Chapter 1 - Majority Report
1.1
This bill proposes the amendment of the Workplace
Relations Act 1996 (WR Act) to require the Australian Industrial
Relations Commission to give primary consideration to the needs of the low paid,
and to the employment prospects of the unemployed, when considering safety net
adjustments to awards. The proposed amendments are also consistent with
Government policy to have pay and working conditions determined wherever
possible at the workplace level, leaving the Commission to look to the rights
of the most vulnerable and needy employees. The bill specifically proposes that
the Australian Industrial Relations Commission (the Commission) consider the
following matters when adjusting the safety net:
- as a primary consideration, the needs of the low
paid, including their need for employment;
- the employment prospects of the unemployed; and
- the capacity of employers to meet increased
labour costs.
1.2
This bill reinforces the Government’s stated determination
to ensure that agreement making in the workplace offers the best hope of
maintaining higher levels of sustained employment growth. While the federal
workplace relations system long ago began the move to enterprise level
agreements, there are remnants of the former centralised wages bargaining
processes that, according to the Government, continue to frustrate policy which
is aimed at maximizing employment. The Commission is already required under
section 88B of the WR Act to have regard for the needs of the low paid when
making adjustments to the wages safety net, but the Government believes this
particular consideration to be in need of reinforcement. The Act when amended
will make the needs of the low paid a primary consideration for the Commission.
The inquiry process
1.3
The bill was introduced to the House of
Representatives on 13 February 2003 and the debate adjourned at second reading. The Senate referred the
provisions of the bill to the committee on 19 March 2003 through the adoption of the
Selection of Bills Committee Report No 3 of 2003, 19 March 2003, which set out the principal
issues for consideration by the committee. These included:
- identification of those depending on the Safety Net Review and
the effect of the bill on the material needs of those people;
- previous consideration of the issues raised by the bill by the
Commission in Safety Net Review decisions;
- the probable effect of the legislation on the Commission’s
consideration of the Safety Net Review;
- examination of the provisions of the bill in the context of the
debate about whether current Commission living wage processes are adequate;
- consideration of whether cost of living wage increases to
employers is high and whether the disposable income benefits to low-income
workers is low; and
- whether the bill is adequate without making the welfare/tax
intersection less onerous.
1.4
While the bill is limited in its scope, the
committee has not given full consideration to all of the issues suggested by
the Selection of Bills Committee, some of which are highly complex. For
instance, the matter of the welfare and tax intersection is a highly
contentious policy area extending far beyond the scope of the relatively minor
amendments proposed in this bill. The committee notes lengthy discussion and
advocacy of policy changes in relation to these matters, in submissions from
the Australian Industry Group and the Australian Chamber of Commerce and
Industry, among others. While the views expressed in these submissions will be
briefly noted, the committee majority sees its task as addressing the immediate
substance of the amendments rather than making comment on policy changes which
would require extensive policy review.
1.5
The committee received 23 submissions and
conducted a public hearing in Canberra on 27 May 2003. In
preparing this report the committee has drawn on evidence it received at that
hearing and from the submissions received. Lists of submissions and witnesses
are to be found in appendices to this report.
1.6
The tabling date for this report was originally
set for 5 May 2003. The committee
lodged an interim report out of session, advising the Senate of its need for
more time. The Senate approved an extension of the tabling date to 19 June 2003.
Awards and the Safety Net
1.7
In fixing the award safety net, the Commission
continues to maintain its historic role in influencing wages movements through
the flow-on of its safety net review decisions. The committee majority notes claims
that this role has significantly less relevance today than it did in the past,
as only about 20 per cent of the workforce still relies on awards as their
pay-setting method for wage increases. As will also be noted however, evidence
to the committee demonstrates that the influence of safety net adjustments has
a flow-on effect through those sectors of the workforce that are on either over
award pay or pay rates negotiated through enterprise bargaining. The role of
awards within the industrial framework has been simplified under the WR Act,
which allows only a limited number of allowable award matters.
1.8
As noted earlier, the Commission is required to
have regard to the low paid when adjusting the safety net. Since 1997 the
Commission has based its judgments on three characteristics which it has
identified as constituting a workable definition of low-paid workers: where wages
are not prescribed in workplace or enterprise agreements; where award
classifications are toward the lower end of the award structure; and, where
either no over award payments, or only small over award payments are being
received.[1]
Nothing in the amendments proposed would prevent the Commission from continuing
to use this definition.[2]
1.9
Evidence to the committee on the significance of
the award safety net was, not surprisingly, divided along clear lines. In broad
terms, the ACTU and individual unions, and state governments argued that awards
were essential to protect the most vulnerable employees, an increasing
proportion of whom are employed part-time or as casuals. They argued in favour
of award relativities as providing some recognition for skills and some semblance
of a basis for a career structure. The ACTU argued that awards underpinned
enterprise agreements through the operation of the ‘no disadvantage’ test.[3] In several submissions, for
instance from the Association of Professional Engineers, Scientists and
Managers Australia (APESMA), there was comment to the effect that small
business employers (and their employees) would continue to rely on the
administrative convenience of awards in preference to enterprise agreements.
1.10
Employer organizations, that is, ACCI and the AiGroup,
accepted the need for awards but in a more limited way. Both organizations
expressed concerns about the flow-on effects of award decisions. ACCI regarded
awards as an out-of-date method of putting a floor under wages, and AiGroup, as
will be shown later, was more explicit in espousing a ‘social wage’ solution to
the problem of addressing the needs of the low paid.
1.11
Government policy has made clear the fundamental
distinction to be made between enterprise and workplace agreements on the one
hand, and award adjustments on the other. Safety net reviews of award wages have
come to be regarded as processes for fixing minimum wages for the unskilled
workforce engaged in low wage employment. There is no argument that this is a necessary
measure to counter unscrupulous employment practices resulting in the exploitation
of vulnerable employees. For other purposes, however, the Government argues
that it is in other respects a very clumsy mechanism for setting the wages and
conditions for the great majority of employees in most workplaces. As the Commonwealth
has argued before the Commission, the safety net review process is not designed
to reflect wage increases employees obtain through enterprise or individual
agreement. When this occurs it has the effect of raising the floor on wages
negotiated through those agreements.[4]
As a result it discourages bargaining and any improved productivity that could
occur.
1.12
The committee majority notes that in many
award-reliant industries there is only a small differential between the pay
rates for workers on awards and those on collective agreements, often less than
$3 a week in favour of workers on agreements.[5]
Such a small differential is evidence that collective or enterprise agreements
are vulnerable to the effects of increases in award judgements which take no
account of local economic circumstances.
1.13
Evidence presented by the Commonwealth at the
2003 wage case hearings before the Commission argued that if employees in
industries with lower productivity growth receive wage increases based on high
aggregate productivity growth, then real unit costs in the low productivity
industries will increase as a consequence. This is becoming evident in retail
trade and in the cafe, restaurant and hotel industries. Yet it is also the case
that workers in low productivity employment benefit from productivity growth in
other industries. That is, workers in slow productivity growth industries,
including those on awards, also benefit from the lower price rises resulting
from efficiencies and competition in higher productivity industries. The
committee majority notes the tendency for the more efficient sectors of the
workforce to carry the less efficient. The importance of this legislation in
attempting to address this imbalance focus on the needs of the low paid as a
primary consideration in wage fixing arrangements becomes obvious in this
context.[6]
1.14
References to the requirement for the Commission
to consider the needs of the unemployed have attracted comment. Argument has focused
on how best to deal with the fine divide between the unemployed and the
marginally employed and unemployed. There appears to be some agreement that
this fragile cohort can be taken as presenting a singular problem. The ACTU has
argued that as the Commission has rejected argument from the Commonwealth in
its 1999 decision by rejecting the inclusion of the unemployed from award consideration,
that should be the end to it. The ACTU argues that the effect of this
amendment, if passed, would restrict the scope of the Commission to make
adequate minimum awards. The committee majority takes the view that this
provision does not fetter the discretion of the Commission, but serves to guide
the Commission in its deliberations.
Wages policy and its economic context
1.15
The committee has always considered the
evolution of workplace relations policy to lie within the broader context of
economic growth and its employment outcomes. Submissions to this inquiry from
all sources have highlighted this concern. The WR Act reflects this policy
perspective, and amendments which have been proposed over the past four years
have been intended to strengthen the nexus between wages policy and employment
outcomes. This bill is the Government’s latest legislative attempt to further refine
this policy.
1.16
The committee notes that evidence presented by
the Commonwealth at the 2003 wage case hearings before the Commission argued
that if employees in industries with lower productivity growth receive wage
increases based on high aggregate productivity growth, then real unit costs in
the low productivity industries will increase as a consequence. This, it was
claimed, is becoming evident in the retail trade and in the cafe, restaurant
and hotel industries. Yet it is also the case that workers in low productivity
employment benefit from productivity growth in other industries. That is,
workers in slow productivity growth industries, including those on awards, also
benefit from the lower price rises resulting from efficiencies and competition
in higher productivity industries. The argument continued that there was a
tendency for the more efficient sectors of the workforce to carry the less
efficient. The Government’s stress on the importance of this legislation in
attempting to address this imbalance to focus on the needs of the low paid as a
primary consideration in wage fixing arrangements becomes obvious in this
context.[7]
1.17
In evidence to the 2003 hearings of the
Commission, the Commonwealth argued that, to the extent that wage increases
result in job losses and lowers the rate of economic growth, the effect is most
pronounced among the less skilled and less productive workers. Less skilled
workers were more likely to be laid off because they are easier to replace than
higher skilled workers. Employers were also reluctant to take on less skilled
workers and job seekers in the face of rising wages costs through across the
board award increases, thereby weakening the employment prospects of this
group.[8]
1.18
It was argued that employees on awards are
highly represented in this vulnerable group. They are generally concentrated in
lower skilled occupations compared to those who are paid under enterprise
agreements. The committee notes the 2003 Commonwealth submission to the
Commission arguing that low skilled workers are less likely to achieve sizeable
productivity improvements and were therefore more likely to be affected by
reductions in employment. ABS survey data indicates that 75 per cent of
employees under awards are covered by four broad occupation groups of
intermediate and elementary skill levels, and that 73 per cent of these workers
had only school level qualifications or less. In contrast, only 10 per cent of
higher skilled occupations are covered by awards, and of these, 78 per cent
have post-school qualifications.[9]
1.19
The committee received significant evidence from
the Australian Industry Group (AiGroup) concerning the effect of the 2002
Safety Net increases on wages generally. The AiGroup submission states:
While it is true that the 2002 decision did not prove to be a
wrecking-ball flattening the entire economy, the survey evidence demonstrates
that the negative effects on employment arising from an increase in the order
of $18.00 per week are not limited to those sectors in which a high proportion
of workers are award reliant. Other sectors, such as the metal and engineering
industry, where there is a relatively high incidence of both formal and
informal over award arrangements are likely to suffer negative economic
impacts, including lower employment levels.[10]
1.20
The submission continues, in regard to flow-on
effects:
The indirect costs of any safety net adjustment are not limited.
The evidence demonstrates that there is a substantial flow-on of the increases
to non-award and over award employees. Safety net increases are not limited to
the 25 per cent of the workforce who are exclusively dependent on award rates
of pay. The level of adjustment sets a minimum benchmark for movements across
the entire Australian wages system.[11]
1.21
The flow-on effects surveyed by the AiGroup
indicated that a high proportion of employers passed the $18 Safety Net
increase on to over award employees, even though there was no obligation on
them to do so. Employers reported lower profits and reductions in full-time
positions, and an increasing number of casual positions created. Small
employers were particularly affected.[12]
1.22
Data from the AiGroup also showed that 484
company responses to the 2002 safety net decision indicate that 10.1 per
cent would reduce the number of overall employee numbers as a result of the
high flow-on wages of that year. This evidence may also be cited in relation to
claims made in submissions from the ACTU and from the Queensland Government
that there is no data to show that award increases had any effect on employment.
1.23
The submission from the Australian Chamber of
Commerce and Industry (ACCI) also identified the problems faced by small
business in relation to safety net increases. Most small businesses are reliant
on awards. They stand outside the agreement making process. Although most small
businesses are owner operated, many are also labour intensive businesses. As
the submission states, they are the employers who can help make serious
inroads into the levels of unemployment if labour is not priced out of the market.
1.24
Evidence presented by the Commonwealth at the
2003 wage case hearings before the Commission argued that if employees in
industries with lower productivity growth receive wage increases based on high
aggregate productivity growth, then real unit costs in the low productivity
industries will increase as a consequence. This is becoming evident in retail
trade and in the cafe, restaurant and hotel industries. Yet it is also the case
that workers in low productivity employment benefit from productivity growth in
other industries. That is, workers in slow productivity growth industries,
including those on awards, also benefit from the lower price rises resulting
from efficiencies and competition in higher productivity industries. The
committee majority notes the tendency for the more efficient sectors of the
workforce to carry the less efficient. The importance of this legislation in
attempting to address this imbalance focus on the needs of the low paid as a
primary consideration in wage fixing arrangements becomes obvious in this
context.[13]
1.25
Restaurant and Catering Australia has submitted
that contrary to the effect desired by the Commission, the 2002 Safety Net
decision has meant a drop in average weekly earnings for restaurant employees.
It argues that the tight margins experienced in this growth industry require
that a fixed amount be expended on wages. The effect, therefore, of hourly rate
increases (in 2002 accompanied by a 1 per cent increase in superannuation) is
that the number of hours and number of employees is cut. The result has been
that employment has been reduced in cafes and restaurants as well as in hotels.[14]The submission points out:
The very high number of employees receiving penalty rate
payments means that the likely flow on of safety net adjustments, to workers in
the restaurant industry is greater than the all industry average. Restaurant
& Catering Australia contends that a flow on of 2.7% (one estimate of the
projected overall impact of the 2002 decision) was around 3.85% for restaurants,
in hourly rate terms.[15]
1.26
ACCI also argues that the Commission is at risk
of being unwittingly led to conclude that higher increases can be awarded than
would otherwise be the case simply because the aggregate cost effect of the
claim across the economy reduces year on year as the percentage of award
governed employers and employees decline. That award percentage is now about
20.4 per cent of employees, down from about 67 per cent ten years ago. The ACTU
has argued that this means that (in 2003) a claim for a $24.60 rise on 20 per
cent of the workforce has less effect in aggregate terms than it would if it
was paid to 67 per cent of the workforce. ACCI argues, as does AiGroup, that
this masks the real effect on the employers who are the subject to the orders made.
The committee majority recognizes that it is the effect on those employers that
ought to be taken into consideration by the Commission. It notes ACCI’s concern
that the ACTU can cloak an irresponsible claim in a mask of semi respectability
by relying on the traditional aggregate impact analysis.[16]
The welfare – tax intersection
1.27
One of the terms of reference invites
consideration of whether this bill is adequate without making the welfare – tax
intersection less onerous. The committee majority’s view on the relevance of
this issue to this inquiry has already been stated. Nonetheless, comment has
been made in submissions from AACI and the AiGroup, both of which argue that in
determining safety net adjustments, the Commission should take into account
recent developments in the broader social safety net. The AiGroup was pleased
to note that the Commission had formally accepted its arguments that if
significant changes are made to the taxation and social security systems to
provide a more equitable outcome for the low paid, as well as employers, then
the commission may be prepared to take such changes into account in future
safety net review proceedings.[17]
1.28
This issue of wages policy being considered in
isolation from taxation policy was taken up with the ACTU at the inquiry
hearings. The evidence suggests that there is little or no research done to
assist the Commission, or any parties making submissions, toward an
understanding of the tax-welfare effects of any particular wage rate movement on
different kinds of small business or particular demographics of employees.[18] The committee majority notes
the comment made by the Minister, Hon Tony Abbott MP, on taxation and welfare
issues in relation to wages policy, but cannot offer any comment on the status
of any policy debate on this issue. It does note however, the evidence that
informed comment needs to be assisted by better targeted research.
1.29
In relation to taxation, the committee notes the
view from the ACTU that the effective marginal tax rate is a problem, and should
be addressed by changes to the tax and transfer systems, including by tax
credits. The ACTU argues that this is an issue for government tax policy, not
the industrial relations system or the Commission.[19]
1.30
The Australian Industry Group has also argued
that the income support system is a much more effective way of delivering
assistance to low income households that is the wages system. AiGroup makes the
point that income support, unlike wage increases flowing from the safety net
wages cases, provide levels of assistance appropriate to the particular
circumstances of the household. Most such benefits are not taxed.[20] The committee majority notes
the strength of this argument in any debate on issues which may arise from this
bill, but extend far beyond the scope of this inquiry. It also notes ACCI’s
comments on the obsolescence of award wage arrangements,[21] but cautions against any
tendency to see issues of low pay and employment conveniently relegated to the
social welfare solutions category.
Maintaining the independence of the Commission
1.31
The committee majority considers it necessary to
report its concern about representations it has received that the bill
threatens the independence of the Commission. This view was put to the
committee in a number of submissions, and at the public hearing, principally by
the representative of the Shop, Distributive and Allied Employees’ Association.
It has been alleged that the principal amendment will have the effect of
fettering the discretion of the Commission to weigh the arguments made before
it in relation to the primary role of awards and the relative importance of the
needs of the low paid.
1.32
The submission from the Department of Employment
and Workplace Relations clarifies this issue:
The bill will not impose impermissible limitations of the
discretion of the Commission, nor prevent it from making awards that are
appropriate for the resolution of an industrial dispute. The amendments to the
object of the WR Act and the object of Part VI will not alter the general framework
under which the Commission performs its dispute prevention and settlement
function. .... Placing more importance on one factor than others does not place
an impermissible fetter on the discretion of the Commission. Nor does including
additional matters for the Commission to have regard to, such as the employment
prospects of the unemployed and the capacity of employers to meet additional
labour costs.[22]
1.33
In evidence to the committee the Department of
Employment and Workplace Relations reiterated its advice that the bill
conformed to the constitutional restraints that exist to protect the
independence of the judicial system. The committee majority is assured that the
bill does nothing more than provide guidance to the Commission in matters to
which it should direct its attention in considering safety net award claims. As
the department’s Chief Counsel explained:
The government would hope that it would have some impact on the
way in which the Commission might exercise its discretion, but it would not
direct the Commission to a particular outcome or mandate a particular outcome.
It would be conceivable that, if the Commission found in all the circumstances
that the same outcome was justified, having taken into account the new elements
that it is required to take into account, it could do so.[23]
1.34
The committee majority does not view this
proposed legislation as reflecting in any way on the competence of the
Commission to exercise its judgement and its responsibilities, but as a
principal party to the Commission’s deliberations, and having responsibility to
implement its workplace relations policy, the Government feels itself obliged
to legislate as it has done. The Government has made the point that Commission
adherence to the amended guidelines would strengthen its role in encouraging
bargaining at the workplace level.[24]
Other matters
1.35
The committee’s scrutiny of the evidence to the
inquiry was necessarily selective, but it covered a range of issues which need
to be referred to briefly. These have to do with criticisms of the proposed
legislation offered in several of the submissions.
1.36
The committee majority notes that a consistent
theme in arguments from the ACTU and from individual unions to this and other
amending bills has been the view that all proposed amendments to the WR Act
have the purpose of reducing employment rights and entitlements and to restrict
the bargaining power of those workers who belong to well organized unions.[25] To the extent that this true,
it applies only in those circumstances where there is demonstrable evidence
that the conduct of workplace relations has seen the public interest –
including the interests of employees – jeopardized by practices which the
Government believes are out of date.
1.37
Comment has also been made about the necessity
of introducing such a bill when under current provisions the Commission is
obliged to consider the employment prospects of the low paid when making their
decisions. The ACTU has argued that the Commission may be compelled to abandon
its practice of awarding increases to all classifications, thereby hastening
the move toward the irrelevance of the award system.[26] The committee majority
believes that such an outcome would require far more radical legislation than
is proposed here.
Conclusion
1.38
The committee majority accepts that what is
proposed in this bill will serve to refine the role of the awards safety net as
an essential mechanism to protect the low paid.[27] The overall increase in the
minimum safety wage has now increased by 19 per cent or $82 since 1996.[28] However, the Commission has
extended those award wage increases significantly beyond the role of a safety
net for the low paid. In fact, in its 2001 decision it awarded higher wage
increases for higher wage earners than the low paid.[29] The Commission’s 2003 safety net
decision reversed this with low paid workers receiving a slightly higher
increase.[30]
1.39
The link between wage fixation and macro-economic
goals has been evident in the long history of argument in industrial courts in
both Commonwealth and state jurisdictions. The WR Act requires the Commission to
consider such economic factors as levels of productivity and inflation;
employment, including youth employment; and the needs of the low paid.[31] This bill strengthens this
requirement by reinforcing guidelines in regard to employer’s capacity to pay
and the employment needs of the low paid.
1.40
Those businesses which rely upon awards are
primarily small and medium businesses and many of them are labour intensive
businesses in the growing service sectors of the economy, or are not for profit
sector businesses. ACCI point out that employer-on-costs for these businesses can
conservatively be estimated at 20 per cent. Increases to awards rates affect overtime
and penalty rates, annual leave loadings, payroll tax, superannuation, and
workers compensation.[32]
1.41
Most academic studies of wages policies and
practices in OECD countries have found a significant negative relationship
between minimum wage increases and employment. This is confirmed by the
majority of Australian studies on aggregate real wage growth and employment. The
government believes unemployed people should be given the best possible
opportunity to secure employment. Therefore, the most compelling reason for
placing greater emphasis on the capacity of employers to afford safety net
adjustments is the devastating consequences of neglecting to do so.[33]
1.42
The productivity growth rate of the economy over
the last six years has been less than the nominal change to the federal minimum
wage. By granting arbitrary wage increases without negotiated productivity
improvements, businesses are exposed to greater economic vulnerability, leading
to reduced employment opportunities through business closures, job shedding and
adverse effects on hiring and investment decisions.[34]
1.43
The committee majority fully supports the continued
efforts of the Government to improve the employment prospects and job security
of the low paid and unemployed.
1.44
The committee majority recommends that
this bill be passed without amendment.
John Tierney
Chair
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