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Thursday, 18 August 2005
Page: 24

Senator MINCHIN (Minister for Finance and Administration) (10:35 AM) —I table a revised explanatory memorandum relating to the bill and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This bill proposes to amend the Workplace Relations Act 1996 to maintain the exemption for small business from redundancy pay by overturning the decision made by the Australian Industrial Relations Commission (AIRC) on 26 March 2004 to impose redundancy pay obligations on small businesses.

This legislation is necessary because it is the only option available to rectify a flawed decision of the AIRC. Under the current industrial relations system there is no review or appeal process to reconsider the merits of test case decisions made by a Full Bench of the AIRC.

The Government strongly believes it is Parliament’s responsibility to use its legislative power and authority to shield small businesses from the AIRC’s decision. In fact, the Government sought and obtained a mandate for this legislative proposal at last year’s election.

If this bill is not passed, the vast majority of small businesses covered by federal awards will eventually be subject to redundancy payments for their employees in accordance with the AIRC’s decision. If this bill is not passed, small businesses that are constitutional corporations and that are covered by State awards in States to which the AIRC’s decision flows, will become subject to redundancy payments.

The bill has four effects. First, it will preserve the exemption from redundancy pay obligations for small businesses with fewer than 15 employees.

Second, it will cancel the effect of any award variations made by the AIRC from 26 March 2004, the date of its decision, until the legislation commences, that impose redundancy pay obligations on employers of fewer than 15 employees. It will not, however, affect any redundancy pay provisions that were in awards prior to the AIRC’s decision. It will also not affect any actual entitlement that arises before the legislation commences. The Government’s objective is not to take away something that employees already have.

Third, the bill will prevent a small business redundancy pay obligation that was in a State law, State award or State authority order prior to the AIRC’s decision, and that would normally be suppressed by a federal award, ‘springing up’ to impose an obligation on a constitutional corporation that employs fewer than 15 employees and that is bound by a federal award now or in the future.

And fourth, the bill will also exclude constitutional corporations with fewer than 15 employees from redundancy pay obligations that may be imposed by State laws, State awards or State authority orders that are made after the date of the AIRC decision. The bill will also exclude all businesses with fewer than 15 employees in the Territories from any redundancy pay obligations that may be imposed by a Territory law.

This bill is integral to the first tranche of the Government’s two-pronged approach to protect all small businesses from the AIRC’s decision. The second tranche involves the Government also working to protect small businesses that are not constitutional corporations and that are covered by State awards from any flow-on of the AIRC’s decision.

The Government intervened in test cases in the Western Australian and Queensland jurisdictions to oppose the flow-on of the AIRC’s decision to impose redundancy pay on small businesses; and it will similarly seek to intervene in any other relevant proceedings before State workplace relations tribunals to oppose any flow-on.

Notably, both the Western Australian and Queensland governments agreed with the Government and also opposed the flow-on of redundancy pay to small businesses in their States. Even more notable is the fact that both the Queensland and Western Australian Industrial Relations Commissions similarly agreed, rejecting union applications to flow-on the AIRC’s decision to remove the small business exemption.

In addition, the Government has called on State governments to legislate to maintain the exemption of small businesses from redundancy pay.

It is vital that opportunities for continued growth and job creation for the 1.1 million non-agricultural small businesses in Australia be maximised. It is even more essential for the 3.3 million people employed by these businesses. This is nearly half of private sector, non-agricultural employment.

Small businesses are central to employment and economic prosperity in Australia. The small business sector is often referred to, and rightly so, as the engine room of the economy.

The small business sector is performing very well—and is very much the engine room of the continued growth and strength that our economy is enjoying. And without doubt many small businesses are profitable.

But we can’t afford to confuse this profitability with an ability to afford redundancy payments. Small businesses tend to be chronically undercapitalised and in general don’t have the financial resources to cope with large, unpredicted commitments such as redundancy payments. Small businesses are twice as likely as larger businesses to go out of business in the earlier years of operation. Even after 15 years of operation they are still 1.7 times more likely to cease than larger businesses.

In the Government’s view, the AIRC’s decision seriously underestimates the impact that redundancy pay would have on small businesses. For instance, a retail small business with seven employees, each with four years’ continuous employment, would face a contingent liability for redundancy pay of nearly $30,000 once the redundancy pay obligation established by the AIRC’s decision takes into account the full period of employment of the employees.

An obligation on small businesses to make redundancy payments will result in a cost impost that is unaffordable for many small businesses. The end result will of course be a significant decline in job growth in the small business sector and likely small business insolvencies. Clearly, employees of small businesses will not gain anything from the AIRC’s decision if they no longer have a job to go to.

The undesirability of removing the small business exemption is widely recognised. None of the four State governments that participated in the AIRC test case supported the removal of the exemption—the Queensland and Western Australian governments opposed the removal, while the NSW and Victorian governments neither supported nor opposed it. And as I’ve already noted, the Western Australian and Queensland governments continued their opposition to the removal of the small business exemption in recent test cases in their own jurisdictions.

Late last year the Queensland Industrial Relations Commission reaffirmed its original decision of August 2003 that small businesses are in a more financially constrained and precarious position compared to larger business. The Queensland Commission unanimously decided that the exemption for small business from redundancy pay obligations under the Queensland workplace relations system ought to remain in place. The Queensland Commission concluded that many small businesses operate in marginal circumstances and that their lack of financial resilience had not changed since 1994 when the New South Wales Industrial Commission also reaffirmed the need for the small business exemption.

The Queensland Commission also accepted that small businesses would generally have smaller cash reserves to meet redundancy pay requirements and that redundancies occurring would represent a greater proportion of the overall labour costs of the business.

In short, the Queensland Commission found that to impose redundancy pay obligations on small businesses had “the very real potential to result in the insolvency of a number of small businesses”.

In April this year, the Western Australian Commission rejected an application by the Trades and Labour Council of Western Australia to remove the small business exemption, stating that they are “required to evaluate the evidence according to its weight and not merely adopt the conclusion of the AIRC”. The decision particularly relied on witness evidence that “small business as a whole is inherently riskier than larger business” and that small businesses have more difficulty in obtaining finance when required.

This Government agrees with the conclusions of the Queensland and Western Australian Commissions. We think it is imperative that the small business sector continue to be supported and encouraged to further grow and create new jobs for our economy and for all Australians. This legislation will lift from small businesses the additional cost burden imposed by the AIRC’s decision.

Of course, we are not saying that by introducing this legislation small businesses can’t reach agreement with their employees to make redundancy payments where they can afford it and where it is a priority for employees.

The Government has a strong history of encouraging employers and employees to reach agreement on a wide range of issues at the workplace. In our view, this is preferable to imposing an “across the board” obligation on small businesses which cannot afford redundancy pay.

In introducing this bill the Government is demonstrating its ongoing commitment to the small business sector and its recognition of the vital and essential role it plays in ensuring Australia has a strong, thriving economy capable of employing all those who want jobs.

Debate (on motion by Senator Minchin) adjourned.