[Joint Governments' written responses to questions; 13 March 1998, Attachment D]
The Joint Governments provided linear estimates of the cost of various safety net increases, but noted that actual costs would be non-linear, increasing disproportionately with higher safety net increases. We accept this, but are of the view that, given the indicative nature of the estimates, the impact of non-linearity would not significantly affect the broad picture shown in the estimates.
6.3.3 The ACCI Costing
ACCI provided estimates of the cost of the ACTU claim based on data obtained from a survey of its members conducted in late 1996 (the same survey relied on by ACCI in the April 1997 case). The method used by ACCI is discussed in Attachment F to the April 1997 decision. ACCI relied on the same survey material and method in this case, with adjustment of the data to reflect the effect of the $10 safety net adjustment awarded in April 1997.
The ACCI survey in late 1996 involved data from 962 companies, employing 211,622 employees. The data purported to show the level of overaward payments made at the time of the survey. By weighting the level of safety net adjustment payable, shown by bands of actual overaward payments, and assuming full absorption, ACCI derived a weighted average increase in wages for full-time employees of the respondent companies of 2.5%.
In addition ACCI provided sectoral data showing weighted average annual increases for full-time employees of 0.3% in mining, 0.5% in manufacturing, 1.3% in construction, 4.1% in retail and wholesale trade and 2.3% in the services sector. Comparable estimates in respect to part-time and casual employees in each sector were higher than the weighted average increase.
The survey material does not provide information necessary to assess the statistical reliability or representativeness of its results. The survey results are presented without:
· any information as to the response rate;
· any information upon which non-respondency bias could be assessed. The potential for non-respondency bias arises because employers who would be required to pay safety net increases (those paying award rates only) have a greater incentive to respond than employers who would not; and
· a statistical basis for assessing the representativeness of the ACCI survey respondents. The ACCI survey material does not appear to coincide with ABS or AWIRS data.
These deficiencies lead us to treat the survey results with some caution.
ACCI appears not to rely on its costing as a measure of the aggregate cost effect of the ACTU claim. While the 2.5% average increase does not measure the aggregate wages cost of the ACTU claim, it may nevertheless demonstrate the effect on average across its survey respondents. Although there is doubt about the specific results shown by the survey, due to its general deficiencies, they reinforce the fact that safety net adjustments impose differential costs between sectors and firms. That is a perspective which the Joint Employers and the Joint Governments highlighted in their submissions.
Notwithstanding the need to consider this perspective of the ACTU claim, cost estimates showing economy-wide wages growth are necessary in considering the macro-economic effects of the claim.
6.3.4 Conclusion
Both the Joint Governments' and ACTU estimates are based on generally accepted survey data (from AWIRS 95 and the ABS). Nonetheless, there remains in each case a gap between the base data and the final cost estimates in each case. The gap is filled by assumptions.
The ACTU compares actual earnings of groups of private sector employees (narrowly banded by earnings) with a range of award rates which would result from the granting of its claim. A range of award rates is used because of the absence of data on award rates and actual earnings for each group. Further assumptions are necessary to convert the data for the segment of the private sector workforce reflected in the ABS EEH data to the broader workforce group reflected in AWOTE data.
The ACTU cost estimate is not a direct one but a general indicator of the likely costs. The method used by the ACTU has deficiencies.
The "low" estimates assume employees within each occupational group are subject to the lowest award rate for that group (e.g. that all labourers are employed at C14). Some employees would be subject to a higher award rate. To the extent that they are, the ACTU "low" estimates will understate the cost impact of its claim.
In the "high" estimates, the ACTU compares actual wages with the highest applicable award rate for each occupational group. Whilst some employees may receive a higher award rate, others would be subject to a lower award rate. The ACTU suggests that the real cost will lie somewhere in between its "low" and "high" estimates.
Further, the ACTU estimates assumed no or negligible application of its claim to public sector and managerial employees when converting the EEH data to reflect the scope of the AWOTE data. Such an assumption results in understatement of the ACTU cost estimates.
It appears to us that the ACTU's "high" estimate is a better guide to the aggregate cost of its claim than its "low" estimate.
The Joint Governments' estimates involve assumptions tending to both overstate and understate their estimates. Overstatement occurs because the use of 1995 data without adjusting it to reflect the continuing spread of enterprise bargaining (which would reduce the proportion of the workforce eligible to receive safety net payments, unless the growth in bargaining occurred almost exclusively in areas of existing overaward payments). On the Joint Governments' data, the number of employees covered by federal agreements has grown from 1.56 million in September 1995 to 1.94 million in September 1997, an increase of 24.4%.
Understatement results from the Joint Governments limiting the estimates of employees affected by the ACTU claim to those who would receive the full benefit of the claim. Employees who would receive partial access to a safety net adjustment are not included in their cost estimates.
We think that the various "biases" in the Joint Governments' estimate, particularly the failure to adjust the 1995 data for the continuing spread of enterprise bargaining, have an overall tendency to overstatement. We think that greater reliance can be placed on the lower end of the cost range suggested by the Joint Governments i.e. that derived by the SNI method.
Whilst there is no definitive cost estimate of the ACTU claim before us, we are satisfied that assistance is obtained by considering the ACTU estimates at the higher end and the Joint Governments' estimates at the lower end. Applying some caution we think that we should rely on an estimate around the upper end of the ACTU estimates and the lower end of Joint Governments' estimates. The estimates overlap.
Adopting this approach, the aggregate direct cost of the $20.60 component is around 0.65% to 0.74% of AWOTE.
It should be noted that existing AWOTE data incorporates a component arising from the April 1997 safety net adjustment, generating whatever employment, inflation and productivity effect arises from that component. The cost impact of any safety net adjustment should be considered in that context. Any addition to AWOTE, and whatever economic effects flowed from it arising from the ACTU claim, would be limited to additional cost impact, with the $20.60 component replacing the $10 SNA in 1997.
The implementation of safety net adjustments has been staggered. Chart 2.1 in Exhibit JG 1 shows that, notwithstanding some concentration of the April 1997 increase in May and June 1997, awards were varied to give effect to that decision over 1997 (and possibly into 1998). A similar staggering of any future safety net increases can be expected. This would suggest a less dramatic effect on award rates of pay and hence earnings than would arise from award increases applied from a common date.
6.4 Indirect Costs of the ACTU Claim
A number of parties addressed potential indirect costs of the ACTU claim. In summary, such costs could arise because:
1. An increase will flow to some employees covered by enterprise agreements because:
(a) the terms of the agreements may require or permit safety net adjustments to be passed on; and
(b) negotiations leading to future agreements may be influenced by safety net award increases.
2. Absorption may not occur due to:
(a) employers electing to maintain overaward payments to maintain relativities; and
(b) employees (and/or unions) insisting on the maintenance of overaward relativities.
3. Higher inflation resulting from granting the ACTU claim may lead to further wage increases; and
4. Decisions about the level of remuneration of employees not subject to formal agreements or awards may be influenced by the level of award rates.
It is regrettable that, despite a large number of Commission decisions which have required the absorption of award increases into overaward payments (e.g. minimum rates adjustments and safety net adjustments) there is very little information about the degree of absorption in these cases. No evidence was produced tending to the conclusion that absorption had not occurred.
Notwithstanding these observations, we examine each of these potential indirect effects. The ACTU acknowledged the theoretical possibility of indirect costs arising but argued that, in practice, such costs were non-existent or negligible.
6.4.1 Flow-on to Enterprise Agreements
Flow-on to enterprise agreements, it was said, could arise in two ways: first, as a result of the terms of existing agreements and second, by increasing wage outcomes in future agreements.
6.4.1(a) Flow-on as a Result of the Terms of Existing Agreements
The ACTU submitted that no evidence of such an effect was substantiated by an analysis of existing agreements. It further submitted that the evidence of senior union officials (Mr P. Tighe, National Secretary, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU), Mr G. Sword, General Secretary, National Union of Workers (NUW), and Mr D. Cameron, National Secretary, Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU)) showed that agreements negotiated on behalf of their members did not provide for increases in wage rates as a result of safety net adjustments.
The Joint Governments and ACCI submitted that the evidence of the union officials related only to agreements to which their unions were parties and that those agreements were not representative of agreements generally.
ACCI undertook an analysis of 172 agreements certified by the Commission in October 1997.
From this analysis ACCI submitted that 31.4% of agreements contained wage rates based on the award as a floor, whilst 43% were unclear as to the base. It further submitted that 11.1% of the agreements were open agreements and 39.9% were ambiguous as to the effect of National Wage Case decisions on bargaining.
ACCI also relied on its late 1996 survey of members in which 46.9% of respondents expected that directly or indirectly, the 8.75% safety net adjustment sought at the time would flow to employees covered by enterprise agreements.
The ACCI analysis of agreements certified in October 1997 indicates that some flow would occur. Any flow would be less than suggested by the ACCI analysis because:
1. ACCI excluded from its analysis agreements in the public sector, the building and construction industry and the metal industry. These sectors generally reflect advanced bargaining, in the sense that the parties are often entering their third or fourth agreement and the proximity of agreement rates to award rates is likely to be different in respect of first agreements and consistent with the evidence of the union officials. This is an important qualification. Advice from the Industrial Registrar is that over 400 agreements were certified by the Commission in October 1997. The ACCI analysis utilised fewer than 50% of these agreements. The nature of the sectors excluded suggests a significant skewing of results.
2. Whilst the ACCI membership survey of late 1996 suggests an expectation of flow-on of safety net adjustments to bargaining it provides no evidence as to the actual flow-on (for example, arising from the April 1997 safety net adjustment).
3. The Joint Governments' assessment of no extra claims commitments in agreements operating as at 30 September 1997 suggests that only 1% of such agreements (covering 3% of employees) provide for an automatic passing on of National Wage Case increases.
4. The types of clauses identified by ACCI as allowing the flow-on of safety net adjustments to agreement rates would not in general have that effect. Such clauses commonly exclude further claims, except where consistent with a National Wage Case decision. This would exclude the flow-on of safety net adjustments which are subject to absorption. Further, even where a claim is possible, this does not mean that additional wage increases would be agreed.
5. It is likely that some flow-on of safety net adjustments to employees covered by existing enterprise agreements will occur, but will be limited. This conclusion is supported by the evidence of union witnesses. Whilst not representative of all unions with lesser membership and a lesser spread of bargaining within their sector, in most union bargained agreements, agreement rates would have little proximity to award rates.
6.4.1(b) Flow-on to Future Bargaining Outcomes
Safety net adjustments might affect the level of bargaining at the margin, where agreed wage rates are close to award rates, but would be less likely in relation to third and fourth generation agreements where agreed wage rates are not close to award rates.
We, in general, accept the evidence that where bargaining is well developed, award rates are not a consideration in the bargaining process. However, we accept that there is a dispersion of wages outcomes from bargaining with a small proportion of agreements providing small wage increases (see Exhibit JG 1 at 141). Safety net increases would, we think, impact on bargaining outcomes in respect to such agreements with the potential impact being greater the higher the level of safety net increases.
6.4.2 Absorption
It was submitted that the maintenance of wage relativities because of union/employee pressure or employer action would result in indirect costs if the ACTU claim were granted.
We have no evidence of union/employee pressure for the maintenance of relativities other than that reflected in the expectations of respondents to the ACCI survey of members in late 1996. There is no evidence, either in respect of individual employers or generally, that previous union commitments to absorption have not been met. No dispute notifications alleging a breach of absorption commitments were brought to our attention. There is no basis to conclude that union commitments about absorption would not be honoured in the future.
There was no material before us to support the contention that indirect costs would result from the maintenance of relativities at the initiative of employers.
6.4.3 Higher Inflation
We accept that, to the extent that inflation is a factor in wage bargaining, any increase in inflation resulting from safety net adjustments may affect the level of future bargaining increases. The effect of a moderate safety net increase on inflation would, however, be minimal, because of the limited impact of such an increase on aggregate wages growth and a lesser impact on inflation because wages costs form only part of total costs.
6.4.4 Effect on the Remuneration of Employees Not Subject
to Either Formal Agreements or Awards
There is no material before us to show that award rates have any relevance to salaries negotiated for executive/managerial employees. In relation to other award free employees, the indirect effects of a safety net increase would, we think, be limited.
6.4.5 Conclusion
On the evidence before us we conclude that the indirect costs of a moderate safety net adjustment would be limited.
6.5 The Likely Effects of a Safety Net Adjustment
on Aggregate Wages Growth
In assessing the impact of any safety net increase on AWOTE growth consideration must be given to the fact that the current levels of AWOTE growth (3.7% or 3.9% trend in the year to the December quarter 1997) incorporate the effect of the April 1997 $10 safety net increase. It follows that the economic effects of the April 1997 increase are already acting upon the economy and are reflected in inflation and employment outcomes since April 1997. Accordingly, the granting of a similar increase now would not materially alter AWOTE growth or its economic effects. There is no dispute that if we grant no increase future AWOTE growth would be lower to the extent of the $10 safety net adjustment of April 1997 once that adjustment has ceased to affect AWOTE growth.
Section 90A requires us to have regard to the operation of the Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992. Any increase in average earnings arising from a safety net increase now will occur at around the same time that superannuation guarantee contributions will increase by one percentage point (to 7%) (1 July 1998). The Joint Governments estimated that this increase will add about 0.4% to the national accounts measure of average earnings in 1998-99.
6.6 The Likely Effects of a Safety Net Adjustment on Inflation
The economic effect of any safety net increase will depend upon a number of factors including 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 Joint Governments estimated that the ACTU claim would add 0.65% to AWOTE growth on its SNI method. Assuming no change in other factors, an aggregate addition to wages costs in the order of 0.65% would result in an increase in inflation of about 0.4%, reflecting the wages share of input costs of around 60%.
6.7 The Likely Effects of a Safety Net Increase
on the Level of Employment
The Act requires us to consider the likely effects of any safety net adjustment on the level of employment. There was a diversity of view as to the likely economic effects of granting the ACTU claims. Two aspects were dealt with in the submissions:
1. the macro-economic effects, comprised of the effect of a higher general level of real wages on economic activity and employment and the effect of fiscal and monetary policy responses to safety net increases directed to maintaining the wages growth and inflation objectives; and
2. the micro-economic effects; 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.
The submissions put to us in respect to the employment effects of a safety net increase are reviewed in Attachment B.
6.7.1 Macro-Economic Effects
The review in Attachment B shows that there is an issue as to the effect of changes in real wages on the level of economic activity and employment. Whilst there is no automatic relationship between the two, we accept that excessive real wages growth will detrimentally affect employment growth. Real wage growth will have a tendency to adversely affect aggregate employment growth, but the extent of such affect will depend upon the prevailing economic circumstances and the extent of the real wage movement.
A moderate safety net adjustment will have a limited impact on AWOTE growth (and a smaller effect on real wages, to the extent that the wages growth affects inflation) and a minimal effect on employment growth. Such an adjustment would not disturb the recent pattern of strong employment growth, which has been associated with consequent reductions in unemployment.
The second macro-economic effect concerns the effect of a possible policy reaction to a safety net adjustment through fiscal and monetary policy. This effect was raised most directly in relation to monetary policy but has relevance in relation to fiscal policy. It was submitted that the RBA might tighten monetary policy settings in response to a safety net increase which threatened the achievement of aggregate wages growth and inflation objectives.
Debate occurred in the current proceedings about the effect of a safety net increase on the RBA objective to keep AWOTE growth at 4.5% per year or below and inflation within the range of 2-3%.
ACCI focussed on the likely impact of RBA intervention in the face of the wage pressures which, it argued, would result from the granting of the ACTU claim. It submitted:
"To grant the ACTU claim would invite Reserve Bank intervention. What we are thus looking at is the potential for two forces to be moving in opposite directions: an adjustment in wages which would create inflationary pressures moving in one direction while in the other direction an increase in interest rates whose aim would be to maintain inflation within the target range." [Exhibit ACCI 5 at 41]
In giving effect to our obligations under the Act, we have had regard to the RBA wages and inflation objectives. We are not constrained by these objectives other than to have regard to them in the context of our statutory obligations, particularly under s.88B(2) and s.90.
We do not adopt a rigid approach to the RBA AWOTE objective, for three reasons:
1. The AWOTE figure fails to comprehend the impact of compositional change or to adequately account for productivity growth associated with wages increases arising out of agreements. Both factors would reduce the inflationary consequences of any given level of aggregate wages growth;
2. The RBA Governor recognises that the AWOTE target does not constitute a precise indicator for purposes of monetary policy settings (see Exhibit ACTU 3 at tab 8); and
3. Monetary and fiscal policy settings are fixed and altered having regard to a broad range of economic indicators and considerations.
Given the existing levels of aggregate wages growth and inflation, the cost impact associated with a moderate safety net adjustment would be consistent with AWOTE and inflation objectives. AWOTE grew by 3.7% (3.9% trend) in the year to the December quarter 1997, showing some moderation. AWOTE data is likely to be overstated due to compositional change. Inflation remains low. Such an increase would, in our view, allow the continuation of aggregate wages growth and low inflation and would have a marginal impact on monetary policy settings given the range of factors influencing those settings.
6.7.2 Micro-Economic Effects
Turning to the micro-economic effects, we have much the same material before us as was before the Full Bench in the last case although it has been augmented by further studies. These additional studies are dealt with in Attachment C.
Having considered the material in Attachment C, we do not depart from the conclusions contained in the April 1997 majority decision. Our assessment is that moderate increases in the wages of the low paid, of themselves, do little or nothing to diminish job prospects. We are satisfied that, at most, very limited effects on employment would result from such an adjustment.
6.8 The Effect of a Safety Net Adjustment on Productivity
The Joint Governments and employer associations submitted that safety net increases will have a negative effect on productivity growth because such increases reduce the incentive for bargaining.
The ACTU submitted that a requirement to pay reasonable minimum rates will increase the incentive for employers to bargain and bring about a greater focus on productivity improvements to offset increased wages. The ACTU relied on AWIRS data cited by Dr David Peetz [Exhibit ACTU 26 at tab 9] which suggests that productivity growth has proceeded as strongly in the non-bargaining sector as it has in the bargaining sector.
We conclude that it is unlikely that a safety net adjustment of itself will have a significant effect on productivity growth.
6.9 Sectoral Effects
The Joint Governments and employer associations emphasised the need to take account of sectoral considerations in determining the ACTU claim. It was submitted that:
· safety net adjustments would have a differential impact between and within sectors depending on the level of wages actually paid relative to award rates;
· economic circumstances vary between sectors; and
· Asian developments will impact differently between and within industry sectors.
The Joint Governments submitted that:
· actual wage rates are more likely to reflect award rates in rural areas than in capital cities; and
· the unemployment rate in rural areas is higher than in capital cities.
They also submitted that:
". . . the ACTU claim, were it to be granted, would be likely to have the greatest adverse impact in four industry divisions in particular, viz: accommodation, cafes and restaurants; retail trade; health and community services; and personal and other services." [Exhibit JG 1 at 137]
ACCI focussed on the differential effect of safety net adjustments, submitting that the impact of the ACTU claim should be considered by reference to its effect on typical enterprises rather than on aggregate costs.
The submissions of the Joint Employers dealt with the manufacturing sector through survey data directed to assessing the effect of Asian developments on their members.
In respect of the Asian developments, they said that:
". . . while aggregate outcomes are important to the policy making process, the swirl of effects now in operation makes GDP forecasts much less useful ingredients than usual of sales outlooks for individual businesses. There are pronounced, short- to medium-term winners and losers in Australian businesses." [Exhibit W 1 at Annexure A]
The retail motor industry provided information in relation to that industry, including survey data, intended to show the impact of safety net adjustments on typical firms within the sector. It submitted that a high proportion of small businesses in the sector paid only award rates and would be subject to safety net adjustments.
The retail motor industry also relied on the results of surveys of its membership which suggested difficult trading conditions.
In determining a claim such as that now before us, the Commission must balance a range of considerations. The differential impact across sectors and firms is one consideration. The level of a safety net increase, however, should not be determined by reference only to the effect on employers. To do so would be inconsistent with our statutory obligations to consider the needs of the low paid when adjusting the safety net.
We think that any exception from a general safety net increase, to assist particular industries or employers, should be limited. The circumstances of a particular employer can, if necessary, be dealt with through the Economic Incapacity principle which allows a consideration of the circumstances applicable to that employer.
6.10 Conclusion
Australia's economic performance over the past year, and since the early 1990s, has been good. Economic growth, productivity growth and investment have been strong. Australia has enjoyed a long period of low inflation, with stable wages growth.
Current economic conditions and the immediate economic outlook are better now than at the time of the April 1997 hearing. Growth is higher, inflation is lower, employment growth has improved and unemployment has fallen. It is agreed, however, that current levels of unemployment remain unacceptably high.
Recent developments in East Asia have clouded the immediate outlook for Australia's economy. These developments are likely to adversely effect net exports from, and economic growth in, Australia, with the greatest impact being expected in 1998-99. Continuing strong domestic demand is expected to offset the impact of weaker international conditions at least in the shorter term. The Australian economy appears better placed now than it has been for some considerable time to withstand any adverse effects arising out of East Asia.
There is no definitive cost estimate of the ACTU claim. The best guide to costs are the ACTU estimates at the higher end and the Joint Government estimates at the lower end. The estimates overlap.
Those estimates indicate an aggregate direct cost of the $20.60 component of the ACTU claim of around 0.65% to 0.74% of AWOTE.
Some indirect costs of the ACTU claim can be expected. Overall we would expect any indirect costs of a safety net adjustment to be limited.
In our view a moderate increase in the award safety net would have a limited effect on aggregate wages growth.
AWOTE growth of 3.7% (or 3.9% trend) in the year to the December quarter 1997 incorporates the effect of the April 1997 $10 safety net increase. Any addition to aggregate wages growth, arising from a safety net increase reflected in AWOTE growth, and consequent economic effects needs to be considered in that context.
The small contribution to aggregate wages growth arising from a moderate safety net increase would have a limited effect on inflation, employment and unemployment and productivity. Such an increase would have a minimal effect on economic activity and employment growth. It would not disturb recent employment growth and reduction in unemployment. Nor would it require restrictive fiscal or monetary policy responses.
Whilst caution is required in the context of unacceptably high levels of unemployment, moderate increases in the wages of the low paid, of themselves, do little or nothing to diminish their job prospects. We are satisfied that, at most, very limited effects on employment would result from such an adjustment.
A safety net adjustment will have a differential impact across sectors and employers within the Australian economy.
A moderate safety net increase can be sustained in the current generally positive economic environment, although a degree of caution is required, having regard to the uncertainty associated with East Asian economic developments.
CHAPTER 7 - NEEDS AND THE LOW PAID
7.1 The Submissions
The Commission received submissions from organisations active in the social welfare sector. Their submissions supplemented those from the parties and others as to the approach to be adopted by the Commission in relation to the requirements of s.88B(2)(a) and (c) of the Act.
ACOSS contended that the role of the award safety net in protecting the living standards of low paid workers had increased in importance, because of recent societal changes, including the shift from centralised wage fixation to a greater reliance on decentralised wage bargaining.
ACOSS argued that wage inequality had significantly increased since 1992 with wage increases gained through enterprise agreements exceeding those gained from increases in award rates of pay. It submitted that the responsibility for wage restraint had fallen predominately on low paid workers who were least able to cope with a decline in living standards. ACOSS expressed concern that the award system had become less relevant to the growing proportion of the workforce engaged in enterprise bargaining.
The award system had become more vulnerable to erosion or abolition. With respect to unemployment, ACOSS was sceptical that a relative decline in low paid workers' wages would significantly reduce unemployment. It contended that aggregate wage restraint and not an increase in wage dispersion was required to reduce unemployment.
It was ACOSS' view that the equity objects in s.88B(2) would be best achieved by the establishment of a benchmark for the adequacy of minimum standards. ACOSS argued that such a benchmark should be the minimum wage level necessary for an adult to live alone at home in decent conditions and be able to participate fully in society. This minimum wage should be integrated into the award structure to ensure it remained relevant to the broader system of wage fixation.
ACOSS also submitted that the Commission should increase the federal minimum wage and preferably all award minimum wages by, at least, the amount of the movements in average ordinary time earnings, but preferably, significantly more than that.
The submission of the Australian Catholic Commission for Industrial Relations (ACCIR) (on behalf of Catholic Church employers in the health, education, welfare and diocesan administration sectors) focussed on the achievement of a "just wage", particularly in the not-for-profit sector.
As to a just wage, ACCIR contended that employers had a duty to pay a wage capable of accounting for an individual's needs, not merely "the level of wage that the labour market demands" [Exhibit ACCIR 1 at 4]. Where employers did not voluntarily accept such a duty there existed a moral responsibility in the State to achieve such an end by means of the Commission's intervention to maintain the federal minimum wage and the award safety net. Associated issues were identified as the just settlement of disputes, attention to minimum standards of conditions of employment and the need to not combat unemployment by reducing wages beneath that level said to be necessary for sustaining a "decent standard of living" [Exhibit ACCIR 1 at 4].
In the welfare, education, health and church administration sectors, the issue of wage movement against fixed grants was said to show that "enterprise bargaining holds little attraction." [Exhibit ACCIR 1 at 6]. In such an environment, the primacy of the award safety net and the federal minimum wage to provide fairness and recognition of the needs of the low paid were of equal importance to the promotion of enterprise bargaining. ACCIR sought an annual review of the federal minimum wage "with a view to the long-term rather than the next two years" [Exhibit ACCIR 1 at 12].
ACCIR did not advocate a particular level of increase and generally identified with the ACTU position other than in relation to the continued existence of wage fixing principles. ACCIR highlighted the problems involved in maximising the benefit available to the lowest paid without forsaking others employed within classification structures which recognise skill levels and reflect appropriately determined relativities.
The Brotherhood reaffirmed the position it adopted in the April 1997 case that an award increase much greater than $8 per week should be granted. Concern was again expressed over "increasing wage inequity" and indications that "wage poverty" is likely to be occurring [Exhibit Brotherhood, November 1996 at 1]. It was submitted that the increase resulting from the April 1997 case was too low and that wage inequities and poverty were "not a necessary policy measure to reduce unemployment" [Brotherhood correspondence, 9 January 1998 at 1].
As stated elsewhere in this decision, the submission of the Joint Employers, as in the April 1997 case, was for a cautious approach to be adopted by the Commission in considering the ACTU claim. The key component in balancing what the Joint Employers described as the competing elements in s.88B was the need to maintain the real value of award wages for the lowest paid while guarding against the creation of inflationary pressure. They submitted that this objective could be met by an increase of $8. The ACTU claim, over two years, would represent a level of increase inimical to the encouragement of bargaining.
ACCI, in addressing the needs of the low paid submitted that poverty, in its true sense, had been virtually eliminated in Australia. ACCI stated that there would always be some individuals who earned less than others and who had a correspondingly lower standard of living. Age, skill, education and other factors would always result in a wide earnings distribution across the workforce. However, this did not necessarily mean that individuals with a lower standard of living were living in poverty. There were some very poor people but very few of them would be in families having members in employment. If the ACTU's claim were granted there would be large increases in unemployment and those who became unemployed as a result of the granting of it, would be significantly worse off. The greatest protection against poverty was a job.
In ACCI's submission the central issue was how productivity could be increased, thereby resulting in an increase in all wages. ACCI argued that this would be a better outcome than the ACTU's route of narrowing the earnings distribution by increasing the wages of the lowest paid. No matter how fast incomes grew, there would always be some individuals who earned less than others.
The Joint Governments contrasted the reliance placed by the ACTU on the needs of the low paid with their view that this consideration is but one factor to be considered in the current review. We were asked to consider the effect on the low paid of the social safety net. It was not proposed, however, "that the level of benefits and protection available to low income earners through the social safety net is itself a factor to be taken into account" [Exhibit JG 1 at 178]. Such an approach was at odds with the need for the Commission and Governments to react flexibly as economic and social situations alter.
The Joint Governments submitted that the wages system was of limited use to achieve social equity goals because of its inability, compared to the social safety net, to target and redress need. The diversity in household living arrangements was given as an example of the more effective reach of the social safety net compared with the wages system. Of critical importance was the potential for an adverse effect on employment to result from "large real increases in award rates" [Exhibit JG 1 at 178].
As to the increase in the wages gap between those in the bargaining stream and those reliant on award rates of pay, the Joint Governments submitted that the obligation on the Commission to establish and maintain a safety net of fair minimum wages and conditions, having regard to generally prevailing living standards and the needs of the low paid, did not require the Commission "to make an exact determination of prevailing living standards nor is it required to match or reflect prevailing living standards in the community in the award minima" [Exhibit JG 1 at 180]. Definitions and measurement of living standards were said to be subjective, unhelpful in encouraging expectations, and supportive of a formula approach to minimum award wage fixation. Award wage levels should not be determined by "overall measurement or growth of living standards or to bear some particular relationship to market rates" [Exhibit JG 1 at 181].
The impact of income support arrangements and other aspects of the social security framework were referred to as reflecting a wide measure of living standards so that "it is not appropriate to measure living standards merely by examining rates of pay and levels of expenditure" [Exhibit JG 1 at 181]. Further, it was submitted that s.88B(2)(a) does not require the Commission "to set minimum standards that match living standards or the growth in average living standards" [Exhibit JG 1 at 82]. This would risk reflecting the results of bargaining in the assessment of fair minima.
In assessing the living standards of the low paid, the Joint Governments argued that the varied ways by which government policies in Australia benefited the low paid were relevant considerations. Assistance took "the form of direct cash transfers such as pensions and family payments and indirect benefits such as the free or subsidized provision of goods and services" [Exhibit JG 1 at 183]. Such expenditure on social security and welfare payments was estimated in the Joint Governments' submission to account for some 37% of total Government expenditure in 1997-98.
The Joint Governments submitted that Australia's social safety net was well developed, amongst the most efficient in the Western world, "designed to provide an adequate income" by targeting "payments to those most in need" and encouraged "self-help and financial independence" [Exhibit JG 1 at 183]. In emphasising the contribution of cash and non-cash benefits the ACTU's application of the ABS Household Expenditure Survey was, as in 1997, open to criticism for its averaging different household sizes and making assumptions from average group expenditure as reflecting need [Exhibit JG 1 at 188].
The Joint Governments' submissions identified the difficulty in targeting the varying needs of individual wage earners with dependants, particularly in the light of the conclusion available from the STINMOD microsimulation model that low wage earners tended not to live in households where there were no other employed persons. This was said to support the conclusion that the great proportion of wage and salary earners in the bottom two quintiles of earnings are not required to rely only on their own income [Exhibit JG 1 at 192]. There were said to be poor distribution consequences as a result of this occurring which supported the targeting of increases to favour employees with low hourly earnings.
Information was provided by the Joint Governments which supported the view that the period 1989 to 1997 witnessed increasing real disposable incomes for notional households. Specific examples of such increases were the effect of the taxation system and cash transfers on single income, two children families, deriving income at the Metal Industry Award C13 rate [Exhibit JG 1 at 197]. Between 1988-89 and 1997 final income incorporating both cash and non-cash transfers grew, for households in the bottom quintile, by 4.8%. These factors, with the earnings mobility said to particularly benefit low paid workers through promotion, were, it was submitted, central to an examination of living standards [Exhibit JG 1 at 200-204].
We were urged by the Joint Governments to approach the matter of living standards having regard to the social safety net, the difficulties of delivering social equity benefits through the industrial relations system and improvements in the position of the low paid. In this context the reduction of unemployment was the principal remedy for inequity and poverty.
The stated rationale behind the ACTU's Living Wage claim was the right of all Australian workers to a decent standard of living. The ACTU argued that an adequate minimum wage was one that was sufficient to attain a level of material and social well being that was minimally acceptable by the community generally. There was a role for minimum wages, together with income support payments, in preventing poverty within families. The consensual poverty line was a useful benchmark indicator for income adequacy and single households without children would be an appropriate benchmark household type. Low paid employment was concentrated in certain sectors of the economy; small business and parts of wholesale/retail trade and hospitality industries. However, the ACTU in this case, was not seeking to revisit the debate in the April 1997 case regarding appropriate benchmarks nor for the Commission to determine this case on a benchmark approach.
It was the ACTU's submission that its claim was justified because the main beneficiaries of granting it would be low paid workers. The characteristics of these beneficiaries were:
· workers whose income was substantially dependent on award rates: i.e. workers having no or limited access to overaward payments;
· workers with no access to workplace or enterprise agreements;
· workers whose award classifications are at the lower end of the award structure; and
· workers whose incomes would fall in the bottom quarter or bottom third of the overall income distribution.
The ACTU submitted that the award safety net was an important means of addressing and preventing decline in the living standards of low earning households. If the Commission granted the claim, it would assist in alleviating the needs of, and the special problems faced by, low paid workers. These included:
· struggling to make ends meet;
· going without basic necessities;
· being predominantly in home rental, rather than home ownership market; and
· inequality of opportunity.
The ACTU called evidence from fourteen low paid workers, all of whom would benefit from the claim, if granted. The ACTU contended that these witnesses were broadly representative of low paid workers and that they constituted a microcosm of working Australians reliant on award rates. The ACTU argued that the witnesses made choices between basics rather than between discretionary or luxury categories of expenditure. The evidence was that the witnesses had basic needs which were not met. These needs were for basic commodities and services which were an integral part of a decent standard of living. The needs of the witnesses were reasonable ones which the witnesses dealt with by the juggling of tight budgets and by going without.
The ACTU also submitted that the needs of the low paid had to be considered in the context of living standards generally prevailing in the Australian community. It argued that a key determinant of living standards was the level of income received by various groups in the community and the rate at which those levels had increased. The ACTU pointed to data which it contended showed that, until 1992, movements in award rates mirrored AWOTE (albeit at a lesser rate). However, since then, there have been low level increases in award wage rates with higher levels of increases in average earnings and through enterprise agreements [Exhibit ACTU 24 at chart 22.1]. The ACTU argued that its claim should be granted to prevent low paid workers falling further behind. Statistics were provided as to increases in executive salaries and increases determined by the Remuneration Tribunal.
The ACTU submitted that the deteriorating position of the low paid was apparent from the chart below:
The chart shows a growing dispersion in real wage increases at various levels within the group. The greatest contrast is between the 10th percentile and the 90th percentile. In the period under consideration, the lowest paid 10% of non-managerial employees has received almost no increase in real wages whilst the highest paid 10% has received a real wage increase of about 14%.
New South Wales submitted that the ACTU's claims were of particular importance to low paid female employees and would, if granted, benefit female employees in a number of ways. The absorption of the minimum rates adjustment into overaward payments would help compensate for female employees' lesser access to overaward payments. This would assist markedly in minimising the discrepancy between the earnings of men and women. Due to a higher concentration of women in the non-bargaining sector the differential between enterprise bargaining outcomes and award safety net increases affects women disproportionately. Strengthening the safety net would partially redress the position.
7.2 Conclusion
Section 88B(2)(a) and (c) of the Act provides that the Commission must ensure that a safety net of 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 . . .
(c) when adjusting the safety net, the needs of the low paid."
The following general observations can be made on the basis of the material before us:
· since 1992-93 there has been a growing disparity between growth in AWOTE and increases in award rates of pay;
· the gap between income levels established as a result of bargaining and those determined by the award system is widening. As a consequence income inequality in Australia is increasing; and
· the witness evidence and other material leads us to conclude that many low paid employees are struggling to make ends meet and have to go without basic necessities.
CHAPTER 8 - THE DECISION ON THE
ACTU WAGE CLAIM
The economy has performed relatively strongly since the early 1990s. In particular, in the past year economic growth has accelerated, inflation has remained low and unemployment has fallen. The safety net adjustment of $10 per week awarded in April of last year, whilst providing a benefit to those relying upon award rates of pay, has not had any adverse effects on the level of inflation and unemployment. The immediate economic outlook is generally positive with strong domestic demand likely to continue into 1998-99.
We are conscious, however, of the economic uncertainty generated by the recent deterioration in a number of East Asian economies and the impact which those developments will have on Australia. We note that while the Commonwealth has not revised its mid-term forecasts for growth, employment and unemployment for the next year, it expects that the slowdown in Asia will dampen growth in 1998-99. ACCI submitted that with careful economic management Australia can probably avoid most of the problems associated with the Asian downturn. These assessments do not, however, support the conclusion that a safety net increase should not be granted at this time. Nor do they support the conclusion that the $8 per week increase capped at $451.20 proposed by the Joint Governments is the most that could be awarded without putting undue strain on the economy.
We are also aware that, as submitted by ACCI and others, safety net adjustments have a different economic effect as between industries and within industries. The cost impact will be greatest where overaward payments are lowest. Against that, it is a necessary implication of the safety net concept incorporated in the legislation that there be minimum wages and conditions applying in all industries. Nevertheless we have taken these issues into account and regard them as considerations which militate against granting the full amount of the claim.
Another important factor is that safety net adjustments and any labour cost increase associated with them will occur within a few months of legislated increases in employer superannuation contributions. We have concluded, however, that in light of the generally positive economic environment there is still scope, taking increased superannuation costs into account, to improve the position of the low paid.
On the material before us, we are satisfied that a safety net adjustment can be made with limited effect on aggregate wage costs and on the economy generally. This conclusion is supported by the evidence concerning the effect of the April 1997 safety net increase. Notwithstanding that increase, inflation has continued to abate and employment has continued to grow, albeit at a rate which is too slow. The adjustment we have decided upon is moderate, although higher than awarded in last year's case. Ultimately it is a question of judgment - of balancing two potentially conflicting imperatives. Those imperatives are, firstly, to confine safety net increases to a magnitude which will not lead to unfavourable effects on productivity, inflation and employment and, secondly, to ensure that any such increases have regard to the needs of the low paid and the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community.
The ACTU provided a chart of movements in the real earnings of full-time adult non-managerial employees in the period from 1975 to 1996. The chart is set out in Chapter 7 of this decision. We have taken the dispersion in real earnings growth shown in the chart into account in making our decision, because of its obvious relevance to our statutory responsibility to consider the needs of the low paid. Given the pre-eminent role of workplace or enterprise bargaining in the legislative framework, growth in the award wage safety net is likely to lag behind earnings growth as measured by AWOTE. The current economic conditions provide an opportunity for a safety net adjustment which will constitute an increase in real wages for employees at the lower award levels who are dependent on safety net adjustments for wage increases.
The adjustment we have decided on will result in a manageable net addition to the growth in aggregate labour costs as reflected in AWOTE growth over the past year. The increases have been structured to provide greatest assistance to those in receipt of the lowest rates prescribed in awards, whilst moderating the cost impact over the economy as a whole.
We have decided on an arbitrated safety net adjustment of the following amounts:
1. a $14 per week increase in award rates up to and including $550 per week;
2. a $12 per week increase in award rates above $550 per week and up to and including $700 per week; and
3. a $10 per week increase in award rates above $700 per week.
We intend that this adjustment should only be available for the benefit of employees who are dependent on the award system for increases in wages. Accordingly, it will not generally be available when award rates have been increased other than for the safety net adjustments available since 1 November 1991. Increases flowing from the application of the Minimum Rates Adjustment and Work Value Changes principles will be exceptions to this general rule.
We have decided to provide that allowances which relate to work or conditions which have not changed and service increments should be adjusted as a result of the arbitrated safety net increase we have determined. This is consistent with the Commission's approach in recent safety net decisions.
In assessing the cost of this adjustment to the economy, we have obtained broad guidance from the upper end of the ACTU's cost estimates and from the lower end of the Joint Governments' cost estimates. The Joint Governments' lower level estimates suggest that the direct effect of a $14 safety net adjustment to all award rates is an increase in the order of 0.44% in aggregate wage costs. The lesser increases we have decided to award at the higher levels of award rates will have a moderating effect. Whilst on the information before us it is not possible to be precise, it is reasonable to conclude that the aggregate direct cost impact of our decision will be slightly less than 0.44%.
Although the direct effect of our adjustment on AWOTE growth may be in the region of 0.44%, that increase can be seen in the following context. Current AWOTE growth reflects the effect of the April 1997 increase on award rates. During the April 1997 case, the Joint Governments estimated that an increase of $10 per week (uncapped) would add 0.34% to aggregate wages. The effects of the 1997 increase have not yet ceased to effect AWOTE growth. The net direct effect on AWOTE growth of the increases we have awarded, when the influence of the April 1997 increase has ceased, is likely to be around 0.1%. Whilst there would be some indirect effect, we think it would be limited. In drawing attention to this statistical measure, we should also make it clear that undue emphasis on the rate of growth can disguise the fact that each safety net adjustment raises the level of award wages and hence the cost of employment.
We are satisfied that in the current economic environment a safety net adjustment having such a limited additional effect on aggregate wages growth will not have any significant negative effects on employment, inflation or productivity. The increases are consistent with aggregate wages growth and levels of inflation which are within official policy objectives.
There is a potential for adverse economic effects if the increases we have awarded are not absorbed into overaward payments and payments under enterprise agreements. Given the lack of evidence of non-absorption in the past, we think the probability of this potential being realised is low. We also think that the probability of this adjustment flowing into the bargaining process and leading to unsustainable increases is also low. No party suggested that the indirect effects of the $10 safety net adjustment of April 1997 were economically significant. Should circumstances alter on this occasion, that fact will need to be taken into account in future safety net cases.
As on earlier occasions, we are concerned about the effect of flat rate increases on award wage relativities. In 1989 the Commission introduced the Minimum Rates Adjustment principle in an attempt to correct inequities in the wages system because of the potential for those inequities to cause industrial disputation and instability. That Principle was concerned primarily with relativities across awards at the key classification level but also with vertical relativities. The resulting relativity levels were widely adopted in minimum rates awards. Flat increases tend to distort vertical relativities. The distortion is greater if the flat increase does not apply above a certain level. All of the parties advocating an increase in the safety net in these proceedings sought a flat increase. In addition a percentage increase, whilst preserving relativities, necessarily maintains the relative position of those at the lower end of the award hierarchy. Flat increases reduce the relativities in percentage terms. There will often be a tension between the maintenance of relativities and addressing the needs of employees at the lower award levels. The approach we have adopted on this occasion is deliberately designed to give a greater increase to award employees at the lower levels, whilst not neglecting the interests of those at the higher levels who also receive no payments other than those prescribed in the award. We have taken the question of relativities into account in formulating the adjustment on this occasion. The tapering of the adjustment at two points in the scale has an effect on relativities which is almost the same as the effect which would result if the $20.60 component of the ACTU claim was granted in full. We add that the maintenance of vertical relativities is a significant reason for our decision to reject the Joint Governments' proposal that any increase awarded only apply to employees classified at or below the C10 rate in the Metal Industry Award.
We have decided to reject the $20 component of the ACTU claim. It is directed to minimum wage increases, rather than to the fixation of minimum award rates. It has no necessary association with the low paid. It is not possible to assess the likely effect on earnings growth of, or the process for giving effect to, this component on the basis of the material before us. This component was not the subject of any detailed cost assessment. It may require the Commission to intervene in bargaining outcomes to produce a minimum level of increase regardless of the level of the actual rates of pay.
Stage 2 of the claim requires us to decide upon increases to apply from April 1999 based on the economic data available now. In the current circumstances there are risks in awarding any increase to apply at that time. We are not prepared to award an adjustment to apply a year from now.
It follows that we also reject the proposals of the Joint Governments and the Joint Employers that we decide now upon a further adjustment to be available in twelve months.
With some exceptions, we intend to adopt the same approach to the implementation of this decision as the majority adopted in the April 1997 decision. A significant exception relates to the treatment of paid rates awards which is dealt with in Chapter 10. Implementation will be subject to the following:
(a) The increases will be fully absorbable against all above award payments.
(b) Any outstanding arbitrated safety net adjustments available under the $8 September 1994, $8 October 1995 and $10 April 1997 decisions will be available from the same date as this arbitrated safety net adjustment.
(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 referred to the President for consideration as a special case.
(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.
(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 [Print M9675].
Appropriate alterations have been made in the Statement of Principles.
CHAPTER 9 - FEDERAL MINIMUM WAGE
9.1 The April 1997 Decision
The Commission in its April 1997 decision decided to establish a federal minimum wage at the level of $359.40 per week for full-time adult employees and proportionate amounts to junior, part-time and casual employees. The clause was subsequently amended by consent in the Textile Industry Award case [Print P1741].
The Commission decided that awards, on application, would be varied to provide for the federal minimum wage. The main reason given by the majority for introducing a federal minimum wage was set out at page 76 of the decision in the following terms:
"We have decided to determine a minimum wage (to be called `the federal minimum wage') for full-time adult employees of $359.40 per week and, for junior, part-time and casual employees, of a proportionate amount. (The federal minimum wage is to be inclusive of the arbitrated safety net adjustment determined by this decision and all previous safety net and national wage adjustments.) The main reason for so deciding is to give effect to the statutory requirement to have regard, when adjusting the safety net, to the needs of the low paid [s.88B(2)(c)]. The federal minimum wage of $359.40 per week is established as the wage below which no full-time adult employee working under a federal award is to be paid."
The majority at page 77 gave the following reasons for setting the federal minimum wage at $359.40:
"For reasons given in Chapter 7.6, we have decided not to link the level of the federal minimum wage with any defined benchmark of needs. We think that the most appropriate course to follow now is to equate the federal minimum wage with the minimum classification rate in most federal awards; that is, the rate of the C14 classification in the Metal Industry Award. This approach (which is consistent with the proposal of the BCA), in our view, lends industrial realism to the minimum wage we have set because it is linked to the classification structure established by the Commission as a result of the `August 1989 decision'. The Commission, in deciding to establish minimum classification rates in the metal and building industries, said:
`Subject to what we say later in this decision, we have decided that the minimum classification rate to be established over time for a metal industry tradesperson and a building industry tradesperson should be $356.30 per week with a $50.70 per week supplementary payment. The minimum classification rate of $356.30 per week would reflect the final effect of the structural efficiency adjustment determined by this decision.' [Print H9100 at p.12]
As a result of this decision, minimum awards were varied, over a period of time, to reflect the relativities so decided, leading to the C14 rate in the Metal Industry Award becoming the minimum classification rate in most federal awards."
9.2 The Submissions
In the current proceedings a number of the parties made submissions regarding the operation of a federal minimum wage and the method for determining its level.
No party proposed that the Commission should not continue to prescribe a federal minimum wage.
The ACTU supported the continuation of the federal minimum wage being linked to the C14 rate in the Metal Industry Award and sought an adjustment to it of $20.60 per week with a further increase of $38 from April 1999 in conformity with its claim for safety net adjustments. In the ACTU's submission, the maintenance of the federal minimum wage at the C14 classification rate would ensure a secure minimum level in award classification structures. The establishment of the federal minimum wage initially at the C14 classification rate would not preclude an adjustment at some future time based on different criteria.
ACCI, while expressing concerns about the level of the federal minimum wage, went on to state that the "value of having a minimum wage exceeds the burdens it creates". ACCI submitted that the federal minimum wage should be left at its present level having regard to the need for jobs growth and a healthy labour market.
The Joint Governments submitted that the decision in the April 1997 decision linking the federal minimum wage to the C14 rate in the Metal Industry Award was inappropriate. They further submitted that breaking the link between the federal minimum wage and the C14 rate would avoid:
". . . any notion of a permanent tie to a specified award classification level would recognise that at times different considerations may be relevant to the adjustment of the federal minimum wage and award classification rates. For example, as the concept of the federal minimum wage is not based on work value, there is an issue whether increases resulting from work value claims would necessarily flow to the federal minimum wage. Conversely in some circumstances targeting increases to the low paid could impact particularly on the federal minimum wage." [Exhibit JG 1 at 93]
They raised a number of other matters concerning the operation of the federal minimum wage. The first matter concerned variations which inserted the federal minimum wage clause into the award but left the classification rate in the award below the federal minimum wage of $359.40. The second matter concerned the adjustment of all internal relativities in the award following the lifting of rates below the federal minimum wage of $359.40 up to the federal minimum wage level. This approach was inconsistent with the Act and the intention of the Commission in its April 1997 decision.
Accordingly, the Joint Governments proposed that the Commission should make a statement that the federal minimum wage is no longer to be linked to the C14 rate in the Metal Industry Award and that we should include an additional phrase in the first sentence in subparagraph (b) in the Federal Minimum Wage principle so that the sentence would read:
"(b) The federal minimum wage is to be provided for in a separate clause in the award and will be inserted as per the decision in the Hairdressing and Beauty Industry (Australian Capital Territory) Award 1985 (that is, clause X will be inserted into awards and in addition those rates below the federal minimum wage will be marked with a footnote stating that `Where the full-time adult weekly wage falls below the federal minimum wage, the federal minimum wage applies - see clause X'). Clause X in the award should read as follows: . . ." [Exhibit JG 1 at 93]
The State of Western Australia (Western Australia), while supporting the submission of the Joint Governments on the federal minimum wage, submitted that the link between the federal minimum wage and the award classification structure be separated, that there be a review of the federal minimum wage and any adjustment of $8 be on an interim basis only. A review of the federal minimum wage would enable the Commission to hear submissions from interested parties, and expert evidence, on the different approaches available for establishing appropriate criteria for determining a federal minimum wage having regard to the requirements on the Commission in establishing a safety net of fair minimum wages under the Act.
The Joint Employers proposed that a flat adjustment of $8 per week be applied to all award rates of pay and to the federal minimum wage.
The Business Council of Australia (BCA), while acknowledging the relevance of the federal minimum wage, questioned the need for it to be linked to an award classification rate. The BCA submitted that the Commission should carefully consider adjustments to the federal minimum wage and that they should fairly reflect movement within the economy.
ACCIR submitted that the Commission should have an annual review of the federal minimum wage based on established principles and guidelines.
ACOSS submitted that the equity objectives set out in s.88B(2) could best be achieved by the establishment of a benchmark for the adequacy of minimum wages based on research into the relative living standards and income needs of low paid workers. The establishment of a benchmark for a minimum wage appropriate to a single adult could be best achieved by the Commission undertaking an inquiry into the living standards of low paid workers with reference to those in the broader community. In the interim the federal minimum wage should be increased at least in line with movements in AWOTE, with the increase preferably being significantly higher.
The Brotherhood submitted that one way of moderating excessive wage dispersion and the resultant growth of "waged poverty" arising from greater decentralisation or deregulation of wage setting is the establishment of a minimum wage through the award safety net. In the submission of the Brotherhood, the evidence suggests that "centralised wage-fixing mechanisms, with the power to regularly adjust wage minima, can actively alleviate waged poverty". The Brotherhood submitted in conclusion:
"The evidence for the benefits of deregulation in terms of employment and productivity gains is, at best, patchy. The evidence for the benefits of centralised wage-fixing mechanisms and regularly adjusted minimum wages for those who are disadvantaged in the labour market is far more compelling. In addition, arguments that the social wage can act as a substitute for higher wages are less than convincing.
Further erosion of these workers' wages and conditions relative to other workers can only be prevented through the retention and improvement of minimum award rates, in conjunction with increased investment in education and training."
9.3 Conclusion
The Commission decided in its April 1997 decision not to establish a federal minimum wage by reference to a defined benchmark of needs and not to undertake an inquiry to develop a benchmark of wage adequacy. We have not been persuaded that we should depart from that decision.
Furthermore we have not been persuaded to break the link established in the April 1997 decision between the federal minimum wage and the C14 classification in the Metal Industry Award. Accordingly the adjustment to the C14 classification rate will result in the same adjustment to the federal minimum wage on this occasion.
In deciding in this case to continue to relate the level of the federal minimum wage to that of the C14 classification rate, the Commission is not precluded from taking into account different considerations, unrelated to the C14 rate, in deciding the level of the federal minimum wage in the future.
Classification rates which are below the federal minimum wage should be adjusted through the application of the Minimum Rates Adjustment principle. To cover the position in the interim we have adopted the substance of the Joint Governments' proposal, modified to take account of the clause adopted in the Textile Industry Award 1994 [Print P1741]. The Principle has been amended accordingly.
CHAPTER 10 - PAID RATES AWARDS
10.1 The Proposals
The ACTU's position concerning paid rates awards is set out at page 4 of Exhibit ACTU 34 in the following terms:
"If the Commission were to adopt the ACTU approach towards a Living Wage, employees on paid rates awards would be entitled to an increase only if their rates were below minimum rates or if they had not received an increase of $20 since mid-96 or since the 3rd $8 SNA. This would do more to achieve an equitable approach between paid rates and minimum rates awards than the suggestions of the Joint Governments.
In our submission, the terms of the Commission's decision in this Case should apply to paid rates awards. This would be consistent with the April 1997 decision [P1997]. To do otherwise would be to anticipate the results of the award by award inquiry to be carried out through the award simplification process.
The entitlement to a safety net increase of not less than $20 since mid-96 or the third $8 SNA is sought for all workers irrespective of the type of award which covers them, and this Full Bench should affirm the entitlement as a matter of fairness and to maintain an incentive for employers to engage in bargaining.
The applications for $20.60 MRA before this Bench are in respect to minimum rates awards and our submissions in this case have been put in that context. It is open to this Full Bench to provide for the MRAs to apply to paid rates awards, with the question of absorption to be addressed after the conversion issues have been determined through the award simplification process. This is the logical way of dealing with the matter, and is consistent with the process contemplated in the Safety Net Review - Wages decision."
The Joint Governments submitted that the Commission should in respect of the application of any safety net adjustment awarded as a result of these proceedings:
"· not vary paid rates awards or any other awards which do not in practice set minimum rates for SNAs, before it has first converted them to an appropriate minimum rates format; and
· convert paid rates awards to an appropriate minimum rates format as part of the award simplification process." [Exhibit JG 1 at 74]
The Joint Governments proposed that the Commission should specify in the Statement of Principles that the conversion of paid rates awards will be required in relation to:
"· any application to apply SNAs to paid rates awards;
· by converting paid rates awards to minimum rates awards prior to varying them for safety net adjustments, the Commission will ensure that safety net adjustments are applied consistently and to an equitable base across the award system;
· any item 49 application in respect of a paid rates award; and
· post 1 July 1998 the Commission itself moving to simplify a paid rates award." [Exhibit JG 1 at 81]
The Joint Governments acknowledged that the first priority would be for the parties to paid rates awards and the Commission to remove non-allowable award matters and deal with the criteria set out in items 49(7) and (8) of Schedule 5 of the WROLA Act. The matter of conversion of paid rates awards would be deferred to enable priority to be given to finalising all other issues. It was submitted that should the Commission decide to defer conversion of paid rates awards, a timetable should be fixed. In such circumstances, the programme should provide for the conversion of the award to be completed within six months from the date the application is made under item 49 or six months from the date the Commission moves to address the award post 1 July 1998 under item 51 of Schedule 5 of the WROLA Act.
In converting paid rates awards to minimum rates awards, the Joint Governments proposed the following process:
"In all cases the process of conversion should take place in accordance with the paid rates conversion principle which we propose in our submission, which is consistent with the Commission's current `First Award and Extension to an Existing Award Principle' [Print P1997 at 103-104]. This provides that where parties applying for a first award have customarily been covered by a paid rates award the Commission will disaggregate the classification rates in the award into an appropriate minimum rate and residual component. The appropriate minimum rate is to be identified by the valuation, on work value grounds, of key classifications in the award consistent with the August 1989 National Wage Case decision [Print H9100] and section 88B(3)(a) of the Act." [Exhibit JG 1 at 82]
Under the proposal, once the award was converted, future safety net adjustments would only be applied to the minimum rate component of the award with the increases being absorbed into the residual components.
It was submitted that the Act reflects an intention of Parliament that there "should be no special regulatory regime for the ongoing maintenance of paid rates awards". This intent, in the Joint Governments' submission, was reflected by the repeal of those sections of the Industrial Relations Act 1988 (the IR Act) which had a separate regulatory regime for paid rates awards and the present legislative provisions that require the award system to be comprised of minimum rates awards.
The Joint Governments sought a change in the Principles to prohibit the incorporation of agreements into paid rates awards. The incorporation of the terms of agreements into paid rates awards was inconsistent with "both the broad scheme and with specific provisions of the Workplace Relations Act 1996". The widespread incorporation of expired agreements into paid rates awards would result in a widening of the gap between paid rates and minimum rates awards. This would, in the Joint Governments' submission, result in a "relative shift (between the two award types) in the level of the benchmark for the no-disadvantage test". Over time, this would create pressures for wage increases to adjust the no-disadvantage test benchmark in minimum rates awards.
The Joint Governments also sought the removal from the present Principles of "3.3 Making and Varying an Award Above or Below the Safety Net" and any reference to paid rates awards. It was submitted by the Joint Governments that the present Principle continues to allow applications for making and varying paid rates awards to be considered under s.107 of the Act. It was submitted that there was nothing special about varying a paid rates award above or below the safety net which would justify a departure from the Commission's statement in Principle 3.1 that it "will generally not arbitrate in favour of claims above or below the safety net of fair minimum wages and conditions, except in certain circumstances. This applies to those on paid rates as well as minimum rates awards."
The ACTU stated that it would be "completely inappropriate for the Commission to set principles in relation to the conversion of paid rates awards in these proceedings when it is clear that a separate process was contemplated by the `Award Simplification Decision' ". In the ACTU's submission, the establishment of principles, sought by the Joint Governments, governing paid rates awards would be to move away from the "award by award approach adopted in the Award Simplification Case".
The ACTU submitted that there are no paid rates awards before the Commission in the present case and there has been no evidence brought in relation to paid rates awards. Further, the parties to the paid rates awards likely to be affected were "not put on notice that issues in relation to conversion of paid rates awards could be determined in these proceedings".
In the submission of the ACTU, the discretion of items 49(5) and 51(4) should not be determined on a "blanket basis" to paid rates awards without any examination, by evidence and submissions, of the circumstances of particular paid rates awards.
No other party made submissions directed to paid rates awards.
10.2 Conclusion
Section 89A(3) precludes the Commission from making paid rates awards in respect of allowable matters. Sections 170MX(3) and 89A(7) provide the Commission with the power to make orders and awards which are not confined to minimum rates awards. Item 49(5) of Schedule 5 of the WROLA Act provides for variation of awards during the interim period on application by one or more parties to an award. Relevantly, item 49(5) provides the following:
"(5) If:
(a) the award provides for rates of pay that, in the opinion of the Commission:
(i) are not operating as minimum rates; or
(ii) were made on the basis that they were not intended to operate as minimum rates; and
(b) the application under this item seeks to have such rates of pay varied so that they are expressed as minimum rates of pay;"
Item 51 of the WROLA Act deals with variation of awards after the end of the interim period and at (4) provides the following:
"(4) If, immediately before the end of the interim period, the award provided for rates of pay that, in the opinion of the Commission:
(a) were not operating as minimum rates of pay; or
(b) were made on the basis that they were not intended to operate as minimum rates;
the Commission may vary the award so that it provides for minimum rates of pay consistent with sections 88A and 88B of the Principal Act and the limitation on the Commission's power in subsection 89A(3) of that Act."
The Commission, in its April 1997 decision, determined it had the power to vary paid rates awards and decided paid rates awards should be varied to include the $10 safety net adjustment. At page 81, the majority set out its decision in the following terms:
"It was submitted by the Joint Governments that, should the Commission determine (contrary to their submission) that the Act did not preclude variation to paid rates awards, the Commission should, nevertheless, as a matter of merit, not vary paid rates awards to include any safety net adjustment. Despite these submissions, we have decided that, on this occasion at least, paid rates awards should be varied pursuant to this decision. In our view, the appropriate time for the Commission to consider whether arbitrated safety net adjustments should continue to apply to paid rates awards is when this case is resumed in early 1998. That hearing will occur at a time close to the end of the 18 month interim period for awards provided for in the transitional provisions of the WROLA Act."
We agree with the submission of the Joint Governments that the various amendments to the Act and the repeal of provisions in the IR Act which specifically dealt with paid rates awards signify that Parliament intended that the award system should be one based on minimum rates awards. However, Parliament has provided for:
· the variation of existing paid rates awards;
· new paid rates awards in special, defined circumstances; and
· a discretion as to whether paid rates awards should be converted to minimum rates awards.
It is within this legislative framework that the submissions of both the Joint Governments and the ACTU have to be considered.
In the Award Simplification Decision [Print P7500] proceedings, the Joint Governments advocated that as part of the award simplification process all paid rates awards be converted to minimum rates. This approach was rejected by the Full Bench which said at page 30:
"We are not prepared to require, as part of an award simplification exercise, that all awards which are not operating as minimum rates awards be converted to minimum rates awards in the manner proposed by the Joint Governments. Whilst this will be an appropriate course where the award is not a paid rates award, we believe there has been insufficient attention given in this case to the treatment of paid rates awards. Items 49(5) and 51(4), which deal with the conversion of awards which are not operating as minimum rates awards, is each discretionary. The legislation contemplates the continuation of paid rates awards in some circumstances. Neither the WROLA Act nor the WR Act in terms requires paid rates awards to be converted. To the contrary, the WR Act permits the variation of such awards and, in specified circumstances, the creation of new ones (ss.170MX and 170MY)."
We also consider it would not be appropriate in the circumstances of this case to adopt the proposal of the Joint Governments that requires the conversion of paid rates awards into minimum rates awards. In the present proceedings, there are no paid rates awards before the Commission and there has been no evidence or material relating to the particular circumstances of paid rates awards placed before us.
We consider that the most appropriate way of dealing with the issues relevant to paid rates awards is to conduct a general review regarding the operation of paid rates awards in the context of the legislative framework. Issues for consideration in such a review would include:
· the relationship between paid rates awards and certified agreements, in particular:
- whether the paid rates status of an award can be maintained in circumstances where the parties bound by that award are party to a certified agreement, and
- whether paid rates awards should be varied to reflect the terms of an expired certified agreement which binds the award parties;
· whether arbitrated safety net adjustments should be applicable to paid rates awards and, if so, on what basis; and
· whether the market is an appropriate consideration in the variation of paid rates awards.
In the interim, consistent with our decision to limit safety net adjustments to employees who rely solely or substantially on the award system for wage increases, we have decided that paid rates awards will only be varied to provide for the arbitrated safety net adjustment we have awarded where the award rates of pay have only been varied for the safety net adjustments which have been available since 1 November 1991. This is dealt with in new Principle 8(f).
In the event that doubt arises as to whether or not the employees covered by a particular award have received award increases in excess of the relevant safety net adjustments, the matter will be referred to a Full Bench for determination.
We have also decided, pending the general review, that paid rates awards ordinarily should not be varied to include the terms and conditions of certified agreements. We have included an appropriate principle reflecting our decision on this issue.
CHAPTER 11 - CHANGES TO THE STATEMENT
OF PRINCIPLES
11.1 Should We Retain a Statement of Principles?
In the April 1997 Safety Net Review the majority stated:
"As various provisions of the new Act (such as ss.88B, 89A, 106, 113A, 113B and 143 and Divisions 4 and 8 of Part VIB) and item 49 of Schedule 5 of the WROLA Act specify the manner in which the Commission is now to operate, a Statement of Principles may no longer be necessary. None of the parties, however, argued that the Statement of Principles should be abandoned. Therefore, we have decided at this stage to maintain it." [Print P1997 at 91]
The ACTU submitted in this case that we should abandon the Principles and replace them with a Statement in the following terms:
"The Principles will be rescinded.
In the future individual members of the Australian Industrial Relations Commission will continue to discharge their responsibilities in accordance with the Workplace Relations Act 1996 and the Rules of the Commission.
Individual members of the Commission will continue to be guided by Full Bench decisions of this Commission and other authority in the usual way, and will give effect to determinations of Full Benches as appropriate.
In exercising its powers and obligations under the Act, the Commission will continue to apply structural efficiency considerations, including minimum rates adjustment provisions consistent with the August 1988 [Print H4000], August 1989 [Print H9100] and April 1991 [Print J7400] National Wage Case decisions and the October 1993 Review of Wage Fixing Principles decision (the October 1993 Review decisions [Prints K9700 and K9940]), the August 1994 Review of Wage Fixing Principles decision [Print L4700], the September 1994 Safety Net Adjustment and Review [Print L5300], and the October 1995 Third Safety Net Adjustment and Section 150A decision [Print M5600] (as varied by Print P1997).
Claims based on work value considerations will be determined in the light of these decisions and the Commission's long standing approach to work value matters."
The ACTU provided an analysis of the Principles intended to illustrate that each is redundant for one or both of the following reasons:
· it replicates the provisions of the Act; and
· it restates matters already contained in relevant Full Bench decisions.
The thrust of the submission is that for the most part the Principles are a summary of matters more fully dealt with in the Act or Full Bench decisions and there is no need for a detailed code of that nature. The ACTU also submitted that principles which replicate statutory provisions serve no good purpose and may not accurately reflect the intention of the legislature and that while a prescriptive set of principles may have been a necessary and desirable feature of a centralised wage fixing system, it is not appropriate in the current legislative and wage-fixing environment.
ACCI opposed the ACTU position and submitted that the ACTU position, if it were adopted, would lead to uncertainty and an increase in trade union applications, and the priority given to enterprise agreements might be lessened. It submitted:
"In summary, rescission of the principles is not a responsible position to put, and would be extremely dangerous. The approach most consistent with the statutory directions regarding award movements would in ACCI's submission be to continue on a formal Statement of Principles similar to that currently in force."
The Joint Governments submitted that a Statement of Principles should be maintained because:
"· the principles play a vitally important role in providing guidance to the parties and assist in shaping the parties' expectations in a wages system that continues to evolve;
· principles assist in providing consistency and avoiding uncertainty in the exercise of the Commission's discretion in relation to its dispute prevention and settlement powers;
· it is of value to draw together some legislative matters and codify conventions and past decisions for ease of reference in relation to the matters dealt with by the principles;
· it is worthwhile, for equity reasons, to specify clearly in a formalised set of principles that there is access to such avenues as past wage case decisions, work value applications and applications regarding equal remuneration without discrimination based on sex; and
· in the absence of such principles there is potential for uncertainty and instability in wage fixation."
We have decided to retain a Statement of Principles. Principles promote consistency and tend to reduce uncertainty in the exercise of the Commission's powers. Because of this, principles can enhance the stability of the industrial relations system and contribute to more equitable outcomes. Nevertheless the ACTU's submissions are not without merit and we have taken them into account. Although we will not abandon the concept of a formalised set of principles we intend to simplify the current one. In particular we have decided to delete Principles 1 and 2 and make a series of other changes. The new Statement of Principles is Attachment A.
11.2 Introduction
The first four paragraphs of Principle 1 paraphrase the objectives of the Act and summarise the Commission's principal powers and functions in relation to awards. Whilst a summary of this kind may have been useful in earlier years, the same cannot be said today. In addition, where a doubt arises as to the nature of the award system and the way in which the Commission should exercise its functions and powers the question should be resolved by reference to the exact words of the statute.
The Joint Governments proposed the insertion of the phrase "particularly low paid employees" in the third paragraph. That paragraph would then read:
"The award system provides a safety net of wages and conditions of employment which protects employees, particularly low paid employees, who may be unable to reach workplace agreements while maintaining an incentive to bargain for such agreements. It also provides the benchmark for the no-disadvantage test that the Act requires to be applied before agreements are certified by the Commission." [Emphasis added]
The proposed change was said to reflect the need for the award safety net to focus particularly on the low paid. This was said to be consistent with s.88(2)(c) of the Act which refers to the "needs of the low paid". In light of our decision to delete Principle 1 there is no need to consider this matter further.
The final paragraph of Principle 1 refers to previous national cases which provided for adjustment of award rates generally. There is no need to refer to these cases because they continue to apply, consistent with their terms, subject to any later decision specifically overriding them or modifying their terms. The deletion of this paragraph does not alter that position and the matter is adequately addressed in new Principle 3.
11.3 Agreement Making
Principle 2 "Agreement Making" paraphrases a number of the provisions in the Act which encourage the making of agreements and limit the Commission's arbitral role. We see no particular value in retaining the Principle in the current industrial environment.
11.4 The Safety Net
We propose to modify Principle 3.1 in a number of ways. The first and third paragraphs are of little importance now that the safety net concept is well understood and we have decided to delete them. We have decided to include a reference to the award simplification process because that process will lead to changes in the safety net in each award.
We have also decided to delete paragraphs (a) to (e) of Principle 3.2.1 which are not necessary. Paragraph 3.4 has been modified in order to emphasise the legislative framework within which applications for first awards, or to extend existing awards, are to be determined.
11.5 Award Level Claims
The Joint Governments submitted that claims for wage increases at the individual award level, other than those consistent with paragraph 3.2 of the current Statement of Principles, are inconsistent with the changed nature of the award safety net under the new legislative framework. It was submitted that the award safety net should now serve as a minimum foundation protecting against hardship rather than as a safety net underpinning bargaining. Individual award variations for wage increases whether by consent or not and whether they involve productivity trade-offs or not were said to be inconsistent with this revised role for the award safety net. In particular it was submitted that such individual award variations are inconsistent with:
· the clear separation in the scheme of the Act of the award system from bargaining and agreements;
· the role of the Commission in encouraging agreements between employees and employers at the enterprise level, including its role in relation to the making and varying of awards;
· the revised role for the award safety net, that is, to provide fair minima for employees who need the protections it supplies, rather than to underpin direct bargaining or to constitute a secure, relevant and consistent alternative if bargaining fails;
· the requirement for arbitration to be used as a last resort and the need for any alteration to wage relativities between awards to be based on work value considerations; and
· the economic objectives of the Act, including in relation to low inflation and high employment.
The Joint Governments proposed four amendments to the Statement of Principles intended to make it clear that difficulties in achieving a result through enterprise bargaining are not a valid reason for increasing award wages or conditions. The amendments proposed are as follows:
"(i) The insertion of the phrase `at the enterprise or workplace level' in the first sentence in Principle 2 `Agreement Making' so that the sentence would read as follows:
The Commission facilitates agreement making at the enterprise or workplace level (ss.170L and 170LA) in a number of ways including the following:
(ii) The insertion of the following additional subparagraph in Principle 2 `Agreement Making':
(e) By not arbitrating or ratifying wage increases at the individual award level in response to applications based on the failure of enterprise or workplace level bargaining regardless of whether such applications involve award-level productivity trade-offs.
(iii) The insertion of the phrase `on a test case basis' in the third paragraph of Principle 3.1 `Award Safety Net' so that the paragraph would read as follows:
The award safety net may on application be reviewed and adjusted from time to time, on a test case basis, in accordance with the Act.
(iv) The addition of two additional sentences to the end of the first paragraph of Principle 3.3 `Making and Varying an Award Above or Below the Safety Net' so that the paragraph would read as follows:
An application to make or vary an award for wages or conditions above or below the safety net will be referred to the President for consideration as a special case. Applications based on difficulties in achieving results from enterprise or workplace level bargaining will not be recognised as constituting a special case for wage increases above the safety net regardless of whether such wage increases are associated with award level productivity trade-offs. Employees unable to achieve an agreement are instead protected by an award safety net as maintained by the Commission."
We have decided not to make these changes. There are four reasons for our decision.
First, the number of award level claims has been limited and, to date, unsuccessful (see Prints P0926 and P5291).
Second, applications to make or vary an award for wages or conditions above the safety net are currently referred to the President for consideration as a special case pursuant to paragraph 3.3 of the Statement of Principles. In our view the special case mechanism provides an appropriate means of dealing with such applications.
Third, the Act does not automatically proscribe claims above the safety net. While s.88B(3)(a) and the maintenance of stable relativities consistent with the August 1989 National Wage Case decision are relevant to the Commission's consideration of such claims they are not necessarily determinative.
Fourth, the Joint Governments' proposed variation of paragraph 3.3 of the current Statement of Principles is, in our view, inequitable. The proposal would effectively prohibit employees from putting a case for an award wage increase on that basis. However there is no reciprocal prohibition on employers. An employer who is unable to achieve an agreement to, for example, reduce penalty rates, would still be able to pursue an application to vary the award to achieve the same objective.
Furthermore, principles which do nothing more than paraphrase the relevant statutory provisions may do little to assist in the application of the legislation. It is primarily for that reason that we have deleted Principle 2.
11.6 Conversion of Paid Rates Awards to Minimum Rates Structures
The Joint Governments submitted that the Commission should specify in the Statement of Principles that the conversion of paid rates awards will be required in relation to:
· any application to apply SNAs to paid rates awards;
- by converting paid rates awards to minimum rates awards prior to varying them for safety net adjustments, the Commission will ensure that safety net adjustments are applied consistently and to an equitable base across the award system;
· any item 49 application in respect of a paid rates award; and
· after 1 July 1998, the Commission itself moving to simplify a paid rates award.
As we have already indicated in Chapter 10, this proposal is rejected.
11.7 Varying Paid Rates Awards for the Outcome of Agreement
The Joint Governments submitted that agreement outcomes should not be incorporated into any award, including a paid rates award. They proposed that we modify the middle paragraph of Principle 3.3 "Making and Varying an Award Above or Below the Safety Net" to remove the reference to s.95 (which acts to encourage parties to make applications under that section when the section's intention is in fact the opposite, that is, to prevent the interaction between agreements and awards) and to make it clear that applications to incorporate expired agreements into awards will not constitute a special case. The paragraph would then read as follows:
"Applications involving a consideration of section 89(A)(7) are subject to this principle. Applications involving claims to incorporate agreements (expired or otherwise) into awards (paid or minimum rates) will not be considered to constitute a special case under this principle." [Additional words underlined]
As already indicated in Chapter 10, we have accepted this proposal on an interim basis in relation to paid rates awards. We have adopted the substance of the Joint Governments' proposal.
11.8 Economic Incapacity
The Joint Governments pressed the submission which they made in the April 1997 proceedings that the Commission should make significant modifications to the Economic Incapacity principle. It was submitted that it has been extremely difficult to establish grounds of economic incapacity pursuant to the current Statement of Principles. It was argued that it was vital that the Commission "free up" the incapacity to pay principle to ensure that safety net adjustments do not put the job of any Australian worker at risk.
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.
The Joint Governments accordingly proposed that the Principle be modified to the following:
"Economic Incapacity
(a) Any respondent or group of respondents, including at an industry or sectoral level, to an award may apply to temporarily reduce, postpone or phase-in the application of any increase in labour costs determined under this Statement of Principles, including increases from past National Wage Cases, on the grounds of economic adversity and in particular if the arbitrated increase will lead directly to significant employment losses.
Such applications may seek to temporarily reduce, postpone or phase-in such increases in respect of particular geographic locations or regions where the economic circumstances are such that the increase would lead directly to employment losses.
(b) Applications on an individual enterprise basis will be dealt with by a single member of the Commission. Applications concerning multiple enterprises, including at an industry or sectoral level, must be made and justified pursuant to section 107. It will then be a matter for the President to decide whether it should be dealt with by a Full Bench.
(c) The Commission will determine, in the light of the particular circumstances of each case, whether a temporary reduction, postponement or phasing-in of an increase is in the public interest, for example, as part of a business strategy dealing with a short term business crisis and revival or to avoid employment losses. The type of evidence required on economic adversity and incapacity to pay will depend on the number and type of enterprises affected by the application. For example, regard will be had to the operational circumstances of small businesses in deciding on evidentiary requirements affecting them. Evidence presented in applications concerning multiple enterprises will only be required to demonstrate that a significant majority of the enterprises covered by the application would be adversely affected.
(d) 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 granted any application under this principle".
We have decided to reject the Joint Governments' proposal 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).
We will, however, amend the current paragraph 3.5 to make it clear that, if very serious or extreme economic adversity is established, the application of any increase in labour costs may be temporarily reduced, postponed and/or phased-in. 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 of making any such decision.
11.9 Federal Minimum Wage
This Principle will be amended to reflect the safety net adjustment and the matters dealt with in Chapter 9.
BY THE COMMISSION:
PRESIDENT
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:
(a) to include previous National Wage Case increases in accordance with Principle 3;
(b) to incorporate test case standards in accordance with Principle 4;
(c) to adjust allowances and service increments in accordance with Principle 5;
(d) to adjust wages pursuant to work value changes in accordance with Principle 6;
(e) to reduce standard hours to 38 per week in accordance with Principle 7;
(f) to adjust wages for arbitrated safety net adjustments in accordance with Principle 8;
(g) to vary an award to include the federal minimum wage in accordance with Principle 9;
(h) in response to applications made pursuant to item 49 of Schedule 5 of the Workplace Relations and Other Legislation Amendment Act 1996 (WROLA Act); and
(i) to 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 April 1998 decision [Print Q1998] 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].)
(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 [Print M9675]. 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 [Print H9100].
(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 money 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 Safety Net Review - Wages April 1998 decision [Print Q1998] minimum rates and paid rates 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) 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.
(c) 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 April 1997 and April 1998 Safety Net Review - Wages decisions [Prints P1997 and Q1998]. 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 pararaph 3.2.6(c) of the Statement of Principles determined in the April 1997 Safety Net Review - Wages decision [Print P1997].
(d) The safety net adjustment will be added to the separate "arbitrated safety net amount" for each classification in the award. Where the minimum rates adjustment process in an award has been completed, the Commission may consider an application for the base rate, supplementary payment and arbitrated safety net adjustments to be combined so that the award specifies only the total minimum rate for each classification.
(e) 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.
(f) 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.
9. Federal Minimum Wage
In accordance with the Safety Net Review - Wages April 1998 decision [Print Q1998] minimum rates and paid rates awards may, on application, be varied to provide for the federal minimum wage for full-time adult employees of $373.40 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 the Textile Industry Award 1994 [Print P1741]. 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 $373.40 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 April 1998 decision [Print Q1998] 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 April 1998 decision. 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 for consideration as a special case.
(g) Federal minimum wage clauses may be inserted in awards in which the minimum classification rate exceeds $373.40.
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
An application to make or vary an award for wages or conditions above or below the safety net will be referred to the President for consideration as a special case.
Applications involving a consideration of s.89A(7) are subject to this Principle. Applications involving claims to incorporate agreements (expired or not) into awards (paid or minimum rates) ordinarily will not be considered to constitute a special case.
A party seeking a special case must make an application pursuant to s.107 supported by material justifying the matter being dealt with as a special case. It will then be a matter for the President to decide whether it is to be dealt with by 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. 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.
ATTACHMENT B
ECONOMIC CONDITIONS
This attachment deals with:
· Medium-term economic developments;
· Key economic indicators:
- employment and unemployment;
- wage movements;
- inflation;
- investment;
- profits;
- economic growth; and
· The immediate economic outlook.
1. Medium-Term Economic Developments
A medium-term perspective of Australia's economic performance was provided in notes of an 18 September 1997 address in Tokyo by the Governor of the Reserve Bank of Australia (RBA), Mr Ian Macfarlane [Exhibit ACTU 3 at tab 9]. The assessment made by Mr Macfarlane is consistent with that emerging from the other materials in Exhibits ACTU 24 and ACTU 25, the Exhibit JG 1 and tab 11 of Exhibit ACCI 5.
In an assessment of the period 1991 to 1997, Mr Macfarlane noted:
· a reasonably good expansion in Australia reflected in annual average Gross Domestic Product (GDP) growth with quite a few years to run and the absence of the imbalances which usually curtail recovery;
· a relatively good (low) inflation level, at an annual average rate of 2.3% per annum with Australia participating fully in the low inflation world of the 1990s notwithstanding reasonable economic growth over the same period;
· strong productivity growth, with average productivity growth substantially improved from that experienced in previous growth phases in the Australian economy;
· success in the containment of the public sector deficit, with a deficit of 0.7% of GDP in 1997-98, a projected surplus in 1998-99, and deficits in earlier years not high by the standards of most Organisation for Economic Cooperation and Development (OECD) countries;
· an exchange rate characterised by cyclical movement around a basically flat trend; and
· a reduction in interest rates.
Against this, Mr Macfarlane, also noted:
· continuing high levels of unemployment, with Australia's described as average by world standards. Nonetheless unemployment had fallen from a peak of 11.2% in 1992 to 8.7% (at the time of the address);
· a continuing balance of payments deficit, but one which has been stable, oscillating between 3% and 6% of GDP over the past two decades; and
· a continuing high level of net foreign debt as a proportion of GDP, albeit flattening out from the mid 1970s following a significant increase in the early 1980s.
Mr Macfarlane later observed:
"This new found reputation for stability may surprise some people because there is still a tendency to read so much into the small month by month or quarter by quarter variation in economic statistics. But if we take a longer sweep we can see how many of the economic problems that used to concern us have now been eliminated or are at least under some reasonable sort of control. The headlines are no longer full of stories about the current account deficit or the level of foreign debt; the budget deficit is small; high inflation and its inevitable twin, high interest rates, no longer fill the pages. This does not mean, of course, that we have solved all our economic problems; but we have clearly narrowed them down." [Testimony of RBA Governor Mr Ian Macfarlane before House of Representatives Standing Committee on Financial Institutions and Public Administration; Exhibit ACTU 3 at tab 8]
A medium term assessment of other economic variables shows:
· company profits and profits as a share of GDP at high levels over the 1990s, recovering significantly from low levels recorded in the mid to the late 1970s and into the early 1980s;
· reasonable levels of international competitiveness, with improvement from the early 1980s; and
· strong growth in private sector investment since 1991.
In summary, Australia's economic performance over recent years has been characterised by:
· relatively good economic growth;
· high productivity growth by Australian standards;
· low inflation;
· strong business investment growth;
· falling unemployment (albeit unacceptably high);
· stability in Australia's external balance (albeit with a continuing deficit); and
· some degree of control over the Australian economy with the absence of imbalances.
2. Key Economic Indicators
Employment and Unemployment
Chart 1, drawn from ABS data in Exhibit ACCI 5, shows employment growth since March 1989.
Chart 1
The chart shows a significant decline in employment growth in the early 1990s, associated with weak economic activity followed by an improvement in employment growth in the mid 1990s, peaking in mid 1995. Thereafter employment growth weakened, with limited growth from the beginning of 1996 until a recent improvement in employment, from late 1997 into 1998.
Chart 2
Chart 2 shows significant growth in unemployment in the early 1990s, reflecting in part the reduced employment growth recorded in Chart 1 over the same period. The decline in unemployment was most pronounced over 1994 and 1995. Unemployment increased in 1996, into 1997, associated with weak growth in that period and its downward trend in the last half of 1997 into 1998.
Wage movements
Table 1 sets out date of wage and price movements from 1991-92 to the present.
Table 1: Annual Increase (% change on a year earlier) of wages and prices
Chart 4
Chart 5
Chart 10