02 June 2012

What Fair Work Australia giveth...

This is just a short post prompted by Friday's National Minimum Wage decision by Fair Work Australia.  If you missed it, the minimum wage was increased by $17.10 a week and will be $606.40 a week from July this year.

I'm going to resist the temptation to brag about predicting the increase correctly (in an earlier post I suggested it would be between $8 and $150 a week - spot on as it turns out).  Instead, I thought it would be interesting to look at whether our tax-transfer system allows the increase to actually flow through to its intended recipients.

To cut to the chase, if you are in a household where both the minimum wage and the income support system are in play, you aren't going to get much out of the increase.  Here's a little chart showing a few household types and the percentage of the wage increase they look like retaining after tax-transfer system imposts have had their bite.  They are all full-time workers, by the way.

The "base case" here is a single person.  They get to keep almost 80% of their pay rise.  Interestingly, a single parent who is not in the income support system (eg, those on the post 2006 arrangements for sole parents) keeps a little more than that - around 81%.  Their fellow sole parents who are in the so-called "grandfathered" group (protected from the 2006 changes) do quite a bit worse, keeping around 32% of the wage rise. 

Why do the grandfathered group do so poorly compared to the non-grandfathered sole parents?  Simply because the former are still in the income support system and so are subject to tax imposts and income support withdrawals.

The worst group (of those depicted here at least) is a single income couple without children.  They retain only 16% of the increase.   As I've noted in earlier posts, this group is really in the cross-hairs at the moment!

Just how much jumping for joy there should be after the minimum wage announcement presumably depends on just where each of the estimated 1.3 million affected households is placed in the tax-transfer system.  The effective marginal tax rate (EMTR) they face on the wage increase will determine the net outcome.  However, if there a lot of them exposed to high EMTRs, it might go some way to explaining a question I saw posed in a plaintive Twitter tweet - something to the effect of why doesn't the minimum wage decision get a lot more coverage.

I guess if you get bugger all out of it, there's not much to get excited about.

As an aside, here's an offer.  If you are interested in these results, but I haven't covered a household type you would have liked to have seen, let me know in the comments.  I'll see if I can do one up for you, and post it as a follow up blog item (or maybe append it to this one).  I'm not expecting a rush, given the fairly low numbers who visit here!

Matt Cowgill has pointed out that the ACTU covered this issue in their submissions to FWA.  A wider range of households than I covered is here (see para 126 onward), using the tax-transfer parameters as at February 2012.  (This is probably as good a place as any to mention that my figures are at July 2012 - not that they are substantially different, I just failed to include that important bit of information originally!)

1 comment:

  1. Perhaps the minimum wage decision also doesn't get a lot of coverage because only a small proportion of the workforce are directly affected by it. Still, there wouldnt be too many FWA decisions that affect over a million people, would there?