National Audit Report Opens Debate on Australia's Minimum Wage

2nd May 2014

The Report of the National Commission of Audit released yesterday questioned the impact of Australia’s minimum wage on efforts to get people into work. In particular it’s authors recommended the national minimum wage (NMW) be gradually benchmarked to 44% of Average Weekly Earnings (AWE) over the next ten years.

The Report in a section entitled Unemployment and the Minimum Wage, highlights the wide variation in actual wages in Australia, the relatively high purchasing power of Australian minimum wages compared to New Zealand, the United States, France, Canada and the UK as well as the disproportionate impact of the NMW on employment in local labour markets such as Tasmania and South Australia.

The debate on this matter will swiftly move to the role of institutions such as the Fair Work Commission, which has consistently rejected the notion of regional and industry based differences in adjusting minimum wages. The impact of the social welfare safety net has featured in past deliberations of the Annual Wage Review since it’s reinstatement under the Fair Work Act, (to no avail) and junior rates, trainee and apprentice wages have not been significantly changed since Australia was colonised in the 19th century. Alarmingly, recent decisions of the Fair Work Commission see it moving in the opposite direction of the Audit Commission.

It seems to me that there are now three very good reasons drawn from our recent experience, to continue this debate and hopefully encourage a consensus for change in the modern Australian economy.

Firstly, the two tier economic growth experienced in the mining boom highlighted how vulnerable trade exposed industries such as manufacturing are to international competition. As such, labour costs need to be far more flexible if Australian businesses are to survive and prosper in this environment.

The Fair Work Commission can assist Australian business almost immediately by decoupling modern award minimum wage adjustments from deliberations affecting the National Minimum Wage (NWW). Modern awards are supposed to reflect the particular circumstances of employment within the industries they regulate. The current practice of uniform adjustment of minimum wages across all wage classifications in all awards is lazy and harmful to employees and employers in trade exposed industries.

Secondly, the varying impact of minimum wage adjustments on local labour markets, the opportunities of people transitioning back into the workforce and young people entering the workforce for the first time is a valid point that should not be ignored. The idea of benchmarking the minimum wage has merit, whether it be AWE or some other indices.

In the past, trade, commerce and employment in regional areas was underpinned by government and semi-government agencies such as local government, water, gas and electricity utilities, postal, telephone and transport services. Most of those have either been corporatised, privatised, rationalised or closed. The Audit Report is recommending even more sales of government assets. Therefore, it is obstinate to argue for the continuation of the centralised wage fixing system in the face of the bleeding obvious differential impact of the other elements of trade and commerce on regional communities.

Thirdly, prior to the GFC Australia experienced lower levels of unemployment, higher real wage growth and less turnover of employment due to redundancy and business closures, than we have over the past five years. The introduction of the Fair Work Act has not provided any greater security of employment or prosperity to employees than the previous system under Work Choices. The vagaries of the modern international economy cannot be legislated away by more regulation. It can only harm it.

I agree with the sentiment of the authors’ of the Report, that the time for action is now.