Treasurer Jim Chalmers is focused on ensuring that Australia's lowest-paid workers do not regress financially, but he emphasizes that any real wage increase must not negatively impact the economy. In its formal submission to the Fair Work Commission’s annual review of minimum and award wages, the federal Labor government advocated for an “economically sustainable real wage increase” for these workers.

The government refrained from specifying a particular figure, maintaining established practice. Real wages growth implies that workers' earnings increase at a faster rate than the prices of goods and services, thus improving their overall financial standing. However, without corresponding productivity gains, wage increases that exceed inflation could potentially drive prices even higher.

This year, the government's submission places greater emphasis on “sustainable” real wages growth compared to the previous year, aligning with Chalmers' statements about a heightened focus on boosting productivity during Labor’s second term. Chalmers mentioned consulting with Reserve Bank governor Michele Bullock to ensure their submission aligns with the central bank’s inflation target band of two to three per cent.

Chalmers stated that the aim is to ensure real wage increases are consistent with broader economic objectives, including reducing inflation. He acknowledged the progress made in this area but stressed that challenges remain as people continue to face financial pressures.

Approximately 2.9 million employees are affected by this review, with the majority being on industry and business-specific awards, and a smaller segment on the minimum wage. The Australian Council of Trade Unions (ACTU) has proposed a more aggressive approach, advocating for a 4.5 per cent rise—exceeding the previous year’s 3.75 per cent increase, which occurred when inflation was higher than the RBA’s target. Conversely, business groups are pushing for a more conservative increase between 2 and 2.6 per cent.

In its submission, the Australian Industry Group cautioned that the economy is in a precarious state, compounded by weak productivity and uncertainty stemming from US tariffs. They warned that an excessive wage increase could lead to higher unemployment. The RBA has voiced concerns that Australia’s tight labor market could fuel inflation, as higher pay raises translate into increased cost pressures for businesses. Michael Plumb, the central bank’s head of economic analysis, noted in a speech that sustaining real wage growth without productivity growth is challenging in the long run.

Recent data from the Australian Bureau of Statistics indicated that the unemployment rate remained at a historically low 4.1 per cent in April, contributing to annual real wages growth over the past 18 months. However, Australia’s productivity growth has declined in recent years. The government's submission acknowledges the critical need to boost productivity to drive long-term real wages growth, emphasizing its commitment to implementing a significant productivity agenda.

The Fair Work Commission has mandated $143 a week in minimum wage increases since the Albanese government assumed power in 2022. Increasing awards and the minimum wage above market wage growth should also help reduce the gender pay gap, given that women are disproportionately represented in lower-paid, award-reliant positions. A landmark ruling by the commission in April resulted in substantial pay increases of up to 35 per cent for workers in female-dominated industries such as health and childcare.

Chalmers noted that the government has allocated billions of dollars to help finance previous pay rises for childcare workers but did not confirm whether taxpayers would be further required to assist employers following the ruling. The Fair Work Commission is expected to announce its annual wage review decision in June.