Parliament and not the Fair Work Commission should be given the power to determine the minimum wage and penalty rates, a former deputy president of the industrial watchdog says.

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In a submission to the Productivity Commission’s inquiry into the workplace system, obtained by Fairfax Media, Brendan McCarthy says the watchdog did not have the core competence of understanding the workings of the economy or how enterprises worked.

Mr McCarthy, who retired as a commission deputy president in 2014, says parliament should set wage standards such as penalty rates.

Doing so would provide open and transparent access and influence for the whole community, he said.

The government insists it won’t be changing the way penalty rates or the minimum wage are determined, regardless of what the Productivity Commission inquiry recommends.

Setting wage conditions would be left to the Fair Work Commission, it has said.