The start of the new financial year on 1 July brought a 6% increase in the minimum wage, to over $1,000/week, and a 4.75% increase in award wages.
At the same time, Australia’s gig economy is facing new regulation, with a landmark Fair Work Commission decision expected to reshape it.
Each of these changes is well-intentioned. But as recent events show, from a café closure in Springfield to an industrial dispute at the country’s largest iron ore export terminal, good intentions don’t always translate into good outcomes.
In the latest episode of my Economics Explored podcast, I look at what’s driving these changes and why the trade-offs involved deserve more attention than they’re currently getting. You can listen to it on your favourite podcast app or watch the video recording on YouTube below.
One of my favourite cafés, Screaming Beans in Springfield, recently announced it was closing. What made the news particularly disappointing was that it was an award-winning café, recognised as the best in the Ipswich region, and, by all appearances, it was busy every time I visited.
According to the café’s Facebook account, the combination of wage costs and rent had simply become unsustainable. The timing of the café’s closure, at the start of the new financial year, makes me wonder whether the recent wage rate increases ushered in by the Fair Work Commission, not to mention the new payday superannuation requirement, were decisive.
Screamin’ Beans isn’t an isolated case, and many cafes have been struggling for some time now. Phil De Bella, a well-known figure in the Brisbane coffee industry, has pointed out that one in eight cafés closed last year, and many operate on profit margins as thin as 3%. It’s a genuinely difficult set of circumstances facing hospitality businesses across Australia at the moment. You can listen to a recent interview Phil gave on the Coffee Commune website.
While cost pressures are often multi-dimensional, wage costs, shaped in large part by decisions handed down by the Fair Work Commission, are a significant piece of the puzzle. Indeed, the Commission has another major decision in the pipeline that will affect a very different part of the economy: the gig economy.
The Commission has handed down a draft decision proposing minimum standards for on-demand food delivery. It includes a roughly 25% increase in required earnings, with baseline rates of $31- $32 per hour, up from around $23 currently.
The economic consequences are relatively predictable. Someone has to bear the cost of a 25% increase in labour costs. It will be passed on to consumers to a significant extent via higher delivery fees. This will reduce demand for food deliveries, and platforms may then have to limit how many delivery drivers or riders can be active at once to ensure they all earn the minimum.
The trade-offs need to be weighed honestly, rather than assumed away. The Commission’s decision will cost consumers and likely reduce employment opportunities in the gig economy.
This is not to deny that there are regulatory issues in the gig economy to address. Certainly, the fatalities and injuries that gig economy workers have suffered are a cause for concern. In 2023, the ACTU noted 15 delivery drivers had died on Australian roads since 2015. But, in my opinion, the road safety issue is one for local and state government transport agencies and state workplace health and safety agencies. A lack of insurance coverage is arguably an issue. But in this case, as the Productivity Commission has recommended, any gig economy measure should directly address this issue — e.g., by requiring platform companies to obtain appropriate levels of insurance for their contractors — rather than imposing a more wide-ranging regulatory response.
One of the more valuable points raised in my discussion with John Humphreys, chief economist at the Australian Taxpayers’ Alliance, is a distinction that gets far too little attention in the public debate: the difference between a gross wage increase and a net wage increase.
When the minimum wage goes up, most commentary focuses on the headline figure: the extra dollars in gross pay. But that’s not what actually determines a worker’s improvement in wellbeing. Higher gross pay often means more tax paid on the additional income, and for workers receiving part welfare payments, it can also mean a reduction in that welfare support as their income rises.
The result, in some cases, is that a worker might expect a 6% pay increase to leave them meaningfully better off, when the real improvement in their net position is closer to 2%.
This isn’t just a technical curiosity. It points to a genuinely useful policy insight: if the goal is to improve workers’ net position, the same outcome could, in principle, be achieved by cutting taxes or reducing the taper rate of social security benefits, rather than mandating higher gross wages, without the same distortionary effects on the labour market. The fact that governments generally prefer the wage-mandate approach says much about political incentives. The government prefers that the cost fall on employers rather than on the budget.
Much of the reasoning behind labour market regulation of this kind seems to rest on an assumption that the American economist Thomas Sowell has written about extensively: the zero-sum fallacy — the mistaken belief that in an economic transaction, whatever one party gains, such as an employer, another must be losing (check out Sowell’s Economic Facts and Fallacies).
Sowell’s point, drawn on in my Centre for Independent Studies (CIS) paper Closing Opportunities, Not Closing Loopholes, is that voluntary transactions — whether between employer and employee, landlord and tenant, or in international trade — don’t continue unless both parties judge themselves better off by making them. If a gig economy platform is profitable, that doesn’t automatically mean drivers are being shortchanged. It may simply reflect a transaction that benefits both sides.
The risk of heavy-handed regulation is that when the government imposes its preferred terms on a transaction, the acceptable terms for both parties may no longer overlap in as many cases as before. The result isn’t necessarily a fairer outcome. It can be fewer transactions altogether: fewer hours worked, fewer opportunities available, less total employment in the affected sector.
The adverse impact of workplace regulation isn’t confined to hospitality or the gig economy. Recent regulatory changes are impacting our most valuable export industry, iron ore mining. Michael Stutchbury, head of the CIS, where I’m an adjunct fellow, recently wrote about an industrial dispute at BHP’s Port Hedland iron ore terminal, the world’s largest iron ore loading port. In his article, We’re Punching Ourselves in the Face, Stutchbury described the situation as workplace laws working against the national interests, pointing to expanded union right-of-entry powers and “same job, same pay” rules applied across genuinely different work arrangements.
None of this is an argument against caring about how workers are treated. Nobody disputes that exploitation is a real concern and that it’s a legitimate policy goal to address. The issue is that regulations are imposed without adequate regard for the economic circumstances facing businesses, and without recognising the trade-offs involved, thereby risking the very opportunities they’re meant to protect.
Whether it’s a suburban café, a food delivery platform, or an iron ore export terminal, the underlying economic principle is the same. The more we constrain the terms on which people can voluntarily trade, the fewer mutually beneficial trades will actually take place.
Gene Tunny, Director, Adept Economics
Published on 14 July 2026. For further information, please contact us at contact@adepteconomics.com.au or call us on 1300 169 870.