AUSCRIPT PTY LTD
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TRANSCRIPT OF PROCEEDINGS
O/N VT10319
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
9.35 AM, FRIDAY, 4 APRIL 2003
Continued from 3.4.03
JUSTICE GIUDICE: Thanks, Mr Cole.
PN2113
MR COLE: Thank you, your Honour. If the Commission pleases, two particular issues before I resume addressing our submission proper. Yesterday, at paragraph 2082, I was referring to the two average weekly ordinary time earnings surveys, the EEH based survey and the average weekly earnings based survey. The Commission will recall that the EEH based survey had a larger sample size, and had suggested to us that it would be more reliable. But I have taken further advice on that issue, and I understand there are other issues that bear on the relative accuracies of those two estimates, and it may not be the case, it may not be the case, that the EEH based estimate is the more accurate, and so we don't rely on any suggestion that it is.
PN2114
But to remind the Commission as to the context, the Commonwealth's primary submission is that we say it is not appropriate in any event for award wages and safety net wage adjustments to track or be related to any AWOTE measure. It is the ACTU that sees some merit in that benchmark. That is not our approach, and I am grateful for the opportunity to clarify the submission in respect of those two measures of AWOTE. Now, on another specific issue, at paragraph R.17 of the ACTU reply submission there is an edited extract from Hansard of Parliament on 5 March, quoting from remarks by the Minister.
PN2115
PN2116
MR COLE: If the Commission pleases, the ACTU extract at their reply submission R.17, comes from the first paragraph of the Minister's remarks in the right hand column of page 12286. The sentences reading:
PN2117
I appreciate that people on low incomes, people doing it tough, appreciate every extra dollar they get, and I and other Members on this side of the House are very keen to see more money in the pockets of ordinary Australian battlers.
PN2118
The proper context is apparent from the next page, 12287, where you will see in the first paragraph there, where the Minister is speaking, about halfway down he says:
PN2119
The question is how is it best done? The Government's contention is that they tried to put more money in the pockets of ordinary workers by National Wage Case decisions which do not take into account productivity, which do not take into account the particular needs of individual businesses, and which do not take into account the relationship between the wage system and the tax system and the welfare system, is, in the end, completely counter-productive.
PN2120
Now, of course, none of that detracts from the fact that the Commonwealth, through the Minister, is the Minister on behalf of the Commonwealth in these proceedings, is indicating that the Commonwealth is not opposed to a moderate increase of up to $12 per week capped at C10 so that it is focused on the low paid. The purpose of quoting from the Minister is so that the brief extract provided by the ACTU can be seen in its proper context.
PN2121
Your Honour Vice President Ross asked me a question yesterday relating to the EEH survey and whether it may be possible to, in effect, reconstruct something equivalent to the former award coverage survey. The particular point that we have checked is that the EEH questionnaire for the year 2002 does not contain a question on award coverage. Now, of course, it does seek information about award reliance but it does not contain a question on award coverage. So we don't know from the survey, in the absence of that question, the extent to which employees covered by agreements are, in a background sense, if I can put it that way, also covered by awards.
PN2122
VICE PRESIDENT ROSS: I suppose the conclusion you might reach is that award coverage would be higher than the sum of those two numbers, award dependent and those on agreements, given that people on agreements don't need to be covered by awards.
PN2123
MR COLE: Yes. It may be possible to draw that type of inference but the issue I wish to emphasise is it will be an inference.
PN2124
VICE PRESIDENT ROSS: Yes, certainly.
PN2125
MR COLE: It will not be a survey result.
PN2126
VICE PRESIDENT ROSS: No. All right. Thank you, Mr Cole.
PN2127
MR COLE: If the Commission pleases, as is customary in these proceedings, the Commonwealth deals with the relationship between minimum wages and employment and we do that in section 5 of COMMONWEALTH1. The ACTU has produced its own - well, the Professors Dowrick and Quiggin review of the academic literature on this important matter.
PN2128
The first point I wish to stress is that, as we demonstrated in our submission to last year's review, around 70 per cent of the academic studies that have been published over the past decade found a significant negative relationship between minimum wage increases and employment, and we refer to that in COMMONWEALTH1, paragraph 5.24. Now, the Commonwealth in that review examined 44 separate studies and the Dowrick and Quiggin refers to eight of these studies.
PN2129
The second point is that, as we appreciate their review, they do not appear to have addressed the many problems which the critics of Card and Krueger's work have identified. Professors Dowrick and Quiggin acknowledge that the details of estimation techniques are crucial. That is at page 103 of ACTU3, which is the Dowrick and Quiggin paper. But except in respect of the Lewis and McDonald paper they don't appear to address that issue; that is, the details of the estimation techniques. And they tend to be, in our view, rather overly dismissive of the critics of Card and Krueger, coming close to suggesting that the critics simply dismiss the Card and Krueger findings on perceived orthodox economics grounds of the law of demand.
PN2130
They don't deal with, for example, the argument of Hamermesh, that Card and Krueger have ignored the longer run negative relationship between employment and minimum wages. Hamermesh had argued - and this is found at paragraph 5.8 of COMMONWEALTH1, page 33 - there is no need to go to it but he argues that:
PN2131
The time span of Card and Krueger's natural experiment does not capture the full impact of minimum wage increases on industry.
PN2132
And we provide other examples in that section of our written submission to substantially the same effect.
PN2133
JUSTICE GIUDICE: Is all well, Mr Cole?
PN2134
MR COLE: Yes, your Honour. Yes. It was a moment's reflection merely, your Honour. I appreciate the indulgence. I was reflecting on my last words. When I meant "to the same effect" I was alluding to no the Hamermesh proposition but to the point of my submission that Dowrick and Quiggin are not really coming to grips with the specific technical issues that have been raised by many of the critics of Card and Krueger, and another example is the work of Burkhauser, Couch and Wittenberg.
PN2135
Moving on, another major difficulty in applying Card and Krueger's findings to countries with a higher minimum wage than the United States is not really dealt with, and Card and Krueger themselves emphasise the fact that employment losses can result from increases to a minimum wage that is already set at a high level, and we refer to that at paragraph 5.16, and in that same paragraph we refer to a Card and Krueger article in 1998 that said, and I quote:
PN2136
If the minimum wage is raised too much we will see job losses. There is a tipping point.
PN2137
That is, they acknowledge that there is a practical point where minimum wage increases cause job losses, and Card and Krueger themselves also caution against allowing the minimum wage to be increased too fast. So not a great deal of weight, in our submission, should be placed on the Dowrick and Quiggin paper. Insofar as it has sought to review the literature it is a far more selective or narrowly based review than the review the Commonwealth itself has produced in previous wage cases, and it suffers from the sort of failure to grapple with the technical issues raised by the critics that I have just been referring to.
[9.49am]
PN2138
Now, briefly on the UK Low Pay Commission, just a few brief points. My friend may not have been entirely clear on behalf of the ACTU that the second tranche proposed by the UK Low Pay Commission in their latest report is a recommendation subject to review, contingent on economic circumstances in 2004. From page 186 of the report the quote is:
PN2139
The economic circumstances are such that the precise figure for October 2004 should be made contingent on the economic circumstances then in place.
PN2140
The next point is that from the - - -
PN2141
JUSTICE GIUDICE: Mr Cole, before you go to that, could I just take you back to paragraph 5.19, or immediately above 5.19? It is figure 5.1.
PN2142
MR COLE: Yes, your Honour.
PN2143
JUSTICE GIUDICE: There is a table there which is a ratio of minimum to median wages in the OECD countries, and I take it, if you just go back to the box on the previous page, the reference there in that last paragraph to the level of Australia's minimum wage by reference to the level in other OECD countries. Is that statement there based on the following table, the figure 5.1? The reason I ask is because the figure 5.1 is based on data for - well, 2000, 1999, and the paper it comes from is apparently published in 2001. It is hardly up-to-date, but my question really is whether the submission or statement on the previous page is based on the data in that figure.
PN2144
MR COLE: May I just have a moment, your Honour? I am informed, your Honour, that the data in figure 5.1 are reproduced because they are the latest available from the OECD itself.
PN2145
JUSTICE GIUDICE: Yes.
PN2146
MR COLE: Whereas the data, for example, in respect of the UK in box 5B on the preceding page is based on, and I think it is footnote 15.
PN2147
JUSTICE GIUDICE: 16. But it is a reference to the March 2001 Low Pay Commission report.
PN2148
MR COLE: Yes.
PN2149
JUSTICE GIUDICE: Yes.
PN2150
MR COLE: But there is also the UK statistics of April 2002, which I think have a bearing on it. So then, this is more recent data in box 5B and - - -
PN2151
JUSTICE GIUDICE: In relation to the UK.
PN2152
MR COLE: In relation to the UK.
PN2153
JUSTICE GIUDICE: Yes. But otherwise it is March 2001 or earlier that - - -
PN2154
MR COLE: And there may be a different number for Australia. I will look at that, your Honour.
PN2155
SENIOR DEPUTY PRESIDENT WATSON: There is more recent data in table A5.2 of the Low Pay Commission report for most of those countries, is there not?
PN2156
MR COLE: Yes, and I do see it appears to be sourced to the OECD, your Honour, so I will also look at that as to the apparent - I think it may be simply that when COMMONWEALTH1 was produced it was probably before - - -
PN2157
JUSTICE GIUDICE: Well, in any event, Mr Cole - - -
PN2158
MR COLE: Yes.
PN2159
JUSTICE GIUDICE: - - - perhaps we can just have a look at it, and if there is anything that is more recent I would be interested to have a reference to it.
PN2160
MR COLE: Yes. Yes. I will, your Honour.
PN2161
SENIOR DEPUTY PRESIDENT WATSON: In terms of that box, Mr Cole, you compared this in the second paragraph, the Federal minimum wage with full-time adult ordinary earnings in Australia, and the National minimum wage with full-time average gross earnings, presumably inclusive of juniors and of overtime. How valid is the comparison on those different bases?
PN2162
MR COLE: Well, I am informed, but will check this again, that that was the closest available comparison of the UK statistics, but we will check that again.
PN2163
JUSTICE GIUDICE: But it would affect - they are measuring different things, are they not?
PN2164
MR COLE: Well, on the face of it that is so, but it is a question of getting the most nearly comparable data to establish a ratio. We will look at that and clarify that issue.
PN2165
JUSTICE GIUDICE: I suppose those sorts of issues might also arise in relation to any comparison with statistics, the statistical method, I suppose, employed by other countries.
PN2166
MR COLE: Yes, and the OECD, I think, endeavours to pitch the comparisons onto the nearest comparable - - -
PN2167
JUSTICE GIUDICE: Yes.
PN2168
MR COLE: - - - available data.
PN2169
JUSTICE GIUDICE: Yes.
PN2170
MR COLE: But that doesn't mean to say it is identical or exactly comparable.
[9.57am]
PN2171
SENIOR DEPUTY PRESIDENT WATSON: Mr Cole, we know what the Federal minimum wage is and we know full time average gross earnings are in Australia, so it is not strictly accurate to say that they are the nearest available comparisons.
PN2172
MR COLE: Yes, I have indicated, your Honour, I will look at the matter and clarify it for the Full Bench. Now, from the Low Pay Commission Report, page 187, it is interesting to note that the Low Pay Commission has provided estimates of the coverage of the minimum wage in the United Kingdom, and it does that on alternative assumptions, but on a consistent basis it estimates that the present coverage applies to about 4 per cent of jobs and even after the two proposed increases the coverage on the comparable basis would be 6.9 per cent.
PN2173
So the point is that the coverage of the UK minimum wage, even with the significant increases proposed, is just a third or so of the coverage of awards, 20.5 per cent of employees reliant on awards.
PN2174
SENIOR DEPUTY PRESIDENT WATSON: The Low Pay Commission seems to adopt the view that it is appropriate that that coverage be extended. Is that a reasonable reading of this report?
PN2175
MR COLE: I don't know myself if that is simply a consequence of the proposed adjustments. Putting it another way, your Honour - and I will confirm this point - I don't think in quantifying the proposed increases that it is fundamentally struck off a preconception or separately arrived at percentage - a target so to speak - as to the percentage of the workforce that in their view it may be appropriate to have covered by the minimum wage. I think it is more a consequence of - - -
PN2176
SENIOR DEPUTY PRESIDENT WATSON: Well, paragraph 6.39 seems at least to suggest that they are alert to the fact of - on my reading of it supportive of increasing coverage with the first increase to 1 million - from 1 million to 1.3 million and the second to 1.7 million.
PN2177
MR COLE: I think it would be important that this - and we will have a look at this - that this paragraph, which, I think, is somewhat ambiguous, be - that it be linked back to the terms of reference because it may be that the reference to increasing gradually the number of people benefiting - it would be interesting to see whether there is any particular link to the terms of reference under which the Low Pay Commission operates, and we will have a look at that, because I think the paragraph, read quickly anyway, seems to be not without a degree of ambiguity on the points your Honour suggests.
PN2178
It may well the correct reading, but it is equally possible I think that they may be referring to a result which they see as beneficial but, nevertheless, that may not be the purpose of the adjustment. Obviously to the extent that the coverage increases in the United Kingdom and has the effect of lifting with it people on rates currently above the minimum wage, but who are lifted up in process, obviously there are benefits to workers subject to the jobs issues. So it is in my view, just on a quick reading, a logical comment to be made. But whether it is a purposeful comment is the issue that I will seek to elucidate.
PN2179
We deal with - that is all I want to say about the Low Pay Commission Report, subject to clarifying those matters. We deal with Australian studies on wage elasticities in COMMONWEALTH1 from paragraph 5.28 onwards, and as the Commission is well aware the Australian studies tend to focus on the length between aggregate real wages and employment, and we say they are more relevant to the safety net review than the international studies because the safety net review does apply to award paid employees across the earnings distribution.
PN2180
But the Australian aggregate studies do have a limitation. It is a matter that Dowrick and Quiggin point out at page 106 of the paper at tag 8 of ACTU composite exhibit. That is that they don't distinguish - that is the aggregate wage studies don't distinguish between the impacts on workers whose wages - or potential wages are directly affected by the safety net increase and those workers whose pay is part of the minimum, paraphrasing Dowrick and Quiggin, and we submit that given that a large proportion of award workers possess relatively few marketable skills, it is likely that the elasticity figures would be more negative for workers who receive safety net adjustments. Now, our written submission did refer to the Lewis and McDonald paper, which reviews a range of Australian studies into the link between employment and real wage growth in Australia. Now, as we pointed out in paragraph 5.29 of COMMONWEALTH1, based on their review of the studies, Lewis and McDonald conclude that, and I quote:
PN2181
The results for Australia suggest an employment elasticity with respect to real wages of approximately minus 0.6 to minus 0.8 at the higher end of the scale of elasticities for other countries.
[10.05am]
PN2182
Now, that conclusion in the Lewis and McDonald paper was not disputed by the ACTU or Dowrick and Quiggin themselves. Now, Lewis and McDonald's own estimate, based on their own exercise, not their review but their own exercise of the employment elasticity with respect to real wages was minus 0.8 over the period 1959 to 1998, which we refer to at paragraph 5.16 of COMMONWEALTH1. Now, as to Dowrick and Quiggin's critique of Lewis and McDonald's exercise, in particular Lewis and McDonald's interpretation of one of the regression co-efficients from their estimated equations, Professors Dowrick and Quiggin do not offer any opinion on whether this elasticity estimate is too high or too low, and we refer to that at paragraph R - in our reply submission, COMMONWEALTH2, at R5.19 at page 21.
PN2183
So we say simply in conclusion that the ACTU did not establish through the Dowrick and Quiggin review that large wage increases will have a less harmful effect on aggregate employment than around the minus 0.6 to minus 0.8 figure. If the Commission pleases, we move on, addressing some brief remarks to section 6 of COMMONWEALTH1, which is the estimated employment impact of the claim, and the Commonwealth remains firmly of the view that it is the gross, and not the net impact measure that holds the key to a relevant assessment of the economic impact of the ACTUs claim.
PN2184
This year we have elaborated upon arguments put to the Commission on this issue in previous years, and if I could ask the Commission to refer briefly to COMMONWEALTH1, paragraph 6.15 and 6.16, and could I interpolate a comment that this is a very important issue, because the ACTU net estimate, of course, is 0.1 per cent, and the Commonwealth's gross estimate is 0.51 per cent. There is a very significant difference between those estimates and that difference is clearly impacting on the type of assessment that the Commission is, with respect, making of the economic impact of the claim, given that the Commission has to date seen as relevant the net impact measure.
PN2185
Now, I just want to emphasise the submissions made at paragraphs 6.15 and 6.16, that the net impact measure does not reflect the full effect of wage increases on the labour market. It of course shows the contribution of the safety net adjustment to changes in the pace of wages growth, but it doesn't reveal the impact of wage increases on the level of nominal wages, and hence on real wages. We say it is the gross impact levels which show how a safety net adjustment will affect wage levels. Then 6.16 is the kernel of the argument. It is wage levels, in our submission, that exert a major influence on employment and unemployment, particularly in their relationship to the value of labour's product.
PN2186
Each dollar increase, without future productivity improvements, raises the wage costs of firms by the same amount, and this will adversely affect positive hiring and investment decisions of firms.
PN2187
JUSTICE GIUDICE: Mr Cole, does that imply that in firms of the kind that seem to be being referred to there is no productivity improvement.
[10.10am]
PN2188
MR COLE: No, we are not making that point, your Honour. That is a separate - with respect, I suppose, a separate issue. There may or may not be, but there is certainly no productivity improvement specifically derived from bargaining.
PN2189
JUSTICE GIUDICE: Tied to the increase, as it were.
PN2190
MR COLE: Yes. Now, there may or may not be. One can speculate as to whether there is or isn't, but in terms of the fundamental proposition as to whether we should be looking at net or gross, I don't think the issue of productivity cuts across this issue to any significant degree. Firms respond to changes in wage levels, and it is changes in levels and firms responses that impact on decisions on employment.
PN2191
Now, we develop, and I won't take the bench through it, but we develop the argument in COMMONWEALTH1 and we ask the bench to, with respect, revisit the issue in the light of the more expansive discussion that the Commonwealth has provided in support of our contention that only by looking at the gross impact will the full extent of the economic impact be truly appreciated.
PN2192
SENIOR DEPUTY PRESIDENT WATSON: Mr Cole, that is very much a theoretical proposition, isn't it, and the Commonwealth contention that one focuses on the gross impact reflects an assumption of no movement in wages for a person subject to award rates absent increases arising from these proceedings. How reasonable is that sort of assumption in a practical sense? In that context, I would ask you to comment also on the approach of the UK Low Pay Commission which, in assessing the impact of national minimum wage, does so on the basis of a counter-factual proposition based on historical data that absent minimum wages and minimum wages increase, earnings growth for the lowest decile workers moved on average between growth in earnings and prices in any case. So how realistic is the proposition that absent any increase arising from this bench, there would be no movement in wages at all for those subject to living wage increases?
PN2193
MR COLE: Well, it - there may - it may, on a realistic assumption, be some - there may well be some element of wages growth that would accrue to the award-dependent people in the absence of a safety net review. But it is - firstly, it seems entirely speculative in the Australian context as to what that would be in the absence of a safety net review. We have, after all, been making adjustments to wages in Australia on a regular annual basis for several years in succession, so we don't have any real - there is no objective, I would suggest, data that would shed particular light on what - across the economy in the award-dependent sector on what adjustment would otherwise be occurring. So - - -
PN2194
SENIOR DEPUTY PRESIDENT WATSON: But an assumption of zero is plainly unrealistic in light, for example, of the submissions of the Motor Traders that in light of skill shortages they are increasing rates to persons no on award rates. It would seem to follow that they would adjust some rates for some employees at least, absent a minimum wage movement.
PN2195
MR COLE: Yes. Well, acknowledging, your Honour, that in the absence of a safety net review there could well, not least because of labour shortages for particular occupations or in particular areas, be market forces producing - leading to increases for some people. My point is that whilst it may not be zero, it is very difficult to point to any objective basis for making a judgment in the Australian context as to what it might otherwise be. There are implicit assumptions on that point, I would suggest, that flow from adhering to the net impact approach that implicitly assumes what such an adjustment would be.
PN2196
I will look at the point about the UK Low Pay Commission. There is also the issue about the opportunity cost, if it could be put that way, of safety net adjustments. Now, there is a tendency on the part of the ACTU and, with respect, at times on the part of the Commission, to look to the actual results regarding employment levels in the labour market following safety net reviews to see whether there is any particular evidence that a safety net adjustment has detracted from employment growth or to whatever are the established levels.
PN2197
This, of course, doesn't really - that is one way of looking at the matter. But it doesn't, with respect, really pay any regard to the separate issue as to how different might the employment growth and employment level results for a particular period have been in the absence of the safety net review. That is an opportunity cost on employment, and the gross estimate, I think, is relevant to assisting to elucidate that issue. Now, that opportunity cost may very well be disguised. As other parties have submitted it is difficult to separately identify the full impact on employment attributable to a given safety net adjustment.
[10.16am]
PN2198
But an opportunity cost is nonetheless real on account of difficulty in precisely identifying and quantifying its size, and as I say, an over-emphasis on net cost measures combined with a tendency to prefer to test employment impacts by reference to actual outcomes, without regard to the opportunity cost, in our view is, with respect, not an approach that is calculated or likely to explore the full impact on the economy and on jobs.
PN2199
SENIOR DEPUTY PRESIDENT WATSON: It is really a matter of trying to make assessment, and it - you are absolutely right. There are so many factors at work that you can't identify specifically the impact of minimum wage movements, identifying if there has been some plainly apparent effect, and it does require - well, it is not a sophisticated exercise, but if one undertakes that exercise and something sticks out, then that is obviously that you might take some note of. But in examining recent data after living wage increases, there doesn't appear to be that sort of effect, on the surface.
PN2200
One example being in the area of women's employment. I noted from the ABS publication 6306 of the incidence of award reliance is around 15 per cent for women, half of that for men. But employment growth is the opposite, women's employment growth being about twice the rate of that of men in recent years, or the most recent year at least, whether on an hours basis on an employment basis.
PN2201
MR COLE: Yes, your Honour, but - - -
PN2202
SENIOR DEPUTY PRESIDENT WATSON: Now, you will say, well, it would have grown faster still relative to male employment but - - -
PN2203
MR COLE: Well, that is right, and I suppose at the end of the day, at the end of the day, with respect, the issue that is there in the background behind all this is how much weight is going to put on the factor of employment and jobs in balancing that with other factors, and the Commonwealth is clearly making absolutely no secret of its view that very considerable weight should be put on job loss.
PN2204
The greatest need of the low paid is to retain their job, because joblessness is the primary cause of poverty, and the Commission understands the Commonwealth position, and not least the reason we are making the submissions we are on net and gross impact and what I have otherwise said about the Commission's approach to tend to prefer to make the judgment based on some perceived or absence of a perceived effect in the actual economy, which can disguise the full impact, that is why we are persisting with these submissions in line with our concern that in balancing the range of factors that needs to be taken into account, that in accordance with the Act, that does appear to us that it may be that insufficient weight, indeed we believe insufficient weight is being attached to the issue of employment.
PN2205
JUSTICE GIUDICE: Mr Cole, on the question of measurement, if you like, of the effects and accepting the opportunity cost premise, a number of the parties have attempted to record in some way what the effects are, through surveys. Has the Commonwealth given any consideration to doing such a survey itself?
[10.23am]
PN2206
MR COLE: That is a matter I would need to take instructions on. I am not aware of any present proposal, your Honour. I am not aware that the matter has been - - -
PN2207
JUSTICE GIUDICE: Yes.
PN2208
MR COLE: - - - an issue under any active consideration. If there is anything further I can advise your Honour and the Members of the Full Bench, when I seek instructions on that I will convey that in the next day or so.
PN2209
JUSTICE GIUDICE: Would a properly designed validated survey assist us, do you think?
PN2210
MR COLE: Well, your Honour, we think the issue - it is difficult to dispute that the survey characterised, as your Honour has put it, properly designed would be of some assistance but there is a question as to a need, and we think - - -
PN2211
JUSTICE GIUDICE: Yes. Well, I am aware that I am really asking an opinion, which probably is a bit unfair. It is a matter that you might want to consult your client about. In any event, it is a question of something significance in the proceedings, and an item - proposals some other people have made, or suggested.
PN2212
MR COLE: Yes. We are certainly conscious of the range of issues that the Members of the Bench raised with, I think Mr Moir in connection with the possible conduct of a survey under the auspices of the Commission, but I understand your Honour is not limiting your Honour's question to - - -
PN2213
JUSTICE GIUDICE: No.
PN2214
MR COLE: - - - such a survey, and I will seek instructions on the point, but I mean the - there, in effect, have been - I mean to the extent - I withdraw that. The wage elasticity surveys, which in Australia are showing very consistent results, are relevant, your Honour. I mean, there is an issue as to whether, in the light of the fact that there are several such surveys, in the light of the fact that the results of those studies are fairly consistent, there is a real issue as to whether it is - whether particularly much greater light would be shed on an issue by a survey specifically focused on the impact of the safety net adjustment.
PN2215
With respect, the relationship between minimum wage, or between wage increases and employment in Australia is fairly well established, and we believe that the Bench should, with respect, be giving considerable weight to those elasticities that have been demonstrated in Australia, in the knowledge that they are likely to understate the impact on award dependent persons because of the significant proportion of such persons in the lesser skills areas whose employment is going to be more in jeopardy in response to minimum wage increases. But, having said that, your Honour, I will repeat that I will seek instructions on the point.
PN2216
JUSTICE GIUDICE: Yes, thank you.
PN2217
SENIOR DEPUTY PRESIDENT WATSON: I might just say, for my own part, Mr Cole, whilst we look at all the material before us, there might be some benefit in having some additional rigorously undertaken research or survey material which provides additional evidentiary material for consideration of the Commission, and I suppose it is the absence of that in a sense that leads one to go to look at areas of high award reliance, and look at them on the face of what has happened to employment there, that you would expect an adverse effect there if it were to occur, and look for it there and see whether or not it has occurred.
PN2218
It is a very imperfect measure, as we all know, because there are so many factors acting on employment and you can't isolate one factor, so simply for my part I would be assisted by any alternate evidentiary material which is rigorously undertaken.
PN2219
MR COLE: Yes. Well, I note your Honour's comments, and I am assuming that the question is raised in connection with a possible future safety net review and not in connection with the finalisation of the present review.
PN2220
JUSTICE GIUDICE: That is a fair assumption.
PN2221
MR COLE: A small point, but it may have had some bearing on the - - -
PN2222
JUSTICE GIUDICE: Yes.
PN2223
MR COLE: - - - on the result. Your Honour, if I could - Senior Deputy President, just in response to your remarks, if I could again urge all Members of the Bench to be mindful though that the - of our submission that the full impact may well be disguised, if one is looking for some particular turning point or development in the actual employment levels or growths. Standing back from it, it can then be said, well, notwithstanding the safety net increase, in the light of other economic developments, there was no discernible impact on the labour market. But that is the point. No discernible impact, and that, in our respectful submission, in the context of our persistent unemployment rate, should not be the end of the issue. There should be consideration to is there a disguised impact, and what is the likely extent of that disguised impact, because that, with respect, is a relevant matter for consideration.
[10.30am]
PN2224
The Commission has before it this year modelling from both the TRYM model and the Murphy model. I don't intend to take the time of the Commission to go through that model. It is set out cogently from paragraph 6.34 of COMMONWEALTH1. The ACTU, of course, has presented the results of the modelling for its preferred net impact measure, and I just emphasise to the Commission that the modelling of the gross impact is set out at page 55 of COMMONWEALTH1.
PN2225
We make a very brief submission. We say the ACTU misunderstands the purpose of the modelling conducted by the Commonwealth. The modelling results illustrate the potential broad macro-economic impact of the claim rather than providing precise magnitudes or trying to forecast the state of the economy. That is the essential difference that we would wish to impress upon the Commission.
PN2226
The modelling is not being put forward to suggest precisely what the parameters of the economy will be, depending on the decision. It is put forward to illustrate the broad impact, the broad potential impact. The exact baseline doesn't matter for that purpose in models that are close to linear provided a consistent approach to the wage shock is taken.
PN2227
Now, the ACTU also incorrectly states at paragraph 585 that negative modelling outcomes on employment and so on through the modelling are a function of the way the model works. The point we wish to emphasise is that the employment response to a wage increase in the TRYM model depends, of course, on the wage elasticity and that is based on the observed Australian historical data on the relationship between employment and wages. It is based on the observed historical data rather than simply being imposed. And that negative relationship is consistent with a majority of findings from the minimum wage research.
PN2228
So the results from both the TRYM and Murphy models show that the claim has the potential to lead to lower employment, higher inflation and weaker economic growth than would otherwise be the case, and that the potential impact is still significant even in the absence of an interest rate response. I now turn to section 7 dealing with the sectoral impact.
PN2229
VICE PRESIDENT ROSS: Mr Cole, just before you do that, the issue I am raising may not fit conveniently within what you have just dealt with, but ACCI in its submissions took us to the change in the superannuation guarantee levy last year, and the essence of the submission was that it was a matter we should take into account in these proceedings. Historically, the Commission in its decisions has only dealt with that issue in those years where there has been an increase in the levy consistent with its obligations under section 90A of the Act, but that probably reflects the fact that it was only on those occasions that there were specific submissions directed to it. What, if anything, does the Commonwealth say about ACCIs submission on that point?
PN2230
MR COLE: Your Honour - - -
PN2231
VICE PRESIDENT ROSS: If it is a matter you are going to come to when it is more convenient to deal with it later, that is - - -
PN2232
MR COLE: Yes. Your Honour, I think it is a matter on which I should seek advice. While we are mindful of the point your Honour makes, we are also mindful of the argument that ACCI has put. They are not - if we may, we will give further consideration to both those dimensions and provide a response to the bench.
PN2233
VICE PRESIDENT ROSS: Certainly. Thank you, Mr Cole.
PN2234
MR COLE: Now, section 7 dealing with sectoral impacts, provides some brief discussion of the drought. A great deal has been said about the drought by other parties and the Commonwealth certainly wishes to underline the importance of the bench giving full consideration to all those submissions. So it is not our purpose to range over similar ground. We acknowledge, of course, that the effects of the drought will be felt upstream and downstream of the rural industries. There will be less road and rail freight to transport crops, wholesaling activity will decline, and industries providing inputs to farm production will face declining demand.
PN2235
The Centre of Policy Studies recently modelled the impacts of the drought both nationally and for 45 regions covering Australia, and found that the drought is predicted to have considerable adverse effects on the Australian labour market, and I provide my friend the reference. Now, we simply emphasise that the claim, if granted, would have a significant impact on regional Australia and another large increase in award wages for businesses already facing a more difficult operating environment is likely to result in further downstream and upstream job losses.
PN2236
Now, the ACTU - this goes to the issue of employment in agriculture. The ACTU noted at paragraph 329 that while agricultural employment has declined over recent months, the number of employees has actually increased. Now, the Commonwealth presumes that that submission is based on original data because the ABS does not provide seasonally adjusted data on the number of employees by industry. We say therefore there is a problem of attempting to investigate trends in employment in agriculture where seasonal variation obviously can occur.
PN2237
So in the absence of seasonally adjusted data, a more suitable way to monitor trends in the industry would be look to changes on an over-the-year basis, and over the year to May and over the year to August and over the year to November 2002, and also over the year to February 2003, the number of agricultural employees declined. For example, the decline over the year to February 2003 was 23,200 or 12.3 per cent.
PN2238
Now, as to the industry dimension of the claim, the Commonwealth, of course, contends that large increases in award wages have adverse effects on employment unless there is offsetting productivity gains firms will tend to lay off more award employees and hire fewer award employees than they otherwise would have laid off or hired, and this results in lower total employment of award employees and lower overall employment where employers cannot substitute non-award employees for award employees.
[10.40am]
PN2239
Now, on that basis we would expect to see a negative association between employment growth and industries with high award coverage. Industries with high award coverage will have more employees impacted by safety net adjustments and, therefore, employment growth would be more adversely affected in these industries than those industries with lower award coverage. Now, the ACTU attempts to refute this and claims that the Commission's decisions have had no identifiable impact on employment in the award dependent industries. At paragraph 6.14 and 6.24 of their original submission they say there is no basis on which to expect adverse micro-economic impacts. Mr Watson has stated at paragraph 412 that:
PN2240
Employment growth has been greater in award dependent sectors.
PN2241
Now, the Commonwealth has already provided strong evidence that there is a negative relationship between changes in award coverage and employment growth. The ACTU has attempted to criticise this evidence but in our submission the ACTUs criticisms themselves are flawed. Can I just have a moment, your Honour, so I can direct the intention of - in COMMONWEALTH3 there is a revised chart for figure 7.1. Just looking for the moment at the back - the original figure 7.1 is a table and it has turned into a graph.
PN2242
I apologise to the Bench. This is the replacement for figure 7.1 in COMMONWEALTH2, which is found under paragraph 7.11 at page 38.
PN2243
SENIOR DEPUTY PRESIDENT WATSON: So it is the reply submission?
PN2244
MR COLE: That is the reply submission, your Honour, yes. Now - - -
PN2245
JUSTICE GIUDICE: What page is it on, Mr Cole?
PN2246
MR COLE: The page in exhibit COMMONWEALTH2, your Honour, is page 38 and in exhibit COMMONWEALTH3, where regrettably for once the sequential numbering practice was not adopted - indeed, no numbering practice was adopted.
PN2247
JUSTICE GIUDICE: It had escaped my attention until you mentioned it.
PN2248
MR COLE: I thought I should confess before I was castigated, your Honour. It is on the second page of COMMONWEALTH3, your Honour. So that is an update for figure 1 on page 38 of COMMONWEALTH2. The graph still demonstrates a strong negative relationship between changes in award coverage and employment growth. Now, as I have said, the ACTU has attempted to discredit this evidence and we deal now in reply with those criticisms.
PN2249
SENIOR DEPUTY PRESIDENT WATSON: Before you do, Mr Cole, I have a more general problem with what is shown in figure 7.1. I am puzzled by it because it appears to show - well, let us take this premise. In the non-award sector wages paid are overwhelmingly in excess of award wages, on average significantly so. So a firm which moves from the award sector to the agreement sector will generally do so on the basis of paying higher wages, yet you say employment growth is higher on average for such firms. Now, one might think that suggests if you pay higher wages you get higher employment growth.
PN2250
But I think more realistically it probably suggests that there are other factors at work and these sorts of simple comparisons aren't of much assistance.
PN2251
MR COLE: Well, these - this is a statistically significant relationship, your Honour, and it is on that basis that we bring this forward. There may be - - -
PN2252
SENIOR DEPUTY PRESIDENT WATSON: But like most regressions it says nothing about causality. It may well be a coincidence or it might simply be a common - common other factors - any number of factors drive these relationships.
PN2253
MR COLE: Yes, we are not suggesting causality, your Honour, but we think it is a relevant matter for the Bench, with respect, given what is at issue in the proceedings - in the context of the proceedings to have some regard, nevertheless, to statistically significant association between these two dimensions, and it is simply on that basis that we put the material forward.
PN2254
SENIOR DEPUTY PRESIDENT WATSON: And on the same basis the statistically significant relationship between the level of wages paid and positive association with employment.
PN2255
MR COLE: Well - - -
PN2256
SENIOR DEPUTY PRESIDENT WATSON: See, by moving out of the award sector into the agreement sector, generally that is done with the payment of higher levels of wages.
[10.49am]
PN2257
MR COLE: But, as we will come to see, also offset by productivity growth, because of a strong association between bargaining and productivity growth, which is the next issue we come to.
PN2258
SENIOR DEPUTY PRESIDENT WATSON: Yes. Can I say, Mr Cole, that I have looked at the relationship in growth of employment by hours and award reliance by industry over time, and that seems to suggest a positive relationship between growth and employment hours, and this is over the period '97/8 to 2001/2. A positive relationship between award reliance and the growth in employment hours.
PN2259
MR COLE: Well, we thank your Honour for indicating that. I think that is a matter, your Honour, that - if that - - -
PN2260
SENIOR DEPUTY PRESIDENT WATSON: Because I just get concerned about these sorts of analyses, which I don't think show a great deal at all, in reality.
PN2261
MR COLE: Well, I think, your Honour, not least in view of what your Honour has just indicated as to some material that your Honour has looked at, and we will probably also have a look at that same material.
PN2262
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN2263
MR COLE: But if your Honour has indeed looked at that material, well, it seems to me that - and I acknowledge your Honour's conclusion that the material may not be of much help, but if your Honour has the material to which your Honour referred under notice, notwithstanding your Honour's comments, I think it would not be unreasonable that your Honour, also Members of the Bench, take this other material under notice.
PN2264
SENIOR DEPUTY PRESIDENT WATSON: Yes. Yes, well, it is more a point, and the only reason I have been playing around with figures is because these sorts of regressions show remarkable things at times. For example, if you plotted Hawthorn's membership with win/loss ratio, you would find it gets more members the more games it loses, but that is because of an abnormal event that occurred with the merger proposition rather than any real relationship. But - - -
PN2265
VICE PRESIDENT ROSS: It might say something about Hawthorn supporters, Mr Cole.
PN2266
MR COLE: Yes, well I won't enter into that issue. I think it would not be prudent. But the - of course, this - while there are the sorts of difficulties perhaps to which your Honour refers, nevertheless this association comes as no surprise to us in the light of our more wide-ranging submissions, an appreciation as to the effect of minimum wage increases on employment. So this is by no means counter-intuitive from our perspective, your Honour. It is a relationship that, based on our appreciation of the other theoretical and empirical material, is the type of relationship that would be consistent with what you would expect, based on those other sources. So I will come straight to - - -
[10.51am]
PN2267
JUSTICE GIUDICE: Mr Cole, what happens if you look at 7.1 over a longer period?
PN2268
MR COLE: Yes, well, we can't actually do that over a longer period, you Honour, because the data is drawn from the two EEH surveys, and the first of those was May 2000.
PN2269
VICE PRESIDENT LAWLER: Mr Cole, you just can't draw any cause or connection can you, any firm cause or conclusions? Just take Fowler Communication Services which shows the greatest negative change in employment. I mean that is a product, is it not, of the continuing slump in the telecommunications industry generally in Australia and the world following the first of the dot com bubble, and government administration has got nothing to do with - which is the highest percentage increase - it has got nothing whatever to do with award coverage, it has not got anything to do with the nature of government policies from day to day, has it not?
PN2270
Health and community services, for all you know, may be a product - for all we know, may be a product of the grain of Australia as the baby boomers start moving into nursing homes.
PN2271
MR COLE: Yes, well - - -
PN2272
JUSTICE GIUDICE: The older members of that group.
PN2273
MR COLE: I will focus on some stand of issue here which is that - from our point of view it is the overall pattern, your Honour. We are not making any claim in the respect - in this graph in respect of particular sectors. The whole point of looking and including all sectors - I think it is all sectors, is to see whether on that broadly based basis whether there is a statistically significant relationship, so I think it is for a slightly different - it really would be immune, with respect to the criticism that your Honour identifies as a possible issue, having regard to the different purpose to see whether across the whole spread of industry there is an association.
PN2274
So whilst there will be doubt as to particular factors in individual sectors of particular times, there would be - they, with respect, would not detract from the weight that would be given, in my respectful submission, to a relationship that can be demonstrated across such a breadth of sectors, if it can be shown to be statistically significant. And indeed the ACTU hasn't claimed, as I understand their submission, that this is not a relevant exercise. They have claimed it is statistically flawed, they haven't said it is not relevant, at least not on my understanding of their submission. Now I will come directly to the - - -
PN2275
JUSTICE GIUDICE: Mr Cole, just to finish on that, you say that you can't really focus on any particular area of industry, but the only validity in that figure is the - if you like, the overall statistical significance of the correlation, but that you couldn't look at health and community services, for example, or look at the retail trade or any area and say, "Yes, that is what has happened in that industry."
PN2276
MR COLE: No, no, I didn't mean to be interpreted that way, your Honour.
PN2277
JUSTICE GIUDICE: Yes, I just - - -
PN2278
MR COLE: And if I didn't make that clear - no, it may well be possible as a separate exercise to look at individual sectors, but - and to explore developments in the particular sector, but even if that were done for all these sectors, in my submission, it wouldn't particularly impact one way or other on the purpose of the graph and an understanding of the - of a relationship that may be able to be demonstrated. I suppose in some extreme case, if the circumstances of all or several sectors had been microscopically explored, there might then be empirical grounds to weigh against the statistical significance as a result.
PN2279
JUSTICE GIUDICE: Yes, well, that is what might be, but you are not asking us to draw any conclusion about particular sectors from this material?
PN2280
MR COLE: No, no.
PN2281
JUSTICE GIUDICE: No.
PN2282
MR COLE: Now the ACTU claims that this analysis is flawed on the basis of the relative standard errors of the estimates of changes in award coverage. Now in our submission it appears that the ACTU has some misunderstanding of the use of relative standard errors. Now a relative standard error is the error divided by the estimate, and there is an issue that we will come to about whether relative standard errors are an appropriate when you are looking at small estimates such as occur with changes in proportions because the relative standard error is inflated by the small value of the estimate that occurs in the denominator.
[11.00am]
PN2283
Now, it may - I think not least in view of - in view of the fact that I sense that this matter is going to be controversial in that my friend has, I think, some disquiet on this matter, I would ask the Bench - and I apologise for putting it to the Bench this way - the Bench may wish to just write down some figures. I am going to provide an example - - -
PN2284
JUSTICE GIUDICE: Yes, Mr Cole, we are going to take a break this morning and if this is a convenient time - - -
PN2285
MR COLE: Yes.
PN2286
JUSTICE GIUDICE: - - - before you go to the next part of your submissions we will do that.
PN2287
MR COLE: Yes, your Honour.
SHORT ADJOURNMENT [11.01am]
RESUMED [11.12am]
PN2288
MR COLE: If the Commission pleases, I was talking about relative standard errors and inviting the Bench to consider a particular example, and the Bench may wish to just jot a couple of figures down to follow the example, and the example involves estimates of 50 and 10, both with standard errors of 5 - an estimate of 50, an estimate of 10, both with a standard error of 5. In other words, they are equally accurate, they have the same standard error. Now, the relative standard error is the error divided by the estimate. So in one essence the relative standard error will be 5 divided by 50, which is 0.1. In the other case the relative standard error will be 5 divided by 10, which is 0.5.
PN2289
0.5 is 50 per cent. The Bench will recall what Mr Watson said about relative standard errors of 50 per cent or more, but these are relative standard errors that relate to estimates that are equally accurate. So the ACTU criticism proceeds on the basis of relative standard errors, but as we said, we consider that the ACTU has misunderstood the use of relative standard errors. The provide a rule of thumb - a rule of thumb for evaluating the reliability of estimates and they are not meant to replace more thorough statistical analysis.
PN2290
Now, in particular we say the relative standard error for estimated changes in proportions is not an appropriate indicator of the quality of such estimates. Such a relative standard error can be misleadingly large for very small estimated changes in proportion, but it won't necessarily mean that the estimate is unreliable. In cases like that the use of the relative standard error must be abandoned in favour of more rigorous analysis based on confidence intervals. Now, rather relying on the relative standard error measure we say you should look at this in terms of 95 per cent confidence intervals.
PN2291
Using the standard errors that the ACTU has provided at page 5 of its supplementary submission, four of the changes on page 5 are over the period - four of the changes in award coverage over the period May 2000 to May 2002 are significantly different from zero at the 95 per cent level, contrary - contrary to the ACTUs assertion that only one is statistically significant based on its misuse of the relative standard error measure. Now, what is more, all four changes were reductions in award coverage ranging from 5.8 percentage points to 9.3 percentage points.
PN2292
The industries concerned were government and administration and defence, education, heath and community services and cultural and recreation services. Now, that is not to say that the other industries have not experienced changes in award coverage commensurate with the changes shown in the ACTU chart, just that those other industries and any changes are not statistically significantly different from zero at the 95 per cent level. So we have strong statistical evidence, indeed, that award coverage has declined in these four industries, and what is more, these four industries experienced employment growth that was well above average and, indeed, they accounted for 89.5 per cent of total growth in employee numbers over the period.
PN2293
So we have shown that all the statistically significant data - that is at the 95 per cent confidence level - support a negative relationship between employment growth and changes in award coverage. No change in award coverage, low employment growth; decrease in award coverage, strong employment growth. The finding is entirely in keeping with the Commonwealth's repeated submission in recent safety net reviews that large increases in award rates will suppress employment growth. To the extent that award coverage is industries is unchanged, as appears to be occurring in at least some of those industries that have no statistically significant change in award coverage, employment in those industries will be lower than it otherwise would be.
PN2294
Now, the ACTU has also criticised the regression relationship estimated by the Commonwealth, claiming it may or may not have anything to do with the true relationship. It is true that changes in award coverage are not significant for a number of industries but that would be expected to detract from the statistical reliability of the estimated relationship between the two series. It would tend to make the fit worse, not better. The regression analysis actually shows that the chances of getting the estimated relationship, if in reality there is no real negative relationship between changes in award coverage and growth in employee numbers, is less than one in one thousand.
PN2295
So the criticism of the regression results is unfounded. There is only a minuscule probability that the result would be observed if there were not a significant negative relationship between changes in award coverage and employment growth. I now move to the final, main section of my remarks, which deals with section 8. Section 8 is about workplace bargaining and productivity. Now I make some preliminary remarks to set the context. If the Commission pleases, in performing its functions under Part VI of the Act, as in this safety net review, the Commission is guided by the objects of the Act and the objects of Part VI, which include a strong focus on productivity, and also on encouraging agreement making. Now, section 8 in fact shows there is no tension between these objects. In fact, they are closely correlated.
[11.20am]
PN2296
The growth in productivity we demonstrate is greatest in the industries which have undertaken the greatest shift in workplace arrangements away from award reliance. Now, encouraging agreement making, the term in the Act, in our submission means stimulating agreement making, and this means that at the very least the Commission, in determining an appropriate safety net adjustment, needs to be particularly careful not to squash the incentive to bargain, and they key issue, the key issue in this regard is that the two most award reliant industries, in those industries, award pay and bargained pay are not dissimilar.
PN2297
Now, the industries are Accommodation and Retail, and the differences between award and bargained pay are in Exhibit COMMONWEALTH3, in the revised figure C2, and fortunately, that is the last page of the exhibit. The situation in fact is that, and we are looking at the difference here between awards and collective agreements for the purposes of the argument, and in Accommodation, Cafes and Restaurants, the margin in favour of agreements is $9.90, and in Retail, the margin in favour of awards is $8.50.
PN2298
JUSTICE GIUDICE: I am sorry, Mr Cole. I have temporarily lost where you are.
PN2299
MR COLE: I apologise, your Honour. I am asking the Commission to consider the differences between the average total earnings by pay setting method, which is - the revised figures are on the last page of Exhibit COMMONWEALTH3.
PN2300
JUSTICE GIUDICE: Yes, I have those. But you just mentioned some dollar figures.
PN2301
MR COLE: Yes, yes. Well, these figures are the difference between the dollar amount in the award only column, the first column of figures - - -
PN2302
JUSTICE GIUDICE: I follow.
PN2303
MR COLE: And the collective agreement column.
PN2304
JUSTICE GIUDICE: Yes.
PN2305
MR COLE: So the Commission will see that for Accommodation, Cafes and Restaurants, collective agreements on this basis are paying $376.50, and award $366.60 or about $9.90 more under agreements.
PN2306
JUSTICE GIUDICE: Yes, I follow.
PN2307
MR COLE: But in retail the - - -
PN2308
JUSTICE GIUDICE: Yes, I have them, Mr Cole.
PN2309
MR COLE: Yes.
PN2310
JUSTICE GIUDICE: Yes.
PN2311
MR COLE: In retail the margin is in fact $8.50 more is paid under awards.
PN2312
JUSTICE GIUDICE: Yes.
PN2313
MR COLE: Now - - -
PN2314
SENIOR DEPUTY PRESIDENT WATSON: Does that have anything to do with casual employment and loadings and, in large enterprises more likely to have agreements, some greater incidence of full-time - of non-casual employees?
PN2315
MR COLE: Well, your Honour, there are - we are admittedly looking at total earnings, and your Honour alluded to that. These figures may be influenced by some of the considerations to which your Honour refers, but nevertheless, these are the pay outcomes. It doesn't change the fact that these are, at least on an average basis, the pay outcomes. This is what, on average, the people in those industries can secure under agreements, and on the same basis what they can secure under awards.
PN2316
So we say, in the context of the strong focus in productivity and encouraging agreement making, the fact that the growth in productivity is greatest in the industries that have undertaken the greatest shift away from award reliance, and the importance of stimulating agreement making, that the Commission must be careful not to squash to incentive to bargain, and then a key issue to consider is the gap in the industries that are the most award reliant industries, between what we can secure under an agreement and what we can secure under an award on a comparable basis.
PN2317
And we say that unless some differential is maintained in favour of the growth in bargained pay, it is self-evident that the incentive to bargain is placed in jeopardy.
PN2318
JUSTICE GIUDICE: The figures you give on the spread of bargaining, which are I think in appendix B of COMMONWEALTH1, are unadjusted for the size of the - or growth in the labour force, I take it. It is figure B.2 on page 111 of COMMONWEALTH1.
PN2319
MR COLE: Yes, I - - -
PN2320
JUSTICE GIUDICE: They are simply raw numbers, is it, or - - -
PN2321
MR COLE: They would be raw numbers.
PN2322
JUSTICE GIUDICE: Yes.
PN2323
MR COLE: Over - it is an historical series and it reflects raw numbers, yes.
PN2324
JUSTICE GIUDICE: Yes. It doesn't - is there any material on the proportion of the workforce covered by agreements? I am just wondering whether it would show a different picture to the one that is in figure B.2, B2.
PN2325
MR COLE: We have not included that in our material, but we can provide some information which - - -
PN2326
JUSTICE GIUDICE: Yes. I know there is a publication that deals with this, but - - -
PN2327
MR COLE: I will maybe take that under notice, your Honour, and see whether we can provide the Members of the Bench and the other parties.
PN2328
JUSTICE GIUDICE: Yes. I think it is probably relevant to the submission you are now making to have regard to the shape of that chart. It doesn't seem to give cause for undue pessimism about the spread of bargaining. I was wondering whether if one looked at it in a different way, it may support the submission you are making.
PN2329
[11.30am]
PN2330
MR COLE: Yes. We will look at that, your Honour. Of course, there are two issues. What in my submission is the kernel of the matter for this case is in what way, as part of its deliberations on the outcome, will the Commission be able to have regard to that object of encouraging, and we say encouraging means stimulating bargaining. It is not dissimilar, your Honour, in respect of bargaining, by analogy, to the issue your Honour raised with the parties about the fairly proactive - that is my word - terms in which employment is discussed in terms of the objects of the act.
PN2331
Encouraging means stimulating in this context, and the issue is, well, how can the Commission, along with the other considerations, ensure that appropriate weight is given to stimulating bargaining. And we are saying, well, at that interface, in the most award dependent industries, there is a significant issue: because the gap, on the figures, between the bargain pay and the award pay is very slight, or negative, on those average statistics. Large safety net increases in that circumstance, would seem to provide no stimulus or encouragement at all to the parties in those industries to engage in agreement making. That is the submission we are making.
PN2332
SENIOR DEPUTY PRESIDENT WATSON: Well, if you take retail, 65 per cent of employees are subject to agreements, notwithstanding that position as to relative wages. So there has not been any disincentive to them, and presumably again productivity might be part of the answer.
PN2333
MR COLE: Yes. Well, your Honour, is, with respect, if I may say so, making an observation as to outcomes, but I am, with respect, seeking to ask the Commission to have regard to a separate issue, as to what is it that the Commission may be able to do, or should do, giving appropriate weight to the mix of factors that must be balanced, to actually itself be instrumental in stimulating the spread of bargaining.
PN2334
So your Honour makes an observation. Your Honour may doubtless have in mind those outcomes against a backdrop of past safety net review decisions, and bargaining is gradually spreading, even in the most award dependent industries. It is gradually spreading, but there is still a considerable way to go. They do linger behind most other industries. And there is this issue of how large increases, given the relatively narrow gaps between bargain outcomes and awards, may impact on attitudes to agreement making. There is, in my submission, an incontrovertible logic to at least acknowledging, with respect, that there is an issue here.
PN2335
Now, we ask the bench to have regard to the entirety of section 8. I want to come to the central issue about the ACTUs criticisms of figure 8.2. Now, there is a revised figure 8.2 in COMMONWEALTH3. The Commission will see that that - I am sorry, I am on page 3 - the third page of exhibit COMMONWEALTH3.
PN2336
So this graph depicts the extent to which the rate of industry productivity growth over the period 1990 to 2002 is associated with the method of setting pay in 12 non-agricultural industries in the market sector of the economy. Now, we chose this long period because in our view it assists to identify longer term improvements to productivity associated with a structural change in working arrangements reflecting the shift to bargaining.
PN2337
Now, short periods such as those used by the ACTU in its submission, are inappropriate as they may be dominated by a short term cyclical and one-off factors. And they do not show the longer term improvements in productivity that are the result of a gradual spread of agreement making.
PN2338
The ACTU in its reply submission has suggested that the relationship shown in figure 8.2 is "generated by a statistical coincidence." But we actually refuted that in figure R 8.1 in the Commonwealth reply submission at page 42. We did the same exercise for a different period, which was 1995 to 2002, and that showed that the same relationship holds.
PN2339
Now, if I could just explain what the relationship is. It is looking at the R-squared figure in the top right hand corner, a figure of 8.2, 0.5. That means that 50 per cent of the variation in productivity growth between industries is explained by the different levels of award coverage between industries: 50 per cent of the variation in productivity growth between industries is explained by the different levels of award coverage between industries.
PN2340
SENIOR DEPUTY PRESIDENT WATSON: Mr Cole, looking at the graph, again the problem of associations and causality arises, does it not? Each of the low productivity areas is also areas of high labour intensity with, one thinks, inherently less scope for productivity improvement. A cafe, for example, one still has to have meals cooked and served; accommodation rooms cleaned, and the like. I mean, there are robotic vacuum cleaners available these days; I am not sure they are very practical. Restaurants, similarly. Don't these figures more than anything just show the inherent productivity within the sectors, and scope for productivity change, and would it not be better to examine productivity adjusted for what is the normal sort of rate of productivity growth, due to those sorts of considerations?
[11.40am]
PN2341
MR COLE: Well, your Honour's sort of question, with respect, is predicated on - what your Honour postulates as to limits to productivity growth in certain industries - now that is a matter that of course to some consideration should be given, but, your Honour, there is nevertheless relevance in looking at - and we are looking at all the industries and the market sector of the economy over a long period of time and we see strong - a strong association. Now that is at the macro level and we would be the first to acknowledge that it is relevant to look at micro studies and there is a whole segment in section 8 where we summarise the results of numerous micro studies.
PN2342
A was productivity commission, employment advocate and various other studies, so we acknowledge that there is - that it is relevant to look at micro evidence. What we say is that it is the sum total of all this evidence that should be taken into account. The micro evidence supports the macro. They are consistent, and we - on this issue the results of the micro studies are consistent with the macro evidence.
PN2343
Now that then as a total body of material speaks powerfully with, in my respectful submission, to the Commission, that - and again council's caution before awarding a large safety net increase, not least in view of the statutory responsibilities, to - in respect of productivity and agreement making, acknowledging there are other factors, but those issues are nevertheless to be properly weighed in the balance. The dangers of awarding wage increases in excess of productivity growth are clearly set out at page 45 of our reply submission.
PN2344
JUSTICE GIUDICE: Just before you get to that, Mr Cole, isn't there a fairly good argument to be made in some industries that productivity has been the substitution of technology for employment? I can think of a number of industries anecdotally where that has occurred. There are just fewer people employed and they are tending to sit as screens.
PN2345
MR COLE: Yes, well, we are - that may happen in certain industries and then workers go elsewhere, so - and the overall productivity, of course, performance of the economy with the flow on effects of that are taken up in other industries through lower input costs and so on in other industries.
PN2346
JUSTICE GIUDICE: But the implication - or one implication of what you are suggesting to us and it seems is that capital intensive industries should be deprived to some extent of safety net increases to encourage productivity changes which are probably likely to lead to a reduction in employment.
PN2347
MR COLE: Well, I am not sure, your Honour, whether the most award dependent industries would necessarily be described as capital intensive - retail and accommodation, cafes and restaurants. I don't know - - -
PN2348
JUSTICE GIUDICE: So they are not capital - they are not - labour intensive I intended to say. Did I say capital intensive? I meant to say labour intensive.
PN2349
MR COLE: Well, your Honour, I believe used the expression in that question "deprived of increases". Well, we are not here seeking - opposing any increase.
PN2350
JUSTICE GIUDICE: No. Probably not a very good choice of words.
PN2351
MR COLE: Yes, I mean these debates, your Honour, are essentially about modest increases and large increases and on our analysis, in terms of the effects, the predictable effects of increases as large as those claimed, that is of course what we are very concerned about and indeed the effects of anything, apart from a modest increase and on the Commonwealth's submission, as the Commissioner is aware, we simply don't oppose an increase of up to $12, clearly in the modest range, so there is no question here of the Commonwealth setting itself against appropriate, modest safety net adjustments in labour intensive industries. It is not the Commonwealth's position, but the crucial thing is that - - -
PN2352
SENIOR DEPUTY PRESIDENT WATSON: I think, Mr Cole, if you might even think about plotting average productivity growth against labour or capital intensity, labour costs as a proportion of output or some measure of that kind to tell us that the r squared is there an if it is in excess of .5 per cent if you would explain how more than all of the movement is explained.
PN2353
MR COLE: Yes, is that - you are requesting us to do that, your Honour?
PN2354
SENIOR DEPUTY PRESIDENT WATSON: Well, I would be interested to see, because I think it just shows the difficulty that I am having with the causality that you are attributing to what appear in terms of common sense to the relationships related to the inherent nature of the industry in the scope for productivity more so than award - the instruments governing payment.
PN2355
JUSTICE GIUDICE: In fact one wonders how we adopt the policy with the increases before 1993.
PN2356
MR COLE: Yes, yes. Well, we will look at that issue your Honour raises. Some of the matters can't be finalised obviously today, but we will endeavour to undertake those exercises and provide the results as quickly as we can after today, but we are not, of course, saying that there are no other influences on productivity. That is not our position, simply that agreement coverage and productivity are highly correlated and that that seems then to be an important matter for the Commission's consideration if the Commission accepts, on our submission, that there is an important role for the Commission consistent with the objects to stimulate agreement making and promote productivity.
PN2357
I was about to take the Commission briefly to the dangers of awarding wage rises in excess of the productivity growth and if the Commission could refer briefly to figure R8.2 at page 45 of the Commonwealth reply submission. So the Commission will recall at - and this is at paragraph 453, that the ACTU queried what was meant by real unit labour costs and I should clarify that what was actually meant by this analysis was not real wages compared to productivity, but nominal wages compared to productivity.
PN2358
So the proposition is simply that taking - looking at figure R8.2 the nominal increase in wages in the three industries from 1996 to last year at C14 was 23.5 per cent and at C10 19 per cent and productivity growth in the industries is shown for the same period and there is a gap, so employers had to pay - in accommodation, cafes and restaurants they had to pay at C14 or the Federal minimum wage, wage increases in nominal terms of 23.5 per cent and they only had productivity growth of 13.7 per cent to defray in whatever way - in whatever benign way those nominal wage cost increases leaving a gap of 9.8 per cent to be separately funded by some means or other.
[11.50am]
PN2359
JUSTICE GIUDICE: But wouldn't you have to look at the distribution of employment through the classification levels?
PN2360
MR COLE: Well, we show the same exercise at C10, your Honour. So the impact of safety net adjustments has been greatest at these levels if the employment in these industries, there would be significant incidence of employment in Accommodation, Cafes and Restaurants, and Retail Trade, in the area between the minimum wage and C10, your Honour.
PN2361
JUSTICE GIUDICE: Between, yes. Yes, I have checked that.
PN2362
MR COLE: And so, of course, employers would - could seek to raise prices, cut costs or cut jobs. Somehow or other that increase in unit labour costs that is not able to be funded by productivity growth, that issue has had to be addressed, and - - -
PN2363
JUSTICE GIUDICE: Some figures somewhere there indicate that
PN2364
the last two years the average weekly total earnings in Retail have gone up much more significantly than the safety net.
PN2365
MR COLE: I am reminded that while that may be so, your Honour, that is also including agreement making. Now, admittedly the - - -
PN2366
JUSTICE GIUDICE: But you say they are pretty close together, don't you?
PN2367
MR COLE: They are fairly close together, but in terms of the average total over the period to 2000/2002.
PN2368
JUSTICE GIUDICE: Well, in that period the average weekly total earnings went from 373 to 433. That is about $60.
PN2369
MR COLE: Yes. Well, in any event, your Honour, this is - there is a gap. I mean, it is undeniable. There is a gap between the increase in nominal wages for - in these industries for persons - where firms have a high incidence of employees on award wages in these industries, on these statistics they have been left with a gap in unit labour costs unfunded by productivity. That is the issue that we draw attention to, and that is over the long period, from 1996 to 2002. So once again, in our submission, it counsels - it is another reason counselling caution in terms of the increases that may be awarded in this case.
PN2370
So, if the Commission pleases, I won't go to several other matters in section 8, but section 8 is a very important chapter, in the Commonwealth's submissions. A very important section, and we do ask the Commission to take that material in its entirety into account. The States would be disappointed, the States and Territories would be disappointed if the Commonwealth had nothing to say beyond commenting on their irresponsible proposal, which we have already done. The Commission will recall that we do make a point that we do not consider it a responsible course of action on the part of the ACTU or the State and Territory governments to sponsor large increases with no suggestions at all as to how the impact on labour costs and employment of those increases can be in any way mitigated.
PN2371
We do not consider that a responsible course of action. However, the States raise with the Commonwealth the issue of the other side of the graph, and we have looked at the association between collective agreement making and labour productivity growth over the period June 1990 to June 2002. I table that, simply in response to the invitation, in effect, from the State and Territory governments for the Commonwealth to look at that matter.
EXHIBIT #COMMONWEALTH6 DOCUMENT RE AGREEMENT MAKING AND LABOUR PRODUCTIVITY GROWTH FROM JUNE 1990 TO JUNE 2002
PN2372
MR COLE: So, if the Commission pleases, I will simply draw attention to the R squared number in the top right hand corner of the graph. Point 4, the R squared number on the chart, looking at the - the other side of this coin was point 5. They are in a similar ball-park.
PN2373
SENIOR DEPUTY PRESIDENT WATSON: In various studies of productivity over time by Productivity Commission and many others, was the Commonwealth aware that in any case the percentage of the workforce under collective agreements has been found to be a significant determining factor of the rate of productivity?
PN2374
MR COLE: Some of the Productivity Commission micro-studies, of which there are now quite a few, do certainly talk about the productivity improvements flowing from when employees move onto agreements. We will see if we can provide some more targeted references, your Honour. Just a few - that, apart from a couple of specific issues, concludes the Commonwealth's submissions in respect of the ACTU claim, and I won't take the time to summarise our submissions, except to remind the Bench that all the reasons we have given we strongly counsel that any adjustment awarded this year should be quantified on a cautious basis, in the light of the concerns that exist around a wide range of issues.
PN2375
And we have taken the Commission to the risks around the economic outlook, and the balance of those risks, and we have taken the Commission extensively to material on the impact of safety net adjustments on employment, and we have taken the Commission to important issues relating to productivity and the need to encourage agreement making, and in that context the need for any safety net adjustment to be constrained to a modest amount, and on the Commonwealth's submission we are not opposing an increase of up to $12 per week capped at the C10 level. We particularly emphasise that that will direct the benefit to the low paid, and will be consistent with a primary need of the low paid, which is the need to retain their employment.
[12noon]
PN2376
Now, a brief comment on the NFF proposal for - I will describe it as facilitated access to the incapacity to pay principle. The Commonwealth supports the NFFs proposal in principle. Now, the Bench will recall that Ms Harris yesterday went through the eligibility criteria related to the emergency relief arrangements that the government has set in place. If the Commission pleases it is obviously important that those criteria might be able to be characterised as robust for the purposes of facilitating access to incapacity to pay and certainly in general terms they do appear to be robust criteria.
PN2377
But there is a level of detail which the Commonwealth would request an opportunity to finally consider, and if there is any issue arising from consideration of a more intensive examination of the eligibility criteria that has any impact on the validity of that approach - and we are not aware of any, but we are still looking at that and it is a cross-portfolio matter. So if there is any issue that arises in the next day or two we will notify that to the - of course, to the NFF and the other parties in the Commission.
PN2378
I don't anticipate that will be the case, and I do emphasise that we do both commend the NFF approach and we do in principle agree with and support the particular mechanism that has been advanced. It does seem appropriate that the matter be considered in the context of the wage case because at the very least it does bear on the method of application of the present principle. It would be regrettable if the matter were deferred and then it transpired that there was difficulty in having the issue again brought under the notice of the Commission as appropriately constituted. That would be most regrettable if that were in fact the outcome, if that meant delay or just logistical difficulty and possibly further hardship and so on. So we say there is - - -
PN2379
VICE PRESIDENT ROSS: I don't quite follow that, Mr Cole. As I understand it if the 12 month rule were to remain, and if there was an adjustment arising from these proceedings, it wouldn't take effect in the Pastoral Industry Award until, I think, sometime either in late October or early November this year. Wouldn't there be sufficient time for - closer to that event for the matter to be brought in, either before - and if a Full Bench was desired then an appropriate application could be made or, indeed, a request that this Bench deal with the matter then?
PN2380
MR COLE: Well, that may be possible, your Honour. We had taken it that there could be issues about amendment, even if only by way of addendum or qualification, of the wage fixing principles that might again be reaffirmed or - I don't think anyone has, apart from this proposal - and Mr Moir has some suggestions - - -
PN2381
VICE PRESIDENT ROSS: I don't think Mr Moir was suggesting a change in the principles. He was - I think it more went to clarification as to what - how the principle should operate.
PN2382
MR COLE: Yes, well, perhaps it is only the NFFs proposal that is advanced, as I understand it, as a fairly explicit addendum, so to speak, to the operation of principle 11 - principle 12 I think it is, as it relates to their industry and, indeed, to other industries that would be caught by the facilitated mechanism. So what we are supporting is if there is any presumption that it is at the time of the safety net review that the wage fixing principles and any changes to the wage fixing principles would normally be considered and determined, well then on that presumption, if that be the correct basis, then there would be some importance in the matter being dealt with now.
PN2383
Now, if the Commission is of the view that a change or addendum, as I describe it as, of the nature sought, could be otherwise determined by a proper constituted Full Bench, well, that in my submission would need to be qualified to that extent. But, with respect, it may be a matter for the Commission, but the issue we are raising is, and certainly if it is not done now there would be some concern that if the matter could otherwise not be addressed until some future safety net review.
PN2384
VICE PRESIDENT ROSS: It has only been the NFF that has raised it in relation to the circumstances of their industry. There is no other group that has advanced the same proposition.
PN2385
MR COLE: No, I acknowledge that, your Honour, so it is at the industry level, but - although there is this issue about the mechanism, as Ms Harris was acknowledging, could operate. It could operate on a wider basis. The final matter that I need to make a brief submission about relates to the submissions by the Disability Employment Action Centre, and as the Commission is aware through the submissions that have been made on behalf of the centre and through the voluminous material that has been tendered, that the Centre has raised a range of issues concerning workplace relations matters in the business services sector.
PN2386
The Commission will recall at the beginning of these proceedings on behalf of the Commonwealth I made clear the Commonwealth was prepared to participate with peak councils and DEAC, and for that matter the NCID, in discussions on any and all of these issues. Now, it is also clear from the submissions made on behalf of ACCI that there is indeed a meeting that is already scheduled to be held at this stage perhaps between ACCI and DEAC, and I am not sure whether the ACTU is specifically involved in that meeting or not.
PN2387
But it does seem to us that subject to the views of the ACCI and DEAC, that that meeting could well be an appropriate forum, or some further meeting perhaps in the immediate aftermath, or soon after that meeting on 28 April, that could be an opportunity for more wide ranging discussions involving the peak bodies and the Commonwealth to discuss all the issues - all the issues that have been raised by DEAC. Now, that - including, I might say, and without prejudice, the matter that they have raised about the establishment of an industry consultative council.
PN2388
Now, that is without prejudice to whatever the Commonwealth's position in due course may be on that issue, when we have the benefit perhaps of a better understanding of the position and concerns that DEAC is advancing. Now, there are issues about the relevance of some of the matters raised to these present proceedings.
PN2389
The ACTU, for example, expressed the view in its reply submission at paragraph 8.15 that they don't see that this present case is the appropriate forum for consideration of the matters raised, but they thought they could be dealt with in separately constituted proceedings. Now, the DEAC is an intervener in the proceedings. There is this projected meeting. There is the Commonwealth proposal that that be - either that meeting or another meeting be held involving all the peak bodies, including the ACTU, and the Commonwealth itself would participate, and from our point of view, we would make a clear distinction between the relevance of some of the matters to the proceedings. and we don't pre-judge that.
[12.11pm]
PN2390
We say there are important issues about the relevance of some of the matters, but we are not making a submission today pre-judging what view may be taken in respect of any or all the issues in the light of the outcome of a possibly more wide ranging meeting, and we distinguish that from a commitment that, as far as we are concerned, we are prepared to discuss all the issues raised by DEAC and NCID in such a wide ranging meeting. Now, all parties now, in our submission, would then be in a better position to determine in a more conciliatory way, which is after all not inconsistent with the Workplace Relations Act, how the range of matters and particular items within the range of matters might best be pursued, and at the end of the day DEAC obviously would have its rights to seek to pursue matters before the Commission.
PN2391
So we strongly urge, and we put this in the spirit of conciliation; we strongly urge the parties to give favourable consideration, and with respect, the Bench to acknowledge that that is a reasonable course to follow. It is not a recipe for any interminable delay. The meeting is 28 April, and any alternative meeting could be set up soon after that date, and that does seem to us to be an approach, a more positive approach, to progress the matters than for any attempt to be made to do that at this particular stage in the proceedings. If the Commission pleases, that is our submission on that matter, and subject to providing answers as soon as we can to the questions that we have taken on notice and in respect of the exercises that we have been invited to undertake, that completes the Commonwealth's submissions, if the Commission pleases.
PN2392
VICE PRESIDENT ROSS: Mr Cole, I wonder if you, in providing some of that material, could also provide some information on the inquiry the ACCI mentioned into poverty. I think it was a House of Representatives Inquiry, and they were responding to calls by ACOSS in particular, for an inquiry into the issue, and the point that was made was that there was already an inquiry into one of those matters. It is really just by way of - all I was thinking was some background from the Commonwealth as to the inquiry's terms of reference, and the stage that it is up to, in due course.
PN2393
MR COLE: Yes, we will do that. Your Honour the President did ask about an ABS statement that accompanied the wage cost index release, that stated that:
PN2394
Full-time minimum award rates...
PN2395
It referred to an increase in full-time minimum award rates of $18 per week, which was said to be equated to a 4.4 per cent wage increase for those jobs paid the minimum award rates, and we had actually included the statement by the ABS in the context of a more wide ranging statement in COMMONWEALTH1 at paragraph 3.39. Now, we have been advised by the ABS that the text was meant to refer to a 4.4 per cent increase in the Federal minimum wage.
PN2396
JUSTICE GIUDICE: Yes.
PN2397
MR COLE: If the Commission pleases, that completes our submissions.
PN2398
JUSTICE GIUDICE: Mr Cole, just one thing before you finish. The document called Commonwealth Supplementary Material, which we marked COMMONWEALTH7, I think should in fact have been COMMONWEALTH6, so we will change the designation on that to avoid problems of everybody looking in the future for what COMMONWEALTH6 was. So that will be COMMONWEALTH6. Thanks for your submissions, Mr Cole.
PN2399
MR COLE: Thank you, your Honour.
[12.18am]
PN2400
VICE PRESIDENT ROSS: Mr Watson, just before you get under way it might be convenient if I interrupt you before you start. There were two matters that I wanted to raise with you before the luncheon adjournment. One goes to your supplementary written submission where you refer to the ABS employee earnings - sorry, hours and earnings survey and the final revised figures in relation to that. I don't think you tendered a copy of the actual ABS publication and I was wondering if you would be good enough to do that or provide one later.
PN2401
MR WATSON: We can do that. We may not be able to do it before the close of play today, as it were, but we can certainly do that.
PN2402
VICE PRESIDENT ROSS: Thank you. The other was a question relating to paragraph 9.12 of the Commonwealth's submission where there is a reference there to the Anthanasopoulos and Vahid study and the observation in that study that the upward trend in inequality may have levelled out in the late 90s. My recollection was you didn't address that specifically in your written material and it was really whether if you had any comment on that, what it was. I may have missed it in the material, but it is something that I would just ask you to come to in your own time when you are dealing with that part in the normal course.
PN2403
MR WATSON: Yes, certainly. Before I commence my submissions I might, as it were, interrupt myself as well. I want to do this up front so that there is not a sense of exasperation when I go to these in the force of the reply. There are two further documents - I apologise immediately - on which I want to rely in relation to the reply submissions. They are both very recent. They are the front page only of the ABS publication on job vacancies. I haven't given the entirety of the publication and it is because I have wanted to keep the level of paperwork down.
PN2404
That was published yesterday, 3 April 2003, and a Grains Research and Development Corporation publication which was published on Wednesday. I have handed copies of these to all of the other parties, so they are on notice that I intended to go to them. If I could hand those up.
PN2405
MS HARRIS: Excuse me, your Honour.
PN2406
JUSTICE GIUDICE: Ms Harris?
PN2407
MS HARRIS: Obviously there is material being presented by the ACTU. Would the assumption be correct in that if we do want to comment on this new material after Mr Watson's consideration of the documents we could do so?
PN2408
JUSTICE GIUDICE: Yes, I don't think - there is no objection to that is there, Mr Watson? No. If you wish to give us some note about any of this by all means do so or if it is opportune to do it today before we finish, that course could be followed as well.
PN2409
MS HARRIS: Thank you, your Honour.
PN2410
JUSTICE GIUDICE: The job vacancy documents one page, Mr Watson?
PN2411
MR WATSON: Yes.
PN2412
JUSTICE GIUDICE: Yes.
PN2413
MR WATSON: It is just the front cover, I should emphasise. I haven't given you the whole publication.
PN2414
PN2415
MR WATSON: I will come to each of those documents in the course of this submission, but thought it best to get it out of the way. For the whole time the employers and the Commonwealth gave their submissions one thing stands out like a beacon. Not one of them gives you a cogent reason as to why it is fair that Doreen Taylor should find life harder this year than she found it last year. Not one of them gives you a cogent answer as to why Doreen Taylor and the other witnesses, low paid award workers in general, should get less than inflation and should get less than the rest of the community.
PN2416
But not one of them - not one of them disputes our analysis that that is what their proposals do. None of them go in any way to the witness evidence in their oral submissions. ACCI sort of had this glancing sort of pass at it, but the fact is the witness evidence gives you a real understanding of the fact that $24.60 is not a lot of money and yet not one of them provides a cogent reason why their proposals are fair. The ACCI case essentially turns on an assessment that economic prospects are not good and that there is international uncertainty.
PN2417
This is essentially the same proposition as the ACCI has advanced in every one of these safety net reviews since 1998. I will just give the Commission the references. In the 2002 decision the essentially same submission was made at paragraphs 24 and at 63. In the 2001 decision, at paragraphs 24 to 26 it is recorded. In the 2000 decision at paragraph 18 and then again at paragraph 37C and D. In the 1999 decision at paragraph 16 and in the 1998 decision at paragraph 6.1 at the top of page 13.
PN2418
Every time they come here, "The economy is not doing that well. Next year it will get weaker and there is a bit of international uncertainty around so it is not time for a pay increase or it is not time for a decent pay increase." It is also worth noting that in an economy which is growing strongly, as the Prime Minister said, ACCI argues for no increase, whereas in 2001 in an economy which had just had a negative quarter of GDP growth, they argued for a $10 increase in the Federal minimum wage.
PN2419
The submissions of Dr Kates for the ACCI in particular are characterised by three things. A series of inaccuracies, misrepresentations and outright falsehoods; a complete failure demonstrate any adverse economic impact from last year's safety net adjustment; and significantly, despite continued obfuscation on this issue and much talk of current softening of circumstances this year, he does not disavow his forecast for stronger GDP growth in 2003/4.
[12.25pm]
PN2420
I will give you the reference to that last point now, and I will return to the first two. The reference to that last point can be found at paragraph 966 of the transcript. Next, the inaccuracies, misrepresentations and outright falsehoods. Here they are, necessarily in summary form, and necessarily not as complete as we would like. But at 953, 957 and 1008 Dr Kates referred to an international recession. At 945, 953 and 954 he asserts that Japan is in a recession. Both assertions are central to his proposition about the international outlook. Both assertions are wrong. OECD, and you will recall their national accounts data, shows us growth for 2002 in the US, 2.9 per cent.
PN2421
The euro area, 1.3 per cent. Japan, 2.8 per cent. Successive quarters in Japan of 0.1, 1.4, 0.8, and 0.5 per cent growth. The G7 area, 2.4 per cent. The OECD area, 2.6 per cent. China, 8.1 per cent. Hong Kong, 5.0 per cent. India, 5.8 per cent. Indonesia, 3.8 per cent. South Korea, 5.8 per cent. Thailand, 6 per cent. There is not a world recession. Dr Kates is an economist. He knows what a recession is. He knows that a recession is. It is two quarters of consecutive negative growth, and yet he comes to this place and six times falsely asserts an international recession or a Japanese recession. It is just not good enough.
PN2422
The repeated assertion of a falsehood does not make it an approximation of the truth. In his written submissions, and at paragraph 922, 928, 1009, 1022, 1023, 1024, 1042, 1194, 1196, Dr Kates repetitively asserts that the market sector is an approximation of the private sector. This is a falsehood which does not approximate the truth. As we said in our supplementary submissions, total employment is actually a closer approximation of the private sector than the market sector. This was something Dr Kates was asked about at 930 and failed to deal with. Dr Kates says:
PN2423
There is no economic data which corroborates the recent good employment numbers.
PN2424
What about this? 97 per cent of the economy is still growing at 4 per cent. What about this? Total business fixed investment expenditure rose by 18.9 per cent over the year, a figure which he acknowledges is very good, including a non-dwelling construction investment up by 36.0 per cent over the year. And what about this? Job vacancies, ACTU10, Sixth publication, ABS 6354. Private sector job growth in job - sorry, job vacancies growth, 5.4 per cent for the quarter, 21.3 per cent for the year, and the seasonally adjusted numbers are even better, and I will get to them later. At paragraph 987 Dr Kates says:
PN2425
The only reason that in each September there is a spike in the wage cost index is because of the safety net adjustment.
PN2426
That is not what the ABS says, and that is quoted by the ACTU in ACTU4 at R3.8, and indeed, it is a comment which the Commonwealth quote as well in their submissions, and in previous publications the ABS has made the comment that 30 June pay increases actually make a substantial contribution to the September quarter number. He describes growth in estimated capital expenditure of 4.5 per cent as weak, and ignores that the current first estimate is at a record high level, and that it follows an extraordinary year.
PN2427
He twice described investment as falling, and twice had to be corrected, and that is at paragraphs 1071 and 1075. In tables 14 to 19 in ACCI3 Tag 1, he produces labour force data. Each table contains a March quarter figure which is made up. There is no March monthly figure, and so you can't get a March quarter figure. In addition, at paragraph 1134 and at 1145 he describes table 14, or the equivalent in his later exhibit, as showing a participation rate. It is not the ABS participation rate. It is not the published participation rate.
PN2428
It is evident, I think, that Dr Kates intended to address the Commission on the alleged break in the labour force series without ever dealing with the fact that the ABS have subjected those figures to analysis, and say that there is no break. At any rate, he dealt with this issue for about 40 paragraphs of transcript, and at 1128 to 1132 took the Commission to the January caution, without dealing with the subsequent February publication clarification until he was specifically asked a question. At paragraph 1107 he refers to CPI being at the higher end of the Reserve Bank range. He ignores that the Reserve Bank say that underlying inflation is at 2.5 per cent.
PN2429
At paragraph 10.96 he asserts that the prime cause of inflationary movements are increases in the cost of labour productivity. Provides no support for that assertion. What does the evidence actually show us? Wage cost index, 3.4 per cent. Productivity growth, 2.2 per cent. Inflation, 3 per cent. Those numbers just do not add up. It is demonstrably false. At 1460 he asserts that in the UK only the wages of 3 to 4 per cent are raised by the minimum wage. In fact, at page 12 of the Low Pay Commission report it shows that the correct figure is between 4.5 and 6 per cent on the current minimum wage, and that percentage is to be increased with the current up-grading.
PN2430
At 1551 and 1557 Dr Kates goes to the NATSEM report. He dealt with the own business category, but again failed to acknowledge the caution NATSEM say should be exercised in relation to this category. These are not small things. Some of them go to the heart of Dr Kates' analysis, and they are just wrong or misleading. Dr Kates has failed, we say, to demonstrate any adverse impact from last year's safety net adjustment. The wage cost index graph to which you have been referred shows the spike in September, which as we say he false asserts is entirely due to safety net increases.
PN2431
But the mis-characterisation of our submission is made clear when one considers what we do when we undertake our costing. We don't say you can increase wages and not have an impact on wage costs. That is why we do a costing which calculates the percentage increase in wage costs as a result of our claim. So it is not as though there is any magic to what he does. We just say that the impact by reference to the previous year's adjustment is moderate and negligible. Dr Kates goes to the market sector hours data. As we have said, he has consistently misrepresented the degree to which that represents an approximation of the private sector.
PN2432
He goes to the labour market data released by the ABS in labour force, and in our submission has abjectly failed to cast serious doubt on those figures. He goes to inflation and current account figures and makes the assertion that the safety net has had an impact or a substantial impact without anything more. In fact at 1302 one gets close to a concession when Dr Kates says that the evidence is necessarily circumstantial and inferential in relation to these two matters. In fact what it is is non-existent.
[12.35pm]
PN2433
JUSTICE GIUDICE: Mr Watson, I had intended to adjourn at 12.30.
PN2434
MR WATSON: Yes.
PN2435
JUSTICE GIUDICE: Is that a convenient time?
PN2436
MR WATSON: That is as convenient at anywhere, yes, your Honour.
PN2437
JUSTICE GIUDICE: Yes, all right. We will resume at 1.30.
LUNCHEON ADJOURNMENT [12.35pm]
RESUMED [1.30pm]
PN2438
JUSTICE GIUDICE: Mr Watson.
PN2439
MR WATSON: Yes, thank you, your Honour. Your Honour, Vice President Ross, asked me a couple of questions before I started. ABS6306, I understand we have been able to provide an electronic copy of that to members of the Bench. I think I see a photocopy being handed around but at any event. I don't know, your Honour, whether it is appropriate for that to be marked in any way.
PN2440
JUSTICE GIUDICE: When you say provided an electronic copy, what do you mean?
PN2441
MR WATSON: Well, as I understood it we had a copy on a CD which we have provided to your Honour's associate.
PN2442
JUSTICE GIUDICE: Yes.
PN2443
MR WATSON: I am sorry, which is currently being copied.
PN2444
JUSTICE GIUDICE: Yes, we will mark it.
PN2445
PN2446
MR WATSON: While I am on the ABS data, your Honour, the President, asked me a question about the seeming disparity between the percentages at particular skill levels, 75 per cent of award only employees being classified below trades in terms of skill and the corresponding - if I can put it that way without torturing the word "corresponding" - percentage of employees below trades being only 40 per cent. We did consider this issue a little ourselves and had a discussion with the ABS regarding this issue.
PN2447
There is not a complete explanation, I think, your Honour, but part of an explanation I think lies in the fact that the concordance, if you like, between skill classification levels under the ASCO system and wage rates, is not a perfect one. So that, for example, some people classified as intermediate production and transport workers, whilst for the purposes of ASCO they would be considered to have skills below that of a trades rate in terms of the award system even, they may have award rates which are beyond the trades rates, and there are a few intermediate clerical sales and service workers is another category where that phenomenon might occur.
PN2448
But, nonetheless, it is difficult to see that explaining the entirety of the gap and as to that in essence neither ourselves nor the ABS are able to provide you with much more assistance.
PN2449
JUSTICE GIUDICE: It is a genuine mystery.
PN2450
MR WATSON: Yes, I think so, your Honour. The final matter, then, just before I return to where I was. Your Honour, Vice President Ross, asked another question regarding the research of Anthanasopoulos and Vahid. We have looked at that over the luncheon break. As we understand it their conclusion is that they find an increase in inequality between various groups classified by labour force status in the period 1993-94, 1998-99 and they find that that is statistically significant. The groups are full-time, part-time, self-employed, unemployed and not in the workforce. They evidently don't find the statistically significant increase in income inequality between groups - within groups, I am sorry, for the same period.
PN2451
Can we make just two observations about that. The first is that the first comment in relation to the increase in income inequality between the various groups as we apprehend it is no more than that. It doesn't give a clear indication as to between which groups the increase in inequality occurred. And the second thing we would note is that whilst income inequality may not have increased significantly on a within group - statistically significantly on a within group basis for that period, we would note, as we have on a number of occasions previously, that - and, indeed, as the Commonwealth concede - that earnings inequality continues to increase in a statistically significant way.
PN2452
VICE PRESIDENT ROSS: So do I take it from that you don't contest their conclusion or their suggestion that the upward trend in inequality may have levelled out in the late 90s, but you point to the earnings dispersion, it has continued?
PN2453
MR WATSON: Yes. Well, the conclusion at 912 and, indeed, the Commonwealth's conclusion at 913 can be put no more than as cautious statements about what may or may not have occurred. It is not that there is no movement. It is that there is no statistically significant movement and so the proper conclusion one draws is that there may or there may not have been. One can't be certain.
PN2454
VICE PRESIDENT ROSS: The only thing you can say is there has been no statistically significant movement?
[1.38pm]
PN2455
MR WATSON: Yes. Could I go back to where I was? I had been dealing with the ACCI submissions in relation to the alleged effect of last year's increase on various macro-economic data and I had concluded by saying that in our submission there was simply, in fact, no evidence of an adverse impact. In our submission then that does mean that the only evidence on which ACCI can rely is its survey. You get a little bit of a sense where the ACCI are coming from in their reply submissions but the oral submissions, we think, just absolutely gave the game away.
PN2456
The ACCI is so convinced of the effect for which they contend that they don't actually see the need to worry about statistical robustness or accuracy, and indeed if those things happen to suggest that your results are flawed, then so far as the ACCI is concerned, you just ignore it and keep on asserting. At paragraph 1319 of the transcript Dr Kates defends the use of Australia wide weights because the ACCI membership, he says, goes to every section of the Australian economy.
PN2457
But I just, in this regard, remind the Commission of the sample size we are talking about here. We are talking about 173 firms and it is implicit, we think, in Associate Professor Gordon's analysis that he thinks ACCI should have waited for their membership and could not properly wait for the entire economy. On non-response bias in essence the submission of Dr Kates is that we don't have to check it because it is not there. That is not a robust approach. His reasons don't withstand scrutiny.
PN2458
He says, in effect, it is a survey on the economy and people were not alerted in the covering letter to the existence of the safety net survey. That assumes that people don't flick through the survey before they answer it. He goes on to say that you can have the sort of confidence that he says you should have in the results because 95 per cent of people who did complete the investor part of the survey went on to do the safety net survey. Well, again in this context can we just remind the bench that on the issue of employment effects the difference between the number who report a positive effect and the difference that - and those who report a negative effect on employment is less than 5 per cent.
PN2459
So 5 per cent might not seem very much, but when you are measuring incredibly small proportions, which are themselves even quite apart from non-response, by a subject to significant degrees of statistical inaccuracy, if there is a 5 per cent non-response bias, if there is a non-response bias in that 5 per cent who did not answer, then that is something that is significant. The fact is the ACCI do not know and cannot assert that there is no non-response bias. It is not something that you can just assume away.
PN2460
At paragraph 1354 to 1356 Dr Kates asserts that the similarity of the results in question 1 of the survey shows the voracity of the survey and he says that this is a basis for disagreeing with the comments of Professor Gordon regarding this issue. There is a change in the percentage responding to that question from 47 per cent to 41.2 per cent in the number of firms who say they were directly paying safety net adjustments.
PN2461
This is the similarity on which Dr Kates hangs his hat so far as Professor Gordon's comments are concerned. Can we further note that if you compare the percentage of employers who say that they paid a safety net with the percentage of award only employees, you get a highlight of the problem about using percentages of employers to draw any conclusions about employee numbers. 4.12 per cent say they directly paid the safety net. The ABS says the percentage of award only employees is 20.5 per cent, a salutary lesson in why employer percentages give misleading pictures.
PN2462
At 1368 Dr Kates concedes that with the band width of the confidence estimates for the survey results on employment, there may have been a positive balance of firms reporting employment increased. He says, "But to get that you have got to torture the statistics", is not a torturing of the statistics. If you have got two very broad confidence intervals then the true value can lie anywhere in that interval. Indeed it can lie outside it, although the probability of that is smaller.
PN2463
And you can't say it is more likely to be at one point in the interval than any other. Now we note also that at page 1115 and 1116 of ACCI2, the survey shows that over 3 per cent of firms who did not pay a safety net increase attribute a fall in employment to the increase, either generally or full-time, the results are the same for both. Dr Kates' answer to the seeming logical inconsistency of that question, at 1424 and 1425 of transcript, is unconvincing. He says:
PN2464
It might be people who had to raise wage rates to keep staff to match safety net adjustments down the road.
[1.45pm]
PN2465
It is not a function of the safety net increase at all, if that were the circumstance, but really we think what it shows is that just like the retail motor industry survey, there are a certain percentage of employers who will respond that an adverse impact has been felt as a result of an award increase whether logically it could or not.
PN2466
Dr Kates refers to the Low Pay Commission survey, and we note that in that reference - and this is something in common with the AIG - ACCI and AIG are very keen to refer to the Low Pay Commission survey, but they have not even gotten near the macro-economic statement which showed no employment effects. Very keen to go to the survey and say how that bolsters their own approach, but they don't even go near to the macro-economic study which qualifies the survey results and makes clear that the survey results don't give you the full picture.
PN2467
The macro-economic study says no net employment effect. The survey results then suggest that in effective firms and in responding firms you get certain effects reported at higher levels than for the rest of the community. In the end, on a fair assessment, we say the results of the survey simply do not constitute cogent evidence of anything. Can I make one or two other points regarding some of the matters ACCI advance. At 1490 Dr Kates says this:
PN2468
I would say that overwhelmingly no business can survive if its employees cannot - do not do what they can to improve the bargaining, improve the productivity enterprise...
PN2469
Now, not quite a sentence, but it gives you a sense of what he was saying. This gives the lie to the constant and repetitive assertion, including in the ACCIs opening at 845, that the vice of award wage increases is that they are not matched by productivity offsets. Now, in relation to this, I don't want our submissions to be misunderstood. We have gone at some length to the question of whether or not real unit labour costs have increased; that is, whether real wages have increased more than productivity. We have gone that to demonstrate the falsity of the propositions which are advanced against us, but we do not say that wage increases can only be funded by productivity growth.
PN2470
If there is growth in the gross value added of an industry, then an increase in wages can be funded with affecting the employment, without a productivity increase and without affecting the product's profit share. And indeed, you can fund an increase in labour costs at greater than that level if you are prepared to countenance a decrease in the profit share, and in that regard we would note that currently the profit share is at its highest ever level.
PN2471
Now, just to give you some idea of the growth in gross value added in award-dependent industries 1996-2002, in accommodation, cafes and restaurants 32 per cent, in retail trade 28.1 per cent, in health and community services 25.8 per cent. These are significant numbers.
PN2472
In relation to the productivity number, we note that in his discussion of productivity, Dr Kates, when it came to the question of average productivity, made a swift move back into the overall productivity number and away from his preferred market sector because, of course, market sector productivity is 3.8 per cent, it is higher than the 2 per cent on which he relies on an across-industry basis.
PN2473
At paragraph 841, Mr Anderson submitted that the Commission should be loath to award our claim because one of its effects would be the increase in award rates as high as $980 per week. This is a constant theme of ACCI submissions and indeed press releases. We just remind the Commission that 80 per cent of award-only workers earn below the median earnings. About two-thirds are in the bottom third of the wages distribution. There are less than 4 per cent who earn of the order of $980, and in respect of those people, if our claim is successful, they will get a 2.5 per cent wage increase, well below community averages.
PN2474
At paragraph 844 we note that Mr Anderson professed concern for the not-for-profit sector. We contrast that with the position of ACOSS and the ACCER who might be said to more fairly represent that sector, and their strong support for our claim.
PN2475
Finally, can we note this. ACCI want to have it all ways on the question of aggregate costs. At 1523 Dr Kates says he has great difficulty with aggregates, he doesn't really believe in them. At 876 Mr Anderson says that they are relevant, but not as relevant as they used to be. Although then at 840, one of the first things he wanted to tell the Commission was that the aggregate increase in the wages bill was 2.2 billion as a result of our claim.
PN2476
Can we note this in relation to the aggregates. We look at the aggregate effect and then we look at the sectoral effect and we look at the individual effect, and the argument of Mr Anderson just simply does not stack up. His argument is that the Commission should guard against the notion that, as the proportion of award workers shrinks, it can award an increase of increasingly excessive nature. What he fails to note is that in the last three years - that is, for the second successive year - our claim in these proceedings has dropped.
PN2477
The suggestion that somehow or other we are hoping that the decreasing aggregate effect will allow more outrageous claims, could hardly be further from the truth. Our claim is for $24.60 and for 4.4 per cent on average for award workers. That is hardly outrageous.
PN2478
AIG commenced its submissions with an economic assessment. We pointed out in our opening oral submissions that there was a consistent AIG fudge regarding whether you looked at the calendar year 2003, or the financial year 2003/4. At 1572 of transcript AIG respond by saying:
PN2479
It doesn't matter whether you consider the calendar year or the financial year, things are just very bad.
[1.52pm]
PN2480
In this, we would submit they are alone. MYEFO, as we have noted, predicts a bounce back to 4 per cent in the financial year, after a moderation through this calendar year. We note that Dr Kates in effect does the same. We note that more recently, and this is the issue in relation to the suggestion that somehow MYEFO is out of date, and that somehow something dramatic has changed since Dr Kates made his first forecasts. More recently, ABARE in its March publication, which is attachment 2 to NFF2, ABARE say at the height of the war, or at least uncertainty about the war, at the height of the drought, they say growth is expected to rebound to 3.8 per cent in 2003/4.
PN2481
We note also while we are here, because again it impacts on the AIG assessment, that ABARE, in that same document at page 5 of the document, and I don't know whether I gave the reference to the ABARE growth figure for Australia. It is page 14. At page 5 of the document they deal with world economic growth. Now, world growth figures tend to be in calendar years, but they give you a bit of a sense. 2.6 per cent in 2003, lifting, say ABARE, to 3.4 per cent in 2004. In Mr Moir's submissions, on this aspect of things, he took you actually to one figure which we think makes good our point, and I do just want to take the Bench to it.
PN2482
It is AIG1, and it is chart 3 on page 16. I actually think the chart might be on page 17. There is the annual change in manufacturing exports, and Mr Moir went to this and he said, "Look, you know, you can see here that the next few quarters are down below the line." Well, yes, they are. The next - the March quarter and the June quarter are below the line. What happens in June? What happens when the next financial year starts? We go back above the line. Now, they are forecasts, obviously, but the fact is that when Mr Moir submits to you, "Look, you don't have to worry, there is really no difference between the bleak outlook for 2003 and the suggestion of what might occur in 2003/4." His own data suggests that that is not the case.
PN2483
JUSTICE GIUDICE: What is the chart number?
PN2484
MR WATSON: Chart number 3, your Honour.
PN2485
JUSTICE GIUDICE: Yes, the blue ones being expected forecasts.
PN2486
MR WATSON: Yes.
PN2487
JUSTICE GIUDICE: Is that right?
PN2488
MR WATSON: Yes, your Honour, it is. Now, at 1595, Mr Moir made some submissions regarding the Low Pay Commission recommendations. He said that they were made before the war. Well, the report specifically refers to the prospect of the war, and it was released on 19 March, as we apprehended either after the war had commenced or on the very same day. It is a bit hard to tell. How we found out about it was someone watching footage of the UK Parliament at the time that war was being announced, and there was a reference to the Low Pay Commission report.
PN2489
Further, Mr Moir submits that the report has not been accepted by the government. That is contrary to our understanding. It definitely has. Now - - -
PN2490
JUSTICE GIUDICE: Has it been implemented? It hasn't been implemented, has it?
PN2491
MR WATSON: No, your Honour, because they are October. October up ratings.
PN2492
JUSTICE GIUDICE: The government has indicated that it intends to - - -
PN2493
MR WATSON: Yes.
PN2494
JUSTICE GIUDICE: - - - implement the report.
PN2495
MR WATSON: Yes. Now, subject to - implement the report, subject of course to Mr Cole's comment that in relation to the second of the up ratings the recommendation is actually for a review closer to time.
PN2496
JUSTICE GIUDICE: Yes.
PN2497
[2.00pm]
PN2498
MR WATSON: Yes. The next aspect of the AIGs submissions that we need to deal with is that they simply do not understand what we mean by incidence of effective marginal tax rates. It is apparent from the submissions, orally and in writing, and it sort of became crystallised in the course of the submissions, that they just don't get it. At 1633 to 1634 Mr Moir says, in relation to this issue, "Well, we have selected all the different kinds of household type in annexure A, and what those household type charts do is they show a range of incomes, so therefore we can tell you what is happening about wage and salary earners."
PN2499
But the fundamental lack of understanding is that it tells you nothing about how many people are where on those charts. Even within a group, let alone as between groups. It is a - the X axis is an income, increasing income scale, but you have no idea whether everybody on the X axis is at one particular income or another, or they are distributed evenly across, and so on the basis, as we say, on the basis of the AIG material, you get nothing, absolutely nothing about incidence. But having fundamentally misunderstood in that way, at 1631 of transcript Mr Moir asserts:
PN2500
Many households ...
PN2501
he says -
PN2502
Many households, low income households, have effective marginal tax rates of greater than 60 per cent.
PN2503
At 1637 he says:
PN2504
All of this...
PN2505
having discussed annexure A, he says -
PN2506
All of this inevitably leads to the conclusion that many low income households do not receive a substantial benefit.
PN2507
That is not what NATSEM say, and I didn't go to this opening because I thought it was pretty clear, I have to say. But can I take the Commission to our original submissions, paragraph 794, and table 7.3 embarks on, if you like, Mr Moir's classification. It breaks people up into family type. All right? But what it does is it tells you how many people, what percentage in each family type face what sort of effective marginal tax rate. So you can see that the assertion, for example, that amongst couples with no children that many people face an effective marginal tax rate of greater than 60, that assertion is patently not so.
PN2508
Now, the assertion is true in relation to sole parents. 51 per cent. But this is incidence by family type across the income deciles. If you go over the page to table 7.5 and table 7.6, you get a breakdown by decile of gross family income. Table 7.6 provides a useful summary. It is based on the more elaborate data in 7.5. What does it show? In the first decile 79 per cent of all families in that decile have an effective marginal tax rate of less than 40, less than 40 per cent. 83 per cent have an effective marginal tax rate of less than 60, and you can go, as you see, across the first four deciles of income, and we have put the average gross family income at the bottom there.
PN2509
You can go across the first four deciles of income, and what is transparent? It is that in every instance more than 80 per cent of the individuals in those deciles face effective marginal tax rates not exceeding 60 per cent. The basis for the claim advanced repetitively by the AIG on this issue is simply not to be found in the NATSEM study on which they rely. At 1639 and at 1651 Mr Moir submits that a large safety net increase results in a net detriment, and then goes on to say that a smaller increase will result in less detriment.
PN2510
Now, so far as he is speaking there about the issue of claw-back, if I can describe it in that way, of income, that proposition simply is not sustainable. The proportion of a wage increase which will be taken back will be essentially the same, whether it is a large increase or a small increase. But more precisely, in relation to this issue there is simply not a detriment. Even on the worst case an employee gets something. Now, in relation to the AIG survey, Mr Moir effectively conceded most of our issues, I think, but at 1659 he does again go to this notion that there were responses from over 600 companies.
PN2511
I would just draw the Commission's attention to the fact that only 484 of them were Federal award, and only 213 had an employee who received the safety net adjustment. So many of the figures which are pointed to in the results of the survey are not the 600 he describes, but the 213 or the 484. Like Dr Kates, Mr Moir at 1660 is very happy to refer to the Low Pay Commission's reliance on survey evidence without properly addressing the issue that the Low Pay Commission did analyse non-response bias and that the Low Pay Commission do not rely primarily on survey evidence for employment effects.
PN2512
In our submission, whilst he accepts the methodological problems of his survey, at 1659 to 1662 it is clear that Mr Moir has failed to understand the problem of non-response bias, and similarly at 1692, where he in effect mis-states what non-response bias is in developing his alleged non-sequitur re bargaining. This is the notion that if we are saying that the non-response bias is that people who were affected by the safety net were more likely to respond, then this means that people who were bargaining would be less likely to respond. That is not what non-response bias is, per se. It is one example of it.
PN2513
His final assessment is that the survey results are nonetheless credible in relation to, particularly, the issue of the impact of safety net adjustments on bargaining. As with all of the survey results it is nice to have a kind of reality test, and the reality test in this case, in our submission, is whether or not the Commission has been flooded by a series of agreements which provide for $18 increases; whether the Commission has been flooded by a series of agreements which provide for a 4.4 per cent increase, which was last year's increase at the minimum wage; or whether they provide for a 3.3 per cent increase, which is what we say was the average.
PN2514
In our submission, commonsense tells us all that there has simply been no outbreak. The proposition that somehow or other safety net adjustments fuel excessive wage demands is simply a nonsense. Can I turn then, to the NFF. I want to start by making a number of observations. I should say this. As the NFF dealt exclusively with the drought, in replying to the NFF I will deal generally with drought issues, and can I make a few propositions which we say emerge from the evidence. Firstly, contrary to the NFFs assertion an economic bounce-back in the farm sector does not require above average rainfall, it requires what is described as a return to average seasonal conditions. The NFF have asserted that it requires above average rainfall. That is not - and I will come to the references soon - that is not what others say.
[2.10pm]
PN2515
Secondly, when looking at the March rainfall distribution chart which was tendered yesterday, and the rainfall probability charts, it is important to bear in mind which areas are actually affected by areas for exceptional circumstance assistance. Thirdly, whilst the drought may be one of the worst in terms of rainfall in a hundred years we do contend that its economic effect on farmers and rural communities has been substantially ameliorated by the strength of the financial position of farms going into the drought, and fourthly, all of that said, we accept that there is hardship, but we say that hardship should be judged at the time of an application to vary an award.
PN2516
We accept that it should be adjudged according to objective criteria and we accept that the Commonwealth schemes provide some basis for doing this. We do not accept the NFFs proposed change to the principles, and this is something I will come to in some more detail later. At paragraphs 1714 to 1744 - or it might be 1740 and 1744, Ms - and in NFF - and in the tendering of NFF3 Ms Harris asserts that there is a need for medium rainfall for autumn to be exceeded in significant terms for drought to break. That may well be right in terms of the drought breaking, but we note though that the MYEFO forecast of an economic bounce-back is only based on a return to average seasonal conditions in 2003-04 and that can be found at page 47 of ACTU3.
PN2517
It is also to be found in the Grains Research Development Corporation Report released this week, where at paragraph - at page 2, at about .5 of the page they say:
PN2518
A return to average seasonal conditions for autumn 2003 would be expected to result in grain producing rebounding strongly in 2003-04 as it has done previously following similar widespread droughts in 94-95 and 82-83.
PN2519
JUSTICE GIUDICE: Did anybody predict the severity of the drought?
PN2520
MR WATSON: In terms of last year's case or at all?
PN2521
JUSTICE GIUDICE: At all? I am not in any sense being critical but I am drawing attention to the fact that all of these estimates what is likely to happen and not to happen are probably subject to a good deal of qualification.
PN2522
MR WATSON: Indeed, your Honour.
PN2523
JUSTICE GIUDICE: And you are not the first to refer to the estimates in which it is likely to happen. I suppose there is a significant element of uncertainty, whatever else one says about it.
PN2524
MR WATSON: Yes. You can't - yes, your Honour, you can't say that there is not a significant element of uncertainty, but as in all of these things, in our submission the Commission has to make a judgment, based on the best material it has available to it, about likely outcomes.
PN2525
JUSTICE GIUDICE: Yes, and it is perfectly appropriate to draw our attention to the best material.
PN2526
MR WATSON: While I have just got the report open, ACT11, I will just go to the other matters on which we rely on it. In the next two paragraphs can we note that there is a reference to the number of mixed livestock and grain producers. We draw the Commission's attention to those two paragraphs because in our submission it is important to bear in mind the existence of such farms in relation to the emphasis placed in the submissions of the NFF on the likely slower bounce-back for livestock farms at 1763 and 1766.
PN2527
Finally, can I go to - or actually - and ultimately can I go to paragraph 8 - page 8, rather, and the Commission will see that at paragraph 3:
PN2528
Hired labour costs continue to be a relatively minor cost component averaging around 3 per cent of total cash costs. Hired labour costs as a percentage of total cash costs have remained at below 5 per cent of total cash costs for the past 20 years.
PN2529
Now, I accept that this is grain farms. We are not here talking about all farms generally. At page 8 still, the second paragraph under Farm Cash Income:
PN2530
In 2002-03 receipts from grain sales are forecast to fall by 45 percent and despite reductions in expenditure on crop harvesting and marketing, fuel, fertiliser and repairs and maintenance, average farm cash income for the grains industry is forecast to fall by 78 per cent. However, this is a fall from a record farm cash income in 2001-02, the highest recorded in the past 26 years.
PN2531
And then over on to page 9 under the heading Debt and Equity the second paragraph:
PN2532
Generally farms enter the 2002-03 in a relatively strong financial position. Several successive years of above average financial performance prior to 2003-03 enabled many grain producers to build up the cash assets that they maintain to meet short-term funding commitments. These cash assets include farm management deposits. Grain industry farms entered the drought with an average of almost 125,000 in cash assets for the equivalent of a typical year's farm cash income. As a consequence, provided the drought is not prolonged beyond autumn 2003, increases in debt may be less than in previous widespread drought.
PN2533
Now, that last point in particular, we say, goes to the question which we - or the proposition that we have put a few times, which is that one has to distinguish between the severity of rainfall deficiency and the severity of economic impact. Can I go back though, now - having gone through that document, go back to the issue of rainfall.
PN2534
[2.18pm]
PN2535
VICE PRESIDENT LAWLER: You don't say it hasn't had a severe economic impact, do you?
PN2536
MR WATSON: No, no, no. We don't - - -
PN2537
VICE PRESIDENT LAWLER: You don't say that?
PN2538
MR WATSON: We don't say that, no. We don't say that. We say it has been substantially ameliorated by the - in comparison to previous droughts by that.
PN2539
VICE PRESIDENT LAWLER: Well, it has been ameliorated to the point that it hasn't had a substantial adverse economic impact?
PN2540
MR WATSON: No, no, no, no. It has had a substantial adverse economic impact and we come - we will come to how we think it should be - that adverse economic impact should be dealt with in the context of these proceedings. Can we first though note that on the issue of rainfall, and I won't actually take the - I won't actually take the Commission to the documents, but we do just say that when you are considering NFF3 and NFF4 which show an Australia wide map with rainfall in March and the probability of above median rainfall for the period April to June what, in our submission, needs to be borne in mind is attachment 8 to NFF1 which actually sets out those areas which are the areas where applications can be made for exceptional circumstances relief.
PN2541
And you will find that a significant proportion of those areas - we don't say all by any means - but a significant proportion of those areas now fall within this part of the world which has had both average or above average rainfall in March and is predicated to have average or above average rainfall - this part of the world - predicated to have average or above average rainfall in April to June. Our next point is this, that in relation to evidence regarding the timing of the drought bounce back, in our submission the Reserve Bank, ABARE and the grains industry - Grains Research and Development Corporation are all relatively unequivocal about the rapidity of a turn around if the drought does break.
PN2542
Now we accept that it is based on that presumption. At 1789 Ms Harris claims to be confused about our contention regarding the farm sector constituting only 3 per cent of Australia's economy. She would be less confused if she read NFF attachment 2, which is the ABARE report, at page 15, the second column at about point 8 of the page where they quote precisely that figure. At paragraph 1810 she submits that the NFF was not aware of the drought at the safety net review. That is right, they weren't, but they were aware of it when they consented to the $18 increase and they were aware of it in the Pastoral Industry Award and they were aware of it when they considered to bring forward the operative date in that award.
PN2543
We note that Ms Harris continues to persist in relying on decline in total employment numbers rather than dealing with the question of employees. We note that latterly the Commonwealth have provided the Commission with information regarding the February to February period. It is right that there has been a decline in the number of employees in the February to February period, but it is also right, as we contend, that there has been an increase in the number of employees in the last two quarters. This leads to two other issues.
PN2544
The effect on non-farm businesses, about which the NFF made submissions and about which a number of others made submissions, and the proposed change in the principles. We do submit that effects on non-farm businesses will have been ameliorated to some degree by the fact that farmers went into the year with higher incomes and higher cash reserves. We next note though that we have been provided with information regarding the Commonwealth's Small Business Assistance Scheme, but we have not been provided with any indication of the numbers affected by the scheme.
PN2545
Now we can't do anything more than speculate, but we suspect, on the basis of the information we have, that that is because the numbers of small businesses who have accessed that scheme are actually very small. We have obtained information from State Labour Governments. In relation to Queensland they say that there are 40 businesses in Queensland who have applied under the Commonwealth scheme. No other state has been able to provide us with numbers in relation to the Commonwealth scheme, but two other states have their own schemes.
PN2546
Victoria provides a financial counselling service for non-farm small businesses affected by the drought. We are advised that 25 businesses have accessed that counselling. New South Wales has a state scheme which again provides assistance to various categories of recipient. One of those categories is essentially non-farm small businesses and there are 41 applications, as we understand it, in relation to that scheme.
[2.26pm]
PN2547
JUSTICE GIUDICE: Ms Harris did give a figure for the federal scheme, didn't she?
PN2548
MR WATSON: She gave a figure for farmers who have applied; 7000 farms have applied under the scheme, yes. I am here addressing the question of non-farm small business, the separate scheme.
PN2549
JUSTICE GIUDICE: Yes, yes.
PN2550
MR WATSON: That then leads to a consideration of the proposed change to the principles, and we say in relation to these things, we accept that they are nonetheless - notwithstanding all I have put, we accept that there are still instances of real, real hardship, we accept that. And we accept that they have to be dealt with. We say that the appropriate time to consider that issue is when awards are varied so that we are not prospectively making an assessment about the circumstances in which businesses, both farm and non-farm, will find themselves and then much later down the track varying awards.
PN2551
We have a particular concern and oppose vehemently the notion that there should be any automatic 12 month exemption from the right to pay safety nets in the event that a business meets the particular criteria that the NFF indicate, and we think that the current economic incapacity principle is appropriate to deal with this. But we make this statement and we place it on record and alert the parties to it: we accept that where businesses have accessed the Commonwealth funding that is referred to in the materials that NFF have, we accept that they have met a strict criteria about hardship and we accept that in the ordinary course that would be a compelling case for economic incapacity.
PN2552
But that, we think, should be dealt with on that basis. It should be a matter that is subject to review as the year progresses and it needs to be clear in our submission that any comfort given to businesses ought not to just go on and on if they have got access to two years of interest rate amelioration. So we accept that there is a real issue. We accept that prima facie, as the NFF have put, we accept that if you meet the strict Commonwealth criteria, that is an important thing. We don't think the appropriate way is to amend the principle per se. We think that the appropriate point at which to judge these things is when awards are varied.
PN2553
In relation to the retail motor industry survey - well, submissions, I only want to address the survey. Broadly, in our submission, Mr Chesterman concedes most of the criticisms that we make of the survey. A first point to note though which is not a matter about which we had any criticism, but which we think is noteworthy, is that 86 per cent of Mr Chesterman's non-metro businesses evidently rate conditions as neutral to very good, and that can be found at page 14 of the survey.
PN2554
But more specifically in relation to our criticisms of his survey, at 1945 Mr Chesterman concedes that the person who is talked to by the surveyors may not have actually known what they were talking about. At 1953 he says of our criticism about state registered agreements that it is not his experience that people ever utilise them. It is not perhaps really surprising that the VACC doesn't do it, but Queensland, South Australia and New South Wales have extensive state jurisdictions and it might be expected that sometimes employees are covered by state registered instruments in those states; at least the survey should account for that possibility.
PN2555
At 1965 he says that we overstate things when we say that the decline in the number of employers recorded passing on safety net increases was from 46 per cent in 2001 to 14.3 per cent in 2002 because, he says, the true figure for 2001 is 31 per cent. We accept that the 31 per cent figure is accurate. Our proposition that there is a substantial decline remains unaffected.
PN2556
At 1970 he deals with our criticisms regarding businesses with no employees. He says that an explanation for that, consistent with something Dr Kates said in fact, is that a business might have had employees at the time of the safety net and lost them by the time of the survey. Well, there are a couple of points to make about that. Why not then ask those businesses all of the questions in the survey? In fact, what the survey did is leapt from that question, the question about employees, leapt over all the questions about safety net, flow and all of those things and straight into question 6. That is the first point.
PN2557
The second point is to note that the percentage of businesses with employees as recorded by the survey has not changed as between the two years. It was 8 per cent in 2001 and 8 per cent in 2002 and they were both of sample sizes, just over a thousand.
PN2558
At paragraph 1971 he accepts though in part our criticism and says that next year he intends to filter them out of the survey. We would ask him not to because we think they are the equivalent of the placebo in a medical experiment. These are the people who have been taking the sugar pill, but somehow or other still exhibit an effect, and we think for any credible sort of process of analysing these results, it is absolutely critical that the retail motor industry continue to administer the placebo.
PN2559
Can I turn to the Commonwealth? At paragraph 2010 the Commonwealth concede that the outlook for the economy is generally positive. We compare and contrast that with some of the comments of AIG and ACCI. COMMONWEALTH4 contains some data as they described as released since MYEFO. At paragraph 2019 Mr Cole took you to the comparison between the consensus forecast in 2002 and the March consensus forecast for 2003, but it is important, in our submission, to look at the MYEFO column and the consensus position in March 2003.
[2.33pm]
PN2560
In our submission, there is not a dramatic difference between the two. The document, COMMONWEALTH4, goes to oil prices. We note that the figure that is given in relation to the increase in oil prices is a figure that commences in November and ends at 31 March 2003. Oil prices have continued to fall since 31 March 2003. A Bloomberg report of yesterday says that crude oil fell 3.2 per cent, the third day of successive declines on speculation that the war may end. At 2028 to 2032 Mr Cole asserts a possible softening in the labour market. We note that even in that regard the Commonwealth is still talking about growth. They rely on quotes from Mr Eslake, at 2031 of transcript, saying that growth should average between 8 and 10,000 per month for the next few months.
PN2561
But in any event, contrast that with the positive news we have regarding job vacancies released yesterday from the ABS, and I did refer to the trend numbers. Can I refer to the seasonally adjusted numbers now? The seasonally adjusted number for growth in the month of February 2003 was 17.4 per cent. The seasonally adjusted number for the year to February 2003 was 28.7 per cent. When we do the written submissions in these case Mr Robinson always wants to put in the word "whopping", and it always get a red pen through it and he gets given one a year. Well, this is his one a year. It is a whopping increase.
PN2562
At 2076 the Commonwealth criticises our comparison with AWOTE, of award rates with AWOTE. We note that they use earning measures in looking at living standards. See in particular 9.5 to 9.10 of their original submissions. At 2077 of the transcript they compare AWOTE from EEH to - the change in AWOTE from the two EEH surveys to the change in AWOTE from the labour force survey. As Mr Cole somewhat circumspectly put this morning, the ABS specifically advise that EEH is not designed for the purposes of comparing average wage rates from year to year, and you can actually find that in ACTU3 at 78, because we had to look at a comparison issue in relation to our calculation of average wage increases under award rates.
PN2563
In any event, can we say this about the comparison which the Commonwealth says should be made with wage cost index. That comparison is a percentage comparison, so the first point to note about it is that when you compare our claim with wage cost index, bear in mind that there are many in the community who are going to get much more than the $24.60 increase in their wage rates. The expression of our increase as a percentage conceals the low actual dollars involved in the increase. Secondly, the submission that the wage cost index is the appropriate comparator ignores our submission that the average increase over the last four years will be bang on the current wage cost increase figure.
PN2564
And thirdly, and this is a point to which Mr Martin adverted, thirdly, on their own submission, on their own submission, a person earning the trades rate is low paid. That is what they say. They say focus the increase on the low paid, and that is up to C10. On their own submission a person earning the trades rate is low paid. If you give a person on the trades rate 3.4 per cent you give them an $18 increase.
PN2565
[2.39am]
PN2566
See, the Commonwealth wants you to focus on the percentage increase at the federal minimum wage, and focus on that being consistent with wage cost index. But if you do that and award a flat dollar figure, then people who they concede are low paid, large numbers of people who they concede are low paid, get less than wage cost index. On the Commonwealth's own submission, if the Commission wants to award a flat dollar increase and ensure that low paid people do as good or better than wage cost index, then $18 is the number. This morning you were taken to Hansard at 12287 and you were referred in particular to a quote of Minister Abbott. That quote says that:
PN2567
Wage increases which do not take into account productivity, do not take into account the individual needs of business, do not take into account the interaction between the taxes and the wages system, are a problem.
PN2568
In our submission, the Commission has demonstrably taken into account all of those things in each of its successive safety net decisions for some seven years now. In any event, we went to the quote from Minister Abbott for the proposition about need, and we say that that proposition is still right. The Commonwealth say that Dowrick and Quiggin fail to pay sufficient attention to technical specification issues. Well, that is certainly not my reading of the way they have dealt with, for example, Lewis and McDonald. It seems conceded by the Commonwealth that the criticisms that are made by Dowrick and Quiggin of Lewis and McDonald are specifically about technical specification issues.
PN2569
The Commonwealth took you to its usual material, if I can describe it in that way, regarding the bite of the federal minimum wage. Something very interesting is going on here and that is that if you look at box 5(B), the Commonwealth themselves say that the most up to date ratio is 49.1 per cent for the federal minimum wage to median earnings.
PN2570
Now, that actually confirms the proposition that we have been making vis-a-vis AWOTE. It confirms that over time there has been a significant decline in the relative value of the federal minimum wage. And we note that in appendix 5 at page 254 of the Low Pay Commission report, there is a chart which shows a different rate, a percentage of the median earnings for the Australian federal minimum wage, and when you go to the notes attached to that chart, it actually shows for Australia the two different estimates, one based on the labour force survey and one based on the employer survey. The employer survey number is 54.9 and the labour force survey is 58.4.
PN2571
In relation to that number, it says that it is an extrapolation of previous numbers. So it gives you some idea then - it gives you some idea of the decrease in relative terms which has been going on when the Commonwealth say that the current number, the up to date number, is 49.1. We note that the Low Pay Commission's recommendation is that - and indeed, yes, as a percentage of AWOTE, the federal minimum wage as our figure 3.14 in our original submission shows, is below 50 as well. We note that the United Kingdom Low Pay Commission's recommendations are actually based on getting that ratio up to 50 per cent.
PN2572
It is a constant theme of the employer submissions and indeed it was adverted to by the Commonwealth that you have to treat all of the international minimum wage studies with caution because, of course, they deal with minimum wages only which affect a much smaller number of people and thus it is suggested the employment effects in Australia would be necessarily much greater.
PN2573
We just note the inconsistency of that submission with the submission that is repeatedly made that in fact it is the low pay for whom the elasticity of demand would be greater. If the elasticity of demand genuinely is less as you go up the pay scale, then the suggestion that somehow or other there are dramatically greater effects in Australia because of the difference in coverage may not withstand scrutiny.
[2.45pm]
PN2574
In particular, when we are talking about a flat dollar increase, which as a percentage also declines as you go up the scale. The Commonwealth repeated its - I should say the Commonwealth suggested that we didn't dispute the Lewis and McDonald conclusions regarding other studies. Well, in fact that is not right. It is clear that we do dispute it and so did Dowrick and Quiggin. We disputed it at R6.46 and I also refer the Commission to Dowrick and Quiggin at ACTU3, 105 - 106. Then the Commonwealth repeated its usual submission regarding gross impact and net impact of our claim.
PN2575
We say it is appropriate to have regard to the net impact. That is what the Commission said last year. We don't say it is the only thing that the Commission should pay regard to, but we say it is appropriate to have regard to the net impact because there is 3.4 per cent of wages growth already out there. You can observe the effects that that has had on the economy now. You can take on board the comments of the Reserve Bank that that constitutes very moderate wages growth, and then what you can do is analyse that by saying, "Well, what will happen if we add .1 per cent to 3.4?"
PN2576
In other words, what will happen if the wage cost index goes from 3.4 to 3.5? Will the world collapse? And that is what - that is what the table of zeros tells you. The table of zeros tells you that the world doesn't collapse. Indeed the table of zeros tells you that the world goes on much as it went on before. Now in relation to the modelling issues, even in relation to the gross impact, we noted the small effects in relation to GDP employment and inflation.
PN2577
In our view the Commonwealth have not answered that. They say - they illustrate the potential in flags, but not the precise magnitudes or the forecast state of the economy. Well, they don't, in our contention, answer at all the propositions we advanced based on the evidence of their own witness last year, Ms Gabbitas, that the sorts of results recorded represent no meaningful departure from the baseline. In particular or in addition there is no submission which in our view adequately addressed the proposition we made regarding the level of feedback they build into their models so that a .4 per cent wage increase suddenly becomes a .7 per cent addition in wages costs.
PN2578
In relation to the various graphs that the Commonwealth are keen on producing suggesting relationships between variables, we note that in relation to each of them, when pressed the Commonwealth says, "Well, we are not suggesting causality." Well, that really should be, in many senses, the end of the matter in terms of the weight which one accords those documents. But in respect of the employment chart I think, Mr Cole said that the data, in any event, confirms what they intuitively believe to be the relationship between the two variables.
PN2579
Well, my son believes in Santa Claus and each year he gets a series of presents around Christmas time and each year he sees a whole bunch of men in red suits with long white beards at shopping centres. If he conducted a regression analysis between presents received and numbers of men in red suits at shopping centres he would conclude, on the Commonwealth version of how you do these things, that Santa gives him the presents. Well, I don't want to disabuse the bench but there is no Santa Claus.
PN2580
The Commonwealth's analysis in relation to relative standard errors is in our submission wholly, wholly untenable. Their position is, "Well, the trouble about relative standard error is that when you have got a small estimate, the relative standard error can be high." That is the whole point of looking at relative standard error, to see whether you have got something that is statistically meaningful or significant.
[2.50pm]
PN2581
And this is not our submission. This is what the ABS do in their own publications. The Bench now has the final version of EEH6306 from the ABS. Can I refer the Bench to note 16. There are some technical notes - it is technical notes 16. There are some technical notes surrounding which are also useful. And can I also, for example, refer the Bench to tables on page 18 and 19 where a whole series of very small percentages get the double, or get the single asterisk from the ABS because the relative standard error is considered too high to make them reliable, or at the very least is considered high enough to mean that they should be treated with considerable caution.
PN2582
We note that given all of that, in relation to the changes in award dependency the Commonwealth's big point about all of this is if you look at the confidence intervals issue, rather than the relative standard errors, you get the number of industries where there is something significant up from 1 to 4. That is hardly a basis on which to conduct regression analysis of any significance. The fundamental proposition which we advanced in opening remains. The data which is input into that alleged relationship between employment and change in award dependency is a nonsense. It is a nonsense and the result is a nonsense for the reasons we have outlined in relation to causality issues.
PN2583
The Commonwealth referred the Bench to average figures by pay setting method and by industry. As we contend, you get a different picture if you look at full-time rates, where there are some gaps. That is at R4.44, our last dot point. Finally, in relation - not finally in relation to, but in relation to that issue can we note that bargaining is spreading. That is the Commonwealth's own contention and it is spreading in award reliant areas. In relation to the issue of the spread in agreement making as a proportion of the entire workforce, your Honour, the President, asked Mr Cole some questions.
PN2584
The data that you need to deal with that is to be found at Table 2.1 ACTU1 where we record the main pay setting methods in the 2000 EEH final survey and the preliminary results for May 2002.
PN2585
JUSTICE GIUDICE: What page is that?
PN2586
MR WATSON: It is - I will just get the page number. I am sorry, your Honour, it is page 10. You can fill in the gaps, if you like, using the EEH final data for 2002 by going to paragraph 5.2.1, the first dot point in ACTU6. Broadly what that shows is that if you put collective and individual agreement categories together there has been an increase from 76.8 per cent to 79.5 per cent. Now, I would caution that given what I have been saying about other comparisons from year to year, that one might just need to analyse - and I have not had the time to analyse the question of whether that is a statistically significant movement - but I think it - I am reasonably certain it is.
PN2587
The reported standard errors on each of the components of the total are .6 and so I - without having done any careful analysis, at first blush - and here I fall into the trap of some of my opponents in terms of what I am doing with the data, but I think at first blush there is some statistical significance to that increase. The Commonwealth's proposition regarding unit labour costs just doesn't stack up - just doesn't stack up.
PN2588
Mr Cole said this morning that they had originally intended to be talking about unit labour costs. I took the Bench, in opening, to paragraph 8.37 of their submissions. There is no mistake what they were talking about. They were talking about real unit labour costs. They were talking about real unit labour costs, and what they were saying is it is a real worry, it is a real worry if you have real wages rising faster than productivity because, on their analysis, that creates an adverse employment effect. When we demonstrated that that had not occurred, that that had not occurred in the three most award dependent areas, that is when they made the slide into nominal wages.
[2.55pm]
PN2589
And I think any fair reading, any fair reading of their original submission makes good the point that we make, that when you focus on the alleged effect that they were worried about, the evidence just does not substantiate it, and so they have moved, in our submission, to another alleged effect. We made five propositions at the start of these proceedings. Five propositions, which in our submission have been established by the evidence and established comprehensively. We said that you didn't have to rely on our word for any of them, and we think that that still holds.
PN2590
But on any assessment, on any fair assessment we say of the overall evidence we have demonstrated need, we have demonstrated that there is an economy that is still growing strongly, notwithstanding the effects of the worst drought in a century, or one of the worst droughts in a century, notwithstanding international uncertainty. We have demonstrated that there was no adverse impact from last year's safety net increase. We have demonstrated that all forecasts suggest the economy will grow more strongly next year than this from credible economic assessments, and we have demonstrated that there is likely to be no negative impact from our claim.
PN2591
But really, it is the central one of those propositions which is the central proposition in this case. Because, as I said in opening, if ever there were a year when you might have expected, on the submissions that are made against us, when you might have expected some credible evidence of an adverse impact from a safety net adjustment, when you might have expected that in light of an $18 increase which was the highest for many years, and a moderating economy, when you might have expected on their argument an adverse impact, what have they come to the Commission with?
PN2592
They have come to the Commission with a whole series of assertions about macro-economic data that they concede can't be made good, in the final analysis. They have come with a complete absence of any cogent evidence of sectoral effect, and they have come with their own incredibly flawed survey evidence. The central proposition in this case is that last year's safety net increase had no adverse economic impact, and it is that central proposition which they have absolutely failed to give you any credible evidence on.
PN2593
We have five propositions, but you can boil it down to a few less, and they are these. The needs of the low paid say you should award our claim. The economy, and the analysis of likely economic effects say you can award our claim, and we hope and trust that you will. $24.60 is not a lot of money, and $12 per hour is not a lot of money. If the Commission pleases.
PN2594
JUSTICE GIUDICE: Thanks, Mr Watson. Ms Harris? You seem to be restless.
PN2595
MS HARRIS: Thank you, your Honour. I will be brief, and this will perhaps assist the Bench, as opposed to putting this in writing at a later date.
PN2596
JUSTICE GIUDICE: Yes.
PN2597
MS HARRIS: It relates to the Grains document that the ACTU have referred to this afternoon. Just a number of minor points. There was a reference to the hired labour costs representing about 3 per cent of total cash costs. I would simply like to refer the Bench to table 3 of attachment 3 of NFF1, which is at page 621, and that covers labour costs as a component of cash costs across the board for the farming sector, and the hired labour costs amount to around about 14 per cent of farm cash costs, so that is in relation to that particular aspect.
PN2598
The second issue, just in more general terms, on the debt and equity and the comment regarding 125,000 in cash assets, I am glad Mr Watson referred to the fact that this relates specifically to the grains industry, which is only a component, and I would specifically refer the Full Bench to the comments that the NFF wrote out in respect to the utilisation of FMDs yesterday. But in more general terms, to consider the attachments, attachment 3 of NFF1 and attachment 2 of NFF2, which are extracts from ABARE commodities for both December and March of this year which gives a broader indication of general farm performance throughout the drought as opposed to specifically looking at greens industry only.
[3.01pm]
PN2599
The second point I wanted to briefly raise was a question from your Honour yesterday regarding employment figures and whether or not the 18 per cent was off a particularly good year of what the statistics were. Referring to table 10 of attachment 3 of NFF1 there is an employment graph relating from 1996 to 2001-2002 which shows that the statistics range from about 366,000 to 383,000 over that period of time in small peaks and troughs and it is currently sitting in comparable terms of 310. So it has slightly moved of a six year period but nowhere as dramatic as it has been in the last 12 month period. Thank you. That is all, your Honour.
PN2600
JUSTICE GIUDICE: Any other submissions. Well, thank you all for your submissions, they have been very helpful. We will reserve our decision.
ADJOURNED INDEFINITELY [3.04pm]
INDEX
LIST OF WITNESSES, EXHIBITS AND MFIs |
EXHIBIT #COMMONWEALTH5 EXTRACT FROM HANSARD 5/3/2003 PAGES 12286 AND 12287 PN2116
EXHIBIT #COMMONWEALTH6 DOCUMENT RE AGREEMENT MAKING AND LABOUR PRODUCTIVITY GROWTH FROM JUNE 1990 TO JUNE 2002 PN2372
EXHIBIT #ACTU10 ABS PUBLICATION OF JOB VACANCIES PN2415
EXHIBIT #ACTU11 GRAINS INDUSTRY PERFORMANCE AND OUTLOOK ARTICLE PN2415
EXHIBIT #ACTU12 ABS6306 DOCUMENT PN2446