Australian Minimum Wage Rises 4.75%, Boosting Inflation Concerns

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By Stephanie Chalmers

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Award wage decision 'bolsters' case for RBA 'policy tightening'

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By David Taylor

The economists at Capital Economics view the latest Annual Wage Review has potentially inflationary, heaping pressure on the Reserve Bank to hike interest rates again.

Here's an excerpt:

The strong increase in the minimum wage this year makes it more likely that wage growth will overshoot the RBA’s expectations, bolstering the case for additional policy tightening. The Fair Work Commission (FWC) announced today that minimum award wages will be increased by 4.75% effective 1st July, while workers in the lowest-paid classifications will receive even larger increases as part of a multi-year adjustment to award wage structures.

The decision marks the strongest increase to award wages since the 5.75% hike in 2023/24 and was much stronger than the 4.25% rise we had predicted.

The FWC based its decision on the RBA’s forecast that headline inflation would climb to 4.8% in the year to June.

While it admitted that “it would not be practicable or responsible in the current uncertain circumstances to award a real wage increase”, it felt compelled to ensure that “modern award reliant employees generally are not worse off in real terms than they were as at 1 July 2025.”

Modern award minimum wage rates apply to only 21.1% of the workforce and an even smaller 11.2% of the national wage bill.

That means the direct impact of the decision on overall wages will be modest.

However, RBA analysis finds that the minimum wage decision typically tends to influence pay-setting across other methods.

Its latest estimates point to a spillover of around 10% of individual arrangements and 15% of enterprise bargaining agreements.

Unions welcome pay boost

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By David Taylor

The Australian Unions have welcomed the Fair Work Commission’s decision to award a wage rise of 4.75% for Australian workers who rely on minimum and award wages.

Here are some initial thoughts from ACTU Secretary Sally McManus:

“Australian Unions work hard to secure wage increases, and we welcome the Fair Work Commission’s decision to lift wages for around 3 million lower paid workers’ by 4.75 percent come 1 July.

“It means relief is on the way for lower paid workers to help keep up with price pressures and avoid the need to cut back on essentials like food or seeing a doctor.

“This is a positive real wage increase, and it will provide some buffer against the worst impacts of the Trump war, providing it doesn’t drag on throughout the year.

“It is encouraging to see that even higher wage rises of 6%, matching our full claim, have been awarded to around 100,000 workers on the very lowest pay rates because they simply could not afford to wait.

“The lowest paid need to spend almost all of what they earn to survive, and this wage increase will be vital to them while generating income for local businesses that also need a boost,” she said.

Minimum wage to lift by 6 per cent

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By David Taylor

Let's just recap on what we know so far following publication of the 2026 Annual Wage Review.

Australia's minimum wage will increase by 5.97 per cent, and minimum award workers will get a 4.75 per cent pay boost, in the Fair Work Commission's (FWC) annual wage review.

The new national minimum wage will be $26.44 per hour (up from $24.95), and $1,004.90 per week (up from $948), based on a full-time 38-hour week.

The pay increase will begin from July 1.

The pay increase in affect millions of low-paid workers. While the national minimum wage covers a very small proportion of the workforce, roughly 20 per cent of all employees in Australia are paid at a minimum award rate.

According to the FWC, because of the part-time and low-paid characteristics of the modern award-reliant workforce, the wages paid to them constitute only about 11.2 per cent of the national 'wage bill'.

Read this informative piece from ABC business reporter Gareth Hutchins.

Workers' real wages go backwards

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By David Taylor

The onset of the COVID-19 pandemic was over 6 years ago but its economic legacy is alive and well.

In its wage determination today, the Fair Work Commission highlighted a sinister ongoing problem facing workers: workers, in terms of their pay, continue to go backwards.

The FWC announcement contained this phrase, "... most modern award-reliant employees are still in the position that their wage rates, in real terms, remain lower than what they were in July 2021."

To be clear, workers' purchasing power, or what their wages can purchase, remains relatively weak considering how much inflation has risen in past years.

The FWC wanted to make the point that, mostly, workers were not any worse off at July 1, 2025, but that's cold comfort.

This has been a central concern for the Reserve Bank for many months.

"But I come back again to the point that high inflation hurts absolutely everyone," Michele Bullock said at the March monetary policy decision.

"And so that is why we need to focus on that. If that gets out of hand, then that is bad for everyone and particularly, I would say, for people who are on low and fixed incomes, and they typically don’t have mortgages at all.

"They’re in the renter bucket. They’re the ones who are particularly badly hit by inflation," she said.

RBA's 'reno from hell rolls' on

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By Daniel Ziffer

We've written extensively about the Reserve Bank's tough renovation of its flagship headquarters in Sydney's Martin Place.

It's years overdue, the bill is in the millions and they've explored just demolishing the whole thing.

Below is a link to an article from two years ago that details some of the extensive issues.

A new request on the federal government's AusTender site seeks a request for proposal: "Part 1 – Information for Respondents, 65 Martin Place Redevelopment -Stage 2, Facade Engineering Services – Base Building Design".

They're looking for a company that can cover "stone technology, reflectivity analysis and environmental performance".

If that's you, lucky day.

If you want to feel better about your over-budget, behind-schedule build, enjoy this article.

Only so much Fair Work can do, the Commission concedes

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By David Taylor

The Fair Work's published announcement has been candid in its admission that, despite workers' real wages still catching up to 2021 levels, it can't boost pay too much.

The obvious reason for this is that it runs the risk of generating further inflation or sinking too many businesses.

Here's some of what the Commission had to say around this:

"Taking into account all of these matters, we have concluded, regrettably, that it would not be practicable or responsible in the current uncertain circumstances to award a real wage increase for employees reliant on modern award wage rates that would be sufficient to close the real wage gap entirely," the announcement said.

"However, we consider that we should at least ensure that modern award reliant employees generally are not worse off in real terms than they were as at 1 July 2025, and that we should also take additional measures to protect the position of the very lowest-paid workers under modern awards."

Fair Work decision to push business costs up, retailers warn

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By David Taylor

Some initial business group reactions are beginning to emerge following the announcement of the 2026 Fair Work Annual Wage Review.

Here's some initial thoughts from the Australian Retail Council:

The Australian Retail Council (ARC) says the Fair Work Commission's decision to increase minimum and award wages by 4.75% will significantly increase labour costs for retailers already navigating weak consumer demand, rising operating expenses and some of the most challenging trading conditions in recent years.

"ARC Chief Legal & Industrial Relations Officer Lindsay Carroll said retailers value their employees and recognise the importance of fair wages, but decisions of this magnitude cannot be viewed in isolation.

"Retailers support fair wages and recognise the contribution retail employees make every day, but this decision comes on top of a growing list of cost pressures that businesses are already struggling to absorb," Ms Carroll said.

"Labour is one of the largest costs in running a retail business. Combined with rising energy, rent, insurance, freight, compliance and security costs, this decision will place additional strain on already thin margins across the sector."

Workers' real wages still catching up from 2021

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By David Taylor

In its announcement of the outcome of the Annual Wage Review 2026, Fair Work has made the point that despite all the geo-political and macroeconomic uncertainty, the bottom line remains that workers' real wages (that is, taking account of inflation over time) have some catching up to do.

Here's another excerpt from the decision:

"The fundamental consideration which must be balanced against these matters is that most modern award-reliant employees are still in the position that their wage rates, in real terms, remain lower than what they were in July 2021, prior to the post-pandemic spike in inflation."

"The ‘real wage gap’ which has opened between the rate of the CPI and modern award wage rates has particularly affected the living standards of the low paid and their capacity to meet their needs.

"This is particularly the case when the rate of inflation for non-discretionary essential goods and services is running significantly higher than the headline CPI rate of inflation."

Differences always a part of the RBA process

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By Daniel Ziffer

A massive cultural review recommended the RBA board split into two: one to manage the bank, one to make the decision on interest rates.

One reason given was that there was a lack of diversity of views.

Professor Ian Harper has been talking, with great passion, about the contested process of setting rates.

Here's something interesting: he says it has always been so.

"My last meeting will be in August. These decisions have been contested for the whole time I’ve been there

"People with goodwill and intelligence will make different decisions… that is the way

"I wouldn’t want you to get the impression that this is the first time it’s happened because that would not be true. We discuss it, argue about it and then we vote. And not everyone votes the same way…"

Fair Work weighs in on 'wild card' Middle East

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By David Taylor

The Fair Work Commission in its 2026 minimum wage determination has highlighted the uncertain economic outlook.

This view is consistent with what both the Reserve Bank and Treasury have said about the macroeconomy.

Here's another excerpt from the Fair Work announcement.

"... the Australian economy faces the wild card of the Middle East conflict which broke out unexpectedly on 28 February 2026.

"The consequential disruption to oil supplies has accelerated inflation in Australia through direct effects on the price of petrol and diesel and second round effects on the price of a range of goods and services.

"This has added uncertainty as to the trajectory of the economy at least in the near future, although we note that the Reserve Bank and Budget forecasts for the economy to the end of financial year 2026–27 have not substantially changed because of the conflict, and headline inflation is projected to return to the Reserve Bank’s target band by that time."

Fair Work decision exposes inflation problem

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By David Taylor

The Centre for Future Work's David Peetz has penned his thoughts on the Fair Work Annual Wage Review.

The centre is a progressive think tank.

"The FWC has clearly decided that it’s not going to let the real wages of low-paid award workers fall, by going for an increase that is pretty much the same as the RBA’s expectation for the June quarter inflation rate."

"It will have very little impact on inflation (it would add a little over 0.2 percentage points to the CPI if you assume no changes in profits or productivity) but that’s not surprising as the wages of award-reliant employees only account for about 11% of the national wages bill," David Peetz said.

"As always, it’s more than what employers had hoped for and, as usual, less than what unions asked for, but not by much, at least before the Middle East war led them to raise their claim."

'Particularly challenging decision'

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By David Taylor

The Fair Work Commission has conceded that the 2026 Annual Wage Review was a tough one.

Here's an excerpt of the announcement published just after 10am AEST.

"The determination of this year’s Review outcome has been particularly challenging because of the unusual degree of complexity in the interaction of the matters we are required to take into account."

"Until February this year, most elements of economic and business performance in Australia were sound.

"There was healthy economic growth and growth in jobs and hours worked, productivity, and business profits and investment during 2025, while wages growth remained moderate and real unit labour costs did not increase.

"However, the economy encountered capacity constraints in the latter half of 2025, with the result that the rate of inflation increased by more than forecast, to be well above the Reserve Bank target band.

"The tightening of monetary policy by the Reserve Bank which followed will undoubtedly slow down the economy in the year ahead."

The FWC is saying the macroeconomic backdrop to this wage review has been particularly complex.

RBA rate-setter Ian Harper stands up

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By Daniel Ziffer

Professor Ian Harper AO is a non-executive member of the Monetary Policy Board of the Reserve Bank of Australia.

He’s at the table, part of the group at our central bank that will announce what is happening with interest rates.

That decision come out a fortnight from now.

That decision – revealed on June 16 – will either cut, hold or raise the cost of money. It’s most impactful for people with big debts, typically home loans, but it also changes things for savers.

He is speaking right now at a CEDA event at the University of Melbourne, where he has an office as an eminent economist at the business school.

He's talking in his capacity as a member, “one of nine”, of