A financial boost is on the way for millions of Australia’s lowest-paid workers as the industrial umpire mulls an increase in minimum wages while tax cuts wait in the wings.

The combination of a minimum wage hike that keeps pace with inflation and the stage-three tax cuts could boost the income of many workers by more than $2000 in 2024-25.

Such wage increases wouldn’t make workers better off in real terms, but the boost would still hit bank accounts from July 1, providing some salve to the cost-of-living crisis.

It comes as the latest data shows consumers across the country are pulling back on spending in a bid to make ends meet, with retail spending in particular suffering.

UNSW professor Richard Holden said there’s “no doubt” the combination of the changes are inflationary, but they also need to be viewed as support for those doing it tough.

“These measures will provide some relief to lower-paid workers,” he said.

“The concern is that they will make inflation and interest rates higher for longer.”

Explained: Minimum wage hike

Every year the Fair Work Commission (FWC) sets minimum pay rates across the Modern Award system following an intensive industrial lobbying effort from unions and employers.

The decision for the year starting July 1 is due next Monday and will apply for 12 months.

Exactly where the FWC will land is still uncertain, however, with unions calling for a 5 per cent rise and employers wanting 2.8 per cent.

The difference between those two figures is worth thousands of dollars a year to 2.9 million workers on minimum award rates and millions of dollars to the wider Australian economy.

The Australian Council of Trade Unions (ACTU) is arguing workers have already suffered enough in recent years with declining real wages amid soaring prices for essential goods.

They want the FWC to deliver an above-inflation increase that takes into account the fact that minimum rates didn’t keep pace with prices in 2022-23 (when inflation was 7 per cent).

“Working people need a 5 per cent pay rise to start getting ahead again and make up for the real wage losses from the pandemic as well as the decade of wage stagnation under the Coalition government,” ACTU secretary Sally McManus said before the FWC decision.

The Australian Industry Group, however, wants a 2.8 per cent hike that would be far lower than the current headline inflation rate of 3.6 per cent.

They argue bosses won’t be able to afford paying higher wages and that increases would only feed through to prices, adding further pressure to the RBA in its fight against inflation.

AI Group’s economics director Jeffrey Wilson told the commission that a 2.8 per cent rise “strikes a responsible and fair balance at a time when economic conditions are challenging for employers and employees alike”.

Tax cut looms 

Whatever interest groups lobby for, history suggests the FWC will opt to split the difference and land on an increase that approximates inflation so real wages don’t go backwards.

That’s the position taken by the Albanese government, which has implicitly backed a rise of at least 3.6 per cent in its submission to the industrial umpire before the wage decision.

The government has also touted its reconfiguration of the Coalition’s stage-three tax cuts as a boost for low-paid workers struggling with living costs.

A worker earning the full-time minimum wage set to pay about $850 less in tax through 2024-25 after the changes.

But many minimum-wage workers do not work full time and indeed often earn below the tax-free threshold, meaning they would not benefit from the tax cuts.

For those that would benefit, recent surveys undertaken by major banks suggest most people intend to save the tax cut, meaning the inflation impacts could be tempered.