The federal government has backed a real wage increase for Australia’s lowest-paid workers, while stressing the importance of ensuring such a rise is economically sustainable and doesn’t fuel inflation.

Treasurer Jim Chalmers said the government’s submission to the Fair Work Commission supports a pay boost that keeps pace with the rising cost of living, but also aligns with broader economic goals like reducing inflation and boosting productivity.

Although the government did not suggest a specific percentage increase, it emphasized the need for wage growth to be underpinned by productivity improvements to avoid further inflationary pressures.

Chalmers noted that he consulted Reserve Bank Governor Michele Bullock to ensure the submission supports the central bank’s target of keeping inflation between two to three percent.

Around 2.9 million workers are affected by the annual wage review, many of whom are employed under awards or earn the minimum wage.

The Australian Council of Trade Unions has proposed a 4.5% wage increase, while business groups have called for more restrained rises between 2% and 2.6%, citing economic fragility and weak productivity.

The Australian Industry Group warned that excessive wage hikes could lead to higher unemployment and increased costs for businesses.

The Reserve Bank has also raised concerns that strong wage growth, in a tight labour market, may intensify inflationary pressures unless supported by corresponding gains in productivity.

Chalmers said while progress has been made on economic recovery, “it’s not mission accomplished,” as many Australians are still feeling financial pressure.