Mathias Cormann says lifting wages in return for tax cut would undermine free market

The Coalition does not support requiring companies to lift wages in return for a corporate tax cut because such a plan would interfere with the free market, Mathias Cormann has said.

The finance minister joins Bill Shorten and inequality experts in the labour movement in rejecting the idea, which has been proposed as a means to win public support for the Coalition’s proposed corporate tax cut and boost stagnating wages.

On Tuesday the Commonwealth Bank chief economist, Michael Blythe, said the government needed to “think about wages policy more broadly in Australia”.

“One interesting example here is what they appear to trying in Japan where [they] trade off company tax cuts in exchange for wage increases and more capital spending,” he said.

Asked if the Turnbull government could adopt the policy, Cormann told Radio National: “We don’t support that sort of government intervention in the Australian market.

“The way that everybody has the best possible way to get ahead … is by supporting the free market, free enterprise [and] reward for effort.”

Forcing companies to increase wages risked the government getting the decision wrong and “increasing the level of unemployment”.

Cormann said that when company tax cuts increased investment and unemployment declined, wage rises would follow “as sure as night follows day”.

“That is the way it has always happened – anybody who argues against that argues against the existence of mountains in Switzerland.”

Despite the improved profitability of companies in 2017 and the strong rise in employment, Australia has been struck by stagnant wage growth including pay rises in enterprise agreements at a record low of 2.2% in the September quarter.

Per Capita research fellow Tim Lyons told Guardian Australia the proposed wages fix was “a pea and thimble trick” that would see “a wage increase eroded over time by inflation while granting a corporate tax cut that is forever”.

Lyons suggested that employers could grant a 4% wage increase to qualify for a tax cut, then claw it back over years by granting less generous wage rises in future.

“What guarantee is there if the companies just say ‘I’ll pay a wage increase’? If it’s not in a legally enforceable enterprise agreement, then it’s just a thought bubble.”

Lyons said the government’s proposed tax cut for companies earning more than $50m was “a large unaffordable giveaway to large profitable companies … and this is an attempt to present it as benefiting workers when the beneficiaries are shareholders”.

Labor has started 2018 with an aggressive pitch on inequality and wage growth, including considering pegging the minimum wage to median earnings to boost average wages as much as $80 a week.

Asked about the idea of a compact for businesses to give wage rises, Shorten said “pigs might fly”.

“The idea that, when you see a large company getting tax windfalls from their friends in the Turnbull government, that they’re miraculously going to share this largesse with the workers of Australia, I’m sorry, but that fairytale doesn’t add up,” he told reporters in Canberra.

The former Labor treasurer Wayne Swan said employers had to put a “firm proposal” on the table to show they would share their profits or else they would simply increase executive pay or engage in share buybacks that enrich shareholders.

“Business has not used its increased profitability to increase wages,” he said. “Nobody is going to take vague words that we ‘might see it flow through’ – people will want a concrete set of arrangements that result in a better division wage/profit share.”

Swan said that the corporate tax level had to be set at a rate to “pay for economic and social infrastructure that makes the growth and pays the wages”.

“A race for the bottom in tax doesn’t deliver jobs and growth – it denudes the economy of the ability to pay for social goods.”