Australian employers claim ‘excessive’ minimum wage rise in line with inflation could lead to recession

Employers have warned that an "excessive" 7% minimum wage rise in line with inflation advocated by unions could tip Australia into recession.

It comes as the Albanese government has argued the Fair Work Commission should "ensure the real wages of Australia's low-paid workers do not go backwards".

The workplace relations minister, Tony Burke, and the treasurer, Jim Chalmers, noted the government submission to the commission's annual minimum wage review "does not suggest that across-the-board wages should automatically increase in line with inflation", implicitly leaving room for those on higher award wages to receive a lower increase.

The Australian Industry Group made their claim responding to unions' call for a $1.50 an hour rise in the national minimum wage to $22.88.

Initial submissions to the FWC's review, which sets the pay of more than 2.6 million employees on the national minimum or award wages, close on Friday.

While the AiGroup is yet to put a figure on its preferred rise, the Australian Chamber of Commerce and Industry has asked for a 3.5% minimum wage increase, or 75c an hour, to $841.04 a week.

The Acci chief executive, Andrew McKellar, said that would be a "reasonable and responsible" increase given business would already have to pay a 0.5% increase in the superannuation guarantee from 1 July.

On Wednesday the Australian Bureau of Statistics revealed inflation had now eased to 6.8% in the year to February, but despite the signs that inflation has peaked both AiG and Acci have warned of the possibility of rise in the minimum wage adding to inflation.

The AiGroup chief executive, Innes Willox, called on the Fair Work Commission to "exercise restraint and caution".

"[Our] submission will draw attention to the real risk that an excessive wage rise would tip Australia into recession," he said.

"With both the Reserve Bank and the federal government pledging to 'do what it takes' to get inflation under control, a wage rise anywhere near the 7% proposed by the ACTU would raise inflationary pressures and inflationary expectations."

Willox said that households are "already under pressure from increases in mortgage repayments" and failure to curb inflation could lead to an "an additional round of interest rate rises".

Willox said that a "reckless and irresponsible" pay rise would lead to a "recession that we didn't have to have".

McKellar said the wage case "isn't about the top end of town, it's about small and family businesses which are the lifeblood of our local communities".

"Conditions across the economy remain disparate, and many small businesses continue to struggle.

"Award-reliant sectors like accommodation, hospitality, retail, administration, arts and recreation sectors have all experienced falling profits over the past two years.

"While Australia appears to have turned a corner on inflation, it still remains stubbornly high."

Burke and Chalmers said they "believe the best way to ensure workers can deal with cost-of-living pressures is to ensure they earn enough to provide for their loved ones and to get ahead".

The lowest-paid workers were "more likely to be women, under 30 years of age and employed as casuals", they said.

On Thursday Chalmers rejected suggestions that wages should be suppressed to prevent an inflationary spiral, blaming inflation instead on the Russian war in Ukraine and interruption to supply chains.

"I think that if you made a list of all of the things that are giving us this inflation challenge in our economy, low-paid workers getting paid too much wouldn't be on that list," he told Channel Seven's Sunrise.

"We don't have a wage price spiral - there's no indication that we might have one.

"And we think making sure that particularly the low paid can earn enough to support their loved ones is an important way for people to deal with these cost of living pressures, not a contributing factor to them."