AUSCRIPT PTY LTD
ABN 76 082 664 220
Level 4, 179 Queen St MELBOURNE Vic 3000
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TRANSCRIPT OF PROCEEDINGS
AUSTRALIAN INDUSTRIAL
RELATIONS COMMISSION
JUSTICE GIUDICE, President
VICE PRESIDENT ROSS
VICE PRESIDENT McINTYRE
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT HARRISON
COMMISSIONER LEWIN
COMMISSIONER HOFFMAN
C2001/4617, 5719, 5720, 5721, 5722,
5803, 5810, 5830, 5833, 5834, 5843,
5844, 5845, 5846, 5847, 5849, 5929,
5933, 5934, 5935 and 6130
TIMBER AND ALLIED INDUSTRIES AWARD 1999
THE HOSPITALITY INDUSTRY - ACCOMMODATION,
HOTELS, RESORTS AND GAMING AWARD 1998
BUILDING SERVICES (VICTORIA) AWARD 1994
LAUNDRY INDUSTRY (VICTORIA) AWARD 1998
CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL
TERRITORY) AWARD 1989
THE VEHICLE INDUSTRY - REPAIR SERVICES
AND RETAIL - AWARD 1983
TRANSPORT WORKERS AWARD 1998
RETAIL AND WHOLESALE INDUSTRY - SHOP
EMPLOYEES (ACT) AWARD 2000
HORSE TRAINING INDUSTRY AWARD 1998
CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIAN) AWARD 1995
VICTORIAN LOCAL AUTHORITIES AWARD 2001
STORAGE SERVICES (GENERAL) AWARD 1999
GROCERY PRODUCTS MANUFACTURE -
MANUFACTURING GROCERS AWARD 1996
COMMERCIAL SALES (VICTORIA) AWARD 1999
RUBBER, PLASTIC AND CABLE MAKING
INDUSTRY AWARD 1999
THE VEHICLE INDUSTRY AWARD 1992
CLOTHING TRADES AWARD 1999
GRAPHIC ARTS (GENERAL) AWARD 2000
METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998 - PART I
METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998 - PART III
Applications under section 113 of the Act
to vary the above awards re living wage
case matters (s.108 References)
MELBOURNE
10.02 AM, MONDAY 8 APRIL 2002
Continued from 5.4.02
MR K.J. LAW: I appear for Restaurant and Catering Australia. This is the first day that I have been attending this hearing, and we have an interest in this matter. If the Commission pleases.
PN1978
JUSTICE GIUDICE: Yes. Thank you, Mr Law.
PN1979
MS N. RUTHERFORD: I am from the Printing Industries Association of Australia.
PN1980
JUSTICE GIUDICE: Thank you, Ms Rutherford. Mr Watson.
PN1981
MR WATSON: If the Commission pleases, on Friday, having returned from these proceedings to my office, I found an email from the ABS which said some more of the data that they had sent us was wrong. And so I need to correct the record in relation to some submissions we made and provide the - I will provide the Commission with copies of the relevant emails: both the original email we were sent and the subsequent one. Can I hand up copies of emails, there are two; one is 5 April and one is 15 March.
PN1982
JUSTICE GIUDICE: Mr Watson, do you want these marked?
PN1983
PN1984
MR WATSON: Can I just advise the Commission briefly of the nature of the error. The Commission will recall that we commissioned unpublished ABS data dealing with average hours ordinary time earnings for non-managerial employees for '91, '96 and 2000. We adjusted that data by multiplying casual rates by five on six to account for a 20 per cent loading. The ABS advised us on Friday that they had adjusted the '91 data. They had adjusted the 2000 data but they had not adjusted the '96 data which, of course, makes all of the comparisons between '96 and '91 and '96 and 2000 completely wrong. So in that context can I formally withdraw these parts of our submissions: paragraphs R2.9 to R2.14, and tables R2.2 and R2.3, and on transcript paragraph 721 to paragraph 730, the first four lines of paragraph 730. I then go on in the balance of that paragraph to make some additional submissions which are not altered by this change in data.
PN1985
Can I emphasise that it is only the comparison between '91/96 and '96/2000 which is affected by the error. And can I also advise the Commission, the Commission will be aware that this is the second time this has happened. In fact, from our end it is actually about the fourth or fifth time it has happened in the course of preparation of material for these proceedings. Fortunately in other instances we managed to detect the errors before we provided material to the Commission but in two instances of which the Commission is aware we have not been able to do that. We apologise to the Commission for the error and we apologise, too, to the Commonwealth.
PN1986
We do note that the Commonwealth conceded the point at paragraph R6.35 of their submissions. They accepted the criticisms we made on the basis of this data. We imagine that that concession would appear not to have been properly made in the circumstances. If the Commission pleases.
PN1987
JUSTICE GIUDICE: Yes. Now, did I miss something, Mr Watson, or do you intend to re-submit those tables?
PN1988
MR WATSON: I should just take you to the tables to explain. ACTU11 is the data which we originally received which provides the '91 and '96 percentiles. And if I can the Commission to - appended to that is the attachment data which was received with the email, and if I can take the Commission to the fifth page in which is the '96 data. The Commission will see a heading: Australian Bureau of Statistics, survey of employee earnings and hours, 1996, percentile data for adult non-managerial employees, average hourly ordinary time earnings; and the note:
PN1989
Note that casuals are multiplied by five on six.
[10.08]
PN1990
Then in ACTU12, with the e-mail of 5 April, the e-mail addressed to myself from Mr Hilton says:
PN1991
It has come to my attention that the AHOTE percentiles data I sent to you for 1996 non-managerial adults did not have casual employees multiplied by a factor of 516. In 1996 casuals were included with temporary employees and were not separately identified, hence the factor of 516 was not able to be applied to casuals.
PN1992
In the succeeding pages the first two pages are the AHOTE data for 1991 which is unadjusted and then the next two pages are the 1996 data. And I don't ask the Commission to do this now, but a comparison of that 1996 data with the data provided in the original e-mail shows that in fact the dollar amounts for the percentiles are precisely the same in each.
PN1993
JUSTICE GIUDICE: But what about totals R2.2 and 2.3 which you have, as it were, withdrawn?
PN1994
MR WATSON: We don't seek to update those.
PN1995
JUSTICE GIUDICE: Dr Kates.
PN1996
DR KATES: Thank you, your Honour. And if the Commission pleases, we too have some data revisions to deal with. And if I could I would like to tender an update of the table we tendered last week on the additions to the private sector total earnings from a flat $25 increase. And it is in response to the issues raised by Senior Deputy President Watson who in looking at the table we do acknowledge and concede that he was correct to state that the proportions in the table as we had it there were the maximum and assumed that everyone had received the increase.
PN1997
So what we have done is we have recalculated this table and instead of assuming as was explicit in that that it is one hundred per cent we have assumed that only half of all those employees receive the increases that were granted at that time. So that where we had in the previous table, and this was - if we look at the second column here where the most important - - -
PN1998
JUSTICE GIUDICE: Yes. Dr Kates, where is the original?
PN1999
DR KATES: That was ACCI.
PN2000
JUSTICE GIUDICE: It was the last page in ACCI8, I think.
PN2001
DR KATES: Yes, last page of ACCI8 and then we tendered the second one, ACCI9. And it is ACCI9 that we seek to revise.
PN2002
JUSTICE GIUDICE: Yes.
PN2003
DR KATES: And what we have done is the first column remains the same. The second column, rather than where we had a 30.4 per cent which would have assumed, as Senior Deputy President Watson noted to us, that all employees receive the increase, we have revised that to 15.2 assuming that half of the employees in each enterprise receive - where they had received an increase in over-awards as a flow-on only half received that. And then we have done the same for non-award employees where in the previous case it was 18.8 but in this case we have now scaled that down to 9.4. So that in that second column rather than being 30.4 and 18.8 it now reads 15.2 and 9.4.
PN2004
The data then moves on to the third column and again what that does is in the first row stays the same but the second and third rows change because that column is made up of multiplying the first column by the second column and you end up with 7.5 as the percentage increase - percentage of employees who receive that increase across the whole of the private sector in terms of over-award employees and then in terms of non-award employees it is 2.2 per cent. The fourth column stays the same and that is the $18 and 29 which we have taken from the ACTUs submission.
PN2005
We then move to the addition to earnings growth in column 5. It is the same in the first row but the second two are scaled down because of the halving of the figures in column 2. The sixth column, which is that on the ABS figures for private sector, all employers, total earnings move forward to be at the point where the decision would be granted and there we have that as the same at $655.45. We then go to the last column and here we have the same figure for private sector award dependent employees, and that is 0.75. For over-award employees, it moves to 0.21, and for non-award employees, it moves to 0.06, or in 6c in this, 0.06. So that the total increase as shown at the bottom, is 1.02. Now in its own way, and I apologise to the Commission for the fact that there was this incorrect methodology, which focuses on the second column. But in its own way, I actually find this comforting, because when we had been doing this table previously, and the total error came to 1.29.
PN2006
In our review it should have been much closer to the way we had done it as an alternative, which was to scale off what the Commonwealth had done. So that what we said, and we did notice in transcript that if you scaled up the Commonwealth's point 5.9 costing, and you said, well, really it only goes to the private sector anyway, so you add about - you scale it up for 25 per cent of employees being public sector. That took the Commonwealth's 0.59 to 0.79.
PN2007
You then assume something like 30 per cent for flow-on, and interestingly if you assume 30 per cent for flow-on, the number that comes out is 1.02, which is identical to the number we now have additional to private sector earnings in the bottom right hand corner. So in fact, it is very interesting how close the two numbers now line up. And it was something of a conundrum too, after it didn't line up. And now that it does, it's in its own way confirming of what the table was showing and the costings that it has.
PN2008
It also answers a question raised by his Honour Vice President Ross, and this related to the fact that we had in the service 42.2 per cent of - of businesses who had had some employees receiving an increase in the minimum award rate. And 42.2 per cent was something of a large number - in comparison with the number of employees, but if you use the same approach to scaling, which we have done for the other two columns and recognise that the 42.2 would have assumed everyone, and just assumed a half number, then that comes down to 21.1, which is very similar to the ABS figure, which we have on the table of 26.8.
PN2009
So in its own way, it is another form of confirming how the two sets of data line up and how our service actually varied correctly, picked the actual change that went on in Australian businesses as a result of the introduction of the safety net last year. So if I could just conclude on this, I would note that the data does confirm the survey results, and all of the data that we had as part of that survey, none of that changes. All of it, in fact, seems to be demonstrated by the results of this.
PN2010
The fact that now that when we do it this way, how closely it overlaps results of the Commonwealth's own costing, if you recognise that we do for the private sector, and the Commonwealth does it for the total economy. And it also confirms the addition to costs, we think that doing the calculation in this way shows that there is a 1.02 or thereabouts percentage point increase in the cost of labour, by granting the ACTU claim in this case. If the Commission pleases.
PN2011
JUSTICE GIUDICE: Thank you, Dr Kates. Mr Barklamb.
PN2012
MR BARKLAMB: Thank you, your Honour.
PN2013
PN2014
MR BARKLAMB: Your Honours, Commissioners, I now intend to complete the oral phase of our submissions, and to apologise slightly for my voice. I intend to address seven areas. The superannuation guarantee in section 90A; the form of the safety net increase; the ACTU witness material; the statement of principles; our submissions on behalf of the National Farmers Federation; two other brief issues - two other issues briefly, and then to close.
PN2015
Much of this material is as outlined in ACCI2 and ACCI3. On that basis I will seek to deal with it only very briefly, principally to draw out various matters for your attention. We have undertaken this approach on the basis of our understanding of the directions to reduce our arguments to writing, and our reply to writing. And once again, in making the submissions on this form I would seek to commend the detail of the written submissions to the Commission.
PN2016
The requirements under section 90A of the Act are addressed in our submissions, at section 11 of ACCI2. And in those of some other parties. We say section 90A is designed to ensure the Commission considers the impact of labour costs and labour cost increases on employers; the impact of labour costs on employers' capacity to viably apply increases in award wages; and to employ, in particular; the income transfer from employer to employee through superannuation. We say that this is a substantial additional safety net through superannuation from employer to employee. And we make those submissions at paragraph 11.6.C and paragraph 11.7 of ACCI2.
PN2017
Just as we say it is invalid to represent award wages as the sole mechanism for providing for the needs of the lower paid. It is equally invalid, we say, to seek to ignore the extent to which employees are already providing additional benefits to employees through superannuation. Paragraph 11.6.A, we outline how we say the Commission should address this consideration.
PN2018
Turning to the current claim at 11.1.2, at 11.1.1 to 1.7 of the ACCI written submission, we address the current claim against section 90A. And this includes appreciating the context in which the Commission is being asked to make its current decision. Principally there will be a scheduled increase in compulsory superannuation contributions form 8 to 9 per cent from 1 July 2002.
[10.22am]
PN2019
We say the scheduled increase in contributions will have the principal impacts identified at 11.13 of our submission including: labour costs on employers will increase at the same time as federal awards would be varied to give effect to any increase in this matter. This will multiply the labour costs impact of any award wage increase on employers and see wages increase at the same time as employers are already trying to source more funds to meet their employment bill.
PN2020
As outlined at section 11.15 of ACCI2 and under section 90A, and as a general issue of merit we say, superannuation costs and benefits should be considered in conjunction with the wider arguments we advance in favour of a moderate targeted increase. We say that the ACTU has probably failed to address section 90A. The references to superannuation in their original written materials do not appear linked to section 90A or to a consideration of labour costs. We make the same submission in relation to the ACTU reply materials, ACTU5. Mr Watson also did not address this consideration in his oral submissions. Again, his references to superannuation do not appear to have been to section 90A.
PN2021
On consideration of that, your Honours and Commissioners, it was unclear to us whether the ACTU agree that the schedule super increase in contributions and the impact of superannuation based labour costs should be addressed as we described in our initial submission. At paragraph 11.15 of ACCI2 we stated:
PN2022
The increase in superannuation provides additional support for ACCIs submission that the Commission should reject the $25 per week increase sought by the ACTU and instead award a genuinely moderate and appropriately targeted increase.
PN2023
Now, if that is the ACTUs position in relation to section 90A, that is welcomed. If, however, as it appears the ACTU considers that the Commission could award the substantial increase it seeks without any regard to the 1 per cent increase in superannuation costs, we say firstly they have failed to address one of your key statutory considerations and it is not credible to assume that wages could increase by over 6 per cent without any regard to this additional labour cost.
PN2024
Just in closing this particular matter, we note two things. The first is at paragraph 11.18 of ACCI2, we note that we say the relevance of section 90A will be ongoing, that it doesn't cease to be relevant to this Commission's consideration in these matters purely because the decade of scheduled increases in superannuation contributions has come to an end.
PN2025
The second consideration is to recognise, of course, that beyond section 90A there are wider labour on-costs to employers into which your decision in this matter will be, or seek to be implemented and which affect the capacity of employers and the economy generally to implement an increase in minimum award wages. We note that wages constitute on average less than 90 per cent of labour costs to employers and that the proportion of total labour costs constituted by wages appears to have declined by the - through the nineties. And we note that there is an additional almost 15 per cent which can apply above wages in labour costs to employers. We merely commend this material to you to note in fulsomeness of your considerations.
PN2026
JUSTICE GIUDICE: Mr Barklamb, there is a - it seems to me there is a bit of a difficulty in relation to the superannuation and guarantee legislation in this respect, that the Commission no longer establishes increase which have effect right throughout the economy but only deals with the safety net component. And when we come to look at movements in wages generally, it can only be assumed that for the most part they are exclusive of superannuation increases and other on costs that might be relevant. Does that mean that the increases in the amount of the superannuation contribution required have less relevance under our current wage fixing system than they might have been, say, before 1996 or before 1993 even?
PN2027
MR BARKLAMB: Your Honour, that is not a conclusion which we would reach and we would say that, firstly, and in substantial part because it remains part of the Act.
PN2028
JUSTICE GIUDICE: Yes.
PN2029
MR BARKLAMB: It remains an express consideration in making these - in determining these matters. We would also note, as we have indicated throughout our submissions, that there can be something of differential effect; that there is a differential effect for some employers. The safety net wage is the wage paid, is the labour cost payable. And for those employers there continues to be a superannuation impact or, indeed, for all employers but there is a superannuation impact that must be taken into account when wages increase.
PN2030
JUSTICE GIUDICE: Yes.
PN2031
MR BARKLAMB: I think I will move to the next of our matters and that is in section 12 of ACCI2 we have addressed the form of the increase to be awarded in this matter, and we say - we have three issues on that which I really do not intend to take the Commission to in any detail apart from noting that that material is in the submission at page 128 of ACCI2. The three issues are which: award wage rates should be varied, and we address that at paragraphs 12.9 to 12.17; whether awards should increase by a flat dollar amount or by a percentage, and we address that at 12.18 to 12.25; and the extent to which relativities between award rates should inform the level and form of any increase on this occasion, and we address that at 12.26 to 12.40. As I said, I don't intend to take the Commission further through this material and merely commend it to your further consideration.
PN2032
Turning now to ACTU witness material, we say the Commission has an established approach to the ACTUs witness material and to placing it in its correct evidentiary context in these proceedings. We agree with the - or we note the paragraph set out at 125 of the May 2001 decision, and I will quote:
PN2033
The information about levels and distribution provided by the parties is informative of Australian living standards. However, it must be taken into account, having regard to the limited nature of our task and statutory responsibilities.
PN2034
We say that this is the correct approach to the import of this material, save that we would dispute that the ACTU material is actually informative of Australian living standards. We commend our written submissions once again to you on this material. We seek to summarise very briefly some of our key points.
PN2035
Firstly, we make various observations regarding the diversity of outcomes illustrated by the ACTU witness material. Now, we say that the diversity of outcomes illustrated in what is just eleven cases really is a failure to present any basis for generalisation across the wider community. We say that tag 11 of the ACTU composite exhibit of 1 march shows a large degree of diversity in itself between the spending of its witnesses. This is further underscored by the material which we derived from that, and I would just briefly note that that is at figures 7 and 8 of ACCI2.
PN2036
[10.30am]
PN2037
Again we say the ACTU witness material does more than illustrate outcomes for some selected person. It is not material that can be regarded as generally indicative or persuasive, and is at best one amongst a range of considerations to be balanced. We say that the material is not statistically reliable. It is not based on a statistical sample and is not capable of supporting any further generalisations to the wider labour market. In particular, we say that it is not of particular assistance to your considerations under section 88B(2)(a) or (c).
PN2038
A particular issue the ACTU seeks to draw from its witness materials is the extent to which employees are using their award income and incomes from other sources to meet necessities; that is addressed in the ACTUs reply submission at R6.18 and in various places. ACCI has addressed this both in section 9 of ACCI2 and in ACCI3 including the following; that someone on a minimum wage spends the majority of their income on necessity seems axiomatic. The safety net wage would appear to properly have primary application to meeting necessary expenditures.
PN2039
Table R6.2 of the ACTU reply submissions shows what we say is a large degree of variation in spending on necessity. This also seems somewhat at odds to us with what the ACTU is attempting to argue. The median figure of table R6.2 is just 62 per cent of income spent on necessities. This is hardly a necessarily inappropriate proportion of a genuine minimum wage to be spending on necessities and, as we said earlier, we say that table reveals a high variation between the witnesses' expenditure.
PN2040
We also note that this witness material and the ACTU generally fails to address the area of precariousness in employment for the persons they claim to be pursuing their claims on behalf of, and I would merely just note in that regard that the material that Dr Kates put on Friday at exhibit ACCI10, the article by authors Kelley, Evans and Dawkins.
PN2041
In conclusion on the witness material, we say that the ACTU has provided no basis for the Commission to address this material any differently than it has in previous decisions. We say that the witness material is again of little use to the Commission in its determinative task. As stated at paragraph 9.29 of ACCI2, the only available conclusion which should be drawn from the witness statements is that different individuals and households have different expenditure demands, patterns and behaviours. We also say that the witness material tells us nothing about the capacity of employers to viably award a large increase.
PN2042
Linked to the witness material the ACTU seeks to address notions, or the witnesses self-reported belief that their work is intense and in some cases that their work has intensified. That is at paragraph 6.9 and 6.14 of I think the primary ACTU submission, ACTU - well, the primary ACTU submission of 1 March. We address this at paragraph 14.1 of ACCI2.
PN2043
As with our general proposed approach to the witness material, we say that this cannot be treated as representative and cannot sustain any conclusions on the experiences of employees more generally. We also say that the material on work intensification is not relevant to the Commission's consideration. And, just briefly, we would say that there are principles and approaches in this Commission to address changes in work value. We can't reconcile intensity of work with your statutory considerations in this matter. We also say that the ACTU hasn't brought forward sufficient evidence to support its contentions on this matter.
PN2044
The ACTU has also brought forward various wages comparisons material in section 2 of ACTU2. This material and what we say of its relevance is addressed in section 10 of ACCI2 and we commend that material to you. In summary, we say again the ACTU has not demonstrated that such material is either relevant or representative, nor how it can assist you in this matter.
PN2045
We turn now to address our submissions on the principles. These are addressed at ACCI2 section 13, and ACCI3 at section 5. We say the Commission appears in recent years to have regularised the making of the principles, save where specific issues are raised by parties or specific proposals are made for changes to the principles. The Commission should again, we say, make a statement of principles continuing with its established practice and incorporating what were described on the last occasion at paragraph 143 as the usual considerations.
PN2046
Principles should be in the same terms as for previous years, save for consequential changes to implement an increase in the safety net and those other proposals supported by ACCI. Again to expedite submissions, I will only address some of the material in our primary submissions on the principles. In particular, we understand that other parties directly proposing various amendments to be put before the Commission today and beyond will address in detail those proposals.
PN2047
The ACTU has made a claim for retrospectivity. As set out in ACTU2 at paragraphs 8.1 to 8.5 and ACTU5 at 8.1 to 8.6, we strongly oppose this retrospectivity proposal on a number of grounds. The ACTU claims that the changes on the last occasion to principle 8 support its approach on this occasion. We say this is a spurious claim. We say that it is not a correct analogy with the changes made on the last occasion and that they are clearly distinguishable.
PN2048
In summary, the 2001 variations to the principles were unopposed measures, we say, to facilitate consent updating of awards where there was no labour cost impact. The ACTU retrospectivity proposals are at odds with the established principles on retrospectivity we say and are without merit. Far from being able to proceed by consent, we think that employers will strongly oppose the retrospective application of safety net increases.
PN2049
We also say that the ACTU claim would break many years of established practice and applies generalised scope for retrospective increases in the wake of national wage safety net proceedings. We say retrospectivity is not a typical part of the work of this tribunal. It is a rare prescription reserved only for those rate occasions where an unusual and atypical approach is merited, perhaps to address some demonstrated failure of the system or of parties. Generalised retrospectivity would be against not only the Commission's established approach to this issue, but also to the general principle that retrospectivity is a legal prescription reserved only, as we say, for mere circumstances and where necessary based on demonstrated circumstances.
PN2050
Now, I will just summarise this next section. The ACTU has advanced 11 summary paragraphs in support of its change to the timing of increases. We simply say that isn't sufficient evidence to take what we say is a fairly extraordinary approach of awarding retrospective increases. We also note that the ACTU appears to be arguing implicitly or explicitly one of two propositions: there will be some delay to your decision in this matter for whatever reason, or that there is some deficiency perhaps in the business of the Commission in varying awards. We say there is no evidence for either proposition. It is not clear that there will be delay in the handing down of this decision, nor in the varying of awards.
PN2051
We also say that there is no rule that awards must vary 12 months to the day and that that misunderstands the 12 month period between increases in the recent principles. At page 52 of our submissions we cite various passages from decisions in recent years which make clear that the requirement is, in fact, that not less than 12 months must elapse between increases. And we note in that regard that in the May 2000 decision at paragraph 122 the rationale was set out, and I will just briefly quote the last section of that:
PN2052
The purpose of this requirement is to avoid the cost pressures which might arise if more than one safety net adjustment is implemented within a 12 month period.
PN2053
There is also, of course, the financial burden on employers of retrospectivity and the administrative burden. We say it is neither an easy nor an inexpensive matter for businesses to award retrospective effect, particularly for award wage increases. The ACTUs apparent assumption that employers can easily apply increases on a retrospective basis demonstrates a lack of understanding in the administration of employment in workplaces, we also say. And we also, just in closing, have noted for the Commission our belief that a better point to engage in further discussion on would, in fact, be further prospectivity of wage increases and further lead time for employers to know that awards were to vary.
PN2054
Now some brief submissions on the incapacity to pay proposals the Commission has before it. ACCI supports amendment to the operation of this principle to ensure that parties can argue genuine cases of incapacity to apply minimum wage increases and can pursue customised application of safety net increases where properly merited. ACCI considers that it is incumbent and particular upon essentially determined system of minimum wages to properly accommodate scope to argue for adjusted application of increases to reflect unusual or adverse circumstances. We particularly support reforms which will ensure that the incapacity avenue is properly available for small businesses which are facing very adverse circumstances.
PN2055
The economic incapacity principle is, we say, a recognition of the pre-eminent importance of the award safety net is not such that it operates without regard to the minority of situations where its effect would be counter-productive or contrary to the principle objects of the Workplace Relations Act.
PN2056
JUSTICE GIUDICE: Mr Barklamb, the lack of evidence of the use of the principle in its current form I think you submit indicates that there are difficulties in getting access to the principle. But is there any evidence that that is the case?
PN2057
MR BARKLAMB: Well, the primary evidence, I mean the main basis which leads us to make our submissions is the reporting of our members to us on their firm impression that arguing - that incapacity arguments will not bear - will not meet with a great degree of success. They feel discouraged in cases of what they perceive to be fairly genuine incapacity with the ..... to access that avenue.
PN2058
COMMISSIONER LEWIN: Is that an assessment of the merits of their case or something else?
PN2059
MR BARKLAMB: I think it would be an assessment of a range of circumstances, Commissioner. It would also be a function of the broad opposition of the union movement to engage and examine genuine cases of incapacity, we say, in particular matters. Changes to the evidentiary requirements under this principle have been advanced by AHA MIMAA and the Commonwealth. ACCI shares the concern that the operation of the existing evidentiary requirement may be discouraging applications in cases in which increases in labour costs may have adverse effects on workplaces and employment.
PN2060
ACCI agrees with the Commonwealth that the requirement to rigorously test material may be particularly arduous on some smaller businesses, or may be perceived in that manner, and can render incapacity to pay prescription beyond their practical reach. ACCI can also see no reason why, as raised by the AHA MIMAA, that there is any different approach to testing evidence under this principle than under the Workplace Relations Act more generally.
PN2061
As I said, the existing test appears in our assessment to be considerably difficult to access for smaller businesses. This is the feedback we have received from our members. Adversity can also become incapacity very quickly for smaller businesses we note which maybe less diversified and have lesser operational reserves. The Commonwealth's proposal that the principle be amended to ensure that special regard is had for the operational circumstances of small businesses in deciding on evidentiary requirements affecting them. It appears to us to be a valid reform proposal.
PN2062
ACCI also supports the Commonwealth proposal that a single member be able to deal with an application under this principle without the need to necessarily make out a case under section 107. It appears to us in particular - and there would be other reasons - that this may expedite the consideration of applications and it would ensure incapacity is treated less as an exceptional matter by the Commission and is regularised within the work of the Commission as a viable option for parties suffering genuine operational difficulty.
PN2063
We also support the principle that there be access to this principle both on an individual business basis and on a sectoral, industry or regional level basis. Groups of businesses at a sectoral, industry or regional level often have a common experience of incapacity and have a shared need for modified application of any increase. We say this is underscored by the submissions of the NFF which have been included with our submissions.
PN2064
We note that the existing principle commences:
PN2065
Any respondent or group of respondents to an award may apply.
PN2066
We say clearly it has encompassed the grouping capacity prescription can be awarded and it, therefore, should operate as viably and accessibly as possible consistent with the overall goals of the principle.
PN2067
We also note that an updated information sheet could assist parties in seeking to access these provisions and in bringing matters forward to the Commission. An updated information sheet may be particularly relevant to properly support any revised principle on incapacity, including providing any necessary guidance on revised evidentiary requirements.
PN2068
There are two further issues I wish to address on this principle before moving on. In regard too the further review, the existing principle states:
PN2069
Any decision to temporarily reduce or postpone an increase will be subject to further review, the date of which will be determined by the Commission at the time it decides any application under this principle.
PN2070
Now, just briefly, we have an apprehension or a suspicion that that may be indicating that any incapacity prescription must necessarily be reviewed.
[10.45am]
PN2071
If that is the case we would say that a review may be appropriate in some cases but not necessarily all. It would appear to us that there should be scope under the principle for three options for the Commission in addressing incapacity. To award incapacity prescription with a review? To award incapacity without a requirement for review, and that may be particularly relevant if the Commission is delaying the increasing of rates under an award for a defined period which may be a comparatively short period.
PN2072
And the third option would be awarding incapacity prescription without any requirement for review but with a liberty for parties to apply where circumstances change. So I don't seek to lead that one any further. I just note that there may be an unintended consequence into that concluding part of the current principle. The ACTU have raised the role of conciliation proceeding incapacity prescription. To the extent that conciliation is relevant we say it should be meeting three grounds, or meeting three qualities.
PN2073
It should be constructive. There must be scope to address the very real concerns which led employers to seek an incapacity prescription and conciliation should not serve to delay the processing of matters under the principle. I think one of the particular hallmarks of applications for incapacity is often the urgency with which redress is claimed to be needed. In conclusion on the incapacity principle we say this. At paragraph R8.13 of ACTU5, the ACTU describes the economic incapacity principle in the following terms:
PN2074
The principles of mechanism by which an employer is permitted to avoid payment of what has been determined as the fair safety net minimum wage.
PN2075
We say, with respect, this is precisely the thinking that may have served to compromise the proper operation of the principle and its usage by parties. We say that the Commission and parties should instead address incapacity based on the recognition of two guiding principles. First, economic incapacity is a mechanism by which the Commission recognises that within its determination of a fair safety net of minimum wages, what is fair for particular workplaces, industries and regions can differ in a minority of instances.
PN2076
The second principle we advance in regard to guiding this prescription. Where employers, either as a group or individually, face adverse operating circumstances which impact on their business and their capacity to offer ongoing employment, the system recognises that different customised approaches may be required that properly balance the need to provide an appropriate wages safety net with the particular challenges facing workplaces, industries or regions.
PN2077
The Commission also has before it a proposal to amend the principles in regard to incentives to bargain. ACCI supports a further emphasis on agreement-making of the principles and a recognition by the Commission and parties of the importance of further agreement-making. We note that agreement-making involves a growing number of enterprises, however growth in the total number of system participants is not as high as would be desirable. Quarterly agreement-making appears to have fallen from the peak in late 2000 and to have stabilised. It would be preferable if there was a sustained upward trend in new participants in the agreement-making system. The challenge is now to make further gains in bargaining.
PN2078
Further, employers and employees should have opportunities to enter agreements and to participate in the benefits of agreement-making. We say there should be incentives for them to do so including through the principles. The ACCI also supports the proposal for amendment to the special case principle as proposed by the Commonwealth and we address this material at ACCI3 from 5.79 to 5.84. I don't seek to add to that material except to note that our support for that principle is not linked to our belief that the economic incapacity principle warrants re-examination.
PN2079
Just briefly address two more issues before going onto close for the NFF and ourselves. In R9 of ACTU5 the ACTU makes various observations regarding the relevance of industry and survey material. ACCI opposes the perspective advanced by the ACTU either explicitly or implicitly regarding the relevance of this industry material. We say that this Commission rightly does not look solely to aggregate information in determining these matters. Industry materials are valid and important to your determination including your determination of a single universal level of wage increase.
PN2080
There is also no statutory basis to conclude that the Commission's economic and other focus be solely macro oriented. Industry submissions provide relevant information to assist the Commission in determining the impact of increases in their specific micro economic context. I note in this regard that I am about to briefly run through the NFF's material and that you will hear information today and tomorrow from the printing, hospitality, retail and vehicle industries which we say is very relevant to your considerations.
PN2081
We also seek to reinforce the legitimacy and value of employer survey information. We can see no basis to sustain the criticisms of this information by the ACTU at R9.16 of ACTU5. We would also, of course, just briefly note that the ACTU itself seeks to rely on various business surveys in this matter which are listed at 6.15 of the ACCI reply and which Mr Watson outlined in his oral submissions, for example at paragraph 9.35.
PN2082
ACCI appears for the NFF in this matter. The NFF put material before the Commission at page 162 of ACI2 and page 73 of ACCI3. We commend this material to the Commission's consideration. As said in our opening, decisions in these matters have widespread impacts including rural and regional economies well separated from business activities in the major capitals. There are a number of key points which can be drawn from the NFF material. Increases in minimum wages can have a negative impact on employment especially in the agricultural sector which is characterised by both widespread and concentrated incidence of low capacity to apply labour cost increases.
PN2083
This is a sector, we say, which underscores the importance of a moderate increase. Unemployment in rural and regional Australia remains higher than in urban areas but the employment loss that will inevitably flow from an unduly high increase in wages will disproportionately hit regional areas already struggling with high unemployment. Labour costs in the farm sector have increased significantly in the past few years. Farming is vital to the Australian economy as set out in page 164 of ACCI2.
PN2084
Whilst 2001 has been a good year for some commodity prices, prices for many other commodities have fallen. Forecast commodities are also subject to uncertainties as set out at page 165 and 166 of ACCI2. As the NNF stated in 165 it is important to ensure that good, average results for farming do not mark weak individual markets. We say there is also a clear link between this material from the NFF and the importance of an effective incapacity to pay principle including one which can viably operate for groups of employers facing adversity.
PN2085
The importance of awarding a moderate increase and of ensuring a meaningful ability to argue genuine incapacity to pay is underscored by examining the distribution of farm income. There is a substantial section of the industry which has a farm income commensurate with lower award rates of pay. To return to Commissioner Lewin's query to Dr Kates on day two there would be absolutely no capacity for such employers to accommodate a large increase solely from their margins for amounts being extracted from the business. These figures indicate that in the agriculture sector the low paid extends beyond employees to employees.
PN2086
Updated ABF forecasts for the sector are provided in ACCI3 at page 73. This data underscores the principle in NFF submissions I have just outlined. Based on such outcomes in the agricultural sector the NFF join with ACCI in arguing that there should be a moderate and target the increase at $10 applied solely to the federal award minimum wage. Your Honours, Commissioners, it is true that the economy is in recovery and growing but this is a fledgling and fragile recovery and in relative terms and in many important respects we are not back where we were before the downturn, nor where we should be.
PN2087
An excessive wage outcome would be highly damaging and place the recovery at risk. It would be inconsistent with continued sound macro economic outcomes. Granting the increase the ACTU seeks would slow growth, reduce investment, increase inflation, add pressure to interest rates and add to unemployment and under employment. The claim would have a two-way interaction with monetary policy which we say precludes its awarding by the Commission. It is a claim for a very high wage increase in an environment where interest rates are already set to increase. In turn, inflation to any such excessive increase in wages would lead to further rate increases.
PN2088
The ACTU has also, once again, clearly underestimated the cost impact of its claim. In seeking to advance absurdly low aggregate figures the ACTU has, once again, sought to mask the impact of the $25 per week six per cent claim on workplaces, employers and employees. The ACTU claim would render jobs less secure and we have shown that job security is a matter on which employees place a considerable premium. We say that employment and employability are pre-eminent considerations in this matter. The ACTU claim in regard to needs is also advanced without due regard to capacity to pay.
PN2089
The needs of the low paid, we say, do not correlate to the capacity of the employer to meet increased labour costs. That an employee - any increase in this matter, and there will be an increase based on the submission of parties, will increase labour costs to employers. Of this there is no doubt. The question is what level of increase is sustainable and represents the best balance of the matters to which you must have regard. Employers will need to meet the increase in this matter in the context of increasing labour costs including the mandatory and uniform increase in superannuation to which again the Commission must have regard under section 90A. This will be a difficult task for many employers.
PN2090
We have also clearly seen that there is always a deficiency in labour demand with both under employment and unemployment and with falling hours worked. Productivity growth figures are, for those reasons we say, overstated. The question is what level of centralised wage increase and labour costs is responsible and to what extent any increase should be applied generally across the labour market. We have said that the hallmark of the Commission's decision on this occasion should be moderation. We say that we have put more than abundant material to merit this approach and to apply ACCIs proposed approach to the award of an increase the ACTU has not demonstrated that there are buoyant economic conditions.
PN2091
The ACTU has not demonstrated that its claim would have only negligible effect. Getting to the heart of the matter material we have presented does not allow for the awarding of an increase anywhere in the region of the amount the ACTU claim. They have shown, we say, that this would be excessive and unsustainable. In contrast the approach advocated by ACCI is responsible and targeted. It can and should be integrated into awards. Such a decision would maintain the safety net and yet not compromise economic and labour market outcomes. In conclusion, we wish to reiterate what we say the Commission should hand down in this matter.
PN2092
As outlined in 1.25 and 1.26 of ACCI2 we argue that the ACTUs ambit claim for a $25 per week increase in award wage rates should be rejected. There should be a genuinely moderate and targeted increase that will properly reflect the matters in the Workplace Relations Act. There should be a $10 per week increase in the federal award minimum wage. This would increase at rate from 413.40 to 423.40. If, alternatively, the Commission does not accept the rates above the minimum wage should not increase on this occasion we say it should ensure that a moderate increase is awarded and that this is properly targeted to the lower paid up to but not above the C10 rate.
PN2093
There should also be the making of appropriate principles to support the Commission's decision in this matter as outlined including real avenues to argue genuine incapacity. We also support in full the submissions you will receive from the AHA in relation to the hospitality sector. There is one final comment I wish to make in closing and that is to commend the Commission on the Registry of the electronic initiatives taken to support the case. We, in particular, have found them very useful and suggest that the efforts in the case should be a prototype for efforts in other major proceedings including the use of the e-court model.
PN2094
We say, just in conclusion on this housekeeping matter rather than our principal submissions which I have completed, we say this should include exploring options for the formal electronic lodgment of submissions with the AIRC either via the e-court site or by e-mail. If the Commission pleases.
PN2095
JUSTICE GIUDICE: Mr Barklamb. Mr Moir.
PN2096
MR MOIR: Your Honour, can I enter an appearance on behalf of my colleague, Mr Smith, who appears with me? And might I begin by tendering our written submissions. Firstly, the original submission filed by AI group on 8 March 2002. And secondly our reply submission filed with the Registry on 28 March 2002.
PN2097
MR MOIR: Thank you, your Honour. If the Commission pleases, it is a truth universally acknowledged that the Australian economy is performing reasonably well. Economic growth has recovered from the mini recession experienced in late 2000 underpinned by strong levels of consumer demand and a sharp revival in the housing sector. Further, the Australian economy has stood out from the rest of the international pack with standing synchronised by global downturn and major weakness in our most important trading partners.
PN2098
However, in our submission it is also clear that the economy is performing well below its optimal growth potential and that the outlook, while reasonable, is far from a cornucopia.
[11.00am]
PN2099
The recent positive phases of our economy, which are principally associated with a resilient consumer, and a strong housing sector, are almost certainly coming to an end. The key issue is what will come next to sustain or lift our growth? Is it exports? Is it business investment. Further, are our productivity levels capable of being maintained. These are all questions for which there are no reliable forecasts, only considerable uncertainty. Those consensus forecasts which are available see only moderate recovery ahead for the Australian economy, with a potential slackening of growth to around 3 per cent of GDP per annum, beyond the middle of this year. And in due course I shall take the Bench to these forecasts.
PN2100
Apart from these domestic components, the Australian economy is still beset by a volatile global environment. The dominant US economy is still in the early stages of recovery and our major trading partner, Japan, is still experiencing a chronic economic malaise. Moreover, the bad loan problem affecting the Japanese banking sector could intrude as a new crisis for the global economy, including Australia, at virtually any time.
PN2101
It is our respectful submission that this time around, the uncertainty surrounding these shifting domestic and global currents beckons the advisability, indeed the wisdom, of adopting a cautious approach in adjusting the level of safety net wages. The economy can afford an increase in award rates of pay, but the increase must be temperate. the economy has recently been through a lean trot. It now appears to be breaking out into a canter, but it is still well below hitting full stride.
PN2102
In these circumstances, and with the uncertainties surrounding our domestic outlook, the adjustment of safety net wages, which is always a delicate task, requires a sure touch and steady hand. Just extending my horse racing parlance a bit further, it is important in these proceedings not to adopt a blinkered approach. We say that the ACTU's submissions are characterised by such an approach. Indeed, imbued with a type of economic Micawberism, despite the trying circumstances, things are good and will only get better, they say.
PN2103
Well, we say that it is important not to blithely assume that all is fine in the Australian economy and that we can positively look forward to an even greater period of economic prosperity in the year ahead. It is also unsafe to assume that the international economic outlook is benign. It is simply too early to make the strong call advocated by the ACTU that the economy will continue to gain strength and momentum, and that an increase in the range of $18 to $25 is thereby justified.
PN2104
While we can hope for the best, we must continue to be on guard for less than this, or even worse. Our present economic circumstances demand this, as I will come to in greater detail shortly. Can I also say at the outset, your Honours and Commissioners, and these proceedings are a timely opportunity to review the way in which safety net adjustments intersect with the taxation and social security systems.
PN2105
This is an important issue, because of the apparent unintended consequences which flow from any adjustments awarded by the Commission. These unintended consequences impact upon both employers and employees. They may result in employees ultimately receiving very little benefit from safety net adjustments, while at the same time, exacting a very heavy toll upon employers and the community as a whole. For example, through reduced employment opportunities.
PN2106
A number of examples can be used, and indeed shall be used, to highlight the problem. Further, as we shall demonstrate, the answer is not for the Commission simply to throw more money at the problem. Rather the objective should ultimately be to find a mechanism which would see most of an adjustment finding its way into the pay packets of award dependent employees, particularly low income earners.
PN2107
As the custodian of the safety net, the Commission has an important role to play in this regard. The present proceedings provide a not to be lost opportunity to recognise the inter-relationship between the award safety net and the broader social security safety net. Or the social wage as it is sometimes described. I might add that contrary to the applicant's suggestion on this point, AI Group is not asking the Commission to award a $10 per week increase on all minimum rates, on the basis that changes may be made in the social safety net at some future time, in order to provide further assistance to low income earners.
PN2108
Our $10 per week proposal stands alone in these proceedings. We acknowledge that presently there are no concrete proposals to better integrate the industrial and social safety nets. However, these proceedings can play an important role by assisting to create a climate in which concrete proposals may emerge. These proposals would ultimately better assist the low paid and generate superior social and economic outcomes, one would hope.
PN2109
Moreover, we remain absolutely convinced that our proposal for a $10 per week increase, rather than the $25 per week claim put forward by the applicants, is fair and appropriate in the current economic climate.
PN2110
COMMISSIONER LEWIN: If the social transfer system provided a greater yield - greater net yield from the safety net adjustment, would that be grounds for us awarding more?
PN2111
MR MOIR: Well, I would have thought the opposite, Commissioner. If improvements are made in the social safety net for the benefit of award dependent employees, including low income earners, it would be our very strong submissions, that that could and should lead to a lower safety net adjustment being awarded. And that is the point that our submission, and where we are coming to - or from, in this issue. Well I will come back to that in some greater detail.
PN2112
VICE PRESIDENT ROSS: So do I take it that on the basis of the current social security system, $10 is appropriate, but if there were improvements in the social - or the tax transfer system, such that they benefit those on lower award wages, then an amount less than 10 would be appropriate? Is that the essence of it?
PN2113
MR MOIR: Yes, that is correct, your Honour.
PN2114
VICE PRESIDENT ROSS: Yes, okay.
PN2115
MR MOIR: If I could turn now to our economic conditions and prospects in more detail, in our original and reply submissions, we highlighted a number of key points about our current economic conditions and prospects. We highlighted that there is considerable uncertainty surrounding the outlook for global and domestic growth, with significant risks of a decline in domestic growth levels beyond the middle of this year.
PN2116
We also emphasis that Australia's economic growth levels are now well below past experience and our optimal growth potential, and that the key sectors of manufacturing and construction are still in the early stages of recovery, with forecasts only for moderate growth in this year. We also observe, consistent with last year's submission in the previous case that Australia's underlying productivity trends remain uncertain. We have suggested that put together, this economic evidence flows in a clear and consistent direction. There is a need for wage caution arising from the slower economic performance and the incipient recovery, together with the considerable uncertainty about the prospects over the year ahead, and the difficult international environment.
PN2117
In sum, an uncertain global environment, together with the prospects of a weakening in the economy beyond the middle of this year, ephemeral productivity trends, and overall slower economic performance, provide, we say, significant red lights, or at least flashing amber, to the Commission in adjusting the wage safety net. Yes, the economy appears solid at the moment. But, no, it is far from ebullient.
PN2118
If I could deal with each of these points in a little more detail now. It is self-evident that Australia's current growth levels are lower than they were in previous years. Exhibit A, in this regard, is of course that table found in the ACTU's reply submission. It is table R4.2 in ACTU5. That table tracks the annual GDP growth levels over current or recent economic cycles. The Bench has already been taken to that chart in some detail.
PN2119
Suffice to say that we still have a fair way to go before we return to the tall timber of the solid and consistently high growth levels of the previous two, three, and four years. And it is during those previous occasions, those previous years, of course, that the Commission has found the circumstances to warrant reasonable improvements in the wage safety net. But this time around, we would say that there is an added need for caution, given the obvious lower levels of growth.
PN2120
In our reply submission at paragraph 3.2, we also point out how we ha din fact predicted GDP growth in trend terms, of 3.7 per cent for the December quarter 2001 national accounts. Now that was, of course, the precise figure published by the ABS. The ACTU has made much of this figure and suggested it as evidence of a strong and vital economy, which is on a sure path to economic prosperity. However, our view is that the figure was expected as part of the cyclical up turn, but that conditions beyond the middle of this year would be softer, and considerable uncertainty still remains.
PN2121
Now, there has not been one scintilla of new material presented by the ACTU to alter this assessment of the economic outlook. Added to the slower economic performance of the country, there is the uncertainty about the prospects over the year ahead, which I have mentioned. There is the uncertainty about the prospects over the year ahead which I have mentioned. Australia's recent economic performance has been underpinned by relatively high levels of consumer spending and confidence aided by very strong housing sector. The so-called V-shape recovery in the housing sector.
PN2122
However, as noted in the report authored by Dr Barry Hughes, which is attached to our reply submission, and I am referring to page 7 of that report, there are question marks over the shelf life of both contributions to growth. If I could take the Bench to Dr Hughes's report, which is found at annexure A of AIG2. And if I could refer the Bench to page 7 of the annexure, chart 5 sets out the housing trends. And it clearly shows the strength of the housing up-turn, the so-called v-shaped recovery. But as Dr Hughes notes on that page, the graph also illustrates the recent turn in the tide of new approvals, new building approvals.
PN2123
And that turn in the tide, so to speak, is confirmed by the latest data published in the, for example, in the Financial Review last week. It shows that new dwelling approvals fell by a further 3.2 per cent in February 2002, with the weakness concentrated in apartment dwellings or approvals for apartment dwellings. So as Dr Hughes rightly observes on that page of his report, in the final sentence:
PN2124
It is the disappearance of the contribution to growth that is arithmetically most important for the coming GDP case.
PN2125
And quite clearly the housing sector is starting to taper off. There is further evidence of this in the most recent data relied upon by the ACTU. If I could refer the Bench to ACTU6, which is the reply composite exhibit. At tag 1, the national accounts figures are set out, and on page 10 of tag 1, you will see there the percentage decline in total new dwelling approvals for the housing sector.
PN2126
You will see that there is a pattern of decline beginning in October 2001 which has gathered pace through to January of this year, and according to the latest figures that decline has in fact gathered even further pace with a 3.7 per cent decline in - I am sorry, 3.2 per cent decline in February in the legal of new dwelling approvals. And your Honours and Commissioners, it is interesting because, if you heard the ACTU the other day, they made a lot of this issue about dwelling investment as a contributor to present and future levels of growth. Mr friend, Mr Watson, specifically highlighted the component in table 5 of tag 1 of ACTU6.
PN2127
However we say that the emphasis by the applicants upon dwelling investment as a contributor to growth is now somewhat misguided. While it may have been valid up till about October last year, the fall-off in building approvals levels shows that this component of the contribution to growth is definitely on the decline. If I could take the Bench back to Dr Hughes's report at annexure A of AIG2, over the page to page number 8, the report notes that consumer demand, especially in housing, has been spurred on by lower interest rates, the attractions of the first home buyer's grant, and above all the widespread availability of mortgage equity products in the market. But the report notes further on that page:
PN2128
These fresh sources of fuel for demand may now be in the process of drying up.
PN2129
Even if consumer spending is able to maintain its current levels, it is obvious that something will need to replace the contribution from housing or else growth levels will decline. This is noted on page 9 of the report. It is also identified as the key issue growth in 2002 by the ANZs Chief Economist, Mr Saul Eslake, and I am referring in particular to the copy of his presentation which is a recent presentation which is found at AIG1, annexure G, page 87.
PN2130
This annexure sets out the slides which Mr Eslake used at a recent presentation, indeed a recent AI Group conference held last month. Like the Hughes report, this presentation was not specifically prepared for these proceedings, but nevertheless we say that the material contained in it is quite authoritative. If I could quote from page 87 of annexure G, Mr Eslake's presentation:
PN2131
However, with housing sector turned down from around mid-year, and with little reason to expect any acceleration in consumer spending, sustaining growth above 3.5 per cent will require a pick-up in business investment and exports.
PN2132
Now, as both Mr Eslake and Dr Hughes note, the chief candidates to replace housing as a driver of growth are business investment and exports. On the possibility of business investment picking up the slack, both annexures observe that there are signs that investment will improve, though heavily focussed upon the mining area. Dr Hughes notes in particular to this effect at page 9. However, he also points out that building for the commercial sectors might continue to languish, building investment that is.
PN2133
On the possibility of export revival, or an export-based revival, both materials note that this depends very much upon the world, in particular the continuing Asian recovery. However, as we will see, the global recovery is far from assured. Now, these are hardly circumstances, we would say, in which our prospects and future economic growth are certain or propitious. The Hughes report goes on to observe at page 10, and I quote:
PN2134
Extracting reliable forecasts for the shifting global and domestic currents is more than usually difficult this time around.
PN2135
Now, on page 9, Dr Hughes then sets out some consensus forecasts for GDP growth over the next year or two. If I could refer the Bench to that, on page 9, all of those consensus growth forecasts coming from investment banks, consensus economics and of course the Treasury, they all point to a moderate recovery ahead. Respectable, but hardly going gangbusters. On page 22 of our original submission, we also set out a sample of other recent economic assessments.
PN2136
These present a sober and inauspicious picture for the second half of 2002 and into 2003, consistent with the consensus forecasts outlined in the Hughes report. For example, on page 22 of our original submission, we cite the latest forecast by the National Australia Bank. They are predicting growth levels of 3.25 per cent this year, and they state:
PN2137
Overall, prospective developments in dwelling investment, business investment and net exports suggest Australia could well be struggling to maintain its current pace of growth into the second half of the year.
PN2138
Then there is the forecast by the ANZ Bank, also on page 22, where it is stated that:
PN2139
Sustained overall growth will require a pick-up in business investment and exports in the second half of the year. Both seem likely to occur but are probably not enough to prevent a temporary slowing in growth below 3 per cent.
PN2140
There is also the sober assessment by the Deputy Governor of the Reserve Bank further down on that page.
[11.24am]
PN2141
Our original submission also dealt with the outlook for the manufacturing and construction industries for the year ahead. Both sectors are still in recovery mode. Looking at manufacturing, the sector continues to recover from its worst downturn in over 20 years, experienced from the end of 2000. Whilst the latest national accounts data show that the sector is growing, the prospects for the year ahead are modest in manufacturing.
PN2142
At paragraph 4.28 of our original submission, we summarise some of the key results of our survey of manufacturing released in February 2002, surveys indeed attached to the submission as Annexure D. It shows modest growth expectations at around 2.7 per cent by the end of this year, a slight improvement in export growth over the course of the year, albeit from a sharp slow down through the course of last year, a decline in manufacturing employment with expectations of a further decline this year, and a general investment outlook remaining quite bleak, reflecting the domestic and global uncertainty.
PN2143
The results of AI Group's latest survey in the construction industry also point to the fact that non-residential construction activity is still in decline, with forecasts only for moderate recovery in 2002. In these circumstances, granting an 18 to 25 dollar per week safety net increase would place pressure on the sectors which are still in recovery mode, and threaten the already fragile prospects for job growth.
PN2144
A further reason for caution of course arises from the volatile global environment and outlook. It is an environment which is far from benign or propitious, as suggested by the applicant unions. Focusing upon the US economy, to begin with. The ACTU says that things here a looking good. However, the US economy is in the midst of a recovery, and there are sharply divided views about the prospects for US growth over the year ahead.
PN2145
In one camp are those who think that recovery will adopt its normal shape and strength, and those who think it is going to be different this time, in the other camp. In fact, the debate about the prospects for US growth is set out on page 3 of Dr Hughes' report; that is Annexure A of AIG2. Dr Hughes observes at that page:
PN2146
Both camps now see US growth reviving quickly in the first half of 2002, but differ over whether GDP acceleration will kick on in the second half.
PN2147
The differing views, of course, all point to one thing: uncertainty. Uncertainty about how promptly and how fully the dominant US economy and the global economy will recover. Also, the report quotes from the US Federal Reserve Chairman, Dr Greenspan, on page 1:
PN2148
An array of influences unique to this business cycle seem likely to moderate the speed of the anticipated recovery.
PN2149
That is the US recovery, of course. Now, from page 4 of the report, the outlook for the Asian economies is dealt with. And, of course, the Asian outlook is particularly important for Australia, given our significant trading links in the region.
PN2150
The picture which emerges is quite mixed. Although Asia suffered badly through 2001, the report notes that 2002 is looking better. However, the main disappointment and concern remains Japan. As stated on page 6 of the report, if I could just quote from that:
PN2151
Chronic under-performance from more than a tenth of the world economy has imposed a continuing drag on global growth, felt more keenly here due to Japan's status as Australia's leading export market. There is virtually no reason to expect a return to vibrant growth any time soon.
PN2152
Moreover, the main risk for Australia remains the massive bad loan problem affecting the Japanese banking sector. The report notes further down the page:
PN2153
The global issue for 2002 is whether an overdue tackling of the Japanese financial rot will be injurious to the global economy.
PN2154
Now, in this regard there was a very interesting interview last week on the ABCs Lateline program concerning Japan's banking crisis and its impact for Australia. I would seek to just hand up to the bench a transcript of the interview from that program.
EXHIBIT #AIG3 TRANSCRIPT OF INTERVIEW FROM ABC LATELINE PROGRAM
PN2155
MR MOIR: Now, your Honours and Commissioners will note, this is an interview from the Lateline program exactly one week ago, Monday 2 April 2002. So it was not available at the time, obviously, we provided our reply submissions. It is an interview between the Lateline presenter, Mr Tony Jones, and a Tokyo based financial analyst, Dr Ken Courtis, who is Vice Chairman of Goldman Sachs Asian Operations. If I could take you to the bottom of the first page. The question is asked by the presenter:
PN2156
How vulnerable is the whole banking sector, though? Does anyone know, for example, how much bad debt and big bad debt some of these major banks are carrying?
PN2157
And the answer is:
PN2158
Well, there are estimates all the way from the one you have just heard, 16 per cent to 18 per cent of GNP, all the way up to 50 per cent of GNP. I think we are probably somewhere in the middle of that, but if you think of it the bad debt is 25 per cent to 30 per cent of GNP. That is a number that we have never seen in any major economy before, and sooner or later Japan will have to deal with it.
PN2159
And the doctor then goes on to say this:
PN2160
Tony, as long a Granny Suzuki in a sense keeps believing the numbers in her passbook, in other words, if she keeps having confidence in the system, at least largely in the system, and as long as Japan keeps a current account surplus so that it doesn't have to borrow money from you or from anyone else outside of Japan to finance this, they could keep this game going.
PN2161
And then the presenter asks furthermore:
PN2162
But you are saying in reality Granny Suzuki's confidence is misplaced, aren't you?
PN2163
The reply:
PN2164
I think her confidence is sorely misplaced, and I think everybody who knows what is going on in the system understands that.
PN2165
And then further down that page, the presenter states:
PN2166
There is a growing feeling though, because it always seems that Japan is on the brink of collapse over the past six or so years, it has seemed that, but it never actually happened. So there is a growing feeling that this may never happen, or indeed if it does, we can discount the effect that a collapse in Japan might have on the rest of the world's economy. Are those people simply fooling themselves?
PN2167
And the answer is:
PN2168
I think very much so, Tony.
PN2169
And I will leave the bench to read his answer in full. But then on the second last page, the question is asked, in the middle:
PN2170
How serious would any collapse in Japan be for the Australian economy?
PN2171
And the answer given by the doctor is this:
PN2172
Well, given that almost a third of Australia's exports go to Japan, if the Yen were to fall to 1.60, to 1.70 to 1.80, the US dollar, in other words, falls 30 per cent, 40 per cent, 50 per cent from where it is today, then it would drag down the other currencies of Asia, I think would be likely in that circumstance.
PN2173
And then at the conclusion of his answer, he says:
PN2174
On an economy as big as Japan, when it goes over the edge, everyone will get sideswiped, including Australia.
PN2175
So we say that there are significant risks out there for the global economic situation, and for our position in it. Clearly one that is looming more than just on the horizon is Japan's banking crisis. We would naive to assume that the situation is purely benign, or even neutral. No country is, of course, a Robinson Crusoe. We are exposed to the considerable external volatility. Further, there are significant risks that the pace of our domestic advance will falter in the second half of this year, by remaining relatively subdued though positive.
PN2176
Now, the ACTU submits to you that the economic uncertainty surrounding last year's safety net decision has dissipated, and accordingly that it is time to bring home the bacon, so they say. However, we are still clearly in the midst of demonstrable uncertainty: whereas this time last year we were well and truly at the bottom of the cycle, and now this year we are slowly starting to climb back out of it. The fundamentals remain the same. Slower economic growth; below optimal growth performance; inauspicious global environment; and modest recovery expectations.
PN2177
The ACTU also suggests to the Commission that - - -
PN2178
JUSTICE GIUDICE: If that is a convenient time, Mr Moir, we might break for 10 minutes, or so.
SHORT ADJOURNMENT [11.36am]
RESUMED [11.48am]
PN2179
JUSTICE GIUDICE: Mr Moir.
PN2180
MR MOIR: I was just starting on the submission which has been put by the applicant that last year's decision exacerbated inequality within the Australian community. It is of course somewhat of a backward looking submission, and I am not sure whether that is where the appropriate focus lines, but nevertheless I will deal with the issue briefly.
PN2181
On this point the ACTU rely heavily upon the data obtained from the ABS's Employee Earnings and Hours Survey, the EEH survey. Well, to the extent that this issue may be relevant, we say there are problems with the ACTU's reliance upon the EEH survey, to make out the proposition that the low paid have somehow fallen further behind. In our view it is most likely that the date relating to award only employees derived from this survey would include elements of non-award pay, such as over-award payments.
PN2182
Although the ABS uses - does use some filter questions, these are mainly designed to separate out employees covered by enterprise agreements. And the ABS has advised us, as we say in our reply submissions, that the base pay of employees under award can include more than just award pay, because of the possibility of a response error in dealing with question 25 of the survey, which is the relevant question.
PN2183
Now given that the award-only data most likely includes non-award pay, and given that award increases can obviously be absorbed into over-award payments, it is far from clear as to what exactly is being measured by the survey results. It is certainly in our view not measuring the actual movement in award rates of pay. Indeed, it may simply be reflecting the fact that many workers are paid in excess of their award rates, and I note that the ACTU appears to have conceded the possibility of response error arising from the survey. However, they suggest that it is likely to be minimal.
PN2184
Now, on that basis the applicant continues to submit that award workers at best receive 3.2 per cent as a result of last year's decision. Now, that is certainly true for employees engaged and reliant upon the Metals award. However, as we noted on pages 16-17 of our original submission, workers under other awards did in fact receive higher increases in percentage terms than this. On table 2 at page 17 of AIG1, we set out the movement in hourly minimum rates for full-time retail workers.
PN2185
Now, it is true that those who received the highest percentage increases last year were, as the ACTU says, pharmacy students and pharmacy trainees. And I am talking about those workers engaged at levels 1A and 1B under the table, and within the retail trade. However, the other examples set out there are much more generalist in nature. For example, a person employed at level 1C is what you might call a general duties employee, for example, a gardener.
PN2186
They received an increase equivalent to 3.23 per cent, while employee engaged at level 2, such as a canteen worker, or a restaurant employee, they received a 3.22 per cent increase. Now, if you take out the increases for the pharmacy students, and the trainees, the average increase last year for retail trade full-time employees was 2.94 per cent. This is, of course, higher than the 2.7 per cent figure quoted for full-time employees under the EEH survey by the applicant, and relied upon by the applicant. It also illustrates again, we believe, that the figure cited by the ACTU from the ABS survey needs to be treated with some caution.
PN2187
Apart from failing to measure award-only movements in salaries, it also does not typify the variation in award rates across different industries and pay rates within those industries. Remember too, that retail trade workers account for the largest share of award dependent workers; something like 24.3 per cent. A point acknowledged by the applicant at page 110 of its original submissions. So we say that in addition to the response there are problems of the ABS data, the applicant's use of an overall average increase is highly problematic because it takes no account of the diffusion of employees across awards and classification levels.
PN2188
Could I turn now to one other chief contention advanced by the ACTU, namely that productivity is at record high levels. Here the applicant relies upon the up-turn in productivity measured in recent quarters by the national accounts data. However, in our respectful submission, one can take little comfort in the recent productivity trend data. The up-turn in productivity in recent quarters has been due, as it has already been stated, it has been due to a significant reduction in aggregate hours worked. And if I could take the Bench to once again the Hughes report at annexure A, of AIG2, and in particular page 11.
PN2189
The Bench can see for itself there the significant decline in aggregate hours worked, which has underpinned the upsurge in productivity growth. And it is interesting to note that the December quarter 2001 national accounts data have exacerbated, or showed that this trend has been exacerbated with aggregate hours falling down even further from the September 2001 quarter. And I just refer in passing there to the exhibit ACCI4 at page 43, table 22, which shows that increased decline in aggregate hours through the December quarter.
PN2190
Now, that reduction in aggregate hours worked reflects the reluctance of firms to employ additional persons arising out of the sharp downturn in late 2000, we would say. This situation is not sustainable in the long term, as companies will obviously need to adjust employment levels to reflect the improved business conditions over the past 12 months. Moreover, the underlying productivity trends for the market sector remain quite uncertain, and we rely as we did in last year's case, upon the detailed study into Australia's growth, How Fast Can Australia Grow Mark II. That is the report found at annexure E of AIG1.
PN2191
This report was published just over a year ago. The paper concluded, amongst other things, that unless the reform effort, including micro-economic reform, were to continue unabated, the best of Australia's excellent productivity acceleration of the mid-1990s might be behind us. Now, the key findings of that report are set out in paragraphs 4.1.8 to 4.2.0 of our original submission, AIG1, including the finding that the outlook for the years ahead is a lower potential growth rate of around 3 per cent, due to various factors, including the decline in labour supply growth rates, the removal of excess capacity in the growth potential of the economy, and finally, a decline a productivity growth, largely due to a slackening in the pace of micro-economic reform.
PN2192
Now, the author of that Mark II report, Dr Barrie Hughes, he has had the opportunity to review and update his original findings in the latest report which he has prepared for our organisation. And that report is the one found at annexure A of the reply submission, headed Economic and Fiscal Over-View, as I have already taken the Bench to.
PN2193
COMMISSIONER LEWIN: Is that dated? sorry, I may not have seen it, but - - -
PN2194
MR MOIR: If I could refer you to page 7 of the reply submission, footnote 1. The report was prepared as part of our organisation's submission last month to the Federal Government in the lead-up to the Federal budget 2002-2003. And as we state in the footnote, it wasn't available at the time of filing our original submissions. So the report is up to date to March 2002.
PN2195
So Dr Hughes has had the opportunity to review his findings arising from the Mark II report published just over a year ago. And he maintains his conclusion on page 11 of annexure A, that - so refer to the final paragraph of that page. After looking at the recent productivity trends, he maintains his conclusion that underlying productivity trends remain unclear. And then over the page on page 12 he states that, and I quote:
PN2196
All that can be concluded is that it is unsafe to assume that the higher productivity growth path of the 1990s continued into the new century.
PN2197
I might also say that Dr Hughes' findings in this regard are backed up by the ANZ Bank. And at annexure G of our original submission, AIG1, which is copies of the presentation made by Mr Saul Eslake. Page 84, it states, and I quote:
PN2198
It remains to be seen whether Australia will be able to repeat its late 1990s productivity performance.
PN2199
COMMISSIONER LEWIN: This is a bit of a double edged sword for you though, isn't it, Mr Moir, because at the bottom of page 11 it is clear that Dr Hughes has created an hypothesis which appears earlier in the paper about labour market responses, and in particular employer responses to labour market conditions, which suggest that if he is wrong, then - I am sorry - if he is correct, then there is likely to be good performance in the labour market in terms of job creation, and that will underpin consumer spending?
PN2200
MR MOIR: Well, yes, we agree that the likelihood is that firms would employ additional persons coming out of the improved business conditions over last year, and that therefore the real productivity level would then be exposed, which is, we say something below what the current good figures show. But can I also say that we did say earlier on that there is the possibility that consumer spending will maintain its solid levels but there is still some doubt over that, and I concede the point that if firms employ additional staff that will provide an additional lift or floor somehow to those levels - consumer confidence levels - but the issue is still the housing sector, and whether that is going to maintain its momentum, and we would say quite clearly it is not.
[12.03pm]
PN2201
So even if consumer spending and confidence is maintained, you have still got this significant question mark over what else is going to underpin growth over the next year.
PN2202
COMMISSIONER LEWIN: Lurching away to housing really doesn't deal with the generality of this hypothesis, does it? The hypothesis is: either we are having outstanding productivity growth, or alternatively employers have lagged labour requirements, and I think in the hypothesis Dr Hughes points to the ANZ job series in January and February, and the lift in vacancies as indicative of the fact that employers have underestimated the need for labour.
PN2203
Therefore there is what Dr Kates refers to as a productivity gap in the form of superfluous productivity - spurious productivity, I should say - and that either we are going to have high productivity growth or alternatively we are going to have a return to long-term productivity growth levels, and if that is the case there is going to be good performance in the labour market and good performance in consumer spending. Isn't that the essence of the argument?
PN2204
MR MOIR: Well, no, Commissioner, with respect. The essence of the argument, we are saying, is that the underlying trends are unclear, and one of the factors which Dr Hughes says to support that is that there is a decline in labour supply growth rates, for example. So this is an underlying issue. The population growth of this country - the growth levels are in decline, and that affects the ability of the labour market to continue its underlying growth, which in turn affects the productivity trends.
PN2205
So yes, businesses may improve or employ additional staff which is a good thing, and that underpins consumer confidence and spending. But underlying all of that, we say that the trends are still unclear, and that is due to a range of factors, the one I talked about, the decline in labour supply growth rate, but also the slackening in the pace of micro-economic reform.
PN2206
So quite clearly then, we say there is no room for complacency on this front, and bold declarations that productivity is at record high levels need to be tempered by the twin realities that, firstly, current productivity levels are being artificially propped up to some extent by the reduction in aggregate hours worked; and that underlying productivity trends are uncertain, and we cannot assume that the higher growth levels of the last decade in productivity trends have continued into this one.
PN2207
I would like now to turn to our proposal for a $10 per week increase in all award rates of pay. In our view this is the most appropriate level of increase which can be awarded in the current difficult environment. A $10 per ween increase would avoid putting unnecessary pressure on interest rates in a climate where the next move on interest rates is already widely believed to be upwards. Let us not forget that a mere increase of 25 basis points in interest rates results in about a $25 per week increase on a standard variable $150,000 mortgage.
PN2208
This level of interest rate increase would of course wipe out in one fell swoop any one-off adjustment in the safety net, including the current claim for a $25 per week increase. To put unnecessary pressure on interest rates, which we believe would arise from any increase in the magnitude of $18 to $25 would be a tragedy if it led to rate rises and an overall greater burden upon households.
PN2209
We also say that a $10 per week increase would maintain the purchasing power of pay packets of award-dependent employees, in particular low income earners. If one assumes an inflation rate of around 2 to 2.5 per cent, our approach would not result in a real wage cut for someone on the C14 level. It would result in a 2.4 per cent increase in their wage maintaining the notion of a real wage in our view. The ACTUs own submissions suggest that this assumption of an inflation rate of around 2 to 2.5 per cent is consistent with the future forecast. I refer in particular to paragraphs 4.9.2 and 4.9.3 of ACTU2, where it states at page 92 this:
PN2210
The median inflation forecast of financial economists surveyed by the bank -
PN2211
that is the Reserve Bank -
PN2212
declined from 2.3 per cent in its August survey to 2.0 per cent in its latest November survey, while the median inflation forecast for the year to June 2003 was 2.2 per cent.
PN2213
It also cannot be overlooked, as has already been mentioned, that this year business will face an increase in costs associated with superannuation payments. We say that this exerts a further moderating effect upon the size of any safety net increase which may be awarded this time around. Finally, we respectfully submit that a $10 increase in award safety net levels would allow space for bargaining - this is an important issue which cannot be overlooked - and it is in contrast to the applicant's position which seeks to effectively impose increases which are in excess of wage bargaining outcomes.
PN2214
A $25 per week increase would, of course, amount to just over a 6 per cent increase in the C14 rate, 5.8 per cent for the C13, 5.5 for C12, 5.3 for 11, and so forth. Now, this would significantly exceed aggregate bargaining outcomes. For example, the average annualised wage increase per employee for those covered by federal certified agreements in the December quarter of 2001 was 3.8 per cent, and that is unchanged from the September quarter, and I refer the Bench to the Commonwealth's reply submission at paragraph R2.14 for further details about those agreement outcomes.
PN2215
In our view, it would send out a powerful signal if the safety net adjustments awarded in this case were in excess of the current bargaining outcomes in actual percentage terms. We believe it would act as a disincentive to bargaining in those workplaces where there is already little or no difference between award rates and actual rates of pay. In this regard, we also say that it is timely to record the words of the majority decision in the April 1997 safety net review case, which is set out at paragraph 3.8 of our reply submission, and I will just read that:
PN2216
We do accept that the attitudes of negotiators will be more strongly affected by larger than by smaller safety net increases. This is a reason for caution in determining the amount of any increase in award rates.
PN2217
Larger safety net adjustments provide a higher floor for bargaining, and in some instances at least we would say act as a disincentive to the bargaining. Can I just conclude this part of my submission by referring once again to the principle of absorption which we say is still an essential pre-condition of our proposed $10 per week increase. Can I now move on to the important issue of the relationship between the award safety net and the broader social safety net embodied in the tax transfer system?
PN2218
In many ways, your Honours and Commissioners, this issue raises serious questions about the nature and purpose of these types of safety net wage hearings. Do we want the hearing simply to go on setting minimum rates of pay, or do we want to consider broader but equally pertinent factors, factors such as these: are safety net adjustments going to those most in need of them; do the increases result in an inequitable and disproportionate burden on employers; are safety net increases the best means of addressing the needs of the low paid; are the increases really benefiting low-paid employees.
PN2219
Can I say that we welcome the concession by the ACTU that the industrial and social safety nets are complementary mechanisms for addressing the needs of low income earners. The social wage and the award wage are co-dominis. In our view, however, the ACTU over-states the assistance provided by safety net increases to award-dependent employees and their families, and understates their impact upon employers.
PN2220
Can I also allay the suggestion that our proposed $10 per ween increase is somehow linked to a future adjustment in the social wage? Our current proposal is not; it stands alone as a fair and reasonable level of increase. Yes, we are asking the Commission to recognise the interface between industrial and social safety nets. But no, we are not asking the Commission to do this by awarding an increase which is less than what might otherwise be granted.
PN2221
In our respectful submission, we cannot go on ignoring the unintended and indeed irrational outcomes which arise because of the way safety net adjustments intercept with the tax and social security systems. In this regard, the Commission has an important role to play, beginning, we say, with a formal recognition of the interplay between the two species of safety net, which may then allow concrete measures to emerge which are designed to achieve better outcomes for employers, employees and the community as a whole.
PN2222
Let me begin though by illustrating the nature of the problem itself. It is another truth now seemingly universally recognised that safety net adjustments are a blunt instrument. We note the joint Labor Governments' statement to this effect earlier in the proceedings. The reason for this is simply that safety net adjustments are blind to the composition of households. For example, a household with a sole low-income earner will receive exactly the same level of increase as a household with a high total income, but with at least one award-dependent employee.
PN2223
The most extreme case would be a household with a millionaire receiving the same increase as a household composed of a single parent and numerous dependent children. However more realistic examples do abound. For example, a single person in receipt of a safety net increase may be relatively well off since they have only themselves to support, and that is in contrast to, say, a low-paid employee who has a partner and children to support. So different household composition means differing levels of need, yet each household receives the same safety net adjustment.
PN2224
Furthermore, as we state in our original submission, receipt of a safety net increase by an employee may actually result in the employee losing various benefits such as family assistance payments via the social security system. Let me now demonstrate, your Honours and Commissioners, with reference to a few specific examples. If I could hand up a document to the Bench.
PN2225
MR WATSON: Could I just indicate to the Bench Mr Moir has done me the courtesy of providing me with a copy of the document he proposes to hand up. It doesn't appear to us that there is any reason it couldn't have been produced as part of the written material which has been provided earlier in the proceedings. It does consist essentially of a series of computations in relation to social security benefits and the like. I flag that I am not going to object to its tender but, because it wasn't produced in any of the earlier material, we would reserve the right to produce our own document which provides similar computations. If the Commission pleases.
PN2226
PN2227
PN2228
MR MOIR: Thank you, your Honour.
PN2229
JUSTICE GIUDICE: Could you just describe that document for the transcript, please, Mr Moir?
PN2230
MR MOIR: Certainly, your Honour. AIG5 is material from the website of the Department of Family and Community Services. The exhibit updates the material which is found at annexure C of our original submission. The bench will note that in our original submission we appended website material which sets out the various family assistance benefits available. Since filing that material we have discovered that the rates of assistance and so forth have been changed and updated and therefore we now rely upon AIG5 to present the most up-to-date information.
PN2231
If I could begin with AIG5 you will note that on page 1 of the document there is an overview of the types of family assistance benefits which are available to families. You will note that as a result of government initiatives about 12 family benefits have now been simplified down to three. They are described on the front page as Family Tax Benefit Part A, Part B and the Child Care Benefit. Now, on page 2 of AIG5 details are given about the FTB Part A which, as it states, is designed to help families with the cost of raising children.
PN2232
Then on page 3 the maximum rates of family assistance are then set out. And it makes clear at the bottom of page 2 and over onto page 3 that if a family's income exceeds a certain level, namely, 29,857 per year, then their family assistance payment is reduced by 30 cents for each dollar above that amount. And that is until their payment reaches a so-called base rate. Now, those base rates are then set out on page 4 and in turn that base rate of the part A benefit reduces by another 30 cents for every dollar earned over an amount of $77,234 a year until the family assistance payment reaches nil.
PN2233
Over on page 5 the next main benefit, FTB Part B, is set out and as it states there:
PN2234
This benefit is designed to give extra assistance to single income families including sole parents, especially families with a child under the age of five.
PN2235
Now, for this benefit the primary earner's income is not taken into account so there is no means testing per se with regard to the primary income earner for this benefit. And you will see the rates of assistance are set out on those pages. If I could take you over to page 11 the third major benefit is set out which is the child care benefit. And that is to assist families with child care costs and this is a means-tested benefit. But just finally if I could take you to page 21 there are a range of other assistance benefits or payments available to families who might be on one of the three main benefits which I have already taken the bench to.
PN2236
They are set out on the list on page 21. Maternity allowance, maternity immunisation allowance. There is a large family supplement. There is a multiple birth allowance. There is rent assistance, health care cards and then assistance from Centrelink. And you will see on page 23 the benefits available under the heading of, Rent Assistance, and the eligibility for that which is in turn linked to - these sorts of benefits are linked to whether the family receives one of the major three benefits. And then on page 25 there are the health care cards. And it makes it clear that if a family receives the maximum rate of the FTB Part A, then they are automatically entitled to a health care card. And a health care card provides for various concessional benefits, as we understand it, including reduced pharmaceuticals and also travel concessions.
PN2237
Now, that the bench has got an overview of the various forms of family assistance available, can I take you to the examples which are set out in AIG4. These examples illustrate the impact of safety net adjustments upon receipt of social security benefits. Now, we have taken two examples, your Honours and Commissioners. The first example is of a single income family with one child. That is set out on the first two pages. And then on the third and fourth pages we have set out the example of a dual income family with two children. And what we have done is taken those examples to measure the impact of, firstly, a $10 per week safety net adjustment as proposed by our organisation and measured that also against a $25 per week increase as claimed by the applicants.
PN2238
Now, what we say is that - well, firstly, can I point out that the figures which we have used to calculate the various family assistance benefits, they are accurate. We have taken the trouble to liaise with the Department of Family and Community Services to determine their accuracy. And your Honours and Commissioners will see on the final two pages of the exhibit there is an exchange of correspondence between our organisation and the family assistance office.
PN2239
The first item of correspondence seeks confirmation that the figures are accurate and the last page of the exhibit states that the various family assistance figures in the exhibit are correct and, quite appropriately, the family assistance office is making no comment upon the other aspects of the exhibit. But we know that the family assistance there are accurate for those levels of income cited.
PN2240
Now, if I could take you to the examples. The first example, a single income family with one child. We have assumed a person by the name of George working full-time and receiving the C7 rate which, as we note in the footnote, is equivalent to a senior clerk or a special class tradesperson and that this particular worker has a partner, Julie, and they have one child together under the age of five. Now, if a $10 per week safety net adjustment were awarded the effect on the parties would be as follows.
PN2241
Firstly, there would be the statutory taxation taken out which is set out under the fourth column, if you like, of 30 cents in the dollar. But what is particularly interesting is the effect upon the family assistance levels. It shows that if they were receiving FTB Part A the reduction would be 49 cents per week and if they were receiving rent assistance, assuming rent of $250 per week, a loss of 63 cents. At the same time the employee and their family would lose the health care card. And this would arrive at a cost for the employer of $13 and we assume 30 per cent oncost for things such as the increased superannuation, workers comp, payroll tax and so forth and we strongly believe that that estimate of oncost is a quite conservative estimate. Others have cited figures of at least 40 per cent.
PN2242
So what does this mean? For the cost of $13 to the employer, the employee and their family receives only $5.88 but they also lose the health care card which, indeed, may wipe out their benefits altogether, or the benefit of the safety net adjustment altogether. Now, the value of the health care card would probably depend on how sick the members of the family are but there are access to non-health benefits via the card as we understand it such as travel concessions. In our view that is a fairly stark and unsatisfactory outcome, but the situation is perhaps even worse in respect of a $25 per week increase.
PN2243
If I could take the bench over the page. This shows that there would obviously be the tax taken out. There would be reduction in the FTB Part A of $2.45 per week and rent assistance of $3.15 per week plus the loss of the health care card. Now, out of a total cost to the employer of $32.50 the benefit to the family is barely one-third of that, $11.90. And, of course, once again they would lose the health care card. We would say that this is clearly an inefficient and inequitable outcome, especially for the employer having to fork out all this money. The benefit to the family may in fact be completely lost, as I say, with the withdrawal of the health care card.
PN2244
COMMISSIONER LEWIN: The employers don't employ families do they, Mr Moir? Employers do not employ families, do they?
PN2245
MR MOIR: Well - - -
PN2246
COMMISSIONER LEWIN: They are not a family welfare institution. It is an economic undertaking where individuals are employed for the purpose of contributing their labour to the organisation.
PN2247
MR MOIR: I totally agree with that, Commissioner. If I could take the bench over to the further example. This is of the dual income family with two children. We have assumed here, once again, a couple who are both working on the minimum wage. One works full-time and the other part-time and they have two children under five. So they would be eligible for various types of family assistance. Once again, the benefit to the family - or to the household is approximately one-third of the cost to the employer.
PN2248
This is on the basis of a $10 per week increase being granted. And if I could take the bench over the page to the case of a $25 per week increase being awarded. Once again there would be a reduction in the family assistance for part A in the range of $6.86 per week and rent assistance declining by $4.41 at an overall cost to the employer or the employers, assuming that the employees are not working in the same place, it would be $48.75 and the benefit to the family is, in this case, less than one-third of the overall cost to the business or the businesses which is most likely to be the case, two separate businesses.
PN2249
Now, we accept that these are just two examples of the impact of safety net adjustments. However, each of the examples deals with low income earners and are hardly atypical or exotic household situations. They illustrate quite starkly that employees may lose various benefits in response to receipt of a safety net adjustment. Indeed it appears that the higher the safety net increase received, the higher the proportion of benefits lost to the household. There is a disproportionately low gain to the family at a disproportionately high price for the employer. And we would say this is an unfair outcome for the employer.
[12.33pm]
PN2250
To see how alive this issue is for employers and employees one needs to look no further I think than the witness statements tendered by the applicant unions. A number of the ACTU witnesses professed to being in receipt of various social security benefits. For example, at tag 9 of ACTU4 the deponent, Mr Les Whitnall, states at paragraph 6 that he receives family assistance of $102 per fortnight plus rent assistance and pharmaceutical benefits, presumably via Health Care card, in the order of $300 per fortnight. And if you look at that level of family assistance, it actually equates fairly closely to the second example which we have given.
PN2251
Now, the ACTUs position on this issue is interesting. In its reply submission the ACTU appeared to infer that safety net adjustments do not have any negative impact upon the receipt of social security benefits for lower income households. However, they do now acknowledge - and quite appropriately - this may occur for some, but continue to deny that this occurs for many or, indeed, most. However, in the absence of any detailed analysis, this is simply guesswork and the two examples which we have highlighted would suggest that the problem is much more prevalent than the applicant thinks, or would like to think.
PN2252
Moreover, as we stated earlier on, the answer to the problem is not for more money to be thrown at it by the Commission. Rather the solution lies in a better integration between the industrial and social safety nets. For example, via some sort of a trade off between wages and tax. And we say that the Commission has a necessary role to play in this. Now, there are various options for a wage tax trade off. One approach is the system which operates in the US based upon the use of tax credits.
PN2253
Here a system of earned income tax credits applies giving tax free supplements to low wage earners in low income families. This system applies alongside the US federal minimum wage. The size of the tax credits depends upon the number of children and the level of family income. Initially the tax credits increase proportionately with income, then plateau, and then taper out altogether. This reduces effective marginal tax rates at low levels of family income but increases them further up the income distribution when the tax credits are tapered out. Now, a similar approach to this was proposed by one of the major political parties at the 1998 federal election.
PN2254
Then there is the five economists model which is set out in annexure B of our original submission, and I refer in particular to pages 5 and 6 of AIG1. This model put together by five prominent Australian economists arose from a letter which they wrote to the Prime Minister back in - or after the 1998 election. The proposal consisted of replacing safety net adjustments for a certain period at least with tax credits for low wage earners in low income families in a manner which effectively reduces marginal tax rates for low income families.
PN2255
Now, one of the five economists has, in fact, converted that general idea into a specific proposal, and if I could just take the Bench to that. I am referring to page 6 of annexure B, AIG1. I will just read from that:
PN2256
One of the five economists, Michael Keating, has converted this principle into a specific proposal. Under this proposal a tax free credit of the order of 2 per cent would be paid as a supplement to the wage of low wage earners in low income families as an alternative to the living wage increase. After a certain level of income is reached the tax credit would be tapered out but in combination with the tapering of other family payments in such a way as to not increase effective marginal tax rates.
PN2257
As an example, Keating has has pointed out that this would amount to an increase in disposal income of a little over $10 per week tax free for a low paid employee earning two thirds of average male ordinary time earnings. To produce an equivalent increase in income for someone in the withdrawal range for family payment in the current tax transfer system would require a wage increase of as much as $70 per week, and at that time it was nearly three times the amount being claimed by the ACTU.
PN2258
Now, over the page the five economists, the second last paragraph, they have suggested that the use of tax credits would not place a heavy burden upon fiscal policy. And then over the next page, page 8, they set out what are the various benefits of a tax credit based proposal. In essence, they say there is about three or four specific benefits. One is that it would raise demand for labour due to lower wage growth. Secondly, it would improve living standards of low income families containing low wage earners. Thirdly, it would reduce effective marginal tax rates for low income families and create greater incentive for unemployed persons to enter the job market.
PN2259
The bottom line is that it would deliver greater bang for the employer's buck. And I note that just last week the plan put forward by the five economists was described by the Governor of the Reserve Bank, Mr MacFarlane as, quote, "most promising", end quote. And that was at a conference he spoke at last week entitled: Towards opportunity and prosperity.
PN2260
Now, quite clearly, your Honours and Commissioners, a great deal of analysis would need to be done to determine the best option but in AI Group's view it is equally clear that the Commission needs to be involved in the debate and the implementation of more suitable models for addressing the needs of the low paid. If the Federal Government is ultimately convinced of the merits of making significant modifications to the tax and/or social security arrangements as a trade off for lower safety net wage increases, then such arrangements could only be implemented with the support and involvement of the Commission.
PN2261
COMMISSIONER LEWIN: Is this some sort of accord that you are thinking about in this case between the Government and the Commission, rather than between the Government and the trade unions as was previously the case when the idea of wage levels and restraint in terms of wage growth and development of the social wage formed a centrepiece of an accord?
PN2262
MR MOIR: I am not sure I would use the label "accord" to describe it because that comes obviously with a lot of baggage. Rather we would simply say that there has to be a recognition by both Government and this Commission of the interface between the two species of safety net. And perhaps - - -
PN2263
SENIOR DEPUTY PRESIDENT WATSON: But that is a given, isn't it, though? That is a given. It is known that Government is a beneficiary of wage increases whether safety net enterprise bargaining over award. I am just not sure what it is you are seeking of the Commission in the context of the present case.
PN2264
MR MOIR: Yes. Well, I am just about to come to that but perhaps I could draw an analogy with, say, the relationship between monetary policy and the broader economic functions of government. Since 1993 there has been a shared understanding between the Reserve Bank and the Federal Government about a target range for inflation of between 2 to 3 per cent. And the Reserve Bank, as the custodian of monetary policy, has exercised its functions in keeping with that shared understanding and so, too, does Government. Now, the Reserve Bank is obviously an independent body, like the Commission - - -
PN2265
COMMISSIONER LEWIN: How does it have shared understanding, as one might interpret that statement then with a government? Do you mean Mr MacFarlane and Mr Costello get together over lunch and set the number? I mean, that is the problem with that submission, isn't it? That it is either the bank is independent or it is not.
PN2266
MR MOIR: Well, we say, that the independent of the bank is not inconsistent with the reaching of that kind of shared understanding. And what we are saying in this particular proceeding is that the Commission should now formally recognise through its decision that changes in social security and/or taxation arrangements need to be taken into account in determining the quantum of safety net adjustments. And by recognising the link, an important first step will have been achieved.
PN2267
As we say in our reply submission, this would then assist in creating a climate in which concrete and constructive proposals might emerge. Such proposals being, of course, within the province of government would hopefully act as a kind of arbitral springboard or platform for more efficient and more equitable mechanisms to apply. Without this recognition we would say that there would be - or our concern is that there would be little incentive for governments to act upon this important public policy issue. And we note that, your Honour Vice President Ross in the 1997 safety net review decision did identify that safety net adjustments do not operate in a vacuum; that there is this inter-relationship between the award system in the broader social security safety net, and that adjustments in the social safety net have a bearing on the determination of safety net wage levels. And we fully agree with your Honour's statements in that regard.
PN2268
JUSTICE GIUDICE: Is that a convenient time, Mr Moir?
PN2269
MR MOIR: Certainly, your Honour, yes.
PN2270
JUSTICE GIUDICE: We will resume at 2.15.
LUNCHEON ADJOURNMENT [12.47pm]
RESUMED [2.18pm]
PN2271
MR MOIR: Thank you, your Honour. I might just indicate for the benefit of everybody else here that I would intend only going for about another 10 minutes or so. In this year's submission we raise again the issue of award structures, and in particular we argue that now is the time for a conference to be convened in order to explore the relevant issues and views of the parties, and then endeavour to achieve consensus on the way forward.
PN2272
We note the statement by the Full Bench in last year's decision that the issue is important, and that the desirability of a conference is a matter which can be raised again at an appropriate time. We believe now is the appropriate time to deal with the issue through a conference of all interested parties. We note that little or no progress has been made on the issue since last year's decision, and the number of federal awards currently operating still remains quite high at over 3000.
PN2273
Putting the issue into broader perspective, we have in our reply submission at paragraph 4.3 set out an excerpt from the Building Industry Inquiry in 1989 where a five member Full Bench determined that the objective of a single award for, in this case, the building and construction industry, had merit and could be pursued over time. Yet of course some 13 years later virtually no progress has been made in rationalising the numerous awards which exist in that sector.
PN2274
The situation is regrettably the same in other industries such as manufacturing. The large number of awards operating in these sectors creates administrative difficulties for employers and their representatives, and may lead to loss of public confidence in the award system, especially where awards are not being kept up-to-date in a timely fashion due to the degree of - or possible degree of fragmentation in the system.
PN2275
We have also seen cases where awards are not varied to provide for safety net adjustments until months or even years after the relevant decision is handed down by the Full Bench. In AI Group's view, a uniform standard such as safety net adjustments, which are determined on a common basis across industries, are more likely to be maintained in a timely manner by having single industry awards or at least greater award rationalisation. A conference is desperately needed to get some momentum on the issue. This will hopefully kick-start the process of setting the fabric and the structure of award regulation in different industries.
PN2276
Finally, if I could say something briefly about the change to the principles proposed by the applicant unions. We say that the proposed change would operate as a kind of blanket rule which is not only inconsistent with the legislation but unfair toward employers. The proposed amendment seeks in effect to establish via the principles an a priori category of circumstances which would warrant retrospectivity.
PN2277
In our view this kind of approach is inconsistent with the statute which lays a plain emphasis upon the presumption against retrospectivity, except in those cases where the Commission is convinced that the circumstances are sufficiently rare and singular to justify a conclusion that they are exceptional, and thereby warrant retrospective orders. The need for exceptional circumstances to exist in order for retrospectivity to be granted surely requires a consideration of each case on its merits, not the adoption of a blanket rule. And as the joint Labor states have pointed out, the principles cannot be used to do something which is inconsistent with the statute.
PN2278
We also say that the proposed change is inconsistent with traditional arbitral principles concerning the discretion to make award variations. In paragraph 5.6 of our reply submission, we cite the old Gas Industry case of 1941 as authority for the proposition that generally speaking the Commission will not grant retrospective variations unless there are strong and exceptional reasons based on some action by a party of which the Tribunal does not approve. And if I could hand up to the Bench just a copy of the relevant excerpt from that Gas Industry case.
[2.24pm]
PN2279
Now, to the best of our knowledge no subsequent decision has cast doubt upon this general principle. I am referring to page 137 of the report, which is the second page of the excerpt, towards the bottom of page 137, the decision by his Honour, Piper CJ.
PN2280
JUSTICE GIUDICE: What volume of the Commonwealth Arbitration Reports is this in, Mr Moir?
PN2281
MR MOIR: Yes, that is right, your Honour.
PN2282
JUSTICE GIUDICE: Which one?
PN2283
VICE PRESIDENT McINTYRE: 48. It is in the footnote.
PN2284
MR MOIR: Yes, that is right. As I say, no subsequent decision that we know of has cast doubt upon that general principle. In circumstances nominated by the ACTU to justify the proposed change to the principles, there of course can be no suggestion that the employer is at fault for any delay. We also observe that the proposed change would be unfair toward employers.
PN2285
It has been mentioned that back pay provision arising from retrospective orders does impose considerable administrative burdens upon employers: and here it would do so in exactly those circumstances purely outside the control of employers. We also share the concern of other employer parties that this proposed amendment to the principles is being put forward, apparently as a device to overcome any delay which might arise from this year's proceedings.
PN2286
As we all know, these hearings are taking place somewhat later in the year than in previous years. And as was pointed out at the directions hearing before the full bench back in December, this is due largely to the pressing commitments of the major parties in other test case proceedings, and the like. In our view, there is no valid reason which has been put forward to depart from the general presumption for prospectivity, with the ability of parties to argue for retroactive variations in individual cases. It is an unwarranted and unnecessary change.
PN2287
Finally, we say that the proposed change is also quite vague in its definition of what is a reasonable time before the end of the 12 month period, and it is uncertain in its scope. This will lead to confusion.
PN2288
If I could just sum up, your Honours and Commissioners. We urge the Commission in these proceedings to adopt a circumspect approach in adjusting the safety net of wages. Now is not the time to throw our hats into the air, and we commend the Commission to adopt our proposals in this regard. If the Commission pleases.
PN2289
JUSTICE GIUDICE: Thank you, Mr Moir.
PN2290
MS RUTHERFORD: I did not wish to detain your Honours and Commissioners very long. I just wish to advert to some of the matters that have been raised in Printing Industries written submission. Can I check that you have it before you? Is it formally an exhibit?
PN2291
The Printing Industries Association wishes to oppose the application made by the ACTU, and in general supports the submissions made on the economic basis for that opposition made by ACCI. It is the Printing Industries' view that in relation to this industry, the industry is suffering somewhat. It is trending down, and there are a number of indicators that have been highlighted in the submission that I would like to take you to that show that.
PN2292
If I can take you to page 7 of the submission, paragraph 2.1. It is there said that employment prospects in the industry are down, trending down, and I should say that the trends that I refer to are taken from a quarterly survey that has been undertaken by Printing Industries. It is a balanced survey. It is a quarterly survey that is undertaken by Printing Industries, and has been undertaken quarterly since 1987. It is not a specific survey for the purpose of this case: it is something the Printing Industries does to try and get a snapshot of what is going on in the industry, to try to understand trends in the industry.
PN2293
So, a balance of respondents from the last survey to this were expecting reductions of employment in the March 2002 quarter. That would indicate the shedding of some 300 positions, and if the result is repeated through the industry, a further 2,741 positions shed over the next 12 months.
PN2294
Another indicator that I would suggest to you is relevant in relation to the Printing Industry is the amount of overtime worked. Historically what occurs in this industry is that first overtime is used to take up demand. When overtime fails to fulfil orders, employee numbers are increased. I presume that that is not a novel idea for you. The survey shows that on balance there is 27.9 per cent reduction of overtime levels, and that is predicted to further decline by a balance of 18 per cent of the surveyed respondents.
[2.30pm]
PN2295
Profitability in the industry is trending down also, and that is reflected in paragraph 3.1. Company sales declined by 1.6 per cent between September 2001 and September 2002. Inventories declined, a fall of 9.7 per cent. Company profits went down. A deterioration between September quarter 2001 to September quarter 2002, of 24.8 per cent. A capital expenditure, quite concomitant with profit decline, is also going down.
PN2296
So all up, there has been significant reductions in actual results, and also a deterioration in business confidence. The business expectations presented in the table at paragraph 3.7 on page 13, also show that capacity levels - that only 68 per cent of the survey respondents were operating at capacity levels of 70 per cent or more. So that they are not using what capacity they have. They don't - they are not using much overtime. They are expecting to decline - to reduce the number of employees that they have.
PN2297
In the past, Printing Industries has found that despite the absorption clause that has been used over a number of safety net increases, the safety net increase awarded flowed through generally to employees in the industry, whether or not they were award-based. This is not an observation that is only been made by Printing Industries. I see from the Commonwealth's reply submission at paragraph R4.18, that it is noted elsewhere in the employer's responses.
PN2298
So whatever increase is granted, even though there would be an - we would hope, an absorption clause, it would flow through. The industry in its 2001 trend survey, indicates that there is an expectation of continuing increase in average wages, with the March 2002 quarter 13.5 per cent of respondents anticipating an increase. Labour costs have been reported to have increased on balance by 20.9 per cent respondents, and further 11.5 per cent of respondents are expecting further increases in the next quarter.
PN2299
So taken altogether, it is not a particularly wonderful outlook for this particular industry. And it is an outlook that would be further compounded if the increase of the full $25 that is sought by the ACTU would be granted. There is reduced orders and production, reduced sales and profits, reduced employment and use of overtime. A reduction in selling prices, less investment in plant and machinery. Reported increases in cost categories. And a worse than expected net balance for outstanding debtors.
PN2300
So it is not a particularly strong time in the industry. and the industry is not in a good position to deal with a 25 per cent increase, particularly if the Bench is minded to grant the submission in relation to changes to the wage fixing principles and allow retroactivity. In relation to retroactivity I would submit that the submissions made by ACCI and AIG on retroactivity should be taken heed of. It is a very difficult thing to explain to employers that an increase has occurred some months prior to the date that they are advised of the increase.
PN2301
In all of the circumstances I would submit that a moderate increase is better - would better reflect the nature of the safety net system, and unless the Bench has any questions, I will leave you to it.
PN2302
JUSTICE GIUDICE: Thank you, Ms Rutherford. Would you like us to mark your submission? I think it might be desirable.
PN2303
PN2304
JUSTICE GIUDICE: Ms Zeitz.
PN2305
PN2306
MS ZEITZ: Could I also advise the Commission that you will note from the submission as filed, that a number of cases have been referred to. We have provided a book of all the cases in full, although I don't propose going to them. They are provided for the assistance of the Commission and the associates have been provided with seven sets. Perhaps just for completeness, they ought to be marked, but I am not going to formally hand them up.
PN2307
JUSTICE GIUDICE: Yes, I don't think we will mark them. Thank you.
PN2308
MS ZEITZ: By way of introduction, I confirm the support of my client for the submissions of the ACCI, and note that this submission was only to the matters contained in AHA1 that address the incapacity to pay principle. Those matters that are - that refer to specific industry matters are in fact the subject of an application that has been filed with the Commission and we anticipate being listed at some stage in the future.
PN2309
That information was included to place, if you like, a context around the purpose of this submission and this request for the Commission to review the economic incapacity principle.
PN2310
Having said that, I should just make one note. The submissions do talk about - in relation to Ansett Airlines at page 3, that employees were stood down without pay, and without access to social security benefits. I have been advised by the Commonwealth that employees who were stood down, provided they met the usual criteria, were in fact entitled to access social security benefits. So the submission is amended to that extent.
PN2311
When I started to look at the incapacity to pay principle, and how it might apply in the context of my client's concerns, I was reminded of a lesson I learnt from Michael McCutcheon many years ago, he's now Commissioner in the South Australian Industrial Relation Commission, when I first started industrial relations, which was regrettably many years ago, or maybe not regrettably. The lesson was, and it is pertinent in my submission to the context of these submissions, where did the incapacity to pay principle in its current form come from, and what is the context in which it currently operates? And in my submission if those two questions are answered, there is a compelling case for change.
PN2312
Our submission is that in its current form, the incapacity to pay principle is no longer appropriate. It was based on a bargain which was struck with the parties in the mid 80s and the reason for that bargain has since evaporated with the passage of time and changes to legislation. To amend the principle in the way sought by my client would merely be seeing a restoration of substantive right which existed prior to that time and would not lead, in my submission, to a proliferation of applications but to an appropriate basis upon which such applications could be tested.
[2.38pm]
PN2313
SENIOR DEPUTY PRESIDENT WATSON: Ms Zeitz, what was the bargain and when was it struck?
PN2314
MS ZEITZ: My understanding, your Honour, is that in 1983 there were the first of the accord discussions involving, on that occasion, the Commission in presidential conference, that - and I would take the Commission to it a little later. The requirement was - I will backtrack. The Commission may recall that in 1982 there had been a wages pause following a substantial outbreak in terms of wages and conditions increasing and a significant economic recession. The parties went back to the Commission and said, in effect, we want to return to centralised wage fixing.
PN2315
The September 1983 National Wage case was the first step back on the path, if you like, and part of the case that the ACTU then put in very strong terms was that is they were going to be required to commit to principles of wage fixation, then employers should not be able to opt out. In the 1986 National Wage case, that found expression in the incapacity to pay principle in all of its current terms and it was actually found in the terms of the decision itself that that was the submission.
PN2316
The Commission found it, I think it said - and I will take the Commission to it later - found that submission persuasive and took the view that if the unions were going to be required to commit to not seeking wage increases outside the terms of the then applying wage fixing principles, then indeed there should be what one might call a higher than usual test or a harder than usual ability for employers to take the step of seeking exemptions from them. So that is what we say the bargain was. I am not aware who was at that stage representing the ACTU in those discussions before the National Wage Bench.
PN2317
I understand Mr Hawke may have been one of the people involved at - sorry, Mr Kelty. I withdraw - Mr Kelty was one of the people involved but beyond that, I am not able to confirm who else from the ACTU was involved in those discussions. Be that as it may, in my submission, prior to that time - and this is why the submission goes in some detail to the pre 1983 approach - it would be fair to say, in my submission, that a number of claims had been made from time to time seeking that National Wage increases not flow but for various reasons - and the Commission had heard and determined those.
PN2318
The sort of tests that the Commission had applied - and I have referred there to the GMH employees case at point 11, where the Commission - and again in the oil industry case, the Commission confirmed:
PN2319
Nothing we say should be read as affecting the right of an employer or an industry to plead incapacity to meet a claim.
PN2320
So what existed prior to 1983 was a broader based approach to incapacity than applied once the capacity to pay principle came in in 1986 in its formal sense. We say that is consistent with the current legislation. An employer, as a party bound, has a right to make application under the Act, as does an organisation, in relation to the industry or a part of the industry it represents. Legislation doesn't prohibit such an application. And any principles, in our submission, can only go to the circumstances in which it would consider the criteria for exemption or deferral are met.
PN2321
Now, under the current legislation we note that there are three areas where parties are able to depart from what might be called the standard set by this Tribunal and the safety net awards. The first is capacity for agreements to fail the no disadvantage test and that is found in section 170LT(4). That recognises an actual reduction in overall terms and conditions of employment, which I distinguish for the purposes of an application that might be made in relation to this case, but we say that just underscores the need for some consistency across the legislation.
PN2322
Secondly, there is section 170VBG - BCG(3), which talks about, again, the no disadvantage test in relation to Australian Workplace Agreements, again, which contemplates a reduction. Indeed, the current principles, in principle 2, talks about variations above or below the safety net and again in principle 10, making and varying an award above or below the safety net. So it is not a foreign concept that there can be applications to go below the safety net. What makes this principle unique is that it is not actually seeking to go below the safety net. It is merely seeking a deferral or postponement.
PN2323
That is why we say when we look at the language of the principle, it sets a far harsher test for an employer or for a respondent or group of respondents to meet than they are required to meet under the legislation in relation to those other areas where the Act specifically recognises that they may be facing a short term crisis and are capable of having their terms and conditions reduced below the safety net. So we say what we are seeking is not a radical approach. It is really a recognition that somewhere between a reduction in terms and conditions and the flow-on of National Wage or safety net increases there is a hybrid situation that may apply from time to time in appropriate circumstances. That is why we submit that the proposal we put forward, which in effect reinstates what applied prior to 1983 is a sensible and appropriate way in which this matter can be addressed and will not and should not lead to proliferation of applications being made.
[2.45pm]
PN2324
The case to which I have referred at point 13 is the ..... Award 1965 case. It was heard in June 1983 and it is useful because it probably encapsulates very well, in our submission, the situation that applied immediately prior to the 1983 national wage case, and there the Commission found that there was clearly a right in an industry or employer to plead impassive to meet a specific claim, that employers had the onus of rejecting the application in a particular industry or enterprise, that there were differing approaches required depending upon whether individual employers were being considered as was the case in the decision of Justice Maddern a few months earlier or whether in the case they were considering there was some 10,000 operating units to consider in an industry.
PN2325
They noted that there needed to be a stringent approach, and by that we say that the requirement there was that the Commission needed to be satisfied on the balance of probabilities that there was sufficient material upon which it could safely make an assessment that it was appropriate to grant the application as sought. There was also an acknowledgment - and it is at point (e), subclause (e) - that the employer - sorry, that the task of the Commission was to distribute the burden of the incapacity between employers and employees in accordance with every good conscience and the substantial merits of the case.
PN2326
Now, in that case the Commission found that the parlous condition of the industry required justified a referral for a period of six months. So in my submission, it was quite clear firstly that the - did not consider the matter on an employer by an employer basis, but was prepared to look at the industry as a whole based on appropriate material being provided, and that it judged that material on the basis of equity in conscience and the substantial merits of the case. And my client doesn't resile from the fact that that means one doesn't simply appear and say: we can't afford it. There does need to be appropriate and proper material placed before the Commission and we would certainly accept that burden.
PN2327
I have already addressed in part what happened during the 1983 period with centralised wage fixing. The Commission entered into a period of what one would call the highly structured system, the centralised system. A number of people may still recall the many anomalies, competencies and things, that flowed out of that as people worked with and through those principles of wage fixation and I - - -
PN2328
COMMISSIONER LEWIN: We are not going to have any more of those, are we?
PN2329
MS ZEITZ: It is a matter for the Commission. I was reminded the other day when I was talking to Ms Calendar, because I might call Ms Calendar, she seemed - she recalled that she spent a considerable amount of her time in anomalies conferences and had no desire to return to them. The AHA does not submit that this is a case where the introduction of a change to the principle would result in effectively submissions from the bar table, the ..... type of approach. It certainly acknowledges that there needs to be a case presented, but in relation to where this principle came from if I can take the Commission to paragraph 16 which appears at - mainly page 9.
PN2330
I there refer to the 1986 - sorry, the 1983 national wage case which is at tab 7 of the authorities, and that is where it first appeared that the ACTU sought that employers be denied an opportunity to be excluded from national wage adjustments. The Commission said, and I quote:
PN2331
While we would not debar argument being advanced on economic incapacity, we emphasise not only the long established principle of wage fixation that those seeking to argue incapacity must present a strong case, but also that the fundamental basis for a centralised system is uniformity and consistency of treatment. In particular, in cases involving the adjustment of rates in line with national wage decisions the Commission should not refuse an increase except in extreme circumstances.
PN2332
So the first discussion at that point about what the Commission - the direction the Commission was going to take. Now, I contrast that with the current system where we have a safety net system which underpins what is endorsed by the legislation as effectively a decentralised system. There is no bar on the capacity of parties to strike their own bargain subject to meeting certain statutory requirements, most of them procedural. They are able to obtain increases significantly in excess of safety net adjustments. They can reach those agreements either with organisations or with groups of employees or with individuals; a vastly different system of wage fixation to that which applied during the 1990s.
PN2333
SENIOR DEPUTY PRESIDENT WATSON: What should one make of that? Isn't the concept of safety net one which would support it being applied generally except in extreme circumstances?
PN2334
MS ZEITZ: It would, your Honour, in my submission, if it weren't for the fact that in the same set of provisions, legislative provisions, Parliament has recognised that there are exceptions to that rule. And that is all we are arguing about in the context of this principle. It recognises that in relation to section 170LPT(4) and the AWA provision, BCG(4), and makes a specific note in relation to both that provides if you don't meet the no disadvantage test, the Commission can be satisfied that it is not contrary to the public interest where the agreement is part of a reasonable strategy to deal with a short term crisis and to assist in the revival of a single business.
PN2335
So the legislation specifically recognises a capacity to go below the standards in certain exceptional circumstances. And what we say is when you look at the capacity to pay principle, we simply say that we are not actually asking if that would be granted meeting appropriate tests to go below, we are simply asking for a deferral. That is all that incapacity to pay principle effectively achieves.
PN2336
SENIOR DEPUTY PRESIDENT WATSON: But the temporal aspect in respect of the no disadvantage test has been applied by the Commission on a short term basis, isn't it, as well?
PN2337
MS ZEITZ: Yes.
PN2338
SENIOR DEPUTY PRESIDENT WATSON: So it is no different in that sense, is it?
PN2339
MS ZEITZ: No. And we don't submit that if there were a deferral granted, it should be out in to the never never. There are two ways that that can be appropriately dealt with. One is the capacity for review at a certain period of time. The other is simply to acknowledge that the deferral ends on a specific date. The Commission certainly has power to grant a prospective date of operation if it is satisfied, based on the evidence that there is likely to be an upturn or that the anticipated crisis will have concluded.
PN2340
SENIOR DEPUTY PRESIDENT WATSON: Is it true if the industry's submission inconsistent with the single enterprise focus within the no disadvantage, etcetera - - -
PN2341
MS ZEITZ: It is - well, I withdraw that. No, in the sense that the - and this is where we say the difference truly lies. One anticipates going below the safety net to meet a short term crisis which is your one on one agreement, be it certified agreement or AWA. This is saying in relation to a section in the case that has been foreshadowed - as a result of these submissions, in relation to a section of the industry, not the whole industry, a section of the industry, there is good and cogent reason why an increase that might otherwise be granted should be deferred but - - -
PN2342
SENIOR DEPUTY PRESIDENT WATSON: But that is, in effect, going below the safety net level which would have otherwise applied, does it not?
PN2343
MS ZEITZ: It could - - -
PN2344
SENIOR DEPUTY PRESIDENT WATSON: It is no different in that sense.
PN2345
MS ZEITZ: You could certainly argue that but you could equally argue that for every delayed safety net increase that flows into a state system, or that flows in to another award of this Commission, we say it is certainly a balancing exercise, there is no question of that. But in our submission, if one looks at the language of the agreement provisions and what it identifies as a reason that might justify a reduction below the safety net, then if you are looking at a section of an industry or, indeed, individual employers - our submission talks about both respondents and groups of respondents - then, in our submission, the test or the approach that can be taken in that situation can, if you like, rely more appropriately and specifically on the state of the industry than one might expect to find in relation to agreements.
PN2346
And I could note that there are a number of decisions of the Commission where agreements have been entered into that go below the safety net increases; where the Commission has relied on written submissions, where the Commission has identified a period of years of training losses as sufficient for going below the safety net, where the Commission has recognised an effective reduction against the award of about $7000 per year as appropriate for still approving an agreement. And I have the case references if the Commission wishes them.
PN2347
So those are the sorts of cases that are proceeding and where approval or certification is being granted in what we say are far less strenuous circumstances than currently apply where an industry or section of an industry is merely seeking - and we don't understate that in terms of what it actually means, but is merely seeking a deferral of an increase on what could be good and cogent grounds. And I distinguish, as indeed the cases have, what might be called the normal robust commercial environment where times are tough, and I think there is a journalist's cases I have referred to in the submissions where the Commission said that that is just part of the normal hurly-burly of business. I distinguish that from those situations where unforeseen events have an immediate impact on an employer or group of employers in an industry and have drawn consequences in relation to whether they be economic or employment based.
PN2348
And in the fullness of time, of course, our submission will be on the substantive merits of the case that the events that have occurred with the removal of major airline as a player or as an operator in Australia and the current and ongoing uncertainty regarding air travel are two significant events that my clients could not have foreseen. Indeed, I doubt that anybody present in this hearing room would have foreseen either of those events.
PN2349
COMMISSIONER LEWIN: Could I just ask you a question about the analogy you are drawing, Ms Zeitz, with the certification provisions in the Act and the incapacity to pay a principle as it currently applies and as you propose it. Don't your submissions ignore the fact that to allow the reduction in the safety net is a condition precedent, namely the agreement of the employer and the employees? Now, that substantially colours the exercise of that discretion, does it not? That what is presented to the Commission for consideration is not the self-interested submission of one party to the employment relationship but an agreement between both parties entered into in accordance with a process which the statute requires. Isn't that a different situation? And it is at the enterprise level.
PN2350
MS ZEITZ: It is certainly a different situation and, where I am standing here saying that we don't - my client will not be asking for a deferral, it will be asking for a reduction, we would say that that lines up.
PN2351
COMMISSIONER LEWIN: Yes. Well, that is a fair enough distinction but it doesn't go away, does it?
PN2352
MS ZEITZ: No. The difficulty though is, with respect, that the employer who says: I can't afford to pay this wage increase, has to then - assume it was granted next week, has to then try and reach agreement with employees which cannot be guaranteed. It requires a valid majority. Even if it could obtain the agreement, there is no guarantee in the certification process. And we say the significant distinction there is that the no disadvantage test contemplates a reduction in overall terms and conditions, not simply what we say is deferral. So, yes, there is a distinction and we say that that simply lends strength to our argument, our submission that the incapacity to pay principle as we are opposing merely represents what I called earlier the hybrid position for the employer who is faced with difficult circumstances, or a group of employers or the part of the industry against - who is faced with those sorts of circumstances against the employer who may be in such difficult circumstances that they are required to go to their workforce and say: we actually need to offer you something that is below the safety net in order to survive.
[3.00pm]
PN2353
They are different, they are degrees of severity, in my submission. And that - the language of the economic incapacity principle does come back to, in my submission, what was found in the 1986 National Wage Case where the Commission said at pages 230 to 232:
PN2354
To allow employers to opt out of that system and to deny the application for centralised system to some sections of the work-force would completely undermine the essential features of a centralised system. If as the CAI suggest, the no extra-claims provision does not apply to employers, it applies to no-one. If employers are free to deny the centralised system on the grounds of incapacity, that is to pursue sectional claims, it follows that employees must be free to pursue their sectional claims and excessive increases arising out of that centralised system in cases where capacity for additional wage increases exists, and to point to any one of the submission.
PN2355
In my submission that, in very clear terms, differentiates where incapacity to pay principle originally came from, and that is the environment, from the current environment where we say employers - sorry, we say that employees are free to pursue their sectional claims, in excess of increases arising out of the centralised system. That is a fundamental underpinning of the legislation in its current form.
[3.03pm]
PN2356
Now I just wish to address briefly the legislative overview. I have set that out at paragraphs 28 to 31. I won't go to them in great detail. Suffice it to say that the principal objects have changed significantly from the days when this original principle was struck. The emphasis is now placed upon the workplace and the bargain at the workplace level. In paragraphs 32 and following, we discuss the interaction of the incapacity principle and the Commission's powers and I have noted there the decision of the Full Commission in 1990 dealing with the Pastoral Industry Award application, where the Commission noted that there was a marked diversity of experience in the industry sectors covered by the award and that employers did not press for a decision which distinguished between sectors of the industry and/or respondents to the award.
PN2357
Now, again, in our submission, the case there demonstrated a significant shift in the approach to incapacity submissions that had occurred between what I referred to earlier, the earlier Pastoral Award decision, of June 1983 and some seven years, where similar material was presented but a different environment applied and different rules were seen to apply. I have addressed the issues of - talked about the issue of burden of proof and standard of proof. I should note for the Commission that where onus of proof is referred to at paragraphs 33 and 34, that should, of course, read standard of proof.
PN2358
We say that the language of the current principle in its terms places a higher burden of proof or standard of proof on parties than is appropriate in the circumstances. We say that the standard of proof is, if anything, the balance of probabilities. I note that the Commission is not bound by the rules of evidence but to the extent that it would take those into account, the Evidence Act is quite clear that civil jurisdictions apply the civil standard of proof, namely the balance of probabilities. The requirement that a case be rigorously tested, in our submission, lifts that standard almost to what could be required in actual persuasion and we say that is a danger that is inherent in the language of the principles.
PN2359
We don't say that that is the intention per se but it was certainly, in our submission, originally drafted on the basis that it would operate as a deterrent to applications being made. That is the history of the principle. Its very language, in fact, reinforces that it is a deterrent. First of all, it talks about serious or extreme economic adversity and we say that in relation to that, it fails, in our submission, to recognise that a section of an industry can be facing economic adversity. It is inconsistent with the obligation to apply the equity, good conscience and substantial merits of the case test.
PN2360
It potentially places an employer or group of employers in a situation where they can, in our submission - the admission of extreme or serious economic adversity is a significant situation for any employer and there are issues surrounding that about at what point, if that is, indeed, the characterisation of their economic state, that is something that is either commercially appropriate for the market to become aware of or whether it goes even further in the case of a publicly listed company. If they are actually coming to the Commission and saying something more than we are suffering from a short term crisis - in fact, we are facing very serious or extreme economic adversity - does this actually raise obligations to notify creditors, statutory authorities external to this Commission that they may or may not be trading in insolvency.
PN2361
SENIOR DEPUTY PRESIDENT HARRISON: Well, if they are being truthful in the grounds they rely upon, it may.
PN2362
MS ZEITZ: Indeed, it may, your Honour.
PN2363
SENIOR DEPUTY PRESIDENT HARRISON: Well, why should that concern us?
PN2364
MS ZEITZ: Because it may, in fact, not be the case that they are suffering extreme economic adversity in the context of insolvency. Their case may fall short of that but that is not necessarily the character that is put on that by making the application in the context of this principle.
PN2365
SENIOR DEPUTY PRESIDENT HARRISON: Has it ever happened, Ms Zeitz?
PN2366
MS ZEITZ: I am not aware of it having happened, your Honour. I am - I guess I am aware of it not having happened. Ansett, for want of a better term, would be a classic example of a company that was in extreme economic difficulties and yet failed to make an application. There would be others, and there are some notorious ones that one could cite.
PN2367
SENIOR DEPUTY PRESIDENT WATSON: Failed to make application under the incapacity to pay principle?
PN2368
MS ZEITZ: Yes.
PN2369
SENIOR DEPUTY PRESIDENT WATSON: But award rates were of no relevance to Ansett.
PN2370
MS ZEITZ: That is right. They were subject to certified agreements, yes.
PN2371
SENIOR DEPUTY PRESIDENT HARRISON: Not certified under the not contrary to public interest exception.
PN2372
MS ZEITZ: No, indeed, although, in retrospect, they may well could have been but it is certainly not an issue that the Commission could have been aware of, and that is not the intent. But if the purpose of the principle on its current terms is that an employer has to be financially or economically, effectively, on the edge of insolvency before it can apply, in my submission, that is not sustained by the history of the operation of this principle and it really takes it beyond what the context and the framework of the legislation talks about, which is short term crisis.
PN2373
That is what the legislation recognises under the agreement-making provisions as the basis for reduction. In our submission, there may be genuine circumstances falling short, well short, of serious economic or extreme circumstances that do justify either a deferral or a postponement for some period of time, whether that be a couple of months or longer. We say that, indeed, it may be that if an employer says, well, I can manage to keep these people employed for a period of time but, if I have to pay this increase, that means X number of people will no longer be employed, they may, in fact, be circumstances that the Commission can and should take into account in determining whether the principle can operate to the benefit of that employer or that section of industry at that time.
PN2374
So we are not attempting to be prescriptive of the sorts of applications that can be made. We are simply submitting that if you look at the history of the principle and where it came from, it was intended in its terms to operate as a disincentive to people opting out of centralised wage fixing, and it has.
PN2375
SENIOR DEPUTY PRESIDENT WATSON: Ms Zeitz, the principle has been examined by the Commission in the context of the current wages system in several decisions. It is noted, for example, in the 1998 decision, which relies on rejection of similar submissions in 1997 that the freeing up of the economic incapacity principle would be inconsistent with a safety net of the award system. So it is a different context but it is one which has been considered by the Commission in the past when considering the role and the terms of the incapacity principle.
PN2376
MS ZEITZ: Your Honour, the submission we put is that - and I wasn't in either of those previous cases but I don't understand that the context of this submission has previously been put. But the submission we simply make is that if one considers the history of the principle and considers what applied before, then there is no good reason to sustain the principle on its current terms. There was a trade-off, overseen by the Commission: you, union, commit to the wage fixing principles, centralised wage fixation and we will put in - and you employers will only get out of granting an increase in extreme circumstances.
PN2377
The union movement has long since been absolved from that obligation and released from it by legislation. I am not suggesting that is inappropriate. It is just historical fact.
PN2378
SENIOR DEPUTY PRESIDENT WATSON: Well, there is a different context now. That is accepted. The principle has been accepted in that context and the role of minimum safety net wages.
PN2379
MS ZEITZ: Yes, I understand that and I understand that that has certainly been the view of the Commission to this point. I am simply inviting the Commission to reconsider against the background that is the basis of my client's submission that, in the circumstances, the principle in its current form can be amended to what applied pre 1983. We are not trying to reinvent the wheel or recast anything in sort of strange or new or different terms, that there is no evidence that doing that would result in a proliferation of applications because they simply didn't occur prior to 1993 and there is no reason to suggest that they would.
PN2380
What that approach would allow is for sections of industry, in appropriate circumstances, to make application to bring evidence that would be judged on the basis of the Commission's power, section 110, to be able to discharge their onus of proof on the balance of probabilities and to demonstrate that, because of certain unique circumstances that the particular section of industry or that particular employer may be facing, there are good and cogent reasons why there should be a deferral of a wage increase. This is not where we are seeking exemption from wage increases.
PN2381
It is not reinvention of sort of indeterminate wage caucuses. But it is saying if an industry is struggling or part of an industry is struggling, there is certainly authority within this Commission and a recognition that that burden can appropriately be shared with employees. There is no suggestion in that that there is a reduction in terms and conditions of employment. That is what is contemplated by the part VIB and part VID - - -
PN2382
COMMISSIONER LEWIN: A sceptic might admire the strategy involved on the basis that it would shape the principle to fit the cloth of an application cast in a particular mould. I just wonder if your clients actually are seriously prejudiced by the existing form of the principle. Is it the case that they will argue something other than serious economic adversity?
PN2383
MS ZEITZ: What they will argue is that there has been a dramatic impact on their businesses brought about by events which they haven't and could not reasonably have foreseen and that, as a consequence, there are things that flow from that, not the least of which is impacts on their profitability and, secondly, impacts on their ability to maintain employment levels.
PN2384
COMMISSIONER LEWIN: Don't they come under the heading of serious economic adversity?
PN2385
MS ZEITZ: With respect, Commissioner, I don't know that they do. The language of the principle is drafted in terms that suggest something beyond that, on its face.
PN2386
COMMISSIONER LEWIN: Beyond?
PN2387
MS ZEITZ: Something beyond what I have just described as the sort of circumstances that my clients face.
PN2388
COMMISSIONER LEWIN: Well, moving on, is there any suggestion that materials submitted by parties to such a proceeding should not be rigorously tested?
PN2389
MS ZEITZ: No, but we say the wording is superfluous. Can I just pause there. The concept of rigorous testing, we say, raises the standard of proof beyond what is required of other applicants before this Commission. If it doesn't, then it simply shouldn't appear. If the test is simply that you come before this Commission and your case will be appropriately heard, then the wording is superfluous and can only operate as a disincentive.
PN2390
COMMISSIONER LEWIN: Is it not the case that any application has to be judged on the basis of fairness of equity as a result of statutory injunction? That is true, isn't it? The words repeat the statutory requirement.
PN2391
MS ZEITZ: Yes.
PN2392
COMMISSIONER LEWIN: And is there any reason to believe that the current words don't deal with potential impact on employment?
PN2393
MS ZEITZ: I don't believe that the provision could be read as anything other than saying that has to be taken into account.
PN2394
COMMISSIONER LEWIN: Are those words superfluous, well, "potential impact"?
PN2395
MS ZEITZ: In effect, our submission is simply saying if the language that we propose is adopted, that merely says what it means and what really, in actual fact, applies and doesn't, in its terms and in its language, deter the genuine applicant from applying. The history of the principle demonstrates that the wording was actually intended for that very purpose.
[3.18pm]
PN2396
SENIOR DEPUTY PRESIDENT WATSON: Ms Zeitz, why would the current context of fixation of minimum safety net wages in the context of bargaining lead the situation in which in appropriate circumstances enterprise bargaining provides a means by which the employer and employees in a particular establishment may agree to defer a phase in safety net increases, as noted by the full bench in 1999?
PN2397
MS ZEITZ: To reach agreement - - -
PN2398
SENIOR DEPUTY PRESIDENT WATSON: That would put it precisely on a par with the no disadvantage test, in terms of the consent of employees.
PN2399
MS ZEITZ: The difficulty there, of course, is what happens is there is an absence of consent. In my submission, what happens if the employer says to a work-force of, say, 100 people, if we pay this increase five of you will lose your job; if you all agree to defer it, you can all stay in employment.
PN2400
SENIOR DEPUTY PRESIDENT WATSON: But if consent is required to get more than safety net adjustments through bargaining, why shouldn't it be required to opt out of the safety net adjustment?
PN2401
MS ZEITZ: If we could have the reverse, and have consent to a safety net adjustment, we would be quite happy. In my submission, the safety net is arbitrated. The capacity for parties who are subject to an arbitrated safety net to reach agreement externally to the agreement making provisions, certainly if there can be consent that would be no doubt persuasive and certainly a significant factor that the Commission might choose to take into account in considering such an application. We don't resile from that.
PN2402
It is like any such matter that we come before the Commission. Consent arrangements are looked upon, one hopes, with considerable favour by the Commission in settlement of disputes. But in our submission, for those areas of industry where consent is either not able to be achieved, it doesn't detract from the objective reality of the circumstances that the industry or the employer may be facing. And it would certainly not be without historical precedent where employees have refused to either accept, believe or agree - and I am not casting any aspersion in relation to the individuals involved, but it is certainly not without historical precedent that there have been situations where there has been a failure to accept that an industry, or ..... industry is doing as badly as the employer is saying.
PN2403
The press, historically, is full of the rhetoric of various bodies saying, we don't accept that the industry is this badly off, and that the union - employer is saying, yes, they are. that is why they come to this Commission to have it objectively tested. So to suggest that the only way to reach - to deal with this issue is by agreement, that would be perfect - that would be - in an ideal world that would work. But in our submission, we say that it is not - we don't operate in an ideal world and it is simply not practical to suggest that in those circumstances agreement would be achievable.
PN2404
SENIOR DEPUTY PRESIDENT WATSON: But it goes to the site of the ..... precedent in Kingston, doesn't it? Because employees aren't able to obtain an arbitration other than an MX arbitration for levels of wages beyond the safety net, other than via the other principles of wage fixation?
PN2405
MS ZEITZ: Or they are able to reach an agreement, certainly.
PN2406
SENIOR DEPUTY PRESIDENT WATSON: They are able to reach agreement, yes, and the whole of enterprise bargaining focus of the present ..... is focussed on agreement.
PN2407
MS ZEITZ: Yes.
PN2408
SENIOR DEPUTY PRESIDENT WATSON: You are seeking a deviation from that approach within the Act?
PN2409
MS ZEITZ: We are seeking - - -
PN2410
SENIOR DEPUTY PRESIDENT WATSON: Or an easier deviation. There is one available now.
PN2411
MS ZEITZ: We are seeking a recognition that there will be occasions where, although the Act certainly is built on its objects directed to encouraging agreements, agreement is not always practicable. There is no intention under the capacity to pay principle, to seek reductions which is the other area that is available, under agreement provisions. What there is is a capacity, in our submission, to say the Commission in full session, having considered the safety net adjustment, and granted an increase, whatever that may be, on the basis of all the material that is before it, recognises that in the complexity of the employment - or labour market that exists, and the businesses that exist, there maybe circumstances where an employer or part of an industry can say, we fall outside that, because something has happened that affects us differently to that which affects others.
PN2412
And we say our industry or this part of our industry is one of those areas. And in that circumstance, there can be a deferral.
PN2413
SENIOR DEPUTY PRESIDENT WATSON: Yes, very well.
PN2414
MS ZEITZ: And we say further that there is a long history of that with this Commission that stretches back over 30, 40 years. So - and again what we say, we are not seeking anything that diverges from that principle.
PN2415
SENIOR DEPUTY PRESIDENT WATSON: But it is now in a different context, just as - under indexation whereas the no extra claims requirement had a concomitant - - -
PN2416
MS ZEITZ: Yes, yes.
PN2417
SENIOR DEPUTY PRESIDENT WATSON: - - - incapacity to pay, it is now a - if you like, the restraint on bargaining being consent, to get higher increases is the present context.
PN2418
MS ZEITZ: Yes, if course, you would, prior to 1983, to when National Wages increases were in place, particularly 1975 to '81, there was still incapacity to pay arguments run during that period of time, and the test that applied - that was a centralised system of wage fixation. It recognised that there could be agreements outside it. So we really say if - to the extent, although the legislative framework is different, the heart of what applies is still - what applied pre-83, is still relevant and can legitimately be applied now.
PN2419
COMMISSIONER LEWIN: Yes, isn't part of the difficulty with that though the move away from industry focus, as a part of the statutory scheme from '93 onwards? And in particular from '96 onwards? That the idea that, you know, there were industry awards - industry incapacity to pay cases prior to 1993 is not all that surprising, is it, really? And you have quoted the Pastoral Industry decision of 1990. I mean, aren't there really big sort of milestones on the road of the history of Australian industrial relations in recent time, 1993 and 1996, and aren't the statutory context of both of the legislative initiatives involved, such as to make the idea of an industry focus anomalous within the system?
PN2420
MS ZEITZ: In my submission, no, and I - - -
PN2421
COMMISSIONER LEWIN: Industry bargaining, multiple employer bargaining - - -
PN2422
MS ZEITZ: No.
PN2423
COMMISSIONER LEWIN: Industry awards?
PN2424
MS ZEITZ: No, I say that because - not because I entirely disagree, but because the - one of the things that is occurring in the current legislative environment is that there is a transitional phase going through. There are still, within this Commission, strong industry focus. There is in this Commission still strong industry focus in some areas. Our client is one - - -
PN2425
COMMISSIONER LEWIN: In the award system?
PN2426
MS ZEITZ: Yes. And that - - -
PN2427
COMMISSIONER LEWIN: As a safety net?
PN2428
MS ZEITZ: And that continues to apply, and apply as it is, in a number of sections of industry where there has not been a significant take-up of the workplace bargaining agreement outcomes. Now, until that issue is resolved at some stage in the future, and I gather my friend from the AIG was in part referring to that when he talked about the need for some conference to address some of those issues, the system is operating effectively a hybrid format. It has an industry focus with awards that continue to operate substantively as what applies in the workplace, in part, and it also has an agreement focus in relation to those areas where there has been significant take-up of certified agreements, and to a far lesser extent, Australian Workplace Agreements.
PN2429
So I don't disagree, except to say that the reality does not actually line up as yet with the direction of the legislation. And certainly in the industry that I represent, we say that there is and remains a strong industry focus.
PN2430
SENIOR DEPUTY PRESIDENT WATSON: Ms Zeitz, have any of the four or five start establishments you are representing taken steps to negotiate appropriate arrangements within employees to deal with the economic adversity you assert?
PN2431
MS ZEITZ: I am not sure of the answer to that, your Honour. As I said at the outset there has been an application filed and that is part of the next phase of the process. The short answer is, I'm just not aware. It would be foolish of me to guess.
PN2432
SENIOR DEPUTY PRESIDENT WATSON: Yes, very well.
PN2433
COMMISSIONER LEWIN: This maybe an impossible question to answer, but do you have any idea of the union density in the industry sector that you are now focussing on?
PN2434
MS ZEITZ: My understanding is it is not high, but there - - -
PN2435
COMMISSIONER LEWIN: Would it be below the private sector average?
PN2436
MS ZEITZ: That, I don't know the answer to, your Honour.
PN2437
COMMISSIONER LEWIN: Would it be possible - is there any information on that available?
PN2438
MS ZEITZ: As best as I am aware, there is a very high casual part-time component in the industry. And a significant, what one might call, transient component, depending on where the award actually applies. For example, in some areas where there is a very transient population, there would be, I understand, very low in membership in other areas where it is more established, the union membership would be higher. But beyond that I couldn't guess.
PN2439
COMMISSIONER LEWIN: I ask that question, because it seems to me there is an issue of employee voice in the process that you are talking about. Will there be an employee voice which is effectively resonant in either agreement or opposition to proposals such as the employers would put forward?
PN2440
MS ZEITZ: I would imagine that the ALHMWU would have very strong views and certainly I am aware that they have membership in the areas to which the application is directed. So I would anticipate - I don't anticipate consent but I could be surprised.
PN2441
JUSTICE GIUDICE: Just while you are interrupted on some of these factual matters, Ms Zeitz, the four and five star hotels in the group that you are talking about, do any of those employers have certified agreements?
PN2442
MS ZEITZ: My understanding is - it clearly wouldn't apply to those that do. there are a few that od, but the vast majority do not.
PN2443
JUSTICE GIUDICE: But the application doesn't apply to - - -
PN2444
MS ZEITZ: It is not intended to apply.
PN2445
JUSTICE GIUDICE: - - - to any who - - -
PN2446
MS ZEITZ: In short, our submission is that there is a strong case when one looks at the current legislative framework and the history on which the principle was derived for an economic incapacity principle that allows sections of industry or employers to make application. And we simply say further that they can make that application as a right under the legislation anyway. Appropriate principles that govern the exercise of that right, in our submission, would be reflected in the sort of principle that we propose, and do not and will not result in a proliferation of claims.
PN2447
My client certainly accepts that in the circumstances of any application made, it would, as would any other body, bear the burden of establishing its case. We say that burden should be on the basis of not an actual persuasion as would have been the case in Briginshaw, but on the balance of probabilities, in accordance with equity and good conscience and the substantial merits of the case. Excuse me, one moment.
PN2448
And we say that to allow a section of an industry sector to make application does not offend either the principles, the intention of the principles, or indeed the exercise of power by the Commission. I simply refer to section 4 of the Act, which defines industry in very clear terms, and say that our clients, on any of the assessments put forward would fall within that definition of industry.
PN2449
And we ask the Commission to release the respondents to awards from the bargain from which the unions have long since been released and to allow a restoration to a test that does not act on its face as a positive deterrent to appropriate applications being made.
[3.33pm]
PN2450
JUSTICE GIUDICE: Ms Zeitz, you talk about this bargain. If one went back to first principle I suppose one could ask the question, if the Commission is involved in a former legislation, quasi-legislative function of fixing a safety net, why there should be any exceptions at all? If there is a hearing in which all the interested parties have the opportunity to come along and the Commission makes a decision in the face of the competing arguments on both sides as to what is the appropriate amount I suppose one could say: Well, why should there be any exceptions?
PN2451
MS ZEITZ: Well, we would say there are three reasons for that. One is that historically the Commission has always recognised that there may be exceptions and has catered for it. Secondly, the context of the legislation recognises that there can be exceptions, and I have already referred to that.
PN2452
JUSTICE GIUDICE: At the agreement level?
PN2453
MS ZEITZ: At the agreement level. And, thirdly, the - sorry, I have just lost my place for a moment.
PN2454
JUSTICE GIUDICE: Nobody is asking us to remove the incapacity principle, but it did strike me as a question which throws into focus exactly what the purpose of a safety net is.
PN2455
MS ZEITZ: Well, thirdly, there are two aspects. One is that there is not always before a safety net hearing all of the information - logically that simply could not occur. There may, indeed, and would continue to be circumstances where national figures simply do not reflect what one might call discrete pockets. And, indeed, I think it is the third attachment to our submission notes that the impact on the tourist industry of the events of September 11 and 12 would not reflect in the national figures. So there will always be a case for an exception.
PN2456
And, thirdly, and as part of that we simply say that the converse of that holds true. If an application is made subsequently to vary an award without the guidance of a principle such as the one that currently exists, then employers are at large to simply oppose every application that comes before the Commission even with a safety net decision in place. And that is not a desirable outcome because it would simply lead to delays.
PN2457
JUSTICE GIUDICE: I think there is provision in the Act for principles to be made, though, isn't there, by a Full Bench?
PN2458
MS ZEITZ: There is under section 106 but each party bound by an award has a substantive right to make application and it could lead to significant difficulties.
PN2459
JUSTICE GIUDICE: Yes. Yes, thank you.
PN2460
MS ZEITZ: Unless there are any further questions, they are my submissions. Thank you.
PN2461
JUSTICE GIUDICE: Ms Zeitz, we did receive some correspondence about the way in which it is suggested the application which you have been referring to, the further application - put it that way - should be dealt with. Is there anything that you want to submit to us about that?
PN2462
MS ZEITZ: Your Honour - - -
PN2463
JUSTICE GIUDICE: I don't have that in front of me I might add.
PN2464
MS ZEITZ: Neither have I, your Honours.
PN2465
JUSTICE GIUDICE: Yes.
PN2466
MS ZEITZ: The application has been filed perhaps, in a sense, a little prematurely because we don't yet have a decision. But its purpose was to minimise delay in the hearing of the matter and to, if you like, provide the Commission with reassurance that this is a genuine application and not something that my client has dreamed up on a dark and stormy night as a means of creating difficulties.
PN2467
JUSTICE GIUDICE: Yes. Thank you.
PN2468
VICE PRESIDENT ROSS: Mr Moir, just before we move to the next submission. Can I just raise something with you in AIGs reply submission? It deals with the award structures at para 4.2. This is more in the nature of parochial interest given that I head the building industry panel. It occurred to me that whatever might be the outcome of your proposal for the convening of a conference at least in relation to the building industry where a number of the awards are, as you would know, reaching the conclusion point of the award simplification process, it might be an appropriate time for a request for the Building Industry Consultative Council to meet and perhaps consider any proposal that AIG wishes to advance regarding rationalisation. With post-simplification that process might be an easier one than it would have been beforehand. But in any event I just draw that to your attention for your consideration.
PN2469
MR MOIR: Yes, thank you, your Honour, I will take that back.
PN2470
MR CHESTERMAN: If the Commission pleases.
PN2471
JUSTICE GIUDICE: Mr Chesterman.
PN2472
MR CHESTERMAN: Thank you, your Honour. I will be appearing - I would like to confirm that I will be appearing in relation to submissions that were tendered on behalf of a number of retail motor associations, those being the VACC, Victorian Automobile Chamber of Commerce, and Motor Trader organisations in New South Wales, South Australia, Queensland, the ACT, Northern Territory, Western Australia and New South Wales. Now, appearing on behalf of these associations we will be opposing the magnitude of the $25 claim trialled by the ACTU and in doing that we will be looking at a number of areas.
PN2473
Initially the make-up of the industry in both metropolitan and rural areas. And the results of a national survey which have been conducted by A.C. Nielsen which, we would submit, are also supported by quarterly economic surveys prepared by the VACC, the Motor Traders Association of South Australia and Motor Traders Association of New South Wales. We also have in our submission, have an attachment which is a report prepared by the Deakin University in relation to doing business in regional Victoria.
PN2474
Whilst it is not my intention to go to that in any great detail we would say that the A.C. Nielsen survey picks up a lot of the issues that affect rural areas in Australia as the survey which I will come to explain deals with both metropolitan - or the survey was actually dealt - involved both metropolitan and rural areas.
[3.42pm]
PN2475
JUSTICE GIUDICE: Yes.
PN2476
MR CHESTERMAN: Thank you.
PN2477
JUSTICE GIUDICE: Do you want us to mark the submission itself that was filed?
PN2478
PN2479
JUSTICE GIUDICE: And the survey - the survey is part of the document but I think you also provided us with some coloured versions of the - - -
PN2480
MR CHESTERMAN: That is correct, yes.
PN2481
JUSTICE GIUDICE: - - - charts and so on. Yes. Well, they probably don't need to be marked separately.
PN2482
MR CHESTERMAN: Right.
PN2483
JUSTICE GIUDICE: Yes, thank you, Mr Chesterman, continue.
PN2484
MR CHESTERMAN: Thank you, your Honour. I did refer to the fact that I was going to initially look at the industry mix which is dealt with in the main body of the submissions of RMI1. In the heading, paragraph 2: Retail Motor Industry, I realise that this has probably been dealt with before in submissions in previous years but, for the benefit of the Commission and for the record, the retail motor industry comprises car retail and wholesale, motorcycle retail trade and - trailer and caravan dealing, new and used part retail and wholesale, fuel retail, automotive electrical services, smash repair, tyre retail and manufacture, automotive repair and service, and automotive component manufacture.
PN2485
In the next section as a result of a compilation of material from the ABS in 1998, there is reference to the fact that the retail motor industry comprises around 45,462 locations and as at 1998 had a total number of employees of 281,000. The next page of exhibit RMI1, just go to the bottom of the document which deals with the representation of the retail motor industry. We say at the bottom that our submission is a representation of 15,210 operators and made up of numbers in each of the states and of the two territories.
PN2486
If I look at last year, it seems that the numbers of total composition of the industry has shrunk somewhat from 16,251 to 15,210 and prior to going to the A.C. Nielsen or reviewing the results of that survey, we do say that particularly in Victoria that from our experience particularly over the - well, the last year since the last national wage case that some of the reduction in membership has been due in part to the fact that there have been business closures. That evidence has been obtained from our various representatives around Victoria.
PN2487
So we are saying that following the national wage case last year, particularly in Victoria there is direct evidence of the fact that there have been closures due to financial hardship. But the main object of my submissions today is to go to the A.C. Nielsen survey which the Commission has before it. This is the third occasion that the association has submitted the A.C. Nielsen survey. I think on the first occasion it only related to Victoria. Last year it was a national survey and it was a national survey this year.
PN2488
On page 3 of the survey the objectives have been outlined as well as dealing with total number of employees and number of employees by category and also those covered by federal state awards and registered agreements. The survey also deals with a number of employees paid in excess of the award rate and how much in excess each employee receives per week. Then on page 4 there is a continuation of the objectives, going to the question of absorption and whether employees pass on increases awarded by national wage case decisions. Reference to overall level of business profitability compared to the same period last year; impact of last year's $13 to $15 wage increase on the profitability of members; impact of GST on business profitability; and the impact of normal business cycle on profitability. Perhaps if I can now go to page 7 which talks about - - -
PN2489
SENIOR DEPUTY PRESIDENT HARRISON: Before you do, would you assist me with what is involved in a computer assisted telephone interviewing - what is involved in that, other than that which I am exposed to from time to time myself when I am aided with my inquiries by computers?
PN2490
MR CHESTERMAN: Right. In this case, the survey was conducted initially by all the states providing all their membership details to A.C. Nielsen and then they did a random - I don't quite know how it is done but they do apparently a representative sample survey of various categories of members around Australia, and then there is a question - then what happens is each of the associations sends out to all members a notice saying that they could be called for random telephone survey involving aspects related to this particular case. And then A.C. Nielsen have a number of - as you and I go through, a number of telephone callers who ring up and they have a questionnaire which they then read to each of the members that have being selected for the random survey.
PN2491
SENIOR DEPUTY PRESIDENT HARRISON: They are human beings.
PN2492
MR CHESTERMAN: Yes, quite right.
PN2493
SENIOR DEPUTY PRESIDENT HARRISON: Yes, I understand.
PN2494
MR CHESTERMAN: Right. Just referring to page 7, research design, as per last year the survey involves around 1008 interviews conducted nationally, and the break-up of that research design is set out on page 8.
[3.50pm]
PN2495
But one thing that is not referred to in the nature of the research design is that as it turns out the 1008 members were made up of 585 members, or 58 per cent of those in metropolitan areas, and 423 which are in rural areas. Perhaps if I could go now to the main sections of the survey, and they start on page 11 with the sub-heading: Business Employment. Each of these sections that I will be dealing with have at the bottom of - or underneath the commentary which has been added by VACC, but that may very well not be in the document that was provided to the Commission - or posted to the Commission, but it would be in the e-mail version.
PN2496
VICE PRESIDENT McINTYRE: There is no commentary in the smaller document.
PN2497
MR CHESTERMAN: No, no, there is no commentary in that document, but there should be in the e-mail version.
PN2498
VICE PRESIDENT McINTYRE: Being the big document.
PN2499
MR CHESTERMAN: Yes.
PN2500
VICE PRESIDENT McINTYRE: Yes, thanks, Mr Chesterman.
PN2501
MR CHESTERMAN: The first graph I want to refer to is on page 12, and I think this graph is being consistent with what we have put to the Commission in previous years both by national survey and also by the quarterly economic surveys done by VACC South Australia and New South Wales, and that is that this survey indicates that the majority of employees still sits in the one to five employee range. So either you are looking at 36 per cent - or businesses which fall between the 16 to 20 group of employees, or one to five which is 49 per cent.
PN2502
There is just one other thing in the commentary that I have on my document, one thing I would like to refer the Commission to, and that is that we say - and I will quote this because I will be going into this particular issue later on:
PN2503
Small business perceptions of the economy at state and federal level do vary considerably from that of medium to large business. This perception cannot be ignored considering that in 1998 to '99, it was estimated that 95 per cent of all private sector businesses were represented by small business. These small businesses employed almost 3.4 million people for 48 per cent of private sector employment according to the ABS.
PN2504
SENIOR DEPUTY PRESIDENT WATSON: Look, we have found your notes. It required some knowledge of Powerpoint presentation of how to find the speaking notes.
PN2505
MR CHESTERMAN: So everyone has the - - -
PN2506
SENIOR DEPUTY PRESIDENT WATSON: Well, those with a computer.
PN2507
JUSTICE GIUDICE: Those who have a computer.
PN2508
MR CHESTERMAN: Right, okay.
PN2509
VICE PRESIDENT McINTYRE: I have got the paragraph you read on a piece of paper, Mr Chesterman.
PN2510
MR CHESTERMAN: Very good. Perhaps if I could then - the next graph on page 13 deals with a number of employees - well, the heading is: Number of employees by category. But basically that deals with the number of employees who employ one to five employees, so it deals specifically with that range, and we are saying from that graph that it is quite clear that the majority of full-time employees 55 per cent work in businesses of one to five employees; the smaller percentage in those 26 per cent work in business with six to 20 employees; and 6 per cent work in businesses with more than 20 employees.
PN2511
It seems quite clear from the survey that in the main area of one to five employees, part-time and casual employees represent a very small number of the employees in those areas. If I could go down to the next graph on page 14, this deals with award coverage of - the graphs on pages 14, 15 and 16 deal with award coverage of full-time, part-time and casual employees, and it is quite clear from both this survey and previous surveys that this is one industry where the employees are heavily regulated by federal and state awards.
PN2512
Whilst there are some registered agreements they are very few, although I note that from the previous survey that we tendered last year that there has been a minor increase, but generally you will find that employers in this industry are more inclined to pay award rates of pay than go to either enterprise agreements or workplace agreements. From experience I would have to say that over the last three years I wouldn't have done more than four or five enterprise agreements, although I would equally have to say that there are some smaller operators now who are interested in doing workplace agreements based on productivity arrangements, but I would have to say generally the pick-up for certified agreements and workplace agreements has been very slow in this industry.
[3.56pm]
PN2513
Similarly, as I said, with the graph on award coverage of part-time employees on page 15 and casual employees on 16, that basically there is a significant award coverage in those areas. I now move to the next graph on page 17 which is employees paid in excess of the award rate. It is evident from this graph that the majority of those employed in metropolitan areas are paid in excess of - well, the highest number comes at the end of that graph where 29 per cent are in the area where employees were paid more than $81 in excess of the award rate of pay.
PN2514
Now, the ACTU, in their reply of 19 March, say at R9.11 that - page 17 of the A.C. Nielsen survey demonstrates that the overwhelming majority of over-award employees receive amounts in excess of $25 which the ACTU is claiming in these proceedings. Now, we say that that misrepresents the situation. We say it misrepresents the situation because one of the biggest problems this industry faces, and it is an issue that the industry itself must face in what it can do with it, is a skill shortage. We are saying that there is a need for employers in a lot of cases to pay over the award in order to retain skilled award employees.
PN2515
And we are saying that is the reason why you will find that there is quite a significant amount of employees being paid in excess of the award from - well, from the second column from $1 to $20 in excess of the award to more than $81 in excess of the award.
PN2516
SENIOR DEPUTY PRESIDENT WATSON: But whatever the cause, employees are being paid generally over awards in excess of $25 a week are they not?
PN2517
MR CHESTERMAN: Sorry?
PN2518
SENIOR DEPUTY PRESIDENT WATSON: Whatever the cause, employees are being paid generally more than $25 over award - - -
PN2519
MR CHESTERMAN: Yes, that is true, but equally have to say that in a lot of cases with skilled employees that basically employers could not retain staff if they didn't pay higher award rates - well - sorry, when I say "higher award rates", well, rates in excess of the minimum award rate of pay.
PN2520
COMMISSIONER LEWIN: Yes. Would you like to comment on the differential between the rate of over-award payment as between full-time employees and part-time and casual employees? It seems a remarkably stark difference.
PN2521
MR CHESTERMAN: Well, there is, and I would have to say that from experience the employment of part-time and casual employees generally you will find that there is very little enthusiasm to pay over-award rates of pay. I mean, when members ring up to ask for rates of pay and it relates to part-time and casual employees, basically they just want, you know, the minimum rate - - -
PN2522
COMMISSIONER LEWIN: They just want to pay the award rate if possible.
PN2523
MR CHESTERMAN: Yes, yes.
PN2524
COMMISSIONER LEWIN: Some might consider there might be a bit of gender bias in that attitude.
PN2525
MR CHESTERMAN: Well, I mean, I think it goes back to - I think it must - in most cases when you are dealing with award rates of pay, and I know it seems fairly trite, but it does come back to the question of the make-up of the industry. You are looking at an industry that predominantly has employees - or between one and five employees. And you would have to say that in those businesses you are probably looking at a husband and a wife and they might need a couple of other employees. So generally that is the reason why, I think, in those cases they are paying pretty close to the award.
PN2526
Page 18, if I could go to page 18. It deals with the question of absorption or non-absorption and we are saying that following on from what I said earlier that there is a pressure to pass on wage increases and the survey at this stage, or from the last survey has shown that at the moment 45 per cent pass on the wage increase, 42 don't but, then, there is also a group of 11 per cent of employers who sometimes may pass on the award increase, sometimes they don't.
PN2527
SENIOR DEPUTY PRESIDENT WATSON: Mr Chesterman, from what you said earlier and what is recorded in the economic survey, would it be fair to say any passing on of increases is largely related to labour shortages?
PN2528
MR CHESTERMAN: I would have to say that that would represent a major reason why the rates are passed on.
PN2529
COMMISSIONER LEWIN: And the incidence in any event will be very low, will it not, for the reasons which you just explained? Namely, that it won't be passed on to part-time and casual employees in any significant number because 83 per cent of those, for instance, under federal awards are paid at the award rate.
[4.02pm]
PN2530
MR CHESTERMAN: Look, I find it hard to answer that question directly without - - -
PN2531
COMMISSIONER LEWIN: Well, it seems to be the number that is shown in the table. There are 10 per cent of full time employees on the award rate of pay and 83 per cent of part time employees and 83 per cent of casual employees on the award rate of pay, yet full time employees constitute only 21 per cent of the workforce in the industry.
PN2532
MR CHESTERMAN: Yes, yes.
PN2533
COMMISSIONER LEWIN: So that the incidents that flow on of safety net increases is likely to be confined to people who are in receipt of over award payments by virtue of the labour shortages, namely the full time employees that you have identified.
PN2534
MR CHESTERMAN: Yes, I would have to say that from my experience that would probably be the case.
PN2535
JUSTICE GIUDICE: Mr Chesterman, is there a table here which tells us what proportion of the employees are full time on an industry basis?
PN2536
MR CHESTERMAN: Yes, if you go back to - well, the only graph we have on that would be on page 14 in terms of those covered - whether those are covered - sorry, whether those full time employees are covered by a federal award, state award or a registered agreement or award free.
PN2537
JUSTICE GIUDICE: But that doesn't - yes. No, the question I was asking was, what is the proportion of the employees who are full time as distinct from casual and part time? Is there a table that tells us that?
PN2538
MR CHESTERMAN: No, there - - -
PN2539
JUSTICE GIUDICE: No. Thank you.
PN2540
SENIOR DEPUTY PRESIDENT WATSON: Mr Chesterman, are any of the associations that you represent members of ACCI who would have been included within their survey?
PN2541
MR CHESTERMAN: No.
PN2542
SENIOR DEPUTY PRESIDENT WATSON: No. Thank you.
PN2543
MR CHESTERMAN: No, we did the survey independently. Turning to page - well, the next section is business profitability, and that - it is on page 20. And we are saying that since the last wage increase in May 2001 those involved in this survey have indicated, or 53 per cent have indicated that there has been a decrease in profitability whilst only 18 per cent have said there has been an increase. The overall level of business profitability, as outlined in the A.C. Nielsen survey, have generally been supported by the three association surveys which are set out in the main body of the submission. I won't go to them unless the Commission wants me to but we do say that in most years that we have presented submissions to the national wage bench we have found that the outcome of matters involving profitability have also been - have generally been mirrored in the quarterly economic surveys of the states.
PN2544
The next graph on page 21 refers to the impact of factors on profitability compared to the same period last year. Now, this graph - the reason - sorry, if I can start that again. The survey deals with three issues because the members were only asked to deal with three issues so - - -
PN2545
JUSTICE GIUDICE: But the question gave them a choice as to those three or - - -
PN2546
MR CHESTERMAN: Yes, that is quite true, yes. So it was only related to three questions. And now we are saying that in relation to two, obviously GST and normal business cycle, well, they are issues that are outside this Commission's jurisdiction, if you like, and that realistically what we are looking at in terms of coming to the Commission in presenting these submissions relates to the 49 per cent where we are saying that the award increase has had an impact on profitability.
PN2547
SENIOR DEPUTY PRESIDENT WATSON: Mr Chesterman, I thought you told me that none of the associations you represent were members of ACCI.
PN2548
MR CHESTERMAN: I am sorry. Well, the VACC is a member of ACCI.
PN2549
SENIOR DEPUTY PRESIDENT WATSON: Yes, that is evident from its website. But were VACC members included within the survey they undertook? I realise the A.C. Nielsen survey was a different one undertaken by yourself but was VACC one of the organisations which distributed the ACCI survey?
PN2550
MR CHESTERMAN: Well, now, I am not aware that that actually happened, Senior Deputy President. We have told ACCI that we would be presenting our own submissions to the national wage case so I am fairly sure, but I can confirm that that they weren't in that survey.
PN2551
SENIOR DEPUTY PRESIDENT WATSON: Well, if you could. An exclusion of a particular organisation might, given the survey goes beyond the wages material but also goes to their economic activity surveys, might have some effect for - on that survey.
PN2552
MR CHESTERMAN: Yes. No, no, I am - but I would have to say that I can't recall any survey going out - - -
PN2553
SENIOR DEPUTY PRESIDENT WATSON: Well, if you could check that perhaps, and let us know.
PN2554
MR CHESTERMAN: Yes, that is fine.
[4.08pm]
PN2555
COMMISSIONER LEWIN: Mr Chesterman - I am sorry - when the President asked you a question about the proportion of employees, full-time, part-time and casual earlier, you said that there was no information about that. On your supplementary folder of the tables and graphs at page 9, could you just explain to me why the numbers in the first column are in bold, and the total line is bold, and the segmentation is in a different font.
PN2556
MR CHESTERMAN: Which page are you - - -
PN2557
COMMISSIONER LEWIN: Page 9 of your folder. It wasn't marked, you handed it up, and it is a table - - -
PN2558
MR CHESTERMAN: I haven't got that - I actually - I am working from - so is it the graph dealing with - - -
PN2559
COMMISSIONER LEWIN: No, it is a table.
PN2560
MR CHESTERMAN: A table.
PN2561
COMMISSIONER LEWIN: And it is called: Employees paid in excess of award rate.
PN2562
VICE PRESIDENT McINTYRE: Page 17 of the main exhibit, Mr Chesterman.
PN2563
MR CHESTERMAN: Right. Yes, Commissioner, yes.
PN2564
COMMISSIONER LEWIN: And the question I am asking is: is there a reason why the numbers shown in the first column and in the total column are bold, and the segmentation is not bold?
PN2565
MR CHESTERMAN: Because the section in the - the highlighted section is an average, as I understand it.
PN2566
COMMISSIONER: You mean the yellow highlight?
PN2567
MR CHESTERMAN: Yes, the yellow highlighted is an average.
PN2568
COMMISSIONER LEWIN: But the whole of the figures in that column are in bold type, as are the total numbers. So the question I am asking you is: in fact, should we read the first column to be the breakdown of the total number of employees by category as the text in the table seems to suggest?
PN2569
MR CHESTERMAN: Yes. So we would say that the average of those paid on the award rate of pay, representing those in metropolitan and those in rural areas, that average is 21 per cent. And then similarly, when you are looking at going through the various other columns, then the average of those in metropolitan and rural areas in the $1 to $20 range was 7 per cent.
PN2570
COMMISSIONER LEWIN: Thank you.
PN2571
MR CHESTERMAN: So if I could come back now to my page 21, impact on factors on profitability compared to the same period last year, the comment I would make in relation to that - and it has been included in the comment section - is that one of the issues that the industry does face, and we say is an issue when it comes to wage increases and the potential impact it might have on future increases or future profitability - levels of profitability - is that GST particularly has created problems with cash flow. And we say that that is - any further increases, or significant increases given by the Commission, could 1, erode profitability in future years, and 2, may lead to a lessening of employment levels.
PN2572
JUSTICE GIUDICE: Mr Chesterman, just a question of interpretation: looking at the left-hand column, the award increase column, could it be right to conclude that, half of the respondents thought that last year's award increase had a negative effect on profitability, and half thought it had no effect or a positive effect?
PN2573
MR CHESTERMAN: That is right.
PN2574
JUSTICE GIUDICE: Yes.
PN2575
MR CHESTERMAN: Now, if I can move to the next graph at page 22. This graph relates to - there was an earlier graph which looked at the overall level of business profitability, and in that particular graph there was reference to the fact that 18 per cent of those surveyed indicated there had been an increase in profitability. Now, the graph that is on page 22, effective changes as a result of an overall increase in business profitability, deals with the questions that were asked of those people, or those members - or the 18 per cent of members who have indicated there was an increase in profitability.
PN2576
And we are saying in this graph that the areas that we consider relevant for the purpose of our submissions in relation to the ACTUs claim is the reference to the absorption of product or service costs and the selling price, which we say in our submission in relation to those two areas is that it is apparent that members, as a result of previous wage increases, instead of passing increases on or alternatively those members who have an inability to pass prices or increases on have had to absorb product - have had to absorb the increase.
PN2577
And we are saying that, whilst it is apparent at the moment as a result of this survey, that - and I will come to the last graph - there hasn't been a - so that the major indicator in relation to change in employment seems to say that there is no change, we are saying that in future there is a possibility that, given that members seem to be stating that they are absorbing product of service costs that there is a likelihood in the future that this could lead to a decrease in employment in the industry.
PN2578
JUSTICE GIUDICE: Mr Chesterman, how long do you have to go with your submissions?
PN2579
MR CHESTERMAN: I would say 10 minutes, 15 minutes.
PN2580
JUSTICE GIUDICE: Yes, well you continue. We are watching the clock.
PN2581
MR CHESTERMAN: Yes. You are not the only one, your Honour, I guarantee you.
[4.16pm]
PN2582
The next graph on page 23, this deals with the effect of changes as a result of an overall decrease in profitability. So this particular graph deals with those 53 per cent in the previous graph that indicated that there had been a decrease in profitability. And we are saying in this graph that once again - the major issue it seems from the survey is that once again there has been an absorption in the increase of costs.
PN2583
Once again also I think you could say that in the sectors dealing with employment, on the left hand side, a number of employees - or that graph dealing with a number of employees, employee wages levels and amount of overtime. Then we are saying that particularly in relation
PN2584
to a number of employees, well, whilst at the moment it is 39 per cent, there has been a decrease of 39 per cent, we are saying that the issue for concern to us would be the graph that deals with the increase in absorption of costs.
PN2585
The final graph deals with the effect of change in profitability on the structure and scheduling of staff employment. Now, I made the comment earlier that it is our view that whilst at the moment it appears that there has been, of those - sorry, those members that were included in the survey, that 59 per cent of them said that there had been no change in the level of profitability, there had been a negative change of 30 per cent.
PN2586
We are saying that given some of the issues that were on the previous graph, particularly absorption of product once again, that whilst it is not apparent there has been a significant change in employment levels from the last National Wage increase, we are saying that the nature of the industry as it stands at the moment is not one where you could say that it is looking at the next 12 months in extremely optimistic terms. In fact, I think you could say that whilst there has been a pick up in December, there is a degree of, say, pessimism for the next 12 months.
PN2587
There is one other matter I would like to refer to in relation to a statement - sorry, included in the ACTUs Living Wage case reply submission. They say at R9.11 that it should be noted that pages 23 and 24 of the A.C. Nielsen report employee wage levels appear to have had a negligible effect on profitability from those businesses surveyed, notwithstanding the earlier suggestion in the report that award increases impact negatively on profitability.
PN2588
We are saying that if you look at the graph on page 23, which deals with those members who had reported a decrease in profitability, then a part of the reason for that - a side effect of that profitability was a 39 per cent decrease in those employed. And we are also submitting that if you look at page 24, whilst at this stage there is little - that the majority of the members are saying that there has been little chance to the structure and scheduling of staff employed, we are saying there is a 30 per cent negative change.
PN2589
That concludes my submissions in relation to the A.C. Nielsen report. Just a couple of other matters that I will go to, which will be in the main body of the submission. The first one relates to the claim for a $25 a week increase.
PN2590
Now, we are not saying that there should not be an increase. But what we are saying is that $25 is excessive, given the circumstances that we have outlined in the survey. We have made the submission that we believe that any increase that is awarded by the Commission should be less than the increases awarded last year. And we say that because we think that given - or we don't think, but our submissions are that given the results of the survey, the regular quarterly economic surveys that these three Associations undertake, that a $25 a week increase would not be appropriate for the industry, and would possibly have an impact on employment levels.
PN2591
The issue which is quite important to us, aside from the money, is the fourth point I referred to, and that is the application of any increases awarded by the Commission. I have to say from personal experience that any retrospective date has created significant problems for members, and for those who are servicing members.
PN2592
I have said a couple of times, or referred a couple of times in the submissions to the fact that cash flow is an issue for members. And I have to say that in dealing with retrospective payments of National
PN2593
Wage increases, it has caused considerable discomfort to both members and representatives of the Association.
PN2594
So we would not be seeking a retrospective date. We believe the best way of dealing with increases would be having a prospective date of operation, with the union making application to the Commission, and that matter, or the terms of the orders being confirmed in that hearing. Now, I would also say that I think that is also incumbent on the Associations to make sure that they also act quickly in ensuring that there are discussions between the union and also the Associations, to ensure that there is a speedy application of the wage increases.
PN2595
The only other thing I would refer to, your Honour, relates to the fifth point. It relates to a comment made by the ACTU in its conclusion on industry submissions. They say at R9.16, that nothing in the industries' specific submissions adds anything of substance to the argument in these proceedings. They are of little assistance to the Commission, other than providing some indication of the degree to which employers' self interest produces distorted perceptions of economic reality, when compared with more reputable data sources.
PN2596
Now, we are saying, and I have earlier referred to it, that in the A. C. Nielsen report - and in fact it was in one of the first graphs - that the ABS has said that as at 1998/99, there were 3.4 million people employed in small business, or 48 per cent of all private sector employment. We are saying that that comment, in our submission, both undervalues or understates the importance of small business in the national economy.
PN2597
We are also saying it undervalues the results of the survey which have been conducted by the Associations nationally, which we consider gives quite credible evidence to the fact that there are - the retail automotive industry has some economic concerns which would not justify a $25 a week increase. Thanks very much.
PN2598
JUSTICE GIUDICE: Mr Chesterman, can I just ask you a question about the retail motor industry's position in relation to the process for varying awards procedure. I think there are two awards in the industry before us, are there not?
PN2599
MR CHESTERMAN: Yes.
PN2600
JUSTICE GIUDICE: On the last page of the submission it is said that:
PN2601
In our view, to implement the decision of the full bench, a party to an award should make a separate application.
PN2602
You are not speaking there about the two applications that are before the full bench, are you?
PN2603
MR CHESTERMAN: No, no. I mean - - -
PN2604
JUSTICE GIUDICE: No, it is other applications?
PN2605
MR CHESTERMAN: Yes, that is right.
PN2606
JUSTICE GIUDICE: Yes, thank you for clarifying that.
PN2607
COMMISSIONER LEWIN: Mr Chesterman, could I have a copy of the Nielsen questionnaire, please?
PN2608
MR CHESTERMAN: Yes.
PN2609
COMMISSIONER LEWIN: The actual questionnaire. I do not think it is in the material, is it?
PN2610
MR CHESTERMAN: No, it is not, no.
PN2611
MR CHESTERMAN: Could I have a copy of it please? Thank you.
PN2612
JUSTICE GIUDICE: Well, Mr Chesterman, I think that if you are going to provide that questionnaire, it should be forwarded with sufficient copies for members of the bench and the parties, and it will be given an exhibit number, which will be RMI2, when in due course we receive it.
PN2613
We will adjourn now until 10 o'clock in the morning.
ADJOURNED UNTIL TUESDAY, 9 APRIL 2002 [4.25pm]
INDEX
LIST OF WITNESSES, EXHIBITS AND MFIs |
EXHIBIT #ACTU11 EMAIL FROM MR HILTON OF ABS, DATED 15/03/2002 PN1984
EXHIBIT #ACTU12 EMAIL FROM MR HILTON OF ABS, DATED 05/04/2002 PN1984
EXHIBIT #ACCI11 DOCUMENT RE SURVEY RESULTS PN2014
EXHIBIT #AIG1 SUBMISSION BY AI GROUP PN2097
EXHIBIT #AIG2 REPLY SUBMISSION BY AI GROUP PN2097
EXHIBIT #AIG3 TRANSCRIPT OF INTERVIEW FROM ABC LATELINE PROGRAM PN2155
EXHIBIT #AIG4 DOCUMENT PN2227
EXHIBIT #AIG5 MATERIAL FROM DEPARTMENT OF FAMILY AND COMMUNITY SERVICES WEBSITE PN2228
EXHIBIT #PIAA1 SUBMISSION OF MS RUTHERFORD PN2304
EXHIBIT #AHA1 SUBMISSION DATED 01/03/2002 PN2306
EXHIBIT #RMI1 SUBMISSION OF RETAIL MOTOR INDUSTRY PN2479