food industry; Image Source @Canva
Low paid workers food industry; Image Source @Canva

While the federal government has not recommended a specific percentage increase, it has highlighted the importance of preventing a decline in real wages for Australia’s low-paid workers amid rising living costs. Social Services Minister Amanda Rishworth voiced support for ensuring wages keep pace with the cost of living.

Inflation, which peaked in late 2022, showed signs of moderation, with a 4.1 per cent increase in the 12 months leading up to December 2023. The Fair Work Commission is tasked with considering various economic factors in its wage setting, including cost-of-living pressures and their impact on households, while also being cautious of triggering a wage-price spiral.

ACTU Secretary Sally McManus argued that the lowest-paid workers have been the most affected by inflation and that businesses are in a position to absorb the proposed five per cent wage increase. McManus also contended that such an increase would not be inflationary, referencing the moderation of consumer prices following the commission’s substantial minimum wage hike in 2023.

As the wage review process unfolds, employer groups and unions are set to present their cases, with the outcomes poised to affect roughly a quarter of Australian employees. The decision will have widespread implications, not only for those directly receiving award wages or the minimum wage but also for the broader economic landscape, small businesses, and employment rates across the nation.

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