Labor wants to guarantee a living wage

Leader Bill Shorten says a Labor govt will ensure a 'living wage' meets real costs of life. (AAP)

About 1.2 million Australian workers would get a pay rise under Labor's plans to introduce a national "living wage".

Australia's poorest workers will be guaranteed a "living wage" under a federal Labor government but business groups warn it will put jobs at risk.

Labor leader Bill Shorten said the living wage policy would directly benefit about 1.2 million Australians.

"A living wage should make sure people earn enough to make ends meet, and be informed by what it costs to live in Australia today - to pay for housing, for food, for utilities, to pay for a basic phone and data plan," Mr Shorten said on Tuesday.

Under the first stage of the plan, the Fair Work Commission would take advice from businesses and the community to determine what a living wage should be.

It would also consider Australia's social wage - the amount of tax people pay, and any family tax benefits or other transfers they receive.

Labor would then ask the Fair Work Commission to consider when the increase should be phased in, taking into account the capacity of businesses to pay, and the potential impact on employment, inflation and the broader economy.

The Australian Industry Group said the plan creates risks for low-skilled people, part-time employees and young people, who could lose the jobs if wages rise too fast.

"It also puts at risk a considerable swathe of Australian businesses that operate on low margins and provide jobs for low-skilled Australians," chief executive Innes Willox said.

The first living wage case would take place after the legislation passes parliament, with wage increases to be phased in from the July 1 after that review.

The living wage would not automatically flow through to award wages, but rather only apply to those receiving the national minimum wage.

There would still be an annual wage review to determine award wages.

Jobs Minister Kelly O'Dwyer said Labor wanted to make "dramatic changes" to the rules that had already produced the third-highest minimum wage in the world.

"These, by the way, are the rules that were set up by Bill Shorten and the Labor Party when they were last in government," she told reporters in Brisbane.

Cabinet minister David Littleproud warned Labor's policy could cost people jobs through higher wage costs for business.

"It's all shiny and it all sounds good but what it means is someone is going to have to pay for it," he told reporters in Hobart on Tuesday.

Australian Council of Trade Unions secretary Sally McManus welcomed the announcement as a fantastic first step in addressing 'broken wage rules'.

"The re-establishment of a living wage would ensure that full-time work means a comfortable life and enough money to live on, not simply to avoid starvation," she said.

Under the coalition government, the minimum wage has gone up each year at a faster rate than inflation and wage growth across the economy.

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