17 March 2019

Opinion Editorial | Why the minimum wage debate matters

By James Pearson, Australian Chamber of Commerce and Industry CEO


The internet is awash with get-rich-quick schemes that promise vast returns with almost no effort. These schemes all suffer the same basic flaw: they are too good to be true.


A proposal this week from big unions calling for a 11.5 per cent increase to the minimum wage over the next two years, equating to a $43 a week pay rise this year alone, sadly is no different.


Of course, who wouldn’t like a huge wage increase? A higher minimum wage would mean a higher monthly and yearly pay check. Or would it?


Big unions claim such an increase is the way to quickly raise the living standards for the 1.9 per cent of people on the minimum wage in Australia.


However, small and family business owners around the country know the reality — it just won’t work out that way.


Big unions claim that business profits are up 40 per cent, so a massive jump up in wages can be easily absorbed.


While a handful of business at the top end of town might be doing well, there is no way the same can be said for Australia’s small and family businesses. 


They can only dream of such profits. And yet they will be the hardest hit by any large increases to the minimum wage.


More than half of Australia’s small business owners are paid less than $50,000 a year.


Every time wages go up, small businesspeople must also pay more in payroll tax, workers compensation and other entitlements like superannuation and long service leave. 


Meaning the real cost of the big unions’ wage increase to small and family business owners would be far in excess of $43 a week for each employee.


We all know that money doesn’t grow on trees, so how will Australia's small and family businesses cope with these wage increases? Many small businesses simply won’t be able to. According to the Australian Tax Office, close to one million small businesses made no profit at all last year.


For these businesses, a substantial increase in wage costs will force them to close their doors. That's bad news for employees and the wider community.


For others, the solution may be to increase the price of whatever goods or services that they sell. 


Meaning that the real cost will be passed on to each and every Australian consumer through higher prices.


For the young workers on the minimum wage who are yet to live through soaring levels of inflation, they will quickly discover that their pay rise will be simply be wiped out by rising prices.


For those whose customers won’t pay more and go somewhere else or shop online, they will be forced to cut the hours or the jobs of those on the first rung of the employment ladder.


Yet it is precisely these first jobs that are so critical to those with less skills or experience, including many young people and students who are trying to get their first go in the workplace.


Of course we’d all like a pay rise, but the hard truth is that an unaffordable wage increase will drive prices up, take employment down and force many businesses to close their doors.


For the sake of employees, businesses, the community and the health of our economy, we must get the balance right.

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