The Fair Work Commission on Monday decided to cut minimum wages and bonuses by 3.75 per cent a year, giving full-time workers an extra $33 (NZ$35.60) each week based on a new rate for hour from $24.10 (NZ$26).
The changes will affect around one in five workers, or around 2.6 million people, from July.
Critics say it will make it more difficult to return inflation to the 2-3 percent range, from the current 3.6%.
However, Employment Minister Tony Burke said the lowest paid Australians, who received a 5.75% rise last year, deserved wages that matched the cost of living.
“It’s disgusting for anyone to blame 11 per cent of the country’s payroll – for the lowest wages in the country – and say inflation is their fault,” he told reporters in Canberra.
“This is the most horrific case of punching.
“What we have here are people who have less wiggle room with the cost of living, and we’re making sure their wages keep up.”
Prime Minister Anthony Albanese stood in parliament and tossed a $1 coin at his political opponents, saying his government supports working people to get ahead.
“The current opposition in its entire lost decade in office has had to remove the minimum wage as much as we have done in just the two years we have been in office,” he said.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the wage hike would increase costs for small businesses and delay interest rate cuts.
“We can’t just say, ‘let’s give wage increases that outpace inflation,'” he said.
“Small businesses will increasingly have to pass on the higher costs they face – whether from increased red tape or … future wage claims that will come as a result of this decision.
“You have to tie wage growth to productivity.”
Unions wanted a five percent increase, while business groups recommended between 2 and 3 percent.
Fair Work Commission president Adam Hatcher said the time was not right to raise wages significantly above the rate of inflation because labor productivity was no higher than four years ago and growth had only recently returned to positive territory.
“A primary consideration has been the cost-of-living pressures that modern price-dependent workers — especially those on low wages and living in low-income households — continue to experience,” he said.
“This increase is consistent with the projected return of the inflation rate below three percent in 2025.”
The commission noted that Australians would soon see an increase in their disposable income thanks to the federal government’s upcoming tax cuts and other relief measures included in the federal budget.
However, an increase in the pension guarantee amount will reduce these benefits.
Asked about the decision, opposition MP Paul Fletcher said inflation was not going away anytime soon.
“The best way to get real income growth is to get inflation back under control,” he told Sky News.
But Australia’s Economic Development Committee chief economist Cassandra Winzar says the wage increase “will not significantly increase inflation or put upward pressure on interest rates”.
ANZ senior economist Catherine Birch also noted that this was the first time in three years that nominal wage growth outpaced inflation, but this “does not change the risks around the outlook for wages, inflation or the case rate”.
The Commission will also soon launch proceedings to address gender undervaluation for modern awards that apply to female-dominated industries and include early childhood education, care workers, social workers, psychologists and dental assistants.
Australian Council of Trade Unions secretary Sally McManus called on the commission to provide temporary pay rises for those in key feminised occupations.
“When workers have more money to spend, it stimulates local businesses and drives economic growth,” she told reporters in Adelaide.
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