Australia: minimum wage decision
The Fair Work Commission (FWC) has decided on a 5.75% increase for the minimum wage and for awards but with changes to the alignment with the minimum wage and awards lifts it to 5.9%. The decision is a material upside surprise for Treasury but more in line with what our aggregate wage growth forecasts were already implying.
The Fair Work Commission (FWC) has decided on a 5.75% increase for the minimum wage and for awards. They also noted in a somewhat technical matter, to end the alignment between the National Minimum Wage and the C14 classification wage rate in modern awards. This is estimated to represent an 8.6% wage increase for some 184,000 on this classification. Allowing for this, the average increase across the 2.7 million on the minimum wage/awards is set to be 5.94%.
The increase last year was 4.7% on average, based on a 5.2% increase in the minimum wage and a fixed dollar increase for higher paid awards resulting in a smaller percentage increase for the higher paid.
What impact will this have on wage inflation?
It has been reported that in their budget estimates, Treasury were working on the assumption of a 7% increase in the minimum wage and a 4% increase for higher paid awards. We estimate this would result in an average increase of around 4.7%. As such, the FWC’s decision looks to be a 1.25ppt upside surprise compared to the Treasury forecasts.
The FWC claims 20% of workers are covered by awards. From the FWC: “Approximately 20.5 per cent of Australian employees are paid in accordance with minimum wage rates in modern awards. There are some additional categories of employees who are also affected by the Review in a less direct way by Review outcomes being ‘flowed on’ by various means. However, these categories of employees are small in number. Our decision in this Annual Wage Review will therefore operate upon the wages of about a quarter of Australian employees.”
The ABS 2021 Employee Earnings and Hours release suggested that around 23% or workers were covered by awards, so to keep it simple, we have assumed that 25% of the workforce will benefit from this decision as per the FWC.
If that is the case, then the decision could contribute 0.31ppt to wage inflation compared to last year.
What does it mean for the Wage Price Index?
Thinking about the impact of the increase in the minimum wage this wage is OK when you are trying to think about what impact it represents as a wage increase for the average Australian worker. However, it is not appropriate when thinking about what it means for the Wage Price Index (WPI). The WPI an expenditure weighted price index just as is the CPI. From the ABS For the WPI “Expenditure weights are a measure of the relative importance of each elementary aggregate, based on employers' expenditure on wages and salaries.” As such, to work out the impact of the increase we need to know what the share awards represent of the total wage bill. The WPI is not weighted by the share of employees as given in the above example.
The FWC noted in the release that “The broader economic effect of Annual Wage Review decisions is limited. The total wages cost of the modern award-reliant workforce constitutes about 11 per cent of the national ‘wage bill’. Wage increases awarded in last year’s Annual Wage Review decision directly contributed less than 10 per cent of the total wages growth in 2022. Furthermore, most of the modern award-reliant workforce is employed under a relatively small number of modern awards covering specific industries or occupations. This means the effect of the Review decision differs markedly as between industry sectors.”
If awards represent just 10% of the WPI then the contribution from the larger increase in minimum wage this year to wage inflation is 0.12ppt, not 0.31ppt.
As such, with the WPI up 3.4% in the year to December 2022 with all else held constant then this decision will lift wage inflation to 3.5%yr by end 2023. But we know not all else is constant and we have already seen wage inflation lift to 3.7%yr in the March WPI. So, from this point, today’s decision is set to lift wage inflation to 3.8% to 3.9% by the end of 2023.
How does this compare to our forecast peak of 4.1%yr by end 2023?
Our current forecast for the WPI to peak at 4.1%yr by end 2023 incorporates holding wage inflation from individual arrangements steady due to increased labour supply and rising unemployment, easing some of the pressure on wage demands as wage inflation from enterprise bargaining and awards picks up. Adjusting our current forecast contribution to wage inflation from awards to incorporate the known increase in the minimum wage has meaningfully changed our profile. In fact, the revised awards wage inflation profile is touch softer than has allowed for and thus provides not reason to lift our 4.1%yr end year forecast.
In short, the decision is an upside surprise for Treasury but the impact on the Wage Price Index is likely to be more limited and is broadly consistent with our existing wage inflation forecasts.
This does leave out, however, an important consideration. How will the increase in the minimum wage impact enterprise bargaining outcomes and, perhaps more importantly, individual bargaining?
If you are being paid above-awards rates of pay, and are not covered by an enterprise bargaining agreement, then you are on an individual arrangement. If your pay is still higher than the minimum wage post this increase then there is no legal compulsion for your employer to lift your pay. In such a tight labour market it is possible that some may be able to negotiate for an increase based on the increase in awards. But as the labour market has started to ease with the recovery in migration, it is not clear how many will be able to do so. For now, we have held the contribution from individual bargaining steady with its contribution last year, but clearly there are some risks around this if the FWC’s decision has an impact of broader wage expectations.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
Wages Won't Stop a May Rate Cut
The real wage overhang hangover
Browse topics
Disclaimer
©2025 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM andobligations of WCM do not represent liabilities of Westpac. This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.