AUSCRIPT PTY LTD
ABN 76 082 664 220
Level 4, 179 Queen St MELBOURNE Vic 3000
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TRANSCRIPT OF PROCEEDINGS
O/N VT10304
AUSTRALIAN INDUSTRIAL
RELATIONS COMMISSION
JUSTICE GIUDICE
VICE PRESIDENT ROSS
VICE PRESIDENT LAWLER
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT LACY
COMMISSIONER HOFFMAN
COMMISSIONER LARKIN
C2002/2281, 2282, 2283, 2284,
4268, 5545, 5546, 5547, 5548,
5558, 5559, 5569, 5639, 5640,
5674, 5679, 5692, 5693, 5694
and 5716
CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL
TERRITORY) AWARD 1998
LAUNDRY INDUSTRY (VICTORIA) AWARD 1998
BUILDING SERVICES (VICTORIA) AWARD 1994
THE HOSPITALITY INDUSTRY - ACCOMMODATION,
HOTELS, RESORTS AND GAMING AWARD 1998
TIMBER AND ALLIED INDUSTRIES AWARD 1999
RUBBER, PLASTIC AND CABLE MAKING INDUSTRY
- GENERAL - AWARD 1998
GROCERY PRODUCTS MANUFACTURE - MANUFACTURING
GROCERS AWARD 1996
STORAGE SERVICES - GENERAL - AWARD 1999
COMMERCIAL SALES (VICTORIA) AWARD 1999
VICTORIAN LOCAL AUTHORITIES AWARD 2001
CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIA) AWARD 1999
TRANSPORT WORKERS AWARD 1998
GRAPHIC ARTS - GENERAL - AWARD 2000
METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998
HEALTH AND ALLIED SERVICES - PRIVATE
SECTOR - VICTORIA CONSOLIDATED AWARD 1998
RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES - AUSTRALIAN CAPITAL TERRITORY - AWARD 2000
VEHICLE INDUSTRY AWARD 2000
THE VEHICLE INDUSTRY - REPAIR, SERVICES
AND RETAIL - AWARD 1983
HORSE TRAINING INDUSTRY AWARD 1998
CLOTHING TRADES AWARD 1999
Applications under section 113 of the Act
and section 108 References to a Full Bench
by the applicant unions to vary the above
awards re Safety Net Review 2003
MELBOURNE
10.00 AM, TUESDAY, 1 APRIL 2003
Continued from 31.3.03
JUSTICE GIUDICE: Mr Watson.
PN593
MR WATSON: Yes, your Honour, you asked me yesterday a question regarding the ABSs view of the veracity of its labour force statistics and I read from the ABS publication, 6202, February 2003, that is not actually in evidence, the portion that I read. We do just have the single page of notes, which are the notes that I read from which I tender this morning. I know - I have distributed it to all parties and I have read it, but it just may be that it is worth the Bench having a hard copy.
PN594
JUSTICE GIUDICE: Yes, by all means. Yes, thank you.
PN595
MR WATSON: And whilst I am at it, and to save two lots of handing up, as it were, Deputy President - Senior Deputy President Watson asked me if I could provide the hours worked whole economy numbers, and we have got a table which does that.
EXHIBIT #ACTU8 EXTRACT FROM THE ABS LABOUR FORCE 6202, FEBRUARY 2003
EXHIBIT #ACTU9 DOCUMENT HEADED HOURS WORKED 1999-2002 NATIONAL ACCOUNTS INDEX MEASURES TREND
PN596
MR WATSON: Now, your Honour, the President, also asked yesterday a question in relation to the extent to which previous national wage cases has taken into consideration issues relating to drought. Overnight we have had an opportunity to look, particularly at the 1982 National Wage Case, which is Print F1660 and the case which perhaps your Honour will be familiar with, the 1991 April wage case, Print J7400. Can I go firstly to the 1982 case.
PN597
JUSTICE GIUDICE: There was nothing in 1983 in the Wages Pause Decision.
PN598
MR WATSON: Yes.
PN599
JUSTICE GIUDICE: That is the '82 decision.
PN600
MR WATSON: It is the '82 decision, your Honour, that is December '82.
PN601
JUSTICE GIUDICE: Yes, thank you.
PN602
MR WATSON: And the reasons for decision are at page 84 and they give an indication of the context in which the drought in that instance was considered. At about point 3 of the page, the Commission says this:
PN603
The Commission is faced with an unprecedented situation. Firstly, Australia is experiencing the worst economic recession since the 1930s. Secondly, all eight governments agree that a wages pause is necessary on economic grounds. Thirdly, all eight governments agree that action should be taken to freeze public sector wage and salary increases for a period of at least 6 months.
PN604
Fourthly, all governments, with the exception of Victoria, have specified the action which has been taken, or will be taken, to ensure that a similar freeze is applied to private sector employees. Fifthly, the governments, including Victoria, have in a variety of ways, taken legislative and other action consistent with a wages pause, including action to stimulate employment and whole government charges. That is the unprecedented environment in which the governments come to this Commission seeking that it exercise its powers to complete the circle by extending a pause into that part of the private sector within the Commission's jurisdiction.
PN605
And then, they go on, under their discussion of the economy, at the foot of that page:
PN606
Central to the case for a pause was the state of the Australian economy. Three main developments have affected the economy adversely. A deep and prolong world recession, a serious drought and a substantial increase in domestic labour costs.
PN607
And they go on to discuss each of those matters a little bit on page 85. And then they say this, at about point 5 of that page:
PN608
Any one of these three developments, without the others, might have been tolerable, but in combination they have produced the most serious economic crisis since the depression of the 1930s. The signs of economic strain were evident in May this year when the Commission dealt with the ACTUs application which sought, among other things, the flow of the standard wage increase of the metal industry agreement generally.
[10.06am]
PN609
Of the three factors, serious drought, substantial increase in domestic labour costs and a prolonged world recession, only one of those factors operates in those proceedings. The reference to a sharp increase in labour costs could not be more dramatically different than the circumstances which the Commission faces in these proceedings. If you go to the third paragraph on page 85, you will get some indication of the scale. Average weekly earnings appear to have risen by about 17 per cent in the September 1982 quarter on the corresponding quarter a year earlier, although there is some doubt about the reliability of the figure.
PN610
Average minimum weekly award rates show a smaller increase of between 13 and 14 per cent in this period. Wage cost index is 3.4 per cent currently. Australia is suffering a drought but this is not one of the worst recessions since the 1930s. In fact, as the Prime Minister, as the Treasurer and as everyone else notes, the Australian economy continues to grow and continues to grow strongly.
PN611
JUSTICE GIUDICE: Mr Watson, was there any indication of the reduction in farm incomes caused by the drought?
PN612
MR WATSON: Yes, I think there is, your Honour. Just - if your Honour will just bear with me. At page - you were after farm incomes in particular, your Honour?
PN613
JUSTICE GIUDICE: Well, any indication, really, of the dimension of it.
PN614
MR WATSON: Yes, sorry, it is the first dot point, I should have said that. At page 86, the first dot point, they note:
PN615
The likelihood of a 2 per cent fall in real GDP, something which has not happened since the 1930s. This prospect arises from the expected decline in real gross farm product by about 20 per cent, and an expected decline in real non-farm product.
PN616
So it is both real gross farm product and real non-farm product. And that is the expected decline going forward. Contrast that with this year's proceedings, where the expected position of the farm sector in the next financial year, is a bounce back.
PN617
JUSTICE GIUDICE: Yes, thank you.
PN618
MR WATSON: Then in the April 1991 case, your Honour, there are some briefer references. At page 11 of that case, it is noted that amongst the contrary arguments in relation to the wage increase sought there, is that:
PN619
Australia is now undergoing a severe recession brought about by the Federal Government's endeavours to rectify the problems of the external account.
PN620
So again there is a recession on:
PN621
The likely depth and nature of this recession are the subject of differing views, but the present is an inopportune time to impose on industry the burden of the increased labour costs.
PN622
And then the next dot point on that page:
PN623
The rural sector is currently in a state of crisis and will have great difficulty in coping with increases in labour costs.
PN624
And then in the - at page 17, there is a reference to a paper tendered by the NFF regarding the downturn in commodity prices. It seems to have been that, perhaps more than drought per se, that was referred to in the submissions at that time, and further down the page on page 17, a reference to an ABE paper which dealt with the expected drop in farm family incomes over the following year. And then, at page 18, the Commission sets out its conclusions. The third dot point is the one which perhaps goes most closely to any consideration of those issues raised, although it doesn't avert specifically to the farm sector, it just - it says:
PN625
The current unemployment rate and the serious deterioration of the unemployment position, which recently occurs, must cause the Commission to minimise any increases in wages for which justification may otherwise be found to exist.
PN626
And then its fifth dot point:
PN627
Some modest wage increase in wages, it may nevertheless be justified by the implication for real wages of continuing inflation and more importantly, the necessity of continuing the steps directed toward the achievement of greater efficiency and productivity.
PN628
JUSTICE GIUDICE: What is your position on the drought, Mr Watson? At the risk of asking you to re-state your submissions, in full. Is it that it is just irrelevant or is it that when one looks at all of the - at the economic situation in full, that you say it is not a factor which should weigh with us in our decision? Or is it something else?
PN629
MR WATSON: No, no, it is not irrelevant and it is not a factor that shouldn't weigh with you. We wouldn't put those positions, at all. But it needs to be placed in a context and the context is this. The drought is happening, now, and in that environment growth is moderated to 3 per cent seasonally adjusted, 3.2 per cent trend terms - still very strong figures. So the drought has had its impact on the overall economy and the contrast could not be more stark with the positions of 1982 and 1991. The Australian economy is not otherwise generally in a recession. The 97 per cent of the economy that is non farm is growing at 4 per cent.
PN630
So we say, yes, yes, understand that there has been a drought, understand that it has had an impact but that impact shows up and the Australian economy is still growing strongly. Then we say, in your consideration about what is a fair wage increase going into next financial year, the Commission needs to take account of the forecasts which look to the likelihood of a bounce back in the farm sector. In a nutshell that is our position. So we don't say, we don't say it is irrelevant, we don't say don't take it into account. We say, take it into account but understand what effect it really has had.
PN631
VICE PRESIDENT LAWLER: Mr Watson, could I just ask a further question. I used a flippant example, yesterday, but what I was seeking to drive at is really raised by your reference to the 97 per cent of economy. The impact is not just confined to farmers but it is confined to all of the shopkeepers and service people, all of those businesses that subsist in the rural towns and cities of the States of Australia. And it is those businesses which are also impacted very adversely by this extraordinary event. I can understand your response, yesterday, when you say that we are dealing with a national economy and that one has to take a national outlook. And if one was going to start making exceptions for particular adverse circumstances in parts of the economy, we would be beset with applications of that sort, every year, and the whole process would become a piecemeal mess.
PN632
But this is not just a drought which is a ..... of rural life, this is the worst drought in living memory, the worse drought in a century. And one can't but help to have noticed, over the last year from time to time on television reports and the like, reports that the rural communities in this country are suffering enormous pain, in terms of the economies of the towns and rural cities. In those circumstances, why isn't there a case to quarantine rural Australia or carve out rural Australia, rather than try and undertake some sort of trade off exercise where it is - the drought is merely a factor that is brought to account. And in that regard, is it not also relevant that the living costs, particularly in relation to accommodation, a far higher in the cities than they are in country towns and country cities? In other words, the low paid in the cities face a higher cost of living because of the higher cost of accommodation and they have a greater need to have the safety net adjusted than do the low paid in the rural towns and cities.
PN633
MR WATSON: Can I attempt, as best I can, to deal with that without, as it were, simply re-stating where I went, yesterday. The first thing to note, in our submission, in relation to that issue, is that whilst the drought, on some assessments, is the worse in a hundred years, in terms of rainfall, the Bureau of Meteorology, I think, shies away a little from being definitive about this, but it may very well be that it is the worst, in terms of rainfall, in a hundred years but, in terms of economic effect, it is simply not. And that is because since the 1980s, for example, Australia's share of or farm sector - - -
PN634
VICE PRESIDENT LAWLER: Mr Watson, I am loath to interrupt but because your answer will no doubt move on, could I just stop you there about economic effect. The economic effect you are focussing on and have focussed on in the submissions you have already made, is a macro- economic effect and it doesn't look that bad because the rest of the economy is doing as well as it is. But we note the grain harvest is down by 80 per cent in the eastern States and indeed across the country, as I understand it. And that the - a large portion of the Australian herd, livestock herd, has either died or been slaughtered because farmers weren't able to feed them.
PN635
So that in - and we know, also, that there has been a failure of various crops in the irrigation areas because there hasn't been sufficient water for people to be able to have their allocation of water to be able to irrigate their crops. So that across the entire farm sector, there has been an enormous diminution in output, I think. Correct me if I am wrong.
PN636
MR WATSON: On that - - -
PN637
VICE PRESIDENT LAWLER: So the economic impact is enormous for those particular rural producers, the sheep farmers, the cattle farmers, the wheat growers, the cotton growers, the fruit growers. And it is the communities which depend on the cash-flow from those businesses which I am concerned about. So you said the economic impact is minor but viewed from the perspective of the towns, the rural towns and cities, the economic impact is not minor.
[10.20am]
PN638
MR WATSON: Yes. I didn't want to suggest it was minor, but I did want to put that it was less than it had been previously. But I take your Honour's point in relation to that being undoubtedly something which largely goes to the macro-economic picture, but I was going to go on to say we referred yesterday to the issue of farm management deposits and the use to which they had been put as a mechanism for smoothing the adversity, in economic terms, of the drop in farm income as a result of the drought.
PN639
VICE PRESIDENT LAWLER: Do you have any detail on that, because I have a recollection of reading somewhere recently that that scheme was effectively being used by the big end of town, and that the farmers who had participated in the farm deposit scheme were the Pitt Street or Collins Street farmers, and the large agribusinesses. Large scale farmers rather than the typical family farmer. I may be wrong about that.
PN640
MR WATSON: Your Honour, I have not seen that, the reference to which you refer, and will obviously take on board that and see if we can find it. The reference that we had is the reference in the Reserve Bank of Australia's material. There may be some other references in material which we can hunt up for you in due course. More broadly, of course, quite apart from the issue of the farm management deposits, there is the fact that 2001/2 was the best year ever in terms of farm income. Well, at least for some considerable period of time.
PN641
All we can say in addition to that I suppose, your Honour, is this. That if the drought breaks and there is a bounce bank, then there is no, in our submission, no reason to quarantine. The $18 has been in now, in those small rural businesses, phased in at various stages through the September and December quarters, while the drought was biting. It doesn't appear to have had an adverse impact on any of the data that we have available. Now, I concede immediately that there are data limitations in relation to this, but on any of the data that we have available it doesn't seem to have had an adverse impact.
PN642
The Commission, in its consideration, has to look to what it perceives to be the likely events in the forthcoming year. Now if the drought does not break, then we would submit that the appropriate mechanism for dealing with that eventuality, for dealing with the specific micro-economic examples of hardship, is the economic incapacity principle. So that is our submission in that regard. I was dealing with yesterday the fifth of the five propositions, and dealing with the macro-economic impacts of our claim as a result of the Commonwealth modelling, and we demonstrated in Table R1.2 that the net impact of our claim was on any view statistically insignificant.
PN643
A row of zeros with an occasional 0.1 here and there, and we had also demonstrated that even if you went to the worst case scenario, one which last year the Commission did not concede was appropriate, and modelled the gross impact of our claim, that in relation to GDP, employment, unemployment you had negligible effects, based on the evidence last year of Ms Gabbitas about the statistical significance of numbers arising from that modelling process; and in relation to wages growth and inflation we noted that in relation to those effects, there is in effect an overstatement, because the Commonwealth artificially assumes a multiplier effect of almost one for one in terms of wages growth.
PN644
It says that even though our claim is a 0.4 per cent addition through the year to wages growth, nonetheless, overall wages growth will grow 0.7, and by means of that mechanism it then gets the higher inflation number as well. So, in summary on that issue, we said simply no demonstrable macro-economic effect. In relation to the micro-economic effect I can be brief. We have dealt extensively with the question of the micro-economic effect of the $18, and we have dealt with that at length by reference to the sectoral data on employment, productivity and growth.
PN645
We have dealt with it by reference to academic research on empirical studies of minimum wages and employment, by reference to the survey of literature on minimum wages by Professors Dowrick and Quiggin, and we have looked at the most recent authoritative work from the Low Pay Commission in this regard, and in all of those circumstances, we submit, the Commission can be confident, having awarded $18 last year in an economy that was moderating to 3 per cent and having witnessed no adverse micro-economic effects, it can be confident that in an economy that is expected to rebound to 4 per cent next financial year it can award the $24.60 of our claim, and similarly see no adverse macro-economic effects.
[10.27am]
PN646
In relation to other matters which are raised by the various submissions, at this stage I am content to rely on our written submissions, both original and in reply and indeed supplementary where that is relevant. So, if the Commission pleases, we make five propositions. The needs of the low paid demand that the Commission should award the greatest amount it can consistent with economic responsibility.
PN647
The Australian economy is growing strongly despite one of the worst droughts in the century and international uncertainty. The $18 increase awarded by the Commission last year has had no adverse economic impact. Next financial year when this year's safety net adjustment will take effect the economy is expected to be even stronger and the $24.60 increase will have a negligible impact on growth, employment and inflation. Five propositions - needs of the low paid, a strong economy, no adverse economic impact from last year, a stronger economy forecast for the next financial year and no adverse impact from $24.60.
PN648
Now, the first thing one of the employer groups will do is seek to annualise the addition of our claim to the wage bill and talk about it as being 2.2 billion dollars or something of the sort. Remember, the addition of our claim to the wages bill is 0.1 per cent to wages growth.
PN649
JUSTICE GIUDICE: On that, Mr Watson, your submissions, or the ACTU submissions seem to be in one sense reactive - I am not quite sure how to express it, but you suggest that in relation to unemployment, granting the claim won't hurt, as it were, won't cause adverse effects.
PN650
MR WATSON: Yes.
PN651
JUSTICE GIUDICE: The Act requires us to give consideration to the desirability of attaining a high level of employment. Puts it, perhaps, in a more positive way.
PN652
MR WATSON: Yes, your Honour.
PN653
JUSTICE GIUDICE: Is there any significance in that difference in emphasis?
PN654
MR WATSON: Well, your Honour, we wouldn't put our submission as simply that there is no adverse impact on unemployment per se. What we say is look at the employment growth numbers. There is no adverse impact on employment growth, there is no adverse impact on unemployment. The desirability of attaining high levels of employment rests on high levels of employment growth ultimately. And when you look at the employment growth number for last year in the year to date, February 2003, 3.2 per cent.
PN655
Now, on any analysis that is very, very strong employment growth. And when you look at the sectors that are award-dependent, when you look at accommodation, cafes and restaurants, when you look at retail trade, when you look at health and community services, all of them had, throughout the period of safety net adjustments, had had stronger employment growth than the average and stronger than the least award-dependent sectors. So when you look at that issue it is not a case of saying: Oh, well, unemployment will just stay around about where it is. What we are saying is you can't point to an adverse impact on strong employment growth. And strong employment growth is what will reduce unemployment.
PN656
JUSTICE GIUDICE: But will granting your claim in full assist in attaining a high level of employment?
PN657
MR WATSON: Well, we say, yes, your Honour. We say, yes. The next thing employers will do is they will talk about 5.7 per cent, the increase of the federal minimum wage being dramatically above the wage cost index. For all of the reasons I have advanced it is not dramatically much above the wage cost index, in our submission, particularly when you put it in the context of the history of these things and when you put it in the context of low paid award workers who are just above the federal minimum wage and the sorts of increases they have been receiving. Remember, the average increase from our claim is 4.4 per cent. $24.60 is not a lot of money, it is just not. $12 per hour for the minimum wage is not a lot of money, it is just not. If the Commission pleases.
PN658
JUSTICE GIUDICE: Mr Watson, could I ask you one other question. It is really a fairly open question but you might like to consider it and deal with it at some stage if it is not convenient to do so now. In paragraph 2.15 of your main submissions - - -
PN659
MR WATSON: It is not one I recall instantly, your Honour, sorry.
PN660
JUSTICE GIUDICE: Yes. Well, the statement is made that 75 per cent of all award-only employees are to be found in occupations classified as having below trade level skills which we assume is below C10.
PN661
MR WATSON: Yes.
PN662
JUSTICE GIUDICE: Then a page or two later in paragraph 2.25 there is a reference to earnings - - -
PN663
MR WATSON: Earnings, yes.
PN664
JUSTICE GIUDICE: - - - below that level. In which it is said that the earnings are about - or about 40 per cent of award-only workers are below C10. I was just wondering what the significance of that is.
PN665
MR WATSON: Yes. Well, I think the issue is this, your Honour. The skills classification system that is used is not entirely consistent with the wage classification system. So whilst 75 per cent are classified as being below trades level - in below trades level occupations, on the data that we have only 40 per cent are earning less than the tradespersons' rate.
PN666
JUSTICE GIUDICE: On a superficial analysis I freely concede it might suggest that 35 per cent won't get the benefit of the adjustment because they are receiving, or won't get the full benefit because of the prevalence of over-award payments below that level.
PN667
MR WATSON: Well, your Honour, these are the people who are classified by the ABS as award only in response to that survey. That is, if the survey is responded to accurately these people don't get a dollar more than the award rate of pay.
PN668
JUSTICE GIUDICE: That is the 40 per cent.
PN669
MR WATSON: But, indeed, any - in table 2.4 the occupational data for award-only employees is the sub-set of employees for whom it has been responded, that these people don't - don't get - I should just perhaps clarify that. Last year - in 2000 the survey was directed to precisely whether or not the last dollar of your pay was award-only. The question this year was slightly different. It did say - mainly said award-only. But the interesting thing about the two data sets - I don't want to fall into the ACCI trap here, but the interesting thing about the two data sets is that the change in the phrasing of the question doesn't seem to have much of an impact on the results. But, your Honour, I will take it on board and we might even - - -
PN670
JUSTICE GIUDICE: It seems to be a big difference.
PN671
MR WATSON: Yes, it does, your Honour. Not one that had ever occurred to me before but we might even take it up with the ABS and ask them if they have got some explanation. Thank you, your Honour.
[10.35am]
PN672
JUSTICE GIUDICE: Yes. Thank you for your submissions, Mr Watson. Mr Costigan?
PN673
MR COSTIGAN: Yes. The State governments have graciously allowed us to make our submissions before them.
PN674
JUSTICE GIUDICE: Yes.
PN675
MR COSTIGAN: I don't think it is entirely a matter of my grey hair. I think it is that we have said to them our submissions are very short and will not take much time.
PN676
JUSTICE GIUDICE: Mr Martin likes Melbourne anyway.
PN677
MR COSTIGAN: Our clients have in fact put a submission in.
PN678
JUSTICE GIUDICE: Yes.
PN679
MR COSTIGAN: And perhaps I should tender that, your Honour.
PN680
JUSTICE GIUDICE: Yes.
PN681
PN682
MR COSTIGAN: Now, we rely on those submissions, if the Commission pleases, and we stand by it, and in particular we stand by our support for the claim by the ACTU. But so far as our oral submissions are concerned we would wish to limit them, as indicated in page 3 of our submissions, to our request for an inquiry as set out there. Our submission is that the Commission ought to direct that an investigation or inquiry be conducted into the needs of the low paid, and to review the Federal minimum wage, and through that inquiry, we said in our original submissions, to establish a benchmark against which the Federal minimum wage should be set.
PN683
A bit troubled about our use of the words "benchmarked" in view of the way the Commission itself has used that in the 1997 decision. By benchmark, we don't envisage the application of a particular formula. Rather, we have in mind that the Commission should, after appropriate inquiry, be presented with some appropriate guidelines within which to judge needs. Now, we say that in this submission we are supported by the submission of ACOSS, and the reference is to pages 9 to 12 of its submission.
PN684
Now, the ACTU reply submission, whilst adverting to the position of the low paid worker, does not deal with our submissions that there should be an investigation or inquiry, and none of the submissions of the other parties, all of which of course were filed under the same time directions as our own, commented on our request or indeed were able to do that.
PN685
JUSTICE GIUDICE: I think there may be a reference in one or two of them in their reply submissions to the proposal.
PN686
MR COSTIGAN: Yes. The ACCI - - -
PN687
JUSTICE GIUDICE: Yes.
PN688
MR COSTIGAN: - - - did refer to that, and indeed, in paragraph R8.7 it, while not specifically dealing with our request for an inquiry, it referred to the paucity of information on the needs of the low paid, which they said, perhaps for a different purpose, left the Commission with an inadequate basis to reach meaningful conclusions on the needs of the low paid. We would say that the inquiry which we urge would meet this complaint.
PN689
Now, that particular submission by the ACCI followed upon its analysis of the evidence which had been produced by the ACTU, and insofar as it was directing its attention to that evidence, we would say that that was an acknowledgment that that was an appropriate procedure, and indeed, we would say it is a refreshing revision of its original submission in February 2003 in paragraph 10.120, where it attempted to equate the needs of low paid workers with the needs of those, quote:
PN690
... those looking to earn an income.
PN691
The reason we want to speak very briefly on this matter is so that there is no misunderstanding as to what it is we are seeking, but it also wants to make quite clear that it has no desire to allow such an inquiry or investigation to delay the determination of this safety net review application. On the contrary, it urges the Commission to determine the safety net review application as soon as possible, because any delay would be felt most by low paid workers, and again, this submission is supported by the conclusion in the submission of ACOSS.
PN692
Now, the concept of a review has been within the contemplation of the Commission since the first minimum wage was first introduced in the 1997 Safety Net Review decision. On that occasion the Commission remained to be persuaded that an inquiry, with a view to establishing a benchmark of wage adequacy, at page 59, should be conducted, and since that time the Commission has at each safety net review adjusted the Federal minimum wage, but has not been persuaded to conduct an investigation since 1997.
PN693
We say now is an appropriate time. It is six years since the '97 decision. Now, we stress that it is important to remember that it is only in respect of the low paid that the question of needs arise, or is relevant. Safety net for other workers, other than the low paid, does not require a consideration of needs. Accordingly, we submit that the Act makes it clear that the low paid are to be treated in a different way to other workers, and one good reason for this, we say, is that those on the lowest wage scale are to be regarded as being in the area where poverty is present and needs, as understood by the Act, cannot be met, and support for this concern comes from the ACOSS submission on page 3 which states that in 2000, among households whose main source of income was wages, 365,000 lived in poverty.
PN694
We say in order to satisfy its statutory obligation to have regard to the needs of the low paid the Commission must ensure that the minimum rates it sets, most particular the Federal minimum wage, do not fall below the poverty line. And we would say simply, and stress, that it is a fundamental need of the low paid not to live below the poverty line. Now, in one sense, that is a statement that is easily made, but there are a number of complex issues involved in it. There is a question of determining, what are needs, who are the low paid, what is the poverty line, what is living in poverty, and how does the federal minimum wage compare to the poverty line?
[10.45am]
PN695
Now, since 1997, in our submission, the Commission has not been asked to reconsider its assessment of the meaning of needs and the low paid. It has not been called upon to re-assess whether the needs of the low paid have been adequately catered for by adjusting the federal minimum wage. And has not been called upon to consider the basic proposition that it is a need of the low paid not to live in poverty. Under section 88B, the adjustment of the safety net is to be made in a way that furthers the objects of the Act, which include, and I quote:
PN696
The need to provide fair minimum standards in the context of living standards generally prevailing in the Australian community.
PN697
This obligation, we say, applies with particular force to the low paid and their needs. We submit that it is an appropriate time for the Commission to arrange for the re-consideration of these issues, with the assistance of submissions from all interested parties, in a manner which does not delay or impede the safety net review process. An investigation or review procedure would cater for this. ACCER submits that an investigation or review should only consider what matters should be taken into account in assessing who is low paid and what their needs are. Whether it is a need of the low paid not to live in poverty.
PN698
The parameters by which the full bench should be guided when settling the federal minimum wage in future safety net review decisions, including but not limited to the appropriate means to determine what is meant by living in poverty. How the federal minimum wage now compares with the poverty line, however determined. And how the federal minimum wage should compare with the poverty line, however determined. And whether there is any tension between the concept of a federal minimum wage and wage relativities.
PN699
We say the investigation or review should not adopt a formula to determine the federal minimum wage, or determine a dollar amount by which the federal minimum wage ought to be raised. In the mean time, we say the Commission has a number of options in relation to the determination of the current ACTU application, insofar as it concerns the federal minimum wage.
PN700
The first option is to make an interim determination to increase the federal minimum wage, based on what it considers to be relevant material put before it in the submissions of the parties and interveners. And to consider any application to increase the federal minimum wage at the next safety net review hearing on the basis of its findings from the investigation or review. Or secondly, it may determine that the federal minimum wage should be increased by a specified amount based on what it considers to be relevant material put before it in the submissions of the parties and interveners, and consider the outcome of the investigation or review at the next safety net review hearing.
PN701
Or thirdly, it may delay the determination of any increase of the federal minimum wage pending the outcome of the investigation or review. ACCER submits that the third of these options is clearly undesirable, and would be contrary to the Commission's statutory duty to have regard to the needs of the low paid. It submits that the first option sits most comfortably with the Commission's statutory duty. And they are our submissions on that limited point, if the Commission pleases.
PN702
JUSTICE GIUDICE: Mr Costigan, could I just ask about the composition of ACCER. I don't mean the individuals, but the constitution of it, as it were. Does it have particular groups within the employing part of the Church represented on the - - -
PN703
MR COSTIGAN: Well, I know it has two employees, just to help with - - -
PN704
JUSTICE GIUDICE: Yes.
PN705
MR COSTIGAN: I believe - I might ask my junior on this matter .
PN706
JUSTICE GIUDICE: Yes.
PN707
MR COSTIGAN: I believe it has a council, or a board, which governs it.
PN708
JUSTICE GIUDICE: Yes.
PN709
MR COSTIGAN: And I am confident that that in turn is answerable to the Australian bishops.
PN710
JUSTICE GIUDICE: Yes.
PN711
MR COSTIGAN: I think that is the hierarchy, but may I just check with Mr O'Grady?
PN712
JUSTICE GIUDICE: Yes, of course.
PN713
MR COSTIGAN: There is a council which reports to the bishops. It is basically a policy body which advises the Australian hierarchy on industrial matters.
PN714
JUSTICE GIUDICE: Yes. Thank you, Mr Costigan.
PN715
MR COSTIGAN: May I and Mr O'Grady be excused from further attendance?
PN716
JUSTICE GIUDICE: By all means.
PN717
MR COSTIGAN: Although we will be available of course if the Commission wants us.
PN718
JUSTICE GIUDICE: Yes, thank you. Mr Martin.
PN719
MR MARTIN: If it please the Commission, may I tender the submission of the States and Territories dated 5 February 2003.
PN720
PN721
MR MARTIN: Thank you. As the Commission would be aware, the States and Territories support an increase of $18 a week in the minimum wage, and in minimum award rates. We do not wish today to add to the submissions which have been filed. But we wish to make some comments with respect to the case presented by the Commonwealth, and the case presented by AIG, in particular, the manner in which it has dealt with the submissions of the States and Territories. May we first observe that the arbitration of this claim involves two very broad stages.
PN722
The first is, should there be a variation? And the second is, if so, what should that variation be? In other words, what should the quantum be. So far as the first stage is concerned, there is agreement among the ACTU, the States and Territories, the Commonwealth, and AIG, as well as some of the special interest interveners. There is, of course, disagreement within that group as to the quantum. The major group opposing any variation is ACCI, and we will come to their submissions shortly. I think I may have earlier referred to AIG as having dealt with our submission. I mean to say, ACCI.
[10.55am]
PN723
Much of what we would have said has already been captured in the reply submissions of the ACTU and in Mr Watson's submissions yesterday and today. And so we have selected only a few matters to deal with. We adopt, with respect, the submissions made by the ACTU concerning economic outlook generally. We note that the Commonwealth, in section 2 of their initial submissions, identify four potential risks to the economic outlook which they believe to be appropriate.
PN724
The first is that the outlook that they present is based on a large expected increase in business investment. That appears at paragraph 2.19 of their submission. We submit that that basis is justifiable given that in the December quarter of 2002 capital expenditure increased by 13.8 per cent in real terms. And major forecasters, such as HSBC, in particular in their December 2002 bulletin, note that the fourth quarter business investment was stronger than expected and that investment plans for the second quarter of 2003, and the third quarter of 2004, were also strong.
PN725
The second risk identified by the Commonwealth is the length and severity of the drought, a matter which has already been addressed in argument by Mr Watson and in discussion with the Bench. The Australian Bureau of Agriculture and Resource Economics, in their March 2003 Commodity Report, predicts a significant break from the drought conditions and estimates that crop values will increase in 2003/4 by 41 per cent, compared to the base in 2002/3.
PN726
If they are right then that will put crop values close to the levels which obtained in the two years prior to the commencement of the drought. We acknowledge, of course, that due to the longer lead time, values of livestock are not likely to stabilise until 2003/4 and then continue to increase after that. May we say at this point, that of course we are not meteorologists, we can only go on material that is available to us, and just as with another major factor predictions can only be based on the confidence which one holds in the reports which are available at the moment.
PN727
The third factor that is identified by the Commonwealth as posing a risk is the expected contraction in the housing sector. We have dealt with that in our written submissions. We accept that there is going to be a contraction, but we do note that the housing finance figures for January this year were higher than expected, with a rise of 1 per cent, seasonally adjusted, after a 3.8 per cent rise in December. We submit that those figures allow the Commission to form the view that while the decline will continue in 2003 it will have what is called by some commentators, a soft landing rather than a crash landing.
PN728
HSBC, again in their Housing Finance Bulletin of January this year, expects dwelling investment to detract from GDP growth through 2003, but with a more moderate pace of decline and construction finance. And the final point, the fourth point made by the Commonwealth, as its identified risks, is that of geopolitical tensions. We simply note that whatever occurs in the Middle East could render an outcome that would be positive or negative for the economy, and we expect, as well as everyone else in the room, are not in a position to identify the extent of that outcome, apart from saying that it is a source of uncertainty.
PN729
Notwithstanding those four risks identified by the Commonwealth, the Commission of course knows that the Commonwealth does not oppose an increase in the sum of $12. May I take you to a figure which has been produced in the Commonwealth's submission, in their initial submission. It is figure 3.4, which is immediately following paragraph 3.35. It demonstrates a comparison between the Wage Cost Index, C14, C10 and AWOTE.
PN730
The figure demonstrates, in our submission, that the growth in C10 has, to a large extent, mapped the growth in the wage cost index. Fallen back over the course of the year while C14 has jumped marginally ahead, then fallen back, again over the course of the year. Since September 1999, the Wage Cost Index has, in our submission, fallen behind the growth in the average community standard represented by AWOTE.
PN731
If the Commission were to do nothing else other than to award an increase in the minimum wage in line with the latest growth in the Wage Cost Index of about 3.4 per cent, this would equate to an increase of $14.67; at the C10 rate, that is an increase fo 2.8 per cent. If the Commission were to aware an $18 increase, as we urge the Commission to do, that would equate to a 4.2 per cent increase in C14 and a 3.4 per cent increase in C10, which is the same as the wage costing.
PN732
The proposal which we have put forward in our written submission maintains approximately the same relationship between the wage cost index and C14 and C10 as has applied over about the last 6 years. At paragraph 3.40, the Commonwealth's submission indicates that last year's adjustment made an important contribution to the wages growth in the December and September quarters of 2002, and we say that that is not remarkable at all.
PN733
The September quarterly increase in the Wage Cost Index has always been the highest for the proceeding 12 months, and while September '02 had an increase of 1.3 per cent, which was the highest since the Wage Cost Index started being measured in 1997, it should not have been unexpected. In previous years the September quarterly increase had respectively been 1.1, 1.2, 0.9 and 1.2.
PN734
[11.04am]
PN735
Adoption of the increase suggested by the States and Territories would therefore result in a slightly lower contribution to the wage cost index in the latter part of this year than was the case in 2002. Because although it is the same dollar amount, it is an increase from a higher base. That combined with the declining numbers of award reliant employees reduces the impact.
PN736
In section 4 of the Commonwealth's submissions, they deal with the wage employment trade-off, which is a submission that has been made by the Commonwealth for many years. It is a submission which has been dealt with by the Commission consistently and, with respect, we say, correctly, that a moderate increase does not affect employment.
PN737
Can we say this about the submissions of the Commonwealth on this point. There is within it, we suspect, an implicit assumption that low productivity growth derives from low skills, and that low skilled workers correlate strongly with low productivity growth firms.
PN738
We suggest that something else has a major part to play in it. That low productivity growth stems primarily from production function decisions of the firm, and the type of technology it chooses to use, or is forced to use, and the way in which it organises the production process. It is an inaccurate way of dealing with this point: to simply identify one part, that is, the labour contribution, as being responsible either solely or significantly for the extent of productivity.
PN739
Secondly, there is a further implicit assumption that all industries have the same capacity for productivity growth. Some service industries, those industries which constitute the higher award reliant areas have low skill requirements, and the capacity for productivity growth may be limited. The Commission will recall that in the 1980s when there were increases based upon productivity improvements, it was realised that there were some industries in which productivity increases were difficulty to wring out, or industries which had achieved a high degree of productivity could not keep on increasing that percentage increase year after year.
PN740
Thirdly, the evidence shows that award reliant employees tend to be found in low productivity growth industries. To adopt the Commonwealth's approach, there would on their analysis never be a case for granting significant safety net increases, because they could not have the productivity to justify it.
PN741
An arguable corollary of this line of thinking is that if you want to maximise low wage employment, no safety net increases should be awarded, or even that award wages should in fact be cut. We of course oppose that. The Commonwealth appears to argue that the solution is to negotiate an enterprise bargain where the needs of the employees, that is, wages, can be achieved through enterprise level changes that meets the needs of the firm's higher productivity
PN742
There is a point, though, in that continuum where one runs up against the situation where the employer does not initiate enterprise bargaining, and in most cases it is the employer at this level who would initiate it. One also runs up against the barrier that the nature of the particular production process has already been determined by the firm.
PN743
Now, can I ask you to take into account and compare two submissions made that touch on this area in different parts of the Commonwealth submission. One is at paragraph 4.14, and the other is at paragraph 5.30. It deals with this question of productivity, a key factor in determining whether the extent to which business is able to pay higher wages, etcetera. And 5.30 talks about Australian results It talks about award paid employees in general tending to possess a lower skill level, and so on. And it repeats the data that your Honour, the President, discussed with Mr Watson about 75 per cent of award paid employees etcetera.
PN744
There is here the elements of the old Catch-22 situation, where people who hold only intermediate or elementary skills may not simply be able to be employed in occupations which are amenable to substantial productivity increases. So that to regard the productivity wage increase exchange as essential, as the Commonwealth appears to do, will not take into account those employees who because of their skill level, simply are not able to be placed in industries which are in a position to increase every year productivity.
PN745
The minimum wage debate which the Commonwealth engages in, in section 5, has been dealt with by Mr Watson, in writing and orally, and we do not wish to add to anything there.
PN746
In section 6 of the Commonwealth's submission, paragraph 6.17 talks about a series of large safety net wage increases having an adverse cumulative effect on the economy. As Mr Watson has pointed out, and I will not repeat what he said, if there was evidence that that was the case, then it would have been presented. The Commission would be aware that every increase that has been awarded over recent years would have been categorised by the Commonwealth as a large safety net wage increase.
PN747
So although the Commission has granted increases which from the Commonwealth's point of view have been large, the adverse cumulative effect does not appear in existence. If I go now to section 8 of the Commonwealth's submissions and in particular the submissions at paragraph 8.23 and 8.24 and figure 8.2 which are at pages 74 and 75, we question whether the manner of presentation of the data in figure 8.2 is valid. Because to our reading, it appears to compare average productivity growth over the period since 1990 with award coverage in 2002 only. So it does not appear to take into account the change in proportions of award reliant employees in the 12 year period that it was to cover.
[11.12am]
PN748
In addition to that, we would submit that, this is not a demonstration of the relationship between enterprise bargaining coverage and productivity growth and award coverage. Because one of the axes here, deals with the percentage of workforce paid under awards which by implication means that the inverse axis deals with people paid not under awards which covers, of course, those who are subject to agreements certified by this Commission and enterprise bargaining, generally. But it also covers those who are paid pursuant to individual agreements. So that it does not represent a true reflection of award reliant as opposed to persons who are paid pursuant to an agreement reached through enterprise bargaining.
PN749
The Commonwealth, under this section, appears to be arguing that if award rates rise too rapidly there will be little incentive for employees to negotiate an enterprise agreement. I have already made submissions with respect to two persons who are in a position where they are not able to negotiate or they are in a position where the employer is the one who would initiate. This argument is an echo of the Commission's argument of three years ago, that the award system would waste away. Evidence presented by the ACTU and also evidence drawn from ABS statistics by the Commonwealth, suggests that some sectors have substantial structural impediments to enterprise bargaining and will continue to do so regardless of wage levels.
PN750
It is not appropriate, nor is it consistent with the Commission's duty to refrain from awarding an appropriate increase, simply in order to make people bargain. That is all we wish to say about the Commonwealth submission, which brings me to the submission of the ACCI. Its language is extreme. The level of vituperation is such that a reader might be tempted to dismiss it out of hand. But it should not be, it should be read and then dismissed out of hand. It has one redeeming feature - it makes the Commonwealth look generous. It devotes the last chapter of its first submission to the submissions on the States and Territories.
PN751
After 15 chapters which appear to have been written, in turn, by either Chicken Little or Simon Legree, the ACCI slips on the steel capped boots and indulges in some good old fashioned ad hominem argument. It ignores what we have said in our written submission and questions our integrity. It questions whether the States and Territories could reach this conclusion. It seems to question that it is impossible that anyone would be able to reach a conclusion on what is an economically responsible increase when dealing with eight separate bodies. Well we differ, of course. The submission from the States and Territories has been subject to approval by the Government and the Cabinet of each State and Territory.
PN752
It is a process which, given the manner of government, is a slow process but it is a process which ensure that eight separate groups of people have investigated and examined the material. As a result, it is a submission which, we would respectfully submit, deserves more consideration than that given to it by the ACCI. The process of reasoning which our clients have adopted, is clearly laid out in chapter 4 of the submission. I won't take you to it, the Commission will have already noted it. The ACCI makes the point that we cannot support the ACTU application, on the basis that it is consistent with the Act, without supporting the dollar amount.
PN753
For reasons that I have expanded upon earlier, the statement by our clients that the application by the ACTU is consistent with the Act, can only be a statement with respect to the source of power for this Commission to do what it is asked to do, that is, section 113, to vary awards. It is that which we say is consistent and one does not look to section 88B to see whether an application is consistent because section 88B is an injunction directed towards the Members of the Commission on what they have to take into account, not what should be in an application. Consistent with what I said earlier, the difference between the ACTU, my clients, the Commonwealth or the AIG is only about the level of increase, not about whether there should be one.
PN754
Contrary to paragraph 16.18 of the ACCI submission, the material that we have put before the Commission, in writing, about the manner in which each State or Territory deals with an award made by this Commission, pursuant to the application, is vital to the Commission's consideration. Because the timing and extent of any flow-on through State bodies must play a part in the determination of the Commission. And you will have noted, in the submissions, that there are two States in which one could expect a reasonably rapid flow-on and the balance of the States will probably have a flow-on towards the end of this year.
PN755
In Victoria there must be a separate application under the Workplace Relations Act, so that that application is, of course, a matter for the Commission's processes anyhow. The ACCIs attack continues to flow from 16.21 onwards. It deals with the fact that we have in their eyes been unwise enough to acknowledge that there are uncertainties with respect to international matters and the drought. We don't accept that that was inconsistent with our application. It is an acknowledgment of reality, and it is a matter which we know the Commission would take into account in any way.
[11.30am]
PN756
As I have already said, with respect to external uncertainties we are not soothsayers. We don't know what is going to happen. As to the drought, it is, as a matter of law, the primary responsibility of the States to deal with problems of drought. It is the Commonwealth government which comes in and tops up, but the State bodies are the ones which provide the initial assistance. They are the ones who deal with these matters first. They are the ones who have to deal with the people who are so sadly affected. Unlike the ACCI, they are also the bodies who have been elected, and who will be involved in their respective State wage cases.
PN757
The submissions which have been made by the ACCI do not come to grips with the argument that has been presented in our submissions, that notwithstanding external uncertainties, notwithstanding the drought, its effect, and the extent of its continuance, the underlying economy is strong, and that the current situation bears close comparison with last year. If it please the Commission, for the reasons in our submission, the States and Territories support an $18 increase to minimum rates, an increase which, in percentage terms is a lower increase than that granted last year. Unless the Commission has something, those are our submissions.
PN758
JUSTICE GIUDICE: Thank you, Mr Martin.
PN759
MR MARTIN: If it please, may we have leave to withdraw at an appropriate time?
PN760
JUSTICE GIUDICE: Yes, of course. Perhaps we might adjourn now. Who is next?
PN761
MR ANDERSON: I don't know if there is a representative from ACOSS.
PN762
JUSTICE GIUDICE: Apparently not.
PN763
MR ANDERSON: No.
PN764
JUSTICE GIUDICE: Well, we will hear you, Mr Anderson, after the morning adjournment. We will adjourn now.
SHORT ADJOURNMENT [11.24am]
RESUMED [11.39am]
PN765
MR ANDERSON: Mr President, I think the Disability Employment Action Coalition are intending to make a further submission.
PN766
JUSTICE GIUDICE: Yes.
PN767
MR ANDERSON: So it may be appropriate they proceed before I do.
PN768
JUSTICE GIUDICE: Yes, by all means. Yes, Ms Wilson.
PN769
MS WILSON: If the Commission pleases. I would like to tender our documents, our submission dated 18 February, witness statements and exhibits.
PN770
JUSTICE GIUDICE: Yes. Now, those are in two binders, is that right?
PN771
MS WILSON: The submission is in the first binder, and then witness statements binder 2, and the exhibits are over three binders, so 3, 4 and 5.
PN772
PN773
MS WILSON: I just have a few more comments to make in regards to our submissions. I cannot really comment on any of the other parties' submissions regarding our submission, as the majority have not actually responded or referred to them in their submissions, apart from ACCI to say basically that our submission is not relevant to these proceedings, apart from where we support the ACTU.
PN774
I would submit that this is not the case, and that the plight of workers with a disability has a real relevance to the living wage case. The Honourable Mr Peter Reith MP, Minister for Industrial Relations, comments in the second reading of the Workplace Relations and Other Legislation Amendment Bill 1996, that the role of the Commission in the scope of awards and arrangements for their adjustment need to be consistent with and reinforce the laws of awards as a genuine safety net. This is exhibit 10.
PN775
The power to make an vary existing awards rests with the Commission. There are 20 allowable matters. Part of these are the safety net of minimum wages and conditions. The most vulnerable group are not being protected, despite the objects of the Act to provide a safety net.
PN776
I will take you to our first witness, Maree Ireland, who for 15 years worked in a business service. She has now completed her Arts/Law Degree and works as an advocate and solicitor. The expectation of society was that she should work in, as it was called then, the sheltered workshop. She recalls her first pay cheque for the fortnight as being $1.50. Peter Pavlik, another witness. He is working alongside, or he was working alongside other employees who were receiving award wages, doing the same job as him.
PN777
We are asking that the Commission use its powers to ensure that awards or agreements meet the objects of the Act, the safety net provisions, and the equal rights of workers with disability. We submit that this is the appropriate venue to have these matters heard. Section 88B of the Act ensure a safety net of fair minimum wages and conditions of employment, and to ensure that conditions of employment are established and maintained. This is not the case in business services.
PN778
The specific functions of the Commission under section 88B with respect to a safety net of fair minimum wages and conditions of employment, having regard to a number of matters. The need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community. This is not the case of people working in the business services. When adjusting the safety net, the needs of the low paid, to take into consideration the need to provide a supportive wage system for people with disabilities, and the need to prevent and eliminate discrimination because of a number of things, including physical or mental disability.
PN779
It is our submission that these things need to be considered when considering this application by the ACTU to vary the minimum wage rate. The supported wage system is included specifically as an allowable matter. Just over half of the hundred most used awards have the supported wage system. Just under half of that means don't have it.
PN780
The supported wage system began, or they started investigating in 1992. A full bench, 1831/'94, Print L5723, gave effect to the system of a pro rata award wage system. One of our witnesses, Phil Tuckerman, was part of that consultative committee. He states that for several years they trialled alternate approaches to calculating sub-award wages. The supported wage system is the accepted legal system to grant below award wages, and this needs to be done through application to the Commission. This is not being done in many cases.
PN781
The Australian Liquor Hospitality and Miscellaneous Workers Union Supported Employment (Business Enterprises) Award 2001, does not have the clause. It includes a provision that enables the union and employers to determine a system of wage assessment. In the past 10 years this hasn't been done. It is difficult to determine the no disadvantage test with an award that does not have the supported wage system. I will refer you to a recent decision, handed down last Thursday, which if I might tender this document, we didn't have it in time, obviously, to put in our exhibits. Which is print 929461.
PN782
JUSTICE GIUDICE: Yes, thank you.
[11.46am]
PN783
MS WILSON: A decision of Commissioner Smith, in relation to Vantage Incorporated, a business service down in Warrnambool, who has seven branches. In regards to the supported wage system, the clause, it is an allowable matter but the Commission certified that award on 13 March 2002, print 915201, without the supported wage clause in it. Workers under this award continue to receive below safety net wage rates without regard to an independent fair assessment of their productivity capacity. It makes a mockery of the system, for these enterprise bargaining agreements to go through and also for awards to be certified without having the legal clause for a award - for the supported wage system to be included.
PN784
It was raised by Commissioner Smith, that the supported wage clause was not included in the award despite undergoing the simplification process. The union responsible for this award has not even applied to vary it for the safety net increases. However, even if they had, it would not have been of benefit to the workers with disabilities due to the absence of the supported wage system or an alternative. In regards to productivity, with the provision of a supported wage system, it should be available to all employees as a fundamental right to their basic employment rights and protection against exploitation and disability discrimination. As I have said, it is not present in all the awards.
PN785
This means it is a variant to access to a fair system of pro rata award wage system. It was recommended that all business services include the supported wage system, that it be modified so that they can do so. It is our submission that the supported wage clause is amended, so that all business services have got access to it. The failure of business services to meet the employment service standards, under the Disabilities Services Act, which is exhibit 13 in our exhibits, have failed to meet these standards over the last 16 years. One of our witnesses, Paul Cain, states that legal safeguards are not being used. We need to ask for assistance so that these employees are paid the minimum rates.
PN786
At the moment there is a process that any application to pay below minimum rates must come to the Industrial Relations Commission. In many cases that is not being done. Many of these enterprise bargaining agreements are being certified without an application being made to pay employees below the minimum award rates. We have heard talk from the Commonwealth about a new assessment tool. At the moment, that new assessment tool is not publicly available. The reports on the trial are not available. There has been participation by NCID which is token, on the reference group, with decisions resting solely with the Commonwealth. There is limited ability to discuss any of these factors because of a deed of confidentiality that has been signed.
PN787
The community at large, for business services, as well as all disability advocacy groups, don't know what the tool is basically about because nothing has been released by this group. This assessment tool has not been validated in the industrial relations system, as the supported wage system did. We submit that it should follow the same procedure that the supported wage system followed, through to arbitration before a Full Bench. We submit that the supported wage system should be adopted as a standard. Two of our witnesses, the first one, Gennaro Dinuccio is a manager at Cleanforce, a business service that does contract cleaning. They pay award wages and in their newly certified agreement they have the supported wage clause.
PN788
Marie Kuchenmeister, she is a parent of a worker with a disability, she is also a business service operator. They use the supported wage system and their business service, in Geelong, which is a catering business service, continues to grow. We submit that there is discrimination in the failure to provide workers with a disability, within business services, below minimum standards for both wages and conditions - or awards and enterprise bargaining agreements. There is no supported wage system in many of them, no assessment tool means below award rates and lack of safeguards against exploitation and discrimination.
PN789
The States and Territories submission in regards to enterprise bargaining agreements - we agree with many of their comments in regards to the enterprise bargaining agreements. In business services, many of these agreements are initiated by employers. And a lot of the wages are set by the employers without any consideration as to assessment of what each employee is able to do. There are no guidelines, at present, in regards to enterprise bargaining agreements. Examples of these are, Ballarat Regional Industries Enterprise Agreement 2001, where there is a pro rata wage assessment on competency but they also include a level of effort, training and support which leads to below award wages.
PN790
In fact, some of them are receiving $1.36 an hour. Wallara Industries Enterprise Agreement 2000 and Woorinyan Incorporated Enterprise Agreement 2000, the assessments are performed by the employer. The wages range between 50 cents to $1.60 an hour. Vantage Incorporated, which you - I had tendered, $1.71 for everybody, again, across all seven businesses. There is no assessment but a range of duties. Vantage did, however, attempt to link this amount to the adult minimum wage, to be adjusted annually as determined by the Industrial Relations Commission. So Vantage are intending to use the results from this wage case as to what they will, therefore, pay their employees in the next certified agreement.
[11.55am]
PN791
JUSTICE GIUDICE: Ms Wilson, that agreement has not been certified.
PN792
MS WILSON: No, it hasn't. That is correct.
PN793
JUSTICE GIUDICE: And presumably, Commissioner Smith's decision was based in large part on your submissions.
PN794
MS WILSON: That is correct.
PN795
JUSTICE GIUDICE: Yes.
PN796
MS WILSON: The wages disadvantage and discriminate against workers with a disability's industrial rights, which therefore leads to an abuse of the industrial relations system, and this is due to workers with a disability being unable to speak out. The application by the ACTU is to vary the minimum adult wage to reflect the cost of living. This group of workers must also be taken into account. In the past entitlements to equal pay for work of equal value have been taken into account. The concept of equal pay for women, wage fixing principles.
PN797
The Commonwealth Disability Services Census 2000 by the Commonwealth Department of Family and Community Services found that 9 per cent of employees within the business services receive above $100 per week, which leave us with a figure of 91 per cent below $100 per week. 85 per cent of those receive less than $80 a week. Living standards and needs of the low paid. These workers are entitled to the same rights as other Australians to be included in the social and economic fabric of Australian society.
PN798
The wages and conditions that these people receive are well below any community definition or notion of the low paid. There is a trend increasing for those receiving income support. However, these people do have a job, but the wages have little, if any impact on their reliance on the pension. Many work up to 40 hours. 58 per cent work over 31 hours. 71 per cent receive less than $60 per week. The rate of the pension for a single person is $429.40 per fortnight. To make for a reduction of that pension amount they need to earn more than $116 a fortnight, and after that they would lose 40 cents in every dollar.
PN799
The costs of a disability indicates an additional cost of living which adds to the poverty already suffered. Long term low wages has had an impact on their living standards, accumulating wealth for example, the purchase of their own home, holidays. Many are unable to go on holidays because they don't have finances to cover. We submit that there is relevant argument in regards to our submission, because we do want the $24.60 a week increase for workers with a disability, but we want more than that. We want the foundation, ie, award wages and conditions with recognition of the supported wage as amended.
PN800
The ACTU spoke yesterday of the real impact of the proposed increase, yet there is no consideration of what this would mean to workers in business services if they were to receive the benefits of this case, let alone a real wage. Why do they have to wait, when all other employees already enjoy these rights. We are asking the Commission's assistance in assisting this group of workers achieve their industrial rights that have so long been denied. In regards to the rest of our submission, as tendered, the outcomes sought are as tendered. If the Commission pleases.
PN801
JUSTICE GIUDICE: Yes. Thank you, Ms Wilson. Mr Anderson?
PN802
MR ANDERSON: Thank you, Mr President. Members of the Commission, if the Commission pleases I will be presenting our opening submission, and I will then be presenting submissions on a range of industrial and statutory considerations arising in this matter, and then I will be asking Dr Kates, whose submissions should have extra authority in this matter, given that they were also relied upon yesterday by the ACTU. So he is operating at both ends of the Bar table, to present the principal component of our evidence and argument, that is, our economic submission.
PN803
However, there are some housekeeping matters though before I commence. I would seek our written submissions to be tendered in these proceedings and marked accordingly.
PN804
PN805
JUSTICE GIUDICE: Is there anything else, Mr Anderson?
PN806
MR ANDERSON: Yes, that is all at this stage we are seeking to have marked.
PN807
JUSTICE GIUDICE: Yes. Yes.
PN808
MR ANDERSON: There is also a housekeeping matter to do with yesterday's transcript, where there needs to be a correction to the transcript at Paragraph Number 510, where Mr Watson is quoting from paragraph 312 of our - sorry, 3.12 of our reply submission, and the quote that is attributed is in part a quote from our submission. It includes in the middle of it part of Mr Watson's observation on that quote, and then a return to the quote from our submission, and so the actual manner of recording that quote in the transcript does need to be corrected.
PN809
JUSTICE GIUDICE: Yes. Thank you. Well, that will appear on the transcript.
PN810
MR ANDERSON: If the Commission pleases, the issue before the Commission is able to be simply stated. Should the award safety net be increased, and if so, by how much and on what conditions? The simplicity of this question mirrors the impression created by the ACTU yesterday. If you were to believe the ACTU you would be forgiven for thinking that this is a fairly straightforward matter. $24.60 is not a lot of money. It is long overdue. It is targeted to the low paid, with no cost impacts on a strong economy, and no adverse effects on employment, on unemployment, or on the business community.
PN811
In reality there is quite a different perspective on this claim. A perspective that can be seen only when broader considerations are taken into account, than the narrowness of the ACTUs "we need more, we want more" position. That perspective revolves around the interest and impact of the claim on those who would be required to pay it, those we represent, employers, including many thousands of small and medium businesses across Australia, across regions, and across industry sectors.
PN812
[12.04pm]
PN813
In this matter we do not support the granting of the ACTU claim for any increase at this time. Some may say this is an overly cautious approach. We say it is far better to be cautious than throw caution to the wind as the ACTU would have. Rather than granting the claim as being an act of fairness, as the ACTU concludes, it would be an act of faith that the Commission need not and should not take. Once these increases claimed are awarded, they cannot be clawed back. They are built into wage rates, into on-costs, into the cost of employment and into the economy for the long term.
PN814
There are very profound reasons for adopting this position that we do in this year's case. They are outlined in depth in our written submissions and in our reply. But before turning to them and the key propositions we advance, let me put our submission in context. As employers, we do not oppose appropriate and responsible wage increases. Employers negotiate and pay wage increases almost daily. Wage increases granted by decisions in enterprises through employment negotiations, collective bargaining or individual agreement making are commonplace.
PN815
Wage increases granted in that context can inherently reflect a mutuality of interest that maximises their advantage to the individual and minimises their disadvantage to the business. Nor do we oppose each and every application for variation to the minimum award wage. In the past two cases before the Commission, we have opposed the ACTU claims, but have supported increases of $10 per week to the minimum award wage. Substantially more in each case has been awarded.
PN816
It is not wage increases per se that we oppose, but wage claims and wage increases, the taking into account all of the relevant circumstances are unmerited having regard to the interests of both sides of the industrial equation. What then are the key propositions that we advance? They, too, can be summarised in a handful of five propositions. On the economy, our cases advances three propositions. Firstly, that economic growth in Australia has been and is moderating. Secondly, that the domestic economic prospects are not as robust as they were at the time of the 2002 case. And thirdly, that the international economy is profoundly uncertain and much more so than at the time of the 2002 case.
PN817
On industrial considerations there are two propositions: that the current minimum award safety net is meeting the requirements of the Act and is not in need of a further increase at this time; and further, that the claim is manifestly excessive and its grounds are not made out.
PN818
The conclusions that we would have the Commission draw from those five propositions are twofold: that when taking into account all of the circumstances and merits, the balance of interests in this proceeding leans much more strongly towards no increase at this point in time than towards the granting of the ACTU claim; and secondly, that if an increase is ordered, it should be substantially below that awarded in 2002, it should not apply to higher award rates of pay and it should operate for an 18 rather than a 12-month period. This secondary position is outlined in chapter 15 of our written submission and I will address it at the conclusion of my remarks.
PN819
Let me turn to the industrial considerations. Proposition one: the current minimum award safety net is meeting the requirements of the Act and is not in need of further increase at this time. To test that proposition, the obvious starting point is the requirements of the Act. Some reference has been made to them in the submissions that have already been presented and our written material deals extensively with them. Primarily, they relate to the principal objects of the Act in section 3 and then specific provisions in the dispute settlement provisions of the Act, sections 88A, 88B, 90 and 90A.
PN820
What those principal objects tell us is that there are a combination of economic and industrial objects as one would expect to find. The economic objects are activist objects. They are objects which seek that the Act operate in a way that promotes economic prosperity, encourages the pursuit of high employment, that assists in reducing youth unemployment, and when one looks at the provisions in section 88B(2), not just has regard to economic factors, but also the desirability of attaining a high level of employment.
PN821
The Act importantly also have objects which require the primary responsibility for determining matters affecting the relationship between employers and employees to rest with the employer and the employees at the workplace or enterprise level, and there could hardly be a matter more pertinent to the relationship between employers and employees than the issue of wages.
[12.12pm]
PN822
The Act also has much to say in its objects in that context about the maintenance of a foundation of minimum standards, the maintenance of quote, "an effective award safety net of fair and enforceable minimum wages and conditions of employment. So the concept in the Act in terms of the award structure is one of a safety net, is one of a fair safety net of enforceable standards. In seeking to apply those objects to the Act the first and most obvious point is that this case is not wage determination in the workplace, this case is wage arbitration outside of the workplace.
PN823
This case does not occur in a vacuum where general wage increases have not been delivered or are undeliverable by other means. The wage increases sought are not being determined in the abstract divorced from past increases. And when one comes to examine the proposition we advance that the current minimum award safety net is meeting the requirements of the Act and not in need of further increase at this time, this is a highly relevant factor. The case occurs in the context of the award safety net having been increased 10 consecutive times in the past 10 years.
PN824
In the past six years, that is the six cases since the commencement of the '96 Act, the minimum wage has increased by central wage arbitration from $349.40 to $431.40 in 2002. Six increases on the minimum wage of $10, $14, $12, $15, $13 and last year's increase of $18 which, as Mr Watson said, was the highest recorded in percentage terms. In fact, it was 1.25 per cent above the increase in the wage cost index and 1.6 per cent above the increase in the CPI in 2001/02. This is an increase by central arbitration of $82 per week over six years. In percentage terms the increases have been 2.86 per cent, 3.9 per cent, 3.21 per cent, 3.89 per cent, 3.25 per cent and last year's increase of 4.4 per cent. Increases in total of some 19 per cent.
PN825
Our submissions do not quibble with these decisions, they are decisions that have been made. But the past decisions themselves characterise these increases that have been made as very substantial. The 2002 decision, for example, at paragraph 160, describes the order that was made as a, quote, "sizeable increase". The 2001 decision, at paragraph 140, refers to the increase at the lower level - and this was an increase in a staggered form - as, quote, "substantial".
PN826
It also refers, at paragraph 142 of the 2001 decision, to the preceding years' decisions. And I am just quoting from paragraph 142 where the Commission said:
PN827
In recent years there has been a strong growth in real earnings across the economy. In the generally favourably economic conditions which have prevailed the Commission has been able to make significant adjustments in the award wages safety net.
PN828
No other conclusion can be drawn than the fact that we come to this current proceeding with sizeable, substantial and significant decisions having been made over the preceding six years. What is relevant about that proposition or that conclusion? It is this. Those increases that have been awarded continue to be paid. They are facts directly relevant to the current issue. Have the grounds of this claim been made out? Is there a need for the safety net to be further increased at this time? Or, alternatively, is the safety net meeting the statutory requirements?
PN829
There is a sense where the ACTU would have us move beyond the 2002 decision and those that preceded it as if they were past history and that there is some regular calendar of award-based wage increases. This is a false premise. The claim in its presentation carried the underlying assumption that annual increases should be made to award rates of pay. There is no statutory requirement that the safety net be increased annually, nor is there a statutory presumption this be so. The requirement, to the extent there is one, is to hear and determine applications made.
PN830
The ACTU would have us all make this annual, seasonal trip to a destination called wage increase. The Commission and the parties might have to jump on the train when the ACTU lodged their claim but the Commission has the discretion to stop the train short of that destination. It is not as simple as the ACTU cranking up the wages system each year, making a decision each October for the next wage claim, lodging applications each November, having them listed, compelling a process of written submissions, having an arbitration, obtaining a wages order and then flowing it through all federal rates and then interstate award systems.
PN831
We all understand what the ACTU is doing and no doubt is making these claims out of genuine concern for working people. But when it is boiled down the ACTU approach is not that sophisticated. It is seeking out of the Commission as much as it can and as often as it can. Our system is more rigorous than that. The Act not creating any presumptive notion of annual increases requires the Commission to examine the discretion that it has under law, a discretion that allows but does not compel these orders. And so can it be said that the current safety net, increased 10 times over 10 years, six in the six safety net cases, the last recorded increase, a record level of increase, needs to again be increased if awards are to fulfil their statutory charter.
PN832
We say at this time, no. The Commission can award no increase at this time and still be satisfied that awards, so far as wages are concerned, are meeting their statutory function. Even with no increase, as a result of these earlier decision the minimum wage of $431.40 means that no employer can employ a full-time adult worker below $22,433 per annum; and that is not all. Past decisions have increased all award rates and there are thousands of award rates and classifications in our award system. Some 20,000 our submission estimates. They too have been varied as a consequence of these decisions, and they too include rates of pay which currently are as high as $980 per week.
[12.20pm]
PN833
Proposition 1 is that this claim need not be granted in full or in part for the wages system to be meeting its statutory objective. Proposition 2. The claim is manifestly excessive and its grounds are not made out. This is where the apparent simplicity of the ACTU argument is really unmasked.
PN834
VICE PRESIDENT LAWLER: Mr Anderson, will you be returning to Proposition 1, or are you finished with it?
PN835
MR ANDERSON: Yes. Dr Kates will address the first three of the five propositions I mentioned, your Honour. The ACTU are seeking, on top of what we had, $24.60 per week to all Federal award rates of pay. Let us look at the grounds of the ACTUs application. It is a good starting point to examine whether the claim ought to be granted. I am looking at - I think the grounds are all identical in each of the applications that were lodged. I am actually looking here at the retail and wholesale industry application, filed by the Shop Distributive and Allied Employees Association on 21 November.
PN836
Grounds 1 to 4 all relate to the objects of the Act. They assert that the claims give effect to the objects of the Act. Ground 5 is to provide protection against inflation for low paid workers, and to ensure low paid workers share in growth of national prosperity by raising minimum rates of pay. We make the point last year's decision was providing a wage increase on the minimum wage, which was well in excess of the then rate of inflation. Ground 6 of the claim is to provide protection for low paid workers whose living standards have fallen relative to those of other groups in the community since the introduction from July 2002 of the Goods and Services Tax package.
PN837
There is nothing that has been put before the Commission which bears on those questions, and as the Commission has previously determined in these matters, for good reason. Ground 7 is to maintain skill-based career paths in awards as determined by the Industrial Relations Commission. No-one is advocating the removal of skill-based career paths or interference with classifications of that type. Ground 8 is to provide simple, equitable and enforceable minimum rates of pay. Well, minimum rates of pay will continue to operate, as I have said, irrespective of whether the Commission awards the ACTU claim in whole or in part; and ground 9 is to facilitate equal remuneration for work of equal value via flexible work arrangements, and I can't see anything in the ACTUs claim which facilitates equal remuneration for work of equal value, or establishes flexible work arrangements, and I can't see anything in the rejection of the claim that would go in the opposite direction.
PN838
So the grounds of the claim really don't stack up too greatly when one has a look at the type of increase that the ACTU is claiming. The claim is not a small amount of money, as the ACTU would have you believe. A 5.7 increase in the minimum wage, which is what is being sought, is higher than wage increases and wage movements in the community generally, and almost double the rate of the Consumer Price Index. It would mean that the Australian minimum wage would become $456 per week. It would mean that a safety net minimum wage would have increased seven times in seven years, by a total of $106.60, or 23.7 per cent since 1997.
PN839
It would mean that no adult worker employed on a full-time basis, no matter how skilled or unskilled, could be employed under the Federal system by an employer, on less than $23,712 per year. I mean, it is quite a substantial question. If we are saying that no employer who wishes to employ a full-time worker under the Federal system can do so anywhere in Australia, in any industry in Australia, unless they are prepared to pay $23,712 per annum, and when one adds to those funds the actual cost to the employer, the on-costs, then you have a figure much closer to $30,000 that an employer has to find just to employ one unskilled worker. To employ one person who may be in unemployment at the moment, who they want to give a job and an opportunity to.
PN840
The ACTU claim is not small when you take into account the fact that it is paid to 1.7 million employees, just over 20 per cent of the Australian workforce. Simple mathematics says that 1.7 million by $24.60 by 52 weeks of the year is a 2.2 billion dollar increase in the annual wages bill of employers required to comply with the orders sought. And of course Mr Watson wishes to express the claim as a weekly claim for an individual worker of a defined amount. It is not a weekly claim, in the sense that it is only for a week, it is a claim for all time for all purposes. It is not a claim that is just restricted to the low paid.
PN841
It would increase, as I said earlier, award rates which are currently as high as $980 per week, taking them to $1004 per week or an annual wage, in ordinary time, of $52,208. It is a claim that will require payment irrespective of circumstance, to businesses doing well, to businesses doing poorly, businesses well established, those starting up, those in regional and rural areas, not just those in urban areas.
[12.29pm]
PN842
It is a claim for wages which are paid, primarily, by small and medium businesses which are the profile of businesses that overwhelmingly still operate in the award system and have award reliant staff. Mr Watson said that most small businesses are not employers, and that may or may not be true. But most employers are small businesses. This is an important point. The profile of businesses directly impacted by these claims are overwhelmingly not the large businesses that are making wage and condition agreements with unions or collective agreements with staff. They are the award regulated medium and small businesses who, for one reason or another, are not in the agreement making system.
PN843
These are not your well heeled profitable stockbroking firms or your well heeled executives with share options. Many of these employers work long hours, often for little return for themselves and have an acute sense of fairness. As the NATSEM material, that Dr Kates will refer to, suggests, there would be a significant number of them, themselves, likely to have incomes of a very low nature. They are the salt of the earth, the small risk takers, those trying to create economic activity, those trying to employ and trying to get themselves and others ahead. They are managing overdrafts and business debt and seeking to balance employment levels with their capacity to employ.
PN844
Whilst they have a strong sense of fairness and wellbeing in the interests of their staff, they don't see it as fair when they have to ask the bank for higher overdraft to meet higher wage bills for a seventh safety net increase in seven years. They are also the employers who overwhelmingly are in the growth sectors of the economy and thereby the employers that can help to make serious inroads into the levels of unemployment if labour is not priced out of their market. They also include many employers in the not for profit sector. The orders made in this case, they are not just on employers who are in the private sector operating businesses for profit, but they are also going to hit businesses and community organisations that are operating in the not for profit sector and who are going to have to find additional funds to fund these wage increases.
PN845
And those businesses don't have the type of liberty to go to the bank and ask to increase the overdraft. Many of those businesses can only access additional funds by going to governments and asking for me funding. The claim is not a productivity based claim. It is not based on work practice changes, it is not based on cost off-setting, it is not based on some give and take, some mutuality or equalising factors. I don't make this submission to say that these cases should have such a character. What I say is, that fact, that character of these cases, tends strongly towards a conservative approach to deciding whether to award the claim and if so what the quantum of any order should be.
PN846
The case also occurs at a time and is paid at a time when employers have, over the past year, just had a 1 per cent increase in the superannuation guarantee levy. And the provisions of section 90A of the Act, specifically draw the Commission's attention to the impact of increases in a superannuation guarantee levy on national wage determinations.
PN847
VICE PRESIDENT ROSS: Wasn't that a matter we took into account last year?
PN848
MR ANDERSON: It was, your Honour, a matter mentioned in the Commission's decision last year. Last year, that increase had not been paid by employers, it was a prospective increase. It was known, it was prospective.
PN849
SENIOR DEPUTY PRESIDENT WATSON: And it was known it would occur during the time at which the living wage increases applied.
PN850
MR ANDERSON: That is right. This year, that increase has come into effect, 9 per cent is now required to be paid. What that means is that there is 1 per cent less of ordinary time earnings that employers have to fund this wage claim than they would have had last year. And so it is a relevant consideration in the case this year. In addition, the ACTU claim and claims of this character, are claims to be paid for all award purposes. Meaning, in practical terms, they have a substantial impact on on-costs. They do not just increase the ordinary time rate of pay.
PN851
They increase overtime payments, they increase penalty rates, they increase shift work rates, they increase annual leave loadings, they increase employer payroll tax obligations, they increase employer occupational superannuation payments. So it is not just from eight to nine, have we had, as a statutory impost, but the actual 9 per cent today will be a lower amount than the 9 per cent the day after this decision comes into operation and they increase employer workers' compensation premiums, just to mention the major categories of on-costs.
PN852
Of course, the Commission cannot in its orders insulate employers from some of those flow-ons. Many of them are statutory matters outside the province of the Commission, but they are directly relevant to the question of whether or not, when you balance the interests in this case, the application that has been made is fair and necessary, and whether the advantages of granting an application in whole or in part outweigh the disadvantages.
[12.37pm]
PN853
All of these characteristics, off these applications that I have mentioned in the past 15 or 20 minutes, all of them paint a very different picture than the simple no impact, no cost, worry-free submission of the ACTU. The claim is manifestly excessive. Its grounds are not made out. I now turn to make some observations on a number of specific matters raised by the ACTU.
PN854
SENIOR DEPUTY PRESIDENT WATSON: Before you do, Mr Anderson, you mentioned in your submissions that the employers who would bear the impact of award wage increases were predominantly in the growth sector of the economy. What do you mean by that? Is that evidenced anywhere in your material?
PN855
MR ANDERSON: Two aspects, to answer your question, your Honour. By the growth sector we are referring to the services sectors of the economy. Retail, hospitality, tourism, business services, information technology and the like. The growth sectors of the economy, by and large where you find a predominance of smaller businesses. By and large where you find a predominance of non-unionised business. And by and large where you find businesses that have not entered into the agreement making stream. And then the question of whether there is material in the exhibits that bear on that question. Yes, there is. I can't take the Commission directly to it. Mr Watson took the Commission to some of it yesterday.
PN856
SENIOR DEPUTY PRESIDENT WATSON: Yes. Do you mean growth in employment or output or both or - - -
PN857
MR ANDERSON: Well, I am not specifically talking about employment. I am talking here about the businesses which are in the sectors of the economy where there is higher than average growth levels, both in business being established, and to a degree that will feed into employment.
PN858
SENIOR DEPUTY PRESIDENT WATSON: Output growth you are talking about, but to some degree employment.
PN859
MR ANDERSON: That is right. Not all of those businesses are going to be employers. Many of them are established as sole traders, businesses that will develop into being employers, as those businesses - - -
PN860
SENIOR DEPUTY PRESIDENT WATSON: Well, they are not going to be affected by anything done here.
PN861
MR ANDERSON: Well, those that are not directly employers will not be directly affected. But even those that are not directly employers may be directly affected if as a result of the level of minimum wages they are unable to actually employ people they otherwise would have. So when those businesses that are not even employers decide that there is enough work to employ somebody, the obvious question is, "Well, how much is it going to cost me? Have I got the capacity?" And that is a question that bears on decisions made in these cases.
PN862
The ACTU argue, and I am going to deal here with a number of specific matters raised in the case so that I can complete what I can have to say, and then allow Dr Kates to present the remainder of our submission, which is the primary submission on economic material.
PN863
JUSTICE GIUDICE: Mr Anderson, we will be adjourning in a couple of minutes. Do you want to commence your final remarks as it is after lunch?
PN864
MR ANDERSON: That might be wise, your Honour. I will need more than a couple of minutes for these.
PN865
JUSTICE GIUDICE: Yes, yes. All right. Well, we will adjourn until 2.15.
LUNCHEON ADJOURNMENT [12.42pm]
RESUMED [2.15pm]
PN866
JUSTICE GIUDICE: Thank you, Mr Anderson.
PN867
MR ANDERSON: If the Commission pleases, I will now turn to some observations on a number of separate topics raised by the ACTU before concluding my opening remarks and my remarks, generally, on the form and nature of any increases, if one is to be awarded. The ACTU argue, in their submissions, that there is disparity between earnings under agreements and wage levels in awards, and this, in part, merits the increase sought, for example, ACTU principal submission 4.4. We deal with this contention in our submissions, ACCI2, 15.76 following. The Commission should not accept this argument, it is untenable and industrially unsound.
PN868
Agreements are agreements. As industrial instruments they are of an entirely different character than awards. They have little to do with the concept of a safety net wage. They reflect in their wage rates, a wide range of factors, including mutual and reciprocal give and take, work practice changes and local circumstances. It is leading the Commission into serious error, to argue that wages and agreement making are a guide to setting the safety net. The Commission has not, in the past, given a weight to agreements for these purposes and the door should not be opened to a proposition that has very dangerous consequences, particularly in an environment where agreement making is to be encouraged and is becoming more widespread.
PN869
SENIOR DEPUTY PRESIDENT WATSON: Mr Anderson, you are saying we should have no regard, whatever, to agreement making. In terms of under section 88B(2) having regard to living standards generally prevailing in the Australian community, who should we have regard to?
PN870
MR ANDERSON: What I am saying is that the level of wages in agreements are not factors which provide any real guide to what the appropriate level of a safety net ought to be. If one can accept as relevant material to recognise that the wage cost index or the index of wage increases under agreement making has provided, over a period of time, a level of increase for a particular quantum, one can then say, well, does that - what does that bear in terms of movements in the awards.
PN871
SENIOR DEPUTY PRESIDENT WATSON: Yes. So we can have regard to movements but not levels.
PN872
MR ANDERSON: But the actual levels, the actual levels are a factor of a range of circumstances that they are on, the negotiations and the nature of the agreements and the reciprocal give and take. There will be workplaces where larger wages have been conceded or agreed as a consequence of work practice changes, some of which may be apparent from award variations or agreement variations, some of which may be apparent from simply the way in which business is conducted. And so it is very dangerous to take the proposition any further than that threshold level of information and regard.
PN873
SENIOR DEPUTY PRESIDENT WATSON: Yes, thank you, I understand what you are putting.
PN874
MR ANDERSON: There is one other aspect of the growth in - one other aspect of the growth and agreement making that arises in the submissions that have been put. And that is, how they bear on issues of cost impact. Dr Kates will address more extensively on the issues of cost impact. But let me make this general point; the Commission must guard itself against being unwittingly led to conclude that higher increases can be awarded than would otherwise be the case, simply because the aggregate cost impact of the claim, across the economy, reduces year on year as the percentage of award governed employers and employees declines.
PN875
We deal with this issue at ACCI2 chapter 15. That award percentage, as we have noted, is about 20.4 per cent of employees, down from about 67 per cent of employees 10 years ago. This means that a $24.60 rise, for example, the rise in this case that is sought, on 20 per cent of the workforce has less impact in aggregate terms than it would if it was paid to 67 per cent of the workforce. Herein lies the danger. An undue level of weight to aggregate impacts masks the real impact on the employers who are the subject of the orders made. And it is the impact on those employers that ought to be a primary focus in assessing impacts.
PN876
We are not saying, in any way, that aggregate impacts across the economy are not relevant considerations, they have been, they will continue to be. But the point is that they are increasingly less persuasive as an indicator of the merit or otherwise of a claim, because there is a smaller and increasingly smaller group of employers and businesses within industry who are directly going to be paying the increases because of the increasing size of the alternate group who are in the agreement making stream.
PN877
We are concerned that the ACTU can try to cloak an irresponsible claim in a mask of semi respectability by relying on simply traditional aggregate impact analyses. The ACTU make much of the issue of needs, obviously a directly relevant issue. I don't wish to repeat or cover the ground, in our submission and our reply submission, which in limited ways qualifies aspects of our principal submission.
PN878
VICE PRESIDENT LAWLER: Mr Anderson, I am sorry for interrupting you, but I just didn't understand what is the evil or defect in traditional aggregate analysis?
PN879
MR ANDERSON: A traditional approach to considering the impact of these award based claims is to consider what the aggregate impact of the increase would be across the economy. For example, if we look to - - -
PN880
VICE PRESIDENT LAWLER: No, I understand that. But what is the defect?
PN881
MR ANDERSON: The defect is that - - -
PN882
VICE PRESIDENT LAWLER: In using that approach.
PN883
MR ANDERSON: - - - it is not intrinsically a defective approach. What it is it is an increasingly incomplete answer to the issue of what is the impact of the claim, for this reason. The profile of employers in the economy who are employing award reliant workers, is decreasing. It is decreasing because employers are increasingly moving into agreement making - - -
PN884
VICE PRESIDENT LAWLER: I see. You say, the smaller that class gets ever more excessive claims we will have a - - -
PN885
MR ANDERSON: It will appear quite benign.
PN886
VICE PRESIDENT LAWLER: Yes, I see.
PN887
MR ANDERSON: Precisely. The $24.60 claim applying to 67 per cent of the employing economy, will have a much higher aggregate impact on the economy than it would if it was applying, as it is at the moment in this case, to 20.4 per cent. And there is a tendency, then, if one simply says, well, the aggregate impact of this claim is really only in the ball park of what the aggregate impacts of previous claims have been, is really not a conclusion that is comparing like with like. On the issue of needs, the ACTU is obviously more familiar than we are with its own witness material and we make that point in our reply submission.
PN888
There is, inevitably, going to be some ambiguity and issues arising out of trying to distil facts from written statements. And where our initial analysis of the written statements that were submitted in this matter, were based on an incorrect assumption, we have readily conceded that in our reply. That doesn't detract in any way from the key points that are made in ACCI2 in relation to needs. And they are that the 10 statements submitted indicate a wide range of diverging circumstances between individuals.
[2.25pm]
PN889
And that even if there was a commonality or sufficient commonality between individuals, you could not confidently conclude that their circumstances apply to all workers who are the subject of these orders, bearing in mind that these orders are being sought across the entirety of the award system. That is the finding that the ACTU seeks the Commission to make and is not, in our submission, a finding that is open on the evidence.
PN890
On the issue of executive remuneration, the position is equally clear. We deal extensively with that at ACCI2, chapter 13, and in ACCI3, paragraphs 9.71 following. The ACTU hardly mentioned the issue in the Commission, but extensively refer to it outside for public consumption. The fact is that for the reasons we outline in ACCI2, it does not get the ACTU anywhere near first base in this case. The Commission has in the past concluded that the circumstances of remuneration for a small group of executives, politicians or judges for that matter bears little value in setting the proper level of an award safety net.
PN891
Those past findings, coupled with the fact that it is generally not large public companies but rather businesses in the small and medium sectors paying the wage increases sought, means that the Commission should again give no real weight to the ACTU contentions in this regard. I now turn to the questions of form and quantum in the event that an order is made. These are submissions put completely without prejudice to our primary submission and the matters - - -
PN892
JUSTICE GIUDICE: Before you get to those, Mr Anderson, are you going to deal with chapter 12 of your submissions or is Dr Kates dealing with those?
PN893
MR ANDERSON: Of ACCI2, your Honour?
PN894
JUSTICE GIUDICE: Yes.
PN895
MR ANDERSON: Dr Kates will be dealing with that.
PN896
JUSTICE GIUDICE: Thank you.
PN897
MR ANDERSON: I do point out that in putting these submissions in respect of form and quantum, the relevance of the submissions we are putting generally on the matter as to why we say at this time the balance of interest leads to no increase rather than an increase are equally relevant to that question. If there is to be an increase, there are very persuasive reasons for caution and moderation. This would lead one to a conclusion that increases ought be very much at the lower end of the scale. We do not specify a dollar figure, but we do indicate that the position of the Commonwealth is absolutely in our submission at the upper end of economic responsibility and need.
PN898
JUSTICE GIUDICE: Bordering on the irresponsible, you mean?
PN899
MR ANDERSON: It is at the upper end of economic responsibility. Any increase ordered should reflect the realities of the economy in which it will operate. We particularly commend to the Commission the submission of the National Farmers Federation and the proposal for specific relief from any order for employers in drought-affected areas. Dr Kates will address further on this issue of drought. Suffice to say that drought is a very significant issue in this case, not just for farming businesses but for all businesses and economies that rely on farm income.
PN900
It is not logical for the ACTU when it looks at the GDP figures to keep telling the Commission, well, let's just extract drought out from those figures and conclude that we have a strong and resilient economy, but to then not seek to exclude from the orders employers and regions directly affected by the drought.
PN901
As to timing of any increase ordered, our submission is that any increase ought to apply for an 18-month period. These matters are considered in ACCI2 15.26 following. This is an important point. Our grounds for putting that submission can be summarised as follows. A six-month extension beyond what has traditionally been the period for increases of this nature would allow for the increase to be more extensively flowing through the economy before a further increase is contemplated.
PN902
Not all awards are increased inside even a 12-month period. An 18-month period would importantly add to the need for economic stability at a time of economic uncertainty. An 18-month period would also be consistent with the fact that annual increases are not a statutory presumption or requirement. As I said earlier, there is no presumptive obligation or requirement in the statute which would say that increases of this type ought to occur on an annual basis.
PN903
We also submit that any increase ordered should not apply beyond the C10 rate or what is commonly referred to as the tradepersons' rate. These matters are dealt with in ACCI2, paragraphs 15.4 following. This would somewhat ameliorate the impact of any increase. It would foster agreement making in the upper skill levels and importantly it would direct the increase to the low paid, better meeting the statutory objects of the Act.
PN904
If I can make my final comments on the submissions of a couple of the interveners so that I don't have to address the Commission at a later date on this. Firstly, in respect of the Disability Employment Action Coalition, as I indicated yesterday, the supported wage system is very strongly supported by ACCI. We recognise that the supported wage system is identified in the terms of the statute as a necessary part of our industrial workplace system. Variations to the supported wage system have occurred by consent for the life of the supported wage which is almost 10 years.
PN905
We have worked closely with the ACTU and intend to continue to work closely with the ACTU on those issues. There are a number of matters that have been raised by DEAC and those matters and the submissions presented are obviously very well considered and strongly held views. We have indicated to DEAC on behalf of employers in this sector that we are willing to facilitate discussions between DEAC and those employers and ourselves and our members on the issues they have raised. Having said all of that, there is no need at the moment for the Commission's assistance in those discussions which will occur.
PN906
The issue, to the extent there is any issue of relevance, here, for this case, is that the supported was when it was established by decisions of the Full Bench, as well as in subsequent decisions as recently as the Full Bench that increased the supported wage last year, has made it clear that the supported wage is not a wage that is based upon movements in the award safety net as determined in these proceedings. The variations that occur to the supported wage are based on the changes that occur to the minimum threshold to disability payments under government social welfare policy. In those circumstances it is hard to see how submissions, in this matter, are relevant to the determination of this matter.
PN907
To the extent that those submissions say that there ought be wide ranging discussions or an inquiry into issues relating to the supported wage, we say we will participate in that process. The only extent to which we say these are relevant issues, at all, is to ask the Commission to indicate, as we argue and put forward in ACCI2 that there would be some benefit in a clear statement from the Commission, drawing the attention of the parties to those previous Full Bench decisions being the decisions that established the supported wage system and those that have subsequently varied it, particularly print PR9182422 of 3 June and also the original decision, print L5723 in 1994.
PN908
That is a course of action that would be of some benefit because there have been some awards that have been varied in what would appear to be a misunderstanding by the parties drawing up the variation orders, where components of the safety net orders have found their way into aspects of the supported wage system. These are matters that we are happy to discuss with DEAC and the ACTU and other interested parties over the coming months.
PN909
JUSTICE GIUDICE: Do you have any view about the proposal for an industry consultative council?
PN910
MR ANDERSON: We don't see a need for something as formal as that to be established. Industry consultative councils have tended to be formalised structures under the Act which bring parties together, where they are dealing with intrinsically adversarial issues and they need some formal structure of the statute to bring them together. I don't think we are at that point and certainly, from our point of view, not at that point. We don't see some intrinsic adversarial dispute in relation to the supported wage structure.
PN911
JUSTICE GIUDICE: Why do you say industry consultative councils are adversarial?
PN912
MR ANDERSON: No, they are not. But they are a formal structure under the Act and they have traditionally brought together parties who have been in the adversarial environments. They are part of trying to settle, conciliate disputes between parties and to bring parties to a greater level of agreement on issues of common interest. We are not at that point in dealing with the supported wage issues, at all. The ACCER submissions, we don't need to put anything further on those other than what we have had to say in our reply ACCI2, other than to comment on the suggestion that has been made for an inquiry in respect to the low paid, initiated by the Commission.
PN913
We are not convinced that there needs to be an inquiry of that nature. We are aware that there are two inquiries in the Federal Parliamentary environment on low paid issues. One, an inquiry by the Parliament on poverty and there is also a Senate inquiry in respect of the proposed legislative amendments to the Workplace Relations Act that would bear on some of these issues. And there are some forums at those public policy levels where these issues, in part, are able to agitated and at this stage we are not satisfied that there needs to be a formal inquiry established under the auspices of the Commission. If one is, though, we certainly would be willing to constructively contribute to it.
PN914
That concludes my remarks on the array of industrial issues that we wanted to make a specific submission to the Commission, on, and Dr Kates will now deal with our economic submission.
PN915
JUSTICE GIUDICE: Yes. Thanks, Mr Anderson.
PN916
DR KATES: If the Commission pleases. One year ago, the Australian economy was in the midst of a strong upturn and in which the prospects for sustained improvements in living standards and a substantial fall in unemployment was seen as genuine possibilities. There had been a downturn in activity over the previous year but recovery had taken a hold and the outlook was genuinely positive. But that was a year ago. Now there is less certainty of our collective future direction. T
PN917
here is less confidence that conditions will remain strong. There are diminished expectations about our economic strength. The overall mood has become more pessimistic and while output and investment have remained high, the likelihood is that economic conditions will waiver over the coming year. This no year in which to grant an increase of $24.60 per week on every award wage in Australia, an increase of 5.7 per cent on the minimum wage. This is no year to be entertaining claims to increase the real living standards of employees by raising the production costs of employers.
PN918
This is no year to be making the Australian economy less internationally competitive by raising domestic costs relative to the costs of producers overseas. A year ago we were prepared to support an increase of $10 per week, just as we had the year before. But a year ago we were looking back on a safety net decision that had granted $13 on the minimum wage and we were looking forward to a year that gave every sign of being the start of a prolonged period of above average rates of growth.
PN919
Now, a year later, we are looking back on a year in which the safety net increase was $18 per week, an increase of 4.4 per cent on the minimum wage and we are looking forward to a very uncertain year, whose contours are almost impossible to divine. And while the prospects for the coming year remain generally good, there are so many uncertainties it is impossible to have the kind of confidence, looking forward, that we were able to have one year ago. The momentum of last year has largely dissipated. Our concern in the case, one year ago, was that the upturn we were at the start of, could turn out to be short lived. There was evidence enough of the gathering problems that might make the upturn less secure than the immediate set of circumstances seemed to create.
PN920
There was also the concern, the granting an excessive increase would depress the labour market, even if economic growth turned out to be as strong as was hoped, either by employers introducing labour saving technologies and being more careful when adding on new employees or through expansion being tilted towards more capital intensive parts of the economy, there was the concern that increases in the safety net, especially when added to other cost additions to the employment of labour, might make the ultimate growth in the workforce disappointing.
PN921
One year later, both of these concerns can be seen to have been valid. There are strong reasons to be believe that the year ahead will show reduced rates of growth. We are likely to have slower growth in private consumption, business investment and dwelling construction. The rate of non farm growth is, therefore, likely to be lower 12 months from now in comparison with the good rate of growth which has occurred over the past year.
PN922
But what is also important to recognise is that employment growth during the past year has been much less than one would have hoped or expected, given the strength of the economy over all. This is especially the case in the private sector, which is captured in the data on the market sector. Market sector GDP grew by a very respectable 3.9 per cent over the past year to December 2002. Hours worked over that same period ruled by a dismal 0.2 per cent. Productivity growth has thus been strong - - -
[2.46pm]
PN923
JUSTICE GIUDICE: I am sorry. I missed that. Dr Kates?
PN924
DR KATES: Sorry.
PN925
JUSTICE GIUDICE: I am sorry. I just missed that sentence.
PN926
DR KATES: Perhaps I could repeat that, your Honour.
PN927
JUSTICE GIUDICE: Yes.
PN928
DR KATES: Our market sector GDP grew by a very respectable 3.9 per cent over the year to December 2002. Hours worked over that same period grew by a dismal 0.2 per cent. Productivity growth has thus been strong, growing by 3.8 per cent over the year, but this improvement in the measured level of the productivity is, in an important sense, nothing more than a product of the apparent reluctance of firms in the market sector to increase employment. This is clearly no small point. If three quarters of the Australian economy, which virtually incorporates the entire private sector, is not increasing its workforce in the midst of a period of strong growth, that is a problem that needs to be addressed.
PN929
It may have nothing to do with increases in the cost of labour, although this, in our view, is unlikely. It may be due to other factors, but the relatively jobless growth in the private sector is an issue that cannot be left to one side while pushing the safety net ever higher.
PN930
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, you have slipped from the term market sector to private sector. Were you going to address the ACTUs submissions yesterday that the market sector does not approximate the private sector, and the further submission that the market sector excludes 40 per cent of all award-only employees?
PN931
DR KATES: I will be certainly doing that, and I will make it a special point to look into that. If I haven't satisfied you by the time I have finished, I will go back and do some more work on that.
PN932
SENIOR DEPUTY PRESIDENT WATSON: Yes, thank you.
PN933
DR KATES: There also needs to be some attention paid to the question of what is in the best interests of low paid workers, both in the short term and over the longer period. Pushing the safety net higher raises the real take home pay of those who retain employment but makes jobs less secure. As we discussed in last year's submission and have done again this year, the detailed study conducted by the Melbourne Institute shows that if the choice is between an increase in wages or keeping one's job, the overwhelming choice amongst the low paid is to forego the increase and to remain employed.
PN934
It is therefore against the specific wishes of the very workers this claim is supposed to assist that their jobs are being made less secure. In this submission there are a number of points we will seek to establish. Firstly, the economy in the year ahead will be weaker. The ACTU has too narrow a view on what is meant by your submission. If the drought does break and GDP is higher as a result, the economy will nevertheless be weaker if investment growth is falling and unemployment fails to decrease.
PN935
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, is investment growth falling or is the rate of growth in investment falling?
PN936
DR KATES: Pardon me?
PN937
SENIOR DEPUTY PRESIDENT WATSON: Is investment growth falling, or is the rate of growth of investment falling?
PN938
DR KATES: Well, certainly the rate will be lower, and so I guess that is what I am saying. The rate will be lower. In the last year we had growth rate in business investment of 16 per cent or thereabouts. A year from now, given the expectations data, the growth rate is expected to still be positive, but has fallen to 4.5 per cent.
PN939
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN940
DR KATES: So that the rate will be lower, but we are certainly not suggesting that there will be negative investment in the year ahead.
PN941
SENIOR DEPUTY PRESIDENT WATSON: I think you said investment was falling.
PN942
DR KATES: Well, if I did, I apologise, and it is the rate of growth in investment, but it will be substantially lower as the data - investment expectations data clearly show, and I might also add that most people expect that investment in the dwelling sector to actually be negative. So that when you bring together dwellings investment and business investment, it is touch and go whether across the entire private sector whether investment will actually be positive. Our second point on the economy that we will try to establish is this. The increases granted last year did have negative consequences.
PN943
The ACTU is on the point of conceding that in some enterprises jobs were lost, but asks us also to look at the net effect and include those enterprises where the impact was positive. There really should be no need to argue whether jobs are lost, which is a conclusion reached by the Commission in its decision last year. Thirdly, the survey conducted by ACCI should make it clear that there is flow-on, and that there are negative employment effects. A larger more extensive and therefore more expensive survey might give us more precision, but the surveys conducted by ourselves, the AIG, and the retail motor industry, all show the same result.
PN944
The safety net increase granted last year led to a reduction in jobs. Our fourth point is this. The ACTU wage claim would be excessive, even in a normal year. But in the year in which Australia has experienced the most prolonged drought in a century, and in which international uncertainties are extraordinarily high, granting an increase will further erode confidence. Our fifth point is that the war in Iraq is only the most important of the international factors that need to be assessed, but continuing beneath this war is a slow-down in the world economy that is being experienced across the globe, and that is irrespective of wars in the Middle East.
PN945
The Japanese economy has re-entered recession, and there are genuine question marks that hang over the United States' recovery. who can really say what will happen to global growth, but there are many reasons for believing that things may end up a lot worse than they already are. But once an increase is granted, it cannot be taken back, no matter how inappropriate it turns out to have been. Sixth, academic research is virtually unanimous in demonstrating that raising wages in the absence of productivity growth puts jobs at risk. In this context it needs to be noted that much of the research currently being conducted relates to the minimum wage alone.
PN946
Here in Australia we are adjusting all award rates, which are the wages received by around one quarter of the workforce. Seven, the claim if granted would add significantly to costs. The effect would not occur in enterprises where employees are not played the award wage, nor would it occur across most of the public sector. The macro-economic cost of the claim relates directly to the private sector, and to the effect on private sector firms and employers. It is such businesses which restrict employment growth and expansion because of the rise in the cost of labour.
PN947
This slows growth and diminishes the ability of the economy to afford sustainable increases in real earnings while also maintaining the level of employment. We conclude our opening on the economy with this observation. This is a very poor year in which to be raising award rates, by any amount, let alone by $24.60 per week. It is instead a very good year to finally break the cycle of the annual increase. We do not want to find ourselves returning a year from now, wishing the decision had been lower.
PN948
Everything may turn out well, and there are many good reason, we concede this, and there are many good reasons to believe that this might be the case. But there are many other equally good reasons that would lead one to be less optimistic about the year ahead. Last year's $18 decision was based on a general belief that the economy would perform very well over the coming year. This is an assumption that one can no longer have today. The decision in this case must reflect the many uncertainties that this economy must now confront.
PN949
SENIOR DEPUTY PRESIDENT WATSON: Where does that leave the Commission, Dr Kates? It appears that each year we are directed to the uncertainties. Are we to assume the worst and act on that basis? Last year, for example, ACCI raised a number of concerns about the future economic outlook, notwithstanding you now say it was a very good year. The year before ACCI indicated it was difficult to imagine a less sensible time in which to raise wages. 2000, nine factors requiring caution were raised. Is the Commission to act on the basis that the worst possible outcome will arise?
[2.56pm]
PN950
DR KATES: I didn't hear the - sorry, I missed the last - - -
PN951
SENIOR DEPUTY PRESIDENT WATSON: Is the Commission to act on the basis that the worst possible outcome will arise from what, as you say, are uncertainties?
PN952
DR KATES: Well, I think there are, obviously, uncertainties in every year and if we have raised them in the past it is certainly, I think, important that the Commission understand them. But this is a year that seems to stand out in so many different aspects that it is hard not to - it is hard not to feel that this one has special characteristics. The ACTU have mentioned the trinity of issues back in 1982. There is a trinity of issues this time as well and they are not quite of the same order as they were then.
PN953
But there is an international recession, there really is. The Japanese economy, which is our largest trading partner, is in recession. They thought that it had come out and then it turned around and went back down. The European economies are going nowhere. The German economy has hit 11 per cent unemployment, an extraordinary rate in Germany. Across the EU there is genuine reason to think that we are looking at a prolonged downturn in European levels of activity and this is clearly going to have an effect on us.
PN954
The United States economy, everybody keeps hoping it is going to pick up. My own very real concerns, and this aside from anything else, is that the deficits they are now running will clog that economy up in ways that I don't think they appreciate. And if they end up like the Japanese who thought they could spend their way to recovery and they have ended up with a 10-year recession, that this is not something that will sit lightly on the world's economies.
PN955
There is, then, the issue of the war which we raise as an absolutely separate issue. The cost of fighting the war. The instability being created by the war. The role of terrorism. The price of petrol. The supply of petrol. No-one really knows what will happen three months from now in regard to how that war is prosecuted. What fall-out there will be. How the effect will be on our economy in terms of the deficits we might start to run. The effect on the American economy. The deficits they might start to run. The uncertainties created by this war in the Middle East. And even if the fighting stops in two weeks' time or a month's time there will be consequences that will go on for, dare I say, one year, but at least one year that are seriously clouding economic issues right now. You cannot - - -
PN956
SENIOR DEPUTY PRESIDENT WATSON: Well, I don't have difficulty with likely influences such as a depressed Japanese economy which there is some level of agreement about. What I find harder to get a handle on is how we deal with uncertainties where something might or something might not happen.
PN957
DR KATES: Well, I think we all have to deal with uncertainty. How does one - this is what the assessment must be as part of this safety net review. Tomorrow something could happen that would change everybody's view of things although I suspect if it would happen tomorrow it would be pretty negative. But the future is absolutely unknown and it is unknowable. But there are certain things we can see that we know that exist right now and are having an effect. So that I mentioned the international recession, I mentioned the war in Iraq and I mentioned the drought. That was the third one I would have said as part of my trinity.
PN958
These are not small, these are large. These are major, they are important and they are impinging on the economy right now. You have to work a decision out in terms of how these things will affect employment, growth, investment. All three of these, in our view, are negatives. They are major negatives. They are reasons for the Commission to stay its hand and to recognise that out there in the real world there are problems that are not just global problems, these are problems that fall back on the individual enterprises in Australia. And that they are going to make those enterprises here in Australia less capable of supporting an increase in wages at this time.
PN959
Now, that there are in other years other circumstances similar is no reason not to recognise that these exist right now. And, of course, in our view what these uncertainties should do is lead you to the conclusion that you shouldn't increase wages at all. The ACTU virtually says that they make absolutely no difference and that the increase should go forward irrespective of all of that. I mean, not mentioning the war seems to be part of what the ACTU submission was about.
PN960
And I can only conclude that if we are going to recognise that we want to maintain growth, we want to keep unemployment down, we want to see if we can create new jobs and this is an - I mean, we are dealing in an economy that is so unique that we are, as the ACTU said, almost one-off in the whole world at this stage in being able to do this. But it is because we are one-off that we should be really prudent.
PN961
We don't want to find ourselves being in the same position as Germany or the United States or any of these - or Japan - where suddenly we have gone very well for a long period of time and then that improvement stops. That is the one thing we are trying to forestall and I think it is really imperative that the decision in this case recognises these problems and that it brings down the decision - that the Commission brings down a decision that has these as part of the context in which the decision is framed.
PN962
If I could I would now like to turn to discuss the economic material we provided for the Commission in our written submission and our reply submission. And in so doing I would like to tender a document that is made up entirely of material that is found in those and it is called the Material to Come, ACCI Oral Submission on the Economy.
EXHIBIT #ACCI4 MATERIAL TO COME, ACCI ORAL SUBMISSION ON THE ECONOMY
PN963
DR KATES: I don't intend to follow the same order as in the submissions and I intend to sort of move to - to just pick different parts out of the submission. And where I would like to actually start is on The Age economic survey which is what the ACTU highlighted in its own submission. And it is nice to find myself an authority for the ACTU. Now, there are a number of issues I would like to raise about this. It is, perhaps, true that I am more optimistic than others and - well, I actually think the economy has been managed extraordinarily well and I am now beginning to have concerns because of statements by the Treasurer that we may be heading towards deficit which would, of itself, change my view and make it much more pessimistic.
PN964
But let me first talk about what the survey shows. Now, you can see my own forecast sort of in the middle. But if you go across the bottom you can see that there is an average of all of the forecasts and this average is far more pessimistic than I am and looks at a year that is going to be significantly weaker. Not a recession, not a decline activity. We all think the Australian economy is going to keep growing which is pretty good given what is going on overseas, but looking at - never mind looking at my own forecast, looking at the average we can see that the average amongst all of these forecasters was that there would be an increase of 3.05 per cent in real GDP in 2003.
[3.06pm]
PN965
The figure now is 3.2 per cent in the national accounts as at December. The range here is from a low of 2.30 per cent by Professor Neville Norman at the University of Melbourne, and there is a high for someone at the Centre of Political Studies at Monash, Philip Adams, the first one who says 3.6 per cent. So that there is a range, and some people think things will just steam along, but others think things will slow. What is important is that the average here is 3.05 per cent: clearly a slower rate of activity, looking for the whole of the current calendar year.
PN966
If you look at the next column, which is for real GDP in 2003/04, there is some slight, but not fantastic improvement. And that is, in my view, the same reason that we all I think have had an improvement forecast for 2003/04, and that is that most people are building in the breaking of the drought. It is not because we know the drought is going to break, but on the balance of probabilities there is an expectation that you won't have the worst drought on record two years in a row. So that there is an expectation that I suspect that all of us had that when you are dealing with GDP, there will be stronger growth.
PN967
Looking then at the table on private consumption. Now, I may be more optimistic than others, 3.9 per cent was my forecast. The average forecast is much, much lower, and that is a figure of 3.14 per cent. Now, if we end up with a growth in private consumption of 3.14 per cent, then we are already looking at an economy that is materially weaker than the economy we have just seen the end of in 2002. It was 4.1 per cent over the year to December 2002. This says we will knock off something like one full percentage point in the year ahead and we will fall from 4.1 to 3.1 per cent.
PN968
Going to the next column, looking at private investment, and this is excluding housing, so this is basically business investment, my forecast was 7, the average forecast is 7.8 per cent, and there is a range from as low as 2.1 to as high as 12.5. Now, the interesting thing about that range is that the actual growth in business investment in the year to December 2002 was 16.6 per cent. So even the most optimistic person filling in this form, this Age survey back in December, forecast an increase in business investment lower than the average was - than the actual outcome this year, and the average is 7.82 per cent.
PN969
So that we are looking at an expectation throughout - I would say these are a pretty good representation of economists around Australia, of a major fall off in investment. And that was before - that was before - the publication of the ABS expectation series, the first one for 2203-2004, and that showed a figure of 4.5 per cent. So that I, myself, had I known was the ABS was going to publish about the coming financial year would have put down something like four-and-a-half per cent rather than the 7 I had which I thought was pessimistic as it was.
PN970
Looking at the figure on housing investment, well, I am clearly the optimist amongst all of them; 6.1 per cent is my guess on housing. Well, other than Chris James over at VECCI, everyone else is negative. Everyone else expecting an actually fall off in the level of housing investment in the year to come. The average is a negative of minus 3.97. The increase in the national accounts to December 2002 - so this is what we are talking about next year - the increase over the past year has been 22.7 per cent, 22.7. The expectation is that this will be succeeded in the year to come by an increase that is actually negative, minus 4 per cent.
PN971
So that what I think these show is, as much as I appreciate the ACTU choosing my forecast as the most accurate, if you look at the range of forecasts and you look at the full range of what economic opinion was at the end of December, it is that this year, this coming financial year 2002-2004, is going to be a lot, lot weaker than the year that has just gone by.
PN972
SENIOR DEPUTY PRESIDENT WATSON: I suppose on the uncertainty theme, if we had certainty, the Age would only need to ask one rather than the 19 economists for the purpose of their survey.
PN973
DR KATES: It is not exactly my first line of duty to do forecasting. Some of these people do nothing else. It is quite an extraordinary thing, and I have always found that some people have jobs in that table. If they can work out the CPI within the national accounts one day before it is actually published, their businesses will make a fortune because they can anticipate correctly how the - what the figure will be and how the market will react. And they are people who - we do our forecasting a lot less scientifically than many others.
PN974
But if I could come to a second point here, and that is that the increase is about the drought, so that the drought will lift, that is all. But if you think underneath it, if you recognise that underneath it there is non-farm product and that the drought this year has knocked off something like 0.8 to 1 percentage point off the GDP figure, there is underneath these estimates a clear pessimism, a clear pessimism about economic outcomes in the year ahead.
PN975
Now, there is a third aspect, and that was that in doing these forecasts for the Age, they asked you a series of supplementary questions, and the point of doing the supplementary questions is that they write a great big story and they will throw in a single line from different people. They have a number of issues. They will say Neville Norman said this, and so-and-so said that, and to get those quotes they ask a number of questions in which at the very end of this first section you can see the supplementary questions that were asked.
PN976
The first question was: what do you think is the single most important long term economic problem facing Australia? What should the Federal Government be doing about it? Now, it is quite clear that there are no end of serious problems that I think the Federal Government should be doing things about. I have real problems with how monetary policy is conducted. There is a concern we have about national savings, retirement incomes. We have concerns about public spending, the way it is done, the level, but this is what I answered, and this the reply I sent to the Age as part of the forecast and I will just read this:
PN977
The greatest economic problem facing the government is attitudinal. There is still insufficient recognition that there is a necessary relationship between effort and output. There is therefore an ongoing belief that we can reduce productive activity and still maintain living standards. The ACTU safety net, redundancy application and work and family claims are examples of the more general belief that we can draw down on our productivity and still continue to raise real incomes.
PN978
Similar demands for greater social services without recognition of their costs will continue to plague governments. The dangers of a sclerotic outcome where the Australian economy becomes as bogged down as European remains a real long term concern. The government should be taking a hard line against the ACTU in its claims for increased real incomes and should do what it can to ensure that the community has a better understanding of the relationship between economic growth and future improvements in our standard of living.
PN979
I end the quote. This was, of course, never intended for any other audience except the Age editor who was going to write that story, but it does, I think, get right to the heart of what is our concern, because we cannot continue to raise costs without asking ourselves where will the productivity come from, how are we going to fund this growth, how are we going to make the economy strong enough so that we are able to get economic - able to sustain the increases that are continuously being - and I don't just mean through this system, and I mean there are plenty of other cost increases that are being placed on employers all the time through regulations and whatever - but it was in particular that the ACTUs claims were what drew my attention to what I thought were the most important issue of all the different possible problems that the government should choose as its number one priority.
PN980
Now, if I could turn to the next section, and this is a discussion basically built around section 2 of our reply submission, and this was on the safety net and economic outcomes. It first deal with what the ACTU insists that there is no evidence whatsoever, no evidence, that what they do causes harm. There are a number of quotations, but I will just choose one, and the ACTU, for example, said:
PN981
There is nothing in the economic data either at a macro-economic or sectoral level that suggests that last year's safety net increase had any adverse economic impact. There is no data and the submissions of the Commonwealth and the opposing employers simply cannot and do not point to any.
PN982
I mean, it is the ACTUs approach to deny any relationship at all, that there is no connection, that you can grant these increases and nothing happens, it is such a trivial impact on the economy. They actually use the word that it is "invisible", that it is such a tiny increase that nothing can be seen. Well, we would like to discuss firstly that issue of whether it is so small that it just simply passes through the economy without any recognition or - - -
PN983
VICE PRESIDENT LAWLER: Dr Kates, before you do, where is the data?
PN984
DR KATES: I am sorry, which?
PN985
VICE PRESIDENT LAWLER: Mr Watson, who, given your opinion, must fulfil the role of vandal at the gates of the Australian economy, says that there is no data to undermine the proposition that the ACTU puts, there is no data to demonstrate that the increases in the safety net have an adverse economic impact. You identify that in a way which suggests that you disagree with the proposition. Where is the data?
PN986
DR KATES: Well, I am hoping to do that now. So if you are not satisfied at the end, please come back. Now, the first of these is the wage cost index, the first of the bits of evidence is the wage cost index. These figures, as you see - well, these figures are non-seasonally adjusted, they are non-trended, they are the original data, so they are just - when things actually occur, that is when they are registered in the data.
PN987
What you see is that in each September there is a spike, that whatever else is happening, in the September there goes - it jumps, it jumps every September. Now, in our view, there is only reason why that happens and that is that it is the decisions in the safety net flow through into the data in the wage cost index. I might also mention that the ACTU also notes that it is in that September quarter. They say in paragraph - in their reply submissions 6.49, they state:
PN988
Last year the Commission awarded the largest increase in award rates for many years. If there was ever a year when the Commonwealth employer - other groups on their own arguments have been able to bring the Commission - it will be this year. They have absolutely failed to provide such evidence.
PN989
Now, here - here you see that not only do you have the spike in the September quarter when that occurs, but as the advocate for the states noted, that the increase in September 2002 was the largest increase ever. It actually registered as the highest increase. Now, it is, in our submission, clear that the increases granted through the safety net are not invisible. They take place and they cause an increase to occur in the wage cost index.
PN990
The wage cost index is the labour cost growth estimate that is designed to pick this up because it is a fixed weight index, it is not affected by compositional shifts, it is designed to see what happens to wages paid. What you see is that when the safety net decisions are granted, there is a spike in this particular measure.
[3.23pm]
PN991
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, is it a matter of timing or substance and if you presume that the other 80 per cent of the workforce wage increases are fairly evenly spread and there is a concentration on the timing of the increase for 20 per cent of the workforce, would it be all that surprising to find basically a 0.5 per cent different level of increase in that quarter as compared to the others?
PN992
DR KATES: Sorry, I don't understand the point?
PN993
SENIOR DEPUTY PRESIDENT WATSON: Well what we have is basically a 0.5 per cent higher increase in September than the other quarters. But is that surprising if one presumes the increases for the non award 80 per cent of the workforce is fairly evenly spread. Doesn't that simply reflect the fact that there is concentrated, as a matter of timing, the wage increases for the other 20 per cent up around the same time? And is that simply then a question of timing or is there some substantive issue that arises out of it?
PN994
DR KATES: Well, I mean, there are two ways to look at it. This is simply the safety net of itself which I think is partly the story. The other side, I think, is that since we do believe there is flow, that you will find that in some enterprises they wait to see what happens in the safety net review and then they make their own workplace decisions in relation to what has happened in the safety net. So that it is partly the direct effect that you see there and partly, I think, the flow-on effect that occurs in those quarters.
PN995
SENIOR DEPUTY PRESIDENT WATSON: But it is only a matter of time, isn't it? I mean, if the wage - the award increases were spread across the year, you wouldn't see any peaking in the wage cost index.
PN996
DR KATES: That is right, I agree. But that is just the point, that you do see it and - - -
PN997
SENIOR DEPUTY PRESIDENT WATSON: And what are the consequent economic effects of that?
PN998
DR KATES: Well, the only thing I am trying to point out at this stage is that rather than, as the ACTU argues, that this is invisible and 0.1 per cent, this is visible and you see it you actually - it is not open to the ACTU to say that this is something so tiny that it has no effect. Rather, what we want to argue is that it is not tiny, it is not small - - -
PN999
SENIOR DEPUTY PRESIDENT WATSON: Well there is a difference between it has no effect and it is not apparent in a timing sense in some indicators. I am wondering whether the ACTU would even question whether a given bunching of safety net increases that there would be some peaking evident in the wage cost index.
PN1000
DR KATES: Well I would be very interested to hear that, because up until now, the ACTU has argued that the increase is so small that it is simply undetectable and as far as I can see, this geiger counter is going off every September and we are getting - - -
PN1001
SENIOR DEPUTY PRESIDENT WATSON: But the substantive issue is what are the implications of that, what are the economic effects of the timing being concentrated, in particular, of safety net increases, in a particular quarter.
PN1002
DR KATES: Well the fact that it happens in that particular quarter is not the issue. The fact that it is visible and happens at all, I think, is the issue. Just an - - -
PN1003
SENIOR DEPUTY PRESIDENT WATSON: Well, I say, not from my point of view. I am more interested in what are the actual effects.
PN1004
DR KATES: Well, I guess the first point we make is that, if, as the ACTU said, that the increase was so small that you ended up with a table of zeros, nothing could be registered, you just ended up with - no matter where you went, you were just granted a safety net and nothing happened, there was no consequence on any, on any - - -
PN1005
SENIOR DEPUTY PRESIDENT WATSON: On those indicators reflected in that table as - - -
PN1006
DR KATES: Yes, well - zeros, 0.1s with point zeros. I mean, if I could just - they themselves pointed out that the increase that - their estimate of the cost increase is 0.1 which is the same as the increase in the UK Low Pay Commission Estimate, of an actual increase in the minimum wage. Here it doesn't go to 4 per cent as it does in the UK, it goes to 25 per cent. And it isn't just at the very bottom, to the lowest paid workers who you would think would have a smallish effect on the aggregate. Here it goes to one quarter of the workforce and right up through the entire pay scales. So that what I am trying to establish and not much more than that, but it is, I think, an extremely important point, is that this is an increase that is not trivial, it is not invisible, it really does take - have a palpable, visible effect on economic aggregates in Australia. You can see it happen.
PN1007
SENIOR DEPUTY PRESIDENT WATSON: Well perhaps you will take us to those economic aggregates in due course and show us that effect.
PN1008
DR KATES: Well, yes, I am hoping to do that right now. But you see, because no-one can actually say, "Here is an increase in the safety net, and there is a macro-economic effect over there." It requires some kind of ability to relate one thing to the other. We have noted elsewhere in our submission that there are, in effect, three different forms of making this connection. You can use economic models as a way, such as a TRYM model where you have this - where all the elements are just put together. Or you can have a econometric study where you do - such as Lewis and McDonald, where you just look at - you try to isolate one particular aspect of the economy and look at that. Or you can do as we have continuously done, is you can have a survey.
PN1009
But to just have a kind of inspection of how the economy is going, which is what the ACTU is basically saying, "Just look, nothing happened," is, I think, the most difficult. But even so, I think that the evidence really does substantiate the point we are trying to make, that there is an effect that you can see caused in the labour market, and I would say, other parts of the economy as well, but it is the labour market that we draw the first set of attention towards. And that once you see that it is not some insignificant increase that takes place, but actually is a quite large increase that shows up every year with a very large jag in the numbers, you can come - you must, I think, recognise that the increases granted through the safety net are having an effect on the cost of labour. Now, in dealing with this I will go to the next page, which is the hours worked in the market sector.
PN1010
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, could you just remind me, it has been some time since I have looked at it, what sectors are in and out of the market sector?
PN1011
DR KATES: Yes. We noted that. It is actually in reply submission - - -
PN1012
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN1013
DR KATES: R2.4, and you will see a footnote there where we discuss who is in and who is out.
PN1014
SENIOR DEPUTY PRESIDENT WATSON: R2.4.
PN1015
DR KATES: That is right.
PN1016
SENIOR DEPUTY PRESIDENT WATSON: Sorry. Your reply submissions.
PN1017
DR KATES: Reply submissions, yes, your Honour.
PN1018
SENIOR DEPUTY PRESIDENT WATSON: Yes, that is right. On page R2.4.
PN1019
DR KATES: Yes. Page R2-4.
PN1020
SENIOR DEPUTY PRESIDENT WATSON: Yes. Thank you for that.
PN1021
DR KATES: I mean, as you are sure well aware, that the point of having the distinction between the market sector and non-market sector is that certain parts of the economy cannot be - you cannot estimate the value added through sales of produce. So that, for example, because a property sector, it comes as a commission rather than actual value added, price against costs, that it is very difficult to estimate value added normally. But what you have, and of course, for the public sector almost entirely there is no sole - no items that are actually placed in the markets. There is no market price, therefore you can't actually generate the value added in the traditional ways.
PN1022
But what you have here, it says that property and business services, for the reasons we mentioned, government administration and defence, education, which is largely public sector, health and community service, again which is large public sector, and personal and other services, which is also in the main a private sector domain. But what you basically have when you are looking at the market sector, you are looking at the one part of the economy that is entirely private sector. Almost entirely.
PN1023
That you are netting out most of the public sector. Not all of it, I might add. Not all, but mostly, so that this is mostly an estimate of what takes place in the market sector, and the reason we are highlighting that is because it is as close as we can get to a figure that gives you what is taking place amongst the people we represent in the private sector. What is happening in businesses? This is the question we are asking ourselves. What is happening in businesses in Australia? And what you find here is that in the market sector there has actually been a fall, in fact it has been virtually stagnant since December 1999 when the index was at 100.0, it has been virtually stagnant all the way through until December 2002 when the figure has actually fallen, and it has fallen to 99.8 relative to the 100.2 half a year before.
[3.35pm]
PN1024
Now, this is a matter of, in our view, serious concern and what we are trying to say is that some of this is labour cost related. How much, we can't tell you. But we will tell you this much and this is just an inference. You take it as you like, but it is an inference. It is something that we think is worth considering. That between December 2001 and June 2002 there was an increase in hours worked in the market sector, which is our closest proxy we have to the private sector, there was an increase of something like half a per cent in hours worked.
PN1025
And then following the decision but not necessarily caused by the decision because that course you need - we must just infer because there is no-one who can come down and point and say that is what that was about. But nevertheless you must - you can take an inference and that following the decision there is then a fall in hours worked in the market sector and it falls by 0.4 per cent. Now, what we say is that had it continued to grow at the same rate it would have gone on to about 100.7 at that stage. So that the difference was something like 0.9 percentage points is what was lost to a rate of growth in hours worked in the market sector.
PN1026
Now, I am not arguing that it was caused entirely by the decision in the safety net, I would not argue that, but I am saying that it is consistent with the view we put that an increase in the cost of labour that is well above what businesses were expecting in May 2002 will have had a negative effect on business decisions to employ. I state that as a conclusion we would argue very strongly for. And what I say about these numbers is that here is evidence that suggest that following the decision in the safety net last year there was a fall in hours worked in the market sector and I might emphasise that hours worked in the market sector weren't doing very well even before that, but there was a fall that came after that. Now - - -
PN1027
VICE PRESIDENT LAWLER: Of 0.2 per cent.
PN1028
DR KATES: Of - yes, well, 0.4, if you start from the June quarter and you say that the decision was in the June quarter and then it went from 100.2 down to 99.8.
PN1029
VICE PRESIDENT LAWLER: What evidence is there that the decision was the cause of that?
PN1030
DR KATES: Well, I don't say - - -
PN1031
VICE PRESIDENT LAWLER: Or is it just a matter of commonsense?
PN1032
DR KATES: Yes, that is right. It just - you cannot - this - - -
PN1033
VICE PRESIDENT LAWLER: Doesn't the economy on a regular basis confound commonsense? Going back some decades economists said you couldn't have high inflation, high economy co-existing and then there it was.
PN1034
DR KATES: Sorry, you couldn't have?
PN1035
VICE PRESIDENT LAWLER: I am sorry. I understand that Professor Gregory has done some work which indicates that in order to give people the incentive to get off some form of benefit, some people, either minimum wages need to be higher or social security benefits need to be lower. His work would suggest that if you raise the minimum wage you may in fact induce some people to leave the benefits regime and go into employment. That would be an example of a counter-intuitive effect according to your commonsense. I am just concerned that - how can we really draw any conclusions at all about the causal connection between the Commission's decision in the last safety net review and the change in hours worked?
PN1036
DR KATES: Well, Professor Gregory's results were, of course, that - and I actually have no problem with what he said. That is, I think, correct. That if the wages actually went up, then the willingness of individuals to actually go out and work and leave behind the benefits and actually find a job would increase, there is no doubt about that. But the counter to that, and this is what we are trying to discuss, is that the willingness of employers to employ those people will be diminished.
PN1037
So that, yes, a higher potential income in the labour market would certainly draw many people who are now on benefits out towards jobs but at the same time you would find businesses more reluctant to hire than they have been. So that the net effect, in my view, would be to create a situation where you would have a higher unemployment rate because you would have less demand for these employees but a greater willingness amongst the age - amongst the population to actually find work.
PN1038
I don't find that counter to it. I actually think it is true. But the problem that we are trying to raise here is that businesses are, when they are confronted with not just an increase of $18 but kind of the sense of who knows what is coming next, that they may have got to some kind of comfort zone on what they were expecting from Commission decisions, and they suddenly are confronted with an increase that is well above expectations, and no idea what will now happen in 2003 or 2004, will become more reluctant to hire.
PN1039
Now, I am not arguing that this fall here was caused necessarily, and certainly not entirely, not even necessarily mostly, but I would say some of that fall in employment is due to the safety net decision last year, and that had there been a lower decision the level of employment would have been higher. The number of hours worked would have been higher. This is merely trying to establish with very crude instruments what I think is really almost unarguable. You raise the cost of labour, you end up with fewer people employed.
PN1040
SENIOR DEPUTY PRESIDENT WATSON: Are these figures affected by business trends, and one I can think of, I know in my own industry, banking and finance, there have been a number of instances where banks directly have ceased employing persons, presumably in the market sector. But they have simply had the same services provided by the same persons by another company, which might well be in the business services sector, which is non-market sector, with no actual impact on employment whatever.
PN1041
DR KATES: Well, I think the relationships out there in the labour - or in the economy generally are phenomenally complex, and that all those things do happen. Sometimes, I mean, the ACTU, if I understood them right, was actually saying that there are some positive employment effects that might overwhelm the negative employment effects from raising the minimum wage. I find that difficult to accept, certainly in the Australian context where we are dealing with the entire award structure, rather than just the minimum wage.
PN1042
But there are all kinds of different possible scenarios that may occur in individual instances. But as an overall, you are trying to think of how things affect the aggregates. As our surveys show, as AIGs survey shows, as the Retail Motor Industry survey shows, that when businesses are confronted with these increased costs, one of the ways they react is to say they are going to scale back their employment. All we are pointing out here is that you can see, possibly, some of that reflected in the aggregate national data in the market sector, which is the closest proxy we have for the private sector.
PN1043
Now, if I could turn to the next table, and this measures of labour under-utilisation, and it is almost a - I don't know how to describe it, other than it is a phenomenon that 6 per cent unemployment sounds good nowadays. We have had 11s and 10s. We now think 6 is great. So that I think one of the really beneficial things that the ABS has done is to create this measure of labour under-utilisation. To sort of bring it back home that the labour market is extremely ragged, and that there are lots and lots of people who are at the very fringes of it, that the ACTU continuously points to the problems of being low paid.
PN1044
We continuously point to problems of being unpaid, and when you start looking at what is a different but much more comprehensive measure of the labour market, you begin to see that the problems don't just stop at the unemployment rate. The unemployment rate was a concept that was developed during the 40s and the 50s in which the 40 hour week or the 48 hour week was a standard. You worked full-time or you didn't work at all. Part-time was a small issue.
PN1045
That the unemployment rate that we had back in, say, between 1945 and '72 when it was 2 per cent or less, that told you something, and when it went up to 3 per cent you knew that something really bad had happened. We no longer have a rate that either shocks nor does it actually tell you what is going on beyond the fringes of the actual officially unemployed. What the ABS has done is that it has created a measure of what it calls labour under-utilisation, and I apologise that I can't update it to 2002. The data will be out in the middle of April and I will forward that when it comes to us, but until then I will just discuss these figures, because it gives a different kind of perspective on the labour market than the bland 6.0 per cent that we now have.
PN1046
What we have here is the first column is the long-term unemployment rate which has been falling. I think part of the reason for the fall is the work for the dole which has allowed people to get into jobs, but what it does is it just stops someone from being registered as part of the long-term unemployment. The unemployment rate is 6.8 per cent. These figures are not seasonally adjusted trended, they are the original figures, but they are in September each year, so you can make the comparisons.
PN1047
Then we move to the under-utilisation rate which is the figure for those who are actually employed, they are in the labour market, they are working part-time, but they would like to have more hours than they currently do. So that if you think of someone who is unemployed who works zero hours and therefore they are officially unemployed, and then you find someone who is working two hours and they are employed; part-time, but employed. So that the difference between zero and two is not enough to earn an adequate income, but what this under-utilisation rate is trying to pick up are those who are in the labour market, but do not have the hours - sufficient hours and they would like to work more hours.
PN1048
And then there is the extended under-utilisation rate, and this picks up persons who are discouraged, discouraged workers, and it picks up others who are - who want to work, but when the ABS comes and asks a question, what they say is, "Do you want to work? Are you ready to work now?" And many people say, "No, I have to put my kids into - get child care" or whatever, and so they are registered as unemployed. What this now picks up is that there is unemployment - if you can get into a job and can start work within four weeks, then you will be considered part of the extended under-utilisation, so that they are trying to make a more elastic measure of what is happening to labour market and unemployment.
PN1049
What you see here is something that I think changes our perspective - ought to change our perspective on what is happening in the labour market. It is not just a fall in unemployment rate. We have had it up to 10 or 11, it has now fallen back to 6. Out there, there are all kinds of people for whom the labour market outcomes are unsatisfactory in different kinds of ways. They are either not working enough or they are so discouraged they don't want to go back in, or that they would love to work but can't go today, but could go, say, in two weeks time. And what we are - - -
PN1050
SENIOR DEPUTY PRESIDENT WATSON: Sorry, just so I understand you, are these figures subsets of the figures to the right, so that the 13.6 is long-term unemployed, unemployed, under-utilised and extended under-utilised? The under-utilised 12.5 is the long-term unemployed, the unemployed generally and the under-utilised and the unemployed includes the long-term unemployed; is that how it should be read?
PN1051
DR KATES: Yes, that is right because they are not added to horizontally. I mean, it just - - -
PN1052
SENIOR DEPUTY PRESIDENT WATSON: They are subsets of the one to the right.
PN1053
DR KATES: That each one incorporates the one before.
PN1054
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN1055
DR KATES: So that the 1.5 is in the 6.8, and the 6.8 is in the 12.5, and the 12.5 is in the 13.6.
PN1056
SENIOR DEPUTY PRESIDENT WATSON: Thank you.
PN1057
DR KATES: But 13.6, of course, is that rather than being a situation where 600,000 people are unemployed, there is something like 1.4 million who are under-employed and under-utilised and want more and are finding the labour market outcomes they are achieving unsatisfactory. Now, what we are arguing is that people keep getting pushed into those - the cost of labour goes up, people keep getting push out and into those areas, that we are not getting the kind of improvement in that column that you would like, the final column. In fact, in 2001 it went up.
PN1058
So that the extent of under-utilisation rate went from 12 to 13.6. So that even while the unemployment rate went 6.1 to 6.8, 0.7 percentage point increase, the extent of under-utilisation rate went up from 12.2 to 13.6, a 1.4 percentage point increase. So that - and again, you can't say this is simply the result of safety net decisions but what we can say, what we would argue very strongly, is that if we want to do something about that then the increases granted for the safety net must take into consideration the fact that there are something like 1.4 million people whose labour market experience is unsatisfactory, who want to either work or work more hours than they are.
[3.53pm]
PN1059
And when we look at the fact that the economy is not - that businesses are reluctant to hire, this is the consequence. When you look at our survey results and you say, whatever precision there - but when you look at those survey results and you say that there are businesses out there who would employ more but are employing fewer because of the increases to the safety net, the aggregate outcome of this is that there are 1.4 million people who simply cannot get those jobs or cannot get the kind of jobs that they want.
PN1060
SENIOR DEPUTY PRESIDENT WATSON: We have always known there has been under-utilised sector as well, have we not? That has been found by previous ABS material, by academic articles, it is not a novel concept that there is a group of under-utilised labour other than the unemployed per se.
PN1061
DR KATES: That is right. It is not - it is certainly nothing novel about the concept. What is actually the real plus, though, is now that the ABS has, itself, taken this on and has started to try to come to grips with it because it understands that the unemployment problem doesn't start and end with the official rate, as we know, because we have been publishing it for 40 years. But has instead recognised that there are other aspects other labour market experiences that are unsatisfactory and need to be incorporated to get the proper sense of what is actually taking place within the workforce.
PN1062
Could I then turn to the next table and this is data from the private - expected expenditure on private new capital - something of a complex table. But the ABS has a publication in which it tries to estimate the growth rate in the level of business investment in the coming year. And they actually do it seven times during the year. Three of those times is before the year begins and four of those are during the year. So there are seven estimates over the entire year - and we will come to deal with this later on. But we now have the first estimate for 2003/2004. And this first estimate shows an increase in expected investment in business investment of 4.5 per cent, looking ahead to the financial year to come.
PN1063
Now that is very much different from the 14.4 per cent which was the expectation that was had in the same - in that same publication a year ago. The first estimate for 2002/2003 which we tended last year in the wage case, was a figure of - and in fact it wasn't the 14.4 per cent, it was 21.2 per cent. The figure that is in brackets, there, shows the increase that was recorded in the very first of those estimates and in fact, it is found in a decision on page 15, I think. And when they finally got the final of that first estimate because that was just a preliminary - yes, I have it here. On page 15 of the decision, it was noted:
PN1064
The outlook for private business investment is very strong. The Australian Bureau of Statistics New Capital Investment Expectation Data for 2001/2002 showed expectation of increased investment levels in the more recent surveys. And the first survey for 2002/2003 showed expectations of a 21.2 per cent increase in investment activity.
PN1065
Now, the Commission did recognise the extra caution but it also took that as a clear sign that we were going to be dealing with an economy in which investment would be truly robust. That we would have strong growth in private sector investment and because of that, because of that, a large increase in the safety net could be afforded. This year it is actually the reverse. We have gone back to the same kind of ordinary, if not worse, year for private investment that we had in the two years previous to 2002/2003, 6.6 and 4.5 in those two years.
PN1066
SENIOR DEPUTY PRESIDENT WATSON: 4.5 per cent growth you describe as what?
PN1067
DR KATES: Is which?
PN1068
SENIOR DEPUTY PRESIDENT WATSON: It is still reasonably strong growth in investment, isn't it?
PN1069
DR KATES: Well, it is - I would call that ordinary minus myself. That 4.5 per cent is the kind of growth rate that I would think of as weak. It is positive, I agree, but it is weak and - - -
PN1070
SENIOR DEPUTY PRESIDENT WATSON: What has been the average over the last 10, 20 years?
PN1071
DR KATES: Certainly, the average on this, just what you have there, is something like just about 5 per cent and that includes the negative year of 99/2000. So it is on the five years you - whatever, one, two, three - on the sixth year shown on the table, the average growth rate was 5 per cent. So it is lower than average and that is how I think of it. It is, as you say, not tragic but it is a poor year. We are no longer looking at 21.2 per cent or 14.4 per cent and what we are looking at instead is a year that is significantly weaker than the one we have just been through.
PN1072
SENIOR DEPUTY PRESIDENT WATSON: The rate of growth is - there is still positive growth in investment.
PN1073
DR KATES: Yes, sir. There is certainly positive growth investment, that is true. And we are yet to see what really will happen in 2003/2004 because we are far from having had the final word written on that. There are the many uncertainties we have discussed and one might say that they may revise it up and they may revise it down. The only thing I can tell you is the figure they have at this stage is 4.5 per cent. And if you even think of last year's experience where they revise that first preliminary estimate of 21.2 down to a final figure, 14.4, if we find that this figure is also revised downward we may not even have the 4.5 per cent.
PN1074
The number is not a real number. It is not telling you what actually did happen. This is a number that tells you what business are expecting to do. And given this number what we can say, based on this evidence, is that business are expecting to invest a significantly lower amount in the year ahead, financial year to come than they did last year.
PN1075
SENIOR DEPUTY PRESIDENT WATSON: No, they are not.
PN1076
DR KATES: They are not?
PN1077
SENIOR DEPUTY PRESIDENT WATSON: On this figure they are expecting to invest 4.5 per cent more.
PN1078
DR KATES: Well, all right. The growth rate will be lower, yes, I agree, your Honour. That the growth rate will be lower - - -
PN1079
SENIOR DEPUTY PRESIDENT WATSON: Well, it is an important distinction - - -
PN1080
DR KATES: Oh, yes, I agree. I am sorry. I apologise. But the point I am trying to make is that investment growth has fallen from being very good to being less than ordinary. That what we were thinking about a year ago when we were dealing with this economy and our expectations was that we were on the start of something that could go on, not just for one year but go on for many years. That the aim would be not just to have one year of 21 per cent growth or 40 per cent growth and then stop, the idea was to sustain it and to keep the rate of growth moving forward into the years ahead. And what this tells us is that after one year of good investment growth there is real reason to believe that that investment growth is now going to be much lower in the year ahead.
PN1081
SENIOR DEPUTY PRESIDENT WATSON: Is it moving from one year of exceptional to one year of more normal acceptable growth?
PN1082
DR KATES: Certainly, we would like to think that 2004/05 will be back up to the 20 per cent growth rate. And what we are discussing in this case is that what are the various - bits and pieces have to be put into place to ensure that we get back to strong rates of investment growth. I can think of no other aspect of the economy that is more important.
PN1083
SENIOR DEPUTY PRESIDENT WATSON: But what would ACCI say is an acceptable rate of growth of investment?
[4.04pm]
PN1084
DR KATES: Well, when we get to the table on investment - - -
PN1085
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN1086
DR KATES: And we will have a look at the kinds of growth that have occurred in the past, and we will have a look to see if we can have a longer, more extended period, so that we can see what a really, truly good rate of growth looks like. But I am encouraged when I see figures like the 17.3 per cent in 1998/99. I find the 21.2 per cent last year was very encouraging, and the only thing I say is that you don't want to find yourself with a 17.3 per cent growth one year, and then a 14.0 per cent fall the next. So that what we are looking for is a sustained rate of growth of over many years, and a larger higher growth rate than 4.5 per cent is certainly what we want.
PN1087
If I could turn to the next table, which deals with the current account deficit GDP ratio. Again, there is no attempt to suggest that the current account deficit is as large as it is because of the increase in the safety net. It would have had hardly any impact. But hardly any impact is not zero. The current account deficit is due to the fall off in exports, and the very large level of imports. The fall off in exports is drought related. This economy is less internationally competitive. We are not capable of paying for our overseas purchases because we are no longer producing the same level of rural output that we were.
PN1088
It is also partly due to an international recession. There is out there a gathering, worsening international recession that we have to bear in mind when we are thinking about what to do with wages in Australia. But there is an element, that is, the effect on international competitiveness of increasing the safety net, that by raising labour costs in firms that are unable to then compete with international producers, and that is not just in international markets but that also includes right here in Australia where imports are flooding in. It creates a situation where we are actually damaging our ability to sell overseas.
PN1089
What this is about is a reminder that raising the cost of production through increases in the safety net, unrelated to the actual productiveness of individual workers, makes the Australian economy less capable of competing internationally, and again, I don't say it was the major cause. But it is certainly a factor that has to be borne in mind in any decision that is made, and I go beyond that in saying that in the circumstances we are now in, there are all kinds of marginal changes in who sells to whom that are affected by the growth in the cost of labour, and therefore in production costs, and that some of this, although a very small part of this, is due to, in our submission, to the increases that occur through the safety net.
PN1090
Finally, if I could turn to the figures on the Consumer Price Index, which is the last table in the section. We are - indeed there is so much calibration that must be going on in this economy, just to keep the rate of growth and prices just at the 3 per cent. The Reserve Bank has its target range of 2 to 3 per cent, and what it means by that is if it has any strong view that inflation - if inflation in Australia is going up above that target range of 2 to 3 per cent, then its intention is to raise interest rates.
PN1091
So what we have is a situation where wages go up. The increase in wages, when it is not funded by higher productivity, is often funded by just raising price level, often is funded by scaling back on investment plans or scaling back on employment plans, but one of the ways that businesses deal with higher labour costs is to push prices up.
PN1092
This CPI at the upper limit of the RBAs target range tells you that the Reserve Bank will be reluctant to lower rates. We have had across the world reductions in rates. This is because across the world their economies are going so poorly, and here our economy is going better so perhaps higher rates are a natural consequence of that. But what we are looking at is a situation where we are maintaining rates at a higher level in Australia than their current overseas because - in some part because of the increases in the cost of labour that are occurring without growth in productivity.
PN1093
SENIOR DEPUTY PRESIDENT WATSON: Well, in your submission you say at 10.107 "an important extent due to the rising cost of labour". Is that the submission or is it in some part?
PN1094
DR KATES: Sorry, I am just - - -
PN1095
SENIOR DEPUTY PRESIDENT WATSON: You say in your submission, 10.107, that the rise in inflation in the second half of 2002 is "to an important extent due to the rising cost of labour". You have now said "to some extent"; is that what you mean by "some extent"?
PN1096
DR KATES: My view actually is that the prime cause of inflationary movements are increases in the cost of labour over productivity growth. I think that is generally the reason that I would expect inflation to occur.
PN1097
SENIOR DEPUTY PRESIDENT WATSON: Well, in terms of the increase over the course of 2002, what do you put that down to?
PN1098
DR KATES: Over which?
PN1099
SENIOR DEPUTY PRESIDENT WATSON: Over the course of 2002.
PN1100
DR KATES: Three per cent?
PN1101
SENIOR DEPUTY PRESIDENT WATSON: From 2.9 - 2.8 and then into the 3.2 to 3 per cent. And specifically this is what you I thought were addressing, the effect of safety net increases.
PN1102
DR KATES: Well, as you know, I am not one to actually relate one macro- economic variable to another, so that I am - I tend to think of economies as individual decision making and that macro-economics and ABS statistics as the adding up of everything that did happen, but actually that there is no close relationship between the macro aggregates as a cause and effect.
PN1103
But I could look into that, your Honour. I could have a look to see what did happen, whether it was growth in farm prices, whether it was growth in petrol prices, how it - - -
PN1104
SENIOR DEPUTY PRESIDENT WATSON: Well, I thought you were here at this stage of your submission attempting to establish the economic effects of the living wage increase.
PN1105
DR KATES: Yes, yes, yes.
PN1106
SENIOR DEPUTY PRESIDENT WATSON: And I am looking at how that arises in this particular context that it seems to arise. And I do so, I might say, in the context of the comments in the MYEFO statement where there is a reference to an expected moderation in inflation said to be underpinned by steady wage increases and ..... productivity growth. The RBA February statement has similar comments with reference to easing wage pressures, and similarly the OECD economic outlook makes similar comment. And you seem to be suggesting, well, including the table, safety net increases have contributed to - well, I am not sure what entirely, that is what I am asking you to clarify.
PN1107
DR KATES: The safety net increases have an effect on the cost of labour in enterprises across Australia, and they are, by definition, unrelated to improvements in productivity. Now, I don't say the 3 per cent is caused by increase in the safety net, but what I do say is that the increase in the safety net has been an important contributing factor to make the CPI figure higher than it otherwise would have been. So that rather than being somewhere in the two-and-a-half per cent range, which might have induced the RBA to bring interest rates down, what I am arguing is that because the safety net pushed up the cost of labour in enterprises across Australia, that it has made a significant difference to the ultimate growth in goods and services bought and sold in Australia and therefore has had an effect on the decision by the Reserve Bank to maintain rates at a higher level.
PN1108
But with any of these things, one has to just look at the relationships that have been advanced by commerce over the years and one of them is that the growth in the price level is related strongly to the growth in the cost of labour and is also strongly related to the growth in productivity, the first being in an upwards direction, and the second in a downwards direction. So that all I am saying is that here, when we are looking at the effect of an increase in the safety net of 4.4 per cent on the minimum wage, and 3.5 per cent, as near as we can tell from the ACTUs own calculation, what we are looking at is a very large component of the increases in the costs of business being unrelated to an improvement in productivity, but having had an increase in labour costs brought to them by the decision in this Commission.
[4.16pm]
PN1109
And what I am saying is that the 3 per cent is, to some extent, a consequence of that. It is not that I say it would be zero were there no decision of safety net. I am just saying that the effect of the safety net decision was to bring the number right up to the edge, the 3.0 per cent, and that our concern is that we are going to go across that edge if we are not very careful in how we craft decisions in the safety net, because if we go across that edge we are going to see a reaction by the Reserve Bank, who is determined to keep the inflation rate within the bounds it has set as its target.
PN1110
SENIOR DEPUTY PRESIDENT WATSON: That suggests a narrow approach of focusing on the RBA limit, if you like, and disregarding community living standards in fixing minimum wages, if labour costs in the other 80 per cent of the economy which can't be controlled by the Commission are having the effect that inflation is at already or above 3 per cent, you would argue there should be no safety net increase as a result.
PN1111
DR KATES: Well, it is hard to actually make the connection in full, but there is undoubtedly some of the decisions to increase wages that occur outside of the award system, are based on what happens inside the award system. So that there are increases that go on all over the place that are related to this, to movements in the safety net that take place in this Commission, and we are doing no more than pointing out that pushing up the cost of labour without matching productivity growth to fund it, one of the consequences of that is to push to inflation rate higher than it otherwise would have been.
PN1112
And our concern is that if we keep doing this, we are going to have higher interest rates in Australia as a perennial consequence, and therefore, we will just be - we will end up slowing the economy and the wage earners who are - who say they got an increase in wages over here, will find that they are paying more for their mortgages and they are paying more on their consumer debt interest and their credit cards, because of the relationship that is hidden from virtually everyone, but that is a well established relationship in economic theory.
PN1113
SENIOR DEPUTY PRESIDENT WATSON: But that suggest, doesn't it, that we are required to control the effect of wages growth on prices by the one thing we can control, the safety net increases.
PN1114
DR KATES: Well, we sought an increase of $10 last year, and the increase ended up being 18. That difference was played across the economy in not just enterprises related to the safety net, but it was played across the economy in enterprises that had nothing to do with award determination. If the Commission holds down the growth in the safety net of the awards, it will have an effect elsewhere. You cannot think that the increases that go through the safety net are absolutely independent of increases that take place in the rest of the economy, and in fact, in our submission, they are very closely related and that increases that take place here become the platform and the - for increases that take place in other areas. So that the greater the increase to the safety net, the greater will be the increases in the rest of the economy.
PN1115
JUSTICE GIUDICE: Well, we might have to resume this discussion in the morning.
PN1116
DR KATES: Can't wait.
PN1117
JUSTICE GIUDICE: Dr Kates, just a couple of housekeeping matters. The material you handed up this afternoon, which was ACCI4, repeats to some extent material which is found in at least one other part of the submissions, and what I would appreciate, if you can do it for us tomorrow, would be to give us some cross-referencing of where the material appears in other parts of the submission, and possibly in some cases I think, in the later document it is also an up-dating. It might just be useful to have that so that we can not be concerned about duplication and so on.
PN1118
The other thing is that you may not have had the benefit of my views on sequential number of exhibits before, but I remind you that it is much easier to find pages when there is sequential numbering right through the document.
PN1119
DR KATES: Okay.
PN1120
JUSTICE GIUDICE: We will adjourn now until 10 in the morning.
ADJOURNED UNTIL WEDNESDAY, 2 APRIL 2003 [4.22pm]
INDEX
LIST OF WITNESSES, EXHIBITS AND MFIs |
EXHIBIT #ACTU8 EXTRACT FROM THE ABS LABOUR FORCE 6202, FEBRUARY 2003 PN596
EXHIBIT #ACTU9 DOCUMENT HEADED HOURS WORKED 1999-2002 NATIONAL ACCOUNTS INDEX MEASURES TREND PN596
EXHIBIT #ACCER1 SUBMISSION FROM ACCER PN682
EXHIBIT #STG1 SUBMISSION OF STATES AND TERRITORIES DATED 05/02/2003 PN721
EXHIBIT #DEAC1 WRITTEN SUBMISSIONS DATED 18 FEBRUARY 2003 PN773
EXHIBIT #DEAC2 WITNESS STATEMENTS PN773
EXHIBIT #DEAC3 THREE FOLDERS OF EXHIBITS PN773
EXHIBIT #ACCI2 SUBMISSIONS OF 26/2/2003 PN805
EXHIBIT #ACCI3 REPLY SUBMISSIONS OF 25/3/2003 PN805
EXHIBIT #ACCI4 MATERIAL TO COME, ACCI ORAL SUBMISSION ON THE ECONOMY PN963