"But we don't think the answer is to just say 'pay people more money'... because we all know that the only thing that supports effectively income growth is the terms of trade or productivity growth

"I think business would be delighted to see incomes grow, but only if the other mechanisms are in place."

The BCA president made the remarks at the Crawford Australian Leadership Forum hosted by the Australian National University in Canberra and The Australian Financial Review on Tuesday, a day after Dr Lowe issued an extraordinary challenge to workers that they shouldn't fear "robots or foreigners", or concerns over job security, to avoid pushing for higher wages.

Countering with the suggestion that Dr Lowe was putting the horse before the cart, Mr King pointed out that ongoing disinflationary pressures were keeping the cost of labour high relative to prices.

"It's interesting," Mr King said in a question-answer session. "The perception is that income growth is low, and that's not good - which it isn't. But through the eyes of business ,when you look at price growth, wages are growing faster than prices are growing."

The business council figurehead, who formally ran Origin Energy, said one of the problems with the economic data was that it remains exposed to short-terms swings in the terms of trade.

"On a quarter-by-quarter basis things sometimes look good. But all that's happened is that the terms of trade has improved; in the last quarter we actually had some reasonably positive upticks in some of the indicators. So too did the oil price and the iron ore price go up and they've already gone down.

"So like night follows days, the next quarter will probably show some of those measures fall.


What we've got to do is make sure that the underlying terms of trade and productivity growth and innovation to create the basis behind incomes.

"We'd love to pay people more money, but it has to be off the back of those things."

Asked how much scope business has to increase prices to pay for higher wages, Mr King suggested the scope was actually becoming less.

"Firstly, a significant part of our economy is trade-exposed, so we are not unilaterally able to decide to charge more for our exports. We operate in a global environment.

"The second [point] is around the impact of new technologies, particularly digital disruption.

He said examples such as the coming of Amazon will have a "huge impact on competitiveness" of local retailers.

"Some of industries that have been domestic and internal, even those are now facing global competition.

"As a trade-exposed economy we can't put up the shutters and say 'we're not in that business' - 40 per cent of our GDP comes from trade.

"We have no choice.

"So I think pricing power effectively is going to be harder, not easier. The levers business can pull on price are getting harder - not easier."