Australian Labor Government Pushes for Minimum Wage Increase Above Inflation

The federal Labor government is urging the Fair Work Commission (FWC) to raise the minimum wage at a rate higher than inflation, which is currently sitting at 3.7 percent.

The consumer price index (CPI) was 3.8 percent for 2025 and is expected to hit at least 4.2 percent by the middle of the year, depending on fuel prices.

The FWC makes the decision each year, independent of government, but accepts submissions from anyone with an interest.

Consistent with its usual practice, the government has not recommended a specific figure, unlike the Australian Council of Trade Unions (ACTU), which wants to see a rise of 5 percent, and the Australian Chamber of Commerce and Industry (ACCI), which wants to see any increase held to 3.5 percent.

The government says it has asked the FWC to award “an economically sustainable real wage increase,” which would apply to around 2.7 million Australian minimum-wage and award-reliant workers across the country—around a quarter of the total workforce.

It points to the underlying rate of inflation returning to the Reserve Bank of Australia’s (RBA) target band in 2026/27.

“Workers are doing it tough right now, and that’s why we think they should get a sustainable real wage increase,” Treasurer Jim Chalmers said.

“With fuel prices going up and mounting pressure on families, we’re helping with the cost of living in responsible ways. This will help millions of workers in low-paid and award-reliant jobs deal with these rising costs.”

Low-Paid Workers Now Better Off

The treasurer also said that since Labor came to power in 2022, its recommendations for real wage increases have seen a cumulative increase of more than $9,000 for minimum wage workers.

“The minimum wage is now $175.40 a week higher than when we came to office,” Chalmers said.

An increase to the minimum wage can also play a role in closing the gender pay gap, said Minister for Employment and Workplace Relations Amanda Rishworth.

Yet the ACTU is hoping for a five percent increase, which would raise the annual basic full-time rate by $2,465 to $51,761 per year.

“We will not accept the lowest-paid workers in Australia going backwards because of the Reserve Bank and Donald Trump,” said Secretary Sally McManus. “Workers were the ones who felt it the most last time inflation spiked; we cannot let this happen again.

Unions’ Claim ‘Completely Unjustified’: Australian Chamber

Meanwhile, the ACCI cited inflationary pressures as a reason not to go above its recommended 3.5 percent.

Speaking to journalists, its chief executive, Andrew McKellar, called the union’s claim of 5 percent “self-defeating” and “completely unjustified.”

“The risk is that that will tip fuel onto the inflation fire that we’re already seeing, and that’ll only put higher pressure on interest rates in the months ahead … if you want to make that a self-fulfilling prophecy, then go ahead and let wages break out,” he said.

In contrast, the ACCI’s 3.5 percent was “a fair outcome, a reasonable outcome, a responsible outcome,” he said.

Pat Bustamante, senior economist at Westpac, said the effect of a higher-than-inflation wage rise would depend on “the state of the economy and balance between demand and supply.

“At the end of the day, in a service economy like Australia, wages are a big part of input costs, and if input costs go up, eventually they get passed through to the consumer. It’s just kind of the way the economy works.”

Westpac expected rising fuel costs to impact inflation for the next three quarters, Bustamante said.

“So assuming … there’s a ceasefire in the Middle East and eventually there’s an agreement signed, we’re expecting underlying inflation to return back [in line with expectations] before the war. So just above 3 percent by the end of the year.”