TRANSCRIPT OF PROCEEDINGS
Fair Work Act 2009
JUSTICE ROSS, PRESIDENT
VICE PRESIDENT CATANZARITI
DEPUTY PRESIDENT ASBURY
COMMISSIONER HAMPTON
MR FERGUSON
PROFESSOR WOODEN
MS LABINE-ROMAINE
C2022/1
s.285 - Annual wage review
Annual wage review
(C2022/1)
Melbourne
10.00 AM, WEDNESDAY, 18 MAY 2022
Continued from 17/05/2022
PN32
JUSTICE ROSS: Good morning. I won't take the appearances at the outset. I'll take them as we come to each of the principal parties making submissions this morning. We begin with the Commonwealth; Mr Hehir.
PN33
MR HEHIR: Thank you, your Honour. Appearing for the Commonwealth is Martin Hehir from the Attorney‑General's Department; Sharon Huender from the Attorney‑General's Department; Jennifer Wettinger from the Attorney‑General's Department. For Treasury we have Laura Berger‑Thomson, Ineke Redmond and Damian Mullaly.
PN34
JUSTICE ROSS: All right.
PN35
MR HEHIR: Thank you, your Honour, for the opportunity to appear before the Commission. As you are aware, the government is currently operating a caretaker role. As such, there is a long‑standing convention which outlines the role of the public service throughout this period. Under that convention we are unable to comment or express an opinion on matters of a policy such as the government's position on the annual wage review.
PN36
However, we may be able to assist the Expert Panel by providing additional explanations relating to any factual elements of the government's submission which may be relevant to the panel's decision. I will now hand over to my Treasurer colleague, Mr Damian Mullaly, who will provide the Expert Panel with information on the economic outlook.
PN37
MR MULLALY: Thank you. As has been standard practice, I am happy to provide an opening statement touching on the economic outlook that was outlined in both the budget papers and the pre‑election economic and fiscal outlook. I will start with the global economic conditions. At the 2022/2023 budget the global economy was forecast to grow by three and three‑quarter per cent in 2022 and 2023, and three and a half per cent in 2024. Major trading partner growth was forecast to be four and a quarter per cent in 2022, four per cent in 2023 and three and three‑quarter per cent in 2024.
PN38
The Russian invasion of Ukraine poses significant risks for global prices and activity. In the 2022/23 budget it was expected to generate around three‑quarter percentage point drag on global growth in 2022 and increase global inflation by around one and a half percentage points primarily through higher oil, gas and wheat prices. The latest IMF world economic outlook published before the Ukraine, conflict forecast growth of 4.4 per cent in 20220.
PN39
The IMF has published updated forecasts of global growth and inflation. The ongoing pandemic, Russian invasion of Ukraine, strained supply chains and rising inflationary pressures all present risks to the global and domestic outlooks. Nonetheless, the resilience of the Australian economy throughout the pandemic demonstrates that the economy is well placed to adapt to these new developments.
PN40
Turning to the domestic economy, economic growth in Australia has been solid. The Australian economy has proved remarkably resilient to the ongoing impacts of the pandemic, consistently outperforming expectations and all the major events of the economies.
PN41
The Australian economy is forecast to experience a sustained period of strong economic growth, low unemployment and rising wages growth. In the 2022/2023 budget real GDP was forecast to grow by 4.25 per cent in 21/22, by 3.5 per cent in 22/23 and by 2.5 per cent in 23/24.
PN42
Over the remainder of 21/22, strength in real GDP is expected to be broad-based but particularly driven by household consumption. Household consumption growth is then expected to remain strong in 22/23 and 23/24, supported by higher household incomes as employment increases and wage growth strengthens.
PN43
The economy grew by 3.4 per cent in the December quarter of 21, the equal highest growth rate in 46 years, as consumer demand for discretionary goods and services rebounded following the easing of Delta restrictions. While COVID-19 remains a risk to the outlook, the economic impact of outbreaks has continued to moderate over time due to Australia's high vaccination rates, more treatment options and the adaptation of consumers and businesses to ongoing community transmission.
PN44
The floods in Queensland and New South Wales have had a devastating impact on affected communities. The direct impact on the national economy in the March quarter is expected to be small. Over the next few years, the recovery and rehabilitative processes are expected to contribute to growth.
PN45
In March 22, the unemployment rate remained at 4 per cent, its lowest level in 13 years, as employment grew for the fifth consecutive month. The unemployment rate is now forecast to reach 3.75 per cent in the September quarter of 22, nearly 3 percentage points below the budget forecast from two years ago and the lowest rate in close to 50 years.
PN46
The national participation rate at 66.4 per cent and employment to population ratio at 63.8 per cent both remained at their respective record highs.
PN47
Hours worked fell by 0.6 per cent in March as floods affected New South Wales and Queensland. Around 50 per cent more people than usual worked reduced hours given illness or sick leave in March, down from around three times as many as usual in January. The underemployment rate decreased from 6.3 per cent to 2.5 percentage points lower than March 2020 and the lowest rate since November 2008.
PN48
The strong labour market is expected to see wage growth accelerate to its fastest pace in almost a decade. The wage price index increased by 0.7 per cent in the December quarter of 2021 to be 2.3 per cent higher through the year. In the 2022/23 budget, the WPI is forecast to grow by 2.3 per cent through the year to the June quarter of 22 and by 3.25 per cent through the year to the June quarters of 23 and 24.
PN49
The outlook is even stronger based on the national accounts measures of average earnings, which captures total remuneration, including bonuses, overtime and allowances, as well as the effect of workers gaining promotions or changing jobs as they take advantage of tighter labour market conditions.
PN50
The Consumer Price Index has picked up in recent quarters, rising by 1.3 per cent in the December quarter of 2021 to be 3.5 per cent higher through the year. However, it remains moderate, more moderate than many advanced economies. In the 2022/23 budget, CPI was forecast to grow by 4.25 per cent through the year to the June quarter of 2022 before moderating to 3 per cent through the year to the June quarter of 23 and 2.77 per cent through the year to the June quarter of 2024.
PN51
In the near term, the CPI is expected to remain elevated, reflecting price pressures from automotive fuel as a result of high global oil prices, new dwelling purchases and tradeable goods. Beyond the near term, inflation is expected to moderate with inflation largely reflecting domestic labour market conditions.
PN52
Nominal GDP grew 4.4 per cent in 2020/21 and was forecast at the 2022/23 budget to grow by 10.75 per cent in 21/22, compared to 6.5 per cent at the 21/22 MYEFO. This upgrade to nominal GDP growth in 21/22 is largely driven by the prices of nominal commodity exports. Nominal GDP is forecast to grow by 0.5 per cent in 22/23 and 3 per cent in 23/24. This subdued growth reflects the sharply falling terms of trade due to an assumed decrease in commodity prices to levels more consistent with long-term fundamentals.
PN53
This will be partially offset by a tight labour market that increases output and generates robust income and consumption growth.
PN54
Thank you, and we were able to answer your factual questions.
PN55
JUSTICE ROSS: Thank you. You would be aware that in a statement published on 16 May, we published an Information Note on the low and middle income tax offset and the fuel excise and posed two questions, Treasury. What do you wish to say about those?
PN56
MS BERGER-THOMSON: I am happy to answer the one on the low and middle income tax offset. I guess the first thing to note is that any offset that you get depends on what your tax liabilities would be. So, to the extent that you have tax liabilities greater than or equal to any of the offsets, then that makes you eligible for the full offset. It's not refundable in the sense that if your tax liabilities are lower than (audio malfunction).
PN57
JUSTICE ROSS: Can you just hold on a moment. Look, there is someone in Brisbane, I think, who doesn't have their microphone on mute. Thank you. Yes, go on.
PN58
MS BERGER-THOMSON: As I was saying, if your tax liabilities are lower than the full amount of any offset, then the maximum amount you can get is equal to your tax liabilities. But, in terms of how LITO interacts with LMITO, broadly speaking, they're additive, and there is an order in which the ATO kind of implements them. So, there are other kinds of offsets that someone may be eligible for, like the senior and pensioners tax offset, for example, the beneficiary's tax offset, and then if you have an eligible income and your tax liabilities are greater than or equal to the maximum amount of LITO, which up to 37,500 is $700, then you would also be eligible for LITO. I'm sure you're aware that LITO is then gradually withdrawn for taxable incomes over $37,500 and it kind of is zero at $66,667.
PN59
So, once you have kind of got your eligibility for LITO, you still have tax liabilities remaining, then LMITO is applied on top of that. I can take you through how LMITO works, if that's helpful. Tax payers with taxable incomes of 37,000 or less are generally entitled to an offset of $675, and the LMITO gradually increases to $1500, so this is including the cost of living tax offset for taxable incomes between $37,001 and $48,000, and then there's a kind of a flatness in the scale, so it remains at that 1500 up until you get to $90,000, and then it's gradually withdrawn for taxable incomes between $90,001 and $126,000.
PN60
So, what that means is if you have a taxable income below $66,667 then you are eligible for both LMITO and LITO.
PN61
JUSTICE ROSS: All right, thank you. And the fuel excise question?
PN62
MR MULLALY: I can take that question, your Honour, and confirm, yes, the budget inflation forecasts included a quarter of a percentage point reduction in June quarter of 2022 owing to the temporary excise reduction with a quarter of a percentage point rise in the December quarter of 2022. This was based on a 50 per cent reduction to the excise, which was 44 cents per litre applied to automotive fuels, a 3.3 per cent share of CPI.
PN63
JUSTICE ROSS: All right. Thank you. Are there any questions from the panel for the Commonwealth? Mr Wooden?
PN64
PROFESSOR WOODEN: Yes, we heard a repetition of the forecast from the budget. I just wondered - and maybe you can't comment on this - whether the Treasury had revised its CPI forecast in light of the March quarter result.
PN65
MR MULLALY: Thanks, Professor. I suppose, as you alluded to, given the conventions of the caretaker we haven't revised our forecast. We obviously monitor the conditions and particularly pay note to that higher than expected inflation number, the outcome of the March quarter. I also note that there are other developments. I will receive the WPI this morning during this hearing and will also receive the labour force tomorrow, and then another report of numbers that goes to average earnings on a national accounts basis is the March quarter national account. So, while we pay attention to these recent developments, the time that we'll update the forecast will be at a later stage.
PN66
However, what I can do is point you to the RBA's May statement on monetary policy which upgraded the inflation forecast across their forecast period. They also lifted the official catch rate by 25 basis points at the last meeting. The RBA's inflation outlook for June '22 has been upgraded to 5.5 per cent in June '22 before peaking around 6 per cent in December '22. So the RBA's new term inflation outlook for prices refers to high inflation data, a continuation of supply site factors such as petrol prices and global factors, broader price pressures and a strong underlying demand environment which is allowing costs to be passed through to consumers.
PN67
PROFESSOR WOODEN: Thank you.
PN68
JUSTICE ROSS: Any other questions? No? Thank you all for your contribution. Can I go to the ACTU and Mr Clarke.
PN69
MR CLARKE: Yes, thank you, your Honour. It's Mr Clarke here. I have also got Ms Koeu and Mr Kerwood‑McCall with me. Can I begin by acknowledging this - as I think Treasury has - Australia is heading into the 22/23 year in a remarkable position. The labour market is historically tight. Participation has risen, employment has risen, under‑utilisation has fallen, all in numbers that haven't been seen on their own for a considerable period and have really, if ever, co‑existed.
PN70
Jobseekers or those looking to change jobs or work more hours have very, very good prospects of finding work. That is a good thing, as I'm sure all the participants in this review would acknowledge. We're also pleased to see the economy growing at 4.2 per cent over the year to December, notwithstanding a contraction in the September quarter associated with the Delta response. Real net national disposable income, similarly risen; 3.7 per cent over the year and gross valuated by 5 per cent.
PN71
Our economy is producing more value and more income. Again, from our perspective, these are good things and we suspect others also share in that view, but how do we fairly share the benefits from this remarkable recovery? Well, that's where we start to differ. In our view being employed on its own isn't some impenetrable shield against hardship and that's no truer a statement than now when the costs of living are escalating.
PN72
Organised workers in this country have some, albeit limited, capacity to negotiate their slice of the growing pie, particularly now at a time of high labour demand. The workers who are impacted by this decision are those who are united by the fact that their employers will not and do not negotiate wages even if they are asked nicely. Award‑reliant employers will, by definition, only do the bare minimum on wages. The bare minimum as it stands today is eroding in its real value and there can be no rational argument that an acceptable bare minimum for tomorrow is one that fails to address the escalating costs of living.
PN73
There are all sorts of arguments thrown up in an effort to counter that very basic proposition. There is even a novel argument that wage moderation is justified by labour demand exceeding labour supply. There is the old chestnut about government support - maybe two chestnuts. First, you should give these people welfare, not wages, and if you do give them welfare you should give them less in wages. Well, that convenient, isn't it?
PN74
Now, don't get me wrong, we're firm believers that the industrial wage and the social wage should work together to lift living standards, but those that remember the accord years would know that. Working together is very different to some shifting beans from one side of the ledger to the other in a perverse zero sum game. To do the latter is effectively an exercise in redirection which creates a wage subsidy rather than a wage increase.
PN75
Those arguments about the social safety net are at play in two levels in this review. Firstly, there is the broad point again and again that wage increases aren't retained, which the modelling in the statistical report deals with this year at table 8.5, as it has done so every year. Secondly, there is the idea that the increased superannuation contributions, the low/middle income tax offset, the 250‑dollar payments for those on partial income support, the changes in the Medicare levy thresholds and the temporary reduction in fuel excise mean that employers covered by this decision should get less than they otherwise would.
PN76
Now, we have dealt with those payments changes in our initial submission in some detail, but the key point that I would like to make about them in generality is that there is a difference between taking them into account in a general sense versus taking them into account with a view that maintaining the wages safety net operates on the premise that rising national incomes should either never be shared with workers who help build them, or that their share should be held static for eternity or that we should somehow means test access to a award minimum wages.
PN77
JUSTICE ROSS: Mr Clarke, I hesitate to interrupt. I just wanted to explore the proposition about the social safety net changes and the impact on wages. As you say, you deal with this in your reply submission, but I just want to go to a specific. If I take you to Ai Group's reply submission at page 2 - - -
PN78
MR CLARKE: Just a moment, I'll grab that.
PN79
JUSTICE ROSS: No, that's fine.
PN80
MR CLARKE: Okay, I've got that on the screen now, yes. Sorry about the delay.
PN81
JUSTICE ROSS: You see where they come up with a calculation of their proposed two and a half per cent wage increase with the SGC increase, then the equivalent of a 1.3 per cent increase in pre‑tax income that an employee on the national minimum wage will receive as a result of the increase in the LMITO. I know what you say about the superannuation guarantee increase and what you say generally about the LMITO, but I just wanted to focus on the calculation for a moment where they say the equivalent of a 1.3 per cent increase in pre‑tax income for an employee on the national minimum wage. What do you say about that?
PN82
MR CLARKE: Well - - -
PN83
JUSTICE ROSS: It's not clear to me how they've derived that. That's why I'm asking you.
PN84
MR CLARKE: It's not clear to me how they've derived it either, your Honour, but I do see that as an example of this very fraught calculus that I'm alluding to. These are all - even if you look at them, the two examples that are given there, the LMITO and the superannuation guarantee increase, we have heard from Treasury that the sweet spot for your LMITO and your LITO is somewhere between 37K and 66K, which certainly a large share of the workers dependent on these awards, particularly if they are not full time, wouldn't retain the full benefit of.
PN85
But when it comes to the superannuation guarantee increase, the way that that's been factored into decisions in the past, and you can look at paragraphs 345 to 360 of the 2013 decision and thereafter, is that it's factored in on the basis that it costs employers money. It's not factored in on the basis that it's some form of remuneration that lifts people's living standards and that therefore the need to lift living standards is no longer a consideration in the review.
PN86
JUSTICE ROSS: That's fine, Mr Clarke, I follow the argument. It was really about how one arrives at 1.3 per cent and what does that mean, but Ai Group can deal with that when they come to their submissions.
PN87
MR CLARKE: I might also add on that topic, as we have said, the one-off payments certainly don't alter living standards in any enduring way or meet the needs of the low paid in any enduring way, and they certainly don't have any impact on people joining or re-entering the labour force on or after 1 July.
PN88
The same might be said about the fuel excise reversion post September for people participating in paid employment after that time, and that's certainly relevant when you consider the safety net that you are tasked with maintaining needs to work for everyone to whom an award or national minimum wage order might apply throughout the year ahead.
PN89
Our biggest concern over what transpires over the year ahead is that workers will go further backwards - further backwards. We have already seen prices growth exceed wages growth this year and we're facing into further rises in the year ahead notwithstanding the limited intervention on fuel excise. Granted those price impacts will affect different workers in different ways and to different extents, but these are prices that are broad-based and impact essentials, not just fuel, but food, groceries, rents, mortgage payments.
PN90
Underlying inflation is on the move and the costs of non-discretionary items has risen a whopping - was it 6.6 per cent in the year to March - and it's worth reminding ourselves that according to Foodbank, we were facing into that from a baseline where over half of people already experiencing food insecurity were people who had a job.
PN91
Our concerns about the wellbeings of these workers are largely dismissed by others on the basis that temporary factors are driving prices or that the impacts are transitory.
PN92
Now, there's only four quarters in a year. How many quarters of experienced and projected CPI growth do we need to experience before we start using the term 'transitory' to describe those movements in the context of what is an annual review cycle? These movements in prices are clearly already being borne by workers as they wash through the cost of essential items in particular with more increases to come if the ABS business conditions and sentiment survey from March is to be believed, and, you know, the RBA Board has confirmed as much in its minutes from May about the mixing in of these costs.
PN93
Yet it's said by the employers that employees should not only continue to bear the costs of what's passed but should continue to do so throughout the year ahead - throughout the year ahead - through declining real wages. Now that's not sustainable either for those workers or for the businesses, or for the businesses that rely directly or indirectly on retail customers. To shift the burden of rising business costs so heavily onto workers would be the antithesis of the fairness and balance that the statutory criteria demand, and that's particularly so when one asks how much labour is really costing business with real unit labour costs having fallen yet again in the year to December and in the December quarter, having only risen by a meagre 0.1 of a per cent in the September quarter.
PN94
You only need to read the first couple of paragraphs of the RBA Board minutes from May to understand what's happening in other parts associated with real wage declines, their effects on consumption, notwithstanding fiscal interventions, and who is bearing the brunt of that.
PN95
It is said by our opponents and Ai Group in particular that increased hours of work deliver an increase in living standards which offsets the need for a real wage increase. Now, let's leave to one side that the argument that we're often faced with is the polar opposite, that reduced hours of work and high underemployment justify wage moderation. So, let's park that for a moment.
PN96
A real difficulty with the argument that's advanced today is that additional hours come with no guarantees of regularity, and certainly those full-time members of the Commission in other matters would understand that. A safety net that's only in place some of the time is not a safety net at all, and you might well find that that kind of elevated demand that justifies additional working hours starts to evaporate if consumers have less to spend as real wage cuts start to bite.
PN97
In our submission, there's a convincing case for a significant and real increase in modern award minimum wages and the national minimum wage in this review. The economy is performing well, the labour market is performing well, but, as we point out in our initial submission, there have been periods of considerable hardship for workers over the last year and they now face rising living costs. So, now is not the time to allow them to fall further behind.
PN98
Before moving to questions, can I just address something arising from the additional material that was published with the statement on Monday?
PN99
JUSTICE ROSS: Certainly.
PN100
MR CLARKE: In relation to the petrol excise, on page 5 of the document, we are quoted as saying in relation to the fuel excise that its impact is too uncertain for it to be regarded as anything other than a neutral factor over the year ahead. That is attributed to paragraph 166(a) of our initial submission.
PN101
I don't expect you to tab your way through all of the material to find that, but can I just contextualise that paragraph a bit. It's a big paragraph. Read in context, the point we are making is that petrol prices have already risen before the Ukraine situation and were going to continue to rise. If I quote, we say:
PN102
The best possible outcome of the fuel excise reduction for workers and consumers is that, temporarily at least, prices have reduced to what are, on any assessment, elevated levels related to factors predating the invasion of Ukraine.
PN103
We go on:
PN104
In our view, there is no basis for the panel to conclude that this measure will eliminate cost of living pressures that have arisen and will arise from fuel prices in the current year.
PN105
We then go on to say:
PN106
Further, at this stage at least, the impact is too uncertain for it to be regard as anything other than a neutral fact.
PN107
The point that is being made is that its impact in reducing rising cost of living pressures from fuel is too uncertain. It will have a neutral effect in abating the rising prices of fuel while it is in place and, of course, we make the point that it's going to switch off overnight. I just wanted to contextualise that.
PN108
One final matter arising from me perhaps not being clear enough with the way I express myself, there is a typo in our - a missing 'not', which is an important 'not' - in our reply submission at paragraph 117 where we refer to ACCI's discussion of a staffing shortage from one of the ABS surveys. It's the second-last sentence of paragraph 117. I will read it with the missing not in place:
PN109
In relation to what ACCI say about staffing shortages, it is important to note the figures that ACCI cites concerning insufficient employee numbers are related to responses to the question based on current operations does the business have a sufficient number of employees and not based on responses to questions about COVID-19 impacts and staff availability.
PN110
JUSTICE ROSS: Just bear with me for a moment. This is your reply submission of 8 May at paragraph 117 did you say?
PN111
MR CLARKE: That's right, on page 62 of the PDF, yes.
PN112
JUSTICE ROSS: Whereabouts on that paragraph; which sentence?
PN113
MR CLARKE: The second last sentence at - - -
PN114
JUSTICE ROSS: Right, I see, yes.
PN115
MR CLARKE: And it should be - the end quotes, the quote ends with 'sufficient number of employees', and it should then say, 'and not based on responses to questions about COVID impact'.
PN116
JUSTICE ROSS: Yes. Right, thank you. It might be worth just re-filing that document with the correction and we'll make sure that that's the one in the electronic archive.
PN117
MR CLARKE: Yes.
PN118
JUSTICE ROSS: Thank you, Mr Clarke. Was there anything further?
PN119
MR CLARKE: Not from me. We're prepared to assist in any way we can.
PN120
JUSTICE ROSS: Thank you. Are there any questions from any members of the panel? No. All right. Thank you, Mr Clarke. We'll go to Ai Group. Mr Smith.
PN121
MR SMITH: Yes, thank you, Your Honour. If the expert panel pleases, I'll make some brief opening remarks then Mr Sarwar Ai Group's senior economist will make a few brief points about some relevant economic issues and then Dr Burn will address the issues around the broader social safety net and the calculations in our submissions.
PN122
In summary, we submit that it's critical for the expert panel to adopt a cautious approach when adjusting minimum wages this year. An excessive minimum wage increase would fuel inflation, it would lead to higher interest rates, not only on mortgages but personal loans and credit cards than would otherwise be the case. Higher inflation and higher interest rates would have a particularly harsh impact on the low pay.
PN123
In our reply submission, we provided our proposed wage increase, an updated proposal from that in our original submission and in all the circumstances and balancing all the factors, we submit that a modest wage increase of 2.5 per cent is appropriate this year. And as the panel is aware we've calculated that when that is added to the half a per cent superannuation guarantee increase and the equivalent of a 1.3 per cent increase in pre-tax income that those on the national minimum wage will receive from the increase in the low and middle tax offset, that adds up to a 4.3 per cent increase in pre-tax remuneration for low paid employees.
PN124
We have proposed a delayed operative date for wages increases in the same awards that were subject to delayed wage increases last year, and in our main submission we've identified the relevant factors that we believe support that delayed increase. In short, we do argue that exceptional circumstances still exist in those industries justifying a delayed operative date.
PN125
Consistent with longstanding past practice, we submit that it's appropriate for the panel to take into account that half a per cent increase in the superannuation guarantee, which as we've pointed out in our submissions is double the quantum of the last two increases in the superannuation guarantee that the Commission decided to take into account, as it has with all other earlier increases in the superannuation guarantee.
PN126
We also believe that it's appropriate for the Commission to take into account the removal of the $450 per month threshold in SG eligibility and changes to both taxation levels and tax transfer payments. And as the panel has consistently stated, the effect of taxes and transfers on disposable incomes of the low paid are relevant to the needs of the low paid and their relative living standards, and should be taken into account. If I can hand over now to Mr Sarwar to address a few key economic issues. Thank you, your Honour.
PN127
JUSTICE ROSS: Thank you, Mr Smith.
PN128
MR SARWAR: Thank you, Mr Smith. There are some points - there are some economic points of relevance to this year's annual wage review. Our submissions have detailed these. I will summarise a few key points briefly for the panel. Some key points of relevance include the relatively stagnant gross profit growth over 2021 in nearly all sectors. An increase in the number of hours worked, particularly for female employees, the worsening cash position of businesses, the dis-employment effects of large wage increases and the risk of future cash rate increases given inflationary (indistinct).
PN129
First, according to the business indicated data published by the Australian Bureau of Statistics, although gross operating profits seasonally adjusted have increased by 2 per cent over Q4 2021, the growth is largely skewed towards finance and marketing business. Furthermore, as per the business conditions and (indistinct) publication by the ABS, businesses have reportedly increasingly worsened cash positions given the extensive aftermath of COVID pandemic related (indistinct), with over 61 per cent of businesses reporting that they do not have enough cash to cover their business operations for even three months.
PN130
This is up from 57 per cent in May 2021. Given that industries most affected by the lockdowns, like retail and food services, which employ roughly 20 per cent of the workforce have just started to bounce back, and the fact that they are going to be disproportionately affected by a large increase in award wages, because they employ a large proportion of the award dependent workforce, a large increase in the minimum wage levels will adversely affect their ability to meet operating expenses and may cause many of them to exit the market.
PN131
We also have to keep in mind that these wage cost pressures will only add to the existence of supply chain related cost pressures that businesses are currently facing. The ABS has reported that of businesses facing supply chain disruptions, over 32 per cent are facing severe impacts. Particularly, firms operating in retail, food and construction sectors.
PN132
Second, the needs of the low paid are examined with consideration to not only minimum wages but also the number of hours worked. There have been significant increases in the number of hours worked, particularly by female members of the workforce as evidence by the ABS labour force publication. Of the increase in employment since 2015, 61 per cent of the increase is in female employment and the proportion of female full-time to total full-time employment has risen by 2.1 per cent.
PN133
According to the ABS labour force publications, employment in March 2022 increased by 17,900 people and is 3.0 percentage points higher than March 2020. Whereas hours worked in all jobs from March 2020 has also increased by 38.2 million hours. This is coupled with the fact that both the average weekly (indistinct) for men and women and the proportion of men and women working full-time have all increased.
PN134
Present information indicates that the needs of the low paid are being relatively better (indistinct) because of the increase in hours worked and the proportion of full-time workers, particularly the increase in proportion of full and part-time employed females.
PN135
Third, Australia has a high national minimum wages compared to other developed countries and various such studies have concluded that large increases in the minimum wage rates will lead to dis-employment consequences for the economy. There is evidence from panel studies conducted on (indistinct) samples that conclude that large increases in national minimum wages lead to dis-employment effects caused by employers having to meet higher labour costs with existing funds, which as we mentioned before are significantly worsened. Keeping in mind that increases in minimum wage would also add to increases in superannuation and other costs. The dis-employment consequences of large increases in minimum wage will likely be exacerbated in the Australian context.
PN136
Finally, the RBA bases decisions relating to the cash rate on inflation and (indistinct). Given that large wage increases may effect the employer's ability to meet costs and force them to resort to price increases to shift the burden to the consumer, there is a risk of wage led inflation. Furthermore, the RBA has already increased the cash rate and has indicated that it will likely do so again. In the event that the rising wage pressures are shifted to the consumer there is risk that the RBA will be forced to raise cash rates to slow down economic activity, in order to rein in inflation.
PN137
Such increases in the cash rate will have two prominent consequences. First, it will likely increase the cost of living by increasing the cost of debt servicing for households in the form of interest rate on credit cards, all longer term loans such as mortgages. Second, increases in cash rate will also lead to higher debt servicing purposes, meaning that businesses with worsened cash positions could be forced to lay off staff, rather than resort to bridging loans or overdrafts to meet certain finance needs, thus contributing to dis-employment. Also, such rises will negatively affect business borrowing and growth and thus potential employment outlook and growth. Large increases in minimum wages are likely to have long-term effects on Australia's economic activity.
PN138
In light of the economic uncertainty, including the ramifications of the war in Ukraine and its impacts on (indistinct) prices and supply chains; the, as yet unresolved, COVID related disruptions to global supply chains, including those relating to lock-downs in China; the potential for future COVID-19 ratings and associated disruption; and the effects of future cash rate changes, we propose an increase in the national minimum wage and award wages of 2.5 per cent. Dr Burn will now make a few points about the broader social safety net. Thank you.
PN139
JUSTICE ROSS: Thank you, Mr Sarwar. You're on mute, Dr Burn.
PN140
DR BURN: Forgive me, I should have figured that out by now. Thank you, very much, your Honour. The main points we want to make are that the increase in the low and middle income tax offset, and the increase in the superannuation guarantee, also the cost of living payment and the removal of the $450 threshold for superannuation, are relevant to the considerations of the panel in relation to the needs of the low paid and we advocate that they be taken into account in line with the existing precedents.
PN141
In view of the earlier question to the ACTU, if it's convenient now I could run through the calculations that give you the pre-tax equivalent. Is this a good time to do that?
PN142
JUSTICE ROSS: Yes, certainly. Thank you. It's really the 1.3 per cent and how you have arrived at that.
PN143
DR BURN: Yes. That authority is relevant to how we arrive at the overall number, as well. The increase from a tax change will impact on post tax income. When the panel decides on an increase in wages it makes a decision on pre-tax wage levels. So, how do we get an equivalent? This is what we're interested in with the Commission, for pre-tax income; the impact on post tax income at the employee level, and this applies to the SG increase, as well as to tax changes. We calculate simply the post-tax income change and divide that by one minus the marginal tax rate, and that gives the pre-tax equivalent. So the (indistinct) dollar amount of post tax income, the dollar increase, the dollar amount of increase in post-tax income, divided by one minus the marginal tax rate, will give you the pre-tax equivalent.
PN144
We set this out, of course, in previous years, not in this year. We put forward the methodology in some detail in last year's submission. There were no questions and no comments on that methodology so we neglected to set out the full methodology.
PN145
JUSTICE ROSS: No, that's fine. That's fine, Dr Burn. So, to be clear, in the 1.3 per cent you've just used the methodology that you've set out in last year's submission and that's how we can work through the detail.
PN146
DR BURN: Exactly right, yes.
PN147
JUSTICE ROSS: No, that's fine. Thank you.
PN148
DR BURN: I want to make some point about the temporary nature of the increase in the low and middle income tax offset. Should it be taken into account given that it's only temporary? Our response to that is, this is an annual wage review. These matters are considered annually and the change in tax treatment is considered annually. A change that lasts only one year will be picked up next year. So we think it is relevant and that thinking may well be behind the precedent of taking into account on an annual basis, the changes in tax treatment of wages and tax generally.
PN149
We also just make a point about the increase in the SG not impacting on disposable incomes. That's clearly true. It is, in general, only available on a person's retirement but it does, of course, increase their wealth and so forth. But there is also the fact that other portions of wages earnt don't contribute to disposable income either. So, it's not the disposability of the income that's relevant, it's the quantum of the increase in the remuneration that we think is relevant. I mentioned the increase in the superannuation threshold and also the cost of living payment. That will affect many households in which there are low paid workers.
PN150
I would like to raise a further matter that came to us as a consequence of the information note published on 16 May. On Monday, I think that makes it. The note concerned primarily the low and middle tax income offset and the fuel excise. In that note reference was made to the low income tax offset. That's not the low and middle income tax offset. It's confusing but it's a separate measure. And this measure, as the Commonwealth representative earlier said today, is complementary to the low and middle income tax offset.
PN151
However, in the information note published on Monday, reference was made to the level of the low income tax offset referenced to the low income tax offset that had applied prior to the 20/21 budget, that in that budget the low income tax offset was increased. So, we are preparing a response to that information note expressing its - - -
PN152
JUSTICE ROSS: Where in the information note are you taking us to, which page?
PN153
DR BURN: Yes, it's page 2, and as I call up that note, just bear with me - I am calling it up but it's always a bit slower when you're on a TEAMS call - so, I have it now in front of me; on top of page 2 of the information note under the heading, 'Lower middle income tax offset.' Next heading, 'When was the person considered by the panel' - there's a reference in the last sentence of that first paragraph, 'The LMITO worked in conjunction
PN154
with the low income tax offset', LITO footnote numbered 1. Footnote 1 reads, 'The LITO applied to incomes of $3,700 or less. The maximum LITO was $445.'
PN155
JUSTICE ROSS: Yes, that's using the past tense.
PN156
DR BURN: Yes. That's correct but our understanding was that the reference in the information note related to the interaction between the LMITO and the low income tax offset which still applies, but that low income tax offset level has changed.
PN157
JUSTICE ROSS: No, no. No, that's - - -
PN158
DR BURN: And we were concerned that that wasn't picked up.
PN159
JUSTICE ROSS: No, we know that.
PN160
DR BURN: That's very good then.
PN161
JUSTICE ROSS: This is a past tense proposition. We're just setting out when it was first introduced and first considered. And the Treasury has answered the question about the LITO. So, if your point is that the LITO thresholds and application amounts have changed, we understand that.
PN162
DR BURN: Because it is considerably higher now, of course. So, that was our final point, in which case that has clarified that for us, so thank you very much.
PN163
JUSTICE ROSS: No, no, thank you. Are there any questions from the panel for Ai Group? No? Yes, Commissioner Hampton?
PN164
COMMISSIONER HAMPTON: Yes, Mr Smith and colleagues, so I want to raise with you some points of clarification about what I think is one of your central propositions and this is, I think, the same or similar proposition as was also raised by ACCI, so Mr Barklamb, I'd also appreciate your view on this in due course. So, the proposition being is that if an increase is granted by the panel above your nominated ceiling, this would contribute to inflationary pressure and contribute to a cycle of wages and inflation, et cetera. I think you have also in your written submission today some linked interest rates into that, as well.
PN165
There are two aspects I want to raise with you. The first one is about the spread and coverage of annual wage review decisions. Some other parties have either directly or indirectly raised the notion that, well, any increase would apply directly to a certain proportion of the economy, it would apply indirectly to another proportion and might apply more broadly than that, although the evidence about that is less clear. What is clear is that the coverage - at least the formal coverage - of any decision we make is certainly not the complete coverage of the economy.
PN166
Firstly, I want to explore with you whether you accept that observation; that is that history might suggest that Annual Wage Review outcomes - at least the full effect of Annual Wage Review outcomes - don't spread through the whole economy. Firstly, do you accept that observation or any comments? Secondly, if you accept that, what role would that play or should that play in any assessment of the inflationary impact of any decision we might make?
PN167
MR SMITH: Commissioner, if I could just address the first issue, then Mr Sarwar or Dr Burn may wish to deal with the second part of that. As the Commission's statistical reports for the review show, I think the level of coverage of the annual wage decision either onto the national minimum wage or to award wages is about 23 per cent - I think the Commonwealth deal with this issue in their submissions, as well - so 23 per cent of the workforce are either award‑dependent or receive the national minimum wage.
PN168
We did the other day just have a look through the Commission's research for previous Annual Wage Review decisions and found a figure a couple of years ago where one of the research reports had looked at the number of employees that benefited from the Annual Wage Review increase in workplaces which did have award‑dependent employees; you know, what was the incidence of those employers passing it on to the rest of their employees. I can provide the reference in that report.
PN169
It has been quite some years, Commissioner, but back in - I think it was 2002 Annual Wage Review, or the Safety Net Review as it was then called, we did some research and submitted it to the 2003 review on what was the incidence of our members passing on the safety net increase to their employees. Again I can provide those stats, but it was something like for everyone that had to pass on the increase, another employer chose to pass on the increase.
PN170
Our argument would be that it's not just the 23 per cent that needs to be looked at. The direct effect of the Annual Wage Review increase will be something like double that in terms of those employers that choose to pass that on, but we're happy to take that on notice, Commissioner, and provide some information that we did pull together just the other day on that very question. Mr Sarwar or Dr Burn may wish to deal with that inflation issue. Thank you.
PN171
COMMISSIONER HAMPTON: Very well. Thank you.
PN172
MR SARWAR: Thank you. I do have a bit to add to that. Thank you, Mr Smith. Some of the sectors that are going to be most significantly affected by changes in the minimum wage rates are the retail and food services sectors because they employ a disproportionately high proportion of minimum wage workers, which means that any sort of increases that are excessive in the minimum wage rate will affect these sectors.
PN173
These are sectors that we all interact with and contribute a great deal to the inflationary pressures, and to inflation calculation measures, so it would directly impact on most of the economy, if not all, because of these sectors and how they are structured. Thank you.
PN174
COMMISSIONER HAMPTON: Thank you. The second question I want to raise is also related to that proposition and that is some parties have suggested a flat increase or a variation on that theme. On face value this would provide a relatively larger increase to the lowest paid. What is your organisation's view about that?
PN175
MR SMITH: Commissioner, for a long time we supported flat dollar increases in Safety Net Review cases and, as the panel is aware, after a long period of flat dollar increases the Commission decided that either due to the compression of relativities that was occurring or for other reasons, as well, that that would be discontinued. Since that time we haven't proposed any more flat dollar increases.
PN176
We are comfortable with the proposed position that we put that would avoid any further compression of relativities and we think it does provide an appropriate increase for the low paid, as well as through the other wage levels within the award system.
PN177
COMMISSIONER HAMPTON: Mr Smith, you are quite right to raise the issue of relativities. Indeed I've been on many of the panels that have expressed concerns about the impact on relativity, but one variation on a theme might be a percentage increase with a minimum adjustment. Obviously depending on where those levels would sit, that might have potentially the same benefit of the relatively larger increase at the bottom whilst moderating the impact more generally.
PN178
MR SMITH: Commissioner, it's not something that we've turned our mind to, but we did make the submission year after year in those years when we proposed the flat dollar increases that the compression of relativities had not got to a level that we saw as problematic because, as we saw from those figures I quoted a moment ago, most people covered by awards are not paid the award rate and market rates have a significant role to play.
PN179
So, awarding a higher increase for lower paid employees than high paid employees is not likely to distort relativities to the extent that it would be a major problem, but we're comfortable with our proposal of two and a half per cent for all levels. Thank you.
PN180
COMMISSIONER HAMPTON: Yes, thank you, Mr Smith. Of course if anyone else participating in the consultation wishes to express a view on that, I would welcome that. Thanks very much.
PN181
JUSTICE ROSS: Thank you, Commissioner. Any other panel member have a question for Ai Group? No? Thank you very much, Mr Smith, and to your colleagues. We will now go to ACCI, Mr Barklamb.
PN182
MR BARKLAMB: Thank you very much, your Honour. If I can apologise for my rather film noir lighting. The light just above me has chosen to give out, so if we're a little in the dark, that's why. With me today are Mr Grist, our principal economist in Sydney, and my colleague Mr Farrow here with me in Melbourne. We thank the panel for the opportunity to appear today. We have a brief opening or snapshot to deliver and then we will be pleased to take questions.
PN183
As with recent reviews, the panel is again in an unenviable situation needing to determine an increase in minimum wages and to the costs of employment in the shadow of COVID, a patchy recovery and under a heavy veil of uncertainty. This task is even more difficult in 2022. There are many clouds on the horizon and Australia remains vulnerable and exposed to very real risks. These risks are real and they are globally recognised.
PN184
I want to briefly indicate to you how the IMF speaks about the forecasts it has included in its world economic outlook and it has recently indicated that unusually high uncertainty surrounds this forecast, and downside risks to the global economic outlook dominate including from a possible worsening of the war, escalation of sanctions on Russia, a sharper than anticipated deceleration in China as strict zero COVID strategy is tested by Omicron, and renewed flare up of the pandemic should new, more virulent virus strains emerge. Moreover, the war in Ukraine has increased the probability of wider social tensions because of higher food and energy prices, which would further weigh on the outlook.
PN185
Other risk factors to the otherwise positive performance of our economy include surges in fuel prices and supply chain disruptions, which along with the massive COVID script stimulus in various countries are contributing to spiralling inflation both in Australia and in other advanced economies. We have GO political tensions in our region and we have risks of stagflation in our major trading partners.
PN186
More than ever, this volatile environment of uncertainty and risks demands balance, caution and moderation. Some are urging the panel towards over-ambition, towards over-confidence and towards intemperance in increasing the minimum and modern award wages in this review. Such calls should be rejected. The outcomes some are seeking risk serious negative implications for inflation, employment and recovery. It's not the time for an over-adventurous of over-confident increase given the known risks that pervade in 2022.
PN187
In 2021, the increase was based on a finding then that the Australian economy had recovered to a greater extent and more quickly than anticipated. This assumed that the worst of the pandemic was behind us but it didn't turn out that way. The reality was that in a matter of months, if not weeks, we had further COVID outbreaks. First, Delta then Omicron. Delta lockdowns in particular set the economy - economic recovery back severely last year, with GDP contracting 1.9 per cent in the September quarter. We urge the panel to greater caution in the face of the clearly none knowns and risks of 2022. As the IMF quote we started with pointed to.
PN188
This uncertainty we say is directly germane to the decision before you. We also urge the panel to be guided by the wide variability in the rate of recovery in our multi-speed economy. Some sectors, particularly mining, professional and financial services, real estate and healthcare are doing well. But these are not the sectors in which high numbers of award reliant employees directly subject to these reviews work. Customer facing service industries, particularly accommodation and food services, arts and recreation, various areas of retail, personal and other services and tourism related transport continue to really struggle, and be those at greatest risk of the eventualities I pointed to earlier incidentally.
PN189
Businesses, in these sectors, mainly small and family owned were most impacted by Delta and Omicron. They remain saddled with post-pandemic debt, flaky consumer confidence and changes in consumer behaviours and demand. If the risks of 2022 are realised, they will impact most strongly on these highly award reliant sectors.
PN190
A great deal is said about the rising cost of living and challenges for minimum wage earners. But in your deliberations we also encourage you to apply caution, perspective and balance, and consider what we hear less about. We hear far less about rising costs for businesses and their capacity to meet increased cost of doing business and of employing. Conditions are particularly challenging for small businesses, with operating costs rising sharply on the back of inflation, rising fuel costs and supply chain disruptions. Margins are tight and becoming tighter. Many businesses are finding if difficult or simply are unable to pass on increasing costs to consumers.
PN191
We'll come back to Hampton's C questions but some will pass on increasing costs. As the Reserved Bank has warned, any excessive increase in wages has the potential to trigger further inflation, which only adds to the already increasing costs to consumers and businesses. Increases in real wages ultimately can only be sustained if linked to labour productivity, but labour productivity growth has been extremely low over the past decade at an average of only about 1 per cent.
PN192
So, what's the panel to make of all this, and the range of materials before you from various quarters. And the range of developments and risks frankly pointing in different directions. You have a single lever to pull in the face of such of diverse and uncertain circumstances. How should you do it?
PN193
ACCI supports an increase of 3 per cent in minimum and modern award wages in this matter. We say 3 per cent is reasonable, pragmatic to circumstances, to what we know and what we know we don't know in 2022. We say a great deal about caution and moderation. This is also the highest level of increase ACCI has supported for many years. We say it gets the balance right, properly reflecting the various considerations you must weigh under the Fair Work Act and balancing increase in costs of living, increasing costs for business and the risks and unknowns we've pointed to.
PN194
Just to respond briefly to our ACTU colleagues. The panel's been at pains to stress to all of us there's not a mechanistic or deterministic approach. The factors in the Act, in section 284 and others must be balanced each time, so that the pointing to the necessity of a real wage increase we say would be at odds with that balance, at odds with the range of factors and the range of considerations to be discharged. We also think - and I think my friend Mr Clarke referred to (indistinct) calculus. Well, (indistinct) calculus would be an assumption that there necessarily has to be a real wage increase or a real wage maintenance in each and every one of these reviews regardless of its impact.
PN195
Finally, before we come to questions and we will return to the matters raised by Hampton C. Finally, just as a procedural matter, it's been signalled from some quarters that the commonwealth might seek to make a substantive further submission in coming weeks. Were that to be the case, ACCI would seek an opportunity to respond, which make require some reconsideration of the existing timetable. I need say nothing more on that at this point, your Honour. We thank the panel, we welcome any questions and would like - we will otherwise certainly circle back to the matters raised by Hampton C.
PN196
JUSTICE ROSS: Well, perhaps if you can touch on what you want to say in response to what Hampton C had raised and then I'll see if there are any other questions, Mr Barklamb.
PN197
MR BARKLAMB: Excellent. Well, I will do so firstly but then my more eminent and directly applied colleague, Mr Grist I'm sure will add much, much more of value. There was - as I understood the question, it was about the extent to which the decision spreads, and perhaps I might put this in the sort of vernacular way, I put it to people there's a difference between these matters and the conduct of comparable matters in 1975, where the headline of the newspaper basically indicated to people what wage increase they were going to get. But I think there is not simply an assumption that the direct increase in labour costs is confined to the 23 per cent of those directly subject to minimum wages that my colleague Mr Smith pointed to.
PN198
Obviously there is a setting of expectations of wage increases for those beyond the direct application of minimum wages. You create a floor for enterprise bargaining settlements and claims and we've had an interesting conversation frankly in this election campaign about the (indistinct) of the determination in this matters to wage outcomes across the community.
PN199
I'm not aware necessarily of research but I ask perhaps others that come after us today, you've got experts here from highly award reliant industries in restaurants and retail. Perhaps my colleagues might want to speak to the likelihood of the passing on of increases there and what they think the propensity or effect would be more generally. But the very real fear would be of some inflationary push from an outcome in this matter, and is it 1975 where you could assume 100 per cent push into inflation, well no, it's not. But is it also the case that the only increases would be confined to those directly award reliant, it's not that either.
PN200
Might I also note - I will pass onto Mr Grist in a second but can I associate ACCI with the remarks of Mr Smith regarding the move from flat dollar increases or flat dollar positions in our organisations. I share his characterisation, Hampton C, of that. It's not sought by us on this occasion and we do want to point to the importance of relativities.
PN201
There are other matters in the Commission relating to - the lights have come on. There are other matters in the Commission relating to - the lights have come on - there are other matters in the Commission relating to work value, which it's not appropriate to speak of substantively, but the importance of relativities is certainly a salient consideration for our members and those we represent at this point, and we think it's a relatively settled matter that percentage increases flow from these reviews and that doesn't discount or remove the capacity of any interest to argue otherwise, but I would make the observation that the primary employer parties to these proceedings, Mr Smith's organisation and mine, along with the ACTU, are proceeding on the basis of advancing to you percentage propositions.
PN202
With that, can I hand over briefly to my colleague, Mr Grist, to add to the observation about inflationary impacts and then we would welcome any other questions.
PN203
MR GRIST: Thank you. Just in terms of any wage increase, generally we see that there's a bit of a flow-on effect from any wage increase, so I think, as Mr Smith from AiG mentioned before, businesses would generally provide a uniform increase across a business, so they wouldn't just allocate any increase to minimum wage employees, and there's also factors such as the enterprise bargaining agreements, which are generally - well, aren't generally, but are often linked to the wage review decisions, so you get an annual increase associated with that.
PN204
Generally, you are going to see a flow-on effect, so it's not just the 23-odd per cent of award-reliant employees that get the increase; it's a much larger share of the workforce that gets an increase associated with the decision you make.
PN205
Also what we are seeing within businesses, and we mention in our reply submission from the ABS business conditions survey, we are seeing a lot of businesses finding conditions very tough, prices are rising and they are finding it very difficult to pass on those costs to their customers. I think the numbers are showing that 60 per cent of businesses are seeing their costs rising and almost half of those are unable to pass those costs on to their customers.
PN206
This is tightening margins. As margins tighten further, there's going to be more and more pressure on businesses to pass on their costs to customers, so any wage increase would push businesses that currently choose not to or are finding it difficult to, they would more or less be pressed to increase their prices associated with that. So, we are going to see inflationary pressure grow if there is a significant increase in the wage.
PN207
JUSTICE ROSS: Thank you, Mr Grist. Are there any questions from the panel for ACCI? Ms Labine-Romain, yes?
PN208
MS LABINE-ROMAIN: Thank you. I'm wondering if I might get Mr Grist to speak a little bit about that concept of it being difficult to pass along the cost to consumers. Certainly in the environment we are currently in, we are all very aware of the elevated inflation figures that have recently come out, but if we have businesses that are passing on additional costs coming through the rest of their supply chain, having them pass on costs of additional wages to their workers seems to be kind of part of the overall equation.
PN209
I am just trying to figure out what's underpinning - what's our evidence around the fact that it's difficult to pass on the cost to customers, because right now we're in an environment where we know that some parts of our population have additional savings, we have seen a shift in their spending patterns over the period of the pandemic, but I would really like to narrow in on that concept of it being difficult to pass it on to the customers.
PN210
MR GRIST: Yes, I agree that saving rates are up and customers do seem to be aware that there are inflationary pressures out there and I suppose are more accepting of price increases, but, generally, if you are in a competitive market and you're a café and you are finding that your costs are increasing, but you are in a street competing with another half a dozen cafés, it's very difficult, I suppose, to be the first mover in that instance and be prepared to go from $4 to $4.50 for a cup of coffee because that's going to impact on your business and your customers.
PN211
I think, generally, businesses need to stay competitive and a lot of them are absorbing a lot of their costs increases, and I will point back to the ABS business conditions survey, which is showing that a lot of businesses are finding it difficult to pass on their increasing costs to customers. It is more businesses are trying to remain competitive, but their margins are really starting to get very tight.
PN212
MR BARKLAMB: If I might just very briefly, that might be usefully, Ms Labine-Romain, be a question you might also put to our colleague, Mr Lambert, who can perhaps provide an indication of his members' experience.
PN213
MS LABINE-ROMAIN: Thank you Peter, thanks Scott.
PN214
JUSTICE ROSS: Are there any other questions from the panel for ACCI? No? All right, thank you, Mr Barklamb. We will go to the Australian Retailers Association. Mr Zahra.
PN215
MR ZAHRA: Good morning, your Honour, Commission and Panel members. Thank you for the opportunity to speak with you today on our submission to the Annual Wage Review.
PN216
The ARI, the Australian Retailers Association, is the oldest, largest and most diverse national retail body. We represent a 360 billion dollar sector which employs 1.3 million Australians or one in 10. We are Australia's peak retail body representing about 100,000 retail shop fronts of online stores and, as an industry, we are the largest private sector employer in the country.
PN217
We have taken a principle-based approach to this year's Annual Wage Review and we believe that this year's increase should be based on the actual rate of underlying inflation using the trimmed mean inflation rate, or TMI, at the time that the wage review is handed down and less the impact of the next increase in the superannuation rate commencing on 1 July this year.
PN218
Taking this approach, our submission is for the minimum wage to increase to 3.2 per cent. We believe this would be a fair and balanced outcome that ensures wages can keep pace with the rising cost of living whilst acknowledging the significant cost pressures businesses are currently facing.
PN219
I am happy to talk in any more detail about the ARA's submission and answer any questions the panel might have.
PN220
JUSTICE ROSS: Thank you, Mr Zahra. Are there any questions? Yes, Professor Wooden?
PN221
PROFESSOR WOODEN: Okay, Mr Zahra, I'll take up the challenge. Your suggestion to sort of use the trimmed mean inflation as sort of the guide to the inflation indicator, price inflation, is obviously different to what is implied in other submissions, notably the ACTU, et cetera, which are going to use the headline rate. I just wonder whether you could, you know, expand a bit more on your reasoning there?
PN222
MR ZAHRA: Sure. So, we have taken the TMI rather than the CPI because it removes volatility from the equation. The TMI will be more useful through time. As a trimmed mean, it avoids volatility in prices in both directions. Temporary factors can both lower or increase inflation, but often reverse quickly; hence a preference for most policy makers to use TMI.
PN223
The TMI should be more representative of costs of living through time as the volatile measures both rise and fall and will even out over time.
PN224
In fact, in 2020, using CPI would have resulted in wages going backwards and the TMI was a lot more stable and a better yardstick, we believe, for workers, and the long-term average of TMI compared to CPI over time is the same, so relying on TMI will never give you a result where workers are worse off than if we relied on CPI, but will avoid the volatility from quarter to quarter of CPI fluctuations.
PN225
Currently, of course, we all know global pressures, the war in Ukraine and supply chain issues are driving volatility and inflation. The main drivers of volatility in the March CPI were costs of fuel and building materials, and the government has already, we believe, alleviated the increase in fuel costs for consumers. In essence, it removes the volatility which is why it's our preferred measure.
PN226
PROFESSOR WOODEN: Extending a slightly different line of attack, in your formula - which is TMI minus superannuation guarantee - you make no consideration for potential sharing of some of the benefits of productivity increases.
PN227
MR ZAHRA: As I mentioned, we have gone with a balanced approach. We believe that anything beyond that we would need to see productivity improvements. It's not a question for today. We are conscious that 95 per cent of our membership are small to medium‑sized businesses and for all the issues mentioned today we are concerned about pushing those businesses over the edge.
PN228
We know that we can't pass all that cost pressure onto consumers because some products are just simply price‑sensitive and discretionary items particularly are price‑sensitive, so we believe this is the most balanced approach that rewards or improves the minimum wage for our frontline workers, but equally has a balanced approach to business.
PN229
PROFESSOR WOODEN: Thank you.
PN230
JUSTICE ROSS: Any further questions for the ARA? No? Thank you very much for your contribution.
PN231
MR ZAHRA: Pleasure.
PN232
JUSTICE ROSS: Can we go to the MGA, Ms Lee and Mr de Bruin.
PN233
MR DE BRUIN: Thanks, your Honour, and thank you, Commissioners. I also have my colleague Angeline Lee with me today, Justice Ross. I'll commence by saying that we won't be talking to all the economic indicators as indicated by AiG and ACCI because that's clearly understood. We come from a more grounded approach. We have done extensive research with our members, who are family and private businesses in the food and grocery, liquor, timber and hardware sectors. We compete against very large corporates, as you all know.
PN234
Our staff are our greatest asset; there is absolutely no doubt about that. We operate in a 16/7 economy and wages are our biggest cost to do business, no question. In our submission that was lodged with the Fair Work Commission, we have sought restraint in respect of any wage increase given that wages are such a big cost to do business.
PN235
Every day our members are coming back to us and saying, 'When are these cost increases going to stop? We have waste, we have sustainability, we have state levies on waste, we have insurance.' Some members are reporting a 50 per cent increase in insurance premiums and they're not able to absorb those costs so they're actually under‑insuring themselves and lessening their cover.
PN236
Freight costs, I think we're all aware of that. Import, fuel, outgoings, energy rates, things such as merchant payment fees have had an enormous impact as the credit card has taken hold and we tap and go. We are definitely operating in a world of very razor‑thin margins, as I like to call it. We are in competition with large corporates who have efficiencies beyond our capability to match. They are vertically integrated. We are family and private businesses that serve our communities. We support our communities. We pro rata employ more people to deliver those services and support.
PN237
We have less reliance upon mechanisation. We don't have the remote cash registers or, should I say, the people‑less cash registers. We rely upon people to transact. We're a different trading model, as I said, to the chains. Even when we look at freight, the cost of freight to our regional members across Australia we have incredibly high freight charges, but we know the large chains don't charge through regional freight rates, they charge through city freight rates and that puts us at a significant disadvantage in terms of the costs of goods, as well.
PN238
Another factor, I mentioned merchant payment fees before. The chains and corporates don't incur those fees either because, in effect, they are a bank in their own right and so therefore we have a variety of costs pressures that our competitors, the big corporates, aren't experiencing. I guess with the costs pressures increasing we have the potential to employ less people and also to give those people less hours, so consequently we're finding through all the research we're doing that our family and private business owners are working more and more hours. They are trying to engage more and more family into the business, as well, because they simply can't absorb these costs into these margins to remain cost‑competitive with the chains.
PN239
Just to put things in perspective - and I know we know this already - if we talk to a family business owner and we say, hey, look, between 2017 and 2020, including the September 2021 wage increase of two and a half per cent, we've actually pushed through 13 and a half per cent in wage increases - and we haven't really changed our margins at all. In fact our margins have become further squeezed. Why; to remain competitive with the chains.
PN240
Last year alone in the calendar year we know there was a 4.25 per cent increase, plus 0.05 per cent in super, so again we had to squeeze that into our margin. We can't increase prices because the chain stores don't do that. We know that in July of this year we have to try and find another 0.05 per cent to squeeze into our margins, so really what we're wishing to do is to seek restraint in any wage increases, your Honour. We feel enormously under pressure at present.
PN241
We know that the inflationary issues are caused by many, many factors, including many Australians not travelling overseas as they used to which means that there is still $2 billion floating around in the Australian economy which is pushing up consumption within Australia, pushing up prices and so forth. We would offer that hopefully over the next months, years, that international travel would resume and we know for a fact that there is a lot of leakage of funds that leave Australia which leaves less capacity for many people to spend.
PN242
Your Honour, we just can't survive as a family and private business sector. We have got to make a profit along the line, because if we don't invest back in our businesses we are going to be overrun by the large corporates. We've seen it, it has been happening over decades. We need to keep offering our consumers a choice and we want to employ more people. There is absolutely no doubt about that; we need more people. I will hand over to Angeline, your Honour, just to complete our presentation. Thank you.
PN243
JUSTICE ROSS: Thank you, Mr de Bruin. Ms Lee?
PN244
MS LEE: Thank you, Jos, and thank you, your Honour. Okay, so again I echo Mr de Bruin's call for restrain, again wanting to highlight some of the exceptional circumstances that persist in our industry; so that's the general retail industry including liquor, retail and also timber and hardware.
PN245
As mentioned by some of the other parties, we face exorbitant fuel and energy costs and this will continue to persist despite the existing fuel excise cuts. Like Jos mentioned, the ever‑increasing market power of our large national chain competitors like Coles, Woolworths, Bunnings, they have enormous economies of scale and access to technology that our members, given their small to medium size, cannot compete with.
PN246
There is also the high inflation rates that effect our members and the projected increases in the RBA cash rate which will indirectly result in increased inventory costs. It seems to us that our members are now left with little choice but to pass on increased costs to consumers because they already struggle to meet other costs of doing business, such as the increased super guarantee track threshold, transport costs and also the impact of recent natural disasters like flooding. Also increased commercial rents, as well; rents have been increasing across the board for our members and also just in general.
PN247
Our members also continue to grapple with the impact of COVID‑19, including increased compliance burdens and costs. Like mentioned by some of the other parties here, the retail sector employs a disproportionately high amount of award covered employees and we see that in our members - our members employ mostly award covered employees, being small to medium businesses that do not have the ability to engage in enterprise bargaining.
PN248
So, that follows that any increase in minimum award wages would disproportionately affect our members. So we support no wage increase or a very modest wage increase. We submit that, you know, our members will have little choice but to significantly increase prices passed on to customers as a result of increased costs of labour, and this will add to further inclusionary pressures. As mentioned, the types of goods that our members sell are not discretionary goods like food and grocery items and hardware items.
PN249
Our members also - -may also be unable to pass on the full extent of these increased labour costs because of pressures to remain competitive with large national chains. So, like I mentioned our Coles, Woolworths, Bunnings have access to economies of scale that our members don't have, so they may find it easier to absorb increased labour costs. Our members being unable to absorb these costs, can only afford to pass on some of them, which may result in members having to reduce costs where they can, such as by reducing hours offered to employees or reducing employer head count, or even by withdrawing from the market. So we ask the panel to take these factors into account in determining any modern award wage increase this year.
PN250
JUSTICE ROSS: Thank you. Sorry, Ms Lee. I wasn't sure if you'd finished.
PN251
MS LEE: No, I was finished.
PN252
JUSTICE ROSS: Right, thank you. Are there any questions for the MGA community panel member? No. All right. Thank you very much for your submissions. Can I go to Mr Lambert from the Restaurant and Catering Association.
PN253
MR LAMBERT: Thank you, justice, and panel for reviewing our submission as well our oral submissions today. I won't repeat what many of my friends have said in advance, other than to say that the restaurant, catering and café segment of the accommodation food service industry is about 55,000 out of 100,000 businesses in the industry, only second to coal and the retail industry. And our segment employs 350,000 today, normally employs 450,000.
PN254
Certainly our submission noted, you know, hoping for no wage increase and this is supported by many factors. First is the hospitality industry according to the ABS has had one of the highest wage increases - market wage increases over the past seven months to March, as well as this week's submission or on 12 May the ABS said that total wages in accommodation and food service in the fortnight were up 4.7 per cent. So, this is coming from ABS and very valid sources. It's not just us saying that. Market forces have driven up wages in the accommodation and food service industry. There was a recent article about a restauranteur offering a $13,000 (indistinct) and no one wanting to take it.
PN255
There are also only just over 200 chefs and cooks in the visa pipeline overseas. It's one of the lowest numbers it's ever been and so the visa processing times for overseas chefs and cooks is now just 90 days and so it's really - we have a severe shortage. So, one of the things that worries the hospitality industry is that because headline CPI is now 5 plus per cent and potentially could be 6 to 7 per cent come 1 July, the - in fact wages grew by 2.4 per cent year it says, according to Sydney Morning Herald. They're worried that we'll have a lot of hidden cost increases in fiscal 23. So, many of their leases are tied to the headline CPI number, so you know leases that were signed over the past decade would have been signed with, you know, 1 or 2 per cent plus CPI, with a max of CPI. Well, most of the time people thought that okay, it'll only be 1 or 2 or max 3 per cent. We see a headline CPI of 6 or 7 per cent.
PN256
That's what the landlord use, they don't use the every three months, they use that line in the sand of 30 June, so that will be what all ground floor retail and accommodation food service rents reset to, because that is the majority of rents in those industries are set to CPI. So, immediately without doing anything, still having debt behind them for past rent under the changes to the Retail Leases Act, they're going to have a six, seven, potentially even higher, rent increase. That's huge.
PN257
If we couple that with a significant wage increase, I note that the ACTU ask for 5.5 today, you're talking about 11, 12 per cent without doing anything but getting up out of bed. Then you have the half per cent super and then on top of all of that you have the cost of doing business increases. All of the suppliers to accommodation and food service would also be bound by those lease increases, they'd be bound by their award rate increases and they would also be bound by those inflation pressures from the previous 12 months. So, ultimately what that equates to is because our benchmarking report's consistently tell us that the total cost of employment now is about 40 per cent, if we go from 20.33 to 21.45 which is suggested by the ACTU, we would end up with an increase that would force restaurants just to break even on the increase in wages, the increase of rents at a 6 per cent CPI and the increase in cost of goods at a 6 per cent increase in CPI, they'd have to take an average meal from 50.83 to over 53.70.
PN258
Now, that goes to your question to Adele, could businesses pass on that big of an increase quickly? I would say that after the 10 to 20 per cent increase in menu prices over the past two years, my local coffee shop went up from 4.50 for a large coffee to 5.50 over a few month period at the start of this year.
PN259
I would say that we're just going to end up in a perpetuating cycle of we have to raise prices significantly in order to cover the follow on effects of a very large minimum wage or award wage increase, and we're just going to be having the same conversation a year from now when we have high inflation because we're chasing the past instead of trying to temper and slow things down. The Minimum Wage Review Committee will actually be the creators of inflation if they make the minimum wage increase too high and it forces prices up. So, I'm open to any questions.
PN260
JUSTICE ROSS: I have a question, Mr Lambert. You indicated that market wages in the sector had increased significantly by over 4 per cent, I think you said. So, I take it that's - they've increased by 4 per cent above the minimum award rate. Is that the proposition?
PN261
MR LAMBERT: Well, according to the ABS that's the weekly - fortnightly wages, that report came out on 12 May. That is the weekly payroll and jobs wages in Australia, so this - that is the spike in wages in the industry, and so the issue is that if they're forced to increase wages for everyone across quite a large - because we're on an award rate so you have an uptake to everyone, which is significantly higher than the minimum wage, it will continue to put pressures on these businesses.
PN262
JUSTICE ROSS: Yes, I don't really follow that argument because if your sector has increased wages by over 4 per cent above the minimum prescribed in awards, you realise that any increase re-award is to the minimum. It's not to the actual wages that you're paying. So business could simply absorb, that is not pass on the increase if they're already paying over award wages in excess of the minimum award rate.
PN263
MR LAMBERT: So, I certainly take your argument on board. Two things, one before I think my - - -
PN264
JUSTICE ROSS: I'm not advancing it as an argument, I'm advancing it as that's how the system works.
PN265
MR LAMBERT: I understand but I think that Scot from ACCI noted that almost all wages within a business do go up by that increase. It certainly permeates throughout multiple businesses because the award rate goes up and so many people get a bump up just because the minimum wage goes up. That's quite - - -
PN266
JUSTICE ROSS: That's the choice a business would make. It's not the legal consequence of our decision.
PN267
MR LAMBERT: Well, the choices that the Minimum Review Committee makes have follow on effects for how businesses treat all of their employees. It's not just the employees that are on minimum wage or award rates, it does permeate throughout all of the foundation industries. Those industries that tend to pay minimum or award rates certainly increases them to permeate out to all of their employees. But I do take that on board.
PN268
In addition, when you say, 'absorb', at the moment, according to our (indistinct) the industry is only on between 4 and 5 per cent profit margin, so all of the - - -
PN269
JUSTICE ROSS: No, I'm not using 'absorb' in the sense of you absorb into your profit and you reduce your profit share. I'm using it in the sense of, if you pay an amount over the award minimum rate and we were to award an increase in the minimum rates, your legal obligation to pay an increase is only if the amount you are currently paying is less than the new award minimum rate. That's what I mean.
PN270
MR LAMBERT: I understand that. It's just in theoretical versus market forces, market forces is normally employees are looking for that increase across all wages, not just the minimum rate.
PN271
JUSTICE ROSS: All right. Are there any other questions? Professor Wooden?
PN272
PROFESSOR WOODEN: Yes, I'll just follow up the same argument. I don't quite understand the claim being made here, or the relevance of the date it's set being used, which I think is total payroll, so that will be affected by the number of people employed. But I just note that other release that just came out a few minutes ago, the wage price index to retail trade only went up 2.3 per cent for the year, which would suggest that that's just barely in line with the increase we gave the wage a year ago. So, does that affect your assessment situation?
PN273
MR LAMBERT: I haven't reviewed what just came out other than a headline.
PN274
PROFESSOR WOODEN: The headline was 2.4, for the economy but for retail trade, and we don't do anything more targeted than that, is the - - -
PN275
MR LAMBERT: Accommodation and food services, do you have that (indistinct) in front of you?
PN276
PROFESSOR WOODEN: Yes, I do. I have it in front of me. So, accommodation and food services is 2.6. That was last year.
PN277
MR LAMBERT: For the last year?
PN278
PROFESSOR WOODEN: For the March quarter, to the latest to latest figures after the year ending March this year.
PN279
MR LAMBERT: Ultimately I do understand that market forces have pushed wages up in the industry. We are more speaking about the effects of all of the increases to the industry, and further pressure to the minimum wage and to the award rate, with a number with a 4 or a 5 in front of it, is going to put heaps of pressure onto accommodation and food service, which continues to plummet in the profit margin. According to the ATO benchmarking and other benchmarking reports over the past decade, profitability in accommodation and food services has dropped from 10 to 15 per cent, to under five. Now that is the responsibility of all of us. Ultimately it is certainly - because we couldn't raise prices quickly enough over time - no one really wants to be paying $7 or $8 for a cup of coffee, so consumers pay a part in this. As Adele asked before, can businesses raise their prices fast enough to keep up with the price increases? Well, they'll have to, or I think what Angeline said, is many businesses will just close their doors, which just lowers overall employment.
PN280
PROFESSOR WOODEN: Fair enough, thank you.
PN281
JUSTICE ROSS: Any other questions? No? Thank you, Mr Lambert.
PN282
MR LAMBERT: Thank you.
PN283
JUSTICE ROSS: We'll go to ACCER, Mr Mackie.
PN284
MR MACKIE: Thank you. From habit if nothing else, I'll announce my appearance. My name is Mackie, M-a-c-k-i-e, initial S, of counsel. I'm acting for the Australian Catholic Bishops Conference, which is also know as the Australian Catholic Counsel for Employment Relations. I am instructed by Megan Kavanagh, Colin Biggers & Paisley. I'm aware that it appears in the camera I am speaking very distantly, my apologies for that. Hopefully the camera will zoom in, but hopefully my words will be slightly more important than my appearance so I'll just continue on.
PN285
The Panel will have seen that we have provided written submissions filed 1 April 2022, and reply submissions by
PN286
10 May 2022. We rely upon both sets of our written submissions. As we state in our initial submissions the Catholic Church is one of the largest non-government employers in Australia. It routinely makes its submissions to the panel in this process. This year the bishops have taken a slightly different approach.
PN287
We have provided an expert report from Dr Tom Barnes on the subject of an increase to the national minimum wage, and with the Commission's permission I would like for my solicitors to file Dr Barnes' CV for the Panel's reference. That report is at Appendix A of our initial written submissions, and much of what we have to say has its genesis in that report, and as a result that's what I will initially be speaking to.
PN288
We submit that this is what sets our submissions apart. It is one thing to make bold and unsourced claims about the state of the wages and the economy but it is another to have academic quality analysis, analysis of and reference to the primary data. I would like to take this opportunity to publicly thank Dr Barnes for his assistance. So, my oral submissions will essentially form into three parts.
PN289
First I am going to discuss the findings of the report and this is essentially part 3 of our initial written submissions; Second, I'm going to talk more specifically about the factors in section 284 subsection 1 of the Act, which is part 4 of our written submissions, specifically I am going to discuss inflation; and finally I will turn briefly to the statutory construction of section 284.
PN290
JUSTICE ROSS: Mr Mackie, just before you do, I trust you're not going to read those parts of the submission 2 - - - -
PN291
MR MACKIE: No.
PN292
JUSTICE ROSS: As given the purpose of these consultations is for parties to make short points which they wish to highlight from their written material. We have obviously had the opportunity to read your written material.
PN293
MR MACKIE: Yes, of course, your Honour. I thank you, of course, for the reminder, but no, if I read out written submissions I would of course be here for some time. I did want to say that some parties have already responded to our material. There are one or two matters which I wish to raise by way of reply. I understand that there is usually an opportunity to reply at the end of this process, so I'll hold anything I have to say by way of reply until that part of the process.
PN294
JUSTICE ROSS: No, this is that part of the process.
PN295
MR MACKIE: Very well, in that - - -
PN296
JUSTICE ROSS: Say what you want to say in reply.
PN297
MR MACKIE: Thank you, your Honour. I'll make sure I include a reply at the conclusion of this. We also note that if further matters are raised by the government in coming weeks we would also seek an opportunity to respond to that additional material.
PN298
Turning first to the report, this is summarised at part 3 of our written submissions and the report is, of course, contained in Annexure A. I am, of course, not going to read through the report, however I am going to highlight its findings. The report concludes, and we can see there's an executive summary at the front, that there ought be a 6.5 per cent increase to the national minimum wage. Broadly speaking that's based on two factors. First, we can afford it. And second, it would be good for the economy.
PN299
Looking at the first part of that which is, we can afford it, I will of course without reading the material out, walk the panel through some of the highlights of this report. As we can see on the first page, it starts by stating that the prognosis for its 6.5 per cent increase in the national minimum wage is extremely positive. And then at subparagraph 4, it lists of course the specific data in support of that proposition, which is:- the grown in real net national disposable income; Australia's economy generating more production output in the year following the COVID recession; then the three years prior to the pandemic which is going to be relevant when we refer to inflation; extremely low unemployment and strong jobs growth.
PN300
Then over the page, the following two dot points, 'We have strong business investment underpinned by strong business profits.' Now those statements are, of course, not bold claims with no basis. They are supported by ABS data. Take for example, the first point about real net disposable income. If we turn to page 5 of the report we can see the detail discussed at the third and fourth paragraphs with the ABS data set out in figure 1. Take the second point, production output, that's demonstrated by a rapid rise in gross value added which is set out in page 6. GVA has grown 2.9 per cent per quarter since the end of the COVID recession compared to 1.2 per cent per quarter in the three years prior to COVID, and we can see that ABS data again in figure 2.
PN301
Low unemployment is discussed from the third paragraph of page 6 through to page 8, and you will notice the thoroughness with which these figures are discussed, dealing with criticisms of the accuracy of the unemployment rate, by analysing unemployment in terms also of employment growth and concluding that this secondary measure supports the truth of low unemployment.
PN302
Rising business investment and business profits is similarly dealt with at pages 10 to 12. At page 12, figure 9, we can see gross company profits before and after tax, seasonally adjusted. Now, let's compare that to figure 31, which is at page 35 of the report. This figure 31 shows the income required to avoid poverty. We discuss our definitions of poverty in the report and I won't go to that in any detail. The red line is the national minimum wage and the other lines are the amount required to avoid poverty. The dashed and dotted lines above the red line are essentially the poverty line for families.
PN303
So, we can actually see, and this is concluded at the bottom paragraph of page 35, that the amount required for a family to not live in poverty, a family that is living on the national minimum wage, has, in fact, been increasing, but we compare that, of course, to the increase in both operating profits and company profits, both before and after tax, in figure 9.
PN304
Now, we are not the only ones who say that the economy is going well, provided, of course, that you are not a family on the national minimum wage. This is listed at page 19 of the report and we can see in the first few paragraphs there is reference to many others who have made similar findings: Westpac; the NAB; ACCI; even ABS survey data on business expectations shows optimism.
PN305
I have not touched on all of the measures referred to in this report that repeat this simple point. We can afford an increase. For example - and I won't take the panel through these in any level of detail, but I will just note all these factors are raised - at the bottom of page 19, we discuss small business survival rate; at the bottom of page 20, there is the proportion of employers looking to increase staff numbers, a quarter of whom are small businesses; at page 21, there's a recovery in payroll jobs amongst the small businesses; at page 22, affordability of staff ranks a distant fifth in the list of concerns for businesses with unmet labour demands, and that's explained at figure 21, and at pages 25 to 30, there is consideration of specific industries, including retail, construction and manufacturing. All of this harkens back to a simple message: we can afford an increase.
PN306
It is very easy to sit here and catastrophise about the future in what is effectively a modern variant of, '"We'll all be rooned", said Hanrahan', but it brings us to a simple point: the workers on national minimum wage, as shown by 31, have been waiting for a long time for a significant increase. If not now, when?
PN307
This brings me to the second point of the report, that an increase in the national minimum wage will be good for the economy. Now, there can be a tendency amongst some commentators to assume that low wages translates to a strong economy, so, the lower the wages, the better for the economy. That is, of course, not true and we only need take that to its logical extreme to see that it breaks down fairly quickly.
PN308
So, while it is, of course, true that a minimum wage that is too high may harm the economy, there is also a harm that follows a wage set too low. That point is discussed at page 15 of the report. I will summarise its points as follows.
PN309
As we can see in the second paragraph of page 15, the observation is made that currently our economic recovery is investment-driven rather than consumption-driven. Now that's important because the rate of investment will slow over time, but slow wages growth limits the capacity of consumer spending to pick up the slack. There is a risk of that happening because, despite the increase in investment, the wage share of the economy has continued to fall. This is discussed at the last paragraph of page 15 following on to page 16.
PN310
The comment at the end of page 16 is that the wages proportion of GVA, the measure of productivity, has fallen from 53.7 per cent in June 2020 to 49.7 per cent in September 2021. This leads to the conclusion, at pages 17 to 18 of the report, that:
PN311
Low national minimum wages growth will continue that trend, that is, an investment-biased growth with relatively weak consumer spending and a declining ratio between wages and economic output. If not addressed, that will limit economic growth and employment growth over the medium to long terms.
PN312
It is important to note, as observed at page 18, wages growth in Australia has been relatively or stagnant for many years, despite rising economic output. The data for that can be found in figure 17.
PN313
The report picks this argument up about the benefit to the economy of increasing the national minimum wage. It picks it up again at page 33 where it starts referring to a social case for a rise in the national minimum wage. I want to be clear, when it says 'social case', it does not mean a case based solely on avoiding social harm; the submission is that a higher national minimum wage changes people's behaviour, which improves the economy.
PN314
During the Jobseeker period, for example, survey data showed that four out of five recipients were eating better and more regularly while seven out of 10 were able to catch up on bills or pay medical expenses. Importantly, it improved labour market participation because people who can eat properly and pay their medical bills are more likely to go to work.
PN315
At the bottom paragraph and over the page, we can see when the supplement was removed, we had mental health consequences, financial, housing consequences, a sharp increase in homelessness.
PN316
There are economic costs to such things which can be avoided by increases to the national minimum wage. To put it another way, and I refer again to figure 31, the difficulty with a national minimum wage is children. The problem here, in our submission, is that children are being brought up in poverty, which means that every dollar saved from lowering the parents' pay has a price attached. Now, that price might first be paid by the child, but it is ultimately a price that the public will pay. The money saved on wages is all too often spent by either the health system or the criminal justice system.
PN317
In essence, that is my summary of the report. You will be pleased to know it's also the bulk of my oral submissions. There are a few other matters that I wish to address, however, as I foreshadowed at the beginning.
PN318
Moving on then to section 284 of the Fair Work Act, which is, of course, addressed in part 4 of our written submissions, there was one point I particularly wanted to address, which was inflation. Now, of course, there's been several references to inflation today. It is easy to make a reflex assumption that increasing wages will increase inflation. We say that that deserves further analysis.
PN319
Wage increases can cause inflation if they are not justified by production, but, as the data which I have just referred to shows, that is not the case here. Australian production, and I refer again to the GVA growth, has been solid. Wage growth, however, has not. This is actually touched on briefly in the report at pages 12 and 13, where Dr Burn notes that, 'CPI has grown much faster than WPI of late', meaning that present inflation is not due to wage pressures.
PN320
As he notes in the final paragraph of page 13:
PN321
Labour productivity has in fact been disproportionately contributing to national productivity for two decades.
PN322
Which of course brings me back to my first point. We can afford this. The increase that we are seeking to the national wage is not - we submit, will not impact inflation because we're not seeking that number due to inflation. We are seeking it because it is justified by Australia's productivity.
PN323
Finally, I wish to turn to the construction of section 284. Now, I am aware that the panel and the Bench have addressed this issue before, so I will be brief. However, in the absence of court authority it is a matter that the panel is empowered to revisit and one we say it ought revisit. Our position is spelt out in some detail in parts 1 and 2 of our written submissions, so of course I won't discuss that in detail but in summary our argument is simply this; if we look at section 284, we can see that it states the FWC must establish and maintain a safety net, a safety of what? Of fair minimum wages. Therefore, that is what the FWC must create. It creates that safety net taking into account the matters listed in subparagraphs (a) to (e), but regardless of what weight the Commission grants those factors, it must make a safety net.
PN324
The question is really what does safety net mean? Now, we say that safety net is designed to protect people and in this context that means protecting people from poverty. So that's consistent with the extraneous material to the Act. The second reading speech, for instance, expressly refers to the concept of a living wage. That of course is not just for a single adult living alone, it's for families. As we've said before, that's consistent with the underpinning ILO obligations which expressly provide for providing a suitable wage to wage earners and their families.
PN325
Now, we say in part 2 of our written submissions that the national minimum wages currently does not meet that goal. And that is because people on the national minimum wage, particularly those with children, are in poverty. Now, we say that is not a safety net. As we say at paragraph 80 of our initial written submissions, there are approximately 280,000 full-time workers in this country who are living in poverty. The cost of that poverty will fall disproportionately upon children in the first instance, and then most likely the rest of society.
PN326
In conclusion, my client seeks a 6.5 per cent increase to the national minimum wage for three primary reasons. First, we can afford it. Second, it will be beneficial for the economy and third, it will move toward establishing a safety net that will the burden upon the working poor.
PN327
That is my primary submissions. I would like to move on then to address a few matters in reply. First, there's been some discussion earlier today about flow through of the national minimum wage to other employees. Now, of course as the panel is - as everyone is well aware, there does need to be care in confusing saying that well, an increase to the national minimum wage automatically increases businesses reliant upon awards and EAs. We do need to be careful when we are talking about the wage costs of businesses that are relying upon a wage - awards and EAs when we are fusing that into discussion of a national minimum wage.
PN328
I believe Hampton C made some points along this note and submissions were made about passing on that increase to non-minimum wage workers. The submission I wish to make about that is this. Correlation does not imply causation, particularly if the national minimum wage is only being increased during economically strong periods, we could expect that other workers who are not reliant on the national minimum wage would also receive an increase. So, it does not automatically follow that just because those two things may happen at the same time, an increase in the national minimum wage will automatically flow through to everybody else.
PN329
The final matter I wish to raise by way of reply is this; in some of the reply submissions that deal with our material there is a surprising amount of what can only be described as (indistinct) attacks upon my client. Now, it's not actually relevant to these proceedings, so I'm not going to (indistinct) it with a response beyond saying it's wrong. But there is one point that I would like to reply to, which is an accusation that we have ignored the smallest businesses in Australia and brushed aside their situation with a global reference to broader implications.
PN330
Now, this is of course wrong. For example, pages 19 to 23 of our expert report speaks almost exclusively of small businesses. But this submission misses a more fundamental point. This decision will effect people who are even smaller than the smallest of businesses, and that is children. As we have made very clear, our submission is that the burden of a low national minimum wage falls disproportionately upon the children of low income earners. They are the ones who are thrust into poverty and they are the ones who will truly pay the price for it. And yet, they have no voice to this panel. We make no apologies for letting them out.
PN331
Unless the panel has any questions for me, that concludes my oral submissions.
PN332
JUSTICE ROSS: Mr Mackie, can I take you to your construction argument so that I can follow it.
PN333
MR MACKIE: Yes, of course.
PN334
JUSTICE ROSS: You say at paragraph 18, this is of your initial submission, that any order arising from these proceedings must answer the statutory description of being a safety net of fair minimum wages, and if it doesn't answer that description then the order would be affected by jurisdictional error.
PN335
You then say at paragraph 25 that if the rate is set at a level where persons fall into disadvantage or poverty, then it will not answer the statutory description of a safety net. You submit the appropriate definition of poverty in this context is the 60 per cent of median earnings proposition. So, the essence seems to be that the statutory obligation is to establish a safety net of fair minimum wages, to meet that statutory definition it would have to be set at a level such that persons in any cohort are not living in poverty, that is they would be at or above the 60 per cent median earnings. Is that the proposition?
PN336
MR MACKIE: Yes, although if I may clarify when we say any cohort, we are specifically referring to person employed full-time.
PN337
JUSTICE ROSS: Sure, I understand.
PN338
MR MACKIE: And we refer to people with one or two children, yes.
PN339
JUSTICE ROSS: Yes, yes. And if it doesn't meet that then the order would be affected by jurisdictional error, as I understand the proposition.
PN340
MR MACKIE: Yes, that's correct, Your Honour.
PN341
JUSTICE ROSS: Well, isn't the problem with that, that even if we were to accede to your increase you wouldn't lift all full-time people in different family groups out of poverty.
PN342
MR MACKIE: We understand that - - -
PN343
JUSTICE ROSS: Because the increase required would be over 40 per cent.
PN344
MR MACKIE: I couldn't comment on the exact number percentage - - -
PN345
JUSTICE ROSS: You've gone onto mute. Mr Mackie, you've hit mute.
PN346
MR MACKIE: Can you hear me now?
PN347
JUSTICE ROSS: I'm sorry, can you just repeat what you've said, you were on mute.
PN348
MR MACKIE: Certainly, sorry. I said I would need to - I would need to double check the maths of 40 per cent.
PN349
JUSTICE ROSS: No, you don't need to. It's more than 6.5 per cent, I can put that to you. I don't think there's any dispute about that.
PN350
MR MACKIE: I'm certain it's more than 6.5 per cent, I absolutely accept that and yes, your Honour, we do accept that that logic does follow. Our submission, I suppose, would ultimately fall to this; we are - while of course that is our position, we are ultimately realists in that we are aware of positions that the panel has previously taken with this, such that our - you'll notice that my primary position today has been focused on, you know, the factors in 284, rather than the statutory construction. So, we have sought the 6.5 per cent increase on the basis of that is a level which we believe realistically is an outcome that may be more likely.
PN351
JUSTICE ROSS: But you have sought that on the basis that that would lead us into jurisdictional error, on your argument.
PN352
MR MACKIE: That's only to the extent, your Honour, that we have explained in detail in parts 1 and 2, what we say the position is, and 6.5 per cent I suppose it may accurately be said, is a fallback position.
PN353
JUSTICE ROSS: But it's either jurisdictional error or it's not.
PN354
MR MACKIE: That's correct, your Honour. In the event that the panel were to decide that it is not jurisdictional error then we would submit that the rate should be 6.5 per cent.
PN355
JUSTICE ROSS: All right. Are there any other questions from the panel?
PN356
PROFESSOR WOODEN: Only on that one.
PN357
JUSTICE ROSS: Yes, Professor Wooden.
PN358
PROFESSOR WOODEN: I'm just wanting to draw your attention to the question of, can we afford it which you've made on your key claims and you've reported in particular, the figure 9 in that attachment, which is very compelling. But I also wonder whether, and this comes I guess back around to the issue around small business, particularly, but the unevenness about this. So, when you've got a figure at 9, obviously an average for the economy wide, but in the Fair Work Commission's statistical report they produce figures sort of broken down by industry.
PN359
That shows, at least in the last year, that the gross operating profit increases were driven by, particularly finance, but over a 150 per cent increase, manufacturing, mining - whereas most of the award wage reliant industry is accommodation, retail trade, other services. Their profits all went backwards in 2021.
PN360
So, I just wonder, given we sort of have to focus a bit on the lowest common denominator, does that cause you to temper your strong conclusion in any way?
PN361
MR MACKIE: Professor, to that extent I would actually refer to pages 25 to 30 of the expert report which do go into a variety of industries, such as retail, particularly retail, construction and manufacturing. So, my response to the question would be, actually there is a broader analysis of industry specific requirements and what is happening in those industries. So we aren't simply relying upon a global figure.
PN362
PROFESSOR WOODEN: Was profitability covered in that (indistinct)? I didn't see that.
PN363
MR MACKIE: I don't believe there is an exact figure for profitability.
PN364
PROFESSOR WOODEN: No.
PN365
MR MACKIE: But there is in the Commission's (indistinct) report. That's the point. It's in the evidence that we put every year. You'll see at chart 3.2 which does produce some figures relating, at least to the last 12 months. Professor, I believe probably the most efficient way forward, and I see the table, particularly as I am discussing Dr Barnes' report, is that with the Panel's permission I would actually like to take the question on notice and give him an opportunity to provide a response.
PN366
PROFESSOR WOODEN: That's okay.
PN367
MR MACKIE: Thank you. Thank you, Professor.
PN368
JUSTICE ROSS: All right, you will have until 4 pm tomorrow, and any party wishing to common on the response can do so in their submissions dealing with the national accounts. Any further questions for ACCER? No?
PN369
MR MACKIE: May I just confirm, your Honour, that we have permission to file the CV of Dr Barnes?
PN370
JUSTICE ROSS: Sure.
PN371
MR MACKIE: Thank you.
PN372
JUSTICE ROSS: Any further questions for ACCER? No? Any final observations from any of the participants in the consultations before we adjourn? No? All right, our thanks to all of you for your contribution. We will await your submissions on the national accounts in due course. We'll adjourn.
ADJOURNED INDEFINITELY [12.19 PM]