AUSCRIPT PTY LTD
ABN 76 082 664 220
Level 4, 179 Queen St MELBOURNE Vic 3000
(GPO Box 1114J MELBOURNE Vic 3001)
DX 305 Melbourne Tel:(03) 9672-5608 Fax:(03) 9670-8883
TRANSCRIPT OF PROCEEDINGS
O/N VT10297
A 1.4.03
AUSTRALIAN INDUSTRIAL
RELATIONS COMMISSION
JUSTICE GIUDICE
VICE PRESIDENT ROSS
VICE PRESIDENT LAWLER
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT LACY
COMMISSIONER HOFFMAN
COMMISSIONER LARKIN
C2002/2281, 2282, 2283, 2284,
4268, 5545, 5546, 5547, 5548,
5558, 5559, 5569, 5639, 5640,
5674, 5679, 5692, 5693, 5694
and 5716
CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL
TERRITORY) AWARD 1998
LAUNDRY INDUSTRY (VICTORIA) AWARD 1998
BUILDING SERVICES (VICTORIA) AWARD 1994
THE HOSPITALITY INDUSTRY - ACCOMMODATION,
HOTELS, RESORTS AND GAMING AWARD 1998
TIMBER AND ALLIED INDUSTRIES AWARD 1999
RUBBER, PLASTIC AND CABLE MAKING INDUSTRY
- GENERAL - AWARD 1998
GROCERY PRODUCTS MANUFACTURE - MANUFACTURING
GROCERS AWARD 1996
STORAGE SERVICES - GENERAL - AWARD 1999
COMMERCIAL SALES (VICTORIA) AWARD 1999
VICTORIAN LOCAL AUTHORITIES AWARD 2001
CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIA) AWARD 1999
TRANSPORT WORKERS AWARD 1998
GRAPHIC ARTS - GENERAL - AWARD 2000
METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998
HEALTH AND ALLIED SERVICES - PRIVATE
SECTOR - VICTORIA CONSOLIDATED AWARD 1998
RETAIL AND WHOLESALE INDUSTRY - SHOP
EMPLOYEES - AUSTRALIAN CAPITAL TERRITORY
- AWARD 2000
VEHICLE INDUSTRY AWARD 2000
THE VEHICLE INDUSTRY - REPAIR, SERVICES
AND RETAIL - AWARD 1983
HORSE TRAINING INDUSTRY AWARD 1998
CLOTHING TRADES AWARD 1999
Applications under section 113 of the Act
and section 108 References to a Full Bench
by the applicant unions to vary the above
awards re Safety Net Review 2003
MELBOURNE
10.05 AM, MONDAY, 31 MARCH 2003
Continued from 16.12.02
JUSTICE GIUDICE: Yes, are there any new appearances or changes in appearances?
PN46
MR WATSON: Your Honour, there is a change in appearance here. In all matters, I appear with MS M. GAYNOR and MR C. ROBINSON but in addition I appear with MR G. COMBET for the ACTU intervening and all applicant unions, and in the AMWU matters I appear with MR A. SACHINIDIS.
PN47
MR G. MARTIN SC: There is a change of appearance for the State and Territory Governments. I appear now in place of Mr Niall.
PN48
MR P. ANDERSON: In all matters, I appear with DR S. KATES, assisted by MR S. BARKLAMB and MR C. HARRIS. I also appear for the Agribusiness Employers Federation, intervening in these matters.
PN49
MR M. MOIR: There is a change of appearance. I appear on behalf of the Australian Industry Group.
PN50
MS K. WILSON: I appear on behalf of DEAC and NCID with MR P. CAIN. We seek leave to intervene on behalf of Workers with a Disability.
PN51
MR F. COSTIGAN: I believe I am a new appearance. I appear with MR P. O'GRADY for the Australian Catholic Commission for Employment Relations. I seek leave to intervene and for leave to appear.
PN52
MR ANDERSON: If the Commission pleases, there is one issue that we raise in respect of the appearance by DEAC, the Disability Employment Action Centre.
PN53
JUSTICE GIUDICE: Yes. Do you object to the application for leave to intervene?
PN54
MR ANDERSON: No, we would seek that the application for leave to appear be limited to matters which relate to these proceedings. The written submissions of that group range far and wide into a range of industrial matters which employers who employ sheltered workshops would see as well outside the parameters of this case and so we would seek that the intervention be limited to matters which relate directly to the issues at hand.
PN55
JUSTICE GIUDICE: Yes. Well, is there any other submission in relation to the application by DEAC to intervene?
PN56
MR COLE: If the Commission pleases, the Commonwealth would support the position just put by ACCI.
PN57
JUSTICE GIUDICE: Yes. No other submissions? Ms Wilson, perhaps you might address the submission made by Mr Anderson.
PN58
MS WILSON: We believe that under section 43(1) of the Workplace Relations Act 1996 that the Commission has a discretion to allow a person, body or organisation to intervene if the Commission is of the opinion that that person, body or organisation should be heard. Both DEAC and NCID are government and community funded organisations with a genuine interest and expertise in promoting the rights of people with disabilities within the workplace. Further details of NCID and DEAC are contained within our written submissions.
PN59
Both DEAC and NCID have a number of clients who are employed in various business services throughout Victoria and other states within Australia. Business services, perhaps better known as sheltered workshops, offer supported employment to workers with a disability. Many of these workers are our clients and have complaints of discrimination in relation to their wages and conditions. In seeking leave to intervene we do not intend to divert the Commission to a matter that would not otherwise be considered or that is irrelevant to the parties involved in the safety net review.
PN60
These matters of our submission pertain to the fundamental industrial rights of people with disabilities. It is our submission that it is not in the public's interest for workers with disabilities to be denied the right to the same safety nets that are enjoyed by all other workers. We are seeking the Commission's assistance to ensure that the wages and conditions of employment of all workers with disability, particularly workers with disability who receive Commonwealth employment assistance, are governed by the safety net, giving fair minimum wages and conditions of employment as per section 88B(2) of the Act.
PN61
DEAC and NCID seek that the safety net be equally applied to the wages and employment conditions of workers with disability without discrimination in the determination of awards and workplace agreements. We wish to present to the Commission evidence that many thousands of workers with disability receive wages and employment conditions well below the safety net without regard to the minimum rates of pay and conditions in relevant awards.
PN62
We submit that these workers are employees under the Workplace Relations Act and "employee" is defined to include any person whose usual occupation is that of employee but does not include any person undertaking a vocational placement. Where workers with a disability are paid for these services, they are employees under the Act and, therefore, come under this application. Under the Disability Services Act 1986, these employees are recognised as employees at law. It is, therefore, apparent that employees within business services are entitled to minimum terms and conditions, whether it be by schedule 1A of the Workplace Relations Act, relevant awards, enterprise bargaining agreements or Australian Workplace Agreements.
PN63
We further submit that under section 90 of the Workplace Relations Act the Commission must take into account public interest. It is an accepted community standard that Australians with disabilities have the same rights as other Australians. This community standard is reflected in Commonwealth law, including the Disability Services Act 1986, the Disability Act 1992 and the Workplace Relations Act 1996. Therefore, Australia has a standard for an inclusive society where individual human differences are valued and given equal status under the law.
PN64
It is, therefore, in the public interest to ensure that our system, industrial relations, its objects and processes accommodate the equal rights of these job seekers and workers with a disability. The intervention of DEAC and NCID recognises that the current wages and employment conditions of workers in the business services industry have not been considered by the public. However, it is in the public's interest to ensure that wages and employment conditions of workers are non-discriminatory and are determined according to the safety net.
PN65
We acknowledge that the application of the ACTU is confined to an increase of $24.60 to workers throughout Australia on minimum wages. Much of our submission does not relate to this factor but instead relates to the fact that some 17,000 workers with disability in Victoria alone receive well below the minimum award wage. Some, in fact, receive 50 cents an hour. The application by the ACTU, if successful, will benefit many Australians but employees with a disability will not receive the benefits of this review unless the Commission does something about it. Workers with a disability are entitled to equal pay for work of equal value, eliminating discrimination as well as the issue of consent of coercion.
PN66
Under section 88B(2)(d) and (e), there is an obligation to ensure that the safety net adheres to the principles of equality and anti-discrimination. It is, therefore, our submission that due to the characteristics and needs of workers with disability, especially congregate groups of workers with intellectual disability in the business service industry, that the current industrial relations processes of certification significantly disadvantage workers with a disability. Many of these workers are not members of a union. On the wages that they receive, they are not able to afford to pay union fees.
PN67
For many, their involvement in the process of enterprise bargaining renders them powerless and vulnerable. The presence of intellectual impairment in a large proportion of the workforce raises a range of implications for certification, including the assessment of genuine consent and the determination of the no disadvantage and anti-discrimination tests.
PN68
It is of concern that there is no independent bargaining agent assisting workers in business services which then places these workers at a greater risk of exploitation. Through the current processes of certification many workers with a disability are subject to these wages and conditions which give rise to questions about the ability of the current processes to ensure the safety net is applied to prevent and eliminate discrimination and disadvantage to this group of workers.
[10.15am]
PN69
We submit that the Commission needs to consider using its power to make orders which ensure that the certification of awards and agreements meet the objects of the Act, the safety net provisions and equal rights of workers with disability. With the prospect of many more employers in the business services industry expected to seek certification of agreement it is imperative for the Commission to assist in setting down guidelines for agreements within the business services area.
PN70
DEAC and NCID have had a number of discussions with the Australian Chamber of Commerce and Industry in regards to the issues raised by our written submission. It has been agreed that further discussions will continue during the week of 28 April 2003. We, therefore, request the assistance of the Commission in facilitating these discussions and to have to put a report back system in place. In recent months there have been a number of matters brought to the Commission's attention through the certification process of agreements within the business services. Two of these are within our exhibits, 26 and 27 of folder 3.
PN71
A further one was handed down last Thursday, 27 March, 2003. This decision, Vantage Incorporated, AG2002/5256, print number 929461, 27 March 2003, recognises that there are concerns regarding the process. Commissioner Smith raises the question that the supported wage system which was endorsed by the Commission in the Full Bench decision dated 10 October 1994, print number L5723, is not contained within the current business enterprise award and that this prime award which seeks to focus on issues involving open employment opportunities does not contain the relevant provision.
PN72
This raises the awareness of the Commission through the argument presented that there needs to be an examination of fundamental questions. It is also of interest that there is no application before the Commission this morning to vary this particular award in relation to the increase of $24.60. The issues of consent were not raised within the decision, however, they do remain of utmost concern to both DEAC and NCID. If our application for leave is allowed we do not seek to add any further matters to our written submission, we seek only to raise the awareness of the Commission and to ask for the Commission's assistance in ensuring that the industrial rights of workers with a disability throughout Australia are recognised and that the objects of the Workplace Relations Act are meant for all workers. If the Commission pleases.
PN73
JUSTICE GIUDICE: Thank you, Ms Wilson. Could I ask whether any party has indicated that they wish to cross-examine any of the witnesses on the statements that you have filed?
PN74
MS WILSON: No, they haven't.
PN75
JUSTICE GIUDICE: Thank you. Is there any submission in support of the application? Mr Anderson, do you have anything else to say?
PN76
MR ANDERSON: Yes, sir. Thank you, Mr President. There is a supported wage system which operates to regulate minimum wage entitlements for disabled workers and that supported wage system is recognised by the Act by section 88B(3) of the statute. That supported wage system is strongly supported by ACCI and variations to it and discussions about it have proceeded for a number of years by agreement between the ACTU and employers and that is the process we wish to continue. And bringing these broad ranging concerns about the circumstances of employment and agreement making in sheltered workshops into a safety net review which is looking at a completely different type of wages structure, the structure dealing with minimum award rates, is not an appropriate course of action.
PN77
And so our submission is that whilst these are real concerns that this organisation raises and we, as employers, have indicated we are prepared to discuss those issues with the organisation and for that matter with the ACTU, the matters that they have brought before the Commission in that submission are matters which do not pertain directly to the matters before the Commission and so intervention ought to be so limited.
PN78
JUSTICE GIUDICE: Yes, thank you. Do you have any other submission, Mr Cole?
PN79
MR COLE: If the Commission pleases. It may be of some assistance to the Commission if I inform the Commission briefly about some developments in train under the Disability Standards Amendment (Improved Quality Assurance) Act 2002. Under that Act it will be a requirement on business services to meet 12 standards and 30 key performance indicators as a condition for continued Commonwealth funding. And business services will have until December 2004 to demonstrate compliance with these standards.
PN80
Standard 9 and particularly supporting key performance indicator 9.1 relate to the payment of pro rata award-based wages for people with disabilities assessed as having less than full productive capacity. Now, in that regard the Commonwealth has been supporting the development of a so-called wage assessment tool specifically tailored to the circumstances of people working in business services and the development of that tool has had some input from the National Council on Intellectual Disability and, as I am instructed, that wage assessment tool should be available soon after Easter.
PN81
Now, in that general context the Commonwealth is certainly prepared to join with the peak industrial organisations to discuss the range of issues that have been raised by DEAC and by the National Council and we suggest that an appropriate time for such discussions would be in that period after Easter as soon as this wage assessment tool that will allow for the development of pro rata award-based wages for the people concerned is available. I do acknowledge that the issues range more broadly than that but the matter to which I have just referred is obviously central to the concerns of the two organisations.
PN82
And so I repeat that in these proceedings, in the Commonwealth's view, the matters for consideration should be limited to matters that arise directly in connection with the claims before the Full Bench but I repeat the Commonwealth's preparedness to join with the peak industrial parties to discuss any and all of these issues and, as I have said, we think an appropriate time might be when that wage assessment tool has been provided to the parties, if the Commission pleases.
[10.25am]
PN83
JUSTICE GIUDICE: Yes. Well, the applications for leave to intervene are granted. There can be submissions in due course about the relevance of the material that has been filed, and we would appreciate being informed in due course of any developments that might be relevant to our consideration of that submission. Are there any other objections to the applications for leave to intervene or to appear? Well, they are all granted. Mr Watson.
PN84
MR WATSON: Your Honour, if I could perhaps just start with some of the formalities. The Commission has received, in accordance with the directions that were made earlier in the proceedings, five documents: the ACTU written submission of 5 February 2003, a composite exhibit of the same date and witness statements. In addition, on 17 March it received our written reply submissions and a reply composite exhibit. Could I formally seek to tender those and - - -
PN85
JUSTICE GIUDICE: I think we will mark them separately, Mr Watson.
PN86
MR WATSON: Yes. I was going to suggest that perhaps they be marked in the order that I read them out, but I must say I am not overly fussed about that.
PN87
JUSTICE GIUDICE: Yes. Well, along with the written submission of 5 February there are, at least in my copy, some amendments.
PN88
MR WATSON: Indeed. In correspondence?
PN89
JUSTICE GIUDICE: Yes.
PN90
PN91
MR WATSON: If the Commission pleases, subsequent to our filing of reply materials, a number of other matters arose which in our submission are of relevance to the proceeding. In particular, the United Kingdom Low Pay Commission released its report. There was the final release of employee earnings and hours data, and there was some further labour force data released. All of those matters, as I say, arose after our reply submissions. We completed a supplementary submission which deals with those matters which we have circulated to all of the parties and to the bench by electronic means. In accordance with the directions that have been made, can I seek leave to tender that material in addition to the five other exhibits that I have just tendered.
PN92
JUSTICE GIUDICE: No objection to that? Well, the supplementary submission, which doesn't appear to be dated -
PN93
MR WATSON: I am sorry, your Honour, it is not. We circulated it on Friday.
PN94
PN95
JUSTICE GIUDICE: And there were some other documents; what were they, Mr Watson?
PN96
MR WATSON: The other documents have arisen since, but we have dealt with them by just dealing with them in those short submissions, so they don't need to be tendered, your Honour.
PN97
JUSTICE GIUDICE: Yes.
PN98
MR WATSON: If the Commission pleases, $24.60 is not a lot of money, it is just not. It is about the - - -
PN99
JUSTICE GIUDICE: Just a moment, Mr Watson. I don't want to interrupt your - yes, thanks, Mr Watson.
PN100
MR WATSON: $24.60 is not a lot of money, it is just not. It is about the cost of a weekly tram ticket, it is less than half the cost of the average tank of petrol. It would buy a roast leg of lamb and vegetables, and it is not much more than the weekly cost of a cappuccino per day. $12 per hour is not a lot of money, when some in the community earn more than that per minute, when every other week it seems some executive goes walking out the door with millions upon millions of dollars, whether they have increased shareholder value or not. In 2003, after more than 11 years of unprecedented economic growth, $12 per hour is not a lot of money.
PN101
And yet the essence of submissions of employer groups and the Commonwealth is that $24.60 is too much money, that $12 per hour is too much money. In over a thousand pages of material and over the course of the next five days, employer groups and the Commonwealth will try to persuade you that $24.60 is too much money, that $12 per hour is too much money. Some employers in these proceedings say give the low paid nothing. Others say give them a pittance. In every instance, the submissions of the employer groups and the Commonwealth would see the living standards of award workers decline on current inflation rates.
PN102
The employers and the Commonwealth won't focus too much on the actual dollar amount of our claim. They will talk about it as a high percentage increase; in fact, it is not. The average increase as a result of our claim is 4.4 per cent. The Commonwealth, in particular, will try and demonstrate a significant aggregate impact as a result of the claim; in fact, they can't. Our claim adds only 0.1 per cent to wages growth, a fact they reluctantly concede in their written reply.
PN103
In the course of the next five days you will hear about the state of the economy, economic effects. You will get treated to the joys of regression analysis and lower quartile average annualised wage increases for certified agreements, but just remember this: whichever way you cut it, $24.60 is not a lot of money. $12 per hour is not a lot of money.
PN104
Now, in saying that, I don't want the Bench for a minute to think that we demean the significance of our claim for the low paid. I used the cappuccino example just before, but don't think that low paid award workers will be spending their $24.60 per week on lattes on Lygon Street. Lonnie Campbell, one of our witnesses, he would probably spend it on buying a bit of extra meat in his groceries. Doreen Taylor, another witness, might use it to buy herself some new clothes occasionally or perhaps - just perhaps - she and her family might be able to afford the family holiday they have never had. Maria Corral might get out of the vicious cycle of pay day lending. Joanne Minty might be able to cope a bit better buying her kids' school uniforms.
PN105
Our case for lifting the wages of Lonnie Campbell, Doreen Taylor, Maria Corral, Joanne Minty and 1.7 million other award workers rests on five key propositions, five key propositions which conclusively establish tha a $24.60 per week increase is justified. But the Commission is in the happy position that it doesn't have to take our word for any of those five propositions. Those opposing us have established them for the Commission.
PN106
Proposition number 1: the needs of the low paid demand that the Commission should award the greatest amount it can, consistent with economic responsibility. Don't take our word for it. Here is what Minister Tony Abbott said in Parliament on 5 March 2003. He said:
PN107
I appreciate that people on low incomes, people doing it tough, appreciate every extra dollar they get.
[10.36am]
PN108
Proposition number 2. The Australian economy is growing strongly, despite one of the worst droughts in a century, and international uncertainty. Don't take our word for it. Here is what John Howard told Parliament on 3 March this year. He said:
PN109
The strength of the economy now, the Australian economy now, is more evident, more real, more broadly based, more widespread, and more internationally recognised than at any time since the late 1960s.
PN110
Proposition number 3. The $18 increases awarded by the Commission last year had no adverse economic impact. Don't take our word for it. Listen to what Bob Herbert, the Chief Executive Office of the Australian Industry Group said on the 7.30 Report. He said:
PN111
I would have to say that the adjustment that occurred last year has not had a huge impact on the economy.
PN112
Proposition number 4. Next financial year, when this year's safety net adjustment will take effect, the economy is expected to be even stronger than this year. Don't take our word for it. Rely on the economic forecasts of Dr Steven Kates, the ACCIs Chief Economist, published in The Age newspaper on 6 January 2003. He says:
PN113
Growth in the Australian economy for the next financial year will rebound to 3.8 per cent, and that by December 2003 the unemployment rate will be less than 6 per cent.
PN114
Proposition number 5. The $24.60 increase will have a negligible impact on growth, employment and inflation. Don't take our word for it. Look at the Commonwealth's own modelling of the net impact of our claim, which we reproduce in Table R1.2 of our reply submissions, a table that shows that even under the most adverse of assumptions, the net impact of our claim results in no meaningful economic impact. Five propositions, demonstrated need, a strong economy, no adverse economic impact from last year's increase, a forecast stronger economy next year, and no adverse economic impact from a $24.60 increase.
PN115
Five propositions, each one of them supported by a welter of other evidence, but significantly, each of them supported by those opposing us. Five propositions which say what we started out saying. $24.60 is not a lot of money. It is just not. $12 per hour for the minimum wage is not a lot of money. It is just not. But it is a sum of money that will make a difference to the low paid, and it is a sum of money that is economically responsible. $24.60 is not a lot of money. Proposition number 1. The needs of the low paid demand, we say, that the Commission should award the greatest amount if can, consistent with economic responsibility. As we have done in every year of the safety net cases, we have filed in ACTU a number of witness statements which tell the Commission a real story about what it is like to live on low pay.
PN116
Doreen Taylor works part-time. She works 32 and a half hours per week. Her hourly rate of pay is just under $13 an hour, so she is a bit above the Federal minimum wage in that respect, but her gross weekly pay is $421.85, so she is about $10 less than the weekly Federal minimum wage for a full-time worker. So Doreen Taylor gives us an insight into how tough life really is when you are earning at or around the Federal minimum wage. At paragraphs 9 and 10 of her witness statement she sets out her budget. This is a budget that is tightly focused on necessities. This is a budget with no fat, but which still involves Doreen Taylor and her family taking on significant levels of debt. At paragraph 15 of her statement she says:
PN117
I have a credit card debt of $3000. Once I repay my personal loan I will borrow some more money to pay off this credit card debt. I do this every two to three years. It has become a cycle.
PN118
Life is a struggle for Doreen Taylor. You get a real sense of that when, in paragraph 16, she talks about sometimes not having enough money to buy fresh food for a week and having to make do with what is already in the house. You also get a sense of it at paragraph 12, when she says:
PN119
Generally, we buy all our clothes from the Op Shop.
PN120
At paragraph 14, she says:
PN121
Our family has never been on a family holiday. We have never been able to afford it. This was hard on the children as they were growing up.
PN122
She does not say so, but one imagines it was pretty hard on Doreen and her husband too. Doreen Taylor has a dependent husband and a partially dependent son, and she lives on a very, very low wage. Life is very tough. But let us look, in terms of the witness statements, at what is probably the best case for employers. Lonnie Campbell. Lonnie Campbell is single and he has no dependents, and he earns quite a bit more than Doreen Taylor. He earns 660 per week gross. Now, he only earns that because of regular overtime, and in his witness statement he makes it absolutely plain:
PN123
I would not survive without my overtime.
PN124
Lonnie Campbell's budget is at paragraph 5 of his witness statement. Understandably he is a bit better off than Doreen Taylor. He can afford a house and he can spend a modest amount, $30 per week, on entertainment. But even so, his life is tough. At paragraph 10 he says:
PN125
I do not buy a lot of meat in my food and groceries, as I simply cannot afford it. Previously I have been able to afford occasional luxury items in my groceries, but now I simply cannot buy them.
PN126
He goes on to say:
PN127
Clothes is another thing that I have had to cut back my expenditure on. Because I cannot afford to go out very often, I do not buy good clothes. As a result, for the last few years I have bought minimal amounts of casual clothing.
PN128
And you will see in his budget the amount that he allocates for clothing. It is something like $4 a week, $200 a year. I mean, it is T-shirts, underwear, socks. It is hard to imagine that it is very much else. Lonnie Campbell has had one holiday in the last four years, a stay in his parents' caravan. So they miss out on holidays, they miss out on clothes, they miss out on things that ordinary Australians would consider the essentials and basic necessities of life. The story for all of the witnesses is the same. Expenditure is overwhelmingly focused on necessities, and life is a struggle, which means going without, often going into debt, and it means significant financial stress.
PN129
There is no reason, based on the evidence in this case, for the Commission to depart from its finding in relation to last year's witness evidence at paragraphs 131 and 132 of last year's decision. The Commission said this:
PN130
It is apparent from their evidence that all of the witnesses struggle to make ends meet. A significant proportion of their expenditure is on necessities and unexpected expenditures are difficult to finance. There are a number of things which the witnesses went without. For example, regular holidays, social outings, replacing household appliances, new clothes, insurance, telephone, motor vehicle. We accept...
PN131
at 132 -
PN132
We accept that many low paid employees experience difficulties in making ends meet, and are unable to afford what are regarded as necessities by the broader Australian community.
PN133
What is the position of other parties, on the witness evidence and on the position of the low paid generally? Well, ACOSS, the Australian Catholic Commission on Employment Relations, and the State and Territory governments all accept - all accept that the needs of the low paid is a serious issue. Neither the AIG, the Australian Industry Group, or the Commonwealth can test the witness evidence in any way. Indeed, their silence speaks volumes. But the submissions of the Australian Chamber of Commerce and Industry do not.
PN134
The ACCI don't require any witness for cross-examination. They don't put squarely to Joanne Minty that her car loan payment is excessive, because on their calculations, it affords an $18,000 car. They don't ask Glen Damanik whether he has, in fact, ever had a holiday in Melbourne, because they say his evidence only says that he has never been able to afford a holiday outside of Melbourne. No. Instead - instead they speculate, they insinuate, they conduct, as we say, a microscopic examination of the budgets of the witnesses.
PN135
Part of that analysis is plain wrong. Part of it, as we said in our reply, is offensive. But mostly, it just misses entirely the point. For all of the microscopic examination of what is spent on this item and what is spent on that item, what stands out like a beacon, out of every one of those witness statements, is that life is tough. Expenditure is focused on necessities, and people go without, and you can do all the exercises you like about how, if Doreen Taylor did not save money for purchasing new clothes she might have been able to afford to get her television fixed more quickly. You can do that exercise as much as you like, but you will miss the point, as they do. The point is the witnesses do it tough.
PN136
As we pointed out in our reply submissions, the ACCI analysis of the witness evidence in parts is just wrongs. At paragraph 7.16, of our reply submissions, we set out a series of just outright factual errors. At paragraph 10.36 - - -
PN137
JUSTICE GIUDICE: What page is this Mr Watson?
[10.48am]
PN138
MR WATSON: It is paragraph 7.16 of the reply submission.
PN139
JUSTICE GIUDICE: Yes.
PN140
MR WATSON: Now these are the factual errors. Now, ACCI have come back in their reply and tried to deal with some of them, and I will deal with that after I have been through them. But at paragraph 10.36 they said that Noel Crouch's spending on housing was $55 per week. In fact that is $95 per week. In their reply the ACCI say, yes, but we took the $55 per week directly from his witness statement as the expenditure on rent. That is right, that is what he spends on rent. But it is clear in his witness statement, absolutely clear, that part of his housing arrangement is that he also spends money on rates. The $95 per week is the sum total of the entirety of his housing expenditure. We didn't characterise the $55 per week as expenditure on housing, they did.
PN141
At paragraph 10.38, they say, that the lowest expenditure on public transport is $3 per week. In fact it is $15 per week. I have struggled to find a reason that they might have got that wrong - it is not a typo, presumably. But there at 10.38, they said, $3 per week, in fact it is $15. And, in fact, in reply they say nothing about it. At paragraph 10.63, it is asserted that Joanne Minty does not account for $59 per week of her expenditure. In fact, it is clear from her statement that, whilst she doesn't put it in the actual budget bit, she goes on to describe the left over amount as being used to pay for toiletries, milk, bread and other every day items.
PN142
At paragraph 10.71, ACCI said that Maria Corral's mother was a dependant parent. In fact, her statement makes it plain she is not. Her statement says:
PN143
My mother is a pensioner. She mostly looks after herself. Occasionally I help out.
PN144
But there is no sense of the mother being a dependant parent. We put that to ACCI in reply and what do ACCI come back with. Well then say, well, we went to that because we wanted to just make it clear that Ms Corral's mother contributes pension income to the household budget. Well that is, in fact, not what Ms Corral says. At paragraph 10.30, they said that Doreen Taylor benefited from beneficial payment arrangements for low income earners. In fact, the Easyway Plan that Ms Taylor identifies involves pre-paying instalments and involves no discount for services. In reply, what do ACCI say? They say, well, there is this economic theory that says payment by instalments often involves a cost to the business and so is effectively a discount.
PN145
Well payment by instalments involves a cost to the business if you have got the item and you are paying off by instalments, but pre-paying instalments that doesn't involve any cost to the business other than the negligible administrative cost. Ms Taylor doesn't get any discount. At paragraph 10.69, they talk of the extent to which witnesses can save. Only four of the witnesses actually mentioned saving and three of them, in our submission, make clear that they use their saving as a way of paying off unexpected or large expenses. Ms Taylor makes it clear that her Christmas club account is so that she can do things like buying new clothes. Mr Campbell makes it clear that he pays off a bit extra on his mortgage so that if something unexpected comes in he can draw down on the mortgage, to afford the unexpected expense.
PN146
Mr Hawkins makes it clear that he uses whatever he saves, in inverted commas, "to pay the unexpected expenses". But ACCI say, in effect, well, all of the witnesses are able to accumulate capital wealth. That is where they just get it plain wrong. But ACCIs original submission, paragraph 10.71, this is what they say:
PN147
The statements -
PN148
that is the witness statements -
PN149
also reveal personal exigencies which were not common and could provide no legitimate basis for any assessment of needs. Ms Corral's household includes a son with a disability and a dependant senior. Ms Taylor's husband is unemployed. Her statement appears to indicate that this may be unlikely to change in the future. This contrasts with other witnesses whose spouses are also employed. Ms Redmond's niece lives with her, is unemployed and apparently substantially dependent.
PN150
What an offensive paragraph. Would they have said that if Ms Corral's household had included a son without a disability? Would they have said that if Ms Taylor had been the one who wasn't in the workforce and her husband had been the one working? Would they have said that if instead of it being Ms Redmond's niece who was living with her, it was a dependant son or daughter? At 10.46 they talk about Doreen Taylor and they say, in an attempt to demonstrate that witnesses have not been able to go without appliances, they say, in respect of her witness statement, well, arguably a TV is not an appliance, it is an entertainment device.
PN151
It is worth, on that, just going back to what Doreen Taylor says in her witness statement. It is paragraph 13 of her witness statement and it is page 22. She says this:
PN152
We cannot spend much on entertainment costs. Our usual entertainment is to hire a video from the video shop, once a month. My main means of socialising is to phone friends.
PN153
And if you go back up the page, just up into the end of paragraph 10, you see the entertainment budget for Doreen Taylor's household, $5 per week. And then at paragraph 19, she says, and this is what ACCI were talking about. She says:
PN154
It is always a problem if something in the house needs fixing. 18 months ago, our TV started turning off when it was on. This was really annoying. We couldn't afford to have it fixed until recently. The repair cost $78.
PN155
ACCI has the battery hen theory of award wages. They would go into the chicken farm and they would say what are the chooks complaining about; they have got shelter, they have got light, they have got food and they have got work. They don't need anything else. A safety net is not a safety net if it means foregoing basic human experience to meet budget. ACCI says, in effect, don't have a family, don't go out, don't watch television, don't do anything except work, sleep and eat.
[10.58am]
PN156
In their reply submissions ACCI also have a latter day go at the statistical representativeness of the witnesses. This is largely in response to our critique of their survey. In this case, as in every other case, we don't just rely on the experience of the witnesses for the finding that we say the Commission should make about their experience. In this case in addition we rely on the Richardson paper which is at tag 10 of the composite exhibit.
PN157
That paper looks at the characteristics of low paid workers and we observe in our written submissions and today those workers share many of the characteristics in the broader sense of award workers generally. Women are over represented, part-time workers and so on. In addition the Richardson papers says low pay for many workers is not merely some transitory phenomenon, something which our witnesses confirm. In addition in this case we refer to the Birrell article and the Birrell research whom ACCI concede is one of the pre-eminent Australian experts on population.
PN158
And he says, Dr Birrell, he says low pay impacts on partnering and partnering impacts on fertility rates. So we don't just rely on the witness evidence in this case. Nor have we just relied on witness evidence in previous cases. In previous cases we have gone to Commission budgets. We have presented the Commission with evidence of budget standards, with evidence of ABS research, from household expenditure survey data.
PN159
We have looked at reports into poverty, we have analysed financial stress data and in every instance those pieces of academic research, those statistics broadly based confirmed and buttressed the experience of the witnesses through their witness statements. It is not as though we come to the Commission and say, "Here are just 10 or 11 or 12 people. Make your decision on that basis." We have consistently brought to the Commission evidence of a robust nature that is broadly based, statistical in some instances, academic research in others.
PN160
While we are on the circumstances of the low pay, it is worth also noting that ACCI and the Commonwealth have had another go at arguing minimum wage increases don't benefit low income households. In their original submissions the Commonwealth footnoted Harding and Richardson and then in their reply they went to Newmark and Washer. ACCI did it the other way round. They went to Newmark and Washer in their original submissions and then footnoted Harding and Richardson in their reply.
PN161
Well, in actual fact they footnoted Harding and Robertson, but we assume that they mean Harding and Richardson. The evidence on this is pretty clear. None of it is new, it has been referred to in previous cases and having considered the evidence in each case the Commission has concluded that safety net adjustments assist in meeting the needs of the low paid. In a sense I don't need to do any more than refer to paragraphs 147 to 150 of last year's decision. If I can take the Commission to those. The Commission said, at 147:
PN162
We note that the Commonwealth's submission that the wages system has a limited capacity to address and meet social equity goals. We agree with the proposition that the tax transfer system can provide more targeted assistance. This is not to suggest that safety net increases do not assist in meeting the needs of the low paid. As Saunders states compensation of employees which is largely wage and salary income is the most important source of income in aggregate and for most households with an employed member.
PN163
And then the Commission goes on to quote from its May 2000 decision where it said:
PN164
As a result of societal change it is often the case that there are two wage earners, sometimes more, within a family unit. It is not surprising that it is no longer as simple as it once may have been to view the income of an employee as an indicator of household income. It may be that safety net wage increases intended to assist the low paid will supplement the income of some households with relatively high means. We accept that safety net adjustments are not perfectly targeted to meeting the needs of the low paid. They do, however, assist in meeting those needs.
PN165
And then the Commission said:
PN166
Nothing in the material presented on this occasion leads us to alter the view there expressed.
PN167
Now in our submission nothing in the material presented on this occasion, old and repetitive as it is, should lead the Commission to depart from its earlier expressed view, but there are some further elements in the evidence of this year's case which buttress that position. The survey on the literature on minimum wages by Professors Dowrick and Quiggin deals with this issue at paragraph 4.4, which is at page 104 of our composite exhibit.
PN168
I won't take you to the particular paragraph, but they note that research in general finds that minimum wages reduce poverty. Richardson herself, on whom as we say the Commonwealth and the ACCI rely, she notes that the OECD have found a high correlation between the incidence of low pay and low income households and she also notes some United Kingdom research which says that whilst not all low paid will be poor, 90 per cent of full-time workers who are poor are low paid.
PN169
ACOSS, in their submission, make the point that the Harding and Richardson reference only holds true, if at all, if retired households are included in the income distribution. ACOSS says that at page 7 of its submissions, and ACOSS further cites some Unicef research which shows a strong positive correlation between the incidence of low pay and child poverty rates. So on all of the evidence which the Commission has been taken to in previous cases and on all of the evidence in this case we think it is overwhelmingly established that while safety net adjustments may not be perfectly targeted, they do assist the low paid in meeting their needs.
PN170
Now the ACCI, in their response submission at paragraphs 852 and 860 attempt, as it were, to run interference on the issue of the low paid by referring to the NATSEM report, "Financial Disadvantage in Australia", 1990-2000, to demonstrate that the incidence of poverty is greatest amongst those described as own - is greater, sorry, not greatest, greater amongst those described as own business, compared to wage and salary earners. This aspect of their submissions represents, we would say, yet another low light in their advocacy in this case.
PN171
They refer to the NATSEM report. Two years ago, in these same proceedings, they described the approach in the very same report as suspect, and that is at page 94 of their 2001 submissions. The report isn't suspect, but ACCIs use of it is. Firstly, in the NATSEM report on which they rely, NATSEM says in effect, treat the Own Business category with caution, because it includes the self-employed whose incomes may not always accurately reflect their financial position. Secondly, the same report shows twice as many poor employees in poverty as own business people in poverty. It is one thing to talk about incidence, it is another thing to talk about absolute numbers.
[11.08am]
PN172
Thirdly, as we have in effect noted in our first point, the Own Business category includes the self-employed. It tells us very little about the category of employers per se. Most self-employed do not employ anyone. Fourthly, ACCI, in chapter 8 of their reply, when dealing with the ACOSS submission, say that they don't accept the veracity of any research on poverty measures. This leaves us with the issues which predominantly the AIG raise the tax transfer system. We deal with these issues at paragraphs R7.22 to R7.30 of our reply.
PN173
AIG gave this issue a big run last year. They came along and they said to the Commission, as they do this year, we have suddenly discovered that the tax transfer system and wages interact, and as a result some family type don't get very much benefit, they say, after a safety net adjustment. Now, last year, on the basis of what they put, the Commission concluded at paragraph 153:
PN174
For our part, we accept that significant adjustments in the social safety may be relevant to the determination of the level of the award safety net. We note that there is no proposal on this occasion that we should adjust the amount that we would otherwise award because of a particular change in the social safety net.
PN175
They have been spruiking this issue for more than a year now, and the fact is that there is still no change. At paragraph 4.2 of their original submissions, AIG say that the Government has initiated a substantial review of the income support system, which will include an examination of the interaction between the award system and the broader social safety net. That review is not due to report until well into the latter part of this year. And since the date of the AIG's original submissions, the Prime Minister stated that that review would not involve a $10,000 single annual payment to replace family benefits.
PN176
He said that a major restructuring of family payments was off the agenda, and he said regarding the notion of tax credits, there are financial difficulties, tax credits are a very expensive way of sometimes achieving very little. So they are having a review. The review is not going to be completed by the time the Commission makes its decision. It will be completed well into the latter part of the year. And there have already been a number of significant options ruled off. There is not going to be a major restructuring of family payments.
PN177
There is not going to be any $10,000 single annual payment, and all of the indications are, there are not going to be tax credits. As the AIG themselves end up having to concede, there aren't any specific proposals for a significant adjustment to the safety net system on this occasion either. There is simply no basis for the Commission to depart from its finding at 153, that there is just nothing before you, which would lead you to alter the amount which you would otherwise award.
PN178
Now the AIG's analysis on this issue though, does require just a couple of other comments. We deal with these at reply 7.26. The AIG produced these tables which they describe as showing the actual benefit ratios for various kinds of household. The actual benefit ratio, it is clear, includes a whole range of things on one side of the ledger, and excludes them from the other, notwithstanding that they are properly on both sides.
PN179
It includes as costs, to the employer, superannuation, workers' compensation cover, overtime and loadings, but it does not include any of those things as benefits to the employee in its calculations. It is artificially constructed nonsense. In addition, it estimates on-costs at 30 per cent. This is more than double the figure which ACCI use, based on an ABS figure at paragraph 14.9 of their submission. The ABS figure, which admittedly is a little out of date, but the ABS figure is 14.4 per cent.
PN180
So they estimate on-costs in a way which involves serious over-estimation and they don't include many of the things which are properly described as benefits to employees on the benefit to employees side of the ledger. And then they say, well, this shows that employees don't always get the full benefit of safety net adjustments. Well, the critical point about the AIG submissions in this regard this year and last year is that they rely for almost the entirety of this part of their submissions on picking people who are in a position where they are close to a threshold and so the wage increase takes them over the threshold and there is significant social security claw-back. The Commonwealth do pretty much the same thing with one of their examples.
PN181
But as we pointed out at length in our original submissions, the paper by NATSEM, Work Incentives Under A New Tax System, show the distribution of effective marginal tax rates in 2002, says it is one thing to construct your hypothetical example, it is another thing when you go to the question of the incidence of those examples in the community. How many people are there who actually fit the particular family profile that you construct?
PN182
The NATSEM paper shows that in the first three deciles of the income distribution, the average effective marginal tax rate is 30 per cent, 36 per cent and 36 per cent. In other words, the examples that the Commonwealth and AIG are so keen to go to where the combined effects of various social security claw-back means that people lose perhaps 70 cents in the dollar or whatever, they are not an accurate picture of what most workers in those first three deciles of the income distribution face.
PN183
It is worth illustrating this a little, this issue of, if you like, selectivity, a little, too, with George and Julie and John and Kathy. George and Julie and John and Kathy made an appearance in last year's case at AIGs behest, and we thought they could become a bit of a, sort of, an ongoing soap opera theme, because when you look at what really happened to George and Julie and John and Kathy compared to what AIG said would happen last year, it is actually very telling.
PN184
In last year's case, AIG came along with these examples which they had hand-picked of family types who would lose, they said, lots of their income as a result of - lots of the benefit of the safety net adjustment as a result of the way the tax transfer system worked. They were artificially constructed family types, they were picked selectively so that they were near the bottom of threshold cut off points, but AIG neglected to take into account that family tax benefit thresholds and the like are all indexed on 1 July, so whilst they had picked them just below the thresholds as they were during the case, what happened is of course that the thresholds were indexed and George and Julie and John and Kathy actually all ended up well below all of the thresholds and did not lose the money that AIG said they would.
PN185
At paragraph 7.80 of the submission, of our original submission, we do the calculation for George and Julie. George and Julie didn't lose, after 1 July, didn't lose any family assistance payments, any rent assistance or their Healthcare card because what happened was that their income increased but they were still below the threshold. That is, at the end of it, George and Julie received the net benefit of $12.60 from the $18 safety net adjustment, after paying tax of $5.40 and they received family tax benefit increases of $4.34. This was meant to be, last year, the example of how the interaction of the tax transfer system and wage increases would leave George and Julie with little, if any, benefit from their wage increase.
PN186
In fact, what actually happened, even in the artificially constructed example, is that they got all of the pay increase less the 30 per cent marginal tax rate and then they got an increase in their family benefit. John and Kathy, similarly. They received $2.10 per week more in family tax benefit after 1 July. And when you combine their respective incomes, they got an additional $20 from safety nets after paying additional tax.
PN187
[11.22am]
PN188
Now AIG reply to some of our material in their reply submissions and I want to go to just two of the matters they raise on this issue. At page 15 of their reply submission they say this - I will give you a paragraph number soon, it is actually paragraph 3.7, but paragraph 3.7 runs for about four pages, so it is page 15, and it is at about point 5 of the page and they say this:
PN189
In respect to low income households, without earnings, we note that none of these families benefit from an increase in award wages.
PN190
But if it has taken us seven years of safety net adjustments to get to that level of realisation, then perhaps we are not as productive as we think we are:
PN191
Included in this category are sole parent families without wage earnings, households of unemployed people without wage earnings and age and disability pensioners without earnings from wages.
PN192
This, they say, is the basis of our claim that many low income households receive little or no benefit from safety net wage increases. Well, if that is the basis for the claim then really of what use is it in these proceedings to say that? If you are saying, "Well, we claim many low income households receive little or no benefit from safety net wage increases because there are actually quite a number of low income households which don't have wages", then you are saying absolutely nothing.
PN193
But with respect to them it is an unmitigated fudge, because that is not what they started out saying. At paragraph 4.4 of their original submissions they said this:
PN194
For many low income households wage increases granted by the Commission are diluted considerably due to the features of the income tax system, the income support system and the interaction between these two systems.
PN195
They weren't talking about households without wages at all there. They were talking about households who had the effect of the increase diluted. But as we demonstrated in our submissions, both in the original submissions and the reply, they simply cannot make that claim because they in the end cannot say anything about the incidence of the high effective marginal tax rates for which that submission relies. And indeed, as the NATSEM report demonstrates, the incidence of high effective marginal tax rates among the bottom deciles of income is no where near as great as AIG would have you believe.
PN196
The incidence does not demonstrate that many households are in that category and so fronting up to that AIG make the slide. They make the slide from their original proposition which said:
PN197
for many households wage increases are diluted.
PN198
And they turn that into a proposition about households with no earners. They simply haven't demonstrated what they need to demonstrate for you to even pay the slightest regard to any of this. As you concluded last year on this issue there isn't a proposal for any significant change to the tax transfer system of which you should take account. Now the one other matter I should just note in relation to their reply, in annexure B of their reply they conduct what they call is a sensitivity analysis about their actual benefit ratios.
PN199
We just say two things about that sensitivity analysis. The first is that they still have all these things on the employer cost side that they don't include as employee benefits. And the second is that they still don't model the ABS figure of 14.4 per cent or anything like it. They use a series of figures, all of which are significantly in excess of it. Every year we say the same thing. We say the low paid are doing it tough and safety net adjustments help.
PN200
If it was just us saying it every year, year in, year out, you might just be able to defend the bloody mindedness of an approach that every year seeks to deny the needs of the low paid to diminish their hardship and to demean their struggle. But it is not just us, it is ACOSS, it is the Australian Catholic Commission on employment relations, it is the State and Territory Governments, every one of them, and most importantly it is the findings of the Commission every year, year in, year out. Every year in the safety net review process the Commission has found in effect that they low paid do it tough and that safety net adjustments, whilst not perfectly targeted, assist in meeting their needs.
PN201
Yet ACCI, AIG and the Commonwealth still dole out the same arguments. There is nothing new about their evidence this year or their approach. Minister Abbott gets it when he says he appreciates that people on low incomes, people doing it tough, appreciate every extra dollar they get. But ACCI, AIG and the Commonwealth in these proceedings still just don't get it. The needs of the low paid demand that the Commission should award the greatest amount it can, consistent with economic responsibility. Proposition number one.
PN202
Does your Honour intend to have the usual 11.30 break, or should I go to proposition - - -
PN203
JUSTICE GIUDICE: It might be good to have it before proposition 2.
PN204
MR WATSON: Yes, that is what I was thinking.
PN205
JUSTICE GIUDICE: All right. I hope that we will get through more than two propositions per session.
PN206
MR WATSON: We will, we will.
PN207
JUSTICE GIUDICE: Yes, well, we will adjourn for 10 minutes or so.
SHORT ADJOURNMENT [11.30am]
RESUMED [11.48am]
PN208
JUSTICE GIUDICE: Yes, thanks, Mr Watson.
PN209
MR WATSON: At the outset, if the Commission pleases, I went through five propositions. I am going to deal with propositions 2 and 4 together. Proposition 2, the economy is growing strongly despite one of the worst droughts in a century and international uncertainty. And proposition 4, next financial year, when this year's safety net adjustment will take effect, the economy is expected to be even stronger than this financial year.
PN210
Can I take the Commission at the outset to table R1.1 in our reply submissions. The table is to be found appended to paragraph R1.13. I need to make just a couple of corrections to that table. The first is that the description in the second line of non-farm GDP is more accurately, of course, gross non-farm product. And the second and more significant correct is that the figure of - in employment growth, the figure on the most recent data, which is the February trend figure, should read 3.2 per cent. The 2.8 per cent is the full-time figure; the all-employer figure is, in fact, 3.2.
PN211
With those corrections, can I take the Commission to that table because what that table shows is that contrary to what the employers and the Commonwealth tell you, the circumstances of this year's case are not so dramatically different from the circumstances of last year's case, and contrary to all of their attempts to talk up economic uncertainty, the prospects for next financial year are better than the prospects - or than what is understood to be likely for this financial year.
PN212
Table R1.1, if we can just start with the first two columns; this time last year and the most recent data. What do the first two lines of that table tell you. Gross Domestic Product has moderated in trend terms from 4 per cent this year in the year to December 2001, to 3.2 per cent in the year to December 2002. That moderation has been expected for some time and it is almost entirely as a result of the drought. You get an indication of that when you go to the next line and you look at gross non-farm product. This time last year, what did the data show us? The year to figure for gross non-farm product was 4 per cent. What is the year to figure this year's case for gross non-farm product? Exactly the same, 4 per cent.
PN213
So for 97 per cent of the economy, that is not the farm sector, there is still a growth rate of 4 per cent in trend terms in the year to figures. Growth has moderated, but that was expected and it is because of the drought.
PN214
JUSTICE GIUDICE: Remind me, Mr Watson, what the date of those forecasts was.
PN215
MR WATSON: The date of the MYEFO forecasts?
PN216
JUSTICE GIUDICE: Yes.
PN217
MR WATSON: Yes, your Honour. I am coming to the forecast column later.
PN218
JUSTICE GIUDICE: All right, yes.
PN219
MR WATSON: The date of the MYEFO forecast is November. I can give you a precise - November 2002.
PN220
JUSTICE GIUDICE: Yes, and the most recent data column?
PN221
MR WATSON: The most recent data column - you will see in the note the most recent data column is in the case of GDP, gross non-farm product, Consumer Price Index and Wage Cost Index, those figures are year to December 2002. In the case of labour force statistics, the year to February 2003. I took the Commission to a statement of the Prime Minister in opening. Can I now take you to the comments of the Treasurer on the release of the most recent national accounts data.
PN222
We take those quotes from media releases and from Hansard, and they are to be found at paragraph R5.8 and R5.9 of our reply submissions. Starting from the media release which accompanied the release, this is what the Treasurer had to say:
PN223
The good outcome in the December quarter national accounts is against a backdrop of weak global economic conditions, with the prospect of war and rising oil prices. During the quarter, Australia was in the grip of the worst drought in a century. Even so, the domestic economy remained resilient. Private business investment increased by 7.4 per cent in the December quarter and was underpinned by a 14 per cent surge in new machinery and equipment investment. Strong investment in the business community reflects the favourable investment environment in Australia with low interest rates, high levels of capacity utilisation and strong corporate profitability.
PN224
On the same day in Parliament the Treasurer had this to say:
PN225
As the OECD remarked earlier this week, Australia remains one of the most resilient economies in the world. The fact that in the face of the worst drought in a hundred years, the economy still grows and still grows in the face of an international downturn and oil prices rocketing in the way they are, indicates the resilience of the Australian economy and the importance of structural changes.
PN226
Growth has moderated. That is largely due to the drought. For the 97 per cent of the economy, that is not the farm sector, growth continues at the same pace as it continued in the corresponding period for last year's case. Can I go back to table R1.1 and take you to the inflation figures. Consumer Price Index, this time last year 3.1 per cent; this time this year, 3.0 per cent. A marginal decline, essentially the same, at the top of the Reserve Bank of Australia's preferred range, although the Reserve Bank note that underlying inflation is well under control. At R5.42 we go to a comment from the Reserve Bank in their statement on monetary policy released on 5 February 2003 where they say this:
PN227
Australia's inflation rate in the second half of 2002 evolved broadly in line with the near term outlook presented in recent statements. During the year to December 2002, underlying inflation was around two-and-a-half per cent, having declined from just over 3 per cent at the end of the previous year. The bank's current assessment is that underlying inflation is likely to remain close to its recent level of two-and-a-half per cent over the next 18 months. This represents a slight downward revision to the forecast presented in the previous statement.
PN228
Inflation was at 3.1 last year, it is at 3 this year. In underlying terms, the bank sees it as being 2.5. Employment growth. Last year at this time employment growth to February 2002 was 1.6 per cent. This year for the same - or for the corresponding year period to February 2003 it is 3.2 per cent, it is double. There has been a significant improvement in employment growth this year as compared to last year. There has also been a significant improvement in the employment rate this year as compared to last year. As table R1.1 shows, this time last year during the case unemployment was at 6 per cent. It has declined now to 6 per cent.
PN229
Now, we note in relation to that as well, in our submissions, that the unemployment rate is at 6 per cent at a time when the participation rate in the labour force is at its second highest recorded level ever. The highest recorded level ever was in the January 2003 figures. So there are more people actually in the labour market, there have been a large number of jobs created, and unemployment has still fallen to its lowest level for about 13 years. Now, in their submissions, ACCI spend a significant period of time devoted to saying, "You can't believe the labour force figures. You can't believe the recent labour force figures, because the ABS have changed the way they do the survey, and that is the only reason things have improved."
[11.58am]
PN230
We deal with that at R5.32 of our submissions we quote the market commentators, HSBC, and this is from their release on the February labour force data, 13 March 2003, and they say this:
PN231
Whichever way you cut it, today's labour force report for February was strong. Although total employment fell 2.3 thousand in seasonally adjusted terms - 12.3 thousand -
PN232
sorry -
PN233
...in seasonally adjusted terms, this was much stronger than expected. The consensus was minus 30,000. Full-time employment rose 10,000 in seasonally adjusted terms, and its fourth consecutive gain for a cumulative rise of 165.5 thousand in seasonally adjusted terms.
PN234
Here is the critical paragraph so far as ACCIs material is concerned:
PN235
Additionally, the statistician dispelled the belief that survey sample rotation was distorting the data -
PN236
this is the whole of ACCIs case about the labour force numbers -
PN237
...the statistician dispelled the belief that survey sample rotation was distorting the data, nothing that adjusted matched sample methods, or composite estimation of employment growth over the past four months produces an estimate that is broadly similar to the currently published figure of 193,700 seasonally adjusted.
PN238
This time last year, employment growth 1.6; this time this year, employment growth 3.2; this time last year, unemployment 6.6; this time this year, unemployment at its lowest level for 13 years, 6 per cent.
PN239
JUSTICE GIUDICE: I might be wrong, Mr Watson, but does not the ABS itself indicate there should be some qualification on the figures or - - -
PN240
MR WATSON: They did in the earlier releases.
PN241
JUSTICE GIUDICE: Yes.
PN242
MR WATSON: But in the February release what they did is subjected the figures to the analysis which is summarised there.
PN243
JUSTICE GIUDICE: In the HSBC report?
PN244
MR WATSON: Yes, and they have said, in effect, "Look, we don't think the survey sample rotation is having the effect that some seek to attribute."
PN245
JUSTICE GIUDICE: Yes. So it is your submission that the ABS doesn't qualify the latest results.
PN246
MR WATSON: Well, I would not go so far as to say the ABS don't qualify them at all.
PN247
JUSTICE GIUDICE: Yes.
PN248
MR WATSON: But they don't qualify them in the way that the ACCI seek to assert.
PN249
JUSTICE GIUDICE: Yes.
PN250
MR WATSON: They don't make the broad and sweeping proposition that the ACCI would have, that the entirety of the good result is a statistical artifice.
PN251
JUSTICE GIUDICE: Yes.
PN252
MR WATSON: What the ABS have done in relation to - in light of criticisms which met the release of the January data, the ABS have actually gone back, subjected that data to analysis and, as I say, we have used the HSBC quote because it is a nice summary of what is a fairly dry kind of statistical analysis. But what they say in effect is "Look, we don't believe that it is having the effect that everybody perhaps says it is. What we get when we look at the issue is that the numbers are broadly the same as the numbers we have published, whichever way you do the sampling."
PN253
JUSTICE GIUDICE: Yes.
PN254
MR WATSON: Yes. Mr Robinson has found for me the actual quote from the release. It says:
PN255
While additional sampling error is expected during implementation of the new sample, there is no evidence from these analyses that the change in sample has materially affected estimates of employment growth.
PN256
JUSTICE GIUDICE: That is based on an historical comparison, is it?
PN257
MR WATSON: It is based, as I understand it, on a matched rotation group method.
PN258
JUSTICE GIUDICE: Yes.
PN259
MR WATSON: And a composite estimation technique.
PN260
JUSTICE GIUDICE: Well, I perhaps wasn't looking so much at the technique, but is it a statement about the accuracy of the current estimate?
PN261
MR WATSON: Yes. Yes, your Honour. Yes.
PN262
JUSTICE GIUDICE: Does it say anything about the comparison between the estimates derived from the method that was previously employed and the estimates derived from the current method?
PN263
MR WATSON: Yes.
PN264
JUSTICE GIUDICE: In other words, the comparison between the two.
PN265
MR WATSON: Yes. It says, in greater detail it says this:
PN266
To assist in the interpretation of the published estimates, the ABS is investigating the labour force characteristics of the new sample in comparison with the sample that it is replacing.
PN267
JUSTICE GIUDICE: Yes.
PN268
MR WATSON:
PN269
Analyses to date have used alternative methods that place greater emphasis on the sample that is common between consecutive months of the survey.
PN270
And then it goes on to deal with the various forms of analysis, and then, as I say, concludes:
PN271
While additional sampling error is expected during implementation of the new sample, there is no evidence from these analyses that the change in sample has materially affected estimates of employment growth.
PN272
JUSTICE GIUDICE: Yes. That would seem to suggest that there is no evidence in absolute terms, nor is there any evidence on which one should be suspicious of the comparison between the old method and the new method.
PN273
MR WATSON: Yes.
PN274
JUSTICE GIUDICE: Yes.
PN275
MR WATSON: Yes, your Honour.
PN276
JUSTICE GIUDICE: The accuracy, perhaps I should say, rather than the comparison. There seems to be a coincidence between the beneficial result, if I could use that term, and the introduction of the new method. I suppose that is what is making some people query whether there is something more to it.
PN277
MR WATSON: But that is, your Honour, why you need to do an analysis of these things, and not just rely on the coincidence in time.
PN278
JUSTICE GIUDICE: Yes.
PN279
MR WATSON: And that is what the ABS have done. ACCI have leapt at the coincidence in time and said - - -
PN280
JUSTICE GIUDICE: And said this can't be right.
PN281
MR WATSON: This can't be right.
PN282
JUSTICE GIUDICE: Yes.
PN283
MR WATSON: This is the reason. But the ABS have actually undertaken an analysis, a robust analysis, and they have said, well, it is not just the timing coincidence. It is actually a real phenomenon that we are - we are recording here.
PN284
JUSTICE GIUDICE: Yes. Yes, thanks.
PN285
MR WATSON: Can we also note that the ACCI view of the recent labour force statistics is not shared by a range of other commentators. Are paragraph R5.36 of our submissions we go to comments made by the workplace - Employment and Workplace Relations Minister, Tony Abbott, where he said, in relation to that release:
PN286
This is a welcome result after the very strong employment growth over the last four months. A substantial correction in the published figures might have been expected. However, today's data show that the labour market has, in the main, held on to recent employment gains.
PN287
And he goes on to say:
PN288
While leading indicators of labour market activity continue to point to some slowing of the pace of employment growth from around mid-2003, there remains significant underlying strength in the Australian labour market.
PN289
In addition, at 539, and I won't read them, but at 539 and 540 there are comments from the Treasurer, Mr Costello, his comments relating to the actual February release, and also at 540 comments from the Reserve Bank of Australia on the strength of the Australian labour market in their February 2003 statement. Now that statement was dealing - was released at a time when the February numbers weren't out, but it deals with the strength of employment growth up to that time.
[12.08pm]
PN290
Back to table R1.1, we set out a number of wages measures. Last year at this time the wage cost index was 3.4 per cent. This year at this time the wage cost index is 3.4 per cent in the "year to" figure. Year to December 2001, 3.4 per cent, year to December 2002, 3.4 per cent. The average earnings on a national accounts basis has declined in trend terms. Last year in the year to December it was 4.5 per cent, this year it is down to 3.5 per cent. When you look at those figures, the last year/this year figures in table R1.1 what do you get as a picture of the economy?
PN291
You get an economy that is still growing strongly. You get an economy that but for the drought in the non-farm sector is growing at exactly the same pace this year as it was last year. You get an economy where inflation has actually declined slightly in terms of headline CPI and declined in terms of underlying inflation as measured by the Reserve Bank. You get an economy where employment growth is actually better, substantially better this year than it was same time last year. You get an economy where employment - unemployment, rather, has declined significantly. You get an economy where wages growth pressures remain moderate.
PN292
Last year the Commission awarded $18 as an increase in the safety net and those down the other end of the table would have had you believe that the world was going to fall in. When you look at last year and this year and how the economy is going the truth of it is when you look at the date all you see at this macro economic level is the impact of the drought on the GDP number. Gross domestic product has moderated largely due to the effects of the drought. But the Australian economy has remained strong and resilient. That is what the Prime Minister says, that what Minister Abbott says. This is not an economy as the employers and the Commonwealth would have you believe that is in dramatically different circumstances from last year.
PN293
This is an economy that but for one factor is looking the same or better on every one of the key indicators. ACCI - I withdraw that. I will go to ACCI in a little while. All of the employers and the Commonwealth want to emphasise in these proceedings the effects of the drought and international uncertainty. In your consideration of these issues it is important to bear in mind that in that middle column of figures in table R1.1 you are already seeing the effects of the drought and you are already seeing the effects of international uncertainty. They are already there in that middle column. The middle column that, as we say, differs so little in key terms bar one respect from the earlier column of corresponding figures last year.
PN294
Now, ACCI, in their reply submission, at paragraph 1.40 have this to say. They had it as their final comments on the economy. And it is a bit indicative of the approach that all of the employer groups and the Commonwealth try to take in this case. They say:
PN295
A year ago all submissions to the safety net hearing recognised the buoyant nature of the Australian economy.
PN296
Well, I have to say I must have been at a different wage case because I think they spent the entirety of their time trying to deny that it was buoyant but in any event they go on to say:
PN297
A year later all submissions recognise that economic conditions have softened and that there are a large number of downside risks beyond this. That is, irrespective of how the war in Iraq might proceed or how comprehensive the lifting of the drought will be 2003/4 appears likely to be a weaker year than 2002/3.
PN298
Now, the thing about that paragraph is that it is entirely wrong so far as the impact of the drought and the impact of international uncertainty. It says, in effect, these things will make 2003/4 a worse year than 2002/3. In 2002/3 the numbers that you see in the middle column you see the effects of the drought, you see the effects of international uncertainty. And notwithstanding what they say in this place about the forecast for 2003/4, when they are commentating in the papers what they say is that 2003/4 will actually be stronger than 2002/3. Dr Kates' forecast in The Age newspaper in January said 2003/4 will actually be stronger than 2002/3.
PN299
What is evident when you look at columns 1 and 2 are the similarities, not the differences. Next, let us have a look at column 3 in table R1.1. That is the table of official MYEFO forecasts. But before we do that in detail I just want to make two points about the figures in that column and the approach that is taken to them by the AIG in particular. The first point is that the AIG, in their submissions, both their original submissions and their reply submissions, engage in a consistent fudge on this issue. It permeates the entirety of their submission on this point.
PN300
We say growth in the 2003/4 financial year is expected to rebound. They consistently misrepresent us and attempt to have us say that we are expecting growth in the 2003 calendar year to be better. Can I give you some examples of that. In their original submissions at paragraph 337 they quote our proposition regarding a rebound in 2003/4 and then this is what - so they actually quote us correctly. They say that we say conditions will strengthen in 2003/4 and then this is how they deal with it. At 3.44 - at 3.43 rather they say:
PN301
Two recent assessments of the Australian economy in 2003 highlight how the economy outlook is shifting rapidly reflecting the balance of risk moving increasingly towards the negative.
PN302
And then at 3.44 they quote Alan Oster, the Chief Economist from the First Australia - from the National Australia Bank, rather, and that quote is all about economic growth in the calendar year 2003. And they go on at 3.45:
PN303
Based on these results the NAB is forecasting growth to fall from around 3 and 3-3/4 per cent in 2002 to 2-3/4 per cent in 2003, far removed from the rebound that was present in the late 2002 forecast presented by the ACTU.
PN304
We said "financial year", they say "calendar year". They misrepresent us. And, again, at 3.48 they quote from the Reserve Bank and they say of the Reserve:
PN305
It also added that while the Australian economy is set to continue to grow at a good pace it would be slower than last year.
PN306
Whereas the joint State and Territory Government submission puts it:
PN307
Overall, economic growth is likely to slow and the year 2003 looks set to be a more significant challenge for the economy.
PN308
This is clearly a change in assessment from that presented by the ACTU in its submission. Both the Reserve Bank comment and the comment of the State and Territory Governments are calendar year 2003 comments. They are not about the financial year, 2003/4. They continue this exercise in their reply. At 2.7, of their reply submissions, they say:
PN309
In our original submission we stated that the Reserve Bank of Australia, in its February 2002 statement on monetary policy, had acknowledged that while the Australian economy is set to continue to grow at a good pace, it would be slower than last year. This point has been totally ignored by the ACTU.
PN310
It has not. The point that we have made right from the inception of this case, in our written submissions, is that forecast growth for 2003/4 is better than for forecast growth for 2002/3. They go on to quote in 2.9, BIS Shrapnel, saying that growth in 2003 will slow to 2.9 per cent this year. We had actually quoted BIS Shrapnel for the fact that in 2004 they had growth going through the roof and whilst it is not a financial year forecast, the growth in 2004 was so strong that even with relatively moderate growth in 2003 it looked pretty good us. But AIG consist in this mischaracterisation of our position. They go on to say, at 2.12:
PN311
Recent work undertaken by AIG with manufacturers across Australia, now points to a short war in Iraq, leading to the growth forecast for 2003 being lowered as much .5 per cent.
PN312
At 2.15, they conclude:
PN313
In conclusion -
PN314
and here is where they do it again -
PN315
...the ACTUs claim that growth will be stronger in 2003 than 2002 is highly questionable.
PN316
We have not made that claim. We have claimed, consistently, that everyone forecasts growth will rebound next financial year. The calendar year 2003, has this half of the year from January to June in it. And everybody understands that the effects of the drought and the effects of international uncertainty will play a part in moderating growth, both for the financial year to June 2003 and for the calendar year to December 2003, because that six months, from January to June, is in whichever one of those two years you pick. But when you go to the financial year 2003/4 what all of the commentators are saying, the Treasury in its forecasts, the Treasurer in his comments, Dr Kates in his newspaper column, what all of them are saying is that growth is forecast to rebound.
PN317
There is a consistent, underlying fudge in all that the AIG has put to you about what we say about growth prospects. The AIG has picked the 2003 calendar year but it is not, in our submission, the relevant consideration for your task. The one other point I want to make about the figures in the third column of table R1.1 is that whilst the Commonwealth, ACCI and AIG will, throughout the course of these proceedings, seek to emphasise the down side risks which attach to the MYEFO forecasts and presumably in the case of ACCI, the down side risks which attach to Dr Kates's own forecasts, what is apparent is that the MYEFO forecasts, when you look at MYEFO, they specifically refer to the drought and international uncertainty, specifically refer to the prospect of a war in Iraq in their assessment in November last year.
PN318
The forecast of Dr Kates was published in January 2003. The drought was on then, international uncertainty about a war with Iraq was looming. I think in a more Churchillian kind of tone, ACCI described it as "the dark clouds of international uncertainty looming on the horizon". That is when he made his forecast. But in these proceedings, the Commonwealth and the AIG and the ACCI, will seek to say to you, focus on the uncertainty, focus on the uncertainty because of the drought, focus on the uncertainty because of international events. But their forecasts, their best forecasts, the official forecasts of the Treasury and the forecast of Dr Kates, those forecasts already have taken into account those factors. It is not like those factors weren't there when the forecasts were made.
PN319
Let us go down the column. Growth has moderated because of the drought. And we will come to this in a little more detail, later. But because the drought is expected to end and that does look increasingly likely, growth next year, the Treasury's own forecast, growth is expected to rebound to 4 per cent. This time last year growth was 4 per cent. It has moderated because of the drought. 97 per cent of the economy, this year, is still growing at 4 per cent. The forecast for next year is 4 per cent. Inflation: This time last year, 3.1. Currently 3. The MYEFO forecast has it at 2-3/4 per cent, a further moderation.
PN320
Employment growth: This time last year 1.6. This time this year, amazing performance, 3.2. Forecast for next year 1.75. An improvement on where we were last year and still enough to see an improvement in the labour market, as the unemployment numbers indicate. This last year, 6.6. Most recent data 6. MYEFO says, below 6 as, we note, does Dr Kates in relation to December this year. The average earnings on a national accounts basis. There is not a forecast in MYEFO in relation to wages. Average earnings on a national accounts basis: 4.5 per cent this time last year. 3.5 per cent this year. 4.25 per cent next year.
PN321
When you look at the picture of the economy then, the economy now and you forecast - the best forecasts that the Commonwealth Government have, - forecast what is going to happen, you have got good growth, you have got inflation under control, you have got a continued improvement in the labour market, you have got a slight pick up in wages growth. You have got nothing like the bleak picture which the Commonwealth and the employer groups will seek to paint to you about where we are today. Can I deal with a couple of things in relation to the assessment. I have mentioned a few times the drought and I have said that the drought is having its impact now.
PN322
In our reply submissions we deal with this issue and we, at paragraphs 5.62 to 5.68 and we go to a range of authoritative commentators and indeed that is the Commonwealth's phrase, not ours, a range of authoritative commentators, regarding the likelihood of a bounce back in the farm sector if the drought breaks. ABARE in their Australian Commodities issue, volume 10 number 1, released in the March quarter 2003, say:
PN323
Assuming there is a autumn break to the drought across much of the winter cropping and pastoral areas of Australia, there should be a dramatic improvement in the rural sector's fortunes in 2003/4. Expanded crop plantings and greatly improved yields can be expected to result in a bounce back in grain grower incomes by late 2003. In the livestock industries, however, production will be slower in the short term as producers retain stock to rebuild depleted herds. As a result, livestock incomes are not expected to rebound as quickly or as strongly as cropping incomes.
PN324
And then you will see, on 5.63 of our submissions, the ABARE graph, their forecast of farm incomes. And there is a couple of things to note about that. The bar chart shows this quite dramatically. 2001/2 was an unprecedented year for farm incomes. There has been a dramatic drop this year with the drought and there is a forecast rebound next year, from ABARE. Now, the NFF, in their reply submissions, sort of say, well, you know, yes there will be a rebound but it is not going to be - we are not going to earn anything near like what we earned in the year before the drought.
PN325
Well that would mean a record year. When you look at that bar chart, the forecast rebound in farm incomes puts 2003/4 in a, what is broadly speaking, a pretty good position. The Treasurer, at 5.64 we note said:
PN326
If the drought breaks, with signs already emerging, positive effects could emerge in the second half of 2003.
PN327
And that is an assessment which, at 5.65 and 5.66 and 67 we note the Reserve Bank, in a quite detailed analysis, shares. Now, we are not, as some people characterised us, saying the drought will break. The indications are positive, and we go to the release from Charman Stone regarding the rainfall climate picture, which the bureau of Meteorology released on 6 March 2003 at paragraph 5.68. The signs are encouraging. But the point about the drought is this. All the indications are that its effects are being felt now, and what has that resulted in? Growth moderating to 3.2, still very strong growth.
[12.31pm]
PN328
If the drought breaks, farm incomes are expected to rebound, growth is expected to rebound to 4. If the drought does not break, which is the eventuality which employers and the Commonwealth say, in effect, you should condition the entirety of your considerations on. If the drought does not break, then no-one is saying the economy will not still grow strongly. No-one is saying that the 97 per cent of the economy, which is the non-farm sector, will suddenly have growth that collapses, and you have, collectively, in the course of your decisions given farm employers a capacity to come along to the Commission and make applications under the economic incapacity principle, and in that regard can we just address the NFFs proposition that that principle should be altered.
PN329
In relation to that can we note the following? Firstly, their submissions overstate the level of employee numbers in the farm sector. They quoted in their original submissions a figure which is the employed persons figure. As we say in our supplementary submissions on this issue, the employed persons figure actually includes employers, own account workers, and contributing family members. The most recent data from the labour force survey shows that far from their having been a decline in employee numbers, in the last quarter, indeed in the last two quarters, the number of employees in agriculture has increased.
PN330
The most recent data shows a 6.8 per cent increase in the number of employees. 10,600 additional employees in the agricultural sector since the November 2002 quarter. The number of full-time employees increased 11.5 per cent during the February 2003 quarter, an additional 13,500 full-time workers. The increase over the last six months has been 4.4 per cent, and 4.7 per cent. There has been a decline in the number of employed persons, but that is a decline in the numbers of employers and the numbers of own account workers and the numbers of family workers.
PN331
The next point we note on this issue is that at a time when the effects of the drought were apparent, both the NFF and WAFFIA consented, on 31 October consented to the $18 safety net increase in the Pastoral Industry Award. Now, that is the main award for this area, and on 31 October they both consented to the $18 increase. No suggestion in that case of economic incapacity. NFF actually consented to bringing forward the operative date of that $18 increase. WAFFIA disagreed with the bring forward, but consented to the quantum.
PN332
The next adjustment of the Pastoral Industry Award is not therefore due until 31 October this year, by which time it will be plain to everyone whether the drought has broken or not. That is the time, that is the time when the NFF and WAFFIA ought to make whatever submissions they make about their capacity to pay. But they should not be, in our submission, in these proceedings seeking to deny every award worker, as they do, every award worker, no matter what their sector, an increase in wages because of the effects of a drought which we are experiencing now.
PN333
VICE PRESIDENT LAWLER: Mr Watson, WAFFIA, as I understand their submission, suggest that the Pastoral Industry Award ought to be quarantined from any increase. So one of the arguments is that the effect of the drought ought not be used as a basis. The fall-back position is the effect of the drought should not be used as a basis for denying an increase to workers generally, but there ought to be a quarantine in the Pastoral Industry Award.
PN334
MR WATSON: Yes.
PN335
VICE PRESIDENT LAWLER: What do you say to that proposition?
PN336
MR WATSON: There is simply no need for it, your Honour, because as I have indicated, the safety net increase arising out of this year's case, assuming for the moment there is one. The safety net increase arising out of this year's case won't be capable of being implemented under the 12 month rule in the Pastoral Industry Award until 31 October this year. At that point, at that point we will know pretty much one or another for certain whether the drought has broken. There is no need to quarantine the Pastoral Industry Award at this stage.
PN337
JUSTICE GIUDICE: In your reply submission, Mr Watson, do you deal with the submissions made by, I think probably a number of people, that there is a multiplier effect, particularly in regional areas beyond the - those who might be directly employed in the pastoral industry. Small towns and - I am not sure exactly which submissions that allegation is made in, but have you dealt with that in your reply?
PN338
MR WATSON: Perhaps not in terms, your Honour.
PN339
JUSTICE GIUDICE: Yes.
PN340
MR WATSON: The suggestion of, if you like, a knock-on effect - - -
PN341
JUSTICE GIUDICE: Yes.
PN342
MR WATSON: Undeniably there are businesses in rural and regional areas that have been impacted because of the drought. We don't say to the contrary. But obviously the extent of the impact dissipates as you move away from the direct farm sector, firstly; and secondly, what you can't see in any of the aggregate or sectoral data is the sort of impact which the employers and the Commonwealth want you to assume in that regard; and thirdly, those businesses are in no different a position to agricultural sector employees when it comes to coming along if there is a genuine economic incapacity.
PN343
If there is a genuine economic incapacity as a result of the drought, then they can come along in the same way as agricultural employers, and say "This has impacted on our business. We are just not in a position to afford it." Now, in fact we have to say we don't actually expect many of them will do so. Why don't we expect that? Because every indication from employers in relation to this is that whilst sectoral groups, like the farmers this year, and like the Hotels Association last year, whilst they will latch on to calamitous circumstances for the purpose of making the submission that somehow or other the economic incapacity principle should be changed because of the disastrous effects that are being experienced in their particular industry at a given point in time.
PN344
Whilst they latch on to that in the broad wage case proceedings, when push comes to shove, do the safety net increases that have been awarded actually impact sufficiently that they can come along and make an economic incapacity argument? All of the available evidence is that they don't. The AHA, after their extensive participation in the proceedings last year, came along, asked for a change in the principle, said that they were going to make the application anyway, and then what happened? Nothing. When push came to shove and they actually had to demonstrate economic incapacity, they couldn't, they didn't, and the safety net adjustment went through.
PN345
We say, in effect, that the Commission should take some comfort from that experience when it comes to looking at what is happening here, particularly in light of the operative date in the Pastoral Industry Award. 31 October, employers in that industry will have a chance to come along and say either, "The drought has broken and there is not really a basis for us to oppose the 18" - not the 18, "the increase that you have awarded," as they did last year with the 18. Or, they come along and they say, "The drought is still on."
PN346
JUSTICE GIUDICE: Yes.
PN347
MR WATSON: "We are falling to pieces."
PN348
JUSTICE GIUDICE: My questions was directed to the other industries, or enterprises that might be affected in small towns who rely, basically, for their custom on farmers having money.
PN349
MR WATSON: Yes. Yes.
PN350
JUSTICE GIUDICE: And I was inquiring whether you had dealt with that.
PN351
MR WATSON: Well - - -
PN352
JUSTICE GIUDICE: And I understand part of the answer is - - -
PN353
MR WATSON: Yes.
PN354
JUSTICE GIUDICE: - - - well, why can't they use the incapacity to pay principle?
PN355
MR WATSON: Yes, yes.
[12.44pm]
PN356
VICE PRESIDENT LAWLER: Do we not need to take account of the practical reality, though, that in relation to any small businesses that service rural towns - I will make it rural towns - there is a practical - there is a certain impracticability in relation to an exceptional circumstances application. If only two or three workers are employed the cost involved in assembling the application, assuming that the employer knows that they have the entitlement to make it and bringing the application, arguing it, would make the whole exercise uneconomic?
PN357
MR WATSON: Well, there are a couple of things about that, I suppose. The first is it assumes that the employer is not a member of a relevant association who can come along and make the argument on their behalf and many of them are. The second - and on current indications, some of the employer associations are saying that they will come along and make those arguments. The second is that if you are talking about the two or three employees' example that is really where you are talking about such - and you are doing that cost benefit analysis, as it were - if the costs associated with the increase in wages are relatively so small it is that very circumstance, in our submission, which is really why the economic incapacity application is not made.
PN358
When push comes to shove, when most of these businesses actually step out of the rhetoric of their employer associations in these proceedings what most of them realise is that safety net adjustments are not the factor that causes them grief. It is the big factors like a drought or whatever, that are causing them grief. But the sorts of level of increase that we are talking about in these proceedings are not the sorts of levels which have the impact which the employers and the Commonwealth allege in these proceedings.
PN359
But if they are in that position, if they are in that position, then, where it is that marginal, then the obvious road home for them is to get onto their employer association and get them to make the application.
PN360
VICE PRESIDENT LAWLER: Don't we have to be concerned, though, that the operator of the Paragon Milk Bar in Bullamakanka isn't a member of the Melbourne employer association?
PN361
MR WATSON: Well - - -
PN362
VICE PRESIDENT LAWLER: But the President was talking about the flow-on effect of businesses and indeed that was something that had been troubling me as well. When there has been such an enormous negative growth in the farm sector such as a sector which is as small as you identified can pull down the growth figures in the way that the table in R1.1 indicates, aren't we to infer from that that there are lots of small businesses in rural Australia who are doing it tough in the way that the low paid are doing it tough and for whom another couple of thousand dollars a year for their two or three employees will be something they basically can't afford?
PN363
MR WATSON: There are some qualifications, I think, on that. The first is this. That whilst there has been a dramatic decline in the farm sector and whilst there has been a dramatic drop-off in farm incomes this year as opposed to last year, all of the evidence is that 2001/2 was a sensational year for the farming community. And as a result of various techniques in terms of spreading income and the like the Reserve Bank and others have made the comment - and I can find the appropriate references in due course - have made the comment that farm income, whilst it has dropped dramatically this year, farmers are in a better financial position broadly than they have been for any similar drought in Australian history.
PN364
So the knock-on effect to small businesses in rural communities will not be as dramatic as the huge drop in farm income that you see in the figures and in the ABARE chart. Because farmers have, prudently, put money away in the good season and they have it to draw down on now.
PN365
JUSTICE GIUDICE: Have you got some empirical basis for that?
PN366
MR WATSON: Well, it is what the Reserve say in their February statement - November statement. This is at tag 39 of our reply composite exhibit. And they say:
PN367
To some extent the increased use of farm management deposits in recent years has provided scope for farmers to smooth their income and expenditures. The recent high levels of farm income have facilitated a large build-up of farm management deposits which should help insulate farmers from some of the effects of the expected fall in earnings.
PN368
And they go on to say:
PN369
Nonetheless a significant decline in expenditure by rural producers can be expected as a consequence of the drought.
PN370
But the point I am making in that regard is that it would be wrong to say: Look, the farm sector has suffered this dramatic drop in income, all of that has in effect flowed through to small rural businesses. But in an overall sense these are national proceedings which deal with the economy as a whole and they deal with 1.7 million workers scattered throughout the economy. If the decision of the Commission is to be moderated to the worst sector outcome in any given year, then low paid workers throughout the economy will always be made to pay for a calamity in some sector or another.
PN371
And it is for that reason, in our submission, that the Commission has always taken the view that it should award an amount consistent with economic responsibility and then deal with sectoral implications or individual isolated instances through economic incapacity. And if we are to get to a stage where 1.7 million workers get a lower pay rise in any given year because the milk bar in Bullamakanka is not going well, then we get to a point where the low paid get treated to a lowest common denominator pay rise every year.
PN372
Because what will happen is every year - as they have done for the last seven - every year they will come along, the employers and the Commonwealth, and they will pick a sector which is not doing well or which is doing less well and they will say: That is the sector which you should elevate to the full front of your concerns and you should make every one of the 1.7 million low paid workers pay because a particular sector is not doing well. In our submission that is not the approach that the Commission should take.
PN373
JUSTICE GIUDICE: Has drought been taken into account by the Commission in previous national cases? Perhaps that is a question that everybody could have a think about.
PN374
MR WATSON: We will take it on board, yes.
PN375
JUSTICE GIUDICE: Yes. Is that a convenient time, Mr Watson?
PN376
MR WATSON: Yes, yes, your Honour.
PN377
JUSTICE GIUDICE: We will adjourn until 2.15.
LUNCHEON ADJOURNMENT [12.54pm]
RESUMED [2.16pm]
PN378
JUSTICE GIUDICE: Yes, Mr Watson.
PN379
MR WATSON: Yes. Just before the break, your Honour, the President and your Honour Vice President Lawler asked me some questions about small businesses not actually in the agricultural sector. Just to recap, I suppose, on our position there, and to perhaps elucidate it a little better than I did just before lunch. Small businesses - the first thing to bear in mind is that small businesses are overwhelmingly not employers of labour. They are generally speaking, owner operated and/or they have contributing family workers.
PN380
That is the first point. The second point is that small businesses affected by the drought as the Commonwealth, I think, notes in its submission, have had access to exceptional circumstances funding. The third point is that where there are small businesses with employees, they are overwhelmingly, in our submission, likely to be covered by State rather than Federal awards, which means that, broadly speaking, operative dates will tend to be later, although we concede that in New South Wales that would not be the case.
PN381
Fourthly, if there is an end to the drought, and there is a bounce back in spending in the agriculture sector, then one expects that that will flow through to businesses which depend on it. Fifthly, providing low paid employees with a pay increase, is a way of stimulating aggregate demand in rural and regional local economies, and so - and sixthly, I suppose, if at the end of that process there are still problems, then in our submission the appropriate way for them to be dealt with is the economic incapacity principle.
PN382
Can I deal also at this juncture with the question of international uncertainty. As ACCI themselves in their reply submission acknowledge, recent events have in fact resolved some of the uncertainty, which they spent so much time on in their original submissions. Indeed, the fact that war has commenced in Iraq means that there is no longer uncertainty about that issue. Now, that is, of course, not to say that there are not other uncertainties associated with international matters, not other uncertainties associated with the current war in Iraq.
PN383
But in our submission, international events properly analysed, have two main components in relation to the question of Australia's economic outlook. The first is oil prices, and the effect that a war in the Middle East will have on those. And in relation to that, we note that oil prices have actually declined since employers and the Commonwealth filed their original submissions in these proceedings. The second point, this is the point which the Commonwealth makes, is the question of the broader growth prospects for the US economy and for other international economies.
PN384
And in that respect can I refer the Commission without taking you to it, to page 9 of the mid-year economic and fiscal outlook. It is in the AIG's submissions as an attachment. And at that page you will see the forecasts for growth in international economies in 2003. The OECD does calendar years, not financial years. 2003 compared to 2002, and in every instance the MYEFO forecasts a reasonably significant improvement in growth prospects. And in that circumstance, we would submit that it even had recent events slightly moderated that outlook, we would still be looking at an international economy outlook which is no worse than the current year. When I say, the current year, the year 2002.
PN385
Can I refer just then to a few other propositions which are advanced in relation to the economic outlook? In relation to the labour market, the Commonwealth and employers both refer to the possibility of weaker labour market conditions over the next four months. We would make two points regarding that - next months, I am sorry. Not the next four months. They are not quite that precise. Can I make two points regarding that?
PN386
The first is that labour force data has consistently been exceeding expectations of both market commentators and indeed, one suspects, even representatives of the Government themselves. And so one should treat with caution the suggestion that things will necessarily get weaker. But of course, the other - the flip side of that proposition is that even if there is some softening of the labour market in the next few months, it comes after a few months of very, very strong employment growth and no-one is saying that there won't be continued improvement in the labour market into the next financial year.
PN387
On wages growth, the Commonwealth refer to a Reserve Bank of Australia comment on the possibility of some pick up in wages growth at R3.4 of their submissions. It is my submission that they incorrectly place emphasis on that quote. Can I take you to R3.4 and show you how the Commonwealth utilise it and then I will take you, if I may, to the Reserve Bank's statement on monetary policy. At R3.4 they say - they quote the Reserve Bank in its statement:
PN388
Consistent with recent tightening in the labour market, signs have emerged that the wage cycle has passed its trough, although most labour cost indicators suggest that wage pressures remain generally modest.
PN389
And in the preceding paragraph they suggest at R3.3 that this is really evidence of increasing wages pressures. Well, with the greatest of respect to them, we say that that is not really what the Reserve Bank was saying at all, and if one goes to the AIG submission where the Reserve Bank's February Outlook can be found, at page 159 of the original submission, which is page 49 of the Reserve Bank's February Outlook, the Reserve Bank have this to say on wages costs. It is in the first column on page 49 of the Reserve Bank statement and it is at about point 4 of that column and they say:
PN390
While the Australian economy continues to grow at good pace, evidence of inflation pressures at present remains quite limited.
PN391
They talk about upstream price increases. And then you will see in the next sentence:
PN392
Aggregate wage increases picked up slightly in the second half of 2002 -
PN393
picked up slightly, and here is the punch -
PN394
but they remain at a pace consistent with the inflation target. While there have been isolated areas where strong demand has generated upward pressure on wages and prices, notably in the housing construction sector, these pressures have not spread across the economy more widely. Prospects at this stage are that inflation will remain contained.
PN395
In our submission then a fair reading of what the Reserve Bank really say on that issue is that wage costs still present no threat in any sense to the inflationary outlook, nor to the economy more broadly. Table R1.1 shows a strong economy last year, a strong economy this year, a strong economy next year. The economy is suffering now the effects of the drought, it is suffering now the effects of international uncertainty, but table R1.1 shows that notwithstanding those effects, there is a strong economy, and notwithstanding those effects, there is forecast to be an even stronger economy when any increase as a result of this case will take effect.
PN396
At paragraph R5.61 we quote the Federal Treasurer. The Federal Treasurer said in an interview with Alan Jones on 2GB on 4 March 2003, he said this:
PN397
Well, the Australian economy, Alan, will be affected by world events obviously. The threat of war, rising oil prices, but the economies of the world, and you heard it today from the OECD, it is the best place to ride out these difficulties. And so the Australian economy, although it will be affected by drought, we won't be immune to drought, it will be affected by war and rising oil prices, but the Australian economy will continue to lead, and so I think we can have a lot of confidence in the Australian economy.
PN398
The Commonwealth and the employers will tell you that the one thing you should not do in these proceedings is have a lot of confidence in the Australian economy. They will tell you that because of the drought, because of international uncertainty, you should be excessively and immoderately, in our submission, cautious. But the Treasurer, the Treasurer is saying, we are going to be affected, no-one is walking away from that, but we can have a lot of confidence.
PN399
All we ask of the Commission in relation to the economy in these proceedings is that the Commission shares the same confidence in the Australian economy as the Treasury MYEFO predictions, as Dr Kates' Age newspaper economic forecast, as the Treasurer himself on Alan Jones' program on 2GB. We are not asking for any more than that. We are asking that they in these proceedings put to you what they put to everyone else outside of these proceedings. The Australian economy is strong; next year it is forecast to be even stronger.
PN400
That is propositions 2 and 4. Proposition 3 and 5: the $18 increase awarded by the Commission last year has had no adverse economic impact, and the $24.60 increase will have a negligible impact on growth, employment and inflation. Starting with proposition 3 first. If ever - if ever there was a year when the employers and the Commonwealth should, on their own arguments, have been able to demonstrate an adverse impact from a safety net adjustment, it was this year. Last year's $18 increase was the largest increase in the safety net in percentage terms since the minimum rates adjustment process in the early '90s.
[2.30pm]
PN401
If ever there was a year when they could have come to the Commission and said, "Look at the impact," it was this year. Last year's safety net increase has taken effect in an economy which, as they are so keen to tell you, is affected by drought, is affected by international uncertainty, and in which growth was moderated. If ever there was a year when they could have brought evidence of the impact of a safety net adjustment it was this year. But that is, in our submission, what they have comprehensively and absolutely failed to do. There is simply nothing in the macro-economic numbers, which are in Table R1.1, which suggests any adverse impact as a result of the $18 safety net.
PN402
The wage cost index this year is the same as it was last year. That is the most direct and obvious consequence of a safety net adjustment, its impact on wages. 3.4 this year. 3.4 last year. Employment growth, double. Double this year to the corresponding figure last year. 3.2 to February 2003, 1.6 to February 2002. The macro-economic numbers do not show any adverse impact. Nor, in our submission, is there anything in the sectoral data that they can point to In our original submissions we showed that employment growth in award dependent sectors for the period 1996 to 2002 continues to outstrip the oil industry's average, and continues to outstrip those least award dependent sectors.
PN403
We also noted that the gross value added for award dependent sectors and productivity, for admittedly the 2001/2002 period, was good for all of those sectors, and that is at paragraph 6.15 to 6.19 of our original submissions. Now, in their opposing - in their first round of opposing submissions, none of the employers laid a glove on any of the sectoral data. In their reply submissions, ACCI and the Commonwealth have latterly attempted to have a bit of a go at doing some sort of sectoral analysis on the employment figures.
PN404
The Commonwealth try to link the decline in award coverage with - in key award sectors, with the growth in employment, and I want to take the Commission to figure 7.1 of the Commonwealth's reply submissions. It is at page 38 of those submissions.
PN405
JUSTICE GIUDICE: What was the page, Mr Watson?
PN406
MR WATSON: Page 38, your Honour.
PN407
JUSTICE GIUDICE: Thank you.
PN408
MR WATSON: It is figure 7.1. It is actually attached, if you like, to paragraph 7.11.
PN409
JUSTICE GIUDICE: Yes.
PN410
MR WATSON: Now, at the top of page 38 you will see they say:
PN411
The chart below plots the percentage point changes in award reliance.
PN412
I might say, they don't at all quibble with our proposition that employment growth has been greater in award reliant sectors. But this is their attempt to, sort of, spin that round a bit, and they say, well:
PN413
The chart below plots the percentage point changes in award reliance against percentage changes in employment by industry over May 2000/2002.
PN414
And they say that there is a strong negative association between the two series. In other words:
PN415
In other words -
PN416
they say -
PN417
as award reliance decreased you get employment growth, and as award reliance increased you get a negative effect on employment.
PN418
And they do their little graph there, and then at 7.12 they say:
PN419
This negative relationship between change in award reliance and employment growth has been quantified using regression analysis. This shows that the relationship is significant, with changes in award coverage accounting for 63 per cent of the observed changes in employment. A 1 percentage point decrease in award coverage is associated with a 1.3 percentage increase in employment growth.
[2.36pm]
PN420
So that is their claim. But then when the ABS published its final version of ABS6306 a few things happened. Firstly, there were changes to the percentage of award-only employees by industry which resulted in a number of the industries which had previously been recorded as having had an increase in award-only proportions as having a decrease. So that whereas they had earlier said, I think, seven, now only three industries are recorded as having had an increase in award-only proportions.
PN421
But here is the killer. What we actually did is ask the ABS for the standard errors on the level estimates for award-only employees proportioned by industry. Technical note number 10 to the ABS publication says that the standard error on a movement estimate between two years will be roughly 1.4 the standard error on the level estimate in a given year provided the standard errors are roughly comparable. What we have done at the table, which unfortunately we have not given a number to, but at the table which is on page 5 of our supplementary submissions just above S2.6, is we have calculated the standard errors on the movement in the proportions of award-only employees by industry.
PN422
So you will see - to take, for example, accommodation, cafes and restaurants, the movement between the two which the Commonwealth relies on is the third column. In May 2002 they reported 61.2 per cent as the proportion, in May 2000 they reported 64.7 per cent and then you have got the change. Now, I suspect, as it happens, we have got the signs wrong in those columns but it doesn't affect this analysis in that third column. Now, the fourth column is the level estimate that was provided to us - the standard error on the level estimate provided to us by the ABS.
PN423
In every instance the standard error on the percentage is relatively high. When you multiply that by 1.4 for the standard error on the movement estimate what you get is this. In every instance bar one the relative standard error on the change in award dependency is more than 25 per cent. In every instance bar four the relative standard error is greater than 50 per cent. In other words, in other words, the apparent movement in proportions of award-only employees between May 2000 and May 2002 is simply not something which is statistically significant.
PN424
When you have got a proportion in May 2000 that is 15 per cent in construction and you have got a proportion in May 2002 of 17.1 per cent, the 2.1 per cent is simply not statistically significant. The chance of the true value being unchanged, in other words, is quite high. The ABS uses these words when you have a relative standard error greater than 50 per cent. It says:
PN425
Estimate has a relative standard error greater than 50 per cent and is considered too unreliable for general use.
PN426
That is what they say. When you have got a relative standard error between 25 per cent and 50 per cent they say:
PN427
Estimate has a relative standard error of between 25 per cent and 50 per cent and should be used with caution.
PN428
Every one but one of the figures on which they rely for their alleged statistically significant negative relationship between award dependence - change in award dependence and change in employment, every one but one of those figures falls into either of those two categories. Every one but four of them is too unreliable for general use. You put garbage in you get garbage out. That is what the Commonwealth graph figure 7.1 really tells you. You put in statistically insignificant movements and you get a relationship which may or may not have anything to do with the true relationship.
[2.42pm]
PN429
This is not something, I might add, that the Commonwealth is unaware of. In previous cases when we have talked about changes in ..... coefficients and the like, the Commonwealth have been very, very keen to tell us that a movement of less than two standard errors is not something which is statistically significant, very keen to tell us that when they have wanted to avoid the proposition that there has been increasing inequality over the last five years or so. Made a great song and dance about that in previous proceedings, but in these proceedings they come with no comment at all about the statistical uncertainties of the data on which they rely and then produce something which they claim has statistical significant. It doesn't, it hasn't, they have failed absolutely to demonstrate the proposition they assert.
PN430
ACCI have also had a bit of a last ditch go at trying to prove some impact on employment, and we deal with this as well in our supplementary submission. They have gone not to employment numbers, because that aspect of their submission is dealt with, as we say, by trying to avoid the consequences of the recent good statistics from the labour force survey. No, what they do is they go to hours worked indices for the market sector, and they quote some figures from the recently released national accounts which show a decline in hours worked for the market sector for a period that is coincident in part with the taking effect of the safety net.
PN431
In our submission, reliance on that data is completely misleading. The national accounts data on which they rely shows that the hours worked indices for the economy as a whole have continued trending upwards since September 2001 and in particular have kept growing unabated since June 2002.
PN432
SENIOR DEPUTY PRESIDENT WATSON: Is that data produced anywhere, Mr Watson?
PN433
MR WATSON: It is not. We can produce it. I was very conscious of not wanting to, in reply to a reply to a reply, produce wads and wads of material, but I can certainly - we can produce the corresponding table to the ACCI table which shows the national accounts index for hours worked in the total economy.
PN434
SENIOR DEPUTY PRESIDENT WATSON: Yes. I would certainly be interested in some hours data.
PN435
MR WATSON: Yes, yes. Well, we will get that for you, your Honour. The reliance on the market sector data is misleading also in this sense. ACCIs basis for relying on the market sector is that they say in their submissions, well, this is the closest approximation we have got to the private sector, so we will use that. Well, in fact, that is simply not the case. The private sector actually accounts for more than 80 per cent of total employees, while the market sector accounts for only about 60 per cent of total employees.
PN436
In fact, the total employment number figure is a closer approximation of the private sector than the market sector numbers are, but - but - and here is the killer - table 2.3 of our original submissions which sets out the proportion of award-only employees, the proportion of award-only employees who are in specific industries, table 2.3 shows that the market sector excludes approximately 40 per cent of all award-only employees. It actually also excludes about 40 per cent of all employees. So the use of the market sector and the hours worked data for that sector tells you nothing - nothing - about the sectoral impact of the award increase last year on employment hours, and it certainly tells you nothing about the impact on employment.
PN437
The Commonwealth undertake a similar exercise in attempting to demonstrate a relationship - an adverse relationship between award dependence and productivity. I want to go to some of the detail of that but the starting point, really, in my submission, is this. At paragraph 8.37 of their original submissions the Commonwealth make these comments about the productivity numbers. They say:
PN438
If employees in industries with lower productivity growth receive wage increases based on high aggregate productivity growth, then real unit labour costs -
PN439
if I could ask you to bear in mind that phrase -
PN440
real unit labour costs in the low productivity industries will increase as a consequence. In the present competitive environment the rise in real unit labour costs would manifest as diminishing profit margins as seen in accommodation, cafes and restaurants, retail trade industries and employment.
PN441
So that is really the purpose for the Commonwealth going to all of this information about productivity. All of their material about this alleged negative association between award dependence and productivity is derived from this argument that you can't give people wage increases based on high aggregate productivity. What you have got to look at is the aggregate productivity - or the productivity of a particular sector. At paragraph 6.24 and 6.25 we dealt with this. R6.24 and R6.25 of our reply submissions, we dealt with this. We said this:
PN442
At paragraphs 522 and 523 the Commonwealth notes that the real increase in the Federal minimum wage has been 7.5 per cent, and that the real increase in the trades rate, 3.6 per cent for the period '96 to 2002.
PN443
So that is the real increase in wages:
PN444
Productivity increases for the same period in accommodation, cafes and restaurants, 13.7 per cent. Retail trade, 15.5 per cent. Health and community services, 7.3 per cent.
PN445
We make this claim:
PN446
It can thus safely be concluded that real unit labour costs have declined in all three award dependent industries.
[2.50pm]
PN447
Now that is abundantly plain in accommodation, cafes and restaurants, and retail trade, because in both those cases the increase in productivity outstrips the increase in the Federal minimum wage, the real increase in the Federal minimum wage very substantially, and of course, not all award workers are on the Federal minimum wage. Indeed, if you look at the trades rate as, sort of, the other key indicator on which the Commonwealth rely, then you can see that there is a dramatic difference between productivity and the industry of accommodation, cafes and restaurants and retail trade, and real wage increases.
PN448
Health and community services, the increase in productivity there is 7.3 per cent, which is just below the real increase in the Federal minimum wage, but once again, you could only conclude that real unit labour costs in that industry had not declined if you made the patently false assumption that everyone in the industry was on the Federal minimum wage. Because the minute you get up above the Federal minimum wage, the real wage costs declines. The real increase in wage costs declines, and as you can see from the data on which the Commonwealth rely themselves, declines quite rapidly, so that by the time you are at the trades rate, the real increases in wages costs is down to 3.6 per cent.
PN449
So in every one of those three most award dependent sectors, in every one of them, real unit labour costs have declined. So the Commonwealth went to all of this in 837. They went to it to say, "Look, don't award on the basis of high aggregate productivity growth, because that will lead to an increase in real unit labour costs." Well, real unit labour costs, in the three most award dependent sectors, have declined. So what do they do in their reply submission? At 8.9 and 8.10, R8.9 and 8.10 of their - this is what they say:
PN450
The ACTU provides data on unit labour costs of the three most award reliant industries.
PN451
And they say what they are:
PN452
It is important to examine movements in nominal wages, given that these represent the actual wages paid by employers.
PN453
They started out talking about real unit labour costs, and all of a sudden, when you point out that the proposition for which they contend is simply not there on the evidence, "Look, we don't want to talk about real unit labour costs any more. Let us talk about nominal labour costs." Now, at figure 8.2 of their submissions, the Commonwealth do a comparison and they have done this more recently in correspondence, but I don't think the change in the - the change in the final release EEH data impacts significantly on the way they have done this.
PN454
The Commonwealth compare average productivity for a 10 year period - a 12 year period, rather, 1990 to 2002, with award coverage at a single point in time, May 2002, and they then say, "Look, we have got this other nice, neat, little statistical relationship that says there is this negative association between award reliance and productivity." Now, we make a number of points about that. The first point is, it is the comparison of an average productivity growth over a 12 year period with award dependency at a single point in time. Point number 1.
PN455
Point number 2 is that the period that they have picked, 1990 to 2002, actually includes between three and five years when the growth in agreement making was not widespread. Between 1990 and 1993, overwhelmingly the Australian workforce was still on awards as the predominant determiner of their wages, and the spread in enterprise bargaining did not really pick up until 1993 onwards. To do properly what the Commonwealth seek to establish, you would have to look at changes in productivity over the period, with changes in award coverage over the period for each industry.
PN456
You would have to control for other factors which might be impacting, like, in communication services, the strong uptake of technology; or in electricity, gas and water supply, the impact of micro-economic reforms embarked upon by State and Commonwealth governments from the early 1990s onwards. You would have to do all of those things. But they don't do those things. What they do is they pick an average for 12 years, compare it with a point in time in relation to award coverage, and then say, "Well, we have got a statistically significant relationship."
PN457
Now, as we pointed out in our reply, if you look at the two periods, if you look at 1990 to '93, and '93 to 2002, and you look at average annual productivity for that first period, and compare it to the - when agreement making was not widespread at all, and compare it to 1993 to 2002, when there was the pick up in the spread of agreement making, what do you get? Well, in fact what you get is that award dependent sectors have had a strong pick up, at least in two instances and a small one in the other, a strong pick up in productivity growth in the latter period as compared to the former period. The percentage point difference in accommodation, cafes and restaurants, 3.3 percent; in retail trade, .8 per cent; and in health and community services, .1 per cent.
PN458
That is, these industries were actually more productive in the period when they were the more award dependent sectors, in a relative sense, than they were in the period when pretty much everybody was depending on the award, and the three industries that the Commonwealth are so fond of talking about, communication services, finance and insurance, and mining. Communication services had much stronger productivity growth in the period 1990 to '93 than it did in the period '93 to 2002.
[2.59pm]
PN459
Mining had stronger - again, stronger productivity growth 1990 to '93 than it did in '93 to 2002, and similarly finance and insurance. What does that tell you? What it tells you, in our submission, is that if you are looking determiners of productivity growth, than award dependency is not a causal factor. There are all sorts of other things that are doing the work, and that contribute to the significant changes in productivity from one period to the other.
PN460
Now the Commonwealth in their reply, say that they can't reproduce the data that we have come up with in table R6.2, but we note that they do not - they do not say that our main point, which is that there has been this pick up in productivity between '93 and 2002 in the industries we identify, they do not say that that point is not right. Now can I just give some indications of the dangers of the Commonwealth approach on these sorts of things. You can plot productivity growth for the period 1990 to 2002 against the change in award dependency for the period 2000 to 2002.
PN461
So sort of mixing and matching the things that they use on the one hand for the employment relationship that they demonstrate, and on the other hand for the productivity relationship. And what you actually get then, if you do that graph, and if you ignore the statistical insignificant nature of the movements in award dependency. And if you ignore the fact that you are comparing one period of a certain duration with another period of a much longer duration, what you are actually getting is this relationship that shows that an increase in award dependency gives you an increase in productivity growth, with an R squared value of about 0.4, which is not much less than the R squared value of 0.5 that the Commonwealth gets.
PN462
Now we don't bring that graph to you, because the graph would be junk. The graph would be junk in much the same way as the Commonwealth's material falls, we would submit, into the same category. What you get when you look at those graphs, is statistical artefacts. Neither of them tell you anything. And as we say, when push comes to shove, what we say is that if you look at employment growth in award dependent sectors, if you look at productivity growth in award dependent sectors, can you see any adverse impact from safety net adjustments? Can you see anything that points to there having been an adverse impact? And the answer, comprehensively, is no.
PN463
We don't suggest a positive relationship between award dependency and employment growth or productivity. We don't say, oh, yes, award dependent sectors have better employment growth or have better productivity. But what we do say is that you can't point to a negative consequence out of safety net adjustments. There is nothing on the available evidence of any sectoral impact as a result of last year's safety net increase. No macro-economic data shows it. No sectoral data shows it.
PN464
In terms of the direct evidence, if you like, regarding the effect of last year's increase, that is pretty much it. Other than the surveys. There are three surveys. None of them, in our submission, provide anything like reliable data. At the outset can we note that quite apart from the methodological problems of each of the surveys, well, particularly the ACCI and AIG survey, I should say, none of the surveys actually tell you anything about net employment figures, either globally in the economy, or even more specifically, amongst the employers surveyed.
PN465
This a point which the Low Pay Commission specifically make in their report. The Low Pay Commission actually commissions robust research. The contrast between what the Commonwealth and employers do in this case could not be more stark. And what they do is they do an analysis of the macro-economic impact, and then they look at a whole range of sectoral things. An in particular, the Low Pay Commission report refers to a study of Makin et al, which records employment falls in the residential care sector. And what the Low Pay Commission are very keen to point out about that sector is that A, it is unusual, and B, that the study of that sector says nothing about off-setting gains in employment in other sectors.
PN466
Then, indeed, when you look at the macro-economic results of the Low Pay Commission's research, they demonstrate that there is no overall adverse employment impact. But what do these surveys on which the employers rely tell you? Well, all they will tell you - in each of them, all they will tell you, even if you accepted that the methodological problems were something you could ignore, all they tell you is the number of employers surveyed who report adverse impacts as opposed to the number who report no impact and the number who report a positive impact.
PN467
So they will say X per cent of employers said last year's safety net adjustment had a negative impact on employment. They will say much bigger percentage had said it had no impact and then they will also say, all of them, that another percentage of employers say that it had a positive impact. But that doesn't tell you anything, anything, about the net employment effect because employers have different numbers of employees and you have no indication from any of the surveys about the size of the employment effect amongst those who said it was negative compared to the size of the employment effect amongst those who said it was positive.
PN468
All you have is a number of employers recording in a particular way. And, indeed, in the AIG survey, what you actually have - they have broken it down into large and small employers - what you actually have from the AIG survey is that the number reporting positive effects is greater in a comparable sense with large employers than it is with small employers. So it may well be - and you can only speculate - but it may well be that the employment effects are greater amongst those who report a positive outcome than they are amongst those who report a negative outcome. You simply can't say on the basis of the data that is presented.
PN469
The surveys, though, are, not to put too fine a point on it, totally without merit. AIG concede as much in chapter 6 of their original submissions when they acknowledge the methodological limitations of their survey and virtually beg the Commission to conduct its own survey to make up for the deficiencies in their own case. The ACTU has commissioned Associate Professor Ian Gordon to analyse both the AIG and the ACCI surveys and his conclusion in relation to each is pretty decisive. Of the ACCI survey he says, "very limited in its reliability", and of the AIG survey he says, "seriously deficient".
PN470
In relation to both surveys he has concerns regarding response rates, question wording, survey instructions and lack of confidence intervals. The replies of the AIG and the ACCI on this issue are, we submit, extraordinary. Can I go to AIG first. AIG deal with this in their reply submissions at paragraph 4.3. It is page 18, I am reliably informed. Talk about trying to make a silk purse out of a sow's ear. Having been described as seriously deficient, this is what AIG try to do with Associate Professor Gordon's comments. They say:
PN471
The ACTU reply submission ignores the following positive findings and conclusions made by Associate Professor Gordon about the methodology.
PN472
Then they say - they quote, we would submit, selectively. They say:
PN473
The questionnaire in general is reasonably straightforward. In my view, there are only minor deficiencies.
PN474
Yes. Well, the associate professor did say that. He went on to say that, in fact, one of the key questions on safety net impact allowed only for negative responses in the direction of the impact on profits and job advertisements. Associate Professor Gordon is then quoted in the next dot point:
PN475
There was an introductory note on the survey form about the content of the survey. This note is, in general, even-handed and clear in its instructions.
PN476
Yes, that is what he said as an introductory comment. And then he went on to say that:
PN477
There was, however, a sentence in the introductory note that pushed respondents in one particular direction.
PN478
Then they say - they quote:
PN479
The 8281 companies that received the magazine and the survey are still a substantial and important population of companies about which to make inferences.
PN480
That is right. Associate Professor Gordon does say that. What he then goes on to say is that the survey does not allow you to make any inferences about that population, it is so methodologically flawed. They then go on:
PN481
Hence it appears that AIG essentially attempted a census of companies on a magazine mailing list rather than a sample. Obtaining the views of all member companies would, of course, be preferable to obtaining the views of a sample of affected members.
[3.11pm]
PN482
Yes, he does say that. What he goes on to say is that given that, the response rates are so hopelessly low that you can't place any weight on the survey. Then they say:
PN483
It is never the case -
PN484
they quote this bit -
PN485
It is never the case that a survey is completely uninformative. It is possible to say that there are some AIG member companies that have particular characteristics, since some members responded and indicated they had such characteristics.
PN486
And then they end the quote there. Professor Gordon, in his analysis, goes on to say:
PN487
However, that is a very bland and extremely limited amount of information.
PN488
Now, at 4.5 and 4.6, AIG in their response, in effect - I should go back. At 4.4 AIG make this statement:
PN489
According to the ACTUs own evidence the results of the survey are relevant and informative.
PN490
Nothing could be more misleading than that statement. It is impossible to see how any fair reading of Professor Gordon's report on their survey could lead one to the contention that our own evidence shows that the results are relevant and informative. What Professor Gordon says:
PN491
It is never the case that a survey is completely uninformative.
PN492
He says that:
PN493
...the survey is seriously deficient.
PN494
At 4.5 and 4.6 they go on to assert that the results provide cogent evidence about the impact of the safety net wage increases, and that, in our respectful submission, is simply not tenable in the light of Associate Professor Gordon's conclusions. At 4.7 and 4.8 they say, "Well, you can estimate the proportion of employees," and they have gone back and done it now, "who receive over-award payments." We note that that bolsters our argument that there is still no evidence of employment effects, and you simply - the way the survey was designed you simply cannot tell what the size or scale of the employment effect in any given company was.
PN495
At 4.11 they do this, and AIG have a bit of a go at this too. 4.11 to 4.13, they say, "Well, look, the Low Pay Commission conducted an official independent survey, and they got a response rate of 13 per cent, which they describe as reasonable for a postal survey. So that sort of renders the ACTUs criticisms of our survey a little bit harsh." Well, can I take you to the Low Pay Commission report? The quote on which the AIG rely in this respect is at 2 - page 226 of that report. We do have printed copies if that would assist any of the - - -
PN496
VICE PRESIDENT ROSS: We have that. I think we have those, Mr Watson.
PN497
MR WATSON: Yes. You have them? The quote on which they rely is at the top of 226. It is in appendix 4 which is about the survey, and it says this:
PN498
We received 3783 replies, a response rate of 13 per cent, which is reasonable for a postal survey. We are very grateful to those businesses that took the time to complete and return the questionnaires.
PN499
Then go over to 228, paragraph 9:
PN500
When we carried out our survey for our third report, we felt the businesses that had been affected by the minimum wage were more likely to respond to it than those that had not been affected. This would lead to an upward bias in the proportion of businesses saying they had been affected.
PN501
This is the very issue of non-response bias which Associate Professor Gordon identifies:
PN502
We wanted to test this hypothesis, and so we commissioned SSRG to conduct a short telephone follow-up survey among a random sample of 900 non-respondents to the postal survey. The results are shown in Table A4.5 -
PN503
which is at the foot of the page there -
PN504
They support our hypothesis, as the proportion of those who said they had been affected by the October 2001 increase was much lower than in the main postal survey. 27 per cent compared with 46 per cent. Those in the telephone survey that had been affected also experienced a smaller impact on their pay bill. The results are important in interpreting the postal survey results. They suggest that the respondents to the postal survey will tend to represent firms that have experienced the greatest impact from the minimum wage.
PN505
And then over, on 229, paragraph 10:
PN506
In summary, the responses to our questionnaire overstate the overall impact that the National minimum wage has had on business for two main reasons. First, the survey specifically targeted those low paying sectors that were most likely to have been affected. Second, even with these sectors those who responded were more likely to have been significantly affected than non-respondents. For these reasons the survey responses should not be taken as indicative of the overall impact on business, or even in low paying sectors. What it does do is provide valuable information on how those affected by the increase in the minimum wage have coped with it.
PN507
See, what the Low Pay Commission do, is they actually do what Professor Gordon says you do. They get a low response rate from the postal survey. Postal surveys do tend to have lower response rates than telephone surveys. They get a low response rate, so they don't just do nothing and blandly quote the results to the survey. The investigate non-response bias, they find it exists, and they appropriately treat the results of the survey with caution. What the AIG and ACCI do is say, throw caution to the wind, on the survey results. ACCIs treatment of Professor Gordon's analysis also warrants some scrutiny. At R3.12, they start their discussion in this way:
PN508
Let us begin with this one observation. There is no denying that the two effects being measured do occur.
[3.19pm]
PN509
It is always good when you are starting out a robust scientific investigation to be absolutely convinced of the outcome:
PN510
There is flow-on from the safety net decision and there are employment consequences.
PN511
We know the answers already and we would just like our members to tell us that they are there:
PN512
The only question of interest is the accuracy with which this survey provides information about the importance of these consequence.
PN513
Now then, at 3.13, ACCI suggest that they are justified in using whole economy weights, not their own membership weights. A fair reading, we would say, of Associate Professor Gordon's analysis, is that he does not believe that whole economy weights were appropriate. At 3.15 through to 3.18, the ACCI say, well, look, we are pretty confident that respondent's bias is limited and probably non-existent. That is the very thing that Associate Professor Gordon and the Low Pay Commission say you shouldn't do. You shouldn't assume that there is no evidence of non-response bias. You should investigate it and if you find that none exists well and good, if you find it exists then treat the results of the survey with caution.
PN514
At 3.20 to 3.21, ACCI do their version of the, well, look, he said some good things about our survey, too. And they take comfort from the fact that he said that their questions were generally even handed, although, as they themselves note, he went on to say that in question 1 there was an ambiguity about what the question meant in terms of whether or not people were paid a safety net directly as a result of the decision. At 3.23, they once again rely on the similarity of the two surveys as being something which leads you to express confidence in it. This is an interesting paragraph:
PN515
Professor Gordon also noted that the similarity of the results from one year to the next, does not, in itself, lead to higher confidence in the reliability of the results of the survey.
PN516
And that is what he said. And then they say:
PN517
In general, we would agree with that assertion but not entirely.
PN518
Well, Professor Gordon is an expert in statistical analysis and ACCIs response to that is to say, well, whoever the author of this bit of the document is to say, well, we would agree but not entirely. If they have got evidence that supports their contention but somehow or other similarity of results from one year to another would actually give you higher confidence in the reliability and the results then let them do it. If they haven't got evidence, and they haven't, then it is not their place, in our respectful submission, to cavil with the evidence of an expert in the area who says that you can't just look at the similarity of results from one year to the next and say: Oh, well, that leads you to higher confidence.
PN519
Similarly, at 3.25 - rather, at 3.24, the ACCI also note the Low Pay Commission response rate without going to the fact that the Low Pay Commission actually analysed non-response bias. At 3.25 to 3.28 the ACCI deals with the confidence intervals and they say: Oh, well, it is not really a problem because on whatever view effects are still there. But this really goes back to, in some respects, our original point. Question 4 of the ACCI survey asked whether the number of employees was lower or higher as a result of the survey than it would otherwise have been - as a result of the safety net than it would otherwise have been.
PN520
7.1 per cent said it was lower and what Professor Gordon says is: Well, when you do a 95 per cent confidence interval, given the small sample size, that could actually be anywhere between 3.8 per cent and 12.3 per cent. But it is important to note that the ACCI survey actually also shows a percentage of employers who say that the survey had a positive impact - that the safety net increase had a positive impact on employment and this year that percentage was 2.5 per cent. Now, once again, given the small sample size, given the inherent unreliability of things, there will be a confidence interval for that percentage. It could be anywhere, given the unreliability of these things, it could be anywhere probably between 0 and 5.
PN521
I mean, I haven't calculated them and neither has Professor Gordon but one would expect a reasonably significant confidence interval - 95 per cent confidence interval. And this is the point. Where you have got the number of employers responding that there is a positive impact which has a range and then you have got the number of employers that say there is a negative impact with a range, you can't even say that more employers had a negative impact than had a positive impact. If you are looking at 95 per cent confidence intervals you can't even draw that conclusion because your sample size is so small.
PN522
While I am at that I should note just one other thing about that number because, of course, last year the Commission awarded $18, the year before it awarded 13, 15 and 17, if you want to draw an inference about what happens year to year as a result of safety net increases, what does this tell you? Well, in 2001 when the Commission awarded a lower amount only .3 per cent of employees - of employers said employment was higher and 6.6 per cent said employment was lower. You award substantially more than that the following year and the number of employers who responded employment was higher jumps eight fold to 2.5 per cent. And the number of employers who said it was lower increases only moderately.
PN523
Now, if you want to draw anything out of this survey it is that next year, if you want to get that percentage of employers responding positively up a bit, give us our full claim. And if you want to just see, again, a slightly modest increase in the number of employers responding negatively give us our full claim. If you want a better net employment effect give us our full claim. That is what this says. It doesn't, but it is nonsense. It is nonsense from start to finish. The sample sizes are so small that they are unreliable. The response rates are so low that they are unreliable. Junk in, junk out.
PN524
At paragraphs 3.40 to 3.50, in fact 3.38 really, to 3.50, ACCI put in some material about response rates. I am not going to address that very much, other than to say that really, when you read paragraph 3.47, the quote from Professor David Bednall of Monash University about market research and the issues of declining respondency to market research, it is pretty clear from his comment at 3.47 that he is not saying that non-response bias is not an issue. What he is actually saying is that it is an issue, and one of the things that market researchers have to be cautious of is putting people through so many surveys that over time response rates continue to decline.
[3.29pm]
PN525
At 3.51 to 3.75, ACCI make a submission which suggests that we are, sort of, in some way or another endeavouring to up the burden of proof in these proceedings. Frankly, that is a pretty facile submission. We are not asking for there to be a higher burden of proof in these proceedings. We simply ask that evidence be robust and credible. Today I haven't said anything about the Retail Motor Industry survey. I think the Retail Motor Industry survey is interesting, because in lots of ways it gives the game away, I reckon. It tells the Commission that there are some employers who, when surveyed, will say that an award increase affected them badly, or negatively, no matter what their circumstances, no matter whether logically it could have affected them or not.
PN526
And in that regard, can I take you to the ACTU reply composite exhibit at page 64? See, the Retail Motor Industry had a - six set of questions in this regard, and at the outset - all directed to the alleged defects of the safety net, and at the outset you were asked whether you had any employees or not, and if you said no, you didn't have any employees, well, you got to go straight onto question 6 about whether there was an impact of the award increase on your business. Then, if you said you had employees, you got asked whether you had any who had received the safety net, and so on.
PN527
And then again, eventually you end up at question 6, about whether the award increase impacted on your business. Now, question 6 asked about a number of things. It asked about number of permanent employees, it asked about number of employment hours, and it asked about impact on cash flow and a range of things. I am just going to concentrate on the number of permanent employees question. Just that question. But the Commission can rest assured that the effect which I am going to demonstrate exists in relation to all of the alleged effects one way or another.
PN528
Table 1, this is additional material we asked RMI to provide us. Breaking up the answers to question 6 by reference to answers to earlier questions. Table 1 tells you various percentages for the proportion of employees receiving an increase described as zero, and then they were asked the impact of the award increase on the number of permanent employees in your business, and you will see there 17 per cent said it increased. 16 - this is the first column, the total column. 67 per cent said no change. 13 per cent said it decreased. That is the impact of the award increase, in that instance they say. Proportion of employees receiving an increase, zero. Then at Table 7, proportion of employees receiving an increase, either 1 to 50, or 50 to 100. So, ie, someone got an increase.
PN529
"How did it affect your business?" Well, 5 per cent said they increased the number of employees. 17 per cent, not that much different from the 13 per cent in Table 1, 17 per cent said it resulted in a decrease. Then you go to Table 7 - Table - not Table 7. Table 13, I am sorry. Table 13. This is people who said in answer to the very first question that they didn't have any employees at their site. They were asked, "What was the impact of the award increase on your business?" Well, 13 per cent said that they had decreased the number of permanent employees in their business. 1 per cent said they had increased it.
PN530
Table 19. Table 19 is people who actually passed on an increase of more than $18 per week. These people were asked, how did this affect the number of permanent employees in your business? Well, 10 per cent said they had an increase, and 26 per cent said, oh, well, the award increase - these are people that passed on more than the $18 - 26 per cent said, oh, well, the award increase actually meant we had a decrease in employment - permanent employment.
PN531
What the RMI survey tells you, is that there are a certain proportion of employers who will tell you that an award increase had a disastrous impact on their business, no matter what their circumstances, whether logically they could have been affected by award increase or not. Whether logically, it is the award increase that could have had an impact or not. These are - take table 19, for example. These are people who actually voluntarily chose to pass on more than the $18 per week, and yet they ascribe a negative impact to the award increase.
PN532
Take table 13. People who don't have any employees, saying that it has had an effect on their employment. So no macro-economic evidence. No sectoral data. No survey evidence, which shows anything like a negative impact from $18. What you are then left with in terms of any suggestion of a negative impact, is the indirect evidence of econometric studies on the effects of minimum wages. The Commission has been taken to this issue extensively in previous proceedings. In tag 8 of the composite exhibit we have provided the Commission with Dowrick and Quiggin's authoritative summary on this issue.
PN533
And at page 92 they set out their executive summary, which we reproduced in our submission. Significantly on this issue, they find that econometric studies on the impact of changes in minimum wages have yielded ambiguous results. And they refer to the work of Cargher and Kruger and others, which suggests that in some cases increases in minimum wages may have no effect or even a positive effect on unemployment. And they say:
PN534
Where a negative relationship between minimum wages and labour demand has been found, estimated elasticities of demand have been well below one, implying that minimum wage workers as a group would lose from lower minimum wages.
PN535
And they note that to the extent that any demand response to lower minimum wages takes the form of an increase in hours per worker, rather than an increase in employment, all minimum wage workers would be worse off, working longer hours for less total pay. They present evidence which confirms previous findings that countries with regulated labour markets have been able to resist the global trend towards rising inequality, without suffering either higher unemployment or lower employment.
PN536
And they go on to conclude that there is little reason to expect strong employment benefits from freezing minimum wages in nominal terms, which is actually, you know, what ACCI and NFF and WAFFIA and others, suggest you should do in these proceedings, reducing minimum wages in real terms. And they go on to say that in order to avoid widening inequality and the exacerbation of poverty traps, minimum wages needs to be indexed, not to the CPI, but to the average or median wage, allowing workers in low pay occupations to share in the benefits of rising productivity.
PN537
Can I just make two other points regarding the Dowrick and Quiggin work? Dowrick and Quiggin, and I don't pretend to be across the underlying economics or mathematics of this, but Dowrick and Quiggin do what I understand to be a pretty comprehensive debunk of Lewis and McDonald's methodology in a paper on which ACCI and the Commonwealth both rely, in relation to the estimation of a negative elasticity in relation to employment and minimum wages.
PN538
In its first round of submissions, the Commonwealth just tried to ignore that rather inconvenient fact. It actually quoted from the Lewis and McDonald report, quoted their estimated elasticity of -0.8, and it didn't even refer to Dowrick and Quiggin. ACCI's response, in our submission, bordered on the infantile. They said at one point that the assertion that Lewis and McDonald were wrong, was something that we only had Dowrick and Quiggin's word for, as though Dowrick and Quiggin were two blokes who had walked in from the coffee shop, offering their view on the relationship between minimum wages and employment.
PN539
Professors Dowrick and Quiggin are two of Australia's most eminent economists, but more than that, they have actually provided at pages 120 to 124, the detail of why they say Lewis and McDonald are wrong. If ACCI wanted to provide a rebuttal to paragraphs 120 to 124, then there is a fair bit of material there on which they could provide that rebuttal. Instead, what they would rather do is rely on pejorative remarks in their submission.
PN540
In their reply submissions, the Commonwealth did actually have a go at fixing up their oversight in their original submissions and they go at 5.18 and 5.19 to the Dowrick and Quiggin research. The effect of that is to say, look, the Dowrick and Quiggin research doesn't say what the employment elasticity really is. Well, that is not what Dowrick and Quiggin sought to do. It is not what they needed to do. What they actually did is said, look, Lewis and McDonald get it wrong.
PN541
At 5.20 they misquote us. It is perhaps a relatively small point but we are actually - the portion that they quote us is in our reply and we are replying to a contention of ACCI about some work that Lewis and McDonald site, not the results of Lewis and McDonald themselves. The Commonwealth incorrectly ascribes to us the view that we are saying that Lewis and McDonald talk about real average wages, not nominal wages. In fact, what we are saying is that the work which Lewis and McDonald site talks about real average wages, not nominal wages.
PN542
Can I just refer you without taking you to page 119 of the ACTU composite exhibit. That is the material which is referred to in the executive summary that I have taken out, which gives you some international comparisons between inequality, employment and unemployment and, as the authors state, there is no relationship between inequality, employment and unemployment on an international basis. That gives us a nice lead-in, if you like, to the Low Pay Commission report. I have provided a summary of what we would say their key findings are in our supplementary submissions at 1.1 to 1.10. For this part of it the really critical finding is at 1.5:
PN543
When results control for the differential impact of a slowdown in employment growth by sector, no significant aggregate employment effects are found as a result of the 2000 and 2001 up-ratings of the national minimum wage.
PN544
That is at paragraphs 262 to 264 and table 2.5 of the report. Now, in that context it is worth noting that the October 2001 up-rating was estimated to have added .11 per cent to average wage costs, which is actually around about what we are looking to add to aggregate wage costs. Now, I wouldn't advance the proposition that, therefore, you can just translate the Low Pay Commission's results over here, although I would like to, but it is interesting that the size of the effect that we are talking about is similar.
PN545
Just while I am on the Low Pay Commission report, can I note that at S1.2 we note that the Commission has recommended an increase in the national minimum wage of 15.5 per cent over two years. That is 7.1 per cent this year, 7.8 per cent in 2004. And note the circumstances in which they have done that. At paragraph 6.8 to 6.10 they set out the environment in which they have decided to award two increases or 7 per cent or more in the minimum wage, some weakening in economic activity since its last report, forecast GDP growth 2.5 per cent, much lower than Australia's, risks arising from political instability in the Middle East, slowing growth in the US and Euro areas, falling global equity prices and a possibility of a reversal in the housing market.
PN546
All of that, and they say: we think two increases of more than 7 per cent over the next two years is economically sustainable. And they specifically note that those increases are well above the forecast increases in average earnings and significantly above inflation. And that is at paragraphs 6.71, 6.72 and table 6.1. Now, I have spent quite a bit of time on this but that is because, in my submission, it is critically important.
PN547
If $18 had no adverse economic impact in an economy affected by drought and international uncertainty, in an economy where growth was moderated to around 3 per cent, then that provides the Commission with the foundation to award our claim. At the very least, as we said in our first written submissions, and as the State Governments and Territory Governments argue, it says, no less than $18 this year. In effect, what the Commonwealth and employers say is, that you should award less than last year's decision, in an economy that they say will be better but they say, nonetheless, award less.
[3.48pm]
PN548
Well what does awarding less do? Well on the propositions advanced by the AIG, ACCI and the Commonwealth, as we indicate in our reply submissions, what you end up with is a real cut in wages for the low paid. Pretty much whatever assumption you make about inflation, whether it is 3 per cent, whether it is 2.7 - 3 per cent, as it is currently, whether it is 2.75, as it is in MYEFO or whether it is 2.5, significant numbers of award workers will end up getting a real cut in their wages on any one of the Commonwealth, AIG or ACCIs propositions. That is at table R4.3 of our submissions. I don't need to take you to it but it is clear and it is uncontested.
PN549
Any number between what the Commonwealth suggest, $12 and admittedly they only suggest that up to 27,400 and $18, means that the Commission would be giving low paid workers less than they got last year, in an economic environment that is forecast to be better, and for what. Table 4.3, of our submissions, shows that the impact on wages of awarding any number between $12 and $18 is less than .1 per cent. So, any number between 12 and 18 has a negligible impact on reducing overall wage costs, but what it does is it takes dollars off the low paid.
PN550
If what employers and the Commonwealth had been telling you about minimum wages impacts on employment were true, then this was the year when they could have and should have come with robust empirical evidence of those effects. Instead they come with nothing. There is no evidence on the macro economic data, there is no evidence on the sectoral data and there are three hopelessly inadequate surveys. Proposition number 3, last year's safety net, had no adverse economic impact. Proposition number 5, $24.60 will have no adverse economic impact.
PN551
We deal with the moderate nature of the ACTUs claim, in chapter 4 of our submissions. Amid all of the swirling arguments and counter arguments, it is clear how little of that is challenged. Firstly, going to the direct cost impact of our claim, we cost our claim at about .4 of the total wages bill in gross impact terms, .1 net impact. The Commonwealth belatedly concede, in their reply, that the net impact is about .1. That is at R6.6 of their submissions. And they cost it at .5 in terms of its gross impact.
PN552
The only difference of substance between our two costings - there are differences of methodology - but the only difference of substance between the outcome of our two costings, is the question of whether you adjust for safety net flow. That is, whether you adjust for the fact that, notwithstanding the description of a number of people as award only employees, not all of them will receive the wage increase. So far as that difference is concerned we are simply following the decisions of the Commission repeated year in year out whilst the Commonwealth, again, simply refuses to acknowledge these findings. Paragraph 99 of last year's decision says this:
PN553
As the Commission has noted in the past the various cost estimates provide assistance to the Commission in considering the ACTU claim although they vary due to methodological differences. We note that the ACTU and Commonwealth estimates have the greatest direct impact on the ACTU claim on aggregate earnings - are broadly similar in the range of .5 to .59 -
PN554
now this year it is .4 to .5 -
PN555
We remain of the view that to the extent of the 1999 AACS and the 1995 AWERS suggest that not all employees classified by survey respondents is award-reliant benefit from safety net increases. Estimates based on data for award-reliant employees might be better described as showing the potential cost rather than the actual impact.
PN556
Now, pretty much every year the Commission makes that finding, that some adjustment is appropriate. Every year the Commonwealth come along and estimate the impact of our claim without making any adjustment. The gross impact of our claim is less than the gross impact of the 1998 decision based on the Commission's own estimate of the impact of that decision and it is about .05 per cent higher than the 1997 decision and about .1 per cent higher than the 2000 and 2002 decisions. And you can see that in paragraphs 4.18 and 4.19 of our submissions. In other words, the ACTU claim, in terms of its gross impact, is moderate.
PN557
As was the case last year ACCIs costing which is the only other costing in those proceedings is private sector only and self-evidently is not a macro-economic costing. In chapter 6 of our reply ACCI belatedly had a go at our costing. They didn't do it in their original submissions. Nothing changed about our costing between our original submissions and the reply that ACCI filed but they chose to leave it until reply to have a go. As the correspondence, that will be as I understand it tendered to the Commission by ACCI, indicates they have withdrawn one of their criticisms of our costing.
PN558
There was a repeated error in a number of paragraphs regarding our use of average weekly time earnings rather than average weekly ordinary time earnings as a base in our costing. Now, how they could make that assertion in light of the clear indication in the costing of the methodology is beyond us. The costing makes it clear in the notes that all of the data derived is from the May 2002 EEH survey. Note 5 makes it abundantly clear that we are using an AWOTE figure.
PN559
On 13 March ACCI wrote to us seeking clarification of how we derive that figure. On 17 March we wrote back and we re-stated what was in note 5 of our costing. We said we got it from AWOTE in the May 2002 EEH survey. Still they persisted. In their reply submissions they went extensively to this suggestion at 6.14 and at 6.15 and at a number of other paragraphs - 6.21 I think - yes, 6.21 - sorry, 6.31 to 6.37. They kept making the assertion that we had used average weekly total earnings.
PN560
So I rang them and said: Look, we don't. Still they persisted. On 26 March they wrote back and said: Oh, no, you have misunderstood us, you have still used average weekly total earnings. It was not until we faxed them the page from the EEH survey with the AWOTE figure on it that they actually realised that that was what we had used. We said it up-front in the costing and yet it took three or four goes for them to actually check the source and we had to provide it. Now, in the face of that information they withdraw those paragraphs.
[3.57pm]
PN561
What is left in terms of their criticism of our costing is this; in the entirety of the reply chapter 6 what you get, once you withdraw that issue, is you get these propositions. They say, "Well, macro-economic costing involves an averaging and an individual firm won't necessarily face an average cost." Yes, that is why it is a macro-economic costing, not a micro-economic firm level costing. They say, "Well, look, we say the ACTU says award only workers are overwhelmingly in the private sector, therefore you should do a private sector only costing."
PN562
Well, then it wouldn't be a macro-economic costing. The Commonwealth, the AIG and the ACCI then ascribe as they have sought to ascribe last year indirect cost effects to our client. The evidence on which they rely is essentially the same as last year and the Commonwealth's case consists of a flawed analysis of various agreements and the provisions of those agreements and in the case of the employers it relies on their inept survey evidence.
PN563
I am not going to go to the detail of this because it is almost exactly the same as last year and it offers nothing new. The Commission should not depart from its previous finding that indirect effect will be limited, paragraph 98 of last year's decision. There is just one other point though that I want to make about this issue of safety net flow on. At tag 3 of the ACTU composite exhibit you will find the ABS EEH Employee Earnings and Hours survey form, which was used to derive all of the data, or a lot of the data on which parties in these proceedings rely.
PN564
There are two questions which make it pretty clear that the ABS was trying to illicit some information on the flow of safety nets. Paragraph 24, which is the pay setting question, for the first time this year allowed people to respond that the main part of the employee's pay was set by the award brackets paid more than the award rate. And then question 32 allowed them then, in respect of that employee, to say whether the employee was entitled to receive a safety net wage adjustment.
PN565
So in our submission questions 24 and 32 seem to have been put there to see if you can illicit some information about the flow on to over award employees. We have confirmed with the ABS that they do not intend to release the data on answers to question 32, as they do not believe that any meaningful responses can be gleaned from that data and that the data could not be properly validated. The ABS couldn't do it, but AIG, ACCI and the Retail Motor Industry will tell you that their inadequate surveys have.
PN566
The average increase which results from our claim is 4.4 per cent. No party challenges that. As table R4.1 shows this is a bit below the full-time earnings measures of wages growth and it is in the same ball park as enterprise bargaining outcomes and a bit above wage cost index and average weekly earning figures for all employees, that is including part-timers. It is, as we note, substantially below the rises for chief executive officers of the top 100 companies and this provoked from the ACCI what can only be described as a slight over-reaction.
PN567
But at paragraph 13.161 they put in a table, and I won't take the Commission to it, but they put in this table when they said, "Look, the Commission has got to understand that the people that are really relevant to this, the companies that are really paying this increase are the small businesses that are lower quartile to median earnings." Well, what did the data in that table show? It showed that in the lower quartile 17.4 per cent increases for executives in those lower quartile small companies, and it showed that in the median companies 8.9 per cent increases for executives in the year to 2002.
PN568
In other words, the very executives who ACCI claim are relevant, to the extent that they claim any executive is relevant, are in receipt in the year ended 2002 of increases twice to four times the level of increase we seek in these proceedings. If our claim is granted, as Table 4.5 shows, the average increase to award workers over four years will be 3.4 per cent. Over the last four years the average increase will be 3.4 per cent. That is pretty much bang on current wage cost index. Well, it is current wage cost index, and it is pretty much bang on the average wage cost index over that series' lifetime. At paragraph 3.15 of our original submissions we note that the annual increase in wage cost index is averaged out at 3.2 per cent.
PN569
So if you give award workers an average 4.4 per cent in this year's case, over the four years that you can sort of measure these things, because that is where the data limitation is in relation to the ABS EEH survey, in the four years you will have awarded award workers increases which are broadly consistent with those of the rest of the community on the most conservative of the wages measures, the wage cost index. Now, Table 4.6 of our original submissions shows the real increase as a result of our claim. Again, that increase is modest.
PN570
JUSTICE GIUDICE: What paragraph is that near, Mr Watson?
PN571
MR WATSON: Yes. It is page 46 and it is just above 4.24.
PN572
JUSTICE GIUDICE: Right.
PN573
MR WATSON: The average real increase as a result of the ACTU claim, on 2.5 per cent inflation, which is very conservative but we use it, is 1.9 per cent. But that needs to be placed in context, because the average real increase for the last three years has been zero. In fact, award only full-time workers, on average, have suffered a slight decline in their real earnings, down minus .1. No party challenges any of this. If you go to the four year increase, assuming our claim is granted, then the average real increase for four years to 2003 will be .5 for all award only employees, and .3 for award only full-time.
PN574
In this context, as we say at paragraph 4.24, the average increase and the average real increase resulting from our claim can properly be described as moderate. Now, all of the Commonwealth, the ACCI, and AIG, will focus on the percentage increase of our claim at the Federal minimum wage, that is, 5.7 per cent. But our proposition is this. If the Commission is to award flat dollar amounts, and at the Federal minimum wage it only gives something of the order of the wage cost index, then everything else withers on the vine compared to the rest of the community.
PN575
People still earning very little get less than the rest of the community. Doreen Taylor, for example, gets less than wage cost index if all you do is adjust the Federal minimum wage by the percentage of wage cost index, because Doreen Taylor is in that exceeding fortunate position that she earns something like $13 an hour. In other words, she is above the minimum and so, if the Commission is minded to accept the sorts of submissions that the Commonwealth and others put, and focus only on the percentage increase at the Federal minimum wage, then what it does is it condemns people like Doreen Taylor and others to getting less than the rest of the community.
PN576
We say that if the Commission is to award a flat dollar amount, then what it should do is award an amount that averages out across all award workers consistent with community wage movements and thus give the low paid a more significant increase whilst, obviously, giving the higher ups something a little less. And, as we note in our submissions, you don't get to that number in these proceedings unless you award $19 or the $18 which the Labor states and territories advocate.
PN577
Where does that leave us in terms of economic effects? Macro-economic effects: the starting point, in our submission, is paragraphs 116 and 117 of last year's decision where the Commission said this:
PN578
Consideration of the net impact -
PN579
emphasise that, net impact -
PN580
on aggregate wage costs to the ACTU claim absent a monetary policy response through increased rates suggests a very limited impact of the ACTU claim on economic growth and employment. This is evident from exhibit Commonwealth 2, prepared by Ms Gabbitas, a Treasury officer with responsibilities in the area of TRYM analysis, at the request of the ACTU on the basis that she does not in any way agree that a net .2 per cent wage shock is an appropriate way to model the impact of the ACTUs claim on the economy.
PN581
And then there is the net impact of last year's case in table 16 and then at 117 the Commission goes on:
PN582
In our view, the TRYM analysis, to the extent that specific orders of magnitude can be relied upon, suggests that the net additional labour costs arising from the ACTU claim would not materially detract from employment growth. To the extent that adverse effects arise from the RBA interest rate response imposed upon the model in response to marginal additions to aggregate wages growth and inflation, we think the TRYM results are unrealistic. The TRYM modelling provides no basis to find that the safety net increase we have decided upon will have adverse aggregate employment effects.
PN583
That is the starting point. This year, the net impact of our claim, as we note the Commonwealth concedes, is .1. Table R1.2 shows the Commonwealth's own modelling of a .1 per cent addition to wage costs. Table R1.2 can be found at page 7 of our reply submissions, just above paragraph R1.23. We call it the table of zeros. Because that is what it is. Look across, look down, what do you see? Zero, zero, zero, zero, zero, zero, a .1.
PN584
The .1 on inflation, the .1 on wages growth, those effects, Ms Gabbitas, in her evidence last year, said, in relation to the standard errors involved in modelling, represent "no meaningful departure", those were her words, "no meaningful departure" from the baseline. The minus 1, minus 1000 impact on employment, that you see in the first column and the minus 2000, indeed, that you see in the second column, what does that figure indicate?
PN585
Well that figure indicates that the model inherently assumes that any increase in wage costs causes a loss of employment. It inherently assumes that. You could put a $1 wage increase in and compare it to a zero and you would get some sort of employment impact. But what about the statistical significance of that number. Well, remember, that in the labour force survey, the standard error on the level estimate for employment is something like 37,500. And we are talking here about effects that are minuscule by comparison. You just don't even measure that sort of an effect when you are talking economy wide, with anything like statistical certainty.
PN586
That is the net impact which the Commission said last year you can look at, the net impact of our claim on the economy, zero. The Commonwealth adhere, as they always do, to their earlier submissions, notwithstanding that the Commission has made a finding to the contrary, and they say, "Well, we are going to model the lot. We are going to model the gross impact of the ACTU claim versus" - sorry. I am having trouble finding things. "The gross impact of the ACTU claim versus no increase." And I just want to do this before the break. They model the gross impact at figure 6.3, I think, of their original submissions. It is figure 6.3, page 55, and it is just below paragraph 6.45.
[4.14pm]
PN587
So this is our whole claim against the assumption that no increase is awarded at all, that the Commission says nothing, and what do they do? Well, at - if you go back a page, at figure 6.2, what they say is, "We feed in an impact of .42 for the through the year wages impact." Then if you go over to figure 6.3, what do you get out of the results of the modelling? I will just focus on the TRYM modelling but the results are not dissimilar between the two models. What do you get? Well, on GDP again you don't get any meaningful departure from the base line. 0, 2003/4, minus .1, 2004/5, and remember that that negative is just a function of the way the model works.
PN588
Employment level, again no meaningful departure, minus .1, minus .1, both years. Unemployment rate, 0 and a .1. Again, no meaningful departure. What are the only two things that are in any sense significant in that? Well, wages growth and inflation, and you look at the wages growth number and you think what on earth is that about? .7, when they said that they had put in .42, and that is what gives you a high inflation number. Well, I should emphasise this is all the no interest rate response thing, but in light of last year's decision, it is our submission that that is what the Commission should pay regard to.
PN589
Well, we wrote to the Commonwealth, and we said, well, how do you get this number, this 0.7, when you say earlier, that you are feeding in 0.42? And their answer, in effect, is this. Oh, well, look, what happens is that the increase in award wages has an impact on other wage setting and prices, and so what is 0.42 in direct terms, when you add in the indirect effects, becomes 0.7. And that then gives you a 0.4 for inflation.
PN590
In other words, there is this almost instantaneous feedback, which results in the ACTU claim almost having the same indirect impact as it does a direct impact. This modelling makes the assumption, in effect, that there are indirect impacts almost of the same order of magnitude as the claim itself. And that is the only way they even get those numbers as big as they do. So no impact on a GDP that is meaningful. No impact on employment that is meaningful. No impact on unemployment that is meaningful. We get sort of reasonable numbers on wages, growth and inflation. Why do they get them? Because they have a completely unrealistic assumption about the indirect effects of the ACTU claim.
PN591
On the worst, worst, worst case they can advance for us, what do they show? They show no macro-economic impact, no meaningful macro-economic impact on GDP employment or unemployment. I haven't finished, but I promise I won't be long, if that is a convenient time?
PN592
JUSTICE GIUDICE: Yes, thanks, Mr Watson. We will adjourn now until 10.00 in the morning, thank you.
ADJOURNED UNTIL TUESDAY, 1 APRIL 2003 [4.19pm]
INDEX
LIST OF WITNESSES, EXHIBITS AND MFIs |
EXHIBIT #ACTU1 ACTU WRITTEN SUBMISSION OF 05/02/2003 PN91
EXHIBIT #ACTU2 WITNESS STATEMENTS OF 05/02/2003 PN91
EXHIBIT #ACTU3 ACTU COMPOSITE EXHIBIT OF 05/02/2003 PN91
EXHIBIT #ACTU4 ACTU WRITTEN REPLY SUBMISSION OF 17/03/2003 PN91
EXHIBIT #ACTU5 ACTU REPLY COMPOSITE EXHIBIT OF 17/03/2003 PN91
EXHIBIT #ACTU6 SUPPLEMENTARY SUBMISSION (UNDATED) PN95
EXHIBIT #ACTU7 NATIONAL MINIMUM WAGE, FOURTH REPORT OF THE LOW PAY COMMISSION OF MARCH 2003 PN95