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Wednesday, 17 October 1984
Page: 1873

Senator CRICHTON-BROWNE(4.32) —I take advantage of this opportunity to discuss the problems which the policies of this Government have imposed upon small business in Australia. Despite the enormous contribution that has been made by the small business sector to the economy, its lack of industrial or political muscle has enabled this Labor Government to ignore completely the small business sector, both in terms of the agreements made with the trade union movement and the legislation that has been introduced. Thus the small business sector has found itself locked out of the decision-making processes, yet ironically it is particularly vulnerable to the impact of decisions that have been forced upon it, particularly in the wage setting arena.

We all know that defining what constitutes small business is a rather subjective matter because there is no precise definition. The most recent report on small business activities was produced in 1980 by Ibis Corporate Services Pty Ltd entitled 'The Enterprises of Australia'. The report provides us with some statistics which show how significant the small business sector is in this economy. In 1980, 99 per cent of the estimated 750,000 enterprises in Australia employed fewer than 100 people. They accounted for 61 per cent of total employment in the Australian community. Some 700,000 Australian enterprises, that is, 93 per cent of all enterprises, employed between one and nine people. These small businesses employing less than 10 people accounted for 38 per cent of private sector employment. The report also predicted that between 1980 and 2000, 80 per cent of new jobs would be created in the small business sector. Of course, that was before we were afflicted with a Labor government. Those statistics demonstrate the vital role that small business plays within the community. The importance of small business does not lie merely in quantifiable economic terms. However, the inherent flexibility of smaller operations enables them to respond quickly to the market. The ability of small business to adapt and innovate according to changing economic circumstances has been widely recognised. Small businesses are the foundation, the heart and the strength of the Australian economy.

A report to the President of the United States entitled 'The State of Small Business', transmitted to Congress in March 1983, pointed to the results of a study completed in the previous year which examined the relationship between industrial concentration, firm size and technical innovation. The President's report stated:

The Gellman study indicates that small businesses contribute a disproportionately greater share of product innovation and bring these products to market faster than larger businesses . . . Small firms produce two and a half times as many innovations as large firms relative to the number of people employed. The Gellman study also found that the time necessary to bring an innovation to market averaged 2.22 years for small business compared with 3.05 years for large firms.

That quotation illustrates very well the point that small business plays a vital role in determining the long term health of the economy by providing the necessary flexibility to adapt to rapidly changing circumstances.

Far from encouraging small businesses, however, this Labor Government seems determined to stifle innovation and flexibility in our economy, with the aid of the trade union movement and its insistence that the centralised wage fixing system must be adhered to, no matter what. Wage indexation through the centralised and rigid system presently prevailing, which this Government encourages and implements, takes no account of the ability of individual firms and employers to pay the increases. One might well ask, for example, a begging question: Does it make sense to increase wages in industries that are laying off employees, as is presently the case in many sectors? As we all know, that underlines the approach of the Australian Council of Trade Unions, the Government's bedfellow, at least for the moment, in respect of the prices and incomes accord. Its attitude is: 'Look after the employee', or, as one might put it: 'Look after our own and to hell with the unemployed'. It sees its role as being hand in hand with the Government, pressing for higher wages and greater benefits at the expense of small business and the unemployed.

Let us look at employment in the private sector, the area where we find small business. Yesterday in a question to the Minister for Industry and Commerce, Senator Button, I referred to the areas of agriculture, mining, manufacturing, transport and storage. In all those areas there has been a net decline in the number employed since this Labor Government came to office. The very marked decline in these areas has been the result of what one might define as labour shedding, primarily due to the unbearable labour costs. This Government's policy of full wage indexation locks the country into a rigid structure of absolute real wages and relative wage rates, irrespective of general economic conditions and irrespective of which industries are expanding and which are contracting. It is interesting to note that countries which have the most flexible labour markets have done relatively well with respect to employment growth.

An estimate of investment requirements embodies an implicit judgment about how flexible labour and output markets can be made. The importance of this point is perhaps most clearly brought out by noting the striking fact that, with roughly similar investment trends in North America and Europe during the past decade, employment growth in North America was more than 10 times greater than that of Europe. Again, referring to the United States of America, even when aggregate investment was not particularly high, as it was not in previous years, greater labour mobility, more flexible real and relative wages, and other factors relating to the freedom of entrepreneurial initiative in small or new enterprises led to the rapid creation of new jobs. In Japan, because of the capacity of the service sector to absorb or shed workers and the wage flexibility provided to larger enterprises by the bonus system, the degree of flexibility has been roughly similar.

Senator Cook —We're leading the world. Tell us about Australia.

Senator CRICHTON-BROWNE —The honourable senator will find where he is going very shortly. When one talks of flexibility in wages in the United States it is not without significance to note that in recent times in a number of industries such as the motor car and airline industries the workers took wage cuts to preserve jobs. That is just not possible under the system of honourable senators opposite , under the inflexible and centralised system that is presently imposed upon us by the Labor Government. I might add that, due to the deleterious effects of systems such as ours, they have been abandoned or limited in countries such as Belgium, the Netherlands, Sweden, Denmark, Italy, France, Luxembourg, Switzerland and Iceland. However, that is just not the case in Australia; it is just not possible. Small businesses are faced with a situation where the wages and conditions they must offer employees are determined by bureaucratic organisations without reference to their individual circumstances. There is no flexibility in the system to alter award rates and conditions to take account of the ability of the employer to pay.

Very often decisions by the Australian Conciliation and Arbitration Commission appear to be based, and certainly are based, on political grounds rather than on economic considerations. The Arbitration Commission's decision to award across the board wage rises in line with the consumer price index was based on the need to implement the agreement made between the Labor Government and the trade union movement. It had nothing to do with small business, employees or the unemployed. It was simply a deal between the ACTU and the Labor Party for short term political expediency. Economic logic would indicate that by not raising wages unemployment would have had a chance to fall more rapidly. The problem for small businesses is finding the money to pay these wage increases. They do not have the resources of larger enterprises and, working on smaller margins, they are not readily able to absorb increased costs. At the very least those costs mean a reduction in profits and consequently less money to invest and expand their operations to create more jobs. They do not, of course, have shareholders' funds . They do not have the fat and the resources that public companies have to draw upon during lean times. Increased costs simply mean reduced profits, no profits or bankruptcy. Wages are only one element of the cost of an employee. I quote:

The magnitude of the problem may be seen from the following figures on building industry wage costs. The figures are based on analysis by the New South Wales and Victorian employers federations and verified by other employer organisations throughout Australia.

In the 10-year period since 1 January 1974 the wage costs of the carpenter and labourer have risen by 250 per cent and the fitter by 213 per cent.

The on-costs of employing them have risen by nearly 690% for carpenters, 650% for labourers and over 500% for fitters. The on-costs include annual leave, leave loadings, long service leave, sick leave, payroll tax, workers compensation and public holidays.

Over the same period the C.P.I. rose by 183.54%, average weekly earnings by 217 .5% and average award earnings by 93.2%. . . . In fact labour on-costs add more than 43% to direct wage costs.

. . . .

In the recent national wage case the C.A.I. pointed out that 18.5% of the wages bill consists of on-costs going direct to employees and 16.7% of the wages bill is represented by on-costs not received by employees directly. The principal items in this latter group are payroll tax, workers compensation and superannuation. The same C.A.I. submission showed the annual leave, payroll tax, workers compensation and other insurance premiums together amount to well over half of the total contribution to on-costs.

That gives an example of the sorts of costs that have been borne by small business as a result of the inflexible system we presently have. If time will permit, I will touch upon the job security test, which has the full imprimatur and full support of this Government and which is bankrupting small business and creating higher and higher unemployment. If I have further time, I will make some reference to the Government's intention to remove sections 45D and 45E from the Trade Practices Act, which is one of the few things which allow small business to have some protection against the giant trade union movement and the weak-kneed monolithic multinational corporations which honourable senators opposite are all screaming about.

Increasing employment costs at a time of economic hardship will of course worsen the plight of small business. Making increased costs an adjunct of technological change will inhibit efficiency and, in the long term, economic growth. The job security ruling is doing exactly that. As I have said, in many ways small businesses work in a much more constrained environment than larger enterprises. Taking on a single new employee represents a substantial investment . There is a great deal of dissatisfaction amongst the small business community because it is being forced to make that investment on terms and conditions which it plays no part in determining.

To turn to the more positive side of things, I wish to touch upon the constructive features of the Liberal and National parties' industrial relations policy which will give small business a breathing space and allow it to expand and develop. Most importantly, under a coalition government, employers and employees will be given the scope to negotiate variations in award wages and conditions according to their own particular circumstances. This will result in far greater flexibility in the wage fixing system while still protecting employees by setting minimum wages and conditions according to the capacity of the individual employers and of the economy to pay. Small businesses will particularly benefit under a coalition government because they will have the scope to reduce wages where employers and employees unanimously agree that this is necessary to save jobs or preserve the future of the enterprise. A coalition government will also ensure that awards are enforceable by awarding damages for breach of an award or contract of employment. Thus both the employer and the employee would have an avenue of redress in cases where awards were breached, regardless of their relative industrial strength.

The existing legislation on industrial relations is extremely complex and indeed virtually incomprehensible to other than specialist industrial relations staff. Small businesses can afford neither specialist advice nor the time to puzzle through the maze of restrictions without help. They will greatly benefit from the simplification of the legislation proposed by the coalition's policy. Of course, the coalition will also reopen the job security case so that the decision can be re-examined in the full light of its implications, particularly for employment. I am not advocating anything special for small business; I am not advocating special treatment nor is small business. But I do not believe that small business ought to be treated in the manner in which it has been treated by the Labor Government. It is entitled to fair treatment, which under this Government has been so very badly lacking. Given the right economic environment there is tremendous potential within the small business sector for job creation. This potential is being suffocated by a rigid system of wage fixation which is essentially incompatible with the flexible free market conditions which would enable small business to thrive and prosper.

Senator Robert Ray —I raise a point of order. Under standing order 364 I ask that Senator Crichton-Browne table the document from which he has been quoting.

Senator CRICHTON-BROWNE —You can have the bits and pieces if they mean anything to you.