The Anthony Albanese government says the Fair Work Commission’s big salary increase is only for minimum wage workers

And Anthony Albanese’s Labor government says big pay increases should only be for the lowest wage earners – and the higher paid workers may need to take an effective pay cut.

They support union calls to raise the minimum wage in line with inflation by seven percent to $22.88 an hour in the annual review by the Commission on Fair Work.

But they warn that people who are paid better shouldn’t also expect to get an automatic wage increase to keep up with inflation, and may be forced to cut wages in real terms instead.

The latest cost of living figures reveal that inflation has fallen from a 32-year high of 7.8 percent in December to 6.8 percent in the year to February.

The government, in its submission to the Fair Work Commission’s annual wage review, endorsed calls for a minimum wage to catch up with inflation.

But they opposed giving each worker a wage increase commensurate with the cost of living, and said their main focus was on increasing low wages.

“It will be important for the commission to balance all risks while ensuring that the real wages of low-wage workers do not decline,” she added.

This does not suggest that, across the board, wages should automatically increase with inflation, nor should inflation be the only consideration in determining wages.

The current economic conditions are exceptional, difficult and expected to be temporary.

“The approach recommended by the government is specifically about low wages in a macroeconomic context.”

Senior Labor figures, including Chancellor of the Exchequer Jim Chalmers, have disputed RBA Governor Philip Lowe’s assertion that generous wage increases versus low wages could lead to a wage price spiral.

The Australian Council of Trade Unions is pushing for a 7 per cent wage increase, while the Australian Chamber of Commerce and Industry wants to cap it at 4 per cent, including a 0.5 percentage point increase in the compulsory pension starting on July 1.

By the time Fair Work Australia makes its decision in June, the ABS could have released the more comprehensive March quarter inflation data on April 26, followed by the less detailed April monthly inflation data on May 31.

There is no downward spiral, say labor figures (pictured, a Sydney waiter). But in its submission to the Fair Work Commission’s annual wage review, the federal government argued against giving every worker, other than those on minimum or low wages, a wage increase in line with inflation.

Inflation may also have abated by then, with the Reserve Bank of Australia forecasting the annualized CPI to fall 6.75 percent in March to 4.75 percent by December.

The Fair Work Commission last year awarded a pay rise of 5.2 percent to those earning the minimum wage, just above the inflation level of 5.1 percent in March 2022.

Retail workers got a pay raise on July 1, while hospitality and tourism employees had to wait until October 1.

This directly affected 180,000 minimum wage workers but had spillover effects on 2.7 million workers on bonuses.

Wages are not to blame for the rise in inflation, argued Dr Chalmers. Last year wage levels rose by 3.3 per cent, which means most workers are suffering from a decline in real wages.

But he noted that inflation remains an issue.

“While Wednesday’s monthly reading showed that inflation continues to moderate in welcome ways, it remains unacceptably high,” he said in an opinion piece for The Australian newspaper.

The government’s salary review report said that “the potential for a wage price spiral is currently low” indicating that inflation is likely to decline.

But she argued that lower-wage workers are more likely to suffer from higher inflation and therefore need a wage increase that persists.

“There are also risks associated with continued or greater-than-expected declines in the real wages of workers on the minimum wage and bonus wages,” the submission said.

“This could have a significant impact on the living standards of low-wage workers, and result in low-wage workers bearing a disproportionate burden of the macroeconomic adjustment needed to bring down inflation.”