The Australian Industry Group urges the Panel to be conscious of the changing balance of pressures in the Australian economy when determining the minimum and award wages during the 2025 Annual Wage Review (AWR).
In seeking to provide a fair safety net of minimum wages the Panel must strike a fair balance between the equally important and inherently interconnected interests of employees and employers. In the past three AWRs, achieving this balance has proven an especially challenging task, due to the co-occurrence of high inflation and wages growth alongside weakening business conditions and poor productivity performance.
However, in 2025 the balance of these pressures in the Australian economy has shifted – with inflation and wages significantly moderating, while business conditions and productivity have continued to decline. Current economic settings therefore warrant a significantly lower increase to minimum and award wages than those contained in recent decisions.
In advancing this submission, the Australian Industry Group points to five lines of evidence supporting the need for a lower increase in this year’s AWR:
The Australian economy continued to deteriorate over the last year, with 2024 marking the longest period of low growth in Australia since the recession of the early 1990s. Household consumption remains soft, investment growth fell considerably, while industry output continued to weaken with particular difficulties in industrial and consumer-oriented sectors. As private sector activity declined the economy has become increasingly dependent on government spending, with a rise in public demand during 2024 proving critical in preventing the economy from falling into near-recession conditions. Official forecasts point to only a modest recovery across 2025, with a return to normal growth conditions not expected until mid-2026.
After several years of elevated price pressures inflation moderated significantly in 2024, with the CPI falling from 4.0% to 2.4% over the year. This reflected easing global inflationary pressures, further slowing Australian growth, and the RBA’s maintenance of restrictive monetary policy. It was also supported by energy bill subsidies for households and small businesses, which are estimated to have contributed 0.6 percentage points to the fall in CPI. The inflation outlook is subject to considerable uncertainty due to domestic and global policy factors, but from a cost-of-living perspective warrants a much lower increase to minimum and award wages than in previous years.
Business financial performance weakened with the slowing economy in 2024. Gross operating profits declined in aggregate and for most industries, with particularly poor results for industrial and consumer sectors as well as small businesses. However, wage pressures have remained significant, putting downward pressure on operating margins and profitability. The cumulative effect of recent high AWR decisions also weighed on business, with several award-reliant industries showing evidence of falling financial performance and employment. Business capacity to pay award and minimum wages increases is at its lowest point in several years.
The labour market remains a singular positive in Australia’s economic performance, with headline indicators continuing to show resilience at levels at or near full employment. However, most of this resilience is owed to a dramatic surge in employment in government-supported (public and private non-market) industries during 2024. This obscured a marked deterioration in the private market sector, where most industries were weak and several showed contracting employment. This reveals that underlying conditions in the private sector labour market are far weaker than headline indicators suggest.
Productivity performance in the Australian economy also remained poor. After several years of volatility due to pandemic-induced distortions, it was anticipated that productivity growth would by now be returning towards its long-run trend. This has not proven the case, with all measures of productivity showing negligible growth in 2023-24, and a decline during the second half of 2024. A return to trend productivity growth – which was identified in the previous two Panel decisions as a precondition for real increases in award wages – has demonstrably yet to occur.
When considered together, these five factors point to the need for a significant moderation in the increase in minimum and award wages in this year’s AWR compared to previous recent decisions.
There is also a need to secure the significant improvements in access to employment seen over recent years. Labour market resilience has ensured participation is at record highs while unemployment and under-employment remain very low. Indicators for female and youth participation are also much stronger than historic levels. If this resilience is jeopardised by disemployment resulting from a more than moderate increases to minimum wages, it will lead to reduced access to employment that particularly harms vulnerable cohorts.
We note that previous AWR processes have raised the prospects of a ‘catchup’ decision that would restore the real value of minimum and award wages to their level prior to the inflationary outbreak in 2021. Panel decisions in 2023 and 2024 indicated that economic and productivity conditions did not support such an outcome at those times. We point to the continued deterioration in economic and productivity performance over the last year to argue that present conditions do not support such an outcome in the 2025 AWR.
The submission that follows addresses these relevant considerations that should guide the Panel. Having regard to the aforementioned factors, our view is that any increase in award and minimum wages should not exceed 2.6 percent. Given current rates of inflation this would deliver a modest increase in real wages for employees receiving the AWR, while recognising the weak economic conditions and reduced capacity to pay affecting business that increases the likelihood of negative impacts on employment from a higher decision.
Ai Group’s proposed increase may be adjusted in further submissions made during the AWR, depending on changing economic conditions as revealed in subsequent data releases, particularly with relation to inflation and employment indicators.
We finally note that the announcement of new tariff measures by the US government on April 2 introduces a considerable degree of uncertainty to Australia’s economic outlook. These are the most significant changes in the global trade system in a century. They will have complex, volatile and differential effects on industries, inflation, employment and more for our highly trade-exposed economy. At the time of this submission, the impacts on the Australian economy are yet to be fully analysed, let alone felt. As additional information on expected and actual impacts becomes available, Ai Group will address this in subsequent submissions to this year's AWR.
