Wage Rise Seen As No Economic Threat

The Age

Friday July 6, 2007

Leo Shanahan, With Vanessa Burrow and AAP

THE increase in the minimum wage of Australia's lowest-paid workers for the second time in 10 months is not inflationary and will not prompt an interest rate rise, analysts say.

The Australian Fair Pay Commission's decision to lift the weekly minimum wage by $10.26 was its second since its creation last year under the Federal Government's WorkChoices legislation.

Chairman Ian Harper said the decision was "responsible and fair" and a recognition that "Australia's low paid and their employers need security".

Economists and markets hardly flinched after the announcement, with analysts agreeing it would have no effect on inflation or interest rates. "For aggregate wages growth for the Australian economy we would see, in practical terms, zero impact," Westpac's Andrew Hanlan said. "In material terms, it will be zero impact on wages growth and no implications for the Reserve Bank."

Mr Hanlan said the reason it would have no inflationary impact was that it was consistent with current price rises.

"In terms of people on minimum wages, this decision will probably keep real wages fairly stable," he said. "Headline inflation is around that 2 to 2.5 per cent mark, which is in line with the nominal increase that has been announced."

ABN Amro chief economist Kieren Davies said petrol prices, not wages, were the big factor behind inflation. "Not just minimum wages but wages on a whole have been remarkably well behaved, so labour costs are a non-issue when it comes to inflation at the moment."

Unions had lobbied for a $28 increase and ACTU president Sharon Burrow called the decision "a slap in the face for hard working Australians".

While the wage rise was largely in line with employer groups' recommendations to the AFPC, the Australian Chamber of Commerce and Industry said it was concerned with the short time between the two rises.

"While we welcome the more moderate nature of today's increase, we remain concerned that the (Australian) Fair Pay Commission has ordered another increase when the ink is barely dry on the last increase," said ACCI director of workplace policy Peter Anderson.

However, Mr Davies said yesterday's rise and the one awarded last year were not directly comparable. "Last year's decision was affected because they took such a long time to hand down the first ruling of the Fair Pay Commission," he said. "It was 11/2 years' increase bunched into one. So it's not a fair comparison to look at the increase last year and this year."

The markets seem to agree with analysts, as indicators of an interest rate rise were little changed.

? Employment agency SEEK's employment index for June showed job applications outstripping vacancies in all states. -- With VANESSA BURROW and AAP