Labor’s living wage plan means pay bump for 1.2 million — but uncertainty for SMEs

Federal Labor will legislate a wage increase for Australia’s lowest-paid workers if elected, directing the independent industrial relations umpire to phase in a “living wage” from July 1.

Clarifying Labor’s policy position today after weeks of uncertainty, Opposition Leader Bill Shorten and Shadow Employment Minister Brendan O’Connor said ensuring no full-time workers live in poverty should be the Fair Work Commission’s “highest priority”.

Labor says about 1.2 million Australians — or one in 10 Australian workers — will benefit from the plan, which would enshrine a living wage in law, ensuring the FWC takes the cost of living pressures into account and consults with community organisations, business groups and unions.

The commission already considers living standards, the needs of low-paid workers and business viability in its existing annual minimum wage review, but Labor believes the current law falls short in being “no more than a bare safety net”.

“As a safety net, the minimum wage has left some full-time workers living in poverty,” Shorten and O’Connor said in a joint statement on Tuesday morning.

Labor has not quantified what proportion of the median wage a living wage should be or detailed the timeline such an increase should be implemented over, saying the FWC will make those decisions.

Tuesday’s announcement clarifies comments made by Shorten last month where he advocated for the creation of a living wage but was coy about how the FWC would be directed to make it a reality.

There has been concern among business lobbyists Labor’s policy will interfere with the independent umpire it set up under the Rudd government, although intervention has been part of Labor’s policy platform for some time through its penalty rate reversal commitment.

Shorten said on Tuesday the wage increase would be phased in “responsibly” by the FWC through its next annual wage review, which would see the increase phased in from July 1.

“A living wage should make sure people earn enough to make ends meet, and be informed by what it costs to live in Australia today — to pay for housing, for food, for utilities, to pay for a basic phone and data plan,” Shorten and O’Connor said.

Labor confirmed the living wage would not “automatically flow through” to the more than two million workers on award wages, saying the Annual Wage Review will still determine those rates.

Labor commits to SME consultation

While the exact nature of Labor’s planned legislation remains unknown, current FWC rules would require consideration of any living wage in how pay rates are set in modern awards.

Labor says the increase will boost economy-wide demand, putting more money in the pockets of workers, but the pay increase would also increase costs for small business.

Council of Small Businesses of Australia chief executive Peter Strong says the increase will “hit small business” but is happy Labor has committed to consultation.

“They’ve listened to what we’ve said, you can’t really ask more than being listened and responded to,” Strong tells SmartCompany.

“This will only hit small business … if it comes in they’ll have to put people off or cut their hours, or where they can, increase prices.”

Some prominent economists, including RBA governor Phillip Lowe, have for some time argued stagnant real wage growth is holding back the economy.

The Wage Price Index rose 2.3% in 2018, according to ABS data, while the Consumer Price Index rose 1.8%, leaving Australians with a 0.5% rise in real wages for the year.

While wages for Australia’s lowest-paid workers have been posted by the FWC’s minimum wage increases in recent years, overall real wage growth has been relatively flat for the last five years.

Small business is suffering from cost pressures of its own though, including skyrocketing power prices and rising commercial rents.

Industrial relations reform remains the key area of contention in Labor’s policy platform from a small business perspective, offsetting otherwise broadly supported policy in areas like dispute resolution and competition.

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