Australia's minimum wage will increase by 8.6 per cent, and award workers will get a 5.75 per cent pay boost, in a Fair Work Commission (FWC) decision.
The new national minimum wage will be $23.23 per hour, and $882.80 per week, based on a 38-hour week.
But that increase in the minimum wage comes with an important technicality.
The FWC said it was confident the hourly pay increases would only make a "modest" contribution to wages growth in 2023-24 and "will not cause or contribute to any wage-price spiral."
"We acknowledge that this increase will not maintain the real value of modern award minimum wages, nor reverse the reduction in real value that has occurred over recent years," the commission said.
The boost to the wage rates will begin in the first full pay period on, or after, July 1.
Significantly for the minimum wage, the FWC said it would end the alignment between the national minimum wage rate and the C14 classification wage rate in modern awards, arguing that the C14 rate was too low and no longer constituted a proper minimum wage safety net.
Instead, it would realign the national minimum wage with the slightly higher C13 classification wage rate in modern awards, and after that, it would lift the C13 wage rate by 5.75 per cent.
That means the national minimum wage will lift by 8.65 per cent from July 1, compared to last year's lower-aligned minimum wage rate.
However, the FWC has framed that increase in the minimum wage as only being a 5.75 per cent increase, because that's the size of the increase that will occur for the slightly higher C13 classification award rate that the minimum wage will now be aligned with.
The current minimum wage is $21.38 per hour, but the new minimum wage will be $23.23 per hour, which represents an increase of $1.85 an hour (+8.65 per cent).
The Albanese government had supported the idea of lifting the minimum wage to match inflation, so the real wages of Australia's low-paid workers didn't go backwards.
Headline inflation, as measured by the consumer price index (CPI), was running at 7 per cent in the March quarter.
"The 5.75 per cent increase to awards is the biggest in history and will help 2.7 million workers," Treasurer Jim Chalmers said on Friday.
Unions welcome the pay rise, business groups don't
The decision will see a small group of workers (0.7 per cent of workers, or over 100,000 people) on the lowest minimum wage of $21.38 an hour getting an 8.6 per cent pay jump to $23.23 an hour.
A bigger group (20.5 per cent of workers, or around 2.8 million people) on award pay rates will see a 5.75 per cent rise from their current pay rates.
Sally McManus, the secretary of the Australian Council of Trade Unions (ACTU), was quick to welcome the pay increases.
"This is an absolutely essential increase for all of the people in Australia who are struggling so hard at the moment just to survive, to pay their rent, to pay their groceries, to pay all of the basics," she said.
"They are the people who actually keep the economy going in everyway."
Ms McManus said the 5.75 per cent increase in award wage rates was not the 7 per cent increase unions pushed for, but it was "a hell of a lot more" than what employers had argued for.
However, the Australian Industry Group (Ai Group), whose members employ over 750,000 people, said the 5.75 per cent increase in award rates was very disappointing.
Innes Willox, Ai Group's chief executive, said the Fair Work Commission had obviously tried to strike the right balance between addressing cost of living pressures and wage costs for employers.
But he said the lift in pay rates would be very likely to see unemployment and underemployment push higher.
"It is some consolation that a still higher increase, such as proposed by the ACTU, would have added substantially more to these risks," he said.
"That said, this decision will add significantly and immediately to the costs facing the large number of businesses that employ under award conditions.
"For some business, these pressures will be particularly intense due to the realignment of the national minimum wage to a higher base level, effectively increasing the NMW by 8.6 per cent.
"This increase comes on the back of the Fair Work Commission's decision to implement historically high increases last year. The cumulative impact on employers will be substantial," he warned.
Business NSW, formerly the NSW Business Chamber, has also criticised the increase.
Daniel Hunter, Business NSW chief executive, says it will see the biggest increase in the national minimum wage in 30 years, putting jobs and businesses at risk.
"This large wage increase comes at a time when a growing proportion of businesses (about one in four employers) have indicated to us that they will shed staff in the next three months," he said.
Pay increase, cost of living, and anxiety
Rhiannon Howard, a casual worker in retail, said she was anxiously awaiting this decision.
"Any increase is a good increase, but I was very much waiting and hoping for something over 5 per cent," she told the ABC.
"My rent has gone up, groceries have definitely gone up — I've definitely felt that increase — my bills have definitely increased a little bit as well. [I'm] basically living pay cheque to pay cheque at this point."
Ms Howard said a 5.75 per cent increase in her pay would still be lower than inflation, but it would help to make day-to-day living a little less stressful.
"I think at this point, I will … just be able to afford what I need, and probably not able to save much else after that," she said.
She said the likelihood of further rent increases were a constant worry though, and she was now stuck where she was living.
"It's sort of like Catch-22 — I'm scared to leave and look for something cheaper, knowing that people I know have had trouble getting rentals due to it being so competitive at the moment, [with tonnes] of people, but then also I can't afford anything more expensive," she said.
She said she had also noticed some retail employers had been cutting back on hours for staff, and that did not fill her with confidence.
"I'm still apprehensive and nervous," Ms Howard said.
"The nature of casual work is not exactly conducive to having a stable lifestyle. You don't know where your hours are going to come from, or if you're even going to get hours.
"And with the increase [in pay], I'll be very interested to see what businesses do next. Whether or not my hours will stay the same, whether they will decrease," she said.
Fair Work Commission spreads confusion, but federal government praises decision
When announcing its decision on Friday, the FWC said the national minimum wage and award wage rates would both increase by 5.75 per cent next month.
It said there were some technical details about the minimum wage, regarding the award rate classification it was linked to, but it did not spell out in plain English that the minimum wage was actually going to be increasing by 8.6 per cent.
That spread confusion among media outlets, economists, major political parties and employer associations.
Many only realised that the minimum wage would be increasing by 8.6 per cent when they read the detail of the FWC's decision.
But Treasurer Jim Chalmers and Minister for Employment and Workplace Relations Tony Burke later hailed the pay increases, saying they showed the federal government was delivering on its election promises.
"The 5.75 per cent increase to awards is the biggest in history and will help 2.7 million workers," they said in a joint statement.
"A technical change the Commission has made in the base rate of the minimum wage means from the 1st of July this year, the minimum wage actually increases 8.6 per cent.
"Across the two Annual Wage Review decisions in our first year in Government, the wages of minimum wage earners have increased by nearly $3 an hour.
"People on low and modest wages have the least capacity to deal with rising cost of living. That’s why the Government argued for a decent pay rise for these workers, and the Government welcomes the decision from the independent Fair Work Commission," they said.
Economists warn about inflation and interest rates
Some economists have warned the lift in the minimum wage and award rates will add to inflationary pressures and increase the likelihood of more rate hikes.
Josh Williamson and Faraz Syed from Citi said they had now upwardly revised their year-end wage forecasts to 4.1 per cent, up from 3.5 per cent.
They said with higher-than-expected inflation in April, still-rising house prices, and a new wages outlook, they now believed the Reserve Bank would lift rates twice more.
It means they think the cash rate target will lift from 3.85 per cent to 4.35 per cent in the coming months.
However, economist Gareth Aird from Commonwealth Bank said the wage increases might have a smaller impact on the economy than people think.
"The total wages cost of the modern award‑reliant workforce constitutes only 11 per cent of the national 'wage bill'," he wrote in a note to clients on Friday.
"It is also worth keeping in mind that pre‑tax wage increases result in a post‑tax pay rise being less than the wage increase for most workers due to the marginal tax system," he said.
Meanwhile, the Australian Council of Social Service (ACOSS) said FWC's decision was much-needed recognition of the struggles people on low incomes faced.
"The Fair Work Commission's determination today is a positive step towards improving the lives of low-paid workers amid the cost-of-living crisis," ACOSS chief executive Cassandra Goldie said.
"But more needs to be done to lift the incomes of people with the least, and tackle the causes of inflation.
"We urge the government to tackle the drivers of inflation at their source and address the skyrocketing prices of essentials like rents and energy. Further interest rate rises are not the answer."
Earlier this week, Reserve Bank governor Philip Lowe said wages had not been driving Australia's inflation up to this point.
"Wages haven't been the driver of inflation, and at the moment there's no sign of higher prices leading to higher wages leading to higher prices," he said.
"But we've got to be vigilant here," Dr Lowe cautioned.
