Australia's minimum wage and award wages will increase by 3.75 per cent from July 1, the Fair Work Commission has announced.
The decision will see the national minimum wage increase to $24.10 per hour and $915.91 per week, based on a full-time, 38-hour working week.
It is an increase of about $33 a week to the current minimum wage, and affects about 2.6 million workers — equivalent to 20.7 per cent of the national workforce.
Overall, the Fair Work Commission (FWC) estimates the increase to minimum and award wages will affect "about a quarter of all Australian employees".
"The increase of 3.75 per cent which we have determined is broadly in line with forecast wages growth across the economy in 2024 and will make only a modest contribution to the total amount of wages growth in 2024," the commission said.
"We consider therefore that this increase is consistent with the forecast return of the inflation rate to below 3 per cent in 2025."
The FWC said the increase to the minimum and award wages would have a "limited" effect on the broader economy, noting employees who relied on modern award minimum wage rates were "significantly different" to the entire Australian workforce.
"They mostly work part-time hours, are predominantly women, and almost half are casual employees. They are also much more likely to be low paid," the commission said.
In delivering its decision, the FWC said living standards, higher living costs and workforce participation were major considerations in determining the increase to the minimum and award wages.
"In determining this level of increase, a primary consideration has been the cost-of-living pressures that modern-award-reliant employees, particularly those who are low paid and live in low-income households, continue to experience notwithstanding that inflation is considerably lower than it was at the time of last year's review," the commission said.
The FWC noted that modern award minimum wages remained lower than they were five years ago, in real terms.
However, the FWC deemed it was "not appropriate" to increase award wages "by any amount significantly above the inflation rate".
The Australian Council of Trade Unions (ACTU) had argued for an increase of 5 per cent to the minimum wage, and the federal government had pushed for an increase in line with inflation.
Business groups had wanted a modest increase, with the Australian Commerce of Chamber and Industry (ACCI) calling for an increase no greater than 2 per cent, while the Australian Industry Group (Ai Group) had proposed a 2.8 per cent increase.
"We have taken into account that the labour market and business profit growth overall remain strong, but the picture is less positive in some of the industry sectors which contain a large proportion of modern-award-reliant employees," the commission said.
"We have also taken into account that modern-award-reliant employees will shortly receive the benefit of the stage 3 tax cuts and the budget cost-of-living measures, which are projected to increase real household disposable incomes over the next 12 months."
In a joint statement, Treasurer Jim Chalmers and Employment Minister Tony Burke said the FWC's ruling was "a win for workers" and would contribute to cost-of-living relief.
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Unions and business groups respond
Speaking in Adelaide, ACTU secretary Sally McManus said the decision delivered 2.6 million workers a "small real wage increase" that was above the annual rate of inflation.
"Any day working people get a pay rise is a good day. This decision allows people to keep up with inflation and have a small real wage increase," Ms McManus said.
"If employers got their way, Australian workers would've seen a significant real wage cut while facing cost-of-living pressures."
In addition to the FWC's decision, Ms McManus said July would be a "very positive month" for workers given the federal government's revised stage 3 tax cuts would also come into effect.
"Every working person will have significantly more in their bank accounts because of the federal government's cost-of-living bonus through tax cuts, and for over 20 per cent of the workforce, this 3.75 per cent [wage] increase," she said.
"Today's decision is a win for workers, their families, and the broader Australian economy."
Luke Achterstraat, chief executive of the Council of Small Business Organisations Australia (COSBOA), said that while businesses support wage increases for employees, employers are already battling rising costs in a tough economic climate.
"It's an extremely tough operating environment, the levy is really breaking for small business, energy, rent, insurance, [and] borrowing costs, and as the [Fair Work] commission said, productivity has been flatlining for a number of years now," he told ABC News Channel.
"Unfortunately, the decision today, will mean higher costs and more cost pressure for small businesses who are really struggling to churn out a profit and to remain in business at the moment.
"Small businesses will need to find a way to pass these costs on, that's the reality."
ACCI chief executive Andrew McKellar said the decision "tests the acceptable limits for businesses" and is "well over" the Reserve Bank's target range for inflation.
"This decision is not in line with the trajectory needed to shore up the Australian economy, but it does not pose a significant inflation threat so long as productivity is addressed," Mr McKellar said.
He also echoed Mr Achterstraat's concerns that the wage decision will result in businesses passing on the higher costs.
"Small businesses are grappling with significant increase costs as a result of the increased compliance burden and wages remain a concern in such an environment," Mr McKellar said.
"It is inevitable that businesses will need to pass increased costs through to consumers. Many small businesses are in a position where they simply cannot absorb any more."
'It's a double-edged sword'
As a casual house cleaner, Danielle Mastin is one working Australian who will benefit directly from the FWC's decision to increase award wages by 3.75 per cent from July 1.
Currently, she balances working about 30 hours a fortnight with studying full time, and said it was a "good thing" she would be getting paid "a little bit extra".
"I'm lucky and fortunate enough that I do get to live at home and don't have a family to support but a lot of people that live under the minimum wage, and have looming finances over their head, I think the percentage … is a bit unjust," Ms Mastin said.
"It's more of a number they have to pull out to make it look like they're doing something, but are they actually? I'm not sure about that.
"It's better to have more than nothing, but it's still not really good enough in my eyes."
Ms Mastin is one of around 250 cleaners employed by the cleaning business which is owned and operated by Edward Clayton.
Around 70 per cent of his business's costs is paying for its staff, and he said around a third of his workforce is made up of casuals and full-time employees.
"It's a doubled-edged sword. In one respect, people need higher wages and there's a cost-of-living crisis, so increasing pay to staff makes sense," he said.
"But on the other side, from a business perspective, it's difficult for us to pass those costs onto our customers because they're also feeling the pinch."
Mr Clayton's employees are paid under the Cleaning Service Employee Award, with the minimum weekly pay rate currently $915 per week, however he said his employees are paid at the higher levels within the award.
Asked about the FWC's wages decision, he said it "could have been a lot worse".
"Obviously with inflation over the last year … some people were throwing around 5, 6, 7, 8 per cent," he said.
"So I think if inflation is around 4 per cent, it's [the wage increase] not too bad."
In the coming months, he said the increase to award wages will result in his business's margins being "a little bit slimmer", but admitted his business may have to increase its prices eventually.
Treasury says wage increase 'perfectly reasonable'
Earlier, Treasury secretary Steven Kennedy was asked during a Senate estimates hearing in Canberra whether the FWC's decision would negatively impact inflation, given the revised stage 3 tax cuts also come into effect from July — therefore giving workers more money to spend.
"I think it's perfectly reasonable for the lower end to keep up with inflation," Mr Kennedy said.
"Though, of course, we have to be very careful of that when we see very large inflation shocks."
He added that it was his focus as Treasury secretary to improve productivity, which would drive future wage growth without the risk of adding to inflation.
Mr Kennedy is also a member of the RBA board, but was appearing before Senate estimates in his capacity as Treasury secretary and did not comment on how the central bank may interpret the FWC ruling.
However, JP Morgan economist Tom Kennedy (no relation) said it was unlikely that the FWC's decision would "move the needle" for the Reserve Bank for its inflation and wage price index (WPI) targets.
"We estimate that today's outcome will be neutral for aggregate wage growth, with a contribution very close to zero," he said.
"For context, last year's decision added [around] half a percentage point over and above the normal award/minimum wage impulse.
"While the RBA doesn't provide explicit award/minimum wage estimates, today's outcome appears broadly aligned with the central bank's WPI forecast.
"Accordingly, we don't think this outcome will move the needle on the Bank's inflation/wage forecast or change its thinking on current monetary policy settings."
ANZ senior economist Catherine Birch said the FWC's decision did not change its outlook for inflation, wages or the cash rate.
Ms Birch also said that the 3.75 per cent increase was lower than the previous two years, where nominal award wages increased by 5.75 per cent and 4.6 per cent respectively.
"But for the first time in three years, it exceeded inflation," she said.
"This means there will be a small rise in real award minimum wages, although the level will still be materially lower than before inflation spiked."
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