An industrial battle is brewing over the wages of Australia’s lowest-paid workers as the Albanese government prepares to tell the Fair Work Commission they deserve an inflation-beating lift.

Treasurer Jim Chalmers revealed on Monday that a federal submission to the industrial umpire ahead of a deadline later this week would call for a real wage hike, saying the 2.2 million people earning the minimum wage are struggling to keep up amid the cost-of-living crisis.

“Cost-of-living pressures disproportionately impact people on the lowest incomes. That’s why we are enthusiastic backers of the low paid in our country,” Chalmers said.

“We’ve got real wages growing, inflation has been moderating … we want to make sure that people can earn more and keep more of what they earn.”

By saying workers shouldn’t suffer a real wage decline, the Albanese government is opposing any rise below the rate of inflation by June.

That could be anywhere from 4.1 per cent currently to the 3.3 per cent RBA forecast for price growth by that time.

Their position is already drawing opposition from the Coalition benches and business groups, who are claiming that such a rise would hurt employers and also worsen inflation woes.

“A number of not greater than 2 per cent is the most that we could justify,” Australian Chamber of Commerce and Industry boss Andrew McKellar said on Monday.

Economist Nicki Hutley said the FWC will need to strike a careful balance between giving the lowest-paid workers in the nation an adequate pay boost and protecting work to ease prices.

“Households are doing it tough, but we do have to balance out the risks of helping people in a permanent sense and not threatening inflation,” Hutley explained.

Case for a minimum wage hike

The first major submissions deadline in the Fair Work Commission (FWC)’s annual minimum wage decision looms on Thursday ahead of a decision in June that will apply to the 2024-25 financial year.

Last year the industrial umpire passed through a 5.75 per cent increase in the minimum award rate to $23.23 an hour, following a tense debate between unions and business lobby groups.

The Albanese government asked the FWC not to deliver a real wage cut in its submission, a strategy it intends to repeat this year – where they will not declare a specific figure they want.

The outcome in 2023 ultimately split the difference between union and business demands, awarding a pay rise far larger than prior years but still below headline inflation at the time.

Indeed, real wages have gone backwards for most workers for several years as inflation has spiked, meaning many workers have increasingly struggled to afford essential purchases.

That includes food, utilities and housing, the costs for which have soared since Covid-19.

Hutley said that inflation is easing following a string of RBA rate hikes, with central bankers forecasting the headline rate to fall to 3.3 per cent by June (when the wage decision is due).

And that means a rise in line with where inflation is now (4.1 per cent) could undermine the fight against inflation, particularly in areas with bigger price pressures such as services industries.

“You could do it at 3.5 per cent,” Hutley said.

“That would be consistent with a real wage increase.”

Concerns that high wage growth could derail RBA plans to get inflation back into the 2 to 3 per cent target band by late 2025 have abated in recent months as price growth has fallen faster than anticipated and wages growth showed signs of plateauing late last year.

But economists are still concerned that without a pick up in productivity back to pre-Covid levels higher wages growth could make it harder to push price growth below 3 per cent.