Peter Strong: Why a minimum wage increase will not solve the inflation problem

Much of the election campaign this week has centred on whether there should be a 5.1% rise in the minimum wage.

But what would that reality look like for small business owners?

Anyone on the minimum wage will always want a pay rise — most people like more money and those on a minimum wage need more money. The cost of living has gone up with inflation and workers generally need more money across the board. But so do the families of small business owners.

Any pay rise will create increased costs for employers, who will pass that onto consumers. This will increase inflation and the cycle will continue.

Let’s put that pay increase in context. If you are a business with a wages bill of $600,000 (equivalent to about five full-time employees on the average wage), if the pay increases by 5.1% you will need to find another $30,000. How do you do that? Decrease the take home pay of the business owner; decrease the hours of employees by around 650 hours a year, or increase prices. 

At the same time, businesses are facing other troubling issues such as: 

• The lack of workers to whom they can pay wages; 
• The continuing intransigence of the biggest landlords, which are demanding increased rent and payment of rent not paid during COVID-19 lockdowns; 
• The impact of exchange rate changes with the US dollar and the euro;
• The rise in interests rates also creating a rise in bank repayments — for businesses and for domestic mortgages; 
• The continuing supply chain shortages that are making supply of a product to consumers more problematic; and 
• The personal health impact on business owners as they try to grapple with all of the above.

So what do we do? Perhaps we can assess our current situation and accept that in actual fact that we, in Australia, are still well off. Our wages are still globally high, our minimum wage is incredibly high, our welfare and health systems (for all the complaints) as still very good, unemployment is low; inflation is not yet a real problem.

Having assessed the situation we should then target the particular people, areas and sectors where assistance is needed and then get on with developing our manufacturing sector, which is where a lot of wins will be had.

Otherwise the inflation cycle will become a vortex and then a maelstrom, which isn’t good for anyone.