A push from businesses to dock an upcoming minimum-wage rise because of changes to stage-three tax cuts has been panned, with an expert saying cost-of-living relief shouldn’t affect pay.

The Australian Industry Group said on Monday that Australia’s lowest-paid workers should get a smaller wage increase this year due to hundreds of dollars worth of tax cuts flowing from July 1.

Ai Group chief Innes Willox said the tax boost, unveiled by the Albanese government last week, would make it easier for “low-paid employees” to meet their living costs with a smaller wage rise.

“With inflation persisting and employment growth stagnating, such a decision would not only take pressure off the Reserve Bank on the inflation front, it would also underwrite better employment outcomes for employees,” Willox said.

But University of Southern Queensland economist Fabrizio Carmignani said the minimum wage case – adjudicated by the Fair Work Commission – should not be affected by the tax cut.

He said business fears that wage rises would fuel inflation were being overblown amid forecasts that inflation has peaked, arguing that many workers are struggling with cost-of-living pressures.

“The fact there is now a tax cut should not be a reason not to progress with increasing the minimum wage,” Carmignani said.

“In general, wage increases can have inflationary consequences … but here we are talking about a decision that’s happening at a time when we have indications the peak in inflation will be behind us.

“On this particular occasion it is justified to progress with the minimum-wage increase.”

The Australian Council of Trade Unions has also criticised suggestions that low-paid workers should have their wage increase docked by the value of the stage-three tax cut change.

ACTU secretary Sally McManus said the cost-of-living bonus included in the tax changes was designed to compensate workers for stagnating purchasing power, arguing it shouldn’t be seen as a “green light” for businesses to push for smaller pay rises from the FWC.

“One in four workers rely on the minimum wage or awards and the Annual Wage Review is their only opportunity for a pay rise. When workers don’t see progress here, they spend less, and this is bad for the economy and for local business,” McManus said on Monday.

Taxes, inflation among Fair Work considerations

The Fair Work Commission will soon begin taking submissions on the 2024-25 minimum wage and will hand down its final decision before July 1, when the new rate will begin being paid.

Last year the minimum wage rose 5.75 per cent to $882.80 a week. That was a larger rise than in previous years but still fell short of headline inflation and locked in negative real wages.

Under Willox’s latest suggestion, most workers on the minimum wage would receive about $800 less in any increase passed through by the FWC for the 2024-25 financial year.

The Ai Group did not comment on whether it had finalised a precise minimum wage recommendation for 2024-25 on Monday.

At first glance it seems strange that the tax cuts would affect the minimum-wage decision, but the industrial umpire actually considers a range of factors when making its annual ruling.

Sam Nottle, a senior associate at Jewell Hancock Employment Lawyers, said the FWC had to balance economic prosperity and social inclusion, meaning it took things like tax changes and inflation into account when determining if workers could meet living costs.

“The argument, broadly speaking, from employers is that people on the minimum wage are getting a tax cut, so that should be considered in whether or not to increase wages when we’re in an inflationary environment,” Nottle said.

“From an employee perspective, directly having an increased wage and a tax cut goes towards offsetting the cost of living.”

Economic rationale panned

Willox suggested docking the tax cut from the minimum wage would be the right move for the economy. But Carmignani said a much-feared wage-price spiral was unlikely to materialise in Australia in the coming year.

One big reason for that is that inflation appears to have peaked, caused initially by a run-up in goods prices rather than domestic demand pressures that would be explained by wages.

And inflation expectations, a key measure of how much people think prices will rise, remain relatively subdued, Carmignani said, which suggests further inflation gains are unlikely.

“As long as the expectations of future inflation are anchored, the wage inflation spiral that businesses seem to be worried about is less likely,” Carmignani said.

Reserve Bank forecasts have already called the inflation peak, and expect the pace of price rises to continue moderating in 2024.

It is predicting the headline consumer price index finished 2023 at 4.5 per cent, which would be down from a peak of 7.8 per cent last year.

We’ll know later this week when the Australian Bureau of Statistics publishes official inflation data for the December quarter.