Almost three million Australian workers will receive a pay increase from July 1 after the Fair Work Commission (FWC) handed down a larger-than-expected annual wage review aimed at helping employees recover purchasing power lost during the post-pandemic inflation surge.
The commission lifted minimum and award wages by 4.75%, benefiting around 2.9 million workers, while approximately 100,000 of the nation's lowest-paid employees will receive a 6% increase.
The national minimum wage will rise from $24.95 to $26.44 per hour, or from $948 to $1,004.90 per week, pushing annual earnings for a full-time minimum wage worker above $50,000 for the first time.
In its decision, the FWC acknowledged that many workers remained worse off in real terms after inflation outpaced wage growth in recent years, but said it was neither practical nor responsible to fully compensate employees for all past losses in a single increase.
"The determination of this year's review outcome has been particularly challenging because of the unusual degree of complexity in the interaction of the matters we are required to take into account," the commission said, citing the need to balance support for low-paid workers, gender equality objectives and broader economic conditions.
Workers gain ground as unions welcome decision
The ruling delivers a real wage increase for workers on awards and the minimum wage, broadly aligning with the Federal Government's submission that low-paid employees deserved a sustainable improvement in living standards.
Treasurer Jim Chalmers had argued ahead of the decision that workers on minimum wages and awards "need and deserve a decent sustainable real wage increase".
The increase falls below the 5-6% sought by the Australian Council of Trade Unions but exceeds the 3.5-3.9% increases advocated by major employer groups, including the Australian Chamber of Commerce and Industry and the Australian Industry Group.
“Australia's lowest paid workers will be pleased with the Fair Work Commission’s decision to provide a 4.75% minimum wage increase. Lower-income workers in Australia have been disproportionately affected by limited wage growth, according to data from the Hays Salary Guide, with 62% earning less than A$79,000 reporting little to no meaningful salary growth, compared with 36% of those earning above A$80,000," Hays APAC CEO Matthew Dickason said.
Business groups cautious as retailers fall
The decision was met with concern from some employers already facing weak consumer spending, elevated costs and higher interest rates.
ASX-listed retailers came under pressure following the announcement, reflecting investor concerns about rising labour costs. Kmart owner Wesfarmers fell 2.1%, while Domino's Pizza Enterprises dropped 4.8% and jewellery retailer Lovisa declined 3.6%. Eagers Automotive also lost 2.5%.
The wage increase arrives as many listed companies have warned of softer earnings due to subdued consumer demand and persistent cost pressures.
"The decision also highlights a growing tension in the labour market. Employers are increasingly focused on their capacity to absorb higher labour costs in a period of still-elevated inflation and uneven demand, while employees face ongoing cost-of-living pressures. Our research shows employers are anticipating average salary increases of 3.8% over the next year, while half of workers feel underpaid despite receiving pay rises," Dickason said.
"Wage decisions like this continue to reflect the differing priorities of workers seeking stronger pay growth and businesses managing cost pressures in the near term. For employers, those that cannot compete on salary alone will need to place greater emphasis on career progression, skills development and broader employee benefits to maintain engagement and retain talent.”
Inflation impact expected to be limited
Economists broadly agreed the decision is unlikely to significantly alter Australia's near-term inflation outlook, although some warned of longer-term risks if the increase influences broader wage negotiations.
Westpac economist Ryan Wells said the 4.75% increase was slightly above the bank's forecast but not large enough to materially affect inflation in the short term.
"Today's decision will go some way against protecting more vulnerable workers' wages against the inflation shock, but the outlook is still defined by a weaker economy and labour market, which will limit the bargaining power for many workers," Wells said.
He added that the direct effect on overall wages growth would likely be modest, although there was potential for indirect impacts if the ruling became a benchmark in enterprise bargaining negotiations.
Anthony Malouf, economist at Ebury, said the decision presented some inflation risks given Australia's weak productivity growth, but noted workers would still experience negative real wage growth when measured against peak inflation.
"This could pose a risk to the RBA's battle with inflation, particularly with weak productivity growth," Malouf said.
"That said, the FWC's decision to raise wages by 4.75% was justified because, when compared with the RBA's forecast for inflation to peak around just below 5%, real wage growth will be negative."
Coalition says inflation remains the bigger problem
Liberal senator James Paterson said the increase was necessary but argued it highlighted the damage caused by elevated inflation.
"The core of the problem is out-of-control inflation, and we need to get that urgently under control because over the long term, it's not sustainable to keep increasing wages at this kind of rate," Paterson said.
He described the increase as workers "just about treading water" in what he characterised as Labor's high-inflation environment and warned persistent inflation could ultimately lead to weaker economic outcomes and higher unemployment.
The Fair Work Commission acknowledged ongoing uncertainty surrounding the economy, including the impact of higher interest rates and geopolitical tensions in the Middle East, but noted official forecasts still expect inflation to return to the Reserve Bank's target band by the end of the 2026-27 financial year.