Ai Groups opening remarks in the Fair Work Commissions Annual Wage Review consultation hearing

Sydney, Wednesday 22 May 2024

Brent Ferguson – Head of National Workplace Relations Policy for the national employer association Ai Group

I will make some brief opening remarks before handing over to my colleague Dr Jeffery Wilson, Director of Research and Economic for the Australian Industry Group. Dr WIson will provide a high-level overview of key aspects of the substance of our submissions.

We are then of course happy to take any questions from the Panel.

We have filed three detailed sets of submissions. We rely on that material and I won’t repeat its content.

It must however be observed that the panel is called upon this year to undertake the Annual Wage Review in what are, on any reasonable assessment, challenging circumstances for both employers and employees.

The Australian Industry Group has proposed a wage increase of 2.8% should be awarded. That would strike a responsible balance between the interests of employers, employees and the broader community.

In advancing this position we have carefully identified a range of significant moderating factors that must be taken to into Account.

Dr Wilson will elaborate on these factors, but they include the clear weakening of the Australian economy and labour market, as well as various Government measures that will assist employees with the cost of living, the reprofiling of the stage 3 tax cuts and the impending increase to superannuation obligations.

Before turning to Dr Wilson, I will also note that Ai Group’s submissions, including both our reply submissions and post budget submissions, incorporate detailed responses to the ACTU calls for additional increases for certain awards. This includes responses to the claim for very large ‘interim’ increases to some award rates based on what could be characterised as gender equality grounds.

These are undeniably significant issues.

The grant of increases of the scale contemplated by the ACTU would have profound effects on employers covered by the awards and the broader community. Such impacts need to be carefully weighed in any determination of whether any additional increase could be granted. Our overarching position is that the material for the Panel, and the nature of these proceedings, does not permit the Panel to conclude that any specific increase should be awarded in the context of any particular award through this process.

I will now hand over to Dr Wilson.

Dr Jeffery Wilson, Ai Group Director of Research and Economic

I will briefly outline Ai Group’s propositions regarding the contemporary economic context of relevance to this year’s decision.

The Australian economy slowed markedly over 2023, dragged by inflationary pressures, tight monetary policy and a weaker global economy. While inflation has declined it is proving stubbornly persistent, and is now primarily of domestic rather than imported origin.

Official forecasts point to slow economic conditions for the next two years, with GDP growth, business investment and employment expected to be weaker than their long-term averages.

These weak economic conditions are negatively impacting business. Industry performance weakened in 2023, and is expected to weaken further in 2024. Pronounced vulnerability can be identified for some industries – particularly but not only retail – as well for small business as a whole.

The cumulative impact of the high minimum wage increases granted over the past two years has also dragged on award-reliant businesses.

Business capacity to pay increases in minimum and award wages is lower now than in previous years of strong post-pandemic growth, particularly so in the identified areas of vulnerability.

The labour market has also demonstrably slowed from its previous position of strength. Key employment indicators have been weakening since the middle of 2023, and recent data also suggests wages growth peaked late last year. The principal risk facing the labour market today is the extent to which employment generation is insufficient to absorb labour force growth.

When setting the level of this year’s minimum wage increase, the Panel should have regard to those branches of industry, and those cohorts of the labour market, that are already showing weakness and thus at greatest risk of disemployment from an excessive increase.

Meanwhile, productivity in Australia has been unhelpfully weak. Labour productivity was negative in the last financial year; declined in most industries; and in aggregate has not grown over the four years since the pandemic. As productivity improvements are the only durable foundation of real wages growth, poor performance should be considered a factor in setting minimum and award wages.

Ai Group acknowledges the pressures currently bearing on low paid employees in lower-income households. Our submissions identify, and where possible attempt to quantify, several forms of income support – including the Stage 3 income tax cut reprofiling, and cost-of-living measures announced before and in the 2024-25 Federal budget. In combination these will make a substantial contribution to low income household incomes.

Having regard to this complex set of economic circumstances, Ai Group submits that the increase in minimum and award wages this year should not exceed 2.8 percent.

This would avoid exceeding business capacity to pay in the deteriorating environment, particularly in industries and employee cohorts showing weakness. In practical terms, it would also deliver an increase in the real incomes of most recipient employees when the impact of the Stage 3 reprofiling and other income supports are considered.

An increase not exceeding 2.8 percent therefore strikes a responsible and fair balance at a time when economic conditions are challenging for employers and employees alike.

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