Preserving the real benefits of fair pay

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'Tax cuts', by Reuben BrandTo the surprise of many, the Rudd Government has followed the lead of the Howard Government in 2006 and 2007 and has not nominated a figure in its submissions to the Australian Fair Pay Commission's review of minimum wages.

More surprisingly, the Commonwealth's principal submissions do not engage in the ongoing debate about tax cuts and the maintenance of real wages. Some may say they contain a 'nod and a wink' for the Fair Pay Commission to discount real wage increases.

About one in ten Australian workers depend on the safety net minimum wages set by the Fair Pay Commission. They are low paid workers who are unable to bargain for higher wage rates. What the Fair Pay Commission decides has a major impact on them and their families. They are the battlers at the needy end of the 'working families' spectrum.

The Fair Pay Commission needs to determine whether the real wages of the most disadvantaged workers in Australia should be increased, reduced or maintained, and whether tax cuts for the low paid should reduce the increase in wage rates.

However before it starts to answer these questions it should remember that for a single-income family of four, including two school-aged children, the federal minimum wage of $522.12 per week yields a disposable income, after tax and transfer payments, of $755 per week. Parents cannot raise and educate children on $755 per week. The maintenance of the real value of the federal minimum wage requires an increase of $21.93 per week.

Despite the fundamental strength of the Australian economy, some organisations have urged the Fair Pay Commission to reduce the real value of safety net wages as a means of controlling inflationary pressures. They have pointed to the tax cuts that will come into effect in July 2008 and argue for an increase of only $10 per week.

These tax cuts are of vital importance to low income workers and their families, but they are modest. Workers on the federal minimum wage will receive a tax cut of $8.65 per week. For workers on $35,000 to $45,000 a year, the tax cut will be $20.19 a week. So a worker on the federal minimum wage will receive proportionately less tax relief than higher paid workers who do not depend on the wages safety net.

Low paid workers did not get any special treatment from the 2008 Budget. They have been relatively disadvantaged by the tax cuts.

Let us be clear. The tax cuts were promised as a real benefit by both sides in the recent election campaign. Just think what would have happened if one side had even hinted they might be taken away from some working families by way of reduced wage increases.

In his Budget speech, Treasurer Wayne Swan declared: 'For too long, working families have watched the proceeds of the boom directed elsewhere, in the form of tax cuts skewed to those already doing very well. Tonight we tip the scales in favour of working families.'

Furthermore, the Government's post-Budget submissions refer to the tax cuts and various other budgetary changes which apply to a range of income groups and propose that the low paid 'should receive an appropriate increase in minimum wages'.

The discounting of wage increases by the Fair Pay Commission would tip the scales against the most disadvantaged working families. The Commonwealth Government must take a public and principled stand on the tax cuts issue and formally communicate it to the Fair Pay Commission.

More than that, it also needs to take a stand on the real wage issue. Consistent with its social inclusion policy, the Commonwealth should state that the real value of the wage safety net for low paid workers should be maintained.

LINK:
Australian Fair Pay Commission


Brian Lawrence is the author of Workplace Relations: A Catholic Perspective, published by the Australian Catholic Council for Employment Relations (ACCER). This article is extracted from a longer paper that is available here in the website of the Australian Catholic Commission for Employment Relations.

 

Topic tags: brian lawrence, australian fair pay commision, afpc, real benefits, tax cuts, minimum wage review

 

 

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You write "single-income family of four, including two school-aged children, the federal minimum wage of $522.12 per week yields a disposable income, after tax and transfer payments, of $755 per week". How could the disposable income after tax and transfer payments be more than the minimum wage?
Christopher Lancucki | 04 June 2008


Some readers have queried the calculation of the disposable incomes of low income families who are dependent upon the earnings of a breadwinner who is employed on the Federal Minimum Wage. The figures were correct at the time of publication.

In the case of a family of four with two school-aged children the FMW of $522 per week resulted in a disposable income of $755 per week, after taxation and transfer payments. The transfers included Family Tax Benefit A and Family Tax Benefit B. These benefits totalled $226 per week, well in excess of the underlying income tax of $54 per week. (A single worker without dependents would have paid $54 per week, about 10% of his or her income.) The other component of the disposable income was the maximum amount of rent assistance of $61.00, which is assumed to be paid to these low income earners.

The disposable income needs to be re-calculated in the light of the tax cut of $8.65 per week from 1 July 2008 and the ongoing indexation of the transfer payments. Up to date calculations are available online by accessing the Commonwealth's Family Assistance Rate Estimator. In addition, the newly introduced education rebates will boost disposable income where relevant expenditure is incurred.

There will be some debate about whether the education rebates should be regarded as a transfer payments, boosting disposable incomes, or as a means of reducing the costs of living in particular respects. (A similar issue arises in relation to rent assistance). It probably wouldn't matter which side of the ledger the item appeared on, provided we had relevant data on living costs and education costs in particular. A major shortcoming of the minimum wages system in Australia is the absence of any realistic data on the costs of living for workers and their dependants. For a review of this issue see the Australian Catholic Council of Employment Relations submissions to the Australian Fair Pay Commission, March 2008.

A decision on the the Australian Fair Pay Commission's 2008 review of the FMW and other rates of pay is expected shortly, but the increases will not be operative until October 2008.

These figure show how far we have moved from the Harvester Wage Case of 1907 when the wage packet was the only means by which the working family was supported. A major part of the support for families is now from the public purse. The change, which is largely the product of the past two decades, has a profound impact on the debate about wages, taxes and government transfers. It has an impact on our views about the repective responsibilities of employers and governments.

If the wage packet had to provide the sole means of support for families, the income of $755 per week would require an increase in after tax income of over 60%. The increased used of the public purse has the effect of keeping wage costs down, with obvious economic benefits. This comes at a cost because taxes need to be raised. Despite this fundamental feature there is little public debate on the balance between the wage packet and the public purse.

There is a discussion of these matters in the book Workplace Relations: A Catholic Perspective, which was published last year by the Australian Catholic Council for Employment Relations. Also see the paper Minimum Wages in Australia: A Catholic Perspective. Both are available on the council's website.

If it is to do a comprehensive response to its mandate, the current Henry inquiry into taxation should explore these wages/taxation/transfer issues. In particular, it should consider the costs and benefits and of zero income taxation at the full time FMW and the appropriate balance between the public purse and the wage packet in regard to provision of minimally acceptable disposable incomes. A note of caution, however: any debate about these matters will be hampered by the absence of any realistic assessment of the income needed for a minimally acceptable standard of living.
Brian Lawrence | 02 July 2008


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