PR002002

AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

Workplace Relations Act 1996

s.113 applications to vary awards

s.108 references of applications to vary awards

Australian Liquor, Hospitality and Miscellaneous Workers Union

THE HOSPITALITY INDUSTRY - ACCOMMODATION, HOTELS, RESORTS AND GAMING AWARD 1998

(ODN C No. 00389 of 1975)

[Print P9138 [AW783479]]

(C2001/5719)

BUILDING SERVICES (VICTORIA) AWARD 1994

(ODN C No. 21726 of 1992)

[Print L2955 [AW769594]]

(C2001/5720)

LAUNDRY INDUSTRY (VICTORIA) AWARD 1998

(ODN C No. 21626 of 1992)

[Print Q6887 [AW787052]]

(C2001/5721)

CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL TERRITORY)

AWARD, 1998

(ODN C No. 03697 of 1985)

[Print Q2724 [AW772250CRA]]

(C2001/5722)

The Australian Workers' Union

HORSE TRAINING INDUSTRY AWARD 1998

(ODN C No. 03039 of 1975)

[Print R5058 [AW783476]]

(C2001/5833)

Textile, Clothing and Footwear Union of Australia

CLOTHING TRADES AWARD 1999

(ODN C No. 00696 of 1980)

[Print S1147 [AW772144CRA]]

(C2001/5933)

Automotive, Food, Metals, Engineering,

Printing and Kindred Industries Union

THE VEHICLE INDUSTRY - REPAIR, SERVICES AND RETAIL -

AWARD 1983

(ODN C No. 01339 of 1974)

[Print H5658 [AW801827CRA]]

(C2001/5810)

THE VEHICLE INDUSTRY AWARD 2000

(ODN C No. 01522 of 1979)

[Print F0813 [AW801818]]

(C2001/5929)

GRAPHIC ARTS - GENERAL - AWARD 2000

(ODN C No. 22956 of 1995)

[Print S1716 [AW782505CR]]

(C2001/5934)

METAL, ENGINEERING AND ASSOCIATED INDUSTRIES

AWARD, 1998 - PART I

(ODN C No. 02568 of 1984)

[Print Q2527 [AW789529]]

(C2001/5935)

National Union of Workers

STORAGE SERVICES - GENERAL - AWARD 1999

(ODN C No. 32518 of 1992)

[Print R1040 [AW796791]]

(C2001/5845)

GROCERY PRODUCTS MANUFACTURE - MANUFACTURING GROCERS AWARD 1996

(ODN C No. 01152 of 1985)

[Print P1412 [AW782558]]

(C2001/5846)

COMMERCIAL SALES (VICTORIA) AWARD 1999

(ODN C No. 31107 of 1993)

[Print R1382 [AW772623]]

(C2001/5847)

RUBBER, PLASTIC AND CABLE MAKING INDUSTRY - GENERAL - AWARD 1998

(ODN C No. 01800 of 1982)

[Print R4420 [AW794720]]

(C2001/5849)

Australian Municipal, Administrative, Clerical and Services Union

CLERICAL AND ADMINISTRATIVE EMPLOYEES (VICTORIA)

AWARD 1999

(ODN C No. 34749 of 1995)

[Print S1367 [AW773032]]

(C2001/5843)

VICTORIAN LOCAL AUTHORITIES AWARD 2001

(ODN C No. 36277 of 1989)

[Print J9778 [AW811556]]

(C2001/5844)

Transport Workers' Union of Australia

TRANSPORT WORKERS AWARD 1998

(ODN C No. 01520 of 1982)

[Print Q8693 [AW799474CRN]]

(C2001/5803)

Shop, Distributive and Allied Employees Association

RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES - AUSTRALIAN CAPITAL TERRITORY - AWARD 2000

(ODN C No. 30030 of 1993)

[Print T3309 [AW794740CRA]]

(C2001/5830)

Construction, Forestry, Mining and Energy Union

TIMBER AND ALLIED INDUSTRIES AWARD 1999

(ODN C No. 00031 of 1950)

[Print R5055 [AW800937]]

(C2001/4617)

Various employees		Various industries
JUSTICE GIUDICE, PRESIDENT
VICE PRESIDENT ROSS
VICE PRESIDENT McINTYRE
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT HARRISON
COMMISSIONER LEWIN
COMMISSIONER HOFFMAN	MELBOURNE, 9 MAY 2002

CONTENTS

	Paragraph
List of Main Abbreviations
The ACTU Wage Claim	[1]
Outline of Responses to the Wage Claim	[2]
Employers	[2]
Governments	[13]
Community Organisations	[15]
Claims About the Commission's Statement of Principles	[16]
Economic Considerations	[17]
Introduction	[17]
Current Economic Conditions	[20]
Submissions	[20]
Indicators of Recent Past Economic Activity	[27]
Economic Growth	[27]
Private Business Investment	[29]
Trade	[32]
Prices and Wages	[33]
The Labour Market	[35]
Productivity	[36]
Conclusion	[37]
Sectoral Developments	[42]
Manufacturing	[43]
Rural	[45]
Construction	[47]
Printing	[48]
Retail	[50]
Tourism	[51]
Accommodation, Cafes and Restaurants	[55]
Vehicle Retail, Repair and Services	[59]
Conclusion	[60]

The Immediate Economic Outlook	[61]
Conclusion	[73]
The Cost of the ACTU Claim	[75]
Direct Cost of the ACTU Claim	[75]
Indirect Cost of the ACTU Claim	[87]
Conclusion on the Cost of the ACTU Claim	[99]
The Economic Effects of Safety Net Adjustments	[101]
Conclusion on Economic Considerations	[126]
Needs of the Low Paid and Living Standards Generally	[127]
Decision on the ACTU Wage Claim	[154]
Statement of Principles and Related Matters	[165]
Orders	[226]
Attachment A - Statement of Principles

LIST OF MAIN ABBREVIATIONS

In this decision the following abbreviations are used:

AACS:	Award and Agreement Coverage Survey 1999
ABARE:	Australian Bureau of Agricultural and Resource Economics
ABS:	Australian Bureau of Statistics
ACCER:	Australian Catholic Commission for Employment Relations
ACCI:	The Australian Chamber of Commerce and Industry
Act:	Workplace Relations Act 1996
ACTU:	Australian Council of Trade Unions
AHA:	Australian Hotels Association and MIMAA
AiG:	The Australian Industry Group and the Engineering Employers Association, South Australia
April 1997 decision:	Safety Net Review - Wages April 1997 decision [Print P1997, (1997) 71 IR 1]
April 1998 decision:	Safety Net Review - Wages April 1998 decision [Print Q1998, (1998) 79 IR 37]
April 1999 decision:	Safety Net Review - Wages April 1999 decision [Print R1999, (1999) 87 IR 190]
ARA:	Australian Retailers Association
AWIRS:	Australian Workplace Industrial Relations Survey
AWOTE:	Average Weekly Ordinary Time Earnings
CPI:	Consumer Price Index
DEWR:	Department of Employment and Workplace Relations
EEH Survey:	Survey of Employee Earnings and Hours, May 2000
GDP:	Gross Domestic Product
GST:	Goods and Services Tax
HES:	Household Expenditure Survey
May 2000 decision:	Safety Net Review - Wages May 2000 decision [Print S5000, (2000) 95 IR 64]
May 2001 decision:	Safety Net Review - Wages May 2001 decision [PR002001, (2001) 104 IR 314]
Metal Industry Award:	Metal, Engineering and Associated Industries Award, 1998 - Part I [Print Q2527 [AW789529]]
MIMAA:	Motor Inn, Motel and Accommodation Association
MPMSAA:	Master Plumbers and Mechanical Services Association of Australia
MYEFO:	Mid-Year Economic and Fiscal Outlook
NATSEM:	National Centre for Social and Economic Modelling
NFF:	National Farmers' Federation
OECD:	Organisation for Economic Co-operation and Development
PIAA:	Printing Industries Association of Australia
RBA:	Reserve Bank of Australia
Retail Motor Industry:	Victorian Automobile Chamber of Commerce, the Motor Trader Associations of New South Wales, South Australia, Western Australia, Northern Territory, the Australian Capital Territory and Queensland and the Service Station Association of New South Wales
State Labor Governments:	States of New South Wales, Queensland, Tasmania, Victoria, South Australia and Western Australia and the Australian Capital Territory and the Northern Territory
TRYM:	Treasury Macroeconomic Model
VACC:	Victorian Automobile Chamber of Commerce
WCI:	Wage Cost Index

REASONS FOR DECISION

THE ACTU WAGE CLAIM

[1] This decision deals with the 2002 Living Wage Claim by the Australian Council of Trade Unions (ACTU). The ACTU seeks a $25 weekly increase in all award rates with a commensurate increase in allowances. In pursuit of the claim, applications under s.113 of the Workplace Relations Act 1996 (the Act) were made by unions in November 2001 to vary a number of awards.

OUTLINE OF RESPONSES TO THE WAGE CLAIM

Employers

[2] The employer organisations or associations represented all opposed the ACTU's wage claim and some put forward various proposals for adjustments to award rates.

[3] The Australian Chamber of Commerce and Industry (ACCI) supported:

"an appropriate increase in minimum award wages, as follows:

a. A $10 per week increase in the federal award minimum wage. This would increase the wage from $413.40 to $423.40 per week.

b. No increase to award wages above this level.

c. Were the Commission to increase award rates above the federal award minimum wage, any such increase would need to be moderate (that is $10 per week), and should be properly targeted to the lower paid (not being applied to all award rates of pay).

d. Support for particular arrangements ameliorating the impact of any increase on industry or sub industry sectors based upon industry circumstances."

[4] The Australian Retailers Association (ARA) supported ACCI's position.

[5] The National Farmers' Federation (NFF) submitted that a $10 per week increase in the minimum wage (of $413.40) alone should be the Commission's preferred option.

[6] The Australian Industry Group and the Engineering Employers Association, South Australia (jointly AiG) supported an increase of $10 per week to apply to all award rates of pay, subject to absorption.

[7] The Victorian Automobile Chamber of Commerce (VACC), the Motor Trader Associations of New South Wales, South Australia, Western Australia, Northern Territory, the Australian Capital Territory and Queensland and the Service Station Association of New South Wales (jointly the Retail Motor Industry) submitted that, if the Commission finds that an increase is substantiated, it should be moderate; that is, significantly less than the amount awarded in 2001, and any increase should be a flat dollar amount.

[8] The Printing Industries Association of Australia (PIAA) submitted that "if any increase is contemplated it should be modest and confined to the genuinely lower paid".

[9] Restaurant and Catering Australia, an unregistered association representing restaurateurs and caterers, submitted that only 50 per cent of any increase should be applied to the employees of restaurateurs and caterers.

[10] The Australian Hotels Association and The Motor Inn, Motel and Accommodation Association (MIMAA) (jointly AHA), subject to an exception, supported the submissions of ACCI.

[11] The Master Plumbers' and Mechanical Services Association of Australia (MPMSAA) generally supported AiG's submission.

[12] The Australian Catholic Commission for Employment Relations (ACCER) submitted that the Commission should consider the position of the low paid as the overriding factor. It supported the continued use of flat dollar increases and suggested that a tiered scale of flat dollar increases might be awarded with the greater increases at the lower end of award rates of pay, particularly to employees paid below the C10 tradesperson rate in the Metal, Engineering and Associated Industries Award, 1998 - Part I [Print Q2527 [AW789529]] (Metal Industry Award).

Governments

[13] The Commonwealth submitted that the ACTU's claim should be rejected. It argued for a $10 per week increase to award rates for the low paid on the following basis:

"· to be available only to award rates up to and including the equivalent of the tradespersons's rate - C10 in the Metal Industries Award (currently $507.20 per week);

· to apply until the next Safety Net Review;

· to be fully absorbed into all above award payments including from enterprise agreements and informal overawards; and

· that there is a 12 month gap between the increases provided for by the Australian Industrial Relations Commission (AIRC) in its 2001 decision and any increases decided in this case."

[14] The States of New South Wales, Queensland, Tasmania, Victoria, South Australia and Western Australia and the Australian Capital Territory and the Northern Territory (jointly the State Labor Governments) supported the ACTU's claim. In the alternative, and in the event of a deterioration in the economic outlook, the State Labor Governments submitted that the Commission should grant the maximum wage increase consistent with the evidence to ensure that a genuine safety net for the low paid is maintained.

Community Organisations

[15] A number of community organisations made written submissions broadly supporting an increase in wages, particularly having regard to the circumstances of low paid workers.

CLAIMS ABOUT THE COMMISSION'S STATEMENT

OF PRINCIPLES

[16] In addition to the wage claim, there are various claims before us about the Commission's Statement of Principles. We deal with these under the heading "Statement of Principles and Related Matters".

ECONOMIC CONSIDERATIONS

Introduction

[17] In determining the present application the Commission is required by the Act to have regard to, amongst other matters, "economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment".¹ In this part we consider:

· current economic conditions, including indicators of recent past economic activity and the immediate economic outlook;

· estimates of the cost of the ACTU wage claim; and

· the likely economic impact of the claim.

[18] In doing so, we address submissions directed to macro-economic considerations and submissions directed at the micro-economic level, including those submissions in relation to particular sectors of the Australian economy.

[19] Although there are differences in the positions put by various parties and intervenors, the submissions before us reflect a general view that Australia's recent economic performance has improved, is strong in relation to other developed economies and that the immediate economic outlook is positive. Different perspectives were advanced as to the durability of the improvement and risks to its continuation. The most significant disagreement arises in the assessment of the parties as to the likely economic impact of the ACTU claim.

Current Economic Conditions

Submissions

[20] The ACTU submitted that:

"The Australian economy can sustain a moderate but significant increase in award rates of pay. The recent performance of the economy has been good and our overall prospects are encouraging. Last year's safety net review proceedings were conducted against a backdrop of the (then) recently released December 2000 quarter National Accounts data. That data showed a seasonally adjusted contraction of 0.6 per cent in the economy (later revised to 0.5%). Since that time economic growth has recovered strongly, and Australia's economic performance throughout 2002 is forecast to outpace most of the developed world.";

and

"The Australian economy has showed remarkable resilience over the past year, recovering strongly and quickly from the GST-induced slowdown during the latter part of 2000 and early 2001. Since this time, the Australian economy has well outperformed most other major industrialised countries in almost all areas, often by an order of magnitude."

[21] The State Labor Governments submitted that:

"[E]conomic activity in Australia began to accelerate in the second half of the financial year with still faster growth in the September quarter. The economic evidence suggests that the Australian economy has experienced:

· A rebound in household consumption in the second half of 2000-2001, with continued strong growth in the first quarter of 2001-2002;

· A recovery in the housing industry;

· A moderate level of underlying inflation that is still expected to remain within the Reserve Bank of Australia's target range of between 2 and 3 per cent during 2002-2003; and

· Strong growth in wages of 3.5 per cent during 2000-2001, up from the 2.9 per cent growth experienced in 1999-2000.";

and

"Employment has also been an issue for Australia during 2001-2002, and whilst employment growth has remained sluggish, latest trend data suggests that unemployment has now stabilised."

[22] The Commonwealth submitted that:

"In the current financial year, growth in the Australian economy is expected to be below the long-term average. Growth is expected to strengthen somewhat in 2002-03, although there are significant uncertainties to the outlook. The labour market, however, is expected to remain subdued."

[23] In its reply submissions, following the release of the December 2001 quarter National Accounts, the Commonwealth contended that significant uncertainties are still evident in the economic outlook, particularly in relation to the international outlook and the extent of the moderation in the housing sector. It submitted that, while the labour market shows some signs of improvement, a recovery in full-time employment has not yet begun. The Commonwealth submitted that:

"Although economic growth according to the December quarter National Accounts became more broadly based, there were still pockets of weakness at the industry level."

[24] ACCI submitted that there is a recovery taking place but it is at an early stage and from a low base. It submitted that weaknesses in private investment, full-time employment and the external sector, together with international and domestic risks, including possible interest rate increases, require caution in the adjustment of minimum wages. ACCI further submitted that:

"Despite there being a range of validly based concerns, it is accepted that the Australian economy is growing in contrast to its condition when this Safety Net hearing was last held. Yet whilst acknowledging that the economy is moving forward, it also remains equally true that it is performing well below its potential.";

and

"[I]n spite of a very difficult world economic environment, there is evidence that, as an overall proposition, economic conditions in Australia are improving and are expected to continue to improve. Our robust rate of growth is almost unique amongst the economies of the developed world."

[25] ACCI attributed the relatively strong performance of the Australian economy to a combination of factors influencing the world economy and to two factors peculiar to the Australian economy. Those factors said to be common within the world economy were reductions in interest rates and the fall in world oil prices. Those factors said to be peculiar to Australia were personal tax cuts, which accompanied the introduction of the Goods and Services Tax (GST) in July 2000, and the introduction of the First Home Owners Grant Scheme.

[26] AiG submitted, on the basis of September quarter 2001 National Accounts data, that:

"[T]he Australian economy has departed substantially over the last year from the previous five or more years. Quarterly annualised growth of over 4 per cent has been replaced by a growth rate below 3 per cent. Even assuming a strong quarterly growth (of over 1 per cent) in the December 2001 quarter, this would put growth at about 3.7 per cent in trend terms, well below past experience and our optimal growth potential. This contrast is even more evident with cyclical downturns, where annualised growth fell to around 3.5 per cent in previous downturns compared to 1.5 per cent in the most recent downturn (a difference of 2 percentage points or two-thirds lower)."

Indicators of Recent Past Economic Activity

Economic Growth

Table 1

[27] The Gross Domestic Product (GDP) data in Table 1 show a recovery in economic growth in the final three quarters of 2001, following weaker growth over the year to each quarter in March 2001. A 3.8 per cent growth is shown in the year to the December quarter 2001, reflecting quarterly growth of 1 per cent or more in each of the June, September and December quarters.

[28] More recent indicators of consumption activity show strong retail sales, with annual growth exceeding 8 per cent in the year to each month in the second half of 2001. Slight moderation in growth is evident in the years to December 2001 and January 2002, but real growth continued into 2002. New motor vehicle registrations have been affected over the past few years by timing issues associated with the introduction of the GST. They were weak in the first half of 2001, but there is evidence of improvements in monthly registrations over the second half of 2001, although registrations remain 2.5 per cent below the level 12 months earlier in December 2000.

Private Business Investment

Table 2

[29] Real private business investment declined in each quarter in the financial year 2000-2001, but increased in each of the first two quarters of financial year 2001-2002, growing by 1.3 per cent in the December quarter. Total business investment growth in the September and December quarters resulted from strong growth in machinery and equipment investment (2.4 per cent and 3.7 per cent respectively), with falls in business building and construction investment. The stronger business investment in the second half of calendar year 2001 has resulted in growth in real business investment of 0.1 per cent over the year to the December quarter 2001 (building and construction investment down 0.5 per cent and machinery and equipment investment up 1.5 per cent), this being the first positive annual growth recorded in total private business investment since the year to the March quarter 2000.

[30] The outlook for private business investment is very strong. Australian Bureau of Statistics (ABS) New Capital Expenditure expectations data for 2001-2002 showed expectations of increased investment levels in the more recent surveys and the first survey for 2002-2003 showed expectations of a 21.2 per cent increase in investment activity. Expectations for new capital expenditure vary over time and are subject to variable realisation rates. They need to be treated with some caution. Nonetheless, the survey is consistent with other evidence of improved private sector investment activity in the final half of calendar year 2001 and official estimates, which also suggest stronger investment activity.

[31] Housing demand grew strongly in the final quarter of financial year 2000-2001 and into 2001-2002, growing by 16.7 per cent in the year to December 2001. The value of new dwellings approvals has eased from August 2001, declining in the more recent months of December 2001 and January 2002.

Trade

Table 3

[32] The rate of growth of exports has declined from very strong quarterly growth levels in 1999-2000 to more moderate levels of growth in 2000-2001, with reductions in each of the first two quarters of 2001-2002, reflecting, in part, weak external demand. Imports have grown by 0.3 per cent and 1.1 per cent in the September and December quarters 2001, after falling in each of the preceding four quarters. As a consequence, net exports detracted from total economic growth in the September and December quarters 2001.

Prices and Wages

Table 4

[33] Table 4 shows that inflation, measured by the ABS Consumer Price Index (CPI), has returned to levels around the Reserve Bank of Australia (RBA) target range of 2-3 per cent, following the short-term effect of the introduction of the GST. The CPI rose from 2.5 per cent over the year to the September quarter 2001 to 3.1 per cent over the year to the December quarter 2001, reflecting one-off effects such as higher insurance premiums, electricity prices, meat prices and domestic airfares.

Table 5

Notes:

¹ Full-time Average Weekly Ordinary Time Earnings, Trend estimates for quarterly data. Source: ABS Cat No. 6301.0 and 6302.0.

² Source: ABS Cat No. 6312.0.

³ Department of Employment and Workplace Relations (DEWR) Workplace Agreement Data Base, all current wage agreements, all sectors. Average Annualised Wage Increase.

[34] Table 5 shows ABS Average Weekly Ordinary Time Earnings (AWOTE) growth in excess of 5 per cent per annum over the years to the September and December quarters 2001. The ABS Wage Cost Index (WCI), which does not reflect the impact of compositional change evident in the AWOTE data, grew by 3.4 per cent in the year to the December quarter 2001, following increases in excess of 3.5 per cent over the years to the first three quarters of 2001. Average wage outcomes in current agreements, for all sectors, grew by 3.7 per cent over the year to the December quarter 2001, with the average annual wage increase provided in agreements certified in that quarter being slightly higher.

The Labour Market

Table 6

[35] Total employment growth has recovered to an annual growth rate of 1.5 per cent in the year to February 2002. This growth follows improved annual growth from the December quarter 2001, after reduced annual growth levels in the years to each of the first three quarters of 2001. For some years, employment growth has been stronger in part-time employment than in full-time employment. Growth in part-time employment was particularly strong during 2001, with full-time employment falling in the years to the June, September and December quarters 2001 and in the year to February 2002. Nonetheless, the rate of decline in full-time employment over the year has moderated from a decline of 1.4 per cent in the year to September 2001 to a decline of 0.3 per cent in the year to February 2002. On a quarterly basis (not shown in the table) full-time employment has increased in the December quarter 2001, with continued growth into 2002. The data for the December quarter 2001 and the first two months of 2002 show a resumption of growth in full-time employment, lagging output growth. The unemployment rate increased in the June quarter 2001 and remained constant, at 6.8 per cent, in the final half of 2001. It has fallen to 6.6 per cent in February 2002.

Productivity

Table 7²

[36] Productivity, measured by Market Sector GDP per hour worked, weakened in 1999-2000 and 2000-2001, following strong growth in each of the four years to 1997-1998. Considered on a quarterly basis, the decline in productivity was most concentrated in 2000, with a resumption of strong 1 per cent per quarter growth rates in 2001. Productivity growth has improved over each quarter in 2001, from zero in the year to the March quarter to a historically high 4.3 per cent in the year to the December quarter 2001. The recent strong productivity growth may reflect stronger output growth, coupled with a lagging employment response. Nonetheless, productivity growth has recovered from the weak quarterly performances during 2000.

Conclusion

[37] In the May 2001 decision, the Commission stated that:

"[T]he long period of strong non-inflationary growth experienced in Australia since the early 1990s was interrupted in the second half of 2000, most notably in the December quarter . . . falling (output) in the December quarter (2000) . . . [was] associated [with a] stalling of the improved labour market performance experienced since 1997."³

[38] The Commission observed that:

"There seems little dispute that major factors contributing to the December quarter slowdown were the transitional effects of the GST, evident most strongly in building and construction sector activity, the lagged effect of tighter monetary policy of late 1999 and early 2000 and the impact on the timing of economic activity related to the Sydney Olympic Games."⁴

[39] Economic materials for the period since December 2000 suggest that the Australian economy has resumed the pattern of non-inflationary growth experienced over most of the 1990s, having digested the transitional effects of the introduction of the GST and having benefited from interest rate reductions in the first half of 2001. The economic data record that the Australian economy has emerged from the downturn which commenced in the second half of 2000 and has largely avoided the impact of risks associated with the shock to the world economy arising from the terrorist attacks in the United States of America in September 2001.

[40] The economic materials reveal:

· strong quarterly economic growth in each of the June to December quarters 2001, following the weak growth in the second half of 2000 and in the March quarter 2002;

· improvement in private sector investment in the second half of 2000, with very strong initial investment expectations for 2002-2003;

· strong dwellings investment in each of the June to December quarters 2001, following the slump reflecting the transitional impact of the GST in 2000-2001. Approvals data, however, suggest an emerging moderation of dwellings investment;

· continuing moderate inflation levels, broadly compatible with the RBA target range;

· continuing moderate growth in aggregate wages, in the order of 3.5 per cent per annum, reflected in both the WCI and bargaining outcomes. AWOTE growth has been in the order of 5.5 to 6 per cent in the second half of 2001;

· a turnaround in labour market performance from the December quarter 2001, continuing into 2002, following the slowdown in employment growth evident at the time of the May 2001 decision and commencing from the December quarter 2000. Employment growth was initially concentrated in part-time employment, but has broadened in late 2001 and early 2002 to full-time employment growth. Full-time employment has recommenced an upward path in the December quarter 2001, which has continued into 2002;

· reflecting employment growth, the unemployment rate has resumed a downward path, after rising between the December quarter 2000 and the September quarter 2001;

· productivity growth improved through 2001, following a decline through 2000, with very strong growth recorded in the second half of 2001; and

· net exports detracted from growth in the last half of 2000, reflecting both declining exports and increased imports.

[41] Overall, the economic materials show a positive picture of the resumption of healthy growth, which had been interrupted in 2000-2001 for the reasons discussed above. Aggregate wages growth remains moderate and inflation low. A recent weak trade performance constitutes the most significant negative factor evident in the economic materials.

Sectoral Developments

[42] Aggregate data mask differential performance between industry sectors within the Australian economy. Some consideration is required of the performance within particular sectors.

Manufacturing

Table 8

Manufacturing Production
Percentage Change Over the Year to Quarter Shown
1997 September	3.1
December	3.4
1998 March	3.4
June	3.5
September	4.2
December	4.8
1999 March	4.2
June	2.5
September	1.0
December	1.4
2000 March	3.4
June	5.0
September	4.2
December	1.0
2001 March	-1.8
June	-2.0
September	0.1
December	3.0
[Source: Exhibit ACTU 6.]

[43] Manufacturing production levels fell in the years to the March and June quarters 2001, reflecting reductions in each of the three quarters to the March quarter 2001, but recovered to grow by an annual level of 3 per cent in the year to the December quarter 2001, with quarterly growth of 1.4 per cent in each of the last two quarters of 2001. Activities within the manufacturing sector as a whole broadly reflected output in the aggregate economy, with weak activity levels in early 2001, recovering in the last half of the year.

[44] The February 2002 AiG survey of 880 companies in the manufacturing sector reports:

· companies expect activity to grow at around 2.7 per cent by the end of 2002. While a significant recovery from the 0.2 per cent growth in the 12 months to last September, growth remains well below the 4 per cent prior to the downturn at the end of 2000. Expectations for growth in 2002 vary considerably between sectors within the manufacturing industry;

· export growth has slowed sharply from about 21 per cent 12 months ago to around 3 per cent at the end of 2001. The February survey responses suggest improvement to around 5 per cent growth by the end of 2002;

· manufacturing employment fell by 3 per cent in 2001 and is expected to fall by another 2 per cent in the course of 2002; and

· overall, investment is expected to increase by 4 per cent in 2002.

Rural

[45] The NFF focused on the rural labour market, highlighting:

· higher unemployment in rural and regional Australia than in urban areas, with seven of the ten highest unemployment regions being in rural locations; and

· a 5.4 per cent increase in farm employment between 1996 and 2000, notwithstanding substantial improvements in productivity.

[46] 2001 has been a good year for commodity prices, although some sectors (for example, sugar and cotton) experienced significant price reductions. Crop prices increased by over 9 per cent over 2000-2001, while livestock prices increased by almost 14 per cent. Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts suggest a continuing overall strength in commodity prices, notwithstanding a number of weak markets, particularly cotton. The strength of commodity prices is, however, sensitive to the value of the Australian dollar, with a strengthening dollar threatening returns to the farm sector.

Construction

[47] The November 2001 AiG Construction Outlook Report⁵ stated:

"After declining since mid-1999, Australia's non-residential building construction industry is forecast to recover modestly in 2001/02 before a stronger upturn in 2002/03. Nevertheless, this recovery will be dependent on the extent to which high valued projects under consideration move into construction while the weak and uncertain global outlook constitutes an added risk to future growth."

Printing

[48] The PIAA December 2001 Printing Industry Trends Survey, which reports net balances (the proportion of respondents expecting improvement less those expecting declines), showed:

· a reported decline in employment levels by a balance of 23.3 per cent of respondents in the December quarter 2001, with a balance of 11.1 per cent of respondents anticipating further reductions in employment during the March quarter 2002;

· a reported decline in overtime levels by a balance of 27.9 per cent of respondents during the December quarter 2001, with a further decline being forecast for the March quarter 2002;

· a 6.5 per cent increase in industry sales during the September quarter 2001 compared to the same period last year. Sales declined 1.6 per cent during the 12 months to the September quarter 2001;

· profits before income tax rose in the printing industry during the September quarter 2001 increasing from $180 million in the June quarter 2001 to $279 million in the September quarter 2001 according to ABS data. Compared to the same period a year earlier, the September quarter 2001 outcome represents a deterioration of 24.8 per cent;

· trend estimates of actual capital expenditure in the printing industry during the September quarter 2001 show a 5.4 per cent deterioration in capital expenditure levels from $147 million in the June quarter 2001 to $139 million in the September quarter 2001; and

· the September quarter 2001 saw a 3.3 per cent rise in the gross value added activity of the printing and publishing industry from $1,635 million to $1,689 million. Compared to the same period last year, the September quarter 2001 result represents a modest 1.2 per cent improvement. For the 12 months to the September quarter 2001, the gross value added of the industry stood at $6,512 million, a deterioration of 5.5 per cent on the same period a year earlier.

[49] December quarter National Accounts data show that printing, publishing and recorded media showed 9.1 per cent growth in the year to December 2001 and 2.4 per cent growth for the December quarter 2001.

Retail

[50] December quarter 2001 National Accounts data show trend growth in the year to December 2001 of 4.5 per cent and growth of 1.0 per cent for the quarter.

Tourism

[51] Data in the Commonwealth submissions indicate that tourism generated 6 per cent of total employment directly, and another 4 per cent of total employment through indirect channels, and contributed 11.2 per cent of total export earnings 1997-1998.

[52] The 11 September terrorist attacks and the Ansett collapse have adversely affected the tourism industry. ABS data show that, in the December quarter 2001, the number of overseas visitors to Australia was 15.4 per cent lower than for the December quarter 2000. Short-term visitor arrivals in Australia in the September quarter 2001 fell 1.6 per cent compared with the same quarter a year earlier, a period that included the Sydney Olympics. The number of arrivals in September 2001 was 1.4 per cent greater than in September 1999 and 10.5 per cent greater than in September 1998.

[53] An examination of the data over several years indicates that exceptional levels of overseas arrivals in 2000 were associated with the Sydney Olympics. More recent data suggest that the worst effects of 11 September on the industry have passed. Announcing January 2002 visitor arrivals data, the Minister for Small Business and Tourism said:

"Australia's inbound tourism industry has passed through the worst of 11 September and is moving into a period of recovery. In January, 2002 Australia attracted 385,100 international visitors - 24,300 more than in January 2000 but 40,800 fewer than in January 2001, `the month which carried the crest of the Olympic wave and saw Chinese New Year occur on 24 January'."

[54] Modelling by two research organisations, Econtech⁶ and the Centre of Policy Studies⁷, indicates that the long-term effects of the 11 September attacks and the Ansett collapse could hamper economic and labour market activity for another two to five years. Both reports, however, state that the impact on aggregate activity is small, although industry and region specific effects are more significant.

Accommodation, Cafes and Restaurants

[55] December quarter National Accounts data show trend growth in the accommodation, cafes and restaurants sector at 5.2 per cent for the year to December 2001. Trend growth for the December quarter 2001 was 0.3 per cent.

[56] The AHA, in foreshadowing an application under the Incapacity to Pay Principle in respect of four or five-star hotels and certain other hotels, submitted:

· the 11 September 2001 terrorist attacks and the collapse of Ansett Airlines later in September resulted in an immediate and significant economic downturn in the tourism industry in Australia;

· four and five-star accommodation hotels rely significantly on inbound leisure and business travellers and domestic business and leisure travellers for maintenance of profitability and employment levels;

· casual employment in the accommodation industry for this group was reduced by 9.8 per cent to 31 December 2001. Full-time and part-time employment in the accommodation industry for this group has been reduced by 4 per cent to 31 December 2001; and

· the industry is anticipated to recover from the worst effects of the events identified over a period of approximately two years from September 2001.

[57] In response to these submissions the ACTU submitted on behalf of the Australian Liquor, Hospitality and Miscellaneous Workers Union that:

"Reported financial results do not support the AHA/MIMAA submissions in this case, and public pronouncements by major 4-star and/or 5-star hotels flatly contradict some of these submissions. At the very least, the public evidence is that there is a diversity of experience among the 4 and 5 star establishments covered by the award."

[58] Restaurant and Catering Australia submitted that:

· retail turnover in 2001 was $248 billion, 9.5 per cent up on 2000. Hospitality and service businesses contributed $28.7 billion, or 11.5 per cent, of the overall retail turnover in 2001. Restaurants and cafes contributed $9.3 billion, or 32.4 per cent; and

· in the 12 months to December 2001, restaurant and cafe turnover increased by 8.7 per cent on the previous year. In the last 12 months this increase has not been matched by any increase in profits because growth in the number of establishments exceeded growth in turnover in the sector. As a result, average net profit, in percentage terms, is estimated to have fallen from 4.8 per cent to less than 1.5 per cent.

Vehicle Retail, Repair and Services

[59] The December quarter 2001 VACC Automotive Industry Survey reported:

"After a slump in expectations of the Australian Economy in the September quarter, VACC members indicated in the December quarter that they expect the Australian economy to perform better over the next twelve months relative to how it performed over the preceding twelve months.

. . .

The December quarter brought expectations back to pre September 11^th levels - to a similar level than during the June quarter. Members expect that `the worst is now over' and are having great hopes for the year ahead.

. . .

Overall expectations of the industry remain negative. However, 19 per cent of VACC members indicated that they expect the Automotive Retail Industry to perform better over the next 12 months. Thirty per cent believe that the performance of the Industry will worsen and 51 per cent think that not much will change.

. . .

Business performance in the December quarter compared to the previous quarter was much stronger. General business conditions were reported as being worse by 27 per cent of respondents and better for 34 per cent while 40 per cent indicated that business was much the same. For the first time since the December quarter 2000 has the business performance reached positive levels again.

. . .

Profitability was reported lower for 40 per cent of businesses, 22 per cent reported higher profitability.

Employment levels improved from the previous quarter but still remain low. Employment levels dropped for 11 per cent of respondents but increased for 8 per cent of respondents."

Conclusion

[60] Sectoral information provided during the course of the hearing confirms some diversity of economic conditions between and within sectors, although the turnaround in activity evident in aggregate data has been reflected in most sectors of the economy. Activity in the manufacturing sector, including the printing industry, has broadly reflected aggregate growth performance. The farm sector has performed relatively strongly, although not in all sectors. Building and construction activity was weak in 2000-2001, but the outlook was for recovery in 2001-2002 and 2002-2003. The retail sector showed strong growth over the year to the December quarter 2001. The tourism sector has been affected by the passing of the Sydney Olympics and by the 11 September terrorist attacks, although recent tourist arrival numbers suggest that the industry has passed through the worst of the 11 September effects. Quarterly National Accounts data show strong growth in the year to the December quarter 2001, albeit with moderate growth in the December quarter itself. The restaurant and catering industry has experienced reasonable growth in turnover over the past year, although profits have declined as a result of new entrants into the industry. December quarter 2001 expectations of retail motor industry employers for the economy as a whole are more positive than in previous surveys, but remain subdued in respect of industry activity.

The Immediate Economic Outlook

[61] The ACTU submitted that:

"The outlook for the period ahead is also very encouraging. Notwithstanding the recent developments overseas, Australia is expected to ride out the current world downturn better than most, being largely shielded [from] the international events by strong growth domestically, and by the stimulatory effects from the expansionary stance in both fiscal and monetary policy."

[62] The Commonwealth submitted that:

"The key features of the Mid-Year Economic and Fiscal Outlook (MYEFO) are:

· World growth is expected to have been around 2¼ per cent in 2001, with growth in major trading partners likely to have been less than 1 per cent. Global economic growth is likely to remain subdued in early 2002, but is expected to gather momentum by the middle of 2002 as the US economy picks up. Inflation is expected to remain low.

· In its weakened state, the world economy is vulnerable to further shocks. There is a risk that sustained consumer and business uncertainty will result in a deeper and more protracted period of lower growth in the world economy than is currently forecast.

· The MYEFO forecasts Australian economic growth to be around 3 per cent in 2001-02 in year-average terms. More recent data, including strong growth in the September quarter 2001, an upward revision to growth in the June quarter (contained in the September quarter release), firm retail sales and rising consumer and business confidence suggest that this forecast growth rate is well within reach. However, risks remain from the very weak and uncertain world economic outlook.

· The MYEFO forecasts domestic demand to grow by a solid 3¾ per cent in 2001-02, with net exports expected to subtract around ¾ of a percentage point from overall economic growth. To some extent, short-term volatility is masking the subdued state of the labour market. Employment growth is forecast to be ¾ per cent in 2001-02 in year average terms, with the unemployment rate expected to be unchanged from the Budget forecast of 7 per cent for the June quarter 2002.

· Wages are expected to grow at a moderate rate in 2001-02 and 2002-03. Average earnings, on a national accounts basis, were forecast in the MYEFO to rise by 4¼ per cent in 2001-02, compared to a rise of 4 per cent in 2000-01. Data released since the MYEFO was finalised suggest that overall wage increases may be less than earlier expected.

· The headline Consumer Price Index (CPI) is expected to increase by around 2¾ per cent in 2001-02.

· The MYEFO forecast for 2002-03 is for a strengthening in economic growth in Australia to around 3½ per cent. Employment growth is forecast to be slightly stronger than in 2001-02 and the CPI is forecast to increase by around 2½ per cent."

[63] ACCI raised a number of concerns about the future economic outlook. They were that the recovery is minimal and at an early stage, that the unemployment rate increased during 2001, with job creation concentrated in part-time work, that private investment was weak and that there is an inflationary threat, bringing risks of increased interest rates. ACCI submitted that these concerns required a conservative approach to across-the-board wages policy.

[64] AiG submitted that:

"[A]n uncertain global environment, the prospects of a weakening in the economy in late 2002, slower economic growth, and the fragile recovery in manufacturing and construction activity, provide significant `red lights' to warn the Commission to go slow in awarding wage adjustment, particularly in a low inflation and interest rate environment."

[65] The Commonwealth provided the official Treasury outlook data contained in MYEFO. Those data are presented below:

Table 9⁸

Notes:

^(a) Percentage change on preceding year unless otherwise indicated.

^(b) Calculated using original data.

^(c) Chain volume measure.

^(d) Excluding transfers of second-hand asset sales from the public sector to the private sector.

^(e) Percentage point contribution to growth in GDP.

^(f) Calculated at basic prices.

^(g) The level in the June quarter of each year, seasonally adjusted.

^(h) Average non-farm compensation of employees (National Accounts basis).

[66] It should be noted that the MYEFO material was prepared in October 2001, without the benefit of the stronger than expected December quarter 2001 GDP data, and should be considered in the context of the more recent evidence of improved economic activity disclosed in those data. In this respect, the Treasurer's 7 March 2002 Press Release⁹ said that the December quarter 2001 National Accounts data showed:

· Australia's economy has maintained a strong growth momentum through to the end of 2001, in the face of a major global economic slowdown;

· strong economic growth continues to be accompanied by low inflation and record high productivity growth;

· over the course of 2001, the Australian economy markedly outperformed most of the world's developed economies;

· economic growth was underpinned by strong growth in household consumption;

· private new business investment grew by a strong 5.7 per cent in the December quarter, with new machinery and equipment investment rising by a very strong 11.1 per cent, more than offsetting a modest fall in new investment in non-dwelling buildings and structures of 2.8 per cent;

· the rebound in business investment follows a period of subdued spending and probably represents a turning point;

· dwelling investment also supported economic growth in the December quarter;

· net exports subtracted 1.5 percentage points from GDP growth in the December quarter;

· inflationary pressures remain moderate. Moderate wage outcomes, combined with very strong productivity growth, are consistent with inflation outcomes being comfortably within the 2 to 3 per cent target band over the period ahead; and

· profits in the private non-financial corporate sector recorded strong growth in the December quarter.

[67] The MYEFO commentary in respect of 2001-2002 noted:

· the world economy deteriorated in 2001 and is likely to remain subdued in early 2002, gathering momentum by the middle of 2002;

· global inflation remained low in 2001 and is expected to remain low in 2002;

· the weak world economy is vulnerable to further shocks;

· Australian economic growth was around 2 per cent in 2000-2001 and was forecast to grow by around 3 per cent in the 2001-2002 Budget and in MYEFO forecasts in 2001-2002, with later data suggesting that this forecast growth is well within reach;

· GDP growth is forecast to increase to around 3.5 per cent in 2002-2003;

· employment growth is expected to be moderate in 2001-2002 and 2002-3 at 1 per cent and 0.75 per cent respectively. The unemployment rate is forecast to remain at 7 per cent in each year, up from 6.4 per cent in 2000-2001;

· the CPI is expected to remain within the RBA target range of 2-3 per cent in 2001-2002;

· dwellings investment is forecast to grow by 20 per cent in 2001-2002, much stronger than forecast at Budget time; and

· private business investment is forecast to fall by 1 per cent in 2001-2002 in contrast to 5 per cent growth forecast in the Budget, with a 5 per cent fall in new machinery and equipment investment and 5 per cent growth forecast in business buildings and structures investment.

[68] With the benefit of the December quarter 2001 National Accounts data, the Treasurer's 7 March 2002 Press Release said:

"The global economic outlook remains the greatest concern for Australia's economy, but the signs at the halfway point in 2001-02 are positive - tentative signs are starting to emerge that the downturn in the world economy has bottomed and recovery may be underway. The latest growth figures indicate that the MYEFO forecast of 3 per cent GDP growth in Australia in 2001-02 as a whole is readily achievable. Despite some remaining risks for the Australian economy associated with uncertainties in the global economy, sound fundamentals in the Australian economy are playing a vital role in insulating the Australian economy."

[69] The December quarter 2001 National Accounts data suggest that the MYEFO forecasts for non-farm product growth of 3 per cent in 2001-2002 and 2002-2003 will be met or exceeded.

[70] In respect of 2002-2003, the MYEFO commentary forecasts:

· a return to trend world growth rates anticipated in 2003;

· improved GDP growth in Australia in 2002-2003 of around 3.5 per cent in year-average terms and 4.25 per cent in through-the-year terms;

· an expected increase in private consumption growth in line with longer-term trend rates in 2002-2003, supported by firmer employment growth and the lagged effects of interest rate reductions;

· business investment is forecast to return to solid growth in 2002-2003, driven by a rebound in machinery and equipment investment;

· employment growth is expected to strengthen to 1.25 per cent in 2002-2003, allowing the unemployment rate to decline slightly by June 2003;

· wage increases are expected to remain at 2001-2002 levels in 2002-2003, with lower wages growth offset by the June 2002 increase in the superannuation guarantee charge; and

· headline inflation is expected to increase by 2.5 per cent in 2002-2003, comfortably within the medium-term target band of 2-3 per cent.

[71] It should be noted that the 2002-2003 MYEFO forecasts are based on an assumption of no policy change.

[72] Recent private sector survey¹⁰ results support the MYEFO outlook of continuing strong Australian economic performance. These survey results report a continuing expansion in economic activity, a rebound in business confidence following the initial adverse effect on confidence of 11 September, buoyant projections for the future, robust and sustained activity levels, together with an improved outlook for private business investment and a continuing improvement in the labour market with recovery in labour market conditions, including full-time employment, anticipated through 2002.

Conclusion

[73] Based on the materials before us the present outlook for the Australian economy is generally positive. The Treasury outlook and recent private sector surveys suggest the continuation of economic growth, which recommenced in mid-2001, strengthening in 2002-2003. Improved labour market outcomes are expected to continue, with employment growth positive but moderate at around 1 per cent over the coming year, with the unemployment rate forecast to remain steady. Inflation is expected to remain within the RBA target range of 2-3 per cent. The immediate outlook for private investment is for continued growth, strengthening into 2002-2003.

[74] The greatest risks raised in the proceedings were the international outlook, the implications for the trade sector and the necessity for the realisation of business investment. The most recent Organisation for Economic Co-operation and Development (OECD) forecasts suggest signs of recovery in the world economy and the most recent Australian investment expectations survey give cause for some confidence with respect to business investment.

The Cost of the ACTU Claim

Direct Cost of the ACTU Claim

[75] As in past Safety Net Reviews, the parties provided estimates of the cost of the ACTU claim. The ACTU and the Commonwealth provided estimates of the addition to aggregate wages based on information from unpublished data obtained from the ABS Survey of Employee Earnings and Hours, May 2000¹¹ (EEH Survey). ACCI provided a cost estimate in respect of the private sector, incorporating assumed indirect flow-ons derived from a survey of its members, also relying on EEH survey data. The final EEH survey data differed from preliminary data used in the 2001 case in two significant respects:

· the overall number of award reliant employees has fallen from 24.1 per cent of the workforce to 23.2 per cent; and

· the proportion of public sector employees who are described as award reliant has fallen from 14.7 per cent to 9.8 per cent.

[76] The ACTU's costing methodology is as follows:

· the flat dollar increase is weighted to account for employment groupings: full-time adult permanent, full-time adult casual, part-time adult permanent, part-time adult casual and juniors;

· the weighted flat dollar increase is multiplied by the proportion of affected employees; and

· the resultant weighted average wage increase is divided by the estimated AWOTE for all employees.

[77] The ACTU provided estimates of the addition to wages growth for various flat dollar increases, in net and gross terms respectively, which we now reproduce.¹²

Table 10

Table 11

Table 12

Table 13

[78] The ACTU summarised its estimates of the direct cost of its claim as being in the order of a 0.5 percentage point addition to aggregate wages growth in gross terms and 0.2 per cent points in net terms. It submitted that the estimated increase in aggregate wage costs as a result of its claim is virtually the same as the Commonwealth's estimate of the impact of the Safety Net Review - Wages April 1998 decision (the April 1998 decision) and not greatly beyond the impact of the increases awarded in the Safety Net Review - Wages April 1997 decision (the April 1997 decision) and the Safety Net Review - Wages May 2000 decision (the May 2000 decision).

[79] The ACTU submitted that the Commonwealth estimated the absolute impact of the ACTU claim to be a 0.59 percentage points addition to aggregate wages growth¹³, compared with a 0.11 percentage points addition to aggregate wages growth associated with its proposed $10 increase capped at the C10 classification rate in the Metal Industry Award.¹⁴ The ACTU then submitted that the Commonwealth's asserted impact of last year's safety net decision relative to the Commonwealth's identical position in last year's case was of a 0.30 percentage points addition to aggregate wages growth.¹⁵ The ACTU then submitted that the three Commonwealth estimates, taken together, imply a net addition to economy-wide earnings as a result of last year's decision in the order of 0.41 percentage points and, therefore, a net impact of the ACTU claim on wages growth of 0.18 percentage points, almost exactly the same as the net impact calculated by the ACTU.

[80] The Commonwealth submitted that the ACTU claim, if granted, would directly add, in gross terms, 0.59 percentage points to aggregate wages growth. In contrast, it submitted, the granting of $10, capped at the C10 level, would directly result in a gross addition of 0.11 percentage points to aggregate wages growth. It submitted that the ACTU's claim would add almost 0.48 percentage points to aggregate wages growth over 2001-2002 to 2002-2003, over and above the cost of the Commonwealth's proposal, other factors unchanged.

[81] The Commonwealth submitted that its estimate is conservative because it takes no account of either partial increases received by employees on informal overaward payments or the indirect effects of the ACTU claim.

[82] The ACTU and Commonwealth methods of estimating the aggregate cost of the ACTU claim are broadly similar. The major differences are:

· the treatment of public sector employees in estimating the proportion of all employees paid at award rates; and

· the use of gross cost estimates by the Commonwealth, whilst the ACTU relies on net effects, reflecting the additional cost over that arising from the 2001 safety net increases.

[83] It should be noted that the aggregate addition to wages growth resulting from a given level of safety net adjustments has declined over time. To illustrate, the Commonwealth estimate of the net addition to aggregate wages costs resulting from a $12 safety net adjustment, without a cap, was 0.38 percentage points in the 1998 case, 0.33 percentage points in 2000 and 0.32 percentage points in 2001. Commonwealth estimates provided after the present hearing, at the request of the Commission, showed a net addition to aggregate wages growth of a $12 increase in the order of 0.29 percentage points. This suggests a decline in the aggregate gross addition to wages costs of a given dollar safety net increase of around 25 per cent between 1998 and 2002. The declining addition to aggregate wages costs reflects two factors. First, award wages have grown. To illustrate, the $15 awarded in 2000 was 3.9 per cent of the Metal Industry Award C14 rate. A similar percentage increase on the current C14 award rate would result in a $16 increase. Second, there has been a continuing decline in the proportion of the workforce reliant on safety net awards because of the spread of bargaining. This is most evident over the longer-term, with data from the May 2000 EEH Survey showing that award reliance has declined from 67.6 per cent in May 1990 to 23.2 per cent in May 2000.¹⁶ That longer-term trend has continued, with the most recent EEH data revising down the overall number of award reliant employees.

[84] Because of these factors the ACTU submitted that the gross direct addition to wages cost growth of its claim is, in a statistical sense, basically the same as that which resulted from the April 1998 decision.

[85] The ACCI estimate of the effect on wages growth of the ACTU claim in the private sector was presented as follows:¹⁷

Table 14

[86] The ACCI estimate relates to the private sector and is a gross estimate. As such, it does not provide an economy-wide estimate of the addition to wages costs resulting from the ACTU claim. The methodology assumes that all persons who would benefit from the safety net increase, directly or indirectly, would receive the full amount of the safety net adjustment. Further, it incorporates an indirect effect based on an assumed flow-on of the increase to employees not directly entitled to the benefit of safety net increases. That assumed flow-on was based on results from an ACCI survey of its members showing the proportion of employers surveyed who flowed-on safety net increases to any employee not entitled to them. The ACCI cost estimate assumed flow-on to employees, at the level of half the proportion of employers passing the increase to at least one employee. There is no evidentiary basis for this assumption. The ACCI survey provides no quantification of the proportion of employees to whom safety net increases were indirectly applied. Accordingly, limited weight only can be placed on the ACCI cost estimate.

Indirect Cost of the ACTU Claim

[87] The Commonwealth and employer associations submitted that any estimate of the direct cost of the ACTU claim understates the total cost because of indirect effects resulting from the flow-on of the safety net increase to employees not directly entitled to them. It was submitted by the Commonwealth that, notwithstanding the availability of absorption, many employers pay safety net increases to employees earning in excess of award rates of pay.

[88] ACCI and the Retail Motor Industry relied on survey material which showed that:

· 30.4 per cent of businesses flowed the last safety net adjustments on to at least one overaward employee who was not entitled to that increase and 18.8 per cent of firms flowed the safety net adjustments on to at least one non-award employee who was not entitled to that increase;¹⁸ and

· 45 per cent of businesses in the Retail Motor Industry flowed safety net adjustments on to at least one overaward employee who was not entitled to that increase.¹⁹

[89] These surveys, however, provide no conclusive evidence about the number of employees who might benefit from the flow-on of safety net increases. Further, the survey results may reflect the effect of labour shortages on wage rates. For example, the Retail Motor Industry economic surveys of their industry report that "increased average wage levels continue to reflect the persistence of skilled labour shortages and the general competitiveness in the labour market."²⁰ The Retail Motor Industry submitted "that in a lot of cases with skilled employees that basically employers could not retain staff if they didn't pay . . . rates in excess of the minimum award rate of pay."²¹

[90] The Commonwealth submitted that flow-on is occurring in both formal and informal agreements and is of growing concern to employers. It relied on the submissions and surveys of ACCI, Retail Motor Industry, AiG and PIAA. As we have already noted, those submissions are not supported by the information provided by the ACCI or Retail Motor Industry surveys, other than to the extent that they show some unspecified incidence of flow-on of safety net decisions. The AiG and PIAA submissions relied on by the Commonwealth provide no evidence of flow-on at all.

[91] The Commonwealth also submitted that data from its Workplace Agreements Database indicate that safety net increases could potentially flow-on to around half a million employees covered by federal enterprise agreements. In Table 4.3 of its primary submissions, the Commonwealth set out the numbers of employees subject to various agreement provisions as follows:²²

Table 15²³

[Source: DEWR, Workplace Agreements Database.]

[92] The Commonwealth submitted that 176,500 employees are covered by current federal wage agreements which specify how safety net increases will be passed on comprised of:

· 14,500 employees covered by agreements who receive automatic safety net increases;

· 69,500 who receive safety net based increases where consistent with safety net review decisions or principles as determined by the Commission; and

· 92,500 who may receive a safety net based increase depending on the level of changes in award rates.

[93] The Commonwealth submitted that a further group of over 302,300 employees are covered by agreements that do not specify how safety net increases are to be handled but which also do not rule out wage claims based on safety net increases.

[94] Table 4.3 (Table 15 above) shows that 65 per cent of employees are covered by agreements closed to safety net increases. The four categories for which the Commonwealth makes a claim of potential indirect effects are:

· safety net increases automatically passed on;

· unspecified;

· where consistent with safety net review; and

· safety net increases conditional.

[95] The ACTU submitted that:

· those agreements in which safety net increases are automatically passed on apply to only 1 per cent of employees covered by federal agreements and only 0.4 per cent of the total employed population, a proposition not contested by the Commonwealth;

· the proposition that there is some incidence of flow-on in respect of agreements which do not specify the effect of safety net adjustments is a complete furphy. It cannot be said that merely because an agreement does not expressly rule out claims for safety net adjustments, it does not deal with the area of wages and so another claim can be advanced;

· the two remaining categories, those agreements which provide for increases where consistent with the safety net and those agreements where safety net increases are conditional, cover 12 per cent of employees subject to federally registered agreements. For the overwhelming majority of such employees, enterprise bargaining rates have now advanced significantly beyond the award rate, so that even a $25 increase is not going to trigger those provisions in most cases. Even accepting the Commonwealth submission that around 40 per cent of agreements constitute first agreements, which are likely to prescribe wages closer to award rates, first agreements only apply to 10 per cent of employees covered by them.²⁴ The 10 per cent of employees covered by first time agreements, within the 40 per cent of the overall employee population who are covered by a registered agreement, suggests that only 0.5 per cent of the workforce might benefit from flow-on as a result of these categories of potential indirect beneficiaries of safety net increases; and

· in total, the Commonwealth calculations suggest that, at best, less than 1 per cent (0.4 per cent plus 0.5 per cent) of the workforce might benefit from the flow-on of safety net increases.

[96] In our view, the Commonwealth analysis of agreements does not provide evidence of a significant flow-on of safety net increases to employees subject to enterprise agreements. There is some flow-on evident in respect of agreements which specifically provide for it and, in some instances, in respect of agreements conditionally providing for it. There is further potential for flow-on where consistent with the safety net adjustments. We do not think it reasonable to suppose that flow-on is available or occurs in respect of agreements which provide for wage increases and are silent as to the effect of safety net adjustments. In this context the Commonwealth accepts that employees covered by agreements which do not specify that safety net increases will be passed on "would not be eligible for such increases merely because the agreement does not specify what is to occur in relation to them".²⁵ There is no evidence of flow-on in such circumstances.

[97] The Commonwealth material illustrates the possibility of flow-on of safety net increases to agreement-covered employees. That material, and the ACTU analysis of it, suggests that any such flow-on is limited. Further, the Retail Motor Industry material suggests that where increases are paid to such employees, some difficulty arises in determining whether such increases have been paid as a consequence of safety net increases or would have occurred in any case to meet the market.

[98] The material before us in the present hearing, consistent with Award and Agreement Coverage Survey 1999 (AACS) data relied on in the 2000 Review²⁶, supports a conclusion that whilst there is likely to be some indirect cost associated with a safety net adjustment, it is limited.

Conclusion on the Cost of the ACTU Claim

[99] As the Commission has noted in the past, the various cost estimates provide assistance to the Commission in considering the ACTU claim, although they vary due to methodological differences. We note that the ACTU and Commonwealth estimates of the gross direct impact of the ACTU claim on aggregate earnings are broadly similar - in the range of 0.5-0.59 per cent. We remain of the view that, to the extent that the 1999 AACS and the 1995 Australian Workplace Industrial Relations Survey (AWIRS) suggest that not all employees classified by survey respondents as award reliant benefit from safety net increases, estimates based on data for "award reliant employees might be better described as showing the potential cost impact, rather than the actual impact".²⁷

[100] We also remain of the view that, in assessing the impact of safety net increases on aggregate wages growth, it is appropriate to note that current aggregate earnings growth partly reflects the effect of the 2001 adjustments. This effect occurred primarily in the months May to September 2001.²⁸ Accordingly, in assessing the likely impact of the proposals currently before us against present levels of relevant economic indicators, it is appropriate to consider the net impact on aggregate wages growth. We think the estimate of 0.2 per cent direct net addition to aggregate wages growth is broadly indicative of the cost of the ACTU claim. Increases at the level between those awarded in 2001 and the ACTU claim would result in roughly proportionate net additions to aggregate wages cost.

The Economic Effects of Safety Net Adjustments

[101] Submissions addressing the likely economic effects of safety net adjustments have been raised at two broad levels:

· the effects in aggregate terms on wages growth, inflation, employment and productivity; and

· the effects at the sectoral or enterprise level, recognising that the application of safety net adjustments will vary, as a result of the different incidence of enterprise bargaining and overaward payments, between and within sectors of the economy and the impact on the employment prospects of those employees benefiting from safety net adjustments.

[102] The economic effects of any safety net increase will depend upon a number of factors including its magnitude, any monetary and fiscal policy response and the effect of any productivity improvements made by employers in an attempt to offset the cost of the increase. The aggregate effects of any safety net adjustment will vary depending on the amount awarded, any conditions attaching to the adjustment and the general economic context. As discussed earlier, economic growth declined in the December quarter 2000, with an associated later weakness in employment. Growth has recovered since mid-2001, with improved employment from late 2001 into 2002. We are not persuaded that the $15 adjustment awarded in the May 2000 decision resulted in the slower growth recorded in the last half of 2000, nor that the 2001 increases materially affected growth in employment in the second half of 2001 and into 2002.

[103] We are conscious that the minimum employer superannuation contribution required by legislation²⁹ is to rise from 8 per cent to 9 per cent on 1 July 2002. The impact on growth in aggregate wages costs is substantially less than 1 per cent given that some employees already enjoy superannuation contributions of this level and the application of the charge to ordinary time earnings.³⁰ The increase in superannuation is a factor we have taken into account in deciding the present applications.

[104] A number of the parties made submissions about the impact of safety net adjustments on productivity growth. There is no direct evidence of the effect of safety net increases or bargaining increases on productivity. There is no evidence to support the contentions that safety net adjustments are an impediment to productivity improvement within firms paying them and that productivity improvement will be necessarily greater in firms paying bargained wage increases. There is, however, material which suggests that sectors characterised by high award reliance, such as the wholesale and retail sector and the hospitality sector, have contributed to the improved productivity growth of the past decade.³¹ The strong productivity growth enjoyed over recent years does not suggest to us that safety net increases awarded since 1997 have been detrimental to aggregate productivity growth. In our view the safety net adjustments awarded will not constrain productivity growth.

[105] Most attention in respect of the likely economic effects of the ACTU claim was directed to the effect on labour market performance. In this regard, the Commission is required by the Act to ensure a safety net of fair wages and conditions is established and maintained, having regard to, amongst other matters, the desirability of attaining a high level of employment.³² There is some agreement that a moderate level of minimum wages and moderate safety net increases would have little impact on the level of employment, but disagreement as to what would constitute a moderate safety net adjustment in the context of the present proceedings.

[106] Two dimensions of the employment effects of safety net adjustments arose from submissions:

· the macro-economic effects, including the effect of a higher general level of real wages on economic activity and employment; and

· the micro-economic effects, including studies addressing the impact of minimum wages upon the employment of employees directly affected by them.

[107] With respect to the macro-economic effects, ACCI relied upon a study by Lewis and MacDonald.³³ They reviewed Australian studies, the results of which they found "suggest an employment elasticity with respect to real wages of about -0.6 and -0.8". The authors were critical of the studies and made their own estimate, finding an elasticity of demand for labour with respect to real wages of -0.8, close to the "wrongly interpreted and estimated `elasticity' of other studies".

[108] The study suggests that real wage increases will detrimentally affect employment. We accept that, whilst there is no automatic relationship between the two, real wage growth can adversely affect aggregate employment growth. The extent of such effect will depend upon the prevailing economic circumstances and the extent of the real wage movement. The limited addition to aggregate wages cost associated with our decision will not have a significant real wages effect. In the context of strong productivity growth, and in the absence of any factor share imbalances, we think it is unlikely to cause dislocation to labour market outcomes.

[109] The Commonwealth again relied on modelling undertaken by it through the Treasury Macroeconomic Model (TRYM). Whilst the TRYM modelling provides some guidance as to the direction of effects, limited weight should be attached to the specific magnitude of effects arising from it. As the Commission has noted in the past, models such as TRYM are the product of technical specifications, which are open to debate and involve a wide range of inputs and the application of judgment. The witness evidence suggests further cause for caution in attributing weight to the magnitude of economic effects of safety net adjustments arising from the TRYM modelling undertaken for the purpose of the current proceedings. We refer in particular to two matters.

[110] First, it is uncertain whether or not the MYEFO baseline projections utilised for the purpose of the TRYM modelling incorporate implicitly some part of the safety net increases subjected to the TRYM analysis. Mr Taylor, a Treasury officer with responsibilities in the area of MYEFO projections, gave evidence that no explicit impact of safety net increases is reflected within the MYEFO baseline, but that safety net increases were one consideration in projecting wages growth. It is therefore uncertain what level of safety net increase is included within the MYEFO baseline levels of wages growth used in the TRYM modelling. Accordingly, some element of double counting may arise when the TRYM analysis compares the ACTU claim to the Commonwealth proposal, because the baseline wages growth may already include safety net increases beyond those proposed by the Commonwealth.

[111] Secondly, the negative effects on product growth and employment arising from the TRYM analysis are primarily the result of RBA interest rate response applied by the TRYM analysts. As the Commission noted in the past, the interest rate response modelled does not appear realistic having regard to the limited addition to aggregate wages growth and inflation which would result from safety net increases of the magnitude presently in contention. Data from the May 2000 EEH Survey show that award reliance has declined from 67.6 per cent in May 1990 to 23.2 per cent in May 2000.³⁴ It follows that the effect of safety net increases on aggregate wages growth and inflation has substantially declined over the period in which enterprise bargaining has been the primary focus of wage fixation under the Act and in practice. The modelling assumption within the TRYM analysis of an immediate and significant interest rate response to safety net increases which have a limited effect on aggregate wages growth seems to us to be unrealistic. The level of safety net increases is but one of many factors considered by the RBA in making its interest rate decisions.

[112] The present relatively limited award reliance of the workforce suggests to us that award safety net increases would be of limited weight in RBA interest rate deliberations, even compared with other sources of aggregate wages growth, and more so in the context of the broader range of factors affecting monetary policy relevant to the RBA.

[113] The TRYM analysts' proposition that a limited contribution to aggregate wages growth and inflation of safety net adjustments would lead to an immediate interest rate response by the RBA does not seem consistent with the current RBA outlook on wages growth and inflation. The December quarter CPI, 3.1 per cent per annum, was marginally in excess of the RBA medium-term target range of 2-3 per cent. However, published material of the RBA records its view that inflation will return to within the target range in the medium-term. The Deputy Governor of the RBA recently said:

"Even though the recent CPI figure was interpreted as a bit on the high side, we still think that the outlook is for inflation to return to target over the next four to six quarters."³⁵

[114] The Deputy Governor referred to the February 2002 Statement of Monetary Policy for an explanation of that view. That statement said that:

· the Bank's assessment is that inflation is currently at or near its peak and that it will decline to around the middle of the target over the year ahead, both in terms of the CPI and in underlying terms;

· the 3.1 per cent increase reflected sharp increases in the prices of a number of items, which are likely to be relatively transient;

· there was a gradual upward trend over the past few years in both the CPI and underlying measure, due to a rebuilding of margins in response to the depreciation of the exchange rate and other cost pressures, including the rise in petrol prices that occurred during 2000; and

· wages pressures remained moderate.

[115] In respect of wages, the Statement said:

"The growth of wage costs remains moderate, and productivity growth appears to have returned to the strong pace evident over the second half of the 1990s, after a cyclical slowdown in 2000. These trends point to growth of unit labour costs at a rate consistent with attainment of the inflation target in the medium term. Moreover, with inflation expectations firmly anchored, and labour market conditions relatively subdued at present, there is little likelihood that wage pressures will increase in the period ahead."

[116] Consideration of the net impact on aggregate wages costs of the ACTU claim, absent a monetary policy response through increased interest rates, suggests a very limited impact of the ACTU claim on economic growth and employment. This is evident from Exhibit Commonwealth 2 (prepared by Ms Gabbitas, a Treasury officer with responsibilities in the area of TRYM analysis, at the request of the ACTU, on the basis that she does not in any way agree that a net 0.2 per cent wage shock is an appropriate way to model the impact of the ACTU's claim on the economy).

Table 16

Notes:

^(a) The impacts are given in percentage point deviations from the official outlook unless otherwise stated.

^(b) Per cent of baseline.

^(c) Through-the-year (June) figures and after monetary policy response.

^(d) June quarter.

[Source: Exhibit Commonwealth 2.]

[117] In our view, the TRYM analysis, to the extent that specific orders of magnitude can be relied upon, suggests that the net additional labour costs arising from the ACTU claim would not materially detract from employment growth. To the extent that adverse effects arise from the RBA interest rate response imposed upon the model in response to marginal additions to aggregate wages growth and inflation, we think the TRYM results are unrealistic. The TRYM modelling provides no basis to find that the safety net increases we have decided upon will have adverse aggregate employment effects.

[118] The micro-economic perspective involves both the differential impact of safety net increases upon employers and the extent to which wage increases, which impose or accentuate a pattern of wage relativities different from that which would emerge from the market, will cause structural unemployment.

[119] The first aspect recognises that safety net increases will impact differently on different sectors of the economy and on different enterprises. The differential impact reflects a range of considerations.³⁶ Sectoral considerations are among many considerations to be taken into account in determining the level of safety net adjustments to be awarded. Further, the sectoral perspective is necessarily viewed in the context of the Commission's task in determining, for the award structure as a whole, appropriate minimum rates of pay for the purpose of ensuring that a safety net of fair minimum wages and conditions of employment is established and maintained, having regard to:

"(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;

(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;

(c) when adjusting the safety net, the needs of the low paid." (s.88B(2));

and to other relevant provisions of the Act.³⁷

[120] In support of its focus upon the circumstances of enterprises required to give effect to safety net increases, ACCI relied on papers by Lewis³⁸ and James, Wooden and Dawkins.³⁹ Lewis argued against the use of average labour elasticities for the purpose of examining the effects of a minimum wage on the low paid. He said:

"Since most workers would obtain a wage higher than the minimum anyway, the effect of imposing a minimum wage is to increase the wages only of those who would otherwise receive the lowest wages. The effect on the average wage is small and, thus, the impact on employment and unemployment is also small. This theoretical argument is supported by international empirical evidence which shows that the impacts of minimum wages on total employment are small (Brown, Gilroy and Kronen 1982)."

[121] James, Wooden and Dawkins suggest that Australian researchers have confused the results of minimum wage studies with labour elasticities of demand and that the focus of the impact of the minimum wage should be upon those employees who would have otherwise been paid less than the minimum wage. Higher than average elasticities of demand for labour in respect of those affected by minimum wages, imply a lower or even positive elasticity of demand for labour of those not directly affected by minimum wages.

[122] The focus of the Lewis and the James, Wooden and Dawkins papers upon those employees directly affected by minimum wages reinforces the necessity to have regard to sectoral considerations and differential effects masked within aggregate employment outcomes. We understand the studies being relied upon by ACCI advocate an awareness of these varying effects. We accept that there is a need to be conscious of such effects and we have had regard to them, in the context of other relevant matters, including the aggregate economic effects. A balanced approach is required. The context of fixing generally applicable safety net minimum rates of pay, having regard to national economic factors, does not support a narrow and partial consideration of the circumstances of particular enterprises required to give effect to safety net increases. The Economic Incapacity Principle provides a mechanism for considering any departure sought from properly established safety net adjustments. That principle recognises that the impact on employment at the enterprise level of the increase in labour costs is a significant factor to be taken into account in assessing the merit of any application under that principle.

[123] Material was also put to us in the present proceedings arising out of a continuing academic debate and a variety of empirical research outcomes in assessing the impact of minimum wages on employment.⁴⁰

[124] The international material concerning the employment effects of minimum wages provided in the past, and augmented in the present proceedings, confirms a continuing diversity of research findings. The additional studies themselves reach different conclusions. They do not establish that moderate increases in the wages of the low paid, of themselves, will diminish aggregate employment outcomes, although some studies suggest that some negative effect might arise in respect of that group of employees in receipt of the minimum wage.

[125] We note, as previous Full Benches have, that there are difficulties in directly applying the international material to the task before us.⁴¹ As noted by the Commonwealth in its reply,⁴² there have been no empirical studies that have examined the effect that safety net adjustments have had on employment in Australia. The longer term picture emerging from data for employment by industry, reproduced below,⁴³ shows employment increasing faster than for all industries in the award reliant industries of accommodation, cafes and restaurants and retail trade over the period November 1995 to November 2001, with that trend accentuated since late 1996. Whilst casual observation does not permit firm conclusions to be drawn, the data suggest that past safety net increases have not significantly impacted upon employment growth in those sectors.

Chart 1: Employment Growth in Award Reliant Industries

[Source: ABS Labour Force data, Cat No. 6203.0]

Conclusion on Economic Considerations

[126] As we have concluded earlier, the past six months has seen a resumption of the sustained period of low inflation, strong growth, historically high productivity growth and an emerging improvement in labour market performance, which had been interrupted from around the middle of 2000. The immediate economic outlook, reflected in official forecasts and business surveys, is positive. We have had regard to risks identified by those opposing the ACTU claim, including continuing uncertainty about the world economy to the differential impact of safety net increases. In our view, the Australian economy can accommodate further reasonable improvements in the safety net of minimum wages of the level we determine in this decision.

NEEDS OF THE LOW PAID AND LIVING STANDARDS GENERALLY

[127] The needs of the low paid and living standards generally prevailing in the Australian community are among a range of prescribed considerations to which the Commission must have regard. The objects of Part VI of the Act (s.88A) include the following:

"The objects of this Part are to ensure that:

(a) wages and conditions of employment are protected by a system of enforceable awards established and maintained by the Commission; and

(b) awards act as a safety net of fair minimum wages and conditions of employment . . ."

[128] Section 88B(2) requires the Commission to establish and maintain a safety net having regard to:

"(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;

(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;

(c) when adjusting the safety net, the needs of the low paid."

[129] Section 90(b) requires the Commission in performing its functions to take account of the public interest and for that purpose to have regard to:

"(b) the state of the national economy and the likely effects on the national economy of any award or order that the Commission is considering, or is proposing to make, with special reference to likely effects on the level of employment and on inflation."

[130] As in previous cases the ACTU relied on statements from employees in a range of occupations to demonstrate the difficulties those employees had in affording basic necessities. Those opposing the ACTU claim did not seek to cross examine any of the employees who provided statements.

[131] It is apparent from their evidence that all of the witnesses struggled to make ends meet. A significant proportion of their expenditure is on necessities and unexpected expenditures are difficult to finance. There were a number of things which the witnesses went without, for example:

· regular holidays;⁴⁴

· social outings;⁴⁵

· replacing household appliances;⁴⁶

· new clothes;⁴⁷

· insurance;⁴⁸

· telephone;⁴⁹

· motor vehicle.⁵⁰

[132] We accept that many low paid employees experience difficulties in making ends meet and are unable to afford what are regarded as necessities by the broader Australian community.

[133] The ACTU also relied on an ABS article entitled, Household Income, Living Standards and Financial Stress which provides a preliminary analysis of the extent of financial stress in Australian households.⁵¹ The article is based on data from the ABS Household Expenditure Survey 1998-1999. The ABS uses 15 specific indicators of deprivation as the basis of their analysis. The indicators range from not being able to afford a night out once a fortnight, to going without meals. Households that report between two and four indicators are labelled as being under "moderate financial stress", while households that report five or more indicators are deemed to be under "higher financial stress".

[134] The study found a distinct correlation between level of income and the level of financial stress indicated.⁵²

[135] It also found that unemployment is a significant cause of financial stress. Some 44.6 per cent of households principally dependent on unemployment, education and sickness allowances indicated a high level of financial stress compared to 7.9 per cent of households which were principally dependent on wages and salaries.⁵³

[136] The ACTU commissioned the ABS to produce Household Expenditure Survey (HES) data that focuses only on households whose principal source of income is employee income. This material shows that the lowest income quintile has a greater incidence of both higher and moderate financial stress levels than the second, third, fourth and highest quintiles. ⁵⁴

[137] In its submission the Commonwealth identified a number of methodological limitations in this data. We acknowledge that the HES data has some limitations. While the survey attempts to ascertain the extent of cash flow problems in Australian households such problems may, in some cases, reflect a transitory cash flow problem rather than long term financial hardship. A related methodological problem is that each of the 15 deprivation indicators is weighted equally in the assessment of the level of financial stress. However, as acknowledged by the ABS, some of the response items refer to more serious difficulties than others. For example, the level of hardship associated with "could not afford to heat home" seems much greater than that recorded by items such as "could not afford leisure or hobby activities".

[138] While the ABS analysis may not fully reflect the actual relationship between financial stress and income or other important factors we think it is reasonable to assume that the level of financial stress is likely to be higher among those with a lower level of income. This material provides a broad statistical picture which is consistent with the witness evidence.

[139] The material before us also supports the following findings:

· earnings inequality has increased over the period 1990 to 2000, though the increase in equality reflected in the Gini-coefficient (a single statistic that summarises the degree of inequality) was concentrated in the first half of the decade. However, since 1991 real earnings have risen for all parts of the earnings distribution though the size of the increase in real earnings is greater for workers at higher points of the distribution of earnings than for workers at lower points;⁵⁵

· in terms of income, a broader concept than earnings as it includes income support payments and other sources of non-market earnings:

· inequality has increased over the period 1988-1989 to 1998-1999 (based on the ABS HES) and 1990 to 1997-1998 (based on the ABS Survey of Income and Housing Costs);⁵⁶

· there has been no significant change in income inequality since 1994-1995.⁵⁷

[140] There is also some evidence which suggests that wealth inequality has increased. A paper by Kelly of the National Centre for Social and Economic Modelling (NATSEM) analyses trends in Australian wealth by comparing the distribution of wealth in 1986 and in 1998.⁵⁸ Overall family wealth has increased at the rate of 8.6 per cent per annum over that period. By 1998 the wealthiest one-tenth of Australian family income units had 45 per cent of the wealth. The bottom half of family income units had only 7 per cent of the wealth.⁵⁹

[141] Kelly finds that while the Gini-coefficients for overall wealth show no change in the distribution of wealth, the Gini-coefficients for wealth excluding superannuation shows that the concentration of wealth (excluding superannuation) has increased. Kelly concludes:

"In summary, wealth in the form of home equity, business assets and cash deposits became more concentrated between 1986 and 1998 and it appears that the inequality of wealth would have increased had it not been for the introduction of superannuation. Superannuation has neutralised the concentration of wealth in other areas and the overall result is the concentration of wealth has not changed."⁶⁰

[142] The Commonwealth submitted that the exclusion of superannuation from the analysis of wealth distribution is "nonsensical and mistakes the idea of wealth with disposable income".⁶¹ However, we observe that, unlike other forms of wealth, access to superannuation funds is limited and superannuation is directed to enhancing living standards in retirement rather than living standards during employment. Kelly deals with the impact of the introduction of award based superannuation and the Superannuation Guarantee legislation in these terms:

"The improvement in wealth for the poor through superannuation is welcome but it may mean an eventual improvement in their living standards rather than an actual one right now. There may not be any improvement of the day-to-day living standards of these families . . . While technically true that they have increased wealth, the inability to access the funds until retirement limits its day-to-day value."⁶²

[143] The role of the tax-transfer system (generally referred to as the social wage) in reducing inequality and assisting the low paid was a feature of a number of the submissions in these proceedings. The social wage encompasses the system of cash transfer payments, the taxation system and the provision of indirect benefits such as Medicare and the education system.

[144] It appears to us that there is general agreement amongst the major parties that minimum award wages and the social wage are complementary and inter-related mechanisms for addressing the needs of the low paid.

[145] Inevitably the wages system interacts with both the social security and taxation systems. Safety net adjustments will be, to a certain extent, offset by higher taxes and/or lower social security payments. The impact of the tax transfer system on wage and salary earner households is illustrated by the table below:

Table 17

[Source: Exhibit Commonwealth 3, Table 6.1 at p. 134.]

[146] Table 17 shows that wage and salary earning families in the bottom quintile of wage and salary earner families received on average $178.24 (or 26.9 per cent of their total cash income) per week in cash transfer income in December 2001. In contrast those in the top quintile of the distribution receive $2.88 per week (or 0.1 per cent of their total cash income) in cash benefits. The income tax system is also progressive. Tax represents on average 12 per cent of total cash income for those in the lowest quintile, compared to an average of 29.7 per cent for those in the top quintile.

[147] We note the Commonwealth's submission that the wages system has a limited capacity to address and meet social equity goals. We agree with the proposition that the tax-transfer system can provide more targeted assistance.

[148] This is not to suggest that safety net increases do not assist in meeting the needs of the low paid. As Saunders states:

". . . compensation of employees (which is largely wage and salary income) is the most important source of income - in aggregate and for most households with an employed member."⁶³

[149] Further, in the May 2000 decision the Commission considered similar arguments and concluded:

"As a result of societal change it is often the case that there are two wage earners (sometimes more) within a family unit. It is not surprising that it is no longer as simple as it once may have been to view the income of an employee as an indicator of household income. It may be that safety net wage increases intended to assist the low paid will supplement the income of some households of relatively high means. We accept that safety net adjustments are not perfectly targeted to meeting the needs of the low paid. They do, however, assist in meeting those needs."⁶⁴

[150] Nothing in the material presented on this occasion leads us to alter the view there expressed.

[151] In its submission AiG argued that the Commission should afford greater recognition to the inter-relationship between award wages and the broader social safety net. At paragraphs 1.5 - 1.6 of its written submission AiG states:

"1.5 Ai Group believes that there is a need for the Commission to afford greater recognition to the fact that award wages are part of a much broader social safety net. Award wages are only one factor amongst numerous factors which impact upon the living standards of employees, including the low paid. Taxation and social security payments, in particular, are part of the social safety net. In determining safety net adjustments the Commission should take into account developments in the broader social safety net.

1.6 Where improvements in social security have been made or taxation levels reduced such changes should be taken into account by the Commission in determining the level of safety net adjustment to be awarded. If the Commission is not prepared to take such factors into account there is little incentive for governments to search for more socially and economically superior ways of addressing the needs of the low paid. There is also little incentive for industrial parties to divert scarce resources to focusing on this important issue."

[152] The Commonwealth also submitted that the Commission should accord more weight to the interaction between minimum award wages and the social wage.

[153] For our part, we accept that significant adjustments in the social safety net may be relevant to the determination of the level of the award safety net. We note that there is no proposal on this occasion that we should adjust the amount that we would otherwise award because of a particular change in the social safety net.

DECISION ON THE ACTU WAGE CLAIM

[154] In last year's decision we noted that GDP, seasonally adjusted, had declined in the preceding quarter, that of December 2000, and that the labour market had weakened. Current economic conditions are significantly different. GDP growth has rebounded and it is now predicted that the economy will grow between 3 and 4 per cent in 2001-2002. The rate of unemployment is declining. Unemployment was over 10 per cent in 1993. The rate moved steadily down in the following years to a low of 6.1 per cent in the September quarter 2000. After a setback during 2001 there are now strong grounds to conclude that the decline has resumed. The growth in full-time employment evident since 1993 was interrupted in 2000 but resumed during 2001 and strengthened in the early months of 2002. Real private business investment increased in the second half of 2001 and although investment in dwellings is likely to reduce in the second half of 2002 the outlook for private business investment generally is good. While inflation was just outside the RBA's medium-term target range in the December quarter 2001 at 3.1 per cent, current expectations are that inflation will moderate over the coming quarters.

[155] Growth slowed significantly during the last year in a number of the developed economies including many European countries, the United States, Japan and a number of other countries in the Asian region. More recently the United States economy is regaining strength and this is likely to lead to stronger growth in Europe and East Asia, although the prospects for the Japanese economy remain problematic. ACCI, supported by the Commonwealth, asked us to take into account what it described as an uncertain global environment. There is no reason to conclude that world economic conditions pose a significant threat to the Australian economy in the next 12 months.

[156] We turn now to the form of the increase to be awarded in this case. In the May 2000 decision and again last year the Commission expressed its concern that as a result of the form of the safety net adjustments in recent years relativities between award classification rates were being compressed. In the 2001 Safety Net Review proceedings the ACTU, supported by the State Labor Governments, sought an increase of 5.7 per cent in the award rates for classifications above the C10 tradesperson rate in the Metal Industry Award. The May 2001 decision went some way towards meeting that claim by awarding an increase of $13 per week to award rates up to and including $490 per week, a $15 per week increase in award rates up to and including $590 per week and a $17 per week increase in award rates above $590 per week. In these proceedings the ACTU is seeking an increase of $25 per week in award rates at all levels. ACCI supported an increase of $10 per week in the minimum wage and no increase to other award rates. In the alternative it submitted that any increase to award rates above the level of the minimum wage should be moderate and should not extend to all award rates. AiG supported an increase of $10 per week in all award rates. The Commonwealth submitted that we should award an increase of $10 in all award rates up to and including the C10 rate in the Metal Industry Award but no increase above that level. No party sought a percentage increase. No party sought an increase which was greater at higher levels in the award structure. It follows that there is no claim before us which takes account of the compression of relativities and addresses the issue in a direct way. Indeed, the ACTU submitted that in considering our decision we should pay no regard to the fact that the implementation of its claim would compress relativities further. It submitted:

"3.7 The ongoing relevance of middle and upper award classification rates of pay is becoming acute and is a matter which needs to be addressed. A percentage increase to award rates or stepped flat increases (as in last year's safety net decision) will not properly address this issue. A percentage increase simply preserves existing relativities whilst stepped flat increases continue to compress relativities (admittedly less than a flat across the board increase). The ACTU believes the ongoing relevance of middle and upper award classification rates of pay needs a comprehensive response not a piecemeal solution.

3.8 In this context the ACTU signals its intention to ensure that proper skill based classification structures are not allowed to wither on the vine but are addressed in a responsible and economically sustainable way consistent with the requirements of the Act. The matter will not be agitated in these proceedings which can focus on delivering a decent increase for the low paid."

[157] We wish to make it clear that, as the Commission has pointed out on a number of occasions, changes in relativities brought about by safety net adjustments do not provide a basis for increases or changes in relativities in future safety net reviews. We also endorse the following passage from the Third Safety Net Adjustment and Section 150A Review Decision October 1995:

"We reiterate what we said in the September 1994 Review decision; namely, that the Commission will not grant applications to restore pre-existing relativities on the basis that such relativities have been compressed by the granting of flat dollar arbitrated safety net adjustments [Print L5300, p.34]."⁶⁵

[158] It is open to us to award lower increases at higher levels as we did in the April 1998 and April 1999 decisions, as one party submitted we should in this case, but to do so would cause further compression - an outcome which we think is to be avoided on this occasion. While ACCI's preferred approach and the Commonwealth's preferred approach would only compress relativities at the lower levels, there are other reasons, which we shall refer to shortly, why we do not favour those approaches.

[159] As the Commission has indicated in previous decisions, the Act permits us to limit the application of a safety net increase to a particular level should circumstances justify that course. On previous occasions the Commission has decided not to do so. We draw attention again, as in last year's decision, to the terms of s.88A(b). That section provides that it is an object of Part VI to ensure that awards act as a safety net of fair minimum wages and conditions of employment. Section 88B(2) provides that in performing its functions under Part VI the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained having regard to the matters specified in that section. We take the view that in the normal course in reviewing the safety net the Commission should seek to maintain a safety net of fair minimum wages for all award reliant employees, not just those employees classified at or below the C10 level. We are satisfied that a large proportion of award reliant employees are classified above the C10 level. While there are differences in cost between an across-the-board increase and one which is restricted to employees classified at the C10 level and below, we do not think that the circumstances overall, including the economic circumstances, justify limiting the increase in the award safety net in the way the Commonwealth proposes. For similar reasons we reject the submissions by ACCI and others that any increase we award should be limited in its application to the level of the federal minimum wage. We also reject the submission made by Restaurant and Catering Australia that only 50 per cent of the increase we decide upon should be awarded to employees of restaurateurs and caterers.

[160] We turn now to the amount of the adjustment. Wages growth has continued strongly since our last decision. In the last year earnings generally have grown at or above 5 per cent while wages have risen at or above 3.5 per cent and wage increases through agreements have risen at close to 4 per cent. We consider that the economic circumstances permit a sizeable increase in the award wages safety net. A safety net adjustment of a flat dollar amount has a different impact depending upon the wage rate to which it is applied. Since 1997 the lowest award rates, those at the level of the federal minimum wage, have increased faster than inflation and roughly in line with the increase in wage rates as measured by the WCI, the ABS's preferred measure of wages growth. Because of the form of the increases awarded, employees in the higher classification levels have had smaller increases in percentage terms over that period. On this occasion we think it is appropriate to award an increase of an amount which pays regard to the position of employees slightly higher up the classification scales. The increase will provide for the needs of the low paid to the extent that the economic conditions we have identified permit and will maintain the real value of wages of most award reliant employees. We have decided to award an increase of $18 per week in all award rates.

[161] We are confident that the cost of the increase is manageable and will not impact significantly on aggregate wages growth. We deal elsewhere with the various estimates of the cost of the ACTU's $25 claim. The cost of the increase we have awarded will be correspondingly less. The gross effect on aggregate wages growth should be broadly comparable with that associated with the $15 adjustment provided for in the May 2000 decision and not significantly greater than that arising from the May 2001 decision. Given the limited net impact of our decision on aggregate wages growth and the likelihood of some offsetting productivity improvements any effect on inflation will be minimal. The relationship between increases in minimum wages and employment has been in issue in safety net reviews in recent years and was again a matter of contention between the parties in this case. Some recent studies suggest that increases in minimum wages have a negative effect on employment although estimates of the size of that effect vary. Other studies suggest that the effects are minimal or non-existent. We accept that the increase we have decided upon may have some negative effects on employment in those sectors of the economy in which a high proportion of the workers are award reliant. Because safety net increases only directly apply to the wages of around 23 per cent of the employed workforce, the aggregate impact of the adjustment on employment will be small. In the circumstances, particularly the growth in GDP and productivity over recent years, the outcome is a fair one which properly balances the range of matters which we are obliged by the Act to take into consideration.

[162] Several of the employer groups and the Commonwealth submitted that to grant the ACTU claim would be a disincentive to the further development of enterprise bargaining. We are conscious that increases in the award safety net have the potential to influence the pace at which bargaining, either formal or informal, is taken up at the enterprise level. We note that material presented by the Commonwealth supports the conclusion that since 1997 the number of employees covered by agreements has shown relatively steady growth. We do not think the adjustment provided for in this decision is likely to prejudice that growth.

[163] Implementation of this adjustment will be subject to the following conditions:

(a) the increase will be fully absorbable against all above-award payments;

(b) except where permitted by the Statement of Principles, the increases will be available from a date no earlier than 12 months after the increases provided for in the May 2001 decision in the award in question;

(c) the commencement of award variations to give effect to this decision will be no earlier than the date on which the award is varied, with phasing-in of increases permissible where circumstances justify it. Any application for phasing-in will be subject to Principle 10;

(d) by consent of all parties, and where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates; in the absence of consent, a claim that award rates be so expressed may be determined by arbitration; and

(e) allowances which relate to work or conditions which have not changed and service increments are to be varied; the method of adjustment is to be consistent with the Furnishing and Glass Industries Allowances Decision.⁶⁶

[164] Consistent with our decision the federal minimum wage will be increased by $18 per week to $431.40 per week.

STATEMENT OF PRINCIPLES AND RELATED MATTERS

[165] This part of our decision deals with submissions concerning the Statement of Principles and related matters.

[166] The first principle about which submissions were made is Principle 1, titled "Role of arbitration and the award safety net". The Commonwealth submitted that the Act requires a more positive application of an incentive to bargain than has been suggested in recent Safety Net Review decisions. It said the priority that the workplace relations system should accord to enterprise level agreement making is not adequately articulated in the principles. The Commonwealth proposed an amendment to Principle 1 to refer to an incentive to bargain for enterprise and workplace agreements.

[167] ACCI supported the Commonwealth's proposal. It submitted the proposed amendment would ensure the principles appropriately reflect the primacy afforded to enterprise level agreement making under the Act.

[168] The ACTU opposed the Commonwealth's proposal. It submitted there was no evidence which justified any need for change. It referred to the submissions of the Commonwealth that since September 2001 the number of enterprise agreements had increased. It submitted that the obligations of the Commission are clearly set out in the Act and do not need to be restated in the principles.

[169] The main purpose of Principle 1 is to summarise in a very general way the manner in which the Act operates with respect to awards and agreements. We have some doubt if it remains necessary although no party suggested it be deleted.

[170] The primacy to be afforded to agreements at a workplace or enterprise level is referred to in the objects of the Act, particularly ss.3(b), (c) and (d)(i). Additionally, the award-making powers of the Commission in Part VI of the Act are to be exercised in accordance with the objects of that part of the Act which are in s.88A. Section 88A(d)(i) provides that "the Commission's function and powers in relation to making and varying awards are to be performed and exercised in a way that . . . encourages the making of agreements between employers and employees at the workplace or enterprise level . . ."

[171] Any principles made by us must be consistent with the Act. The proposed amendment does not paraphrase or reproduce any provision of the Act. The Act does not refer to an "incentive to bargain". We are not persuaded it is either appropriate or necessary to amend Principle 1.

[172] The ACTU sought an amendment to Principle 8, "Arbitrated Safety Net Adjustments", to overcome what it described as a practical difficulty which had arisen from the "rigid application" of the principle. Paragraphs (a) and (b) of the principle currently provide that the operative date of any award variation for an arbitrated safety net adjustment will be no earlier than the date of the variation to the award, and that at least 12 months have elapsed since the rates in the award were increased in accordance with the May 2000 decision.

[173] The ACTU submitted that in some instances unions have made application for a safety net adjustment well before the 12-month period had elapsed but because of the business of the Commission the date of variation of the award has been after the 12-month period. It submitted this caused a delay in workers receiving the safety net adjustment through no fault of the relevant union.

[174] It proposed a new paragraph be added to the principle in the following terms:

"Where an application for variation of an award was made a reasonable time before twelve months after the rates in the award were increased in accordance with the Safety Net Review - Wages, May 2001 decision Print PR2001, the operative date may be earlier than the date of the variation but no earlier than:

(i) twelve months after the rates in the award were increased in accordance with the Safety Net Review - Wages, May 2001 decision Print PR2001; or

(ii) The date an application was made to vary the award.

(Whichever is later)."

[175] The State Labor Governments supported the ACTU proposal. ACCER also supported the proposal and submitted that delayed payments to employees should be avoided wherever practicable.

[176] The Commonwealth opposed the proposed amendment to Principle 8. It submitted that safety net adjustments had not ever operated retrospectively and with respect to award variations generally there was a presumption against retrospectivity. It referred to s.146(2) of the Act which provides that "Unless the Commission is satisfied that there are exceptional circumstances [the day an award is expressed to come into force] shall not be earlier than the date of the award". It also submitted there was no specific requirement for awards to be varied on the 12 month anniversary of the previous safety net adjustment and awards generally reflected no universal conformity with the exact 12 month date.

[177] The Commonwealth submitted that there is already sufficient scope for a party to seek retrospective adjustments where exceptional circumstances can be made out. Such an application can be referred to a Full Bench to be dealt with as a special case.

[178] ACCI also opposed the amendment. It submitted that when Principle 8 was last varied to allow for more than one safety net adjustment to be awarded at the same time, no party opposed the amendment. Contrary to the submission of the ACTU, the amendment it now seeks cannot be said to be "in a similar vein". It submitted that the proposal would break with years of established practice and would permit retrospective variations in the absence of agreement between the parties. It has been the long-standing practice of the Commission to grant retrospectivity only in exceptional circumstances where there is some significant problem at an industry or enterprise level.

[179] It also said that no evidence was provided by the ACTU to support its claim that there is a need for the amendment. Ebbs and flows in the workload of the Commission did not constitute sufficient grounds for amending wage fixing principles.

[180] ACCI submitted that a greater degree of prospectivity for safety net increases would be preferable. That would provide scope for employers to become aware that increases have been awarded and to adjust their employees' wages to accommodate the increases.

[181] It submitted that the ACTU proposal ignored the financial and administrative burden on employers associated with back payments. It would make employers assume responsibility for a range of factors which determine the timing of award increases, many of which have nothing to do with them nor are they capable of being determined or influenced by them. It also referred to the purpose of the 12 month rule (which was addressed in the May 2000 decision) being to avoid cost pressures which might arise if more than one safety net adjustment is implemented within a 12 month period.

[182] AiG also opposed the amendment sought by the ACTU for reasons consistent with those submitted by ACCI.

[183] Several other employer associations opposed the amendment sought by the ACTU including the Retail Motor Industry and Restaurant and Catering Australia. They either adopted the submissions of ACCI or made submissions consistent with those of ACCI.

[184] We are not persuaded to amend Principle 8 in the manner sought by the ACTU. The circumstances referred to by the ACTU which led to its proposed amendment should be addressed through an application under Principle 10. We will amend that principle so that it refers to applications for an operative date earlier than the date specified in Principle 8(a). We note that whether an application is dealt with by a single member or a Full Bench there is no power to make an award which comes into force on a date earlier than the date of the award unless the Commission is satisfied that there are exceptional circumstances.

[185] The submission of ACCI that we should consider prospective dates of operation raises similar considerations to those referred to in the May 2001 decision. In that case ACCI submitted that agreement-making could be encouraged by providing for a longer delay before a safety net adjustment became available. That submission was rejected for reasons then given.⁶⁷ Nothing put by ACCI on this occasion persuades us to delay access to the arbitrated safety net increase.⁶⁸

[186] The next principle that was addressed was Principle 10 - "Making and varying an award above or below the safety net". Both the Commonwealth and ACCI submitted that amendments were needed to remove ambiguity in determining what variations may be considered to be above or below the safety net and/or referred to the President as a special case. It was submitted that the Commission should consider the operation of the special case principle to remove some uncertainties which were said to have emerged. They include, firstly, when an award may be varied without being regarded as being above or below the award safety net and, secondly, how members of the Commission are to determine matters allocated to them after a decision by the President under s.107 not to constitute a Full Bench. Several amendments were proposed to deal with problems said to exist with the wording and operation of the principle.

[187] The ACTU did not oppose a change to Principle 10 to make it clear a special case need not be heard by a Full Bench. It did not want to see any such change used as a "back door" for incapacity to pay cases. It criticised the terms of the amendments proposed by the Commonwealth and proposed its own amendments.

[188] The State Labor Governments adopted the submissions of the ACTU.

[189] We are not persuaded to amend the principle in the ways proposed. The amendments would, in our opinion, unduly constrain the discretion that the President should have in considering applications made under the principle. The submissions do not identify any ambiguity in the principle of a type warranting the amendments sought.

[190] We have however decided that some amendments to the principle are appropriate. We have already said we will amend it to make specific reference to applications for an earlier operative date than the date specified in Principle 8(a). We have also decided that there is no need for this principle (or any other) to refer at all to a "special case".

[191] We think that the new formulation of Principle 10 should remove some of the issues raised by the parties concerning its operation. In particular it makes it clear that single members may make or vary awards above or below the safety net or for retrospective operation of a safety net adjustment, provided the President has had an opportunity to consider whether a Full Bench should be constituted to deal with the application. We have also decided to remove from the principle the reference to applications involving a consideration of s.89A(7). The reference to that section is potentially confusing. Some such applications may involve a variation above or below the safety net and some may not. Where an application involves a departure from the safety net the principle applies. In the case of an application which does not depart from the safety net, Principle 10 is not attracted at all. In that respect applications involving a consideration of s.89A(7) are no different from applications under any other section. There is no need for specific reference to the section. In addition we shall delete the reference to applications involving claims to incorporate agreements into safety net awards. Such cases are rare and, if they involve increases above or below the safety net, the reformulated principle will apply to them in any event.

[192] Principle 10 will now read as follows:

"10. MAKING AND VARYING AN AWARD ABOVE OR BELOW THE SAFETY NET

Any application to make or vary an award for wages or conditions above or below the safety net or for a date of operation of a safety net adjustment earlier than the date of the award may be dealt with by:

(a) a Full Bench; or

(b) a single member, provided the President has had an opportunity to consider whether the application should be dealt with by a Full Bench and has decided not to refer the application to a Full Bench."

[193] As a result of our decision to delete any reference to "special case" in the principles, we will also make an amendment to Principle 9, titled "Federal Minimum Wage". We will delete the words "for consideration as a special case" from clause 9(f) and insert "to consider whether the matter should be referred to a Full Bench".

[194] AHA proposed several amendments to Principle 12, titled "Economic Incapacity". Its submissions were made on behalf of four and five-star hotels and certain other hotels. The grounds for the proposed amendments are referred to in paragraph [56] of this decision.

[195] It submitted that the grounds upon which an application can be made should be altered to "economic factors including adverse impacts on the level of employment". Any material relied upon in support of such an application should be tested in accordance with "fairness, equity and the substantial merits of the case" and the impact or the potential impact on employment of an increase in labour costs is to be taken into account as a significant factor. Finally, any decision made to reduce or postpone an increase should not necessarily be subject to a review.

[196] AHA referred to an application for a six month postponement of any increase that may be awarded as a result of these proceedings. That application is not before this Full Bench.

[197] Submissions were made about the manner in which the Commission has, over the years, considered applications to relieve employers from the requirement to pay award rates on the ground of an incapacity to pay. The approach taken by the Commission prior to 1983 and subsequently was addressed in detail. The 1983 and 1986 National Wage Cases⁶⁹ were referred to as were the comments then made about the introduction of an incapacity to pay principle and circumstances in which relief from any increases might have been sought and granted. Several Safety Net Review decisions where the Commission considered whether any changes to the principle were warranted were also referred to.

[198] AHA submitted that the maintenance of the principle in its current form was inconsistent with the framework of wage fixation established by the Act. It said that the requirement in the principle for evidence in support of any application being "rigorously tested" was inconsistent with the standard of proof generally required in civil matters, which standard was the balance of probabilities. It said the principle placed a higher burden on an applicant than that which applied in respect of any application which may be made under Part VI of the Act. It also submitted that an application should not be limited to the grounds of "very serious or extreme economic adversity". It was said that the existence of these words in the principle made a successful application "prohibitive".

[199] The Commonwealth also submitted that amendments were needed to the Economic Incapacity Principle. It said that the paucity of applications that had been made under the principle indicated that it may need to be reviewed to make it more accessible. The Commonwealth submitted that the requirements of the principle are so onerous they amounted to a disincentive. It sought amendments to achieve three objectives. These were easing the administrative and procedural burden on enterprises seeking relief, easing the evidentiary burden required of them and acknowledging the needs of small business seeking relief under the principle.

[200] It submitted that single enterprise applications should be able to be dealt with by a single member without the need which presently exists to make and justify an application under s.107.

[201] The Commonwealth further submitted that the reference to evidence being "rigorously tested" should be deleted. It also submitted that evidence at the industry or regional level should be accorded significant weight in any case concerning a particular enterprise. The evidentiary requirements for small business should be given special attention. It submitted that the current test constituted a disincentive for small business to lodge a claim. An alternative procedure was proposed which would provide that a single Commission member would approve an application if satisfied that the employer had properly consulted with its employees, and formed a view that a refusal was likely to lead to a loss of jobs and/or threaten the viability of the business. Any supporting evidence, if it was required, could be presented by affidavit. The matter could be dealt with "on the papers" or if a hearing was required it would be expected to be brief.

[202] ACCI also supported amendments to the principle which it said would better facilitate cases of genuine incapacity in a manner consistent with the Act, the importance of maintaining the safety net and the operational and employment capacities of enterprises. It submitted that scope to argue economic incapacity is an important element of the contemporary minimum wage fixing system so as to reduce any potential negative labour market and economic impacts upon particular workplaces.

[203] ACCI interpreted the fact the principle was little used as a signal that it is not meeting its intended role. It said the tests involved in meeting the criteria in the principle are too difficult and the Commission should pay "significant regard" to the fact that employers are not pursuing claims for incapacity.

[204] It also supported the Commonwealth's submissions concerning the use of this principle by small business. It submitted that the existing requirements of the principle appeared to make it difficult for small business to access. It said the principle should be amended to ensure special regard is had for the operational circumstances of small businesses when considering the evidentiary requirements placed upon them.

[205] ACCI also supported the Commonwealth's proposal that a single member of the Commission should be able to deal with a claim without the need to make and justify an application under s.107. It said this would make arguing incapacity more accessible to employers, expedite the listing and consideration of such applications, ensure incapacity redress is actually relevant and useful for urgent operational difficulties and ensure incapacity is treated less as an exceptional matter.

[206] ACCI also submitted that an application should be able to be made on both a single business and "sectoral, industry or regional" basis. It proposed that relief under the principle should be able to be granted to a group of employers.

[207] The ACTU opposed any alteration to the Economic Incapacity Principle. It submitted that there was a total lack of evidence which would justify any amendment. It also submitted that there was no basis for the Commonwealth's proposal for evidentiary requirements for small business which differed from those for any other applicant. Section 111 of the Act provided any flexibility that may be required by a small business employer.

[208] To the extent there was any evidence at all relevant to the submissions of those proposing the amendments, the ACTU referred to the April 1999 decision and the information sheet then introduced. It submitted this information sheet was advertised widely by the Commonwealth. Against that background the ACTU said it can be assumed that there is overwhelming disinterest in this principle.

[209] The ACTU submitted AHA was wrong in its arguments about the evidentiary burden required of an applicant. It said the principle was a mechanism to avoid payment of an increase in the safety net wage. Any application to avoid or postpone any such increase should be treated as exceptional and rigorous testing of any evidence in support of such an application was appropriate.

[210] The State Labor Governments also opposed any amendment to the principle. They submitted that if, as was contended by the Commonwealth, the paucity of applications justified the amendment sought, there might have been some evidence available that persons have declined or felt unable to make such an application because of the procedural and evidential burdens. The reference by ACCI to some of its members' opinions that it might be too difficult is not evidence. Like the ACTU, it submitted there was no justification for any alternative procedure tailored for small business employers.

[211] The operation of the Economic Incapacity Principle has been considered in the context of the present Act on several occasions. Proposals to vary the principle are not new. We refer for example to the 1998 Safety Net Review in which the Commonwealth together with several State Governments made submissions (described by the Full Bench in the April 1998 decision as having also been made in the April 1997 decision) that amendments to the principle should be made. The Full Bench, in part 11.8 of the April 1998 decision, summarised the changes that had been proposed in the following way:

"Seven changes were proposed:

(i) the introduction of an additional alternative of phasing-in an increase in labour costs;

(ii) the Commission should give considerable weight to evidence relating to employment losses;

(iii) the reference to `very serious' and `extreme' economic adversity should be removed;

(iv) it should be sufficient if the evidence presented in applications at the industry or sectoral level demonstrated that a significant majority of the enterprises covered by the application would be adversely affected, for example, by examining a cross-section of representative enterprises;

(v) where an application relates to a region already experiencing a high level of unemployment, the prima facie position should be that significant employment losses would result from an arbitrated addition to labour costs;

(vi) economic incapacity claims on an enterprise basis should be able to be dealt with by a single member of the Commission; and

(vii) the nature of any evidentiary requirements should have regard to the circumstances of the business(es) affected by the application, and in particular the operational constraints faced by small business."⁷⁰

[212] The Full Bench rejected the proposals for the following reasons:

"· similar submissions were rejected in the April 1997 Review decision;

· the `freeing up' of the Economic Incapacity principle would be inconsistent with the `safety net' of the award system;

· the Commission has long expressed the view that incapacity arguments should be limited to individual respondents and/or groups of respondents where all members of the group can claim `very serious or extreme economic adversity'. The diversity of economic positions in sectors covered by an award may make it inappropriate to exempt all sectors from an increase in labour costs (see Food Preservers' Award 1973 (1982) 285 CAR 10; Pastoral Industry (Wages and Allowances) Award, Print G5732; Pastoral Industry case, Print J1761)."⁷¹

[213] It is apparent from the above extracts that several of the arguments then unsuccessfully put in support of amendments to this principle have again been put to us.

[214] Again in the 1999 Safety Net Review the Commonwealth, several State Governments and ACCI sought to amend the principle. In rejecting the amendments the Full Bench referred to several earlier cases where the principle had been addressed, including the April 1998 decision, and said:

"[130] A number of points can be made on the basis of the decided cases:

1. The onus is on the party seeking to rely on the Economic Incapacity Principle and very serious or extreme economic adversity must be shown.

2. An incapacity claim needs to be supported by oral and/or documentary evidence capable of analysis including:

2.1 information about the effect on employment of granting the relevant increase;

2.2 financial information about the enterprise(s) concerned; and

2.3 information about action taken to reduce the effect of any economic adversity and, in particular, the steps taken to negotiate appropriate arrangements with the employees.

3. The Economic Incapacity Principle contemplates the possibility of an application to reduce, postpone and/or phase-in a labour cost increase being made by groups of employers. But in order to succeed all members of the relevant group must be able to establish `very serious or extreme economic adversity'. In a number of cases the diversity of circumstances among employers in a particular group has made it inappropriate to exempt all the employers in the group from an increase.

4. The Commission has not been prepared to include particular tests or guidelines in the Economic Incapacity Principle on the ground that such tests or guidelines could be inappropriate and possibly misleading in a particular case."

[215] Later the Full Bench said:

"[132] The Commission, in deciding to award a safety net increase, does so having regard to, among other things, submissions on the economy including the effect on inflation and employment of a safety net increase and the impact of the increase between and within industries. In the present case, in deciding on the level of the safety net adjustment, we have taken into account all of the submissions concerning the cost impact and its effect, particularly on the level of employment at the enterprise level, of granting the ACTU claim.

[133] We also consider that given the diversity of economic conditions which exist within and between industries, it is not appropriate that we introduce a principle which would allow the exemption of industries and sectors from an increase in labour costs without an examination of the individual enterprises. We agree with the conclusion reached by the Full Bench in the 1998 decision on the Victorian Minimum Wage orders [Print Q5101] in which the Full Bench, in response to a submission that a different approach to the Economic Incapacity Principle be adopted in respect of such orders by permitting applications to be determined on a regional basis, stated:

`It would be unfair to delay access to fair minimum wage levels to persons employed by firms which are not experiencing economic adversity on the basis of the very serious or extreme economic adversity experienced by other employers within a region or industry. Further, it would diminish the effect and intent of relief to employers experiencing very serious or extreme economic adversity if competitors not experiencing such economic difficulties enjoyed similar relief.' [Print Q5101, at p. 14]

[134] For these reasons we have decided not to modify the principle either by adopting the Joint Governments' proposal or that of ACCI. Accordingly, applications under the principle will continue to be limited to individual respondents or groups of respondents."72

[216] Again several of the submissions made to us to justify amendments to the principle were made and rejected by the Full Bench in the April 1999 decision.

[217] We are not persuaded that, as was submitted by the AHA, the principle in its current form is a product of a bargain struck between certain industrial parties in 1983. The need for the principle and its content are the result of consideration by the Commission over many years but more particularly in Safety Net Review cases which have been undertaken following the amendments to the Act in 1996.

[218] The amount of the safety net increase is decided upon by a Full Bench after considering extensive submissions from organisations representing employers (small, medium and large), employees, religious and community organisations and individuals. A decision is made within the constraints of the Act, in particular, the objects in ss.3 and 88A and the provisions of ss.88B, 90 and 90A.

[219] We are not persuaded that the paucity of applications under the principle is evidence of a need to amend the principle. We agree with the submissions of the State Labor Governments that, to the extent the submission of ACCI is said to be evidence, it is no more than an expression of the view of members (details of which were not given) that such an application would be difficult. Nor are we satisfied that the reference in the principle to the grounds upon which an application can be made is inappropriate. Exemptions from an award obligation to pay an arbitrated safety net adjustment should only arise in circumstances of "very serious or extreme economic adversity". The reference to evidence being "rigorously tested" does no more than alert an applicant to what would properly be the level of consideration that any member of the Commission would bring to evidence led in support of an application.

[220] We are not persuaded that any case has been made out for a special procedure for small business employers. Any such employer making an application under the principle wishing to be accommodated in relation to the manner in which it is to lead evidence and participate in a hearing should make an application for directions consistent with what is sought pursuant to s.111 of the Act.

[221] We are of the opinion that all applications pursuant to this principle should be made under s.107 of the Act and referred to the President. It may be that an application which concerns a single employer will be appropriate to proceed before a single member of the Commission. We are not persuaded however that the principle should provide that this will always be so.

[222] We do not propose to alter the reference in the principle to "Any respondent or group of respondents to an award". We are not persuaded that relief should be available to a group of employers or to employers within a "sectoral, industry or regional level". As is clear from the passages from earlier Safety Net Review decisions we have set out, the arguments relied upon have been considered and rejected before by the Commission. Nothing has been submitted which leads us to take a different course on this occasion. The individual circumstances of employers will need to justify the relief sought by them.

[223] We reject the submissions of the AHA or ACCI that any relief granted under the principle to reduce or postpone an increase should not necessarily be subject to a further review. We think it is appropriate that the principle remain unchanged. It provides sufficient discretion to the Commission to decide the date upon which any such review should be undertaken.

[224] AiG made submissions concerning what it described as "award structures". It submitted that there was merit in considering having one award for each major industry sector or, as an interim step, combining awards within major segments of each industry. It proposed that the Commission should convene a conference to explore relevant issues and to endeavour to achieve consensus amongst the numerous parties who would be involved in the process.

[225] AiG made a submission in the Safety Net Review case last year requesting that a conference be held. The Commission referred to this in its May 2001 decision.⁷³ Like that Full Bench we accept that this issue is important. We have given consideration to the most appropriate way in which it should be progressed but are not persuaded that a conference without any concrete proposals will be useful. If an application is made on behalf of an employer or group of employers it will provide an appropriate factual framework in which to consider each of the issues that will undoubtedly then arise. These can then be dealt with in the first instance by conciliation.

ORDERS

[226] The orders necessary to give effect to this decision in the awards before us should be drawn up and filed by the applicants. Commissioner Lewin will settle the orders with recourse to the Full Bench.

ATTACHMENT A

STATEMENT OF PRINCIPLES

1. ROLE OF ARBITRATION AND THE AWARD SAFETY NET

Existing wages and conditions in the relevant awards of the Commission constitute the safety net which protects employees who may be unable to reach an enterprise or workplace agreement. The award safety net also provides the benchmark for the no-disadvantage test that the Workplace Relations Act 1996 (the Act) requires be applied before agreements are certified.

As a result of the award simplification process, awards will, where necessary, be varied so that they:

· act as a safety net of fair minimum wages and conditions of employment (s.88A(b));

· are simplified and suited to the efficient performance of work according to the needs of particular workplaces or enterprises (s.88A(c)); and

· encourage the making of agreements between employers and employees at the workplace or enterprise level (s.88A(d)).

This evolving award system will remain the safety net referred to in the Act. It will, and is intended by the legislature to, change in response to economic, social and industrial circumstances.

2. WHEN AN AWARD MAY BE VARIED OR ANOTHER AWARD MADE WITHOUT THE CLAIM BEING REGARDED AS ABOVE OR BELOW THE SAFETY NET

In the following circumstances an award may, on application, be varied or another award made without the application being regarded as a claim for wages and/or conditions above or below the award safety net to:

(a) include previous National Wage Case increases in accordance with Principle 3;

(b) incorporate test case standards in accordance with Principle 4;

(c) adjust allowances and service increments in accordance with Principle 5;

(d) adjust wages pursuant to work value changes in accordance with Principle 6;

(e) reduce standard hours to 38 per week in accordance with Principle 7;

(f) adjust wages for arbitrated safety net adjustments in accordance with Principle 8;

(g) vary an award to include the federal minimum wage in accordance with Principle 9; and to

(h) make orders under Part VIA of the Act.

3. PREVIOUS NATIONAL WAGE CASE INCREASES

Increases available under previous National Wage Case decisions such as structural efficiency adjustments, minimum rates adjustments and previous arbitrated safety net adjustments will, on application, still be accessible.

4. TEST CASE STANDARDS

Test case standards involving allowable award matters (s.89A(2)) established and/or revised by the Commission may be incorporated in an award. Where disagreement exists as to whether a claim involves a test case standard or a non-allowable award matter, a party asserting that it does must make and justify an application pursuant to s.107. It will then be a matter for the President to decide whether the claim should be dealt with by a Full Bench.

5. ADJUSTMENT OF ALLOWANCES AND SERVICE INCREMENTS

(a) Existing allowances which constitute a reimbursement of expenses incurred may be adjusted from time to time where appropriate to reflect relevant changes in the level of such expenses.

(b) Adjustment of existing allowances which relate to work or conditions which have not changed and of service increments for monetary safety net increases will be determined in each case by the Full Bench dealing with the safety net adjustment.

(c) In accordance with the Safety Net Review - Wages May 2002 decision (May 2002 decision) [PR002002] allowances which relate to work or conditions which have not changed and service increments will be adjusted as a result of the arbitrated safety net increase. (The method of adjustment is to be consistent with the Furnishing and Glass Industries Allowances decision [Print M9675, 21 March 1996].)

(d) In circumstances where the Commission has determined that it is appropriate to adjust existing allowances relating to work or conditions which have not changed and service increments for a monetary safety net increase, the method of adjustment should be consistent with the Furnishing and Glass Industries Allowances decision. Such allowances and service increments should be increased by a percentage derived as follows: divide the monetary safety net increase by the rate of pay for the key classification in the relevant award immediately prior to the application of the safety net increase to the award rate and multiply by 100.

(e) Existing allowances for which an increase is claimed because of changes in the work or conditions will be determined in accordance with the relevant provisions of the Work Value Changes Principle of this Statement of Principles.

(f) New allowances to compensate for the reimbursement of expenses incurred may be awarded where appropriate having regard to such expenses.

(g) Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the relevant principles of this Statement of Principles. The relevant principles in this context may be Work Value Changes or First Award and Extension to an Existing Award.

(h) New service increments may only be awarded to compensate for changes in the work and/or conditions and will be determined in accordance with the relevant parts of the Work Value Changes Principle of this Statement of Principles.

6. WORK VALUE CHANGES

(a) Changes in work value may arise from changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. Changes in work by themselves may not lead to a change in wage rates. The strict test for an alteration in wage rates is that the change in the nature of the work should constitute such a significant net addition to work requirements as to warrant the creation of a new classification or upgrading to a higher classification.

In addition to meeting this test a party making a work value application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against external classifications to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position.

These are the only circumstances in which rates may be altered on the ground of work value and the altered rates may be applied only to employees whose work has changed in accordance with this Principle.

(b) In applying the Work Value Changes Principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed (s.88B(3)(a)).

(c) Where new or changed work justifying a higher rate is performed only from time to time by persons covered by a particular classification, or where it is performed only by some of the persons covered by the classification, such new or changed work should be compensated by a special allowance which is payable only when the new or changed work is performed by a particular employee and not by increasing the rate for the classification as a whole.

(d) The time from which work value changes in an award should be measured is the date of operation of the second structural efficiency adjustment allowable under the August 1989 National Wage Case decision (August 1989 National Wage Case) [Print H9100, (1989) 30 IR 81].

(e) Care should be exercised to ensure that changes which were or should have been taken into account in any previous work value adjustments or in a structural efficiency exercise are not included in any work evaluation under this Principle.

(f) Where the tests specified in (a) are met, an assessment will have to be made as to how that alteration should be measured in monetary terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work.

(g) The expression "the conditions under which the work is performed" relates to the environment in which the work is done.

(h) The Commission will guard against contrived classifications and over-classification of jobs.

(i) Any changes in the nature of the work, skill and responsibility required or the conditions under which the work is performed, taken into account in assessing an increase under any other principle of this Statement of Principles, will not be taken into account under this Principle.

7. STANDARD HOURS

In approving any application to reduce the standard hours to 38 per week, the Commission will satisfy itself that the cost impact is minimised.

8. ARBITRATED SAFETY NET ADJUSTMENTS

In accordance with the May 2002 decision awards may, on application, be varied to include an arbitrated safety net adjustment in this decision subject to the following:

(a) The operative date will be no earlier than the date of the variation to the award.

(b) That at least 12 months have elapsed since the rates in the award were increased in accordance with the Safety Net Review - Wages May 2001 decision (May 2001 decision) [PR002001, (2001) 104 IR 314].

(c) In awards where the variation for a safety net adjustment arising from the April 1999, May 2000, May 2001 or May 2002 decisions is by consent and does not result in an increase in the wage rates actually paid to employees or increase the wage costs for any employer, any applicable 12 months' delay between variations may be waived.

(d) At the time when the award is to be varied to insert the safety net adjustment, each union party to the award will be required to give a specific commitment as to the absorption of the increase. In particular, the union commitments will involve the acceptance of absorption of the safety net adjustment to the extent of any equivalent amount in rates of pay which are above the wage rates prescribed in the award. Such above-award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

(e) The following clause must be inserted in the award:

"The rates of pay in this award include the arbitrated safety net adjustment payable under the Safety Net Review - Wages May 2002 decision [PR002002]. This arbitrated safety net adjustment may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above-award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset arbitrated safety net adjustments."

The above clause will replace the offsetting clause inserted into awards pursuant to paragraph 8(d) of the Statement of Principles determined in the May 2001 decision.

(f) By consent of all parties to an award, where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration.

(g) The safety net adjustment will only be available where the rates in the award have not been increased, other than by safety net adjustments, or as a result of the application of the Minimum Rates Adjustment or Work Value Changes Principles, since November 1991.

(h) The implementation of an arbitrated safety net adjustment in a converted paid rates award is governed by the principles set out in the Paid Rates Review decision [Print Q7661, 20 October 1998].

9. FEDERAL MINIMUM WAGE

In accordance with the May 2002 decision awards may, on application, be varied to provide for the federal minimum wage for full-time adult employees of $431.40 per week and, for junior, part-time and casual employees, proportionate amounts subject to the following:

(a) The operative date will be no earlier than the date of the variation to the award.

(b) The federal minimum wage is to be provided for in a separate clause as contained in Re Textile Industry Award 1994 [Print P1741, 11 June 1997]. Where classification rates are below the federal minimum wage there should be an indication that the federal minimum wage applies to those classifications.

(c) The separate clause referred to in (b) is as follows:

"Federal Minimum Wage

1. The Federal Minimum Wage

No employee shall be paid less than the federal minimum wage.

2. Amount of Federal Adult Minimum Wage

(a) The federal minimum wage for full-time adult employees not covered by subclause 4 (special categories clause), is $431.40 per week.

(b) Adults employed under a supported wage clause shall continue to be entitled to receive the wage rate determined under that clause. Provided that such employees shall not be paid less than the amount determined by applying the percentage in the supported wage clause applicable to the employee concerned to the amount of the minimum wage specified in subclause 2(a).

(c) Adults employed as part-time or casual employees shall continue to be entitled to receive the wage rate determined under the casual and part-time clauses of the award. Provided that such employees shall not be paid less than pro rata the minimum wage specified in subclause 2(a) according to the number of hours worked.

3. How the Federal Minimum Wage Applies to Juniors

(a) The wage rates provided for juniors by this award continue to apply unless the amount determined under subclause 3(b) is greater.

(b) The federal minimum wage for an employee to whom a junior rate of pay applies is determined by applying the percentage in the junior wage rates clause applicable to the employee concerned to the relevant amount in subclause 2.

4. Application of Minimum Wage to Special Categories of Employee

(a) Due to the existing applicable award wage rates being greater than the relevant proportionate federal minimum wage, this clause has no application to employees undertaking a National Training Wage Traineeship, an Australian Traineeship, a Career Start Traineeship, a Jobskills placement or an apprenticeship.

(b) [Leave reserved for other special categories.]

5. Application of Federal Minimum Wage to Award Rates Calculation

The federal minimum wage:

(a) applies to all work in ordinary hours;

(b) applies to the calculation of overtime and all other penalty rates, superannuation, payments during sick leave, long service leave and annual leave, and for all other purposes of this award; and

(c) is inclusive of the arbitrated safety net adjustment provided by the Safety Net Review - Wages May 2002 decision [PR002002] and all previous safety net and national wage adjustments."

(d) At the time when the award is to be varied to insert the federal minimum wage clause, each party to the award will be required to give a specific commitment as to absorption of any increase arising from the insertion of the federal minimum wage clause. In particular, the union commitments will involve the acceptance of absorption of any increase arising from the insertion of the federal minimum wage clause to the extent of any equivalent amount in rates of pay which are above the wage rates prescribed in the award. Such above-award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

(e) The following clause must be inserted into the award:

"The rates of pay in this award include the federal minimum wage payable under the Safety Net Review - Wages May 2002 decision [PR002002]. Any increase arising from the insertion of the federal minimum wage clause may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above-award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset the federal minimum wage."

(f) Any disagreement as to the variation of an award to include the federal minimum wage (including whether the federal minimum wage should be phased-in) will be referred to the President to consider whether the matter should be referred to a Full Bench.

(g) Federal minimum wage clauses may be inserted in awards in which the minimum classification rate exceeds $431.40 per week.

Note: In determining whether an increase is payable because of the introduction of the federal minimum wage, the arbitrated safety net adjustment in this decision and all previous safety net and national wage adjustments are first to be taken into account.

10. MAKING AND VARYING AN AWARD ABOVE OR BELOW THE SAFETY NET

Any application to make or vary an award for wages or conditions above or below the safety net or for a date of operation of a safety net adjustment earlier than the date of the award may be dealt with by:

(a) a Full Bench; or

(b) a single member, provided the President has had an opportunity to consider whether the application should be dealt with by a Full Bench and has decided not to refer the application to a Full Bench.

11. FIRST AWARD AND EXTENSION TO AN EXISTING AWARD

Any first award or an extension to an existing award must be consistent with the Commission's obligations under Part VI of the Act.

In determining the content of a first award the Commission will have particular regard to:

(a) relevant minimum wage rates in other awards, provided the rates have been adjusted for previous National Wage Case decisions and are consistent with the decision of the August 1989 National Wage Case;

(b) the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which the work is performed (s.88B(3)(a));

(c) section 89A and the need to ensure that it does not contain provisions that are not either allowable award matters, or both incidental to allowable award matters and necessary for the effective operation of the award; and

(d) the award simplification criteria in s.143 of the Act.

12. ECONOMIC INCAPACITY

Any respondent or group of respondents to an award may apply to, temporarily or otherwise, reduce, postpone and/or phase-in the application of any increase in labour costs determined under this Statement of Principles on the ground of very serious or extreme economic adversity. The merit of such application will be determined in the light of the particular circumstances of each case and any material relating thereto shall be rigorously tested. The impact on employment at the enterprise level of the increase in labour costs is a significant factor to be taken into account in assessing the merit of any application. A party making such an application must make and justify an application pursuant to s.107. It will then be a matter for the President to decide whether it should be dealt with by a Full Bench.

Any decision to temporarily reduce or postpone an increase will be subject to a further review, the date of which will be determined by the Commission at the time it decides any application under this Principle.

13. DURATION

This Statement of Principles will operate until reviewed.

Appearances:

A. Watson with G. Combet, M. Gaynor and C. Robinson for the Australian Council of Trade Unions and for all applicant unions with T. Veenendaal and V. Ilias for the Australian Liquor, Hospitality and Miscellaneous Workers Union; A. Sachinidis for the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union; L. Freeburn for the National Union of Workers; J. Nucifora for the Australian Municipal, Administrative, Clerical and Services Union; and G. Todd for the Shop, Distributive and Allied Employees Association.

S. Barklamb, S. Kates and C. Harris with M. Weldon for The Australian Retailers Association (Victoria).

S. Zeitz for the Australian Hotels Association and The Motor Inn, Motel and Accommodation Association.

M. Potter, R. Calver and P. Murdock for the National Farmers' Federation.

D. Gregory for the Victorian Employers' Chamber of Commerce and Industry and for the Australian Chamber of Commerce and Industry; the Northern Territory Chamber of Commerce and Industry; the Queensland Chamber of Commerce and Industry; the ACT and Region Chamber of Commerce and Industry; the Tasmanian Chamber of Commerce and Industry; the Chamber of Commerce and Industry of Western Australia; Australian Business Limited; Business SA; The Australian Retailers Association (NSW); and the Metal Industries Association Tasmania.

M. Moir with R. Herbert for The Australian Industry Group and with T. Halls for the Engineering Employers Association, South Australia.

J. Murdoch with E.R. Cole and L. Lipp for the Minister for Employment and Workplace Relations on behalf of the Commonwealth.

G. Martin SC with B. Corney and P. Robinson for the Joint Labor State Governments of New South Wales, Victoria, Queensland, Western Australia, South Australia and Tasmania and the Australian Capital Territory and the Northern Territory.

K. Law for Restaurant and Catering Australia.

N. Rutherford with T. Abrams for the Printing Industries Association of Australia.

W. Chesterman with L. Yilmaz for the Victorian Automobile Chamber of Commerce and the Motor Trade Association of South Australia and the Motor Traders' Association of New South Wales, and for the Motor Traders organisations in Queensland, Western Australia, the Australian Capital Territory and the Northern Territory and the Service Station Association of New South Wales.

P. Ryan for the Australian Road Transport Industrial Organization.

P.G. Ryan for the Victorian Association of Forest Industries and the Timber Trade Industrial Association.

C. Harnath for The Master Plumbers' and Mechanical Services Association of Australia.

Hearing details:

Mention before Giudice J, Ross VP, McIntyre VP, Watson SDP, Harrison SDP and Lewin C:

2001.

Melbourne:

December 20.

2002.

Melbourne:

April 3, 4, 5, 8, 9, 10.

Printed by authority of the Commonwealth Government Printer

<Price code M>

1 Section 88B(2)(b) of the Workplace Relations Act 1996.

2 Exhibit ACCI 2.

3 May 2001 decision at para [38].

4 Ibid. at para [44].

5 Exhibit AiG 1, Annexure I.

6 Econtech Pty Ltd, Economic Effects of the Recent Tourism-Related Events on the Tourism Sector and the Economy report prepared for the Department of Industry, Science and Resources, 10 October 2001.

7 Adams P.R., Dixon P.B. and Rimmer M.T., The September 11 Shock to Tourism and the Australian Economy from 2001-02 to 2003-04, Australian Bulletin of Labour, Vol. 27, No. 4, December 2001.

8 Exhibit Commonwealth 3, Table 2.1.

9 Exhibit Commonwealth 6, Appendix RA at p. 7.

10 Exhibit ACCI 2 - Westpac Survey of Industrial Trends March Quarter 2001: ACCI Survey of Investor Confidence, April 2002; AiG/Pricewaterhouse; and National Australia Bank, Monthly Business Survey - February 2002.

11 ABS Cat. 6306.0.

12 Exhibit ACTU 5, Tables R3.1, R3.2, R3.3 and R3.4 at p. 25.

13 Exhibit Commonwealth 3 at para 4.6.

14 Ibid.

15 Exhibit Commonwealth 3, Table 4.5.

16 Exhibit Commonwealth 4, Appendix A at para A.2.

17 Exhibit ACCI 11.

18 Exhibit ACCI 2 at para's 4.20 and 4.21.

19 Exhibit RMI 1, Retail Motor Industry Survey.

20 Exhibit RMI 1, Retail Motor Industry Economic Report at p. 13.

21 Transcript at para 2519.

22 Exhibit Commonwealth 3 at para 4.16.

23 Exhibit Commonwealth 3, Table 4.3 at p. 69.

24 The Commonwealth submitted that 14 per cent of employees amongst agreements checked by it were covered by first time agreements. Use of this figure, rather than 10 per cent, would only marginally affect the ACTU calculation.

25 Exhibit Commonwealth 5 at para R4.17.

26 May 2000 decision at para [65] (Exhibit JG1, Tables 5.8 and 5.14).

27 May 2001 decision at para [81].

28 Exhibit Commonwealth 4, Appendix B, see Chart B.1.

29 Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992.

30 No estimate of the effect on aggregate labour costs was provided in the present hearing. In the 1998 hearing, the Joint Governments estimated that the 1 per cent increase in the charge at that time would add about 0.4 per cent to the National Accounts measure of average earnings in 1998-1999 [Print Q1998, Chapter 6.5].

31 Exhibit AiG 1, Annexure E, How Fast Can Australia Grow? Mark II, A Discussion Paper Prepared by Australian Industry Group, December 2000, at p. 9.

32 Section 88B(2)(b) of the Workplace Relations Act 1996.

33 Exhibit ACCI 3, Tab 7, Lewis P.E.T. and MacDonald G., The Elasticity of Demand for Labour in Australia, forthcoming Economic Record.

34 Exhibit Commonwealth 4, Appendix A at para A.2.

35 Exhibit AiG 1, Annexure H, Stevens G., The Economic Outlook in 2002, Address to Committee for Economic Development of Australia (CEDA), Economic and Political Outlook Conference, 18 February 2002.

36 May 2001 decision at para [96].

37 Sections 3, 90 and 90A.

38 Exhibit ACCI 3, Tab 8, Lewis P.

39 Exhibit ACCI 2, Tab 7, James M., Wooden M. and Dawkins P., Minimum Wages and the Fallacy of the Inflated Denominator.

40 The National Minimum Wage, Making a Difference: The Next Steps June 2001; Stewart M., The Impact of the Introduction of the UK Minimum Wage on the Employment Probabilities of Low Wage Workers; Saget C., Is the Minimum Wage an Effective Tool to Promote Decent Work and Reduce Poverty?; The Experience of Selected Developing Countries; Keil M., Robertson D. and Symons J., Minimum wages and employment, Centre for Economic Performance Discussion Paper 497, June 2001; Williams N. and Mills J., The minimum wage and teenage employment: evidence from time series, Applied Economics, v 33, i3, Feb 20, 2001.

41 May 2000 decision at para [78].

42 Exhibit Commonwealth 5 at para R3.5.

43 Exhibit Commonwealth 3, Chart 5.3.

44 Exhibit ACTU 4, Tag 1 at para's 11 and 12; Tag 4 at para 17; Tag 9 at para 12; Tag 10 at para 12; Tag 6 at para 16; Tag 11 at para 6.

45 Exhibit ACTU 4, Tag 2 at para 8; Tag 3 at para 16; Tag 7 at para 14; Tag 8 at para 14; Tag 10 at para 12; Tag 11 at para 6.

46 Exhibit ACTU 4, Tag 7 at para 16; Tag 10 at para 9.

47 Exhibit ACTU 4, Tag 3 at para 16; Tag 7 at para 17; Tag 10 at para 11.

48 Exhibit ACTU 4, Tag 6 at para 15; Tag 9 at para 9.

49 Exhibit ACTU 4, Tag 3 at para 11.

50 Exhibit ACTU 4, Tag 3 at para 14.

51 Exhibit ACTU 3, Tag 12, McColl B., Pietsch L. and Gatenby J., Household Income, Living Standards and Financial Stress, June 2001 Australian Economic Indicators, ABS Cat. 1350.0.

52 Ibid. at p. 22.

53 Ibid. Table 5 at p. 24.

54 Exhibit ACTU 3, Tag 13.

55 Exhibit Commonwealth 3 at para 6.38 and Chart 6.1; and Exhibit Commonwealth 7. Saunders P., Household Income and its Distribution, June 2001 Australian Economic Indicators, ABS Cat. No. 1350.0; and Borland J., Gregory B. and Sheehan P., Inequality and Economic Change in Borland, Gregory and Sheehan (eds), Work Rich, Work Poor: Inequality and Economic Change in Australia (Centre for Strategic Economic Studies, Victoria University) at pp. 1-20.

56 Harding A. and Greenwell H., Trends in Income and Expenditure Inequality in the 1980's and 1990's, (2001) NATSEM paper presented to the 30th Annual Conference of Economists, 24 September 2001.

57 Exhibit Commonwealth 3 at para 6.24; and ACTU 3, Tag 14, Saunders.

58 Exhibit ACTU 3, Tag 15, Kelly S., Trends in Australian Wealth - New Estimates for the 1990s, (2001) NATSEM paper presented to the 30th Annual Conference of Economists, University of Western Australia, 26 September 2001.

59 Ibid. at p. 15.

60 Ibid. at p. 17.

61 Exhibit Commonwealth 5 at para R6.6.

62 Kelly (2001) op. cit. at pp. 26-28.

63 Saunders (2001) op. cit. at p. 44.

64 May 2000 decision at para [108].

65 Print M5600, 61 IR 236.

66 Print M9675, 21 March 1996.

67 May 2001 decision at para [148].

68 Section 146 of the Act.

69 Print F2900, (1983) 291 CAR 3; Print G3600, (1986) 301 CAR 611.

70 April 1998 decision at para 11.8.

71 Ibid. at pp. 60-61.

72 April 1999 decision.

73 Para's [156] and [157].