Ms Chesters slammed Australian Workers Union chief Paul Howes, who said last week that Australia’s industrial relations system was “dragging Australia down” and that wages in some sectors had increased too quickly.

“I challenge Paul Howes to get out and speak to people in Bendigo,” she said.

“I know from speaking to many people in these industries in Bendigo that they simply wouldn’t survive without penalty rates.”

Howes’ comments were made as the federal government prepares to launch a Productivity Commission inquiry into the Fair Work Act.

The government has issued a strongly worded submission to the commission urging it to consider a softening economy as it reviews award wages and penalty rates.

Ms Chesters said that if penalty rates and award wages were cut people would have less money to spend on local businesses and may have to seek help from local services.

“The last thing we need is for people in full-time work to have to call the Salvos for help,” she said.

"It's easy to look down from your ivory tower and say, 'You should take a pay cut'.

“It shows how disconnected these people are from the workers and their families.”

But Jason Tayeh, manager of Café Cortillé in Lyttleton Terrace, said that while he didn’t necessarily support cuts to penalty rates, such a policy would benefit the cafe.

“In terms of the customer service we would be able to provide, that would improve,” he said.

“With the money we’d make up from the penalty rates we’d be able to provide a better environment for our staff … we’d be putting that money back into the business.”

Mr Tayeh employs six full-time staff and nine casuals.

He said that if penalty rates were cut he’d be able to roster on more people for each shift and buy better appliances for the cafe.

In such an event, he and the owners would consider alternative incentives for staff, such as free meals and flexible working hours.

But he also said penalty rates made a big difference to students and casual workers and that he could see the benefit of them.

“As a student it does help,” he said.

A Bendigo Business Council spokesman said the council could not comment on the issue at this time.