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Thursday, 3 November 2005
Page: 44

Mr SWAN (12:03 PM) —Labor rejects the Workplace Relations Amendment (Work Choices) Bill 2005 because over the years ahead it will erode wages and conditions, turn many low- and middle-income earners into battlers and create an army of working poor. That is not a future that I want for Australian families, nor a future that I want for my children or grandchildren. We reject this bill on economic grounds but we also reject it on behalf of all hardworking Australians in the government’s sights, who deserve some fairness. They are not going to receive that with this bill. The Prime Minister and his cronies have made mainstream working Australians their political target, ripping away at the living standards and working conditions of our people. They want higher taxes and lower wages and all the financial pressure they bring. They want an Americanised, dog-eat-dog, survival of the fittest society—a course that Labor and the vast bulk of the Australian people reject absolutely.

This government wants to undermine collective bargaining and the important role unions play in protecting workers’ rights and conditions. We have a Prime Minister with the gall, indeed the audacity and arrogance, to call himself the workers’ friend. Friends do not drag you away from your kids at weekends and at night for no extra pay. Friends do not take away your hard-earned long service leave. And friends do not make it easier for you to be sacked. To all of those already busting their guts to feed, house, clothe and educate their kids, this government says, ‘Work harder and work longer.’

I cannot believe how out of touch this Prime Minister has become. Thanks to the Prime Minister and the Treasurer many people who just a few years ago considered themselves middle-class are now struggling, working harder and harder just to keep their financial heads above water. No government has done more to turn Australians into battlers and no government has done less to help them than the Howard government. Labor believes our priorities should be to create national wealth and to spread opportunity. This country desperately needs a new economic agenda that lifts productivity by putting incentive into the tax system. We need investment in education and training, national leadership on infrastructure, good federal-state relations and cooperation, and a welfare system that works—one that puts initiative and resources towards research and development and commercialisation, and one that provides new competitive and regulatory models.

To do all of this in a small country like ours we need to harness as many workers as possible, not marginalise them with these extreme ideological changes. John Howard and Peter Costello essentially want to create an army of working poor who pay record taxes and are forced to choose between worse conditions or the sack. This is simply unacceptable in this country, which once prided itself on the resilience of the Australian way—on reward for effort and a fair day’s work for a fair day’s pay.

There are compelling economic reasons for Labor’s opposition to this bill. It is a bill that represents lazy policy making and rampant blind ideology, not rational economics. It will do nothing to address the critical challenges we face. The government has not even attempted to put a credible economic case, because it lacks one. This bill is flawed because it will not lift productivity, jobs or wages. It will not lift work force participation. It will not address skill shortages. It will not ease work-family tensions. The Prime Minister is right to remind Australians to judge him by his record. If this government had got its way, the lowest paid Australians would be $50 a week worse off, and he is now seeking to gut the independent arbiter that stood in his way.

On Monday, in this place, the Deputy Prime Minister was a good enough to inform the House about Labor’s position on proposed changes to workplace relations. He quoted from a speech I delivered last week to business leaders in Sydney, in which I said:

Labor has an open mind to constructive proposals that will lift productivity.

I stand by that statement 100 per cent. Unfortunately, as the Deputy Prime Minister well knows, he cited only half of my statement. In full, I said:

Labor has an open mind to constructive proposals that will lift productivity but there is no evidence that the government’s current narrow IR policy will do so.

Let us be crystal clear: Labor is not opposed to changes in workplace relations; it is opposed to the government’s proposed changes. Labor is opposed to the government’s changes because they are the wrong changes. They are flawed on economic grounds, they will not lift productivity, they will not create jobs and they will not lift wages. This is all pain without productivity gain. The authors of the reforms do not appear to understand how the labour market works and how it is influenced by tax and welfare arrangements. It is not just Labor that is saying this; labour market experts are saying this, including experts who, in the past, have been favoured by the government. Professor Mark Wooden of the Melbourne Institute believes these are the wrong reforms and that they will not lift productivity, wages or jobs. This is the same Professor Wooden whom the Prime Minister, the Treasurer and the Minister for Employment and Workplace Relations have cited as a labour market expert in the last two years. I challenge the deputy leader, or indeed any member of the government, to lay before the House an independent analysis that supports the government’s claim that their reforms will lift productivity and create new and better paid jobs.

Let us examine the main changes and explain where they are wrong. First of all, let us look at penalty rates. There are 2.9 million Australian workers who work overtime. They stand to lose hundreds of dollars if their penalty rates disappear—as they can do under these plans. We are talking about a significant amount of money for average workers—$234 a month. This is a hit on the family budget which is comparable to a 1.6 per cent interest rate rise. For many Australians, penalty rates give them the means to pay off their mortgages and to withstand financial catastrophe. If these changes go ahead and people lose their penalty rates, it will have devastating consequences for home owners.

To make things worse, the government’s plans will hop into pensions as well. Around 3.5 million Australians rely on pensions, which are tied to average wages. To the extent that the government’s industrial relations agenda lowers wages or reduces real increases in wages, it will also reduce pension increases that flow to millions of Australians. So it is not just Australian workers who are in the government’s sights, but the poor, the elderly and the disabled as well.

That brings me to the minimum wage, which is currently $12.75 an hour. Let us call a spade a spade: the government wants to slash the minimum wage. As Professor Wooden states, the objective of changing the arrangements for setting the minimum wage is to reduce the minimum wage, in real terms, in the mistaken belief that a lower minimum wage will create employment. The so-called conventional wisdom that increases in the minimum wage stop jobs being created has little or no empirical bases. On the contrary, research by Card and Krueger, in the United States, shows that moderate increases in the minimum wage add slightly to aggregate employment. The IMF itself admits that ‘the theoretical and empirical literature is often inconclusive’. This is because low-income workers tend to spend more, if not all, of any increase in their wage than do better-paid workers.

This is borne out by the Australian experience. While the minimum wage has increased in line with safety net wage decisions, unemployment has fallen to 30-year lows. The increases in the minimum wage in Australia have been by no means excessive. Indeed, the minimum wage has fallen, relative to both median and average weekly earnings. Yet the government wants to cut it further. Rather than being priced out of the market, minimum wage earners have become more affordable, relative to other employees. Professor Wooden is dismissive of the simplistic argument that a decline in the minimum wage will reduce unemployment. He argues that it would result in the minimum wage converging, over time, with inflation linked welfare payments. This would further increase the already significant disincentives to move from welfare into a minimum wage job.

How do the government respond to the problem that Wooden has identified? They respond by making it worse! They want to poke a hole in the welfare safety net and worsen the incentive to work for many people on benefits. They slash benefits for sole parents and new DSP recipients by up to $46 a week. That is what the government is doing as part of its ill-considered ideological crusade. Their objective is to cut those benefits. If the government were serious about moving people from welfare to work, they would reform tax and social security to lift incentives for those who want to work. They would fix the very high effective marginal tax rates in the system. This is precisely what Labor proposed in our welfare to work tax bonus in our tax package, in May, for low-income earners. We proposed a bonus that would result in a 34 per cent reduction in marginal tax rates for those on the minimum wage with children. That is how we would address the participation problem that the government has created. We would do it with our work bonus.

Let us look at the government’s welfare reforms. They attack not only DSP recipients but also sole parents. Some time ago, back in 1999, the former workplace relations minister, Peter Reith, in his famous letter to the Prime Minister, proposed that:

Discounting wages would also likely require complementary action on the social security entitlements …

So now it comes to pass, six years later, that this government will implement these very proposals—cuts in benefits, with a minimum of $29 a week less for sole parents whose youngest child is over five and $46 a week less for people with disabilities. The combination of lower payments, less-generous free areas, sharper tapers and less-generous tax offsets result in significantly lower take-home incomes compared to the status quo. The losses are up to $119 a week for those with disabilities and up to $98 a week for sole parents. Steeper effective marginal tax rates mean that the returns from extra work are significantly lower. Effective marginal tax rates are up to 65 per cent higher under the proposed changes. For 15 hours of work, the effective take-home pay for sole parents will be just $3.40 per hour and for the disabled it will be just $2.40 per hour.

So what the government is doing is taking down the minimum wage and, as they take down the minimum wage, they are poking bigger holes in the social security safety net. That is how they go about creating an army of working poor in this country. And they do not, through that process, address the problems with participation in the Australian work force. On top of that, they are increasing the tax burden, particularly on lower income earners in this community. The Howard government, far from lowering the tax burden on low-wage workers to boost their take-home pay, have actually ratcheted up the tax that they pay. In 1996 a worker on the minimum wage faced on average tax rate of 13.3 per cent, but today they face an average tax rate of 14.5 per cent. Under the Howard government there is no indication that this trend will be addressed, leaving the low-paid with the double whammy of lower wages and higher taxes.

As I said before, this is a recipe for taking us down the low-wage road of the United States, where minimum wage work offers no protection from poverty. We cannot compete with China and India on wages. We must go down the high-skill, high-productivity, high value added road. This government’s path to the low-wage road goes like this: you erode wages by getting rid of the no disadvantage test, you get rid of the unfair dismissal laws and then you criminalise unions so that workers are left without bargaining power, an umpire or a union to protect them. They are left on their own and they either accept the conditions or they get the sack. That is why the government has put in place its new unfair dismissal laws.

Let us also look at the case that is put forward for abolishing unfair dismissal laws. The government’s rhetoric is that letting employers sack people means they will hire more people. That is, they will create new jobs. Professor Wooden again disagrees. He argues that removing obstacles to sacking employees will not—I repeat: will not—increase total employment. It will simply increase labour market turnover. More people will be sacked and more people will be hired, but there will not be any increase in total employment. This is consistent with business surveys which report that few firms intend to create new jobs after the unfair dismissal laws are abolished. In spite of this, Peter Costello, who has made a career of picking on little old ladies working in lolly factories, wants all unfair dismissal laws abolished altogether—not just for firms of up to 100 employees but for all firms. Now, as we examine the detail of this legislation, we can see that the government is going to do it through the back door for those firms which have more than 100 employees.

This brings us to the government’s approach to individual contracts, because the abolition of the no disadvantage test is the mechanism by which the government allows individual contracts to fundamentally undermine the basic conditions that workers expect. The no disadvantage test has been the bedrock, if you like, of the protection of living standards and working conditions of Australian workers. The government argues that AWAs will enable employers to agree to new flexible working arrangements with employees and that that will boost productivity. AWAs, it argues, are not intended to pare back wages and conditions. If this is the case, why is the government abolishing the no disadvantage test? Why refuse to guarantee that no worker will be worse off?

The government also argues AWAs will boost productivity, but here again the evidence is to the contrary. New Zealand underwent the most dramatic shift from collective bargaining to individual contracts with the passage of the Employment Contracts Act 1991. In the decade prior to the change New Zealand enjoyed similar rates of productivity growth to Australia. From the time the changes were introduced to the end of the decade, Australian labour productivity grew by 2.6 per cent per annum, compared to just one per cent per annum in New Zealand. In the years following the move to individual contracts, when Labor in Australia introduced enterprise based bargaining, New Zealand’s productivity performance fell well behind ours.

As we know, the Treasurer is keen to selectively quote the OECD. In 1993 the OECD was an enthusiastic supporter of New Zealand’s reforms, but a decade later, under the heading ‘Have the economic reforms paid off?’ the OECD said in its New Zealand economic survey:

The reasons why past reforms have not yielded larger productivity gains are not fully understood. Some further increase may still be in the pipeline, but it would be unwise to assume that it will be large.

In 2000 the IMF, another frequent source for the Treasurer, expressed similar doubts in its New Zealand staff country report, saying:

An assessment of the effect of the ECA—

the New Zealand Employment Contracts Act—

on productivity is particularly thorny and there is no agreement in the literature as to the success or failure of the ECA in this regard.

So the conventional wisdom on which the government relies says that flexibility in the labour market goes hand in hand with higher productivity. That is the basis for its claim that the reforms will deliver more jobs and higher wages. But there is no evidence to back that up, as we can now see from looking at the OECD and the IMF. Just as business needs a level of certainty and stability to thrive, workers are more productive when they feel a measure of financial and job security and a measure of control over their lives. What this government’s bill seeks to do is to introduce more insecurity, which will not have the productivity benefits the government is claiming.

So the conventional wisdom that the government is citing is not backed up by the empirical evidence that is required for the government to make such claims, and that is why it cannot produce the evidence on jobs or on productivity to back its case in economic terms. In the assessment of an increasing number of eminent economists, this government’s reforms simply do not stack up. The objective evidence is simply not there. It is not there from the IMF; it is not there from the OECD; it is not there from people like Professor Wooden. It is simply not there. What we have from this government is nothing more than an ideological crusade, nothing based on sound economics, on sound business practice or on an assessment as to how we, as a small country located where we are, must lift our productivity to meet the challenges ahead.

Labor have a much more balanced approach. We have a balanced approach with a new economic agenda which is much broader than that of this government and one that will produce the level of productivity, growth and wealth creation we require. It is one that invests in the skills of our people and in their education, one that looks seriously at innovation, one that looks at putting incentive in the tax system and one that looks at getting rid of the buck-passing between federal and state governments—a balanced economic agenda that invests in the future of this country.

So the government should reconsider these so-called reforms. They are not based on logic and they are not based on evidence, and they will not deliver higher productivity, more jobs or higher wages. There are also moral reasons why the government’s destructive workplace agenda is wrong and unfair, and just as importantly there are hard-headed economic reasons why Labor opposes the reforms. Labor, not the government, has the track record of making sensible changes to workplace relations in order to lift productivity. Labor engineered the shift to enterprise bargaining in the 1990s, which underpinned rising productivity throughout the 1990s. But, as we know, there is no evidence that this government’s current proposed narrow changes will deliver the productivity gains or the prosperity that workers deserve. This bill is all pain for hardworking Australians and no economic gain. That is why Labor stands with the vast majority of Australians, who are right to reject these extreme changes and this extreme bill. We want an economic agenda designed to lift our productivity, our economic horizons and our fairness and a fair go in this society.