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30 March 2015

Bill Shorten backs pay rise for the poorest

First for an opposition leader: Bill Shorten.

Bill Shorten has risked Labor's already tense relationship with employers by becoming the first opposition leader to intervene in a national wage case.

Arguing that higher minimum wages lead to greater economic stability, the opposition leader says he wants the safety-net wage to protect its purchasing power but also so it can flow through to higher award-based wages too.

"Australia is one of only four OECD countries where the minimum wage relative to the average wage is decreasing," the ALP submission states.

Aggregate wages growth is currently running at below trend and was just 2.5 per cent in the 12 months to December, 2014.

"In 12 countries, including the US, UK, Canada, and Japan, the minimum wage is increasing relative to the average wage, 'reflecting the increased recognition of its role in alleviating working poverty and boosting household income and consumption," Mr Shorten's states.

The unprecedented move is set to be attacked by the Abbott government as harmful to the economy and damaging to jobs growth because it would lead to an increase in the unit labour cost, and could discourage new employment.

In its submission, the government acknowledges that the jobless rate of 6.3 per cent is too high, and that it is even higher among young jobseekers at 13.9 per cent.

It says the modest growth in wages to date is one sign of the difficulty businesses are having – partly because price inflation over the year to December was also low at just 1.7 per cent.

"Wage increases that are not supported by higher productivity or higher prices for customers and consumers will most likely cost jobs," its submissions states.

"Increases in minimum wages can reduce employment, particularly for youth, and especially when the labour market is subdued.

"While one wage decision may not have a large effect on employment, over the long-term, the cumulative impact of successive minimum wage increases on employment will be greater."

Both submissions – which can be viewed on the Fair Work Commission website – were lodged on Friday to the Commission's 2014-15 annual wage review.

In Labor's, Mr Shorten acknowledges that Australia already has relatively high minimum wages compared to similar economies, but argues the gap between the best paid and the least well off is widening.

Mr Shorten says this was exacerbated by the Abbott government's first budget leading to a reduction in the bite of the minimum wage and increased hardship for the lowest paid.

"With inequality at a 75-year high, and following the most unfair budget in living memory, we believe the minimum wage cannot be allowed to erode further," Mr Shorten told Fairfax Media.

"While the minimum wage has been increasing in real terms, it has been decreasing relative to median and average wages. Twenty years ago the minimum wage was 63 per cent of the median wage. Now it is 54 per cent."

But while the opposition has weighed in to protect unskilled workers, it has stopped short of nominating an amount it would like to see the basic wage adjusted up by.

"Labor has not nominated a quantum by which the minimum wage increase but has provided evidence supporting an increase to the independent Fair Work Commission Minimum Wage Panel for its consideration," he said.

Mr Shorten said it was "critical" in setting the minimum wage amount, that the Fair Work Commission take into account not just the effect of higher minimum labour costs on the economy, but the impact on individuals including the right of Australian workers to receive "a fair and economically responsible increase in the minimum wage".

"A strong minimum wage doesn't just help our lowest paid, it is the foundation for the determination of award wages which in turn supporting middle class families and stimulate economic growth," he said.

"Recent research from the OECD, the World Bank and the IMF has focused on the connection between economic growth and equality and concluded that inequality is the price of economic growth. Growth spells are shorter in unequal economies and income re-distribution can assist in stabilising sustainable growth" the submissions states.

The opposition submission comes after the government itself has moved to wind back some aspects of last year's politically disastrous budget, dropping unpopular policies such as its GP copayment and a 20 per cent cut to universities, and backflipping on a proposed cut to defence force pay.

The government initially argued its measures were necessary to rebalance the budget by 2018-19 but has since pulled back from harsh spending cuts and from a set timetable arguing it will settle for a slower path back to surplus "as soon as possible".