AIG builds straw man to attack minimum wage rise

By Leith van Onselen

The Australian Industry Group (AIG) has penned a flimsy attack on increasing the minimum wage, arguing that many low-income workers would be pushed into higher tax brackets, therefore would lose some of the benefits from any increase. From The AFR:

Up to 200,000 of Australia’s lowest paid employees will be bumped into the middle income tax bracket and lose more than one-third of every extra dollar they earn if the Fair Work Commission grants even a fraction of the ACTU’s annual pay claim.

While workers’ pay packets would be squeezed by the bracket creep, business would face the full cost of the ACTU’s claim to lift the minimum wage by 7.2 per cent, or from $36,238 a year for full-time workers to $38,847…

However, a minimum wage increase of more than 2.1 per cent would lift full-time workers’ minimum yearly incomes to more than $37,001, tipping them from the second lowest 19 per cent tax bracket into the middle-income 32.5 per cent bracket…

AiGroup chief executive Innes Willox said the increased cost to employers in return for less gain for minimum-wage workers should be a new consideration in this year’s annual wage review.

“We are at a point where a substantial increase in the minimum wage (of 3 per cent or more) would see a full-time, minimum-wage earner facing an effective marginal tax rate of 36 per cent (or 33 per cent if the government’s tax changes are introduced),” he said.

“As a result, while employers would face the full extra costs, disposable incomes of employees would only rise by two-thirds of the increase in wages”…

An ACTU spokesman noted tax brackets would not negate the effect of the wage increase: “The idea that it could somehow do that fundamentally misunderstands progressive taxation.”

So according to AIG, the minimum wage should not be increased above 2.1% because that may push some workers into higher marginal tax brackets.

What about the many lower paid workers that don’t work full-time and don’t earn anywhere near $37,001? What about subsequent years: should the minimum wage be frozen at current levels indefinitely just to prevent some low-paid workers creeping into higher tax brackets? Obviously not.

That said, I do agree that the ACTU’s $50 a week minimum wage demand is excessive at roughly four times the inflation rate. But let’s have some perspective here.

Growth in employee compensation remains stuck in the gutter, falling in real terms by 4.2% since March 2012, despite solid rises in labour productivity:

A decent minimum wage is also essential for Australia to maintain a civilised society.

Therefore, the Fair Work Commission needs to strike a fair balance that provides a decent, but not excessive, real lift in the minimum wage. But not the low-balling suggested by AIG, which comes at the same time as it demands a corporate tax cut.

At the same time as it argues for a reasonable lift in the minimum wage, the ACTU should also lobby to restore integrity to Australia’s bloated temporary and permanent visa system, which is continually raising labour supply (particularly at the lower end), undercutting workers’ bargaining power, and placing downward pressure on wages growth.

Of course, the AIG’s Innes Willox, who is also chair of the Migration Council of Australia (a business front), would also oppose this tooth and nail.

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  1. Manufacturing isn’t completely dead. We could be the leading manufacturer of straw men per capita.

  2. ““As a result, while employers would face the full extra costs, disposable incomes of employees would only rise by two-thirds of the increase in wages”… ”

    FFS, employers would get a tax deduction for the increased wages and so won’t in fact face the full cost under Willox’s logic.

  3. The back of a Gillette Mach 3 can says “Made in AUS – imported into Malaysia, Singapore, New Zealand”.

    So labour is not too costly at all. You could raise the minimum wage to $25/hour and I doubt that would push the factory offshore. Inequality is at a 70 year high! Something must be done.

    Ross Garnaut and many economists wanted a wage top up scheme (called EITC) in 1998 and the ALP took EITC to the 1998 federal election! Di Natale recently said that he wants a wage top up for everyone – rich and poor – and that is a false binary choice. Just give the poorest 60% of the voters a wage top up disguised as “electricity bill rebates”. Imagine the psychological impact of electricity bills saying “$250 credit” instead of “you owe $250”. It would kill the politics of coal and ease inequality at the same time.

    • DominicMEMBER

      Lovely thought Jacob, but it comes back to that age-old conundrum: who is going to pay for it?

      1. Domestic consumers through higher prices — so the gain is pared back to a degree by higher prices.
      2. Exporters through reduced sales abroad.

      Shuffle the pack as much as you want but there is no such thing as a free lunch.

      • Nice of you to pretend that income tax is the only tax.

        The poorest voters own no land – so you can put in a land tax given that Aussies love expensive land and it would not hurt the poor at all.

        And unlike the GST, land tax can not be dodged.

        Have jail for GST theft and ban food outlets from saying “cash only”. Stop negative gearing. Collect $10 billion per year in LNG export tax like Qatar does. Raise taxes on the banks as per Chris Joye.

    • DominicMEMBER

      Your tax plan is a work of genius, however, I detect a small fly in the ointment: you actually need to get the citizens to vote in a party that’s going to implement it. I suspect the chances of me colonising Mars in my flaming Tesla are greater than those of a large chunk of the electorate voting to be so comprehensively ar$e-raped.

      There is a chink of light for your plan though: a deep and long-lasting economic depression which sends the unemployment rate sky-rocketing north of 25%. At that point I give your “tax everything and everybody plan” a much higher chance of success as the ratio of people demanding handouts versus those who stand to lose via the tax-grab would be that much larger. If this were to indeed unfold, Jacob, you’ll be in the unique position of starving to death and celebrating all at the same time 😉

      • “I suspect the chances of me colonising Mars in my flaming Tesla are greater”

        Then why do UBI proposals make right wing pricks extremely angry? Just like Chris Bowen’s negative gearing proposal? If “it will never happen”, why do they spend so much time attacking it?

        Fun fact: AUS had a hung parliament and the Greens forced Gillard to put in a huge carbon tax – after she said she would not have one.

        Rudd yesterday revealed more explosive details of Julia Gillard and Wayne Swans attempts to kill his emissions trading scheme.

        Those vehemently, adamantly opposed were Penny Wong, Greg Combet and Lindsay Tanner.

        After that, a massive carbon tax of $23/ton (when it was only $10/ton in Europe) was put in but they were too stupid to rebate the electricity bills of the poorest 60% of the voters. PM Howard rebated LPG tank installations. Queensland used to rebate the GST on petrol.

        Rebates are bloody popular!

        We will probably have a minority government in the future – especially if the Greens finally win Batman – and that is our chance to put in a UBI. Will the LNP remove it? UBI has existed in Alaska since 1982 and nobody dares to remove it.

    • The back of a Gillette Mach 3 can says “Made in AUS – imported into Malaysia, Singapore, New Zealand”.

      Costco has started selling razor kits under its private-label brand, Kirkland Signature.

      The kit comes with a handle and 14 blades, all for $20. It’s about 24% cheaper per blade than the Gillette Mach 3 razor pack the store also sells, according to the Stifel Nicolaus analyst Mark Astrachan.

      Gillette has been taking drastic steps to staunch its bleeding market share in recent years. Last year, the brand cut the prices of its razors by as much as 20%. The average discount was about 12%, and many of its flagship products, like the Gillette Fusion Cartridges, were discounted.

    • DominicMEMBER

      I don’t deny any of your ideas are well-intentioned and heart-felt. I personally would love it if, here in Australia, there was a chicken in every pot and a BMW in every drive-way, however ‘math’ and ‘reality’ have a horrible habit of pouring cold water on utopian ideals.

      I’m often amused at the ire that the mention of Margaret Thatcher stirs in people and I wonder sometimes precisely what it is that brings such emotion bursting to the surface. Was she an odious individual? I don’t know – frankly I never paid any attention and I couldn’t care less about politics and politicians anyway. I strongly suspect, though, that comments that have been attributed to her may be at the root of much of the burning hatred. Comments such as: “The problem with socialism is that, eventually, you run out of other people’s money”. This quote (irrespective of who actually made it) cuts to the heart of why socialism can never succeed and shatters the hopes and dreams of all the collectivists out there who yearn for a socialist utopia. The truth, as they say, “hurts” but that one sentence cuts that bit deeper.

      The bottom line is that society can only prosper if the economy is healthy and going well and that means that we need as many ‘oars in the water’ as possible. Paying people not to work is simply not conducive to this outcome and is damaging for society as a whole — particularly in the long run, as receiving handouts from the Govt becomes ingrained in the collective psyche. And it has been proven beyond doubt (I would say) that a Govt-directed economy is a recipe for disaster. When China eventually blows up you’ll have yet another dose of truth (and proof).

      Try reading Friedrich Hayek’s “Road to Serfdom” sometime — a surefire cure for socialist ideals. It’ll be a painful read, Jacob, but well worth it.

      • Ah Dominic.

        So how come the UBI in Alaska has not run out yet? It has been going since 1982! How come I can still see a GP for free?

        I used to believe that line from Thatcher as well! And I also used to believe in trickle down economics!

        Then I got older and saw MNC tax evasion and also the credit crunch:

        “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” said Greenspan.

        I give your “tax everything and everybody plan” a much higher chance of success as the ratio of people demanding handouts versus those who stand to lose via the tax-grab

        Success? or “a Govt-directed economy is a recipe for disaster.” You just contradicted yourself.

        What we see today is not capitalism but crony capitalism and wage theft. We have the biggest possible watchdog on the unions but nothing on wage theft and GST theft. Is it fair that Shell petrol stations here pay a legal wage while rival 7-11 petrol stations steal wages?

        Di Natale is not asking for a BMW on every driveway.

        investors enjoyed a 9.5 per cent per annum increase in dividend payments, while workers’ wages remain stuck growing at roughly 2 per cent per annum — just on par with inflation.

        Gee, I wonder where the money for UBI shall come from! How come Nixon tried to put in a UBI when he was a Republican president?

    • DominicMEMBER

      Hi Jacob
      No offence but I think we live on different planets. I’m a supporter and advocate of Austrian economics – I know nothing about trickle-down economics … just real economics.

      I know nothing about UBI in Alaska but, to put it in context, you really need to know how long it has been trialled before commenting on its success — it’s obvious it can last for some time before the State becomes bankrupt. Equally you need to take into account subsidies from the Fed, along with the fact that Alaska is a resources state (oil) so it has that extra boost that most other states in the world simply don’t. Exhausting resource revenues to fund welfare schemes is not the smartest thing that any State can do (just look at Venezuela for proof) but Alaska can clearly sustain their various schemes for a long time with oil being pumped.

      Yes, there is crony capitalism (or socialism) going on but this is what you get with the existence of Govt. People forget that ‘cronyism’ and corruption only exist because Govt exists. It follows that the bigger and more influential Govt gets, the more wide-spread becomes the corruption. This country is riddled with it, from top to toe.

      Using Nixon as a Republican proponent of UBI is like using an alcoholic to front the marketing drive for a top line whiskey. The Nixon administration was spending money (it didn’t have) like a drunken sailor and it got found out and ordered (by other sovereign nations, France in particular) to exchange gold for the worthless paper it was printing (to fund his welfare/warfare state). The proposal for a UBI was simply a sop to appease the welfare side while his ‘temporary suspension’ of the gold window was simply an acknowledgement that the U.S. welfare/warfare model was no longer affordable. And, my, look how long it has lasted!

      Jacob, the sad thing is that soon, many Western (and possibly all) governments will go bankrupt. Can you imagine what a social catastrophe that will be? People who rely on government transfer payments waking up one day to find that the Govt has nothing to give them? If you think that scenario is fantasy then think again. It has a much higher probability than you think.

      There are many who think hat governments can’t go bankrupt (because they can print all the money they need to pay their bills). These same people are horribly ignorant — you can print money alright but eventually money printing catches up with you and your currency ends up worthless. That’s the end game.

      • drsmithyMEMBER

        People forget that ‘cronyism’ and corruption only exist because Govt exists.

        FMD. I can’t even.

      • the sad thing is that soon, many Western (and possibly all) governments will go bankrupt.

        Sad? But you gave me the wink emoji just a couple of comments above? Which is it? commiserations or celebrations?

        Venezuela is a favourite example of the RWP – which did not actually have UBI but plain old expropriations. The RWP’s modus operandi = cut corporate taxes to the bone and say “we can not afford UBI” and “the minerals in the ground are people”.

      • DominicMEMBER

        Forgive me, Jacob, perhaps I should avoid emojis and leave it to the teenagers and hipsters.

        I think you’re missing the point again — handouts (in whatever form, incl. UBI), as part of an extensive welfare program, are unaffordable in the long run. All states will go bankrupt eventually. Welfare programs always start off modestly i.e. doing what they’re meant to do — be a safety net for people going through hard-times. Virtually every election cycle they (welfare programs) invariably grow larger – a function of pollies buying votes using ‘other people’s money’. After multiple election cycles these programs have become bloated and welfare is so extensive it becomes a lifestyle for many beneficiaries of the program.

        Welfare programs have morphed from a ‘bowl of soup and a few Shillings’ to provision of a permanent abode, payments to fund day-to-day expenses, free healthcare, State pension etc etc. People on the Left love to claim that Conservatives are resentful of the people receiving handouts, which is a gross generalisation. Conservatives, for the large part, understand that bloated welfare programs are a recipe for eventual Govt bankruptcy and the unthinkable consequences that would follow such an event.

  4. Don’t worry AIG – they can all use negative gearing and transfer pricing to keep their taxable income down ….