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Senate Legislative and General Purpose Standing Committees—Consolidated reports on the consideration of bills—July-December 2016—Volume 2-Economics; Education and Employment


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Australian Senate

Senate Legislation Committees

Reports on the consideration of bills July-December 2016

Volume 2

Economics Committee Education and Employment Committee

© Parliament of the Commonwealth of Australia 2016

ISSN 1834-4062

This document was printed by the Printing Unit, Department of the Senate, Parliament House, Canberra.

TABLE OF CONTENTS

Economics Committee † · Superannuation (Excess Transfers Balance Tax) Imposition Bill 2016* and Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016*, dated November 2016 .................................................. 1

· Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016*, dated October 2016 ................................................................................................ 37

· Treasury Laws Amendment (Income Tax Relief) Bill 2016*, dated October 2016 ................................................................................................ 79

† Volume 1 contains reports of the Economics Committee

Education and Employment Committee† · Building and Construction Industry (Improving Productivity) Bill 2013*, Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013* and Fair Work (Registered

Organisations) Amendment Bill 2014*, dated October 2016 ................................... 95

· Fair Work Amendment (Gender Pay Gap) Bill 2015, dated November 2016 .......................................................................................... 121

· Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016*, dated October 2016 .......................................................... 181

· Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016* and Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016*, dated October 2016 ........................................................... 297

† Volume 3 contains further reports of the Education and Employment Committee

*Provisions of bill referred to committee.

The Senate

Economics

Legislation Committee

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 [Provisions]

Superannuation (Excess Transfers Balance Tax) Imposition Bill 2016 [Provisions]

November 2016

1

© Commonwealth of Australia 2016

ISBN 978-1-76010-490-0

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/

Printed by the Senate Printing Unit, Parliament House, Canberra.

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Senate Economics Legislation Committee

Members

Senator Jane Hume (Chair) Victoria, LP

Senator Chris Ketter (Deputy Chair) Queensland, ALP

Senator David Bushby Tasmania, LP

Senator Jenny McAllister New South Wales, ALP

Senator Ian Macdonald Queensland, LP

Senator Nick Xenophon South Australia, NXT

Secretariat

Mr Mark Fitt, Secretary Dr Sean Turner, Principal Research Officer Ms Ashlee Hill, Acting Senior Research Officer Ms Sarah Batts, Research Officer

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: economics.sen@aph.gov.au Internet: www.aph.gov.au/senate_economics

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TABLE OF CONTENTS

Membership of Committee iii

Chapter 1.............................................................................................................. 1

Introduction and overview of the bills .................................................................... 1

Conduct of the inquiry ............................................................................................ 2

Background and consultation ................................................................................. 2

Financial impact ..................................................................................................... 3

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 ..... 4

Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 .................. 6

Scope and structure of this report ........................................................................... 6

Chapter 2.............................................................................................................. 9

Views on the bills ...................................................................................................... 9

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 ..... 9

General comments .................................................................................................. 9

Schedule 1: Transfer balance cap ......................................................................... 10

Schedule 2: Concessional superannuation contributions ..................................... 13

Schedule 3: Non-concessional contributions ....................................................... 15

Schedule 4: Low income superannuation tax offset ............................................. 18

Schedule 5: Deducting personal contributions ..................................................... 18

Schedule 6: Unused concessional cap carry forward ........................................... 19

Schedule 7: Tax offsets for spouse contributions ................................................. 20

Schedule 8: Innovative income streams and integrity .......................................... 20

Schedule 9: Anti-detriment provisions ................................................................. 22

Schedule 10: Administrative streamlining ........................................................... 22

Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 ................ 22

Committee view .................................................................................................... 22

Labor Senators' Dissenting Report ................................................................. 25

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Background and Overview ................................................................................... 25

Specific measures ................................................................................................. 26

Appendix 1 ......................................................................................................... 29

Submissions received .............................................................................................. 29

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Chapter 1

Introduction and overview of the bills 1.1 On 10 November 2016, the Senate referred the provisions of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) and the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 to the Senate Economics Legislation Committee for inquiry and report by

23 November 2016.

1.2 These two bills form part of the government's superannuation reform package announced in the 2016-17 Budget on 3 May 2016. The Senate has referred a third bill that is part of the package, the Superannuation (Objective) Bill 2016, separately to the committee for inquiry and report by 14 February 2017.1

1.3 In his second reading speech, the Treasurer, the Hon Scott Morrison MP, explained that this package of superannuation tax reforms, in particular the TLA Bill, 'implements the government's election commitment to improve the fairness, sustainability, flexibility and integrity of [the] superannuation system'.2 The Treasurer also stated that the package of measures will allow many Australians to better prepare for retirement, by improving their superannuation savings and ultimately, increasing their income in retirement. These measures, the Treasurer argued, would also reduce the capacity of the superannuation system to be used as a means for tax minimisation and estate planning.3

1.4 The TLA Bill contains 10 measures. The first and principal measure of the TLA Bill establishes a transfer balance cap of $1.6 million on the amount of capital that can be transferred to the tax-free earnings retirement phase of superannuation.

1.5 The nine subsequent schedules amend superannuation tax laws to allow for the better targeting of tax concessions and the introduction of flexibility and system integrity measures. The majority of these schedules are due to come into effect or apply from 1 July 2017.

1.6 The Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 seeks to impose a 15 per cent tax on any notional earnings of capital in a retirement phase superannuation account that is greater than the transfer balance cap of $1.6 million (outlined in Schedule 1 of the TLA Bill). This tax would come into effect from 1 July 2017.

1 The Superannuation (Objective) Bill 2016 seeks to enshrine in law that the primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension. It will also require new bills and regulations relating to superannuation to be accompanied by a statement of compatibility with the objective of the superannuation system.

2 TLA Bill, Second Reading Speech, HoR Hansard, 9 November 2016, p. 78.

3 TLA Bill, Second Reading Speech, HoR Hansard, 9 November 2016, p. 78.

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Conduct of the inquiry 1.7 The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting submissions by 17 November 2016. The committee received 44 submissions, which are listed at Appendix 1.

1.8 The committee did not hold any public hearings.

Background and consultation 1.9 The November 2014 Financial System Inquiry (FSI) report, led by Mr David Murray AO, noted that the Australian population is ageing and this phenomenon was placing increased fiscal pressure on government in terms of the provision of the age pension. The report emphasised that 'a well-functioning superannuation system will be important in alleviating these pressures and ensuring good outcomes for retirees'.4

1.10 Following the government's announcement of the superannuation reform package in the 2016-17 Budget, Treasury commenced a consultation process in relation to the draft legislation.

1.11 On 15 September 2016, the government announced amendments to the package intended to reduce the potential for the superannuation system to be used as an estate planning5 vehicle, while still supporting Australians to invest in their superannuation. Most notable of these amendments was the replacement of the proposed $500,000 lifetime cap on non-concessional contributions. This initial proposal was 'replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year'.6

1.12 Between 7 September to 23 October 2016, Treasury conducted a three-tranche consultation process in relation to the draft legislation that constitutes the superannuation reform package. Treasury received 156 submissions (60, 69 and 27 for tranches 1, 2, and 3 respectively). Three consultation roundtables were also held during this period in Melbourne (5 October 2016), Sydney (6 October 2016) and Canberra (18 October 2016).

1.13 Treasury received feedback on the draft legislation from individuals as well as key industry stakeholders, including:

• the Association of Financial Advisers (AFA);

• the Association of Superannuation Funds of Australia (ASFA);

4 Financial System Inquiry report, p. 2.

5 Estate planning involves developing a strategy to deal with an individual's assets in the event of their incapacitation or death - the legal instruments and structures, such as a will or the transfer an individual's assets in the event of death. The Australian Taxation Office noted on its website that tax is a major consideration in estate planning. For more information, see https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/Tax-governance/Estate-planning/ 6 The Hon Scott Morrison MP, Treasurer of the Commonwealth of Australia, 'Even fairer, more

flexible and sustainable superannuation', Media Release, 15 September 2016.

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• the Australian Institute of Superannuation Trustees (AIST);

• Ernst & Young (EY);

• Industry Super Australia (ISA);

• the Self-managed Superannuation Funds Australia (SMSFA); and

• the Tax Institute.

1.14 A number of stakeholders raised concerns about the short timeframe provided for consideration of the draft legislation. However, Treasury has noted that 'early passage of the legislation will provide individuals and industry with certainty and the maximum amount of time to implement the changes ahead of 1 July 2017'.7

Financial impact 1.15 As set out in Table 1.1 below, the measures contained in the bills are estimated to increase the underlying cash balance by approximately $2.8 billion over the forward estimates.8

Table 1.1: Financial impact of the measures ($m)

$m 2016-17 2017-18 2018-19 2019-20 Total

Objective of the superannuation system - - - - -

Transfer Balance Cap -4.4 500.0 650.0 700.0 1,845.6

Concessional superannuation contributions

-2.8 499.1 797.8 1,048.9 2,343.0

Annual non-concessional contributions .. .. 50.0 150.0 200.0

Low income superannuation tax offset - -2.8 -651.1 -801.1 -1,455.0

Deducting personal contributions

- 350.0 -500.0 -700.0 -850.0

Unused concessional cap carry forward - - - -100.0 -100.0

Tax offsets for spouse - - -5.0 -5.0 -10.0

7 Treasury Consultation Summary, 11 November 2016, p. 12.

8 Explanatory Memorandum, pp. 9-10.

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$m 2016-17 2017-18 2018-19 2019-20 Total

contributions

Innovative income streams and integrity .. 130.0 160.0 180.0 470.0

Anti-detriment provisions - - 105.0 245.0 350.0

Administration and consequential amendments - * * * *

Total -7.2 1,476.3 606.7 717.8 2,793.6

Source: Explanatory Memorandum, pp. 9-10.

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 1.16 The next part of this chapter provides a basic summary of the measures in the bill. More detailed explanations of each measure are provided in Chapter Two, which also considers views expressed in submissions.

Schedule 1: Transfer balance cap

1.17 Schedule 1 to the TLA Bill imposes a $1.6 million cap (the transfer balance cap) on the amount of capital that can be transferred to the tax free earnings retirement phase of superannuation.

Schedule 2: Concessional superannuation contributions

1.18 Schedule 2 to the TLA Bill:

• reduces the annual concessional contributions cap to $25,000 for all

individuals (from $30,000 for those aged under 49 at the end of the previous financial year and $35,000 otherwise);

• reduces the threshold at which high-income earners pay Division 293 tax on concessionally taxed contributions to $250,000 (from $300,000); and

• amends how concessional contributions are determined in respect of constitutionally protected funds and unfunded defined benefit superannuation schemes.9

Schedule 3: Non-concessional contributions

1.19 Schedule 3 to the TLA Bill amends the annual non-concessional contributions cap from $180,000 to $100,000, introduces criteria for an individual to be eligible for

9 Explanatory Memorandum, p. 12.

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the non-concessional contributions cap and makes other minor amendments in respect of the non-concessional contributions rules.10

Schedule 4: Low income superannuation tax offset

1.20 Schedule 4 to the TLA Bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 to enable eligible low income (less than $37,000 per annum) earners to receive the low income superannuation tax offset.

Schedule 5: Deducting personal contributions

1.21 Schedule 5 to the TLA Bill removes the requirement in the income tax law that an individual must earn less than 10 per cent of their income from their employment related activities to be able to deduct a personal contribution to superannuation and make it a concessional contribution.

Schedule 6: Unused concessional cap carry forward

1.22 Schedule 6 to the TLA Bill introduces provisions to allow catch-up concessional contributions. This will allow individuals with a total superannuation balance of less than $500,000 to make additional concessional superannuation contributions in a financial year by utilising unused concessional contribution cap amounts from up to five previous financial years.

Schedule 7: Tax offsets for spouse contributions

1.23 Schedule 7 to the TLA Bill amends the tax law to encourage individuals to make superannuation contributions for their low income spouses. This is achieved by increasing the amount of income an individual’s spouse can earn before the individual ceases to be entitled to a tax offset for making superannuation contributions on behalf of their spouse.

Schedule 8: Innovative income streams and integrity

1.24 Schedule 8 to the TLA Bill extends the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.

Schedule 9: Anti-detriment provisions

1.25 Schedule 9 to the TLA Bill removes the income tax deduction which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants.

Schedule 10: Administrative streamlining

1.26 Schedule 10 to the TLA Bill is designed to streamline some of the administrative processes of the Australian Taxation Office. In particular:

10 Explanatory Memorandum, p. 13.

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• Part 1 of schedule 10 to the TLA Bill 2016 amends the tax law to simplify and

consolidate the range of existing processes for the release of amounts from individuals’ superannuation using a release authority.

• Part 2 of schedule 10 to the TLA Bill 2016 simplifies the taxation law to assist

in streamlining the administration of the Division 293 tax regime. The amendments reduce compliance costs for superannuation providers and individuals where superannuation benefits become payable from defined benefit interests by removing the requirements in the taxation law relating to superannuation interests for which a Division 293 tax debt account is being kept for:

• superannuation providers to notify the Commissioner of Taxation

(Commissioner) of the amount of end benefit caps for their members in some circumstances; and

• individuals to notify the Commissioner in any circumstance when their superannuation benefits from such interests first become payable.

• Part 3 of schedule 10 to the TLA Bill 2016 clarifies that the Commissioner can provide a single notice that includes two or more separate notices that are required to be provided.

• Part 4 of schedule 10 to the TLA Bill makes consequential amendments to the

Superannuation Act 1976 that sets out the rules that govern the

Commonwealth Superannuation Scheme (CSS) in relation to release authorities issued by the Commissioner. The amendments take account of changes made by other parts of the Superannuation Reform Package.

Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 1.27 The Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 proposes to impose a tax on the notional earnings of capital moved into a retirement phase superannuation account that is in excess of the $1.6 million transfer balance cap established in Schedule 1 of the TLA Bill. From 1 July 2017, any notional earning of the excess capital would be taxed at a rate of 15 per cent.

1.28 The Treasurer has emphasised that the establishment of the transfer balance cap of $1.6 million is the 'foundation of sustainability measures in the superannuation reform package'.11

Scope and structure of this report 1.29 Submissions received by the committee commented on all schedules to the TLA Bill. A significant majority of the submissions received commented specifically in relation to the introduction of the transfer balance cap (schedule 1 of the TLA Bill). The next chapter of the committee's report considers each schedule in detail, focusing

11 Excess Transfer Balance Tax Bill, Second Reading Speech, HoR Hansard, 9 November 2016, p. 84.

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particularly on those commented on by submitters. The Explanatory Memorandum that accompanied the bills sets out all of the proposed amendments in detail.

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Chapter 2 Views on the bills

2.1 As outlined in the previous chapter, the combined measures contained in the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) and the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 form part of the Government's superannuation reform package announced in the 2016-17 Budget.

2.2 The Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) contains 10 measures. The Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 contains one measure to impose an excess transfer balance tax for a person who has a balance in excess of the transfer balance cap.

2.3 This chapter provides detailed explanations of each measure contained in the TLA Bill and considers views expressed in submissions. No submissions were received in relation to the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016. This chapter will therefore focus on the measures outlined in the TLA Bill.

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016

General comments 2.4 A number of submissions noted the complexity of the proposed measures in the TLA Bill, and highlighted some of the difficulties that individuals, organisations and superannuation funds might encounter when implementing some of these changes. Given the complexity of a number of measures contained in the TLA Bill, many submitters suggested that the timeframe for implementation by 1 July 2017 would be difficult. Some of these submitters suggested grandfathering the changes in order to ensure that individuals who have already planned their retirement within the existing laws are not financially disadvantaged.1

2.5 Overall, submitters agreed that the superannuation reform package and the measures outlined in the TLA Bill would contribute to a superannuation system that is more flexible and sustainable. In its submission, Industry Super Australia (ISA) provided the committee with a distributional analysis of the impacts of the reform package. This analysis showed that the measures included in the TLA Bill would overall result in a better targeting of superannuation concessions than is currently the case. According to the ISA's analysis, 'the policy savings measures taken together are

1 For example, see: Mr Andrew Freeman, Submission 2, p. 1; Pat and Kay Kelly, Submission 4, p. 1; Dr Maureen Burke, Submission 5, p. 1; AMP, Submission 28, p. 4; UniSuper, Submission 29, p. 2; The Tax Institute, Submission 34, p. 5; Save our Super, Submission 36, p. 6.

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broadly sound and respond to concerns about the equity, efficiency and sustainability of super tax contributions'.2

Schedule 1: Transfer balance cap 2.6 The principal measure set out in schedule 1 of the TLA Bill is the introduction of a transfer cap balance of $1.6 million (the transfer balance cap) on the amount of capital that can be transferred to the tax free earnings retirement phase of superannuation in respect of an individual. Under the current law, there is no limit to the amount of capital that an individual can place into a retirement phase account.3

2.7 The transfer balance cap of $1.6 million will be subject to proportional indexation in $100,000 increments, in line with the Consumer Price Index (CPI). This means that by 2020-21, the transfer balance cap will likely have increased to $1.7 million.4

2.8 The transfer balance cap is an individual cap and cannot be combined or extended to include the transfer cap balance of a spouse or dependent. Schedule 1 of the TLA Bill also has taxation implications for certain defined benefit income streams, including taxed and untaxed defined benefit arrangements and death benefit superannuation income streams.5

2.9 For example, in taxed defined benefit arrangements, half of the capped defined benefit income stream payments are included in the recipient's assessable income and taxed at the individual's marginal rates to the extent they exceed a cap of $100,000. Whereas if the defined benefit is untaxed, the tax offset is limited to the first $100,000 of benefit that the individual receives.6

2.10 As noted above, the transfer balance cap is an individual cap. Where an individual is the beneficiary of a death benefit, they may choose to accept this benefit either as a lump sum or as a superannuation income stream.

2.11 In circumstances where an individual becomes the recipient of a death benefit income stream, that individual must ensure that they do not exceed the cap. Where a death benefit income stream would cause an individual to exceed their cap, they can comply with the cap by taking a lump sum death benefit or commuting (partially or in full) another income stream. It is important to note that a 'superannuation death benefit cannot be held in an accumulation interest as this contravenes the requirement to cash the benefit out of the system as soon as practicable'.7A special cap applies to individuals that receive a death benefit income stream as a dependent child beneficiary.

2 Industry Super Australia, Submission 41, p. 3.

3 Explanatory Memorandum, p. 39.

4 Explanatory Memorandum, p. 37 and p. 45.

5 Explanatory Memorandum, p. 35.

6 Explanatory Memorandum, p. 39.

7 Explanatory Memorandum, p. 53.

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2.12 The introduction of the transfer balance cap is estimated to increase the underlying cash balance by $1.8 billion over the forward estimates.8

Views on schedule 1

2.13 A number of submitters highlighted the complexity of the changes proposed in schedule 1 to the TLA Bill. For example, the Institute of Public Accountants (IPA) noted in their submission that although only a relatively small number of Australians will be affected by the introduction of the transfer balance cap, the proposed new system is complex and will require ongoing administration.9

2.14 The Law Council of Australia also commented that given the complexity of the proposed transfer balance cap system, many individuals will have difficulty in avoiding inadvertent breaches of the transfer balance cap as they attempt to track their total superannuation balance across multiple funds and interests.10

2.15 A number of submitters, including the Australian Institute of Superannuation Trustees (AIST), UniSuper, Association of Superannuation Funds of Australia (ASFA), ARC Centre of Excellence in Population Ageing Research and the SMSF Owners' Alliance commented that the indexation of the $1.6 million transfer balance cap should be linked to Average Weekly Ordinary Time Earnings (AWOTE) instead of linked to CPI as proposed.11 The SMSF Owners' Alliance also noted that AWOTE is used to index other measures proposed in the TLA Bill.12

2.16 Several submitters, including a number of affected individuals and superannuation bodies, commented on the way in which defined benefit schemes are going to be assessed in relation to the transfer balance cap.13

2.17 The Australian Council of Public Sector Retiree Organisations Inc. (ACPSRO) argued that a defined benefit scheme should not be included in an individual's transfer cap balance. This is due to the fact that defined benefit pensions cannot be commuted outside of the superannuation system in order to reduce an individual's transfer balance cap, leaving those individuals who receive defined benefit pensions with less space available in their cap.14

8 Explanatory Memorandum, p. 12.

9 Institute of Public Accountants, Submission 6, pp. 2-3.

10 Law Council of Australia, Submission 24, p. 5.

11 Australian Institute of Superannuation Trustees, Submission 7, p. 16; SMSF Owners' Alliance, Submission 19, p. 6; UniSuper, Submission 29, p. 12; Association of Superannuation Funds of Australia, Submission 31, p. 5; ARC Centre of Excellence in Population Ageing Research, Submission 37, p. 5.

12 SMSF Owners' Alliance, Submission 19, p. 6.

13 Dixon Advisory, Submission 32, p. 4; SMSF Association, Submission 39, p. 4; UniSuper, Submission 29, p. 3; Superannuated Commonwealth Officers' Association, Submission 20, p. 1.

14 Australian Council of Public Sector Retiree Organisations Inc., Submission 10, p. 2.

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2.18 Submitters noted that the method of calculation in order to determine the 'special value'15 and debit value of the defined benefit pension did not take into account factors such as the age and life expectancy of the pension recipient. The calculation means that younger pension recipients with greater life expectancies will have a greater debit value on their pension and therefore a smaller amount of their transfer balance cap remaining.16

2.19 AIST explained the relationship between defined benefit pensions and the transfer balance cap and suggested an alternative method for calculation of the 'special value':

The Bill sets the valuation of defined benefit interests for the general transfer balance cap at a value of 16. In contrast, the valuation of these interests for total superannuation balance is set according to the age based factor in schedule 1B of the Income Tax Assessment Regulations 1997. In order to avoid confusion and the possibility of distorted decision-making as a result of these different valuation methods, it is recommended that the valuation methods be aligned. Alignment could be achieved by using actuarially determined commutation factors for both the general transfer balance cap and the total superannuation balance for defined benefit members.17

2.20 ACPSRO also suggested a different method for calculating the 'special value' of defined benefit pensions which is summarised in the table below.

Table 2.1: Suggested 'special value' factor distribution by age18

Age on 1 July 2017 or when the pension commences, if later Factor

Under age 70 16

70-74 14

75-79 12

80-84 10

85-89 8

90 and over 6

15 The 'special value' of a defined benefit scheme that is a lifetime pension or annuity will be calculated using the annual entitlement amount multiplied by 16. The debit value that is then applied to an individual's transfer balance cap if the income stream is commuted in full is the 'special value' less any previous debits of the pension or annuity. For more information on special and debit values, please refer to table 3.3 of the Explanatory Memorandum (p. 92).

16 Australian Institute of Superannuation Trustees, Submission 7, p. 12.

17 Australian Institute of Superannuation Trustees, Submission 7, p. 16.

18 Australian Council of Public Sector Retiree Organisations Inc., Submission 10, p. 1.

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Schedule 2: Concessional superannuation contributions 2.21 The cap on concessional (pre-tax) contributions for a financial year is currently $30,000 for individuals under 49 years of age at the end of the last financial year, and $35,000 for individuals aged 49 years and over. The $30,000 cap is indexed in increments of $5,000 in line with the annual rate of full-time AWOTE.19

2.22 Under existing law, an individual is liable to pay Division 293 tax20 if their combined income for surcharge purposes and concessionally taxed contributions exceeds the threshold amount of $300,000.21

2.23 Schedule 2 to the TLA Bill:

• reduces the annual concessional contributions cap to $25,000 for all

individuals, regardless of age;

• reduces the threshold at which high-income earners pay Division 293 tax on

their concessionally taxed contributions to superannuation to $250,000; and

• amends how concessional contributions are determined to ensure that

contributions and amounts included in concessional contributions in respect of constitutionally protected funds and unfunded defined benefit superannuation schemes count towards an individual’s concessional contributions cap.22

2.24 In addition, schedule 2 to the TLA Bill changes the indexation of the annual concessional contributions cap to increase in increments of $2,500 in line with AWOTE.

2.25 These measures are estimated to increase the underlying cash balance by approximately $2.3 billion over the forward estimates.23

Views on schedule 2

2.26 The Australian Council of Social Service (ACOSS) expressed their general support for the $25,000 concessional contributions cap, noting that they welcome 'the government's budget proposals to cap superannuation concessions for those who least need them'.24

2.27 The National Foundation for Australian Women (NFAW) also voiced their support for the measure, commenting that 'the reduction in the concessional

19 Explanatory Memorandum, pp. 136-137.

20 Division 293 tax is payable by the individual at a rate of 15 per cent on the amount by which their income for surcharge purposes plus concessional contributions exceeds $300,000; or the individual’s low tax contributions—whichever is lower. Explanatory Memorandum, p. 134. 21 Explanatory Memorandum, p. 133.

22 Explanatory Memorandum, p. 132.

23 Explanatory Memorandum, pp. 9-10.

24 Australian Council of Social Service, Submission 13, p. 2.

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contribution cap to $25,000 is consistent with the proposed primary objective of the superannuation system to ensure retirement income'.25

2.28 ISA explained that the proposed reduction to concessional cap would only affect 2.5 per cent of individuals with superannuation, also noting that:

The most likely group affected are high income earners. They of course can continue to contribute by way of non-concessional contributions. Although they will pay more tax the subsequent earnings on the contribution will be highly concessional - certainly more concessional than any other alternative.26

2.29 Some submitters raised concerns that the proposed concessional cap would be inadequate, particularly for individuals over 50 years of age.27 For example, the IPA argued that 'people over 50 should be encouraged to make further superannuation contributions especially when they have the capacity to do so to address any super balance shortfall'.28

2.30 Pitcher Partners described the proposed reduction of the concessional cap to $25,000 as being 'unnecessarily restrictive' and recommended that 'as a minimum, the Government should retain the higher concessional cap of $35,000 for people over age 50'.29

2.31 However, the NFAW suggested that the need for older workers to make higher concessional contributions will diminish as the superannuation system matures:

Arguably, as the superannuation system matures there is less need to allow higher contribution caps for older workers as they will have been paying a higher rate of contributions for more of their working life: a person relying on the SG who was 50 in 2007 had only 5 years of contributions at the rate of 9% of ordinary income, compared to a person who is 50 in 2016 who will have had 14 years at 9% or higher.30

2.32 A number of submitters voiced disappointment that there are no transitional measures in relation to the reduction in the concessional contributions cap.31

2.33 The IPA argued that this concern is exacerbated by 'the deferral of the proposed catch up measure until 1 July 2018, which effectively means the first catch up will not be available until the 2019-20 financial year'.32

25 National Foundation for Australian Women, Submission 15, p. 3.

26 Industry Super Australia, Submission 41, p. 9.

27 See, for example, Institute of Public Accountants, Submission 6, p. 4; SMSF Association, Submission 39, pp. 5-7.

28 Institute of Public Accountants, Submission 6, p. 4.

29 Pitcher Partners, Submission 21, p. 2.

30 National Foundation for Australian Women, Submission 15, p. 3.

31 Financial Planning Association of Australia, Submission 33, p. 6.

32 Institute of Public Accountants, Submission 6, p. 4.

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2.34 Some submitters expressed concern that, unlike the contribution cap measures, the Division 293 tax threshold is not indexed. These submitters pointed out that wages growth would consequently push a greater share of taxpayers above the threshold.33

Schedule 3: Non-concessional contributions 2.35 When the Government's superannuation reform package was initially announced as part of the 2016-17 Budget, it was proposed that a $500,000 lifetime cap on non-concessional (post-tax) contributions be introduced.34 On 15 September 2016, the Treasurer advised that the lifetime cap would be 'replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year'.35

2.36 The annual cap on non-concessional contributions is currently $180,000—six times the annual concessional contributions cap—and is indexed as the concessional cap is indexed ($5,000 increments in line with AWOTE).36

2.37 Under existing superannuation arrangements, an individual under 65 years of age can access a three year bring forward period for their non-concessional contributions cap of three times the annual cap (that is, $540,000). Currently, there is no total superannuation balance test to determine whether an individual is eligible for the non-concessional contributions cap.37

2.38 Schedule 3 to the TLA Bill:

• reduces the annual non-concessional contributions cap from $180,000 to

$100,000 (four times the proposed annual concessional contributions cap of $25,000);

• introduces an eligibility requirement that an individual must have a total

superannuation balance at 30 June of the previous financial year of less than the general transfer balance cap (discussed in detail above) in the relevant year to be eligible for the non-concessional contributions cap;

• prevents payment of the government co-contribution in respect of an

individual who is not eligible to make non-concessional contributions; and

• makes other minor amendments in respect of the non-concessional contributions rules.38

33 See, for example, Pitcher Partners, Submission 21, p. 3; Industry Super Australia, Submission 41, p. 9.

34 Commonwealth of Australia, 2016-17 Federal Budget Overview, 3 May 2016, p. 20.

35 The Hon Scott Morrison MP, Treasurer of the Commonwealth of Australia, 'Even fairer, more flexible and sustainable superannuation', Media Release, 15 September 2016.

36 Explanatory Memorandum, p. 151.

37 Explanatory Memorandum, p. 152.

38 Explanatory Memorandum, p. 151.

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2.39 The proposed annual non-concessional cap will be indexed as the new concessional cap is indexed ($2,500 increments in line with AWOTE).

2.40 Individuals under 65 years of age may still be able to access a three year bring forward period for their non-concessional contributions cap of three times the proposed annual cap (that is, $300,000). However, this will be limited depending on their total superannuation balance.39 Specifically, the amount of the cap an individual can bring forward will be limited if their total superannuation balance is close to the general transfer balance cap. See Table 2.2 for more detail.

Table 2.2: Superannuation balance and bring forward available40

Superannuation balance Contribution and bring forward available

Less than $1.3 million 3 years ($300,000)

$1.3 - < $1.4 million 3 years ($300,000)

$1.4 - < $1.5 million 2 years ($200,000)

$1.5 - < $1.6 million 1 year ($100,000)

$1.6 million Nil

2.41 Additionally, under the proposed legislation, individuals will not be eligible for the government co-contribution in an income year if:

• their non-concessional contributions exceed their non-concessional contributions cap for that year; or

• if, at 30 June of the previous year, their total superannuation balance equals or exceeds the general transfer balance cap.41

2.42 These measures are estimated to increase the underlying cash balance by approximately $200 million over the forward estimates.42

Views on schedule 3

2.43 A number of submitters expressed their support for the proposed non-concessional contribution cap over the previously proposed $500,000 lifetime

39 Explanatory Memorandum, p. 152.

40 Budget 2016-17, Superannuation Reform: Annual non-concessional contributions cap, http://budget.gov.au/2016-17/content/glossies/tax_super/html/tax_super-fs-07.htm (accessed 15 November 2016).

41 Explanatory Memorandum, p. 153.

42 Explanatory Memorandum, pp. 9-10.

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cap.43 AIST commented that the operation of the measure is similar to the existing non-concessional cap and that 'its implementation is much simpler that the original Budget proposal'.44

2.44 ISA estimated that, of those individuals with superannuation, 53 000 (22 200 female, 30 800 male) would be affected by the proposed measure to reduce the non-concessional contribution cap. ISA also commented:

These estimated numbers impacted for the $100,000 non-concessional contribution (NCC) limit are more equal by gender than other savings, suggesting that the use of very high non-concessional contributions could be for family wealth management, rather than individual saving.45

2.45 The NFAW submitted that lower non-concessional contributions caps will improve the distributional equity of the retirement system and also noted the significant role that access to non-concessional contributions play in regard to tax planning arrangements:

Concessional contributions have always been more limited in scope, so it is the ability to inject additional funds into superannuation that has allowed some individuals to build very large superannuation account balances.46

2.46 The Self-Managed Independent Superannuation Funds Association (SISFA) argued that the proposed bring forward measure with regard to account balances between $1.4 and $1.6 million is too complex. Moreover, SISFA submitted that 'it will be difficult for many members to know with certainty what their benefits are at

the previous 30 June', and that this is likely to result in individuals inadvertently breaching the transfer balance cap.47

2.47 AIST noted the different indexation methods proposed for the transfer balance cap and concessional/non-concessional contributions, commenting that:

This will result in the relationship between the general transfer balance cap and the contributions cap changing over time. Given that the rate of change in AWOTE tends to be historically higher than that of CPI, one consequence of this is that there will be reducing capacity for individuals to use the carry-forward mechanism over time.48

43 See, for example, Australian Institute of Superannuation Trustees, Submission 7, p.14; SMSF Association, Submission 39, p. 7.

44 Australian Institute of Superannuation Trustees, Submission 7, p. 14.

45 Industry Super Australia, Submission 41.1, p. 8.

46 National Foundation for Australian Women, Submission 15, p. 4.

47 Self-Managed Independent Superannuation Funds Association, Submission 22, pp. 2-3. See also SMSF Association, Submission 39, p. 8.

48 Australian Institute of Superannuation Trustees, Submission 7, p. 15.

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Schedule 4: Low income superannuation tax offset 2.48 The low income superannuation tax offset (LISTO) will replace the Low Income Superannuation Contribution (LISC) and will be available to individuals who earn an adjusted taxable income of $37,000 or less.

2.49 Concessional contributions to superannuation are currently taxed at a rate of 15 per cent, no matter an individual's marginal income tax rate. Individuals earning $37,000 or less may have a marginal income tax rate that is lower than 15 per cent, and would therefore be paying more tax on their concessional contributions than on their income.

2.50 The LISTO effectively refunds the tax paid on concessional contributions by individuals with a taxable income of up to $37,000 (up to a cap of $500). This amount will be paid directly into the individual's superannuation account.

Views on schedule 4

2.51 The introduction of the LISTO is a well-supported measure of the TLA Bill. In particular, the NFAW expressed support for schedule 4 of the TLA Bill, noting that women make up a significant proportion of low income earners in Australia. The NFAW also noted, however, that any transactions associated with the LISTO should not attract any fees charged to the eligible member's superannuation account. The NFAW believes that overall the LISTO will contribute to the improvement of superannuation outcomes for women.49

2.52 Overall, submitters were supportive of the introduction of the LISTO as outlined in schedule 4 to the TLA Bill.

Schedule 5: Deducting personal contributions 2.53 Schedule 5 to the TLA Bill removes the requirement in income tax law that an individual must earn less than 10 per cent of their income from salary or wages in order to be eligible to make concessional contributions to their superannuation.

2.54 Under the new law, individuals will therefore be able to deduct personal superannuation contributions, making them concessional.

2.55 However, some personal contributions to certain superannuation funds will not be deductible, including contributions made to Commonwealth public sector superannuation schemes and other funds that are not included in the income of the superannuation fund.50

2.56 This reform will particularly benefit individuals who are partially self-employed and partially salary/wage earners.

49 National Foundation for Australian Women, Submission 15, p. 4.

50 Explanatory Memorandum, p. 186.

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Views on schedule 5

2.57 ACOSS considered that schedule 5 to the TLA Bill would disproportionately benefit high income earners; given the tax deduction is greatest for those on the highest marginal tax rates.51

2.58 However, Pitcher Partners suggested that the measure would 'increase[s] flexibility in the superannuation system'.52 A number of other submitters, including AIST, Superannuated Commonwealth Officers' Association (SCOA), SISFA and the

SMSF Association, also wrote in support of schedule 5 to the TLA Bill.53

Schedule 6: Unused concessional cap carry forward 2.59 Under existing law, there is an annual cap on the amount of concessional contributions that an individual can make per financial year. Any unused proportion of the cap expires at the end of each financial year.

2.60 Schedule 6 to the bill would allow individuals with a superannuation balance of less than $500,000 to increase their concessional contributions cap by accessing any unused cap amounts from the five previous financial years. In effect, an individual can carry forward unused cap balances in order to make greater contributions to their superannuation.

2.61 The change proposed by schedule 6 to the TLA Bill will come into effect from 1 July 2018. In practice, only unused amounts of the concessional cap from the 2018-19 and later income years can be carried forward.54

Views on schedule 6

2.62 The Institute of Public Affairs, the SMSF Association and Save our Super each commented that the provision that an individual must have less than $500,000 in superannuation funds in order to be eligible to carry over their concessional contributions is not justified, arguing that $500,000 cannot guarantee a comfortable retirement.55 They argued for an increase in the $500,000 threshold, with the SMSF Association suggesting $750,000 as an appropriate threshold.56

2.63 A number of submitters to the committee's inquiry including AIST, the Superannuated Commonwealth Officers' Association (SCOA) and Women in Social and Economic Research (WiSER) argued in support of schedule 6 to the TLA Bill.57

51 Australian Council of Social Service, Submission 13, p. 5.

52 Pitcher Partners, Submission 21, p. 4.

53 Superannuated Commonwealth Officers' Association, Submission 20, p. 2.

54 Explanatory Memorandum, p. 194.

55 Institute of Public Affairs, Submission 18, p. 47.

56 SMSF Association, Submission 39, p. 9.

57 Australian Institute of Superannuation Trustees, Submission 7, p.18; Superannuated Commonwealth Officers' Association, Submission 20, p. 3; Women in Social and Economic Research, Submission 27, p. 5.

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Schedule 7: Tax offsets for spouse contributions 2.64 As noted in chapter 1, schedule 7 to the TLA Bill amends the tax law to encourage individuals to make superannuation contributions for their low income spouses. This is achieved by increasing the amount of income an individual’s spouse can earn before the individual ceases to be entitled to a tax offset for making superannuation contributions on behalf of their spouse. Currently, the threshold for the low income spouse's income is set at $13,800. The proposed change will increase this amount to $40,000.

2.65 The tax offset available to individuals who make contributions on their spouse's behalf will now be calculated as 18 per cent of the lesser of:

• $3,000 less the amount by which total spouse income exceeds $37,000 (previously $10,800); and

• the sum of the spouse contributions made by the individual in the income year.

Views on schedule 7

2.66 ACOSS submitted that spouse contributions to superannuation are an 'outdated way to support retirement savings for women' as they rely mainly on men with high incomes making contributions on behalf of their female partners.58

2.67 WiSER pointed out that the male who is making contributions to their spouse's superannuation will be the one to benefit from the tax cut as set out in schedule 7 to the TLA Bill.59

2.68 The NFAW noted that whilst this amendment to the TLA Bill is an improvement on the current scheme, it does not support the general principle of income splitting, which the current and new systems both promote.60

2.69 AIST, SCOA, the Institute of Public Accountants and the Tax Institute each supported this measure of the TLA Bill.61

Schedule 8: Innovative income streams and integrity 2.70 Schedule 8 to the TLA Bill amends the earnings tax exemptions for complying superannuation funds, retirement savings accounts providers and life insurance companies in the Income Tax Assessment Act 1997 (ITAA 1997) to:

• extend the earnings tax exemption to new lifetime products such as deferred products and group self-annuities;

• remove the earnings tax exemption in respect of transition to retirement income streams (TRISs); and

58 Australian Council of Social Service, Submission 13, p. 7.

59 Women in Social and Economic Research, Submission 27, p. 5.

60 National Foundation for Australian Women, Submission 15, p. 6.

61 Australian Institute of Superannuation Trustees, Submission 7, p.18; Institute of Public Accountants, Submission 6, p. 10; The Tax Institute, Submission 34, p. 5.

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• introduce an integrity measure that will apply to self-managed superannuation funds (SMSFs) and small Australian Prudential Regulation Authority (APRA) funds to support the operation of the transfer balance cap measure.

2.71 Under existing law, the earnings tax exemption applies to all income streams that are currently payable.62 Going forward, the earnings tax exemption will only apply to income streams that are in the 'retirement phase'. TRISs will not be considered to be in the retirement phase, however, all other income streams will, regardless of whether they are currently payable. That is, the earnings tax exemption will now apply to deferred income streams from the point that a holder enters the retirement phase.63

2.72 The tax exempt status of income from assets supporting TRIS will be removed and the income from these assets will be taxed at 15 per cent. As TRISs will no longer attract the earnings tax exemption they will not count towards the transfer balance cap.64

2.73 The tax treatment of TRISs in the hands of the individual will not be changed. For most individuals this will mean they are tax free, or taxed at the individual’s marginal tax rate less a 15 per cent offset. Around 110,000 people will be affected by these changes in 2017-18.65

2.74 This measure is estimated to increase the underlying cash balance by approximately $470 million over the forward estimates. 66

Views on schedule 8

2.75 A number of stakeholders noted the timing of the changes outlined in the schedule. AMP expressed concern about the timing of the changes proposed in schedules, especially as they relate to members with a Transition to Retirement Income Stream (TRIS). The changes are due to come into effect from 1 July 2017. AMP advised that this would leave members with insufficient time to seek financial advice.67

2.76 The Financial Services Council (FSC) also commented on the timeframe proposed for members to seek appropriate financial advice and proposed that the measures outlined in schedule 8 be applied to all new and existing transition to retirement superannuants from 1 July 2017.68

2.77 Mercer also agreed that the transition date of 1 July 2017 is too close.

62 Explanatory Memorandum, p. 213.

63 Explanatory Memorandum, p. 212.

64 Explanatory Memorandum, p. 318.

65 Explanatory Memorandum, p. 318.

66 Explanatory Memorandum, p. 10.

67 AMP, Submission 28, p. 2.

68 Financial Service Council, Submission 30, p. 2.

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Schedule 9: Anti-detriment provisions 2.78 Schedule 9 to the TLA Bill repeals the anti-detriment provisions in section 295-485 of the Income Tax Assessment Act 1997 (ITAA 1997). This amendment removes the income tax deduction which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants.

2.79 The repeal will come into effect for lump sums that are paid in relation to a death on or after 1 July 2017. Further, from 1 July 2019, this repeal will extend to all benefits paid after this time, regardless of whether the death was before or after 1 July 2017.

Views on schedule 9

2.80 In its submission to the committee, the Corporate Superannuation Association expressed concern regarding the timing of the removal of the anti-detriment provisions.69

2.81 FPA noted that a number of superannuation fund members would have factored the anti-detriment payment into their plans. The FPA proposes that this measure be grandfathered as it relates to existing benefits.70

Schedule 10: Administrative streamlining 2.82 As noted in Chapter 1 of this report, schedule 10 to the TLA Bill seeks to streamline the existing administrative processes as they relate to schedules 1 to 9 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.

2.83 AIST supported the streamlining provisions.71

Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 2.84 The Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 proposes to impose a tax on the notional earnings of capital moved into a retirement phase superannuation account that is in excess of the $1.6 million transfer balance cap established in schedule 1 of the TLA Bill. From 1 July 2017, any notional earning of the excess capital would be taxed at a rate of 15 per cent.

2.85 No specific issues were raised by stakeholders in relation to the proposed excess transfer balance cap.

Committee view 2.86 The committee acknowledges concerns raised by submitters in relation to the complexity of the proposed measures in the TLA Bill. However, the committee notes that significant reforms are, by nature, inherently complex, and is satisfied the government has carefully considered and allowed for this in its extensive policy development and consultation process.

69 Corporate Superannuation Association, Submission 1, p. 2.

70 Financial Planning Association of Australia, Submission 33, p. 8.

71 Australian Institute of Superannuation Trustees, Submission 7, p. 19.

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2.87 The committee further notes that the measures in the bills will increase the underlying cash balance by $2.8 billion over the forward estimates.72 More importantly, the committee considers the measures will have a significant and lasting effect in strengthening Australia's superannuation system. In particular, the committee is satisfied the reform measures will better target tax concessions to ensure the superannuation system is equitable, sustainable and fit for purpose.

Recommendation 1

2.88 The committee recommends that the Senate pass the bill.

Senator Jane Hume Chair

72 Explanatory Memorandum, pp. 9-10.

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Labor Senators' Dissenting Report Background and Overview

1.1 Labor built Australia’s superannuation system. Labor Senators will always work to ensure that it is fair, sustainable and sets Australians up for a comfortable life in retirement.

1.2 Bill Shorten and Labor have led the policy debate on keeping our

superannuation settings fit for purpose as our community ages and Australia’s Budget faces new challenges.

1.3 For more than a year we have clearly and consistently made the case that a system which sees half of all superannuation benefits flow to the top 20 per cent of earners, and 40 per cent of all benefits flow to the top 10 per cent of earners, is a system in need of reform.

1.4 The contrast with the Turnbull Government’s chaotic approach to superannuation couldn’t be clearer.

1.5 After relentlessly attacking Labor’s proposed superannuation reforms, the Turnbull Government did an untidy about-face with a rushed and flawed package of super changes in the 2016 Budget.

1.6 Malcolm Turnbull’s retrospective changes were widely criticised for undermining confidence in the superannuation system, and were torn to shreds by his own backbench.

1.7 Following months of wrangling and in-fighting, the Government then proposed a revised package that saw them dump and delay measures they had been defending as essential only weeks before. Australians looked on in amazement as Malcolm Turnbull and Scott Morrison proudly announced they had finally secured agreement for a revised plan - from George Christensen and their own backbench MPs.

1.8 The problems with Malcolm Turnbull’s superannuation package do not end with this shambolic policy process. While their package goes some way towards reining in the cost and tackling the unfairness of our current super rules, it remains too generous for Australians on higher incomes.

1.9 Opening up new superannuation tax loopholes worth more than $12 billion over the decade is also not affordable when the Government’s economic mismanagement has already put Australia’s AAA credit rating under threat.

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1.10 That is why Labor is proposing a revised package to make these reforms fairer and avoid another irresponsible hit to the budget like Malcolm Turnbull’s $50 billion tax cut for big business.

1.11 Labor’s changes are responsible and fair. They are consistent with the superannuation reform principles we have been pursuing for more than a year: targeting concessions to where they are needed most while improving the Budget bottom line.

1.12 Our package will improve on the Government’s proposals by $1.4 billion over the forward estimates and $18.9 billion over the medium term, for a total budget improvement of $4.5 billion to 2019-2020 and $32.6 billion to 2026-27.

1.13 Labor has consistently argued for reforms to tighten up superannuation tax breaks going to the top end. We have also made clear that our priority is helping low and middle income earners - particularly women - save enough for a comfortable retirement. The money that Government spends on superannuation tax concessions is money that cannot be spent elsewhere in our community, so this needs to be well targeted. We should be careful that at the same time as closing down one set of loopholes, we do not open up others.

Specific measures

1.14 Labor Senators support the following measures in this package:

• Introducing a $1.6 million superannuation transfer cap;

• Introducing a Low Income Superannuation Tax Offset;

• Improving the superannuation balances of low income spouses;

• Removing the anti-detriment provision for death benefits from superannuation; and

• Strengthening the integrity of retirement income streams.

1.15 Labor Senators have the following positions on other elements of the package:

• Amend the annual non-concessional contribution cap from $100,000 to $75,000;

• Amend the concessional superannuation contributions threshold from $250,000 to $200,000;

• Oppose the measure to allow catch-up concessional superannuation contributions; and

• Oppose the measure to allow tax deductions for personal superannuation contributions.

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1.16 Labor Senators support those measures that genuinely help middle and working class families build up stronger retirement savings and make the system fairer.

1.17 Lowering the annual non-concessional contributions cap to $75,000 gets the balance right between the non-concessional contributions middle and low income taxpayers make while reducing tax concessions to high income earners.

1.18 Only 0.7 percent of Australian taxpayers made $100,000 or more in non-concessional contributions in 2012-13. Over 86 per cent of taxpayers made no non-concessional contributions whatsoever that same year.

1.19 Many Australians will make a single, large non-concessional contribution at some stage in their working life - for example with an inheritance or the sale proceeds from a property. The superannuation system allows for this by letting Australians bring forward three years’ worth of contributions into a single year.

1.20 But Treasury figures indicate the average contribution for these one-off lump sums is $135,000 - well below the $300,000 that would be allowed under the Government’s plan.

1.21 By lowering the annual non-concessional contributions cap to $75,000 Labor will ensure the carry-forward allowance remains generous enough to accommodate the kind of one-off contributions middle- and low-income taxpayers make. This measure will also do a proper job of cutting back opportunities for higher income earners to gain tax concessions for large annual contributions - something the Turnbull Government has failed to do.

1.22 Further lowering the High Income Superannuation Contribution threshold to $200,000 also improves the fairness of the superannuation system.

1.23 The Government is proposing that people earning $250,000 and over pay 30 per cent tax on their concessional superannuation contributions, rather than 15 per cent.

1.24 Labor Senators want to see the income threshold further lowered to $200,000. This will mean that someone earning $200,000 gets the same super tax concession as someone earning $80,000 - but no more.

1.25 Over 96 per cent of all Australian taxpayers will not be affected by this change to the High Income Superannuation Contribution threshold.

1.26 Labor Senators oppose the introduction of catch-up concessional contributions and oppose changes to tax deductibility for personal superannuation contributions as these measures are unaffordable given the current fiscal position.

1.27 With the deficit sitting at almost $40 billion, responsible governments must ensure every new dollar of Commonwealth money is targeted and well spent.

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1.28 The Government’s proposed new superannuation loopholes will cost the budget $12.3 billion over the decade. This is not affordable in the current climate.

1.29 Each of these measures is more likely to be taken up by those on higher incomes who can afford to make additional superannuation contributions. Meanwhile, the number of middle and low income earners who have the financial capacity to take advantage of these changes is limited.

1.30 For example, Association of Superannuation Funds of Australia (ASFA) estimates that just 230,000 Australians would benefit from the catch-up contributions measure.

1.31 Analysis from the Parliamentary Budget Office shows that only around 2.3 per cent of taxpayers made $25,000 or more worth of concessional contributions in 2012-13, with their average income being $182,000. This is because most Australians on lower incomes simply cannot afford to make additional contributions from their take-home pay.

1.32 Labor will continue to work towards a superannuation system that is fair, sustainable and sets Australians up for the future. Our package improves on Malcolm Turnbull’s mess by properly tightening up concessions to the top end while significantly improving the budget bottom line to protect Australia’s hard-won AAA rating.

1.33 Labor Senators will continue to argue for amendments to the Government’s legislative package, and if unsuccessful on this occasion, will take the position to the next election.

Senator Chris Ketter Senator Jenny McAllister

Deputy Chair Senator for New South Wales

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Appendix 1 Submissions received

Submission Submitter

Number

1 Corporate Superannuation Association

2 Mr Andrew Freeman

3 Mr Peter Knight & Ms Joanne Wood

4 Dr Patrick Kelly & Mrs Kay Kelly

5 Dr Maureen Burke

6 Institute of Public Accountants (IPA)

7 Australian Institute of Superannuation Trustees (AIST)

8 Mr Geoff Henkel

9 Mr Bruce Cole

10 Australian Council of Public Sector Retiree Organisations

(ACPSRO)

11 Dr Carolyn Currie

12 Ms Rachel Kisin

13 Australian Council of Social Service (ACOSS)

14 Mercer

15 National Foundation for Australian Women (NFAW)

16 Chartered Accountants Australia and New Zealand (CAANZ) 17 Name Withheld

18 Institute of Public Affairs

19 SMSF Owners' Alliance

20 Superannuated Commonwealth Officers' Association (SCOA) 21 Pitcher Partners

22 Self-Managed Independent Superannuation Funds Association (SISFA) 23 Mr Robert Kitch

24 Law Council of Australia

25 Mr Luke Smith

26 Community and Public Sector Union/State Public Service Federation (CPSU/SPSF) 27 Women in Social and Economic Research (WiSER)

28 AMP

29 UniSuper

30 Financial Services Council (FSC)

31 Association of Superannuation Funds of Australia (ASFA) 32 Dixon Advisory

33 Financial Planning Association of Australia (FPA)

34 The Tax Institute

35 Grattan Institute

36 Save Our Super, Mr Terrence O'Brien & Mr Jack Hammond QC

37 ARC Centre of Excellence in Population Ageing Research (CEPAR) 38 COTA Australia

39 SMSF Associaition

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40 QSuper

41 Industry Super Australia (ISA)

42 Mr Ian Bartley

43 Friendly Societies of Australia (FSA)

44 Mr Paul Missikos

36

The Senate

Economics

Legislation Committee

Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 [Provisions]

October 2016

37

© Commonwealth of Australia 2016

ISBN 978-1-76010-456-6

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/

Printed by the Senate Printing Unit, Parliament House, Canberra.

38

iii

Senate Economics Legislation Committee

Members

Senator Jane Hume (Chair) Victoria, LP

Senator Chris Ketter (Deputy Chair) Queensland, ALP

Senator David Bushby Tasmania, LP

Senator Jenny McAllister New South Wales, ALP

Senator Ian Macdonald Queensland, LP

Senator Nick Xenophon South Australia, NXT

Senators participating in this inquiry

Senator Peter Whish-Wilson Tasmania, AG

Secretariat

Mr Mark Fitt, Secretary Dr Sean Turner, Principal Research Officer Ms Sarah Batts, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: economics.sen@aph.gov.au Internet: www.aph.gov.au/senate_economics

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TABLE OF CONTENTS

Membership of Committee iii

Chapter 1.............................................................................................................. 1

Introduction and overview of the bill ..................................................................... 1

Conduct of the inquiry ............................................................................................ 1

Overview of the bill ................................................................................................ 2

Financial impact ..................................................................................................... 5

Chapter 2.............................................................................................................. 7

Views on the bill ........................................................................................................ 7

Support for the Enterprise Tax Plan ....................................................................... 7

Opposition to the bill and counterarguments from supporters of the bill ............ 14

Other issues raised in submissions ....................................................................... 27

Committee view .................................................................................................... 31

Labor Senators' Dissenting report .................................................................. 33

Background and Overview ................................................................................... 33

Specific measures ................................................................................................. 33

Appendix 1 ......................................................................................................... 35

Submissions received .............................................................................................. 35

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Chapter 1

Introduction and overview of the bill

1.1 On 15 September 2016, the Senate referred the provisions of the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (the bill) to the Senate Economics Legislation Committee for inquiry and report by 10 October 2016.

1.2 The bill makes a number of amendments to tax legislation to implement the government's 2016-17 Budget commitment to progressively reduce company tax rates for small and large companies over the next decade—the 'Ten Year Enterprise Tax Plan'. The measures in the bill include:

• an immediate reduction in the corporate tax rate to 27.5 per cent for the

2016-17 tax year for small businesses—that is, corporate tax entities with an aggregated turnover of less than $10 million;

• a progressive extension of the above reduction in the corporate tax rate to all corporate tax entities by the 2023-24 income year, and in turn progressive reductions in the corporate tax rate to 25 per cent from 2026-27;

• consequential amendments to the dividend imputation arrangements to adjust

imputation credits as the company tax rate changes;

• a progressive increase in the tax discount for unincorporated small businesses that is equivalent to the above reductions in the corporate tax rate; and

• an increase in the aggregated turnover threshold for access to small business tax concessions from $2 million to $10 million.

1.3 In his second reading speech, the Treasurer, the Hon Scott Morrison MP, explained that the bill:

…forms a key component of the government's reform agenda to improve Australia's tax system for businesses and to drive investment in our economy as it transitions from the investment phase of the mining boom, as it is successfully doing, to broader based growth.1

Conduct of the inquiry

1.4 The committee advertised the inquiry on its website and social media, and wrote directly to a range of individuals and organisations inviting written submissions by 23 September 2016. The committee received 29 submissions, which are listed at Appendix 1. The committee thanks all groups and individuals who took the time to make a written submission.

1 The Hon Scott Morrison MP, second reading speech, House of Representatives Hansard, 1 September 2016, p. 11.

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1.5 The committee did not hold any public hearings for this inquiry.

Overview of the bill

Reducing the corporate tax rate

1.6 Schedule 1 to the bill amends the Income Tax Rates Act 1986 (ITAA 1986) to reduce the corporate tax rate to 27.5 per cent for the 2016-17 income tax year for corporate tax entities that are small businesses—that is, corporate tax entities with an aggregated turnover of less than $10 million.

1.7 The bill also progressively extends the lower corporate tax rate to all corporate tax entities by 2023-24. The rate will then be cut to:

• 27 per cent for the 2024-25 income year;

• 26 per cent for the 2025-26 income year; and

• 25 per cent for the 2026-27 income year and later income years.

1.8 The progressive reductions in the corporate tax rate, and the extension of the lower tax rates to all corporate tax entities, is shown below in Table 1.

Table 1: Summary of changes to the corporate tax rate

Income year Turnover threshold Tax rate for

companies under threshold (%)

General corporate tax rate (%)

2015-16 $2 million 28.5 30

2016-17 $10 million 27.5 30

2017-18 $25 million 27.5 30

2018-19 $50 million 27.5 30

2019-20 $100 million 27.5 30

2020-21 $250 million 27.5 30

2021-22 $500 million 27.5 30

2022-23 $1 billion 27.5 30

2023-24 Threshold removed 27.5

2024-25 n/a 27

2025-26 n/a 26

2026-27 n/a 25

Source: Table based on information in Explanatory Memorandum, p. 11.

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1.9 The Explanatory Memorandum explains that Australia's corporate tax rate is currently one of the highest in the world and significantly above the OECD average. The reductions in the bill will encourage investment, economic growth and job creation, and 'make Australian companies more internationally competitive in a tough global market place'.2 The Explanatory Memorandum further suggests this will 'result in higher living standards for Australians and an expected permanent increase in the size of the economy of just over one per cent in the long term'.3

Operation of the imputation system

1.10 Under Australia's dividends imputation system, where a corporate tax entity distributes profits to its members, and where income tax has already been paid on those profits—such as when a company pays a dividend to its shareholders—they have the option of passing on, on 'imputing', credits for the tax. This is known as 'franking' the distribution, and franking credits are attached to the distribution and can be used by the recipients as tax offsets. As the Australian Tax Office explains:

Although the recipients are taxed on the full amount of the profit represented by the distribution and the attached franking credits, they are allowed a credit for the tax already paid by the corporate tax entity.

This prevents double taxation - that is, the taxation of profits when earned by a corporate tax entity, and again when a recipient receives a distribution.4

1.11 Currently, the maximum franking credit that can be allocated to a frankable distribution is based on the headline corporate tax rate of 30 per cent for all corporate tax entities. For the purpose of aligning the franking rate with the proposed reductions

in the corporate tax rate and the gradual extension of the lower rate to all corporate entities, schedule 4 of the bill provides for a 'corporate tax rate for imputation purposes'. This is generally defined to mean the entity's corporate tax rate for the current income year, but worked out on the assumption that the entity's aggregated turnover for the income year is equal to its aggregated turnover for

the previous income year.5 As the Explanatory Memorandum explains:

…from the 2016-17 income year, the operation of the imputation system for corporate tax entities will be based on the company's corporate tax rate for a particular income year, worked out having regard to the entity's aggregated turnover for the previous income year. This is necessary because corporate tax entities usually pay distributions to members for an income year during that income year. However, a corporate tax entity will not know

2 Explanatory Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (hereafter 'Explanatory Memorandum'), p. 10.

3 Explanatory Memorandum, p. 10.

4 ATO, 'Imputation', https://www.ato.gov.au/Business/Imputation/, accessed 4 October 2016.

5 Explanatory Memorandum, p. 25.

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its aggregated turnover for a particular income year (and therefore its corporate tax rate for that income year) until after the end of the income year.6

Increase to the tax discount for unincorporated small businesses

1.12 The small business income tax offset was introduced in 2015-16 as part of a range of tax measures intended to help small business. It entitles individuals who are small business entities, or who are liable to pay income tax on a share of the income of a small business entity, to a tax offset equal to 5 per cent of their basic income liability that relates to their total net small business income, capped at $1000.7

1.13 The offset was introduced to provide unincorporated small businesses with a tax discount broadly equivalent to the 1.5 per cent reduction in the small business company tax rate introduced in 2015-16. For the same reason, the current bill increases the offset rate alongside decreases in the corporate tax rate, and thereby 'minimises tax distortions between the different entity types through which small businesses may be run, and ensures that the many small businesses run through unincorporated entities also receive an increase in their cash flow'.8

1.14 Specifically, schedule 2 to the bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to increase the small business income tax offset to 16 per cent of net small business income by the 2026-27 income year. As set out in the Explanatory Memorandum, the rate of the offset will rise from 5 per cent in 2015-16 to 16 per cent in 2026-27 as follows:

• For the 2016-17 to 2023-24 income years, the offset is 8 per cent of net small business income.

• For the 2024-25 income year, the offset is 10 per cent of net small business income.

• For the 2025-26 income year, the offset is 13 per cent of net small business

income.9

1.15 These changes will help address the fact that reductions to the corporate tax rate do not provide a tax cut for those businesses that are not operated through a company. There are approximately 2.3 million businesses—accounting for around 70 per cent of small businesses—in this category.10

6 Explanatory Memorandum, p. 24.

7 Explanatory Memorandum, p. 35.

8 Explanatory Memorandum, p. 36.

9 Explanatory Memorandum, p. 4.

10 Explanatory Memorandum, p. 5.

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Increase to the small business entity threshold

1.16 Schedule 3 to the bill amends the ITAA 1997 to increase the aggregated turnover threshold for access to certain small business tax concessions from $2 million to $10 million. The Explanatory Memorandum explains that the aggregated turnover threshold for access to the small business income tax offset will be limited to $5 million, and the current $2 million threshold will be retained for the small business capital gains tax concessions.

1.17 According to the Explanatory Memorandum, the increase in the aggregated turnover threshold will 'allow an additional 90 000 to 100 000 businesses to access the benefits of the small business tax concessions'.11

Financial impact

1.18 The revenue implications of the amendments over the forward estimates period is set out in below in Table 2.12

Table 2: Financial impact (as set out in Explanatory Memorandum)

2016-17 2017-18 2018-19 2019-20

-$400m -$500m -$800m -$950m

11 Explanatory Memorandum, p. 7.

12 Explanatory Memorandum, p. 3.

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Chapter 2

Views on the bill

2.1 The committee received 29 written submissions. This chapter provides an overview of the views expressed in these submissions.

2.2 An overwhelming majority of submissions expressed support for the bill. One of the key arguments made in support of the bill was that it would help make Australia's corporate tax settings more internationally competitive and encourage higher levels of foreign investment in Australia. Others also argued that the bill would help reverse declining levels of business investment generally. Greater investment, it was argued, would flow through to stronger economic growth, more jobs and higher wages for Australian workers.

2.3 Other submissions highlighted the benefits of the Enterprise Tax Plan for small and medium businesses specifically. At the same time, a number of submissions emphasised the importance of passing the bill in its entirety and ensuring the tax cuts were ultimately extended to all businesses, large and small.

2.4 The committee also received some submissions arguing against the bill, on the grounds it would lead to lower government revenue without necessarily delivering the promised economic benefits. Some critics also suggested that the primary beneficiaries of the bill would be foreign investors and, because of the way the United States foreign tax credit system operated, the US government. These criticisms are set out in this chapter, along with responses from supporters of the bill.

Support for the Enterprise Tax Plan

Need for internationally competitive corporate tax settings

2.5 Many submitters argued that Australia has comparatively high corporate tax rates, and submitted that the tax cuts set out in the bill were necessary to ensure Australia remained internationally competitive. For example, the

Financial Services Council (FSC) emphasised the importance of company tax rate settings given intensifying competition for foreign investment and the increasing mobility of businesses. Australia's current company tax rate of 30 per cent, it submitted, compared poorly to the average in Asia of 22 per cent. The FSC added:

Research demonstrates cutting company tax will drive capital into Australia for new enterprises, jobs and opportunities. Workers will be a substantial beneficiary of increased investment in Australia as increased labour productivity spurred by this investment will result in higher real wages.1

1 Financial Services Council, Submission 1, p.1.

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2.6 The Business Council of Australia (BCA) also argued that Australia was 'falling behind in the global contest for new investment'.2 It pointed to evidence that overseas investment in Australia had fallen 45 per cent in the last year, and was currently at its lowest level since 2003. While some of this fall might be attributed to the winding down of the mining investment boom, the BCA noted that other resource-exporting economies (for example, Brazil and Canada) had experienced much smaller declines in overseas investment.3 Falling foreign investment was particularly problematic, the BCA argued, because Australia was a small, open economy that relied heavily on foreign investment to boost its own investment capacity and grow the economy.4 According to the BCA, with other countries continuing to cut corporate tax rates while Australia stood still, if the bill was not passed Australia's 'company tax rate will become even more uncompetitive, driving investment, innovation and jobs abroad'.5

2.7 The Business Coalition for Tax Reform (BCTR) also noted that Australia's company tax rate had become less and less competitive compared to other OECD countries. It submitted:

In an environment where global investment is mobile and highly sensitive to balancing risk and reward, and Australia's recent mining construction boom has not yet been replaced by other major sources of investment, we

cannot afford to ignore the ongoing deterioration of our global competitive position.6

2.8 The Centre for Independent Studies (CIS) produced evidence showing that when international comparisons took into account country size, Australia was even less competitive with other OECD economies.7 Noting that investment decisions are often made over a long-term horizon, the CIS also noted that 32 of 35 OECD countries had in fact cut their overall company tax rate since Australia last cut its rate, suggesting that Australia was falling further behind.8

2.9 In addition to arguing that Australia's comparatively high corporate tax rate discouraged international investment, the CIS also warned that Australian companies might eventually seek to relocate to countries with more competitive tax settings. This, it contended, could have a major impact on tax revenues. The largest companies in Australia, the CIS submitted:

2 Business Council of Australia, Submission 20, p. 2.

3 Business Council of Australia, Submission 20, p. 5.

4 Business Council of Australia, Submission 20, p. 4.

5 Business Council of Australia, Submission 20, p. 7.

6 Business Coalition for Tax Reform, Submission 9, p. 1.

7 The Centre for Independent Studies, Submission 13, pp. 5-6.

8 The Centre for Independent Studies, Submission 13, p. 6.

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…may have no alternative but to be located in Australia for the moment, but there is a risk that one or more of these companies may be driven to relocate offshore if the gap to other tax rates becomes too great.9

2.10 A range of other submitters, including the Minerals Council of Australia (MCA), Australian Institute of Company Directors, CPA Australia, the Corporate Tax Association (CTA), KPMG, PwC, the Australian Financial Markets Association (AFMA), Business SA, the Australian Chamber of Commerce and Industry (ACCI) and the Chamber of Commerce and Industry Queensland (CCIQ) also argued that Australia's current corporate tax rate was internationally uncompetitive.10

Need to address falling levels of business investment

2.11 A number of submitters also argued the Enterprise Tax Plan would drive higher levels of business investment, and emphasised the need for stronger business investment in the current economic environment. For example, Ai Group argued:

In our view, raising business investment is a leading priority in the current environment in which the Australian economy requires rebalancing in the wake of the mining investment boom. In particular, this rebalancing requires the rejuvenation and re-capitalisation of the non-mining trade exposed sectors that were so adversely impacted by the period of high currency closely associated with the commodity price boom.11

2.12 The BCA also expressed concern about the impact of falling levels of business investment. It submitted that current economic activity was being driven by past investments rather than new investment; current levels of business investment, the BCA further noted, were falling at a rate last seen in the early 1990s recession.12

2.13 Arguing that business investment 'is a core driver of economic growth and prosperity', the BCA made the case that the tax cuts would be important in helping to arrest and reverse falling business investment levels in Australia. It acknowledged that tax was not the only factor in driving business investment, 'but a globally-competitive company tax rate is one of the most direct and effective economy-wide policy levers that we have for driving higher investment'.13

9 The Centre for Independent Studies, Submission 13, p. 2.

10 Minerals Council of Australia, Submission 17, p. 3; Australian Institute of Company Directors, Submission 22, p. 2; CPA Australia, Submission 3, p. 1; Corporate Tax Association, Submission 8, p. 2; KPMG, Submission 7, pp. 9-10; PricewaterhouseCoopers, Submission 16, pp. 1-2; Australian Financial Markets Association, Submission 18, p. 1; Business SA, Submission 19, p. 1; Australian Chamber of Commerce and Industry, Submission 12, p. 6; Chamber of Commerce and Industry Queensland, Submission 2, p. 1.

11 Ai Group, Submission 24, p. 3.

12 Business Council of Australia, Submission 20, p. 4.

13 Business Council of Australia, Submission 20, p. 2.

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2.14 The BCA also reasoned that the benefits of the tax cuts would start to be apparent ahead of the full implementation of the actual cuts in ten years' time:

Larger businesses will bring forward investments ahead of actual tax cuts if they are confident that the lower rates will apply once investments come on stream. Signalling credible future tax cuts can bring forward the economic benefits for the whole community.14

2.15 Like the BCA, the CIS noted that non-mining investment is 'at recessionary levels: historically, it has only been this low in the depths of the 1990s recession'.15 The CIS provided an extensive list of sources that argued that reducing corporate tax rates helps boost business investment.16

Enterprise Tax Plan as a driver of growth in the economy, employment and wages

2.16 Another argument made by multiple submitters was that reductions in the corporate tax rate would help promote economic activity, jobs growth and increased prosperity for Australian workers. For instance, CPA Australia argued that there was clear evidence:

…that reducing the tax burden on businesses lifts productivity, and increases both their competitiveness and their capacity to expand, and encourages job creation. Further, the tax incidence of higher company taxes falls on workers as lower wages, and less jobs.17

2.17 The CTA advised that it was 'fully supportive' of the corporate tax rate reduction. It noted that the 1 per cent permanent increase to Gross Domestic Product (GDP) over the long-term would be equivalent to a $16.7 billion increase in the size of the economy at current GDP levels, and should in fact be larger by 2026 when the rate reduction was fully implemented. A larger economy, the CTA argued, would ultimately lead to higher wages for Australian workers.18

2.18 The BCA argued that the benefits of the tax cuts would be widely shared, and took aim at the idea the cuts were an expression of 'trickle down' economics:

Australian workers will be the biggest winners—not foreign shareholders, not the banks, not other big businesses. Australian workers receive around two-thirds of the total gains because higher investment means more jobs and higher wages.19

14 Business Council of Australia, Submission 20, p. 12.

15 The Centre for Independent Studies, Submission 13, p. 15.

16 The Centre for Independent Studies, Submission 13, pp. 16-17.

17 CPA Australia, Submission 3, p. 1.

18 Corporate Tax Association, Submission 8, p. 2.

19 Business Council of Australia, Submission 20, p. 3.

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2.19 The CIS also suggested that the tax cuts would help address prevailing low levels of wages growth:

The improvement to wages occurs because the tax cut results in more capital being invested in Australia… This makes the economy larger, and a larger economy results in increased wages. Another way of explaining this is the increase in capital in the economy means there is more capital per worker. Each worker becomes more productive as a result. The increased productivity of each worker raises the wages paid to workers.20

2.20 The BCTR also argued that the primary beneficiaries of the tax cuts would, in fact, be Australian workers:

In terms of the benefits, there is a strong consensus among economists that reducing our corporate rate will lead to higher levels of investment over the long-term and generate significant additional economic growth. Since as much as two-thirds of company tax is shifted to labour, mainly through lower wages, the main beneficiaries of a company tax cut will be wage earners.21

2.21 The CCIQ argued that reductions in the corporate tax rate would help encourage greater foreign investment, and in turn 'increased labour productivity resulting in higher wages and increased workforce participation'.22

Benefits for small and medium businesses

2.22 Some submissions highlighted the benefits of the Enterprise Tax Plan for small and medium enterprises (SMEs). Ai Group emphasised that small businesses would benefit from the whole package of measures in the bill—including lifting the threshold below which businesses qualify for small business entity treatment for tax purposes; applying a 27.5 per cent tax rate to incorporated small business entities; and raising the discount for unincorporated small business entity income to 8 per cent. Ai Group concluded:

Regardless of the form of business entity involved, these measures will improve the incentives for small business owners to invest in their businesses, to grow and to lift the numbers of people they employ. Raising the small business entity threshold will also reduce compliance costs for close to 100,000 small-to-medium sized businesses.23

2.23 Similarly, the Institute of Public Accountants (IPA) underlined the important contribution of small businesses to productivity and economic growth, and welcomed the proposed increases to the turnover threshold for small business entities:

20 The Centre for Independent Studies, Submission 13, p. 18.

21 Business Coalition for Tax Reform, Submission 9, p. 2.

22 Chamber of Commerce and Industry Queensland, Submission 2, p. 2.

23 Ai Group, Submission 24, p. 3.

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We agree with the Government that providing more tax relief to SMEs will generate a growth dividend to the economy in the form of potentially increased employment, higher wages and removing disincentives to business growth caused by the turnover threshold. The current low threshold discourages growth as entities lose access to tax concessions once they pass the threshold.24

2.24 In its submission, the IPA noted that an estimated 90 000 to 100 000 businesses would benefit from lifting aggregated turnover threshold for access to small business tax concessions from $2 million to $10 million:

This would enable greater reinvestment in small businesses and provide the opportunity for these businesses to increase employment and increase wages. It would also provide incentives for small businesses at or near the existing $2 million turnover threshold to grow, as currently they would lose these concessions once they passed the threshold.

Of particular interest to entities with turnover above the existing threshold limit is access to simpler depreciation rules, lower corporate tax rate and also the newly enacted small business roll-over restructure relief.25

2.25 The IPA also wrote in support of increasing the tax discount for

unincorporated small businesses:

Given further cuts to the small business company tax rate, it is entirely appropriate that further increases to the tax discount provided by the offset are made. This minimises tax distortions between the different entity types through which small businesses may be run, and ensures that the many small businesses run through unincorporated entities also receive an increase in their cash flow from tax relief.26

2.26 The Australian Small Business and Family Enterprise Ombudsman, Ms Kate Carnell AO, also expressed support for increasing the tax discount for unincorporated small businesses:

This would account for the approximately 73 per cent of small businesses, particularly small family businesses, that choose to manage their affairs through various legal structures such as partnerships and trusts. Offering a tax discount for unincorporated small businesses in conjunction with lowering the corporate tax rate for small businesses ensures sole traders, partnerships and trusts receive a similar tax benefit to incorporated small businesses.27

24 Institute of Public Accountants, Submission 11, p. 3.

25 Institute of Public Accountants, Submission 11, pp. 4-5.

26 Institute of Public Accountants, Submission 11, p. 6.

27 Australian Small Business and Family Enterprise Ombudsman, Submission 28, p 2.

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2.27 Ms Carnell also registered support for the proposed expansion of the small business entity threshold for tax purposes, suggesting the higher threshold:

…would allow more small businesses, including family businesses, to access these red-tape saving measures. Changes to definitions and eligibility criteria which support as many small businesses as possible to access these reform measures, will help them to reinvest much-needed funds back into the business.28

Importance of extending the tax cuts to all businesses

2.28 While submitters generally welcomed the cuts for small businesses, some also emphasised the importance of ultimately extending the tax cuts to all businesses, as currently provided for in the bill. In this connection, submitters cautioned against any move to amend the bill to restrict the tax cuts so that they were only available for smaller businesses. For example, the BCA submitted:

Restricting the tax cuts to smaller businesses would mean missing out on the bulk of the investment gains and barely improve our global competitiveness.29

2.29 The BCA added that restricting the tax cuts to small businesses would lock in a two-tier company tax system and 'entrench perverse incentives for businesses to inefficiently structure their businesses for tax purposes'. In addition, the BCA suggested that small businesses would also benefit from across-the-board cuts, given the improved economic conditions the cuts would produce and the reliance of small and large businesses on one another.30

2.30 The BCTR also argued against any moves to amend the bill in this regard:

The notion of amending the bill so that tax cuts are denied to larger businesses, even in ten years' time, raises the alarming prospect of Australia's international competitiveness being even further eroded, with serious consequences for future investment, jobs and wages. As a smaller capital-importing country, we cannot afford not to set out on this modest path to maintaining our competitiveness and our ability to attract much-needed capital investment.31

2.31 The MCA, while suggesting the staged reduction in the corporate tax rate was fiscally responsible, also emphasised the importance of extending the cuts to all corporate entities:

28 Australian Small Business and Family Enterprise Ombudsman, Submission 28, p. 2.

29 Business Council of Australia, Submission 20, p. 3.

30 Business Council of Australia, Submission 20, p. 3.

31 Business Coalition for Tax Reform, Submission 9, pp. 1-2.

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Importantly the proposed rate cut should apply to all corporates, small and large, to bring the company tax rate back into alignment over time. Different tax rates based on business size or turnover introduce distortions and complexity into the tax system. Any alternative to an economy wide corporate tax cut is a second best option and would not have the same impact on Australia's competiveness.32

2.32 The ACCI, which noted that most of its own members were small businesses, also cautioned against any amendments that would deny the tax cuts to larger businesses. In addition to undermining the benefits to the economy of the Enterprise Tax Plan, the ACCI argued, any such amendment:

…risks entrenching a two-tier company tax system, which gives businesses an incentive to restructure or turn down growth opportunities because the effective tax rate from moving above the threshold becomes so high.33

Opposition to the bill and counterarguments from supporters of the bill

2.33 Several submitters argued against the bill, in large measure on the grounds that the tax cuts would result in a loss of revenue that the government needed to fund spending on health, education, reducing inequality and other policy measures. Some of these submitters also suggested that the bill would primarily benefit wealthy individuals and companies, rather than low and middle income Australians.

2.34 This section of the report sets out concerns expressed in submissions and competing perspectives on these concerns as set out by supporters of the bill.

Concerns regarding the effect of corporate tax cuts on government revenue

2.35 Some submitters argued that the tax cuts imposed too high a cost on government revenue. For example, the Australian Council of Social Services (ACOSS) opposed the bill, on the basis that the lost revenue would have to be replaced from other sources such as personal income tax increases or spending cuts. ACOSS contended that the proposed tax cuts contrasted with unlegislated measures that would cut $7 billion over the next four years from social security payments.34

2.36 Similarly, the Justice and International Mission Unit, Synod of Victoria and Tasmania, Uniting Church in Australia (JIMU, Uniting Church), argued that government revenue was already too low for the government to deliver 'basic

32 Minerals Council of Australia, Submission 17, p. 11.

33 Australian Chamber of Commerce and Industry, Submission 12, p. 6.

34 Australian Council of Social Service (ACOSS), Submission 6, p. 1.

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functions in protecting vulnerable people and providing services for a decent society', and cuts to company tax would compound the situation.35

2.37 The Australian Council of Trade Unions (ACTU) claimed that the cuts would result in approximately $51 billion in lost revenue, and noted that the Australia Institute had modelled a loss of $19.7 billion per annum after 2026-27.36

2.38 The Grattan Institute recommended the government defer the bill 'until we have eliminated the large and persistent budget deficits that increase the vulnerability of the Australian economy, and drag on future incomes'.37

2.39 Other submitters, however, suggested that critics had overstated the impact on revenue, particularly given the growth dividend that would result from the cuts. For example, the BCA argued that the proposed cuts would:

…increase government revenues over time. Independent Economics (2016) estimates that more than half of the revenue impact will be clawed back through stronger growth which delivers higher revenues across all levels of government.38

2.40 The BCA further challenged the assumption that corporate tax levels as a share of the economy would fall as the corporate tax rate came down. In this regard, it noted that the corporate tax rate had fallen 19 per cent in the last 30 years, yet 'corporate tax collections are much higher as a proportion of GDP today'.39 The BCA concluded that not proceeding with the Enterprise Tax Plan 'because of its revenue impact would be short-sighted and counterproductive'.40

2.41 The BCA also noted that Australia's dividend imputation system would temper some of the impact on revenue:

Dividend imputation reduces the overall revenue impact of company tax cuts because part of the tax cut is clawed back from personal income taxes on dividends. Domestic shareholders will gain over time from stronger investment and a more buoyant economy.41

2.42 The CIS submitted that the expected growth in company tax receipts in future years would more than offset the cost of the cuts. It provided evidence showing:

35 Justice and International Mission Unit, Synod of Victoria and Tasmania, Uniting Church in Australia, Submission 21, p. 1.

36 Australian Council of Trade Unions (ACTU), Submission 15, p. 3.

37 Grattan Institute, Submission 5, p. 1.

38 Business Council of Australia, Submission 20, p. 11.

39 Business Council of Australia, Submission 20, p. 16.

40 Business Council of Australia, Submission 20, p. 15.

41 Business Council of Australia, Submission 20, p. 17.

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…that the increased tax burden on companies in the next four years is more than the gross cost of the tax cut, and substantially more than the net cost. So the cost of the tax cut could be more than fully funded by the higher tax impost on companies over this four year period. Similarly, the total burden on companies will still be higher than today, even with the tax cut.42

2.43 The CIS also suggested that the economic benefits of the tax cuts would 'result in governments receiving more tax revenue, substantially offsetting the costs of the tax cut'.43 The CIS noted that Treasury modelling showed that the economic growth dividend of the tax cuts would reduce their cost from 0.5 per cent of GDP to 0.3 per cent of GDP, and this remaining cost would be offset by three other measures in the 2016-17 Budget: anti-tax avoidance measures, increases to tobacco excise, and superannuation measures.44

2.44 The CIS also took issue with the argument that funds for a company tax cut should instead be used for other policies, such as education. The CIS argued that it was wrong to assume that company tax cuts would prevent other worthwhile investments. Moreover, the CIS submitted that the government only needed to choose between different policies where they had substantial budget costs. In the CIS's analysis, the benefits of the Enterprise Tax Plan appeared substantially greater than the costs, and the 'policy is budget neutral when combined with several other policies from the 2016-17 Budget, meaning there is no need to choose between the tax cut and other policy'.45

2.45 The MCA submitted that the cost to revenue from the tax cut is 'responsible and proportionate':46

Claims that a company tax rate reduction will create a gaping hole in government revenue ignore offsetting revenue gains from increased tax collections stemming from the economic growth dividend and revenue costs pale in comparison to corporate tax revenues.47

2.46 The ACCI also pointed to a growth dividend as offsetting the impact of the cuts on government revenue:

While tax revenue falls due to the lower headline rate, this is offset by revenue gains from increased profits and wages. A lower company tax rate

42 The Centre for Independent Studies, Submission 13, p. 4.

43 The Centre for Independent Studies, Submission 13, p. 14.

44 The Centre for Independent Studies, Submission 13, p. 24.

45 The Centre for Independent Studies, Submission 13, p. 26.

46 Minerals Council of Australia, Submission 17, p. 11.

47 Minerals Council of Australia, Submission 17, p. 1.

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also increases revenue by making it less cost-effective for companies to restructure their operations to avoid paying tax in Australia.48

Debate regarding the extent of the bill's benefits

2.47 Some submitters questioned whether the Enterprise Tax Plan would deliver the investment, economic growth, and jobs and wages growth envisaged by its proponents. For example, the ACTU challenged the idea that the tax cuts would do much to generate jobs growth, increase investment levels or lift living standards in Australia. It submitted that recent Treasury modelling found that cutting the company tax rate by one percentage point would 'serve mainly to benefit company profits in the short term, with an increase in GDP of only 0.1% and growth in jobs of less than 1% over two decades'.49

2.48 According to the ACTU, the majority of the benefit of the corporate tax cuts would flow through to higher company profits and shareholder dividends, rather than improved levels of business investment. With respect to the argument that the bill would led to higher levels of foreign investment, the ACTU contended:

Much of the new foreign investment entering Australia originates in China and other regional nations with low company tax rates. Australia's 30 per cent company tax rate has not deterred these investments. In a world awash with investible funds and with record low interest rates, there is no compelling evidence that a further reduction in the cost of foreign capital through a reduction in the company tax rate would cause the surge in investment that proponents claim for it.50

2.49 The ACTU added that there was 'little or no evidence that investment decisions are significantly influenced by headline company tax rates'. This was particularly the case, it argued, because Australia is effectively competing against tax havens where the company tax rate was zero or close to it:

Unless the company income tax base is repaired, demands made by Australian business organisations on behalf of foreign-owned corporations will be for ever-lower company tax rates until they are aligned with the negligible or zero rates enjoyed in tax havens.51

2.50 Several submissions also disputed the notion that the benefits of the tax cuts would flow through to higher incomes. For instance, the Grattan Institute submitted:

The Government maintains that the change will boost GDP by more than 1 per cent in the long-term, at a budgetary cost of $48.2 billion over the

48 Australian Chamber of Commerce and Industry, Submission 12, p. 3.

49 Australian Council of Trade Unions (ACTU), Submission 15, p. 3.

50 Australian Council of Trade Unions (ACTU), Submission 15, p. 6.

51 Australian Council of Trade Unions (ACTU), Submission 15, p. 6.

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next 10 years. But the best analysis from the Commonwealth Treasury shows that the net benefits to Australians' incomes will be much smaller once profits flowing out of Australia are taken into account.52

2.51 Explaining its reasoning on this point, the Grattan Institute made a clear distinction between GDP and Gross National Income (GNI), explaining that given the benefits of the bill disproportionately flow to non-residents, this meant the relationship between GDP increases and GNI increases was weaker:

A corporate tax cut increases economic activity (measured by GDP) by more than it increases national incomes (measured by GNI). When foreign-owned corporates pay less tax, more money flows out of the Australian economy. And most of the profits on their additional investments in Australia don't benefit Australians.

Treasury estimated that cutting corporate tax rates to 25 per cent would only increase the incomes of Australians - GNI - by 0.8 per cent. Roughly a third of the benefits of greater economic growth would go to foreigners.53

2.52 The Grattan Institute further noted that Treasury's modelling indicated the benefit to GNI would be further reduced by the need to increase other taxes to make up for lost revenue. In sum, the 1.2 per cent increase to GDP would, based on Treasury's analysis, actually only result in a 0.6% increase in GNI after the share of extra GDP paid to foreign investors (0.4%) and the economic costs of increasing other taxes (0.2%) were taken into account. The reform, the Grattan Institute concluded, 'might still be worth doing, but it's less of a game changer'.54

2.53 Several submissions questioned the importance of tax settings to company's investment decisions, and in particular the effect of company tax settings on foreign investment levels. For example, JIMU, Uniting Church, suggested that multinational companies were attracted by a broad range of factors that informed macroeconomic stability, rather than just taxation policy. It added that several large OECD countries:

…with relatively high tax rates are very successful in attracting FDI [Foreign Direct Investment], suggesting that market size, non-tax factors and taxable location-specific profits are particularly important in attracting FDI.55

2.54 For its part, the Grattan Institute submitted:

Company tax cuts would be imperative if, without them, there would be no foreign investment in future. But tax cuts only affect decisions at the

52 Grattan Institute, Submission 5, p. 1.

53 Grattan Institute, Submission 5, p. 4.

54 Grattan Institute, Submission 5, pp. 4-5.

55 Justice and International Mission Unit, Synod of Victoria and Tasmania, Uniting Church in Australia, Submission 21, p. 5.

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margins. Despite a company tax rate of 30 per cent, more money was invested in mining projects in Australia than in any other country in the world for each of the eight years of the mining boom. Corporate investment decisions don't just turn on tax rates - they also consider Australia's stable government, educated workforce and developed economy.56

2.55 A large number of submitters, noting that some commentators had questioned the economic benefits of the bill, maintained that the overwhelming weight of evidence indicated the bill would deliver substantial economic dividends. For instance, KPMG suggested that while some 'outlier' modelling questioned the benefits of corporate tax cuts, mainstream models were in agreement that:

…corporate tax discourages investments and its incidence is largely borne by labour over the long term through lower real wages. Therefore, cutting company tax will have positive incentive effects for foreign investment and increase national income.57

2.56 The BCA challenged the notion that the costs of the Enterprise Tax Plan outweighed the benefits. Against a 10-year budget impact of $48 billion, the plan would deliver an annual $16 billion in net benefit, 'after taking into account the costs of raising offsetting taxes'. The BCA concluded:

The order of magnitude of the economic gain from cutting company taxes to 25 per cent is large, including by historical standards of estimated reform pay-offs.

To put this into context, the National Competition Policy reforms benefited the economy to the tune of at least $40 billion in today's dollars. These reforms took a decade to implement and required the combined effort of all levels of government, covering close to 1,800 pieces of legislation (National Competition Council, 2010; Productivity Commission, 2005). The 1988 general tariff reductions, a major economic reform, were estimated by the Commission (2000) to increase GDP by 0.5 per cent.

In this context, a company tax reduction of just five percentage points is a low cost, low effort and highly efficient way of delivering a significant permanent boost to GDP and national income.58

2.57 The CIS similarly claimed the impact of the tax cuts would be very substantive. Noting that Treasury had modelled an increase to GDP from the tax cuts of 1.0 to 1.2 per cent, the CIS observed:

Treasury has argued this gain to GDP is substantial, only slightly less than the combined benefit of the major reforms to telecommunications, ports and rail in the 1990s. The gain from the tax cut is also similar to the estimated

56 Grattan Institute, Submission 5, p. 6.

57 KPMG, Submission 7, p. 1.

58 Business Council of Australia, Submission 20, pp. 17-18.

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gain to GDP of 1.1% from an extensive range of reforms proposed by Infrastructure Australia, including large productivity improvements in gas, electricity, the NBN, telecommunications, water and transport. And these two examples are not single reforms, like a company tax cut, but a collection of numerous reforms covering many separate changes to regulations, and taking years to design and enact.59

2.58 The BCTR addressed the notion that company tax settings were not critical in informing investment decisions by foreign companies. While noting that there are multiple factors that shape Australia's overall investment profile, the BCTR explained:

At the end of the day any prospective investor will still need to factor in our relatively high corporate rate when weighing up prospective investment decisions. Business tax rates do matter.60

2.59 Similarly, the Australian Financial Market Association (AFMA) maintained that while investment decisions were made with a view to a whole range of factors, corporate tax rates remained important:

While the corporate tax rate alone is not the only tax disincentive for Australia as a destination for foreign capital, it is clearly an area where we have been slipping and tangible improvements can be made, such as through the measures proposed in the Bill.61

Treasury transfer effect

2.60 One of the arguments made against passing the bill was that for companies operating under a foreign tax credit system (primarily US companies) would in effect be required to pay any tax saving delivered by the Enterprise Tax Plan cuts to the government where the company was headquartered. According to this analysis, the bill would in effect result in a transfer of funds that would have been collected by the Australian Government instead being collected by the US Government.

2.61 This argument was put forward in submissions from the Australia Institute and the ACTU.62 The ACTU summarised its concerns for the committee:

By far the largest source of foreign investment in Australia is the United States. Where multinational corporations based in the United States do not engage in profit shifting to tax havens, the headline tax rate they face is the US rate of 35 per cent. Australia has double taxation agreements with the United States and numerous other countries. Under these agreements, US-based multinational corporations receive a credit for company tax paid in

59 The Centre for Independent Studies, Submission 13, p. 19.

60 Business Coalition for Tax Reform, Submission 9, p. 3.

61 Australian Financial Markets Association, Submission 18, p. 1.

62 The Australia Institute, Submission 29, p. 3; Australian Council of Trade Unions (ACTU), Submission 15, p. 7.

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Australia. On profits earned in Australia they pay Australian company tax at the rate of 30 per cent, receive a credit for the 30 per cent paid in Australia and then pay the extra 5 per cent to the US Treasury. If the Australian company tax rate were lowered to 25 per cent, as advocated by the Business Council of Australia and other business groups, then tax-abiding US-based corporations operating in Australia would pay Australian company tax at the new, lower rate of 25 per cent but would be required to pay a total of 10 per cent to the US Treasury. There is no benefit to the corporation or to the incentive to invest in Australia but there is a large cost to Australian government revenue.63

2.62 A range of submissions suggested these concerns were based on a misreading of the impact of the treasury transfer effect. For example, the BCA rejected the argument that the cuts represented a 'free kick' to the US Government, and pointed out that the issue had already been accounted for in modelling:

Some suggest this means a lower company tax rate here will simply lead to more tax paid in the US when profits are repatriated, with no net effect on rates of return and investment in Australia. However, most of the profits of foreign entities are not repatriated but retained in Australia. As a result, a reduction in the company tax rate in Australia will encourage US firms to invest here.

The impact of foreign tax credits is already taken into account in the modelling of a company tax cut. The Henry Tax Review (2010) also considered this issue and concluded the impact in the Australian context is likely to be limited.64

2.63 Similarly, the CIS called the idea that the cuts would be 'gift' to the US Government a 'furphy', and emphasised that Australia should not forego a benefit to itself 'just because some non-Australians (including the US Treasury) also gain a benefit'. Like the BCA, the CIS also noted that the treasury transfer effect was likely to be limited, given US firms would have even more incentive to retain funds in Australia if the company tax rate was lower.65

2.64 Directly addressing claims by the Australia Institute that the value of the tax cuts to the US Treasury would amount to approximately $1 billion in 2026-27, the CIS submitted that:

…this calculation has major flaws, rendering it of no value.

First, the data they use has US companies paying total Australian tax of about $US2.9bn on average, but they are unable to indicate what proportion of this is from Australian company tax (as opposed to other Australian taxes). So the report guesses that the proportion is 80%. The report argues

63 Australian Council of Trade Unions (ACTU), Submission 15, p. 7.

64 Business Council of Australia, Submission 20, p. 17.

65 The Centre for Independent Studies, Submission 13, p. 29.

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that the other possible Australian taxes would make up only a small portion of the total figure, stating that interest withholding taxes are low in value. However, the report doesn't (and probably couldn't) remove the effect of all other relevant Australian taxes. Hence there is no real analysis behind the 80% proportion, which the final figure of $1bn relies on. As this 80% figure is simply fabricated, the overall figure should be treated as being made up as well.

Second, the calculations do not include the impact of excess foreign tax credits. US companies with excess tax credits will feel no impact of an Australian company tax cut, as argued by Zodrow (2006). This will partly, or fully, offset the supposed 'transfer' to the US Treasury—but the Australia Institute does not even mention excess foreign tax credits, let alone estimate the impact on their figure.66

2.65 The BCTR reasoned that concerns about the foreign treasury transfer effect were 'completely misplaced':

In the first place, some 72 per cent of inbound investors in fact don't operate under a foreign tax credit system. Instead, their domestic tax systems treat foreign dividends as exempt, so that any reduction in Australian tax will clearly boost their after-tax return in Australia.

Secondly, those that do operate under a foreign tax credit system (almost exclusively US companies) do not face domestic top-up tax unless and until their foreign profits are repatriated to the US, which most Australian subsidiaries of US companies avoid doing. The Henry Tax Review also examined this issue and concluded the impact in the Australian context is likely to be limited.67

2.66 Similarly, the CTA advised that the concerns were misplaced:

Firstly, approximately 72% of inbound investment into Australia comes from countries outside the US and US investment into Australia is both in the form of portfolio and non-portfolio (being holdings greater than 10%) investment. It is only non-portfolio investment that could theoretically benefit. Secondly, US tax rules only tax foreign sourced profits from active business once those profits are repatriated and there seems significant evidence to suggest US companies do not repatriate foreign sourced profits. Thirdly, current proposals for US tax reform from both sides of US politics are proposing rules to encourage the repatriation of foreign sourced profit by reducing the US tax rate on these profits to below the proposed 25% Australian tax rate, so there will in fact be no incremental US tax if these reforms are implemented and profits repatriated.68

66 The Centre for Independent Studies, Submission 13, p. 29.

67 Business Coalition for Tax Reform, Submission 9, p. 4.

68 Corporate Tax Association, Submission 8, p. 4.

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2.67 KPMG also submitted that the 'assertion that a reduction of the Australian corporate tax rate will simply give rise to an increase in tax revenue for some foreign jurisdictions such as the US is a highly simplistic and incorrect analysis'.69 It noted that only six OECD countries had a foreign tax credit system for the taxation of dividends from subsidiaries (the United States, Chile, Ireland, Israel, Korea and Mexico). Moreover, for countries with a foreign tax credit system, a 'substantial portion of profits that are made in Australia are not immediately repatriated'.70

2.68 The Grattan Institute, which in general argued against passing the bill, advised that the treasury transfer effect 'can be overstated':

Foreign firms will only pay the extra tax when they repatriate profits earned in Australia to their home country. Many US firms have been very slow to repatriate profits for this precise reason.71

Effects of the dividend imputation system

2.69 Some submitters argued that the operation of Australia's dividend imputation system meant domestic investors would be largely unaffected by the corporate tax cuts, yet foreign investors would stand to receive a large benefit. The Grattan Institute explained:

Australia's unusual dividend imputation system means that domestic investors are largely unaffected by the company tax rate since any profits paid to them are taxed at their personal income tax rate. Yet because foreign investors, by contrast, do not benefit from dividend imputation, a cut to the company tax rate provides bigger benefits to them. For those who have already made long-term investments in Australia, a reduction in the tax rate would be a windfall. Many of the international studies about the economic impacts of cutting corporate tax rates are therefore not readily applicable to Australia.72

2.70 The Grattan Institute also submitted that because of Australia's relatively unusual dividend imputation system,73 Australia's effective corporate tax rate was in fact lower than its comparatively high headline rate would suggest, at least for local investors. It explained:

By contrast, corporate taxes have a much bigger economic impact in other OECD countries where they reduce the rate of return for local investors.

69 KPMG, Submission 7, p. 2.

70 KPMG, Submission 7, p. 11.

71 Grattan Institute, Submission 5, p. 3.

72 Grattan Institute, Submission 5, p. 1.

73 Most other countries tax corporate profits and then tax investors on dividends, although sometimes at a lower rate. Only five OECD countries operate a full imputation tax system— Australia, Canada, Chile, Mexico and New Zealand. Grattan Institute, Submission 5, p. 2.

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International comparisons show that Australia has a median level of taxes on corporate profits for local investors when both company taxes and individual income taxes are considered…

Consequently, many of the international studies about the economic impacts of cutting corporate tax rates do not readily apply to Australia.74

2.71 The ACCI noted that some commentators have argued that only foreigners would benefit from a reduction in Australia's company tax rate because domestic investors receive personal tax credits through the dividend imputation system. The ACCI argued:

This criticism ignores two important points. Firstly, domestic investors do use all the franking credits attributable to them. Secondly, the impact on foreign investors flows through to Australian households and businesses. When companies around the world are deciding where to set up and expand their operations, the tax rate they face is a major factor in determining their rate of return. If Australia is uncompetitive, they will invest elsewhere. As a result of decreased investment flows, Australians will bear the consequences of fewer jobs and lower living standards.75

2.72 The Ai Group acknowledged that Australia's imputation system for domestic shareholders:

…will dilute the net benefits of the reduction in the company tax rate. This occurs because, other things being equal, the value of franking credits available to domestic shareholders per dollar of after-tax profit will fall and the lower quantity of tax paid at the corporate level will be associated with the distribution and use of correspondingly fewer imputation credits. Thus a dollar of pre-tax domestic profits company income distributed to domestic shareholders will bear the same level of tax both before and after the company tax reduction.76

2.73 At the same time, the Ai Group noted that 'the corollary to this is that there is no revenue cost in respect of domestic profits distributed to domestic shareholders'.77 The Ai Group also argued that the company tax reduction still had decisive benefits, even with Australia's imputation system:

First, in respect of capital provided by domestic shareholders, there is both an improved capacity to retain taxed profits in the company for reinvestment and also a higher incentive to retain and reinvest the profits. Thus, in respect of capital provided domestic shareholders, the impact of

74 Grattan Institute, Submission 5, p. 2.

75 Australian Chamber of Commerce and Industry, Submission 12, pp. 7-8.

76 Ai Group, Submission 24, pp. 7-8.

77 Ai Group, Submission 24, pp. 7-8.

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the cut in the company tax rate is targeted very closely to the objective of reinvestment.

Second, overseas shareholders cannot use Australia's imputation credits. The lower company tax rate therefore lifts incentives to invest both in respect of retained and distributed profits. As it is inherently more mobile than domestically-sourced capital on average, this additional impact on the incentive to invest from abroad is another dimension of the effective targeting of the company tax rate reduction.78

2.74 The CIS was also critical of the idea that the tax cuts should not proceed because they would have a greater impact in the short term on foreign shareholders than Australian shareholders. The CIS argued that it was:

…truly perverse to argue that Australia should forego a benefit to our wages, employment, incomes, GDP, exports and investment, just because some foreigners benefit as well—this is a self-destructive form of xenophobia.

In fact, if there are foreigners who benefit as well as Australians, this should strengthen the arguments for the tax cut. A policy that indirectly benefits foreigners should increase our support for the policy, not decrease it: just the same as a policy that caused collateral damage to foreigners should garner lower levels of support.79

2.75 Similarly, the BCTR argued that criticism of the fact foreigners would benefit from the cuts missed the point—that the cuts are intended to boost economic growth by encouraging greater business investment:

Business would certainly want foreign investors (as well as domestic investors) to recognise that the after-tax return on both their existing and future projects is going to be enhanced as a result of the proposed measures. This will result in them boosting their investment levels above what they would have been without the rate cut, the benefits of which accrue mainly to wage earners.80

2.76 Several submitters challenged the suggestion that the imputation system meant that Australia's corporate tax rate was not as high as the headline rate would suggest (an argument, as noted above, made by the Grattan Institute). For example, the BCTR submitted:

There is an argument that because Australian shareholders are able to offset company tax already paid against their own tax liabilities when they receive a dividend, the effective rate of company tax on the ultimate owners of the business is a lot less than 30 per cent. Reducing the corporate rate in fact

78 Ai Group, Submission 24, p. 8.

79 The Centre for Independent Studies, Submission 13, p. 29.

80 Business Coalition for Tax Reform, Submission 9, p. 3.

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means that Australian shareholders will be entitled to a reduced franking credit and will therefore pay more tax on the dividends they receive.

This argument is questionable for a number of reasons. Firstly, the effect of dividend imputation is that the underlying income of the company is taxed at the shareholder's marginal tax rate. In some case (especially for super funds and many retirees) this will be lower than 30 per cent. However, in many other cases the marginal rate can be as high as 49 per cent.

Secondly, while an analysis of the tax rate facing shareholders is interesting (if ambivalent - some are higher; others are lower), it is far from clear that many Australian domiciled companies make their capital investment decisions on the basis of the after-tax return for their shareholders. For listed companies, by far the most critical driver for them and their managers is reported earnings, and those earnings are worked out from the perspective of the company on an after-tax basis.

Thirdly, the focus on Australian shareholders of listed Australian companies, while important, assumes we are a closed economy and totally ignores the position of foreign investors. Those investors and their shareholders do not benefit from imputation and their focus will always be on the after-tax outcomes for their Australian investments. For a capital-importing country such as Australia, the factors impacting on the investment decisions made by foreign investors have always mattered.81

2.77 KPMG noted that Australia's imputation system gives rise to a partial 'claw-back' of revenue lost as a result of a lower company tax rate. This, it argued, 'presents a more advantageous framework for lowering the company tax rate, rather than diminishing the need for doing so'.82

Concerns regarding corporate tax avoidance

2.78 Some submitters argued against the tax cuts on the basis that many corporations already pay too little tax. For example, the ACTU submitted that 57 per cent of ASX-200 companies 'used subsidiaries in tax havens to avoid paying tax in Australia and almost one third had an average effective tax rate of 10 per cent or less'.83

2.79 The CIS characterised the argument that the company tax cuts should not proceed because of supposedly widespread corporate tax avoidance as 'particularly odd':

…it is effectively arguing that (a) taxes should remain unaffected at zero on the largest tax avoiders who pay no tax; but (b) taxes should remain highest on those businesses who pay the full rate of tax. Similarly, cancelling the

81 Business Coalition for Tax Reform, Submission 9, pp. 2-3.

82 KPMG, Submission 7, p. 2.

83 Australian Council of Trade Unions (ACTU), Submission 15, p. 9.

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tax cut will have the greatest harmful effect on the businesses who pay the most tax and the smallest impact on those who pay the least tax.84

Other issues raised in submissions

2.80 Some submissions, while in varying degrees supportive of the bill, suggested ways in which the bill could be improved. Issues raised included: the operation of the imputation system as the corporate tax rate was reduced; issues concerning the definition of a 'small business' for tax purposes; the $1,000 cap on the small business income tax offset; and whether the staged approach to the tax cuts is appropriate. The next part of this report summarises these issues, as raised in various submissions.

Operation the imputation system

2.81 As noted in the previous chapter, the bill provides that as the corporate tax rate reduces, so too does the maximum imputation credit that can be attached to dividends. Some submitters, such as Pitcher Partners, expressed concern that this might create an 'inequitable imputation outcome for shareholders' where retained profits were not paid out in the year they were earned.85 Pitcher Partners explained its concerns in this regard:

Broadly, this means that retained profits that have been taxed at the current corporate tax rate of 30% may be subject to a reduced imputation rate (i.e. 27.5% until the year ended 30 June 2024) rather than the corporate tax rate actually paid. This will result in shareholders paying a higher amount of "top‐up" tax on dividends paid by the company. As private companies generally retain profits for working capital, this results in a disproportionate cost to small and middle market taxpayers when they finally release their profits that were taxed at the higher rate.86

2.82 Pitcher Partners further explained the cost to small and medium sized companies of the approach currently contained in the bill. Pitcher Partners suggested that SMEs tended to be more reliant on retained profits than larger companies (which typically have better access to other avenues of funding).87 It also observed that because many SMEs will transition to the reduced corporate tax rate on 1 July 2016 (that is, retrospectively), these companies will not have the ability to minimise the impact of the new measures on their franking account balances.88

2.83 Pitcher Partners put forward two options for 'transitional relief': allowing after-tax profits that existed as at 30 June 2016 to be franked at the 30 per cent rate; or

84 The Centre for Independent Studies, Submission 13, p. 27.

85 Pitcher Partners, Submission 4, p. 1.

86 Pitcher Partners, Submission 4, p. 2.

87 CPA Australia, Submission 3, p. 3.

88 Pitcher Partners, Submission 4, p. 2.

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a transitional approach that allowed pre-existing profits to be franked for at 30 per cent for a limited amount of time after the transition date (for example, up to five years). Pitcher Partners acknowledged that both options would have a cost to revenue.89

2.84 The CTA also expressed concern about a situation where a company with a company tax rate of 27.5 per cent (and eventually 25 per cent) pays a dividend sourced from years where the profits are taxed at 30 per cent:

…this effectively results in franking credits being 'trapped' in the company unless the company starts to derive more income that is exempt in its hands (such as dividends from certain foreign operations).

The implication of this is that there will be a significant incentive for companies to pay out all retained profits prior to the change in the corporate rate to avoid wasting the credits as to do otherwise will result in an effective permanent cost to shareholders, as the tax can never be claimed as a credit.90

2.85 The CTA submitted that a better approach would be to allow companies to:

…frank their dividends to the 30% rate until such time as its 30% franking credit balance is fully utilised. This could possibly be managed by quarantining a 30% franking account and the establishment of other franking accounts that could trace tax paid to the respective income year, and allow corporates the ability to frank dividends at the requisite tax rate from that account or allowing companies to continue to frank at the 30% rate until the 30% franking balance is exhausted.91

2.86 The Tax Institute suggested it was unclear whether in fact the government intended that a company would be allowed to frank dividends based on the corporate tax rate they had paid, or if it would be based on the rate paid in the current income year.92 However, like Pitcher Partners, the Tax Institute suggested:

The draft law appears to operate such that if the corporate tax rate paid in the previous income year is higher than the rate that applies in the current year, the entity will only be able to frank dividends to the extent of the lower corporate tax rate. This would have the effect of 'trapping' franking credits in the entity.93

2.87 The Tax Institute expressed concern in this regard, and submitted that the 'correct policy outcome should be to permit an entity to frank dividends at the rate of

89 Pitcher Partners, Submission 4, p. 4.

90 Corporate Tax Association, Submission 8, p. 5.

91 Corporate Tax Association, Submission 8, p. 5.

92 The Tax Institute, Submission 14, p. 2.

93 The Tax Institute, Submission 14, p. 2.

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tax a corporate tax entity has paid consistent with the broader imputation credit system'.94

2.88 While supportive of the bill in principle, the FPA highlighted the same issue regarding franking credit calculations:

We would also highlight that while the proposed solution for franking credit calculations is pragmatic, the assumption that profits are distributed by businesses in the year they are earned (Explanatory Memorandum 1.71) is not always the case, particularly in small companies where it is a common practice to withhold profits to later financial years. This will lead to (for example) the business paying tax at as much as 30%, but only able to distribute a 25% franking credit when the profits are distributed.95

2.89 Several other submitters expressed concern about this aspect of the bill, including Chartered Accountants Australia and New Zealand, which suggested that a transitional arrangement that would allow dividends to be franked at the rate they had been taxed.96

Definition of a 'small business'

2.90 Several submissions expressed some reservations about growing complexity around the definition of a 'small business' for tax purposes. Business SA, while supportive of the reductions in the company tax rate, expressed concern that the bill 'introduces additional complexity to small business tax arrangements by not aligning thresholds for small business tax concessions'. It noted, in particular, that:

On the basis that the company tax rate reduction only applies to businesses with revenues less than $10 million, the same businesses should have equal access to existing small business tax concessions, particularly small business capital gains tax concessions.97

2.91 Chartered Accountants ANZ also expressed concern that the bill would create some new complexity, with small businesses 'now confronted with at least three turnover tests':

$10 million for simpler depreciation rates and trading stock rules, immediate deductibility for small business start-up expenses, roll-over for restructures of small business, immediate deductions for certain prepaid business expenses, accounting for GST on a cash basis, paying GST by quarterly instalments, fringe benefits tax car parking exemption, annual apportionment of input tax credits for acquisitions and importations that are

94 The Tax Institute, Submission 14, p. 2.

95 Financial Planning Association, Submission 10, p. 1.

96 Chartered Accountants Australia and New Zealand, Submission 23, pp. 2-3.

97 Business SA, Submission 19, p. 1.

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partly creditable and pay-as-you-go instalments based on gross domestic product adjusted notional tax.

$5 million for the small business income tax offset.

$2 million for the small business capital gains tax concessions.98

2.92 Chartered Accountants ANZ submitted that ideally 'there should be one consistent definition of small business under the tax law and one turnover', and harmonisation of the definition in both Commonwealth and state legislation.99

$1000 cap on the small business income tax offset

2.93 Some submitters while supportive of the increases in the rate of the small business tax offset for unincorporated small businesses, argued that the $1000 cap should be lifted over time to ensure the tax discount remained broadly equivalent to the small business company tax rate cuts. As Chartered Accountants ANZ explained:

As currently drafted, the small business offset will provide a small business owner a 5% discount. However, when the company tax rates are reduced below 28.5% and the discount rises, it is unclear how the offset provides a discount broadly equivalent to the small business corporate tax rate, given that the offset is capped at $1,000. The capping of the offset at $1,000 means that as the discount component increases, the maximum amount subject to the offset decreases.100

Comments regarding the 'phase in' approach

2.94 Several submitters, including the CIS and the CPA, indicated that while they supported the bill, they would prefer more expeditious shift to the 25 per cent corporate tax rate.101 While indicating that its preference would have been for a shorter implementation timeframe, Chartered Accountants ANZ acknowledged that:

…that the immediate revenue impact of extending the corporate tax rate reduction to all corporates would be significant and could not have been achieved without also implementing other major tax reforms.

Accordingly, the road map contained in the Bill is helpful.102

98 Chartered Accountants Australia and New Zealand, Submission 23, p. 9.

99 Chartered Accountants Australia and New Zealand, Submission 23, p. 9.

100 Chartered Accountants Australia and New Zealand, Submission 23, p. 3. Similar concerns were expressed by the IPA and the CTA. Institute of Public Accountants, Submission 11, p. 7; Corporate Tax Association, Submission 8, p. 6.

101 The Centre for Independent Studies, Submission 13, p. 30; CPA Australia, Submission 3, p. 1.

102 Chartered Accountants Australia and New Zealand, Submission 23, p. 2.

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2.95 Other submitters, such as the Council for Small Business Australia, argued in support of the staged approach, and underlined the need to build community support for tax cuts for large businesses:

We also support the staggered roll out of the changes. The Australian community, including the small business community, has become suspicious of a number of big businesses who seem to be dodging their tax and abusing the tax system. The facts as we see them are that 90% of businesses, of all sizes, pay their due tax and are fine ethical and responsible members of the Australian community. The few that don't give the rest a bad name. Those few also make a negative impact on the federal budget and the economy and need to be bought to task. We understand that the ATO is undertaking that task. When the general community sees that the recalcitrant businesses, and indeed the dishonest businesses, are being dealt with then the staggered approach can be accelerated and the tax cuts could be introduced earlier for big businesses.103

2.96 Similarly, KPMG argued that the phased approach 'has economic advantages as well as giving rise to greater community acceptance'.104

Committee view

2.97 The committee considers the Enterprise Tax Plan, as set out in the bill, a critical reform that will improve Australia's tax system for businesses and drive investment and growth in the economy. There is clear and compelling evidence that the benefits of the Enterprise Tax Plan will ultimately flow through to growth in jobs and wages, helping to improve Australian living standards overall.

2.98 The committee is also satisfied that the substantial economic benefits of the Enterprise Tax Plan more than outweigh its cost to revenue, which will at any rate be largely offset by higher levels of economic growth.

2.99 The overwhelming evidence received by the committee suggests concerns that the tax cuts would largely result in a 'transfer' of revenue from the Australian Government to the US Government are not well founded. The committee also notes that this issue has already been considered in modelling of the Enterprise Tax Plan.

2.100 The committee acknowledges that some submitters raised concerns about the operation of the imputation system during the transition to a lower corporate tax rate. However, the committee is satisfied that the approach set out in the bill, and explained in the Explanatory Memorandum,105 is appropriate. The committee understands that the approach in bill is also broadly consistent with the approach taken when the

103 Council of Small Business Australia, Submission 25, pp. 2-3.

104 KPMG, Submission 7, p. 1. For more detail, see p. 8 of KPMG's submission.

105 Explanatory Memorandum, pp. 24-27.

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corporate tax rate was reduced from 36 per cent to 34 per cent in 2000 and from 34 per cent to 30 per cent in 2001.106

Recommendation 1

2.101 The committee recommends that the bill be passed.

Senator Jane Hume Chair

106 Explanatory Memorandum, New Business Taxation System (Miscellaneous) Bill 1999, p. 28; Explanatory Memorandum, Tax Laws Amendment Bill (No. 2), pp. 16-17.

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Labor Senators' Dissenting report Background and Overview

1.1 Labor is committed to a budget and a taxation system that links effort and reward in a fair way. Labor is also committed to taking responsible decisions that improve the sustainability of our public finances, reduce the risk of a credit rating downgrade and ensure we can make targeted investments that promote inclusive growth.

1.2 Labor always approaches budget repair in line with our values and priorities. The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (the bill) as drafted contains measures that are contrary to Labor's values and priorities. Labor supports a reduction in company taxation that supports small businesses, but given existing fiscal pressures, now is not the time to be delivering tax relief for large businesses.

1.3 The Government contradicts itself when it talks about budget repair while proposing to deliver a $50 billion dollar tax cut at a time when Australia is at risk of losing its AAA credit rating.

Specific measures

2.1 Labor Senators are committed to working constructively with the Government to find ways to support small businesses while protecting the integrity of the budget.

2.2 Labor Senators propose the following amendments to the bill:

• Only reduce the company tax rate to 27.5 per cent for businesses with a turnover of less than $2 million (the threshold that remains consistent with the ATO definition of a small business);

• Only increase the unincorporated small business tax discount from 5 per cent to 8 per cent, and only for businesses with a turnover with a turnover of less than $2 million; and

• Not proceed with the increase to the small business entity threshold.

2.3 The Grattan Institute made a submission and stated that the best analysis from the Commonwealth Treasury shows that the net benefits to Australians' incomes will be much smaller once profits flowing out of Australia are taken into account. In addition, a cut to the corporate tax rate places pressure to raise taxes in other areas and the benefits from additional investment may take time to emerge.

2.4 The Australian Council of Social Service (ACOSS) also stated in its submission that it is a flaw in current fiscal policy to reduce company tax while keeping an over-reliance on bracket creep in income tax to restore tax revenue. ACOSS also stated that more substantial economic benefits can be realised by

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increasing public investment at a time when money is historically cheap to borrow and to increase investment in workforce participation and education.

2.5 Labor Senators believe that investments to infrastructure, education and healthcare will deliver greater returns than the benefits of the corporate tax cut set out in this bill.

2.6 Labor Senators believe that changes to this bill will deliver needed support to small business while protecting Australia's AAA credit rating. Labor Senators also call on the Government to abandon fiscal recklessness and instead work cooperatively to continue the work of budget repair in a way that is fair.

Senator Chris Ketter Senator Jenny McAllister

Deputy Chair Senator for New South Wales

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Appendix 1 Submissions received

Submission Submitter Number 1 Financial Services Council

2 Chamber of Commerce and Industry Queensland 3 CPA Australia

4 Pitcher Partners

5 Grattan Institute

6 Australian Council of Social Service (ACOSS)

7 KPMG

8 Corporate Tax Association

9 Business Coalition for Tax Reform

10 Financial Planning Association

11 Institute of Public Accountants

12 Australian Chamber of Commerce and Industry 13 The Centre for Independent Studies

14 The Tax Institute

15 Australian Council of Trade Unions (ACTU) 16 PricewaterhouseCoopers

17 Minerals Council of Australia

18 Australian Financial Markets Association 19 Business SA

20 Business Council of Australia

21 Synod of Victoria and Tasmania, Uniting Church in Australia 22 Australian Institute of Company Directors 23 Chartered Accountants Australia and New Zealand 24 AI Group

25 Council of Small Business Australia

26 Australian Dental Industry Association (ADIA) 27 National Electrical and Communications Association (NECA) 28 Australian Small Business and Family Enterprise Ombudsman

29 The Australia Institute

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The Senate

Economics

Legislation Committee

Treasury Laws Amendment (Income Tax Relief) Bill 2016 [Provisions]

October 2016

79

© Commonwealth of Australia 2016

ISBN 978-1-76010-457-3

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/

Printed by the Senate Printing Unit, Parliament House, Canberra.

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Senate Economics Legislation Committee

Members

Senator Jane Hume (Chair) Victoria, LP

Senator Chris Ketter (Deputy Chair) Queensland, ALP

Senator David Bushby Tasmania, LP

Senator Jenny McAllister New South Wales, ALP

Senator Ian Macdonald Queensland, LP

Senator Nick Xenophon South Australia, NXT

Senators participating in this inquiry

Senator Peter Whish-Wilson Tasmania, AG

Secretariat

Mr Mark Fitt, Secretary Ms Ashlee Hill, Research Officer Ms Sarah Batts, Administrative Officer

PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: economics.sen@aph.gov.au Internet: www.aph.gov.au/senate_economics

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TABLE OF CONTENTS

Membership of Committee iii

Chapter 1.............................................................................................................. 1

Introduction .............................................................................................................. 1

Conduct of the inquiry ............................................................................................ 1

Overview of the bill ................................................................................................ 1

Chapter 2.............................................................................................................. 3

Views on the bill ........................................................................................................ 3

Bracket creep .......................................................................................................... 3

Skewed benefits ...................................................................................................... 4

Need for more holistic tax reform .......................................................................... 5

Preparing the economy for future challenges ......................................................... 6

Committee view ...................................................................................................... 7

Appendix 1 ........................................................................................................... 9

Submissions received ................................................................................................ 9

Correspondence received ......................................................................................... 9

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Chapter 1 Introduction

1.1 On 1 September 2016, the Treasury Laws Amendment (Income Tax Relief) Bill 2016 was introduced by the Government into the House of Representatives. On 15 September 2016, the Senate referred the provisions of the bill to the Economics Legislation Committee for inquiry and report by 10 October 2016.1

Conduct of the inquiry 1.2 The committee advertised the inquiry on its website and on Twitter. It also wrote to relevant stakeholders and interested parties inviting submissions by 23 September 2016. The committee received seven submissions, which are listed at Appendix 1.

1.3 The committee thanks all of the organisations that contributed to this inquiry.

Overview of the bill 1.4 The bill amends the Income Tax Rates Act 1986 (ITRA 1986) to increase the third personal income tax threshold applying to personal income taxpayers. Taxpayers earning above $80 000 will now face a lower rate of tax from $80 001 to $87 000.2

1.5 The bill also amends the non-resident tax schedule to increase the first income tax bracket to $87 000.3

1.6 As outlined by the Treasurer:

Under existing law a marginal tax rate of 32.5 per cent applies to taxable incomes between $37,001 and $80,000. Incomes above $80,001 then have a marginal rate of 37 cents, not including the two per cent Medicare Levy.4

1.7 The bill will extend the marginal tax rate of 32.5 per cent from $80 000 to $87 000 from 1 July 2016.5

1.8 This measure is part of a suite of measures announced by the Government in the 2016-17 budget that aim to boost the economy and make 'a start on personal income tax relief''.6

1 Journals of the Senate, 2015-16, no. 7 (15 September 2016), p. 211.

2 Explanatory Memorandum, p. 3.

3 Explanatory Memorandum, p. 3.

4 The Hon Scott Morrison MP, Treasurer, House of Representatives Hansard, 1 September 2016, p. 14. 5 The Hon Scott Morrison MP, Treasurer, House of Representatives Hansard, 1 September 2016, p. 14.

6 The Hon Scott Morrison MP, Treasurer, House of Representatives Hansard, 1 September 2016, p. 14.

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1.9 It is estimated that the amendments will benefit approximately 3.1 million taxpayers in 2016-17 and will provide a maximum tax cut of $315 per annum for incomes of $87 000 and above.7

1.10 The Treasurer explained how the bill will reward hardworking Australians:

As a down payment towards further tax relief for working Australians this bill will particularly assist those earning average full-time ordinary wages in Australia by preventing them from going into the second highest tax bracket of 37 cents in the dollar in 2016-17.

These mum and dad workers, these middle-income Australians, are bearing a growing burden under our tax system. This bill will provide modest but genuine relief, demonstrating the government's commitment to action on reducing that burden.8

1.11 The amendments made by the bill will reduce the tax burden of taxpayers and contribute to achieving a better tax system that supports Australians to work, save and invest.9

7 Explanatory Memorandum, p. 6.

8 The Hon Scott Morrison MP, Treasurer, House of Representatives Hansard, 1 September 2016, p. 14.

9 Explanatory Memorandum, p. 3.

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Chapter 2 Views on the bill

Bracket creep 2.1 The majority of submitters expressed their general support for the bill, commenting that the proposed amendments are a step in the right direction to addressing the effects of bracket creep on the Australian economy.1

2.2 Bracket creep is the effect of inflation pushing taxpayers into higher income tax brackets. Deloitte provided the committee with an explanation of the nominal and real components of bracket creep and their differential impact on taxpayer income:

Overall revenue gains from bracket creep can be divided into two components:

• A nominal component which occurs as wages rise with price inflation, thereby increasing average tax rates even if real wages are going nowhere.

• A real component, which occurs when wage rises outpace price inflation, shifting taxpayers even further into higher tax brackets. This type of bracket creep is a natural feature of a progressive income tax system.

The first form of bracket creep generates a cut in real disposable income over time, whereas the second form of bracket creep involves a sharing of real wage growth between taxpayers and governments.2

2.3 Not accounting for the measures in the bill, an individual earning an average fulltime ordinary wage ($1516 per week3, just under $80 000 per annum) would soon be pushed into the second highest marginal tax rate (from 32.5 to 37 per cent).4 This increase in the average earner's tax burden has the effect of reducing their purchasing power and diminishing productivity by discouraging participation in the economy.5

2.4 The Business Council of Australia commented on this effect:

Personal taxes influence decisions to work, save and invest. The personal income tax system influences decisions to move from welfare to work, to work additional hours or seek promotion, and to work in Australia or overseas. High personal tax rates that cut in at relatively low income

1 See, for example, The Tax Institute, Submission 1, p. 2; Business Council of Australia, Submission 7, p. 1.

2 Deloitte, Submission 2, p. 3.

3 Australian Bureau of Statistics, 6302.0 - Average Weekly Earnings, Australia, May 2016, http://www.abs.gov.au/ausstats/abs@.nsf/mf/6302.0 (accessed 5 October 2016).

4 Deloitte, Submission 2, p. 4; Chartered Accountants Australia and New Zealand, Submission 6, p. 2.

5 The Tax Institute, Submission 1, p. 1; Business Council of Australia; Submission 7, p. 4.

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thresholds mean that people may choose not to work overtime or seek promotion.6

2.5 Figure 2.1 illustrates the imminent shift into the next tax bracket that would affect average fulltime ordinary wage earners in the absence of the amendments proposed in the bill.

Figure 2.1—Marginal tax rate paid at different levels of income7

2.6 In addition to the detrimental effects on workforce productivity, high marginal tax rates on personal income encourage the use of tax planning arrangements as individuals seek ways to reduce their taxable income.8

Skewed benefits 2.7 A number of submitters expressed concern that the greatest benefits derived from the proposed amendments will be delivered to high income earners.9 For

6 Business Council of Australia, Submission 7, p. 4.

7 Deloitte, Submission 2, p. 4.

8 Chartered Accountants Australia and New Zealand, Submission 6, p. 3; Business Council of Australia; Submission 7, p. 5.

9 See, for example, Australian Council of Social Service, Submission 3, p. 1; Australian Council of Trade Unions, Submission 4, p. 11.

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example, the Australian Council of Social Service commented that the proposed tax relief is 'targeted towards individuals in the top 20% of taxpayers'.10

2.8 Moreover, some submitters argued that high effective and marginal tax rates disproportionately hurt low and middle income earners.11 This is due to the interaction between the tax and transfer systems and its effect on take-home income. Taxpayers on lower incomes are expected to experience greater challenges as a result of bracket creep, with those on incomes between $30 000 and $37 000 affected the most.12 The Business Council of Australia emphasised this issue:

Effective marginal personal income tax rates can exceed 80 cents in the dollar because of the withdrawal of benefits as incomes increase, creating a barrier to people wanting to enter the workforce.13

2.9 Some submitters also raised concerns that the proposed measures may be funded by spending cuts to social security payments and services on which low and middle income earners rely, exposing these groups to further disadvantage.14 The Australian Council of Trade Unions highlighted this concern:

If the government proposes to fund personal tax cuts by cutting expenditure on services such as health and education, families on low and middle incomes will lose out - receiving only a 'sandwich and a milkshake' tax cut in exchange for poorer services and higher out-of-pocket costs for health and education.15

2.10 The committee notes the concerns raised with regard to the scope of the amendments in the bill. However, the committee reiterates that the proposed amendments are part of a suite of measures aimed at boosting the economy for the ultimate benefit of all Australians.

Need for more holistic tax reform 2.11 While generally supportive of the personal tax relief that the proposed measures will bring, most submitters also promoted a need for a more holistic approach to tax reform.16

2.12 Submitters advocated for bracket creep to be addressed more broadly, suggesting that any changes to marginal tax rates should take into consideration their

10 Australian Council of Social Service, Submission 3, p. 1.

11 Deloitte, Submission 2, p. 4; Australian Council of Trade Unions, Submission 4, p. 12.

12 Deloitte, Submission 2, pp. 1 and 4.

13 Business Council of Australia; Submission 7, p. 4.

14 See, for example, Australian Council of Social Service, Submission 3, p. 3; Australian Council of Trade Unions, Submission 4, p. 11.

15 Australian Council of Trade Unions, Submission 4, p. 12.

16 See, for example, KPMG, Submission 5, p. 1; Business Council of Australia; Submission 7, p. 3.

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overall interaction with the transfer system.17 The Business Council of Australia underlined this view, arguing that 'without broader change, people on lower incomes will be left worse off after tax, simply because their wage keeps pace with inflation'.18

2.13 The Australian Council of Social Service proposed that more holistic reform could also be achieved by:

...closing shelters and loopholes in the personal tax system, as has been done in the past. This would improve fairness because more people would actually pay tax at their legislated tax rate. Under the present system 'the many' have to pay more to offset revenue losses from the tax avoidance activities of 'the few'.19

Preparing the economy for future challenges 2.14 Stakeholders also highlighted that the Australian economy is facing a number of emerging challenges that pose an imminent risk to the effectiveness of Australia's tax system. An aging population is one such challenge. The Business Council of Australia emphasised this point in their submission:

Like many industrialised countries, our population is ageing. An older population will drive increased government spending while reducing labour force participation and thus the capacity to pay.

The personal income tax base will narrow further - if income tax maintains its current share of total taxes (and the overall tax burden is not significantly lower), this will mean a significantly increased burden on future income earners.

With an ageing population, we cannot afford a tax system that discourages working.20

2.15 The Business Council of Australia identified Australia's increasingly globalised labour market as a further challenge to Australia's economy:

Workers, particularly highly skilled ones, have become increasingly mobile over recent decades. Immigration can increase the size of the workforce, and also bring in new skills, ideas and connections that can ultimately improve productivity and economic growth.

As labour mobility increases, tax differentials increasingly influence worker decisions about where to locate.21

17 Deloitte, Submission 2, p. 2; KPMG, Submission 5, p. 1.

18 Business Council of Australia, Submission 7, p. 3.

19 Australian Council of Social Service, Submission 3, p. 1.

20 Business Council of Australia, Submission 7, p. 4.

21 Business Council of Australia, Submission 7, p. 4, citing Akcigit, U., Baslandze, S. & Stantcheva, S. (2015) Taxation and the International Mobility of Inventors. Working Paper 21024. Massachusetts: National Bureau of Economic Research.

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2.16 The committee is mindful of these challenges facing the Australian economy and is confident that the proposed measures will contribute to curtailing the risks posed by these factors.

Committee view 2.17 Overall, the committee notes that the majority of submissions supported the income tax relief measures proposed in the bill, commenting that the amendments are a step in the right direction to addressing the effects of bracket creep on the Australian economy.

2.18 While acknowledging the particular concerns raised by submitters, the committee considers the proposed amendments to be a necessary step toward providing further tax relief for working Australians.

2.19 As well as maintaining the progressivity of the tax system, the committee is confident that the bill will positively influence taxpayer decisions to work, save and invest by offering rewards for effort and creating better incentives to work. The committee is also confident that the bill will better align the tax system with the emerging challenges Australia's economy will face in the years to come.

2.20 The committee does recognise, however, that bracket creep affects taxpayers at all levels of income and that future tax relief measures may benefit from broader consideration of this issue.

Recommendation 1

2.21 The committee recommends the Senate should pass the bill.

Senator Jane Hume Chair

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Appendix 1 Submissions received No. Submitter

1 The Tax Institute

2 Deloitte

3 Australian Council of Social Service

4 Australian Council of Trade Unions

5 KPMG

6 Chartered Accountants Australia and New Zealand

7 Business Council of Australia

Correspondence received

1 Correspondence received from the Australian Manufacturing Workers' Union on 27 September 2016.

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The Senate

Education and Employment

Legislation Committee

Building and Construction Industry (Improving Productivity) Bill 2013 [Provisions]

Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [Provisions]

Fair Work (Registered Organisations) Amendment Bill 2014 [Provisions]

October 2016

95

ii

© Commonwealth of Australia 2016

ISBN: 978-1-76010-472-6

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was produced by the Senate Standing Committee on Education and Employment and printed by the Senate Printing Unit, Parliament House, Canberra.

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MEMBERSHIP OF THE COMMITTEE

Members

Senator Bridget McKenzie, Chair, NAT, VIC

Senator Gavin Marshall, Deputy Chair, ALP, VIC

Senator Sarah Hanson-Young, AG, SA (from 1 September to 10 October 2016)

Senator Deborah O'Neill, ALP, NSW

Senator James Paterson, LP, VIC

Senator John Williams, NAT, NSW

Senator Lee Rhiannon, AG, NSW (substitute member from 10 to 14 October 2016)

Participating Members

Senator Jacinta Collins, ALP, VIC

Senator the Hon Doug Cameron, ALP, NSW

Senator Sarah Hanson-Young, AG, SA (from 10 to 14 October 2016)

Senator Skye Kakoschke-Moore, NXT, SA

Senator Jacqui Lambie, JLN, TAS

Senator Lee Rhiannon, AG, NSW (from 1 September to 10 October 2016)

Secretariat

Mr Stephen Palethorpe, Secretary

Dr Patrick Hodder, Principal Research Officer

Ms Cathryn Cummins, Senior Research Officer

Ms Amy Walters, Research Officer

Mr Abe Williamson, Administrative Officer

PO Box 6100 Ph: 02 6277 3521

Parliament House Fax: 02 6277 5706

Canberra ACT 2600 E-mail: eec.sen@aph.gov.au

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TABLE OF CONTENTS

Chapter 1.............................................................................................................. 1

Introduction and background ............................................................................ 1

Referral ................................................................................................................... 1

Scope and conduct of the inquiry ........................................................................... 1

Overview of the bills .............................................................................................. 1

History of the bills .................................................................................................. 1

Responses to the bill ............................................................................................... 2

Committee view ...................................................................................................... 3

Labor Senators' Dissenting Report ................................................................... 5

Introduction ............................................................................................................ 5

A piece of poorly-targeted and unnecessary legislation ......................................... 6

A sham attempt to combat corruption .................................................................... 7

The bill impedes work health and safety ................................................................ 8

Lack of regard for basic rights and liberties ........................................................... 8

Conclusion .............................................................................................................. 9

Australian Greens' Dissenting Report ............................................................ 11

Overview .............................................................................................................. 11

Conduct of the ABCC .......................................................................................... 11

The need for a national corruption body .............................................................. 12

Building code ........................................................................................................ 12

The Registered Organisations Bill ....................................................................... 13

Conclusion ............................................................................................................ 14

Appendix 1 ......................................................................................................... 15

Appendix 2 ......................................................................................................... 19

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Chapter 1

Introduction and background Referral 1.1 On 31 August 2016 the Prime Minister the Hon. Malcolm Turnbull MP introduced the Building and Construction Industry (Improving Productivity) Bill 2013 (the ABCC bill); a related consequential amendment bill; and the Fair Work Amendment (Registered Organisations) Amendment Bill 2014 (registered organisations bill) in the House of Representatives.1 The bills were referred to the Education and Employment Legislation Committee (the committee) on 1 September for report on 14 October 2016. Although these bills were referred separately, the committee decided to inquire into the bills concurrently.

1.2 The bills are identical to bills introduced and considered by this committee and other parliamentary committees on several occasions during the 44th Parliament. As a result, much of this report draws from previous committee reports.

Scope and conduct of the inquiry 1.3 Details of the inquiry were made available on the committee's website. The committee also invited a number of organisations to make a submission. The committee received 25 submissions in relation to the ABCC bill and 17 in relation to the registered organisations bill as listed in Appendix 1. A public hearing into both bills was held on 4 October 2016 in Melbourne. The witness list is at Appendix 2. The committee thanks submitters and witnesses who contributed to this inquiry.

Overview of the bills 1.4 Details of the bills' provisions, financial impact statements and human rights impact statements can be found in previous reports.2

History of the bills 1.5 During the 44th Parliament a total of six separate Senate Committee inquiries were held into the two bills. On two separate occasions, both bills were previously inquired into and reported on by this committee.3 On both occasions, the committee recommended that the Senate pass the bills.

1 Votes and Proceedings, No. 2, 31 August 2016, p. 30.

2 Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, pp. 1-3; Senate Education and Employment Legislation Committee, Fair Work (Registered Organisations) Amendment Bill 2014 [No.2], August 2015, pp. 1-3.

3 Inquiry reports were tabled by the committee on the ABCC bill in December 2013 and March 2016; and on the registered organisations bill in December 2013 and August 2015.

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1.6 In addition, the Education and Employment References Committee has considered both bills in depth.4 Aspects of the bills have also been considered by the Senate Standing Committee on the Scrutiny of Bills and the Parliamentary Joint Committee on Human Rights.5

1.7 Over the course of the current and previous inquiries, there have been no fewer than six public hearings in relation to the ABCC bill and three in relation to the registered organisations bill.

1.8 Notably, it was the failure of the Senate to pass these bills that led the Prime Minister in May 2016 to request the dissolution of both Houses of Parliament prior to the 2 July Federal election.

Responses to the bill 1.9 Many submitters made detailed references to their submissions from earlier inquiries. Some even reproduced their previous submissions in their entirety.6 Responses to the bills remain divided, with no new arguments put forward by either side. This demonstrates that re-referral of the bills to the committee for yet another inquiry is unnecessarily blocking the Senate from voting on the bills.

1.10 Submissions in favour of the bills have again outlined the need for them to be passed, citing numerous examples of supply chain hold-ups because of disruptive industrial behaviour, intimidation of workers by union officials and union corruption.7

1.11 The bills' critics have rehashed the same old arguments regarding the perceived negative impact on civil liberties and unfair targeting of the construction industry for onerous oversight.8 These same critics disregard the flagrant contempt for the rule of law and the impact of workplace disputation on the national economy caused by the behaviour that the bill seeks to address.

4 Senate Education and Employment References Committee, Government's approach to re-establishing the Australian Building and Construction Commission, March 2014; and Senate Education and Employment References Committee, Fair Work (Registered Organisations) Amendment Bill 2013, March 2014.

5 The history of their consideration by this committee is outlined in Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 6 of 2016, pp. 13, 19.

6 See the following submissions in relation to the ABCC bill see Law Council of Australia, Submission 2; Housing Industry Association, Submission 13.

7 With regard to the ABCC bill see Australian Mines and Metals Association, Submission 16; Master Builders Australia, Submission 23; Australian Government Department of Employment, Submission 3; Australian Industry Group, Submission 8; in relation to the registered organisations bill see Australian Industry Group, Submission 8; Australian Chamber of Commerce and Industry, Submission 10; Master Builders Australia, Submission 14.

8 With regard to the ABCC bill, see Maritime Union of Australia, Submission 24; Australian Council of Trade Unions, Submission 11; Electrical Trades Union, Submission 21; Plumbing Trades Employees Union Submission 6; Queensland Council of Unions, Submission 15; in relation to the registered organisations bill see Maritime Union of Australia, Submission 16; Australian Council of Trade Unions, Submission 7; Australian Services Union, Submission 11.

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1.12 The committee draws the Senate's attention to its previous reports for more in depth discussion of issues previously dealt with.

Committee view 1.13 The committee remains of the view that the necessity of these bills is demonstrated by the weight of evidence supporting the bills in this current inquiry and the numerous previous inquiries. As Mr Harnisch from the Master Builders Association stated in evidence in relation to the re-establishment of the Australian Building and Construction Commission:

After three royal commissions, countless other inquiries, reports and examinations, and a continuing barrage of judicial commentary damning building unions and the culture they have generated, it continues to astound us that some still question the need for the ABCC.

The need for the ABCC is a simple proposition: everyone knows there is a problem and the ABCC is a solution that has been proven to work; it has worked before and it will work again.9

1.14 Similar sentiments abound in relation to the need for the provisions of the registered organisations bill, as demonstrated by Dr Alison Morehead from the Department of Employment:

The final report of the Royal Commission into Trade Union Governance and Corruption identified evidence of widespread and some deep-seated misconduct in the union movement, and the report's findings and recommendations demonstrate the need for reform.10

1.15 The committee considers that an inordinate amount of time has been spent on debating and inquiring into these bills. The fact that there have been no changes to the bills demonstrates that their re-referral for yet another inquiry is unnecessarily blocking the Senate from voting on the bills.

Recommendation 1

1.16 The committee recommends that the Senate pass the bills.

Senator Bridget McKenzie

Chair

9 Mr Harnisch, Chief Executive Officer, Master Builders Association, Committee Hansard, 4 October 2016, p. 1.

10 Dr Alison Morehead, Group Manager, Department of Employment, Committee Hansard, 4 October 2016, p. 22.

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Labor Senators' Dissenting Report

Introduction 1.1 Labor Senators are astounded at the Government's continued attempts to re-establish the Australian Building and Construction Commission (the ABCC) and to enact the Registered Organisations bill. This is not based on a genuine need for the ABCC or to somehow improve union governance practices, but is rather an ideologically-based and politically motivated attempt to crack down on the ability of unions to advocate for workers' rights.

1.2 Moreover, after the superficial resolve shown by Prime Minister Turnbull in using this bill as part of his strategy for calling a double dissolution, the Government continues to waste the time of the Parliament and the resources of the Senate in holding a further inquiry and prompting more debate over provisions that have previously been revealed as unnecessary.

1.3 These bills are fundamentally misguided in that they will not promote greater workplace productivity. This was a key point of Labor Senator's previous dissenting report for the most recent ABCC inquiry.1 These sentiments were echoed by Australian Council of Trade Unions' (ACTU) Secretary Dave Oliver in the public hearing for the current inquiry:

[t]his bill, despite its name, has very little or nothing to do with productivity. In fact, the government's own industry monitor has shown that construction sector labour productivity over the last five years has increased to 2.8 per cent, as opposed to multifactor productivity of 1.25 per cent. We are at a bit of a loss as to how people could think that you could get higher productivity through more regulation. We know that the current government is big on the notion of cutting red tape. It seems that if you are a bank, for example, we are looking at greater deregulation. But if you are a union, particularly in the construction sector, you want to have more regulation in place.2

1.4 Similarly, the Maritime Union of Australia contrasted the significant regulatory intervention of ABCC bill with the Government's previously stated intention of cutting red and green tape.3

1.5 The Government's claims to increase productivity are instead euphemism for the restriction of workers' rights. Furthermore, at a cost of $35 million,4 the

1 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, pp. 9-18.

2 Mr Dave Oliver, Committee Hansard, 4 October 2016, p. 11.

3 Maritime Union of Australia, Submission 24, p. 6.

4 Explanatory Memorandum, p. 4.

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re-establishment of the ABCC is not only bad policy but is also a bad deal for the tax payer.

A piece of poorly-targeted and unnecessary legislation 1.6 In addition to negatively affecting productivity, the bill "treats construction workers as second-class citizens in their own country"5 by singling out the industry for particular oversight and regulation. As discussed in the Education and Employment References Committee's 2014 report into the government's attempts to re-establish the ABCC, many industries outside the construction industry are also vulnerable to economic loss through industrial action.6 The construction industry is therefore not unique, and it is clearly ideological and political motivations that are driving the Government's dogged pursuit of this bill's passage through Parliament.

1.7 In addition, the bill "does not deal with the big issues of the industry."7 As outlined by Mr Noonan from the Construction, Forestry, Mining and Energy Union (CFMEU), the big issues include poor safety and deaths on construction sites, the rip-off of workers, the use of temporary visa workers to undermine Australian job security and conditions, the use of nonconforming building products, insolvency and phoenixing,8 none of which will be addressed by these punitive reforms.

1.8 Labor Senators also reiterate the comments made in our previous dissenting report about the powers of the Fair Work Building Industry Inspectorate. The Inspectorate has a full suite of appropriate investigative and prosecutorial powers to deal with any unlawful behaviour in the building and construction industry—whether by employers, employees, unions or contractors. The existing Fair Work (Building Industry) Act 2012 is a secure, fair and adequate regulatory framework of industrial relations in Australia that provides enforcement based on education rather than prosecution, retains the important safeguards on the exercise of coercive powers of workers, and provides the capacity for a genuinely independent compliance unit.9

1.9 Furthermore, as Mr Noonan pointed out, prosecutorial action is better directed right at the top, to the big construction companies who commit egregious breaches of

5 Mr Dave Noonan, National Secretary, Construction, Forestry, Mining and Energy Union, Committee Hansard, 4 October 2016, p. 13.

6 Education and Employment References Committee, Government's approach to re-establishing the Australian Building and Construction Commission, March 2014, p. 56.

7 Mr Dave Noonan, National Secretary, Construction, Forestry, Mining and Energy Union, Committee Hansard, 4 October 2016, p. 13.

8 Mr Dave Noonan, National Secretary, Construction, Forestry, Mining and Energy Union, Committee Hansard, 4 October 2016, p. 13.

9 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, p. 11.

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law and abandon the undertakings they have given to improve compliance,10 rather than at construction workers who are trying to pay their bills and feed their families.

A sham attempt to combat corruption 1.10 Regrettably, some isolated instances of corruption has been found in the construction industry. However, as Mr Oliver stated:

…the trade union movement does not support corruption in any shape or form. Unfortunately, corruption does reside in all sectors of our society. We see it in the sporting arena, the corporate arena and the political arena. That is why we have consistently called for the establishment of a national ICAC to be able to root out where there are problems in regard to corruption across any sector of this country.11

1.11 Furthermore, where corruption has been found, adequate steps have been taken to eliminate it. Labor Senators draw the Senate's attention to the comments made by Mr Noonan at a public hearing conducted during the previous inquiry into this bill:

In terms of people who behave badly, our union has acted in the past. We have no tolerance for corruption. The word 'corruption' is thrown around freely by those who support this bill—notwithstanding the fact that the bill itself does not address corruption or the criminal law. We have had junior, medium-level and indeed one very senior official who we have sacked and expelled from the union because their conduct did not meet the standards we expected. Some of those matters are now in front of the courts, so I do not want to name them. We do not have any time for corruption in the industry. Any official of the union, or any delegate of the union, who engages in corruption is not working for the members, they are not working for the union; they are working for the employer who has corrupted them, and we find it disgraceful. Where credible and supported allegations are brought, we deal with them.12

10 Mr Dave Noonan, National Secretary, Construction, Forestry, Mining and Energy Union, Committee Hansard, 4 October 2016, p. 13.

11 Mr Dave Oliver, Secretary, Australian Council of Trade Unions, Committee Hansard, 4 October 2016, p. 16.

12 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, pp. 11-12.

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The bill impedes work health and safety 1.12 In our previous dissenting report we argued that the narrow definition of protected action could actually result in poorer workplace safety.13 This situation remains unchanged.

1.13 In the Senate Education and Employment Reference Committee's report, Unions NSW voiced concerns over the power the ABCC will have in relation to health and safety issues raised on site. Because the health and safety issue must relate to the individual, and he or she is the only person who can raise it, there is a real risk that individual workers could feel intimidated. The Maritime Union of Australia was also concerned about the onus being on the individual to prove there is a legitimate occupational health and safety concern.14 For further discussion on this matter, we refer the Senate to that report.15

1.14 Despite these insights, the bill's Explanatory Memorandum again states that its provisions won't affect an employee raising concerns about occupational health and safety.16

Lack of regard for basic rights and liberties 1.15 Should these bills pass the Senate, the ABCC would be able to use coercive powers stronger than those provided to even the state or federal police to compel workers to give evidence and be interviewed, with no right to silence or representation by a lawyer of their choice.17

1.16 In our previous dissenting report, we noted that the Law Council of Australia held grave concerns about the encroachment of these provisions into territory that is not consistent with the principles of the rule of law and traditional common law rights.18 Given the bill has not changed since it was last considered, the Law Council has reiterated these concerns and Labor Senators also wish to highlight our continued

13 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, p. 16.

14 Education and Employment References Committee, Government's approach to re-establishing the Australian Building and Construction Commission, March 2014, p. 70.

15 Education and Employment References Committee, Government's approach to re-establishing the Australian Building and Construction Commission, March 2014, pp. 70-72.

16 Explanatory Memorandum, p. 7.

17 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, p. 13.

18 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, p. 13.

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opposition to such powers.19 We direct the Senate to our previous dissenting report for a full discussion of this issue.20

1.17 Furthermore, as detailed in the Education and Employment References Report, the perceived need for coercive powers can be traced back to the Cole Royal Commission, in which Commissioner Cole's remarks about the possibility of productivity being increased through radical industrial relations "reform" involving punitive industrial relations laws sparked a mythology about the uniqueness of the construction industry which continues today.21

Conclusion 1.18 The legislation proposed is poorly targeted, unnecessary and will not achieve what it sets out to do. As stated by the CFMEU, the government "should act in the interests of all of the community not just in the interests of the big construction companies, big building-products manufacturers and property developers."22 The coercive powers and limitations on workers' rights are not in line with the values of Australian society and are not justified in terms of productivity gain.

1.19 For these reasons Labor Senators do not see merit in either the Building and Construction Industry (Improving Productivity) Bill 2013 nor the Fair Work Amendment (Registered Organisations) Amendment Bill 2014 and oppose both in their entirety.

Recommendation 1

1.20 Labor Senators recommend that the Senate reject the Building and Construction Industry (Improving Productivity) Bill 2013 and the Fair Work Amendment (Registered Organisations) Amendment Bill 2014.

Senator Gavin Marshall Senator Doug Cameron

Deputy Chair Participating Member

19 Law Council of Australia, Submission 2, p. 5.

20 Labor Senators' Dissenting Report, in Senate Education and Employment Legislation Committee, Building and Construction Industry (Improving Productivity) Bill 2013 [No. 2] and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 [No. 2], March 2016, pp. 13-14.

21 Education and Employment References Committee, Government's approach to re-establishing the Australian Building and Construction Commission, March 2014, pp. 13-14.

22 Mr Dave Noonan, National Secretary, Construction, Forestry, Mining and Energy Union, Committee Hansard, 4 October 2016, p. 14.

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Australian Greens' Dissenting Report

Overview 1.1 The Senate Education and Employment Committee inquiry examined the Building and Construction Industry (Improving Productivity) Bill 2013 (the ABCC bill), the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 (the related bill), and the Fair Work (Registered Organisations) Amendment Bill 2014 (registered organisations bill).

1.2 All three bills have been considered by the Committee twice before and have previously been rejected by the Senate.

1.3 In the Committee's previous reports on these bills, the Australian Greens have recommended that the Bills not be passed and have voted against them.

1.4 There was no evidence before the committee that was persuasive or compelling enough to change that view. On the contrary, the evidence received reinforced the view of the Australian Greens that the bills should be rejected by the Senate.

Conduct of the ABCC 1.5 An examination of the previous conduct of the Australian Building and Construction Commission (ABCC) highlights the problem of reinstating the Commission via the ABCC bill.

1.6 The ABCC failed to act as independent regulator committed to the best interests of the industry, the conditions of the workers and the legitimate needs of employers.

1.7 It was unwilling or unable to address construction industry employers engaging in illegal activities including the widespread use of misleading contracts. Construction companies signing up workers as independent contractors instead of hiring them as employees remains a serious issue that reduces industry standards. For employees it means they lose basic work and safety rights.

1.8 The construction industry is one of this country's top four most dangerous industries. The ABCC never took an employer to court over breaches of occupational health and safety laws. Instead, the number of deaths in the construction industry increased during the period that the ABCC was in operation. In 2004 the number of deaths was 3.14 per 100,000 workers. In 2007 it stood at 4.8 and in 2008 at 4.27, per 100,000 workers.1

1 CFMEU, Simple as ABCC: Bad Laws Cost Lives, www.cfmeunsw.asn.au/campaigns/stop-the-abcc, (accessed 13 October 2016).

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1.9 The coercive powers of the ABCC, which could subject construction industry workers to secret interrogations and force them to answer questions under oath, resulted in construction workers having fewer rights than other workers.

1.10 The Greens believe a person should not have fewer rights than an accused criminal simply because they work in the building industry. People shouldn't fear being hauled into secret inquisitions and forced to 'name names' under threat of imprisonment. We do not want or need McCarthyism in the building industry.

Recommendation 1

1.11 The Australian Greens recommend that the Building and Construction Industry (Improving Productivity) Bill 2013 and the Building and Construction Industry (Consequential and Transitional Provisions) Bill 2013 not be passed.

The need for a national corruption body 1.12 Evidence to the committee supported the need for a broad-based corruption watchdog, rather than establishing a body whose focus is to attack unions. A broad-based federal anti-corruption body would be able to investigate and pursue corruption at all levels in society.

1.13 The experience of ICAC in New South Wales shows that corruption is not limited to one industry or arena, including parliamentarians. If the government was serious about tackling corruption it would establish such a body at the Commonwealth level.

Recommendation 2

1.14 The Australian Greens recommend that the government establish a broad-based federal anti-corruption body.

Building code 1.15 The Building and Construction Industry (Improving Productivity) Bill 2015 also contains provisions in relation to the Building Code that are very concerning. The provisions will enable a new Building Code that, estimates suggest, will impact on more than 1 million Australian workers.2 Significant existing employment conditions for construction workers will be prohibited.

1.16 The Building Code will apply not only to employers tendering for government construction projects, but also all employees working for those employers in the private sector; all entities that supply transport or prefabrication manufacturing to government jobs; and other entities that include contracting or transport suppliers.

2 Electrical Trades Union, Submission 21, p. [5].

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1.17 Evidence to the committee showed that the Building Code provision will enable the Commonwealth government to prevent local agreements having clauses for a range of matters including guarantees on the numbers of apprentices.

1.18 For example, 76 clauses in current Electrical Trades Union construction agreements could be prohibited, including clauses that:

• prevent unlimited ordinary hours worked per day;

• guarantee the employee's ability to have a day off on Christmas Day and Easter Sunday and other public holidays;

• encourage employment of apprentices;

• discourage discrimination against mature workers;

• include agreed stable and secure shift arrangements or rosters;

• ensures construction workers’ conditions and entitlements cannot be eroded;

• provide for equality and fairness onsite for construction workers; and

• impact on the rights of construction workers to have a safe workplace. 3

Recommendation 3

1.19 The Australian Greens recommend that the provisions in relation to the Building Code be removed from the Bill.

The Registered Organisations Bill 1.20 The Fair Work (Registered Organisations) Amendment Bill 2014 is also fatally flawed.

1.21 The government claims that the bill just puts corporations and registered organisations on an even footing, implying that unions and other registered organisations ought to be treated in the same way as corporations because they are fundamentally the same. This is not the case.

1.22 Unions are required under the Fair Work (Registered Organisations) Act 2009 and other legislation to be democratic organisations, while corporations are not. Unions are required to publish their accounts and financial returns every year online, but proprietary limited companies are not.

1.23 The government fails - or refuses - to understand that employee organisations do not exist for the same reason as businesses. Businesses exist to make profit: that is their sole purpose and the measure of their success. Company directors are legally required to act in the best interests of their shareholders and to continue to make a profit.

1.24 Unions exist to advance the interests of their members, and in doing so, help all workers. Unions advise people of their rights and entitlements at work and ensure

3 Electrical Trades Union, Submission 21, pp. [4 and 30].

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those entitlements are honoured. They ensure that the lowest paid workers enjoy something approaching what others take for granted: a decent income and quality of life.

1.25 Unions fought for shorter working weeks. Unions are responsible for the existence of the weekend. It is thanks to unions that workers are entitled to annual leave and penalty rates. These things were not granted to workers by benevolent corporations; unions fought for every single one.

1.26 Unions drive changes to our workplace laws not for their own benefit, but for the benefit of their members and all Australian workers. They receive no direct financial advantage from their work. Registered organisations are fundamentally different to profit-making corporations and they must be treated differently.

1.27 Evidence to the Committee reinforced the Australian Greens’ view that the Bill is unnecessary. Current laws prevent officers of registered organisations from using their positions for their own personal benefit and those that do are prosecuted. Rather than extending the current requirements demanded of unions to corporations, the bill allows the government to micromanage unions in a way that would be unthinkable of private companies, while still imposing the same penalties on unions that apply to publicly listed companies.

Recommendation 4

1.28 The Australian Greens recommend that the Fair Work (Registered Organisations) Amendment Bill 2014 not be passed.

Conclusion 1.29 The Australian Greens will always stand up for people's rights at work. We urge Senators not to support these bills.

Senator Lee Rhiannon

Australian Greens

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Appendix 1

Submissions and additional information

Submissions - Building and Construction Industry (Improving Productivity) Bill 2013 and related bill

Number Submitter

1 Australian Youth Climate Coalition

2 Law Council of Australia

3 Australian Government Department of Employment

4 Commonwealth Ombudsman

5 Chamber of Commerce and Industry of Western Australia

6 Plumbing Trades Employees Union

7 National Electrical and Communications Association

8 Australian Services Union

9 UnionsWA

10 Australian Industry Group

11 Australian Council of Trade Unions

12 Australian Constructors Association

13 Housing Industry Association

14 Australian Chamber of Commerce and Industry

15 Queensland Council of Unions

16 Australian Mines and Metals Association

17 Master Electricians Australia

18 Textile Clothing and Footwear Union of Australia

19 Construction, Forestry, Mining and Energy Union

20 Australian Manufacturing Workers' Union

21 Electrical Trades Union of Australia

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22 Civil Contractors Federation

23 Master Builders Australia

24 Maritime Union of Australia

25 Queensland Government

Submissions - Fair Work (Registered Organisations) Amendment Bill 2014

1 Police Federation of Australia

2 Australian Youth Climate Coalition

3 Queensland Nurses' Union

4 Mr Andrew Oliver

5 Finance Sector Union of Australia

6 Electrical Trades Union of Australia

7 Australian Council of Trade Unions

8 Australian Industry Group

9 Australian Mines and Metals Association

10 Australian Chamber of Commerce and Industry

11 Australian Services Union

12 Victorian Farmers Federation

13 National Electrical and Communications Association

14 Master Builders Australia

15 Australian Government Department of Employment

16 Maritime Union of Australia

17 Queensland Government

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Answers to questions taken on notice

Public hearing Melbourne, 4 October 2016

1 Answer to question on notice from Senator Paterson to Mr Dave Noonan of the CFMEU, Melbourne, Victoria, 4 October 2016.

2 Answer to question on notice from Senator Cameron to Mr Steve Kibble of the Department of Employment, Melbourne, Victoria, 4 October 2016.

3 Answer to question on notice from Senator Kakoschke-Moore to Mr David Humphrey of the Housing Industry Association, Melbourne, Victoria, 4 October 2016.

4 Answer to question on notice from Senator Cameron to Mr Wilhelm Harnisch of Master Builders Australia, Melbourne, Victoria, 4 October 2016.

5 Answer to question on notice from Senator Lambie to Mr Wilhelm Harnisch of Master Builders Australia, Melbourne, Victoria, 4 October 2016.

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Appendix 2

Public Hearing

Melbourne, 4 October 2016

Committee Members in attendance: Senators McKenzie (Chair), Collins, Hanson-Young, Kakoschke-Moore, Lambie and Paterson.

Witnesses

Housing Industry Association Ms Melissa Adler, Executive Director, Workplace Relations

Master Builders Australia Limited Mr Wilhelm Harnisch, Chief Executive Officer

Housing Industry Association Mr David Humphrey, Senior Executive Director, Business, Compliance and Contracting

Master Builders Australia Limited Mr Shaun Schmitke, National Director, Industrial Relations

Australian Council of Trade Unions Mr Dave Oliver, Secretary Mr Tallis Richmond, Political Coordinator

Construction, Forestry, Mining and Energy Union Mr Dave Noonan, National Secretary, Construction and General Division Mr Tom Roberts, Senior National Legal Officer

Department of Employment Ms Rebecca Quill, Principal Government Lawyer Mr Jeremy O'Sullivan, Chief Counsel Mr Steve Kibble, Group Manager, Work Health and Safety Policy Group Dr Alison Morehead, Group Manager, Workplace Relations Policy Group

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The Senate

Education and Employment

Legislation Committee

Fair Work Amendment (Gender Pay Gap) Bill 2015

November 2016

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© Commonwealth of Australia 2016

ISBN: 978-1-76010-436-8

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website:

http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was produced by the Senate Standing Committee on Education and Employment and printed by the Senate Printing Unit, Parliament House, Canberra.

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MEMBERSHIP OF THE COMMITTEE

Members Senator Bridget McKenzie, Chair, NATS, VIC Senator Gavin Marshall, Deputy Chair, ALP, VIC Senator Sarah Hanson-Young, AG, SA Senator James Paterson, LP, VIC

Senator John Williams, NATS, NSW Senator the Hon Don Farrell, ALP, SA (from 23 November 2016)

Substitute Members Senator Jane Hume, LP, VIC (substituting Senator Paterson on 27 October 2016)

Participating Members Senator Larissa Waters, AG, QLD

Former Members Senator Deborah O'Neill, ALP, NSW (to 8 November 2016) Senator Kimberly Kitching, ALP, VIC (from 8 November 2016 to 22 November 2016) Senator Catryna Bilyk, ALP, TAS (from 22 November 2016 to 23 November 2016)

Secretariat Mr Stephen Palethorpe, Secretary Dr Patrick Hodder, Principal Research Officer (to 25 November 2016)

Ms Kate Campbell, Senior Research Officer (from 17 October 2016) Ms Cathryn Cummins, Senior Research Officer (to 14 October 2016) Ms Amy Walters, Research Officer Mr Abe Williamson, Administration Officer

Committee web page: www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment

PO Box 6100 Ph: 02 6277 3521

Parliament House Fax: 02 6277 5706

Canberra ACT 2600 E-mail: eec.sen@aph.gov.au

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TABLE OF CONTENTS

MEMBERSHIP OF THE COMMITTEE ...................................................... iii

RECOMMENDATIONS ..................................................................................vii

Chapter 1.............................................................................................................. 1

Reference ................................................................................................................ 1

Conduct of the inquiry

............................................................................................ 1

Background ................................

............................................................................. 2

Purpose and overview

of the bill ............................................................................ 3

Compatibility with human rights ............................................................................ 3

Scrutiny of Bills Committee ................................................................................... 3

Financial impact statement ..................................................................................... 3

Acknowledgment

.................................................................................................... 4

Notes on references ................................................................................................ 4

Chapter 2.............................................................................................................. 5

Introduction ............................................................................................................ 5

Key issues ............................................................................................................... 6

Chapter 3............................................................................................................ 25

Further key issues ................................................................................................. 25

Committee view .................................................................................................... 35

Labor Senators' Dissenting Report ................................................................. 39

Australian Greens' Dissenting Report ............................................................ 43

Appendix 1: Submissions and additional information .................................. 49

Appendix 2: Public hearing .............................................................................. 51

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RECOMMENDATIONS

Recommendation 1

3.56 The committee recommends that the Senate does not pass the bill.

Recommendation 2

3.58 The committee recommends that government, employer and industry stakeholders, and employee advocates collaborate to actively promote and implement best-practice strategies to tackle the gender pay gap in Australian workplaces.

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Chapter 1

Reference

1.1 In September 2015, during the 44th Parliament, Senator Larissa Waters introduced the Fair Work Amendment (Gender Pay Gap) Bill 2015 (the bill).1

1.2 On 15 October 2015, the Senate referred the bill to the Senate Education and Employment Legislation Committee (the committee) for inquiry and report by 12 May 2016.2

1.3 On 9 May 2016 at the dissolution of the Senate in preparation for a general election on 2 July 2016, the inquiry lapsed.

1.4 On 1 September 2016, after the commencement of the 45th Parliament, the Senate re-referred the bill to the committee for inquiry and report by 14 November 2016.3

1.5 On 10 November 2016, the Senate agreed to an extension of time to report until 30 November 2016.4

Conduct of the inquiry

1.6 Details of the inquiry begun during the 44th Parliament were made available on the committee's website.5 The committee also contacted a number of organisations inviting submissions to the inquiry. Submissions were received from 18 individuals and organisations, as detailed in Appendix 1.

1.7 With the re-referral of the bill in the 45th Parliament, the committee resolved not to call for new submissions, but rather to rely on those received during the 44th Parliament.6

1 Journals of the Senate, No. 118—17 September 2015, p. 3151.

2 Journals of the Senate, No. 122—15 October 2015, p. 3260.

3 Journals of the Senate, No. 3—1 September 2016, p. 92.

4 Journals of the Senate, No. 15—10 November 2016, p. 451.

5 Senate Standing Committee on Education and Employment, Fair Work Amendment (Gender Pay Gap) Bill 2015, www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Ge nder_pay_gap (accessed 31 October 2016).

6 Senate Standing Committee on Education and Employment, Fair Work Amendment (Gender Pay Gap) Bill 2015, www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/Ge nderPayGap45 (accessed 31 October 2016).

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1.8 A public hearing was held in Melbourne on 27 October 2016. A list of witnesses who appeared at the hearing is available in Appendix 2.

Background

1.9 The gender pay gap refers to the difference between women's and men's average weekly full-time equivalent earnings, expressed as a percentage of men's earnings. The gender pay gap in Australia is significant, although the exact figures vary slightly depending on the data sources and survey methods.7

1.10 According to the submission from the Workplace Gender Equality Agency (WGEA), there is a full-time base salary gender pay gap of 19.1 per cent and a total remuneration gender pay gap of 24.0 per cent. These national gender pay gap calculations do not reflect like-for-like pay gaps, but rather reflect women's overall position in the economy.8

1.11 In updated statistics released in November 2016 as part of the latest WGEA gender equality scorecard for Australia (using 2015-16 data), the full-time base salary gender pay

gap was listed as 17.7 per cent, with the total remuneration gender pay gap at 23.1 per cent. Additionally, the 2016 scorecard showed a gender pay gap in favour of men in every industry.9

1.12 These figures are consistent with other WGEA analysis which shows that the national gender pay gap has hovered between 15 and 19 per cent for the past two decades.10

1.13 The gender pay gap is attributable to a wide range of factors including women and men working in different industries and jobs, the lack of women in senior positions, unpaid caring responsibilities, differences in education and experience, and direct and indirect discrimination.11

1.14 Some workers, especially those who receive a salary and those in the private sector, are not allowed to discuss their pay with colleagues. Some employment

7 Workplace Gender Equality Agency, Submission 15, p. 4.

8 Workplace Gender Equality Agency, Submission 15, p. 4.

9 Workplace Gender Equality Agency, Australia's gender equality scorecard - key findings from the Workplace Gender Equality Agency's 2015-16 reporting data, November 2016, pp. 14-15, www.wgea.gov.au/sites/default/files/2015-16-gender-equality-scorecard.pdf (accessed 16 November 2016).

10 Workplace Gender Equality Agency, Gender pay gap statistics, August 2016, p. 3, www.wgea.gov.au/sites/default/files/Gender_Pay_Gap_Factsheet_final.pdf (accessed 31 October 2016).

11 Workplace Gender Equality Agency, Submission 15, pp. 5-6.

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contracts include pay secrecy clauses, meaning that workers can be disciplined for disclosing information about their pay.12

1.15 In May 2016 the gender pay gap in the public sector (where pay is generally set by collective agreements that are public documents) was 12 per cent, compared to 19.6 per cent in the private sector where sometimes other arrangements are more likely to apply.13

Purpose and overview of the bill

1.16 The bill seeks to reduce the gender pay gap in Australia by overriding clauses in contracts of employment which prevent workers from disclosing their own pay.

1.17 The bill would amend the Fair Work Act 2009 to provide that any term of a modern award, enterprise agreement or contract of employment has no effect to the extent that it prohibits workers from discussing their own pay. The bill would also prohibit employers from taking adverse action against employees for disclosing information about their own pay.14

Compatibility with human rights

1.18 The bill's statement of compatibility with human rights states that the bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.15

Scrutiny of Bills Committee

1.19 At the time of drafting, the Senate Standing Committee for the Scrutiny of Bills had not reported on the bill.

Financial impact statement

1.20 The Explanatory Memorandum did not contain a financial impact statement.

12 See for example Professor Michelle Brown and Ms Leanne Griffin, Submission 8, pp. 3-4; JobWatch, Submission 4, pp. 4-5; Professor Beth Gaze, private capacity, Proof Committee Hansard, 27 October 2016, p. 2; Finance Sector Union, answers to questions on notice, 27 October 2016 (received 4 November 2016), p. 1; and Ms Stephanie Milione, Convenor, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 33.

13 Workplace Gender Equality Agency, Gender pay gap statistics, August 2016, p. 6, www.wgea.gov.au/sites/default/files/Gender_Pay_Gap_Factsheet_final.pdf (accessed 31 October 2016).

14 Senator Larissa Waters, Co-Deputy Leader of the Australian Greens, Senate Hansard, 17 September 2015, p. 7125.

15 Fair Work Amendment (Gender Pay Gap) Bill 2015, Statement of Compatibility with Human Rights, Explanatory Memorandum, p. 3.

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Acknowledgment

1.21 The committee thanks those individuals and organisations who contributed to the inquiry by preparing written submissions and giving evidence at the public hearing.

Notes on references

1.22 References in this report to the Hansard for the public hearing are to the Proof Hansard. Please note that page numbers may vary between the proof and official transcripts.

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Chapter 2

Introduction

2.1 The key purpose of the bill is to promote the disclosure of remuneration by prohibiting arrangements that provide for confidentiality.

2.2 While there was widespread recognition that Australia's gender pay gap is inequitable, submitters to the inquiry disagreed about the best way to address it.

2.3 Supporters of the bill premised their position on the argument that pay secrecy contributes to the gender pay gap. These submitters argued that the bill would foster merit-based pay decisions, increase the accountability of managers and organisations for their pay decisions, and would empower women in pay negotiations, thereby reducing pay discrimination and the gender pay gap. In summary, these submitters argued that there was no valid reason for compelling employees to abide by pay secrecy provisions or directions, or for punishing employees for disclosing pay information.1

2.4 Supporters of the bill considered that the bill effectively balances the needs of both employers and employees in that it continues to protect employee confidentiality because it does not require employees to disclose their pay information to other employees, nor does it require employers to disclose the pay information of employees to other employees.2

2.5 Some supporters of the bill also made the argument that pay secrecy decreases productivity and is an inefficient way to run an organisation, while pay transparency increases levels of organisational trust, motivation, performance, and efficiency.3

2.6 However, some submitters, while supporting the bill, argued that the bill could be improved by adding a provision that explicitly protected a worker who

1 See Professor Michelle Brown and Ms Leanne Griffin, Submission 8; Good Shepherd Australia New Zealand, Submission 4; Professor Marian Baird and Ms Alexandra Heron, Submission 18; Finance Sector Union of Australia, Submission 12; Professor Beth Gaze, Submission 17; Victorian Women Lawyers, Submission 11; Law Council of Australia, Submission 13; Professionals Australia, Submission 3; JobWatch, Submission 4; Queensland Nurses' Union, Submission 6; Shop, Distributive and Allied Employees' Association, Submission 7; Australian Council of Trade Unions, Submission 10.

2 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 2.

3 Victorian Women Lawyers, Submission 11; Australian Council of Trade Unions, Submission 10.

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requested pay information from a co-worker,4 and by expressly banning pay secrecy provisions.5

2.7 The Law Council of Australia, JobWatch, and the Queensland Nurses' Union also made several recommendations to improve the clarity of the bill so as to ensure that it was capable of achieving its stated purpose.6

2.8 Opponents of the bill argued that the bill should be rejected because it was based on the flawed premise that the non-disclosure of remuneration was a direct cause of the gender pay gap. These submitters argued that the bill was superfluous and would not achieve its stated aims.7

2.9 Furthermore, opponents argued that the bill would undermine the ability of organisations to manage workplace performance and maintain workplace harmony. These submitters asserted that the bill would harm business competitiveness, and further add to the regulatory burden imposed by the Fair Work Act 2009.8

2.10 This chapter will first present evidence put forward by supporters of the bill, before examining the issues raised by opponents of the bill. Chapter 3 will then turn to the problematic aspects of the bill, and go on to explore methods to reduce the gender pay gap that are not reliant on legislated pay transparency.

Key issues

Scope of the national gender pay gap

2.11 The Workplace Gender Equality Agency (WGEA) is an Australian Government statutory agency charged with promoting and improving gender equality in Australian workplaces. Based on data that it collects9, the WGEA found a full-time base salary gender pay gap of 19.1 per cent and a total remuneration gender pay gap

4 Professor Beth Gaze, Submission 17.

5 Professor Marian Baird and Ms Alexandra Heron, Submission 18; see also Victorian Women Lawyers, Submission 11.

6 Law Council of Australia, Submission 13, pp. 5-6; JobWatch, Submission 4, p. 6; Queensland Nurses' Union, Submission 6, p. 3.

7 Australian Federation of Employers and Industries, Submission 16, p. 1; Motor Trade Association of South Australia, Submission 1, p. 4; Ai Group, Submissi on 14, p. 2; Australian Chamber of Commerce and Industry, Submission 9, p. 8.

8 Australian Federation of Employers and Industries, Submission 16, p. 1; Motor Trade Association of South Australia, Submission 1, p. 4; Ai Group, Submissi on 14, p. 2; Australian Chamber of Commerce and Industry, Submission 9, p. 5.

9 The WGEA collects data on the gender composition and remuneration of the workforce from non-public sector employers with 100 or more employees.

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of 24.0 per cent across all industries and occupations.10 Furthermore, the gender pay gap in Australia has increased since 2004.11

2.12 The Shop, Distributive and Allied Employees' Association (SDA) argued that the gender pay gap widens throughout a woman's working life. The SDA presented data that showed that for 15-19 year olds the pay gap is 0.3 per cent; for graduate starting salaries the gap

is 4.4 per cent, it rises to 21.8 per cent for 35-44 year olds and 24 per cent for 45-54 year olds.12

2.13 The gender pay gap in professional occupations in Australia is particularly large. The differential is 24.4 per cent in the Professional, Scientific and Technical Services industry,13 and up to 34 per cent in the legal services sector.14 In the financial and insurance services industry, the base salary gender pay gap is 27.3 per cent and the total remuneration gender pay gap is 35 per cent.15

2.14 The Australian Council of Trade Unions (ACTU) asserted that the gender pay gap imposed a substantial cost on the Australian economy and argued that closing the gap would boost Australia's 'growth, prosperity and international competitiveness':

It is estimated that gender inequality in workforce participation, industry participation and progression into leadership roles results in the forfeiture of a 20 per cent increase in GDP for every year that the problem goes unresolved. This figure represents an annual loss of around $300 billion to the Australian economy.16

Causes of the gender pay gap

2.15 As noted in the previous chapter, the gender pay gap reflects the overall position of women in the economy (including the concentration of women in lower-paying roles and industries), rather than just a gender pay comparison of equivalent roles. For example, the WGEA cited salary analysis from global talent consulting firm Mercer that identified a 4.4 per cent gender pay gap for equivalent roles.17

10 Workplace Gender Equality Agency, Submission 15, p. 4.

11 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 3; Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 2.

12 Shop, Distributive and Allied Employees' Association, Submission 7, p. 3; see also Ms Amy Johnstone, Chair of Law Reform Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 Octob er 2016, p. 35.

13 Professionals Australia, Submission 3, p. 1.

14 Victorian Women Lawyers, Submission 11, p. 1.

15 Finance Sector Union of Australia, Submission 12, p. 1.

16 Australian Council of Trade Unions, Submission 10, p. 3.

17 Workplace Gender Equality Agency, Submission 15, pp. 4-5.

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2.16 The gender pay gap is lower in the public sector than in the private sector (12.0 per cent compared to 19.6 per cent) and lower under awards (9.2 per cent) and collective agreements (16.5 per cent) than under individual arrangements (21.7 per cent). The main method of setting pay in the private sector is by individual arrangement (44.4 per cent), compared to the public sector where 87.2 per cent of pay is set by collective agreement.18

2.17 The WGEA noted that:

The public sector predominantly uses collective agreements and has transparent pay levels and scales, therefore standardising pay between women and men and resulting in a smaller gender pay gap than the private sector, where individual agreements are common.19

2.18 However, the WGEA also observed that the various factors listed below may contribute to the difference in the gender pay gap between the public and private sectors:

 the public sector operates in a politically-driven environment, while the

private sector is market-driven;

 differences in the levels of occupational integration (balanced proportion of

women and men in an occupation);

 differences in the implementation of anti-discrimination legislation;

 differences in the size of establishments; and

 differences in the education and qualifications of workers. 20

2.19 In addition, the WGEA pointed out that gender stereotypes may also influence the gender pay gap:

Women and men often work in different industries (industrial segregation) and different jobs (occupational segregation). Historically, female-dominated industries and jobs have attracted lower wages than male-dominated industries and jobs.21

2.20 Furthermore, women undertake most of the unpaid caring work in society, often for long periods, and are therefore more likely to work in a part-time or flexible

18 Workplace Gender Equality Agency, Gender pay gap statistics, August 2016, pp. 6-8, www.wgea.gov.au/sites/default/files/Gender_Pay_Gap_Factsheet_final.pdf (accessed 31 October 2016).

19 Workplace Gender Equality Agency, Submission 15, pp. 5-6; see also Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 4; Law Council of Australia, Submission 13, p. 5.

20 Workplace Gender Equality Agency, Submission 15, p. 6; see also Motor Trade Association of South Australia, Submission 1, p. 7.

21 Workplace Gender Equality Agency, Submission 15, p. 6; see also Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 2; JobWatch, Submission 4, p. 4.

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capacity.22 Given women's contribution to the unpaid caring workforce combined with the lack of part-time management roles, it is more difficult for women to move into higher paid, more senior roles. For example, the WGEA data showed that just 15.4 per cent of women were chief executive officers and only 27.5 per cent of women were employed in the top three levels of management, compared to 40 per cent of women employed in the lowest level of management categories.23

2.21 The WGEA also noted that gender discrimination not only impacts women's ability to negotiate pay, but can also lead to male-dominated networks 'hiring and rewarding in their own image'.24

Non-disclosure of remuneration in Australian workplaces

2.22 Non-disclosure of remuneration means that employees do not have full information about their colleagues' pay. This can include formal base salary levels, salary structures, informal remuneration salary components, and discretionary performance pay such as bonuses.25

2.23 Non-disclosure of remuneration in Australian workplaces is not uncommon, with some data suggesting that 50 per cent of organisations discourage employees from sharing remuneration information.26

2.24 Professor Michelle Brown and Ms Leanne Griffin, University of Melbourne academics researching pay secrecy and performance management systems, and JobWatch, reported that in Australia, many employers actively pressure employees not to disclose their pay, even in the absence of a formal pay secrecy clause in the employment contract. The employer may simply give a direction to an employee not to disclose their pay and many employees are fearful of being sanctioned or dismissed on the grounds that they have breached the confidentiality clause in their employment contract. Based on their research, Professor Brown and Ms Griffin noted that penalties appeared to be imposed when an employee used information about a co-workers' pay to make a pay claim or complaint.27

2.25 Professor Beth Gaze, co-director of studies in employment and labour relations law at the University of Melbourne (who appeared in a private capacity) also informed the committee that in recent years a practice of explicit prohibitions on pay

22 Workplace Gender Equality Agency, Submission 15, p. 6; Queensland Nurses' Union, Submission 6, p. 4; Shop, Distributive and Allied Employees' Association, Submission 7, pp. 1-2.

23 Workplace Gender Equality Agency, Submission 15, p. 6.

24 Workplace Gender Equality Agency, Submission 15, p. 6.

25 Workplace Gender Equality Agency, Submission 15, p. 7.

26 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 3.

27 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 4; JobWatch, Submission 4, pp. 4-5; see also Shop, Distributive and Allied Employees' Association, Submission 7, p. 5.

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discussion in employment contracts had developed in Australia, owing to increasing American influences in labour law.28

2.26 Evidence received from the Finance Sector Union (FSU) indicated that pay confidentiality was widespread in the finance and banking industry. Although the enterprise agreements of the 'Big Four' banks29 do not contain pay confidentiality clauses, employment contracts issued by the Commonwealth Bank, ANZ Bank and Westpac contain confidentiality clauses related to pay and remuneration. The FSU also stated that out of 100 general and insurance employment contracts provided to the union, 20 per cent of these contained pay confidentiality clauses.30

2.27 For example, an excerpt from a CBA contract provided by the FSU contained the following clause:

In particular, the terms and conditions of your employment (including remuneration arrangements) are strictly confidential. It is a condition of your employment that you do not discuss these matters with any other person other than your legal or financial advisers or immediate family members.31

2.28 The FSU also provided an excerpt from an American Express contract which stated:

You will appreciate that salary and other employment conditions are confidential and must not be discussed with other employees of American Express.32

2.29 Similarly, an excerpt from a BayCorp Australia contract stated:

Details of your remuneration package and future changes to your remuneration are confidential between you and BayCorp. You must not discuss these details with other Baycorp employees.33

28 Professor Beth Gaze, private capacity, Proof Committee Hansard, 27 October 2016, p. 2; see also Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 3.

29 The 'Big Four' banks in Australia are the Commonwealth Bank, the National Australia Bank, the ANZ Bank, and Westpac.

30 Finance Sector Union, answers to questions on notice, 27 October 2016 (received 4 November 2016), p. 1.

31 Finance Sector Union, answers to questions on notice, 27 October 2016 (received 4 November 2016), p.1.

32 Finance Sector Union, answers to questions on notice, 27 October 2016 (received 4 November 2016), p.2.

33 Finance Sector Union, answers to questions on notice, 27 October 2016 (received 4 November 2016), p. 2.

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2.30 In addition to the evidence the committee received on the finance industry, representatives from Victorian Women Lawyers (VWL) indicated that pay secrecy clauses were also extremely widespread in the legal industry.34

2.31 By contrast, the Australian Industry Group (Ai Group) stated that terms prohibiting remuneration disclosure were rare and not necessarily problematic.35 Noting that confidentiality clauses in employment contracts 'sometimes may capture terms prohibiting the disclosure of pay', this may not always be legally enforceable if 'there is an insufficient connection between an employer's legitimate business interests and the information sought to be protected'.36

2.32 The Ai Group also pointed out that private sector remuneration is not completely opaque because the market rates that private enterprise uses to recruit employees is generally freely available or available for a small fee from 'salary surveys conducted by private consulting or recruitment firms'. 37 In addition, the Ai Group itself publishes a salary and benefits survey of its members.

Pay confidentiality and the gender pay gap

2.33 Submitters in support of the bill argued that pay confidentiality contributes to the gender pay gap in the following ways:

 conscious or unconscious bias and gender stereotyping can persist because

organisations are able to make pay and promotion decisions that are not strictly based on objective criteria and employees do not necessarily have the requisite knowledge to challenge the basis of those decisions, and those decisions are not exposed to external scrutiny;

 women are less likely to get high performance ratings compared to men and

therefore the gender pay gap is further perpetuated by performance pay remunerations;

 women are reluctant to negotiate over pay and tend to ask for, and accept, lower pay than their male counterparts. As a result, managers often make lower opening pay offers to women during pay negotiations; and

 employees who uncover discriminatory practices or pay decisions are unable

to challenge their employer without exposing themselves to the charge that

34 Ms Stephanie Milione, Convenor, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 33.

35 Ai Group, Submission 14, p. 2.

36 Ai Group, Submission 14, p. 3.

37 Ai Group, Submission 14, p. 3.

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they have discussed their remuneration with a colleague, and thereby risk being sanctioned.38

2.34 However, the committee received no evidence that was able to conclusively determine the extent to which pay confidentiality arrangements contributed to the gender pay gap in Australia.

2.35 Professor Brown and Ms Griffin argued that pay confidentiality not only has a negative impact on female employees, but also impedes organisational productivity by:

 limiting the effectiveness of performance pay systems that rely on pay

performance messages to be broadly communicated to drive higher levels of organisational performance; and

 reducing employee satisfaction with pay, creating an environment that reduces trust and can promote conflict between employees.39

2.36 Professor Brown and Ms Griffin acknowledged that many employers viewed confidentiality arrangements as a way to minimise perceptions of inequity and limit negative employee attitudes. However, they argued that the belief that pay secrecy minimised conflict over pay was misplaced and based on a false assumption that employees are unable to handle the facts about differences in pay rates. Furthermore, they argued that non-disclosure has been shown to increase employee anxiety, encourage rumours, and reduce levels of employee trust and team motivation. By contrast, employees associated pay transparency with integrity.40

2.37 Professor Brown elaborated on this point during the public hearing:

There is a body of research that shows that openness is signalling integrity. Employees take the view that if there is a lack of information it means they [employers] have something to hide, whether that is true or not. The natural perception is, 'If you're not telling me something you must be really potentially unfair.' Not only do people begin to doubt the fairness of the pay system but there is also research that shows employees begin to doubt the quality of any other kinds of decisions or activities the organisation is engaging in. So it has a kind of domino impact on other organisational activities.41

38 Workplace Gender Equality Agency, Submission 15, pp. 7 and 11; Professor Michelle Brown and Ms Leanne Griffin, Submission 8, pp.5-7; Good Shepherd Australia New Zealand, Submission 4, p. 1; Finance Sector Union of Australia, Submission 12, pp. 1-2; JobWatch, Submission 4, pp. 4 and 5; Queensland Nurses' Union, Submission 6; p. 5; Shop, Distributive and Allied Employees' Association, Submission 7, pp. 5-6; Australian Council of Trade Unions, Submission 10, pp. 2-4.

39 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, pp. 2 and 8-9; Australian Council of Trade Unions, Submission 10, pp. 2 and 5.

40 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, pp. 9-11.

41 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 9.

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2.38 The ACTU concurred with the above points and noted that pay secrecy may lead employees to infer that pay procedures and outcomes are unfair even if their employer is acting in good faith. The ACTU was also of the view that pay secrecy infringed on the fundamental right to freedom of association and collective bargaining, enshrined in International Labour Organisation conventions 87 and 98.42

2.39 During the public hearing, the committee heard from Ms Erin McCoy, Industrial Officer for the ACTU, who stated that:

…our view is that prohibiting employees discussing their pay tends to have a negative impact on workplace culture, which in turn reduces employee engagement. In our experience, workers are much less likely to be dissatisfied if organisations are transparent about the criteria used to set pay, take steps to ensure that wages are fair and do not prohibit employees discussing their pay with colleagues.43

2.40 The committee also received evidence arguing that non-disclosure in organisations had the potential to disproportionately impact women. Professor Brown asserted:

But what we know from research is that organisations are really using pay secrecy as a cost reduction method. By keeping pay secret, they can actually keep their labour costs down, which in and of itself is not a problem, but what you see is that organisations are actually keeping the wages of women lower, rather than the wages of men and women lower.44

2.41 Finally, representatives from VWL informed the committee that they considered non-disclosure a contributing factor to the large gender pay gap in the legal industry. Ms Amy Johnstone, chair of the VWL Law Reform Committee observed:

The legal sector provides a fairly unique kind of case study in relation to the pay gap and the role of pay secrecy. This is a sector where women are particularly highly educated and often engage in complex negotiations as part of their job. So it would be hard to imagine that the pay gap exists because they are not negotiating and not asking. The full-time base salary pay gap is about 19 per cent for women in law. We consider that pay secrecy is one factor in that, and it suggests that we obviously need more than a lean-in approach to addressing the pay gap in our sector.45

2.42 The WGEA submitted that in contrast to pay secrecy, pay transparency refers to institutional arrangements where salary determination and salary increases are accessible and comprehensible to employees such that employees have information

42 Australian Council of Trade Unions, Submission 10, pp. 5-6.

43 Ms Erin McCoy, Industrial Officer, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 38.

44 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 3.

45 Ms Amy Johnstone, Chair of Law Reform Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 32.

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and clarity about their co-workers' salary.46 Pay transparency can also mean that employees can discuss their pay without the fear of being sanctioned by their employer.47

2.43 Professor Brown and Ms Griffin were of the view that in terms of providing greater transparency, the bill struck an effective balance between the needs of employers and employees:

Employees who prefer to keep their pay confidential do not have to reveal their pay and employers are not required to make pay information publicly available. Employers merely need to be able to provide responses to employees who ask for additional information about their pay.48

2.44 Supporters of the bill argued that tackling discrimination and unconscious bias when it is hidden by non-disclosure clauses posed a particular challenge. Mr Jonathan Kirkwood, a member of the Industrial Law Committee in the Federal Litigation and Dispute Resolution Section of the Law Council of Australia (Law Council) stated:

In the Law Council's view, removing legal prohibitions on workers discussing their pay will assist in removing pay secrecy, which can hide discrimination and unconscious bias. Discrimination is particularly difficult to remove where it is hidden from view. Accordingly, the Law Council supports the passage of the bill as a necessary and proportionate measure to reduce the gender pay gap, as well as recognising its consistency with Australia's international human rights legal obligations.49

2.45 The WGEA, and Professor Brown and Ms Griffin noted that research indicates that pay transparency may improve motivation and trust, minimise unconscious bias and lead to the retention of talented workers. Pay transparency may also empower women in pay negotiations and reduce gender bias by fostering greater employer accountability over pay decisions.50

2.46 However, the WGEA stated that there was currently no definitive evidence to link the removal of legal prohibitions on employees discussing their pay and the reduction of gender pay gaps.51

46 Workplace Gender Equality Agency, Submission 15, p. 7.

47 Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 3.

48 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 2.

49 Mr Jonathan Kirkwood, Member of the Industrial Law Committee, Federal Litigation and Dispute Resolution Section, Law Council of Australia, Proof Committee Hansard, 27 October 2016, p. 30.

50 Workplace Gender Equality Agency, Submission 15, pp. 7 and 11; Professor Michelle Brown and Ms Leanne Griffin, Submission 8, pp. 5-6; see also Australian Council of Trade Unions, Submission 10, pp. 3-4.

51 Workplace Gender Equality Agency, Submission 15, p. 3.

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2.47 Ms Jackie Woods, Acting Director of the WGEA emphasised this position at the public hearing:

…We do not see, or have hard evidence to hand, that removing the secrecy clauses would directly reduce gender pay gaps.

Nevertheless, we do see that transparency in a broad sense can really support pay equity in workplaces. That can be thinking about transparency of remuneration policies and strategies and making sure that people understand what they are, which is a bit of a different issue to individuals knowing each other's pay information.52

International approaches to pay transparency

2.48 The WGEA noted that the role of pay transparency in supporting gender pay equity has been the subject of both international debate and legislative action in countries such as the United Kingdom (UK) and the United States (US).53

2.49 In 2010 the UK enacted changes to the Equality Act 2010 (UK), implementing a limited protection for employees wishing to discuss their pay. The provision prevents an employer from enforcing a term in an employee's contract prohibiting the employee from discussing their pay or asking a colleague (or ex-colleague) about pay matters. However, the protection only applies where the disclosure or request is specifically to discover whether there is discrimination (on sex or other grounds).54

2.50 This particular approach does not invalidate pay secrecy clauses, and as Professor Gaze noted:

Unless employees are very well educated on their rights, they may not be aware that they have the right to discuss pay in the face of an apparently valid secrecy clause in their employment document.55

2.51 Professor Marian Baird and Ms Alexandra Heron, academics from the University of Sydney Women and Work Research Group, provided comments from a British barrister noting that the changes to the UK law still permit contractual prohibitions on discussing pay to remain in employment contracts and only guards against their enforcement. The comments explained that the provision means the employer may leave a total ban in place (potentially misleading employees as to the state of the law), and observed that it could prove difficult to assess or prove whether an employee intended to make inquiries or a disclosure for the purposes for checking discrimination. As such, Professor Baird and Ms Heron suggested that should the UK

52 Ms Jackie Woods, Acting Director, Workplace Gender Equality Agency, Proof Committee Hansard, 27 October 2016, p. 45.

53 Workplace Gender Equality Agency, Submission 15, pp. 8-9.

54 Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 6.

55 Professor Beth Gaze, answers to questions on notice, 27 October 2016 (received 3 November 2016), p. 5.

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legislation be used as a model, these problematic aspects should be taken into consideration and remedied.56

2.52 In the US context, 11 states have passed laws banning pay secrecy: Michigan (1982); California (1984); Colorado (2008); Illinois (2004); Maine (2009); Vermont (2005); New Jersey (2013); Minnesota (2014); New Hampshire (2014); New York (2015); and Connecticut (2015).57

2.53 Professor Brown and Ms Griffin presented evidence of research from the US that found that women's wages were 4 to 12 per cent higher in states that prohibited pay secrecy compared to states that did not prohibit pay secrecy.58 Furthermore, the committee was informed that enforcement of pay secrecy by companies in the US had decreased from 75 percent in 1985, to 36 percent in 2001, to 23 percent in 2010.59

2.54 Additionally, in 2014 US President Barack Obama issued executive orders designed to decrease the gender pay gap through the introduction of provisions to reduce pay secrecy among federal contractors. As Professor Gaze outlined:

The Order amended Executive Order 11246, a longstanding executive policy that deals with positive action requirements in federal government contracting, to add a further area of protection whereby the contractor may not 'discharge or in any other manner discriminate against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant'.60

2.55 However, Professor Gaze also noted that this transparency approach has been criticised as too weak, as rather than requiring employers to take responsibility for reviewing and remedying pay inequalities, it places responsibility for checking pay equity solely on employees.61

2.56 During the hearing Ms Amanda McIntyre, First Assistant Secretary for the Office for Women, part of the Department of the Prime Minister and Cabinet, commented on the international context:

Senators would be aware that the transparency provisions in both the UK and the US have not solved the gender pay gap, which remains high, and there is no substantial evidence that the removing of pay gagging clauses,

56 Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 6.

57 Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 4.

58 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p. 8.

59 Professor Michelle Brown and Ms Leanne Griffin, Submission 8, p.3.

60 Professor Beth Gaze, answers to questions on notice, 27 October 2016 (received 3 November 2016), p. 3; see also Workplace Gender Equality Agency, Submission 15, p. 8.

61 Professor Beth Gaze, answers to questions on notice, 27 October 2016 (received 3 November 2016), p. 3.

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such as the amendment proposed, have actually contributed to the reduction of the gender pay gap in these countries.62

2.57 When subsequently queried on whether the Office for Women was aware of a US study63 provided by Professor Brown indicating that the gender pay gap had decreased in the states which had outlawed pay secrecy, Ms McIntyre undertook to review the evidence in question.64

2.58 In answering the question on notice, the Office for Women concluded:

While the study uses a large sample size and accounts for a number of other factors that could contribute to wage discrepancies, such as education level and sector, it also suggests that 'banning pay secrecy may not be what increases pay for women, but rather a larger culture that supports women' (p. 658) in the states that have introduced these laws. The Office for Women maintains that cultural change is an important driver in improving gender equality, including addressing the gender pay gap in Australia.

The introduction of minimum wage provisions in these states also had an impact, and men's and women's wages were both positively affected. This indicates that there has been broader legislative and cultural change that cannot be discounted as contributors to the reduction in the gender pay gap in those states. While the outlawing of pay secrecy clauses appears to have a positive effect in the evidence presented, it is not the only factor contributing to this positive change.65

Employer views on pay transparency

2.59 In discussions with employers, the WGEA observed a divergence of views regarding this legislation to remove the restrictions on employees discussing their pay. Overall, a majority of employers which responded to the WGEA about the bill, opposed it.66 Some employers saw pay transparency as a way to progress gender pay equity. For example, the WGEA cited an employer that argued the bill was 'reasonable' because it did not require anyone to discuss their pay.67

62 Ms Amanda McIntyre, First Assistant Secretary, Office for Women, Department of the Prime Minister and Cabinet, Proof Committee Hansard, 27 October 2016, p. 46.

63 The study referred to is: Marlene Kim, 'Pay Secrecy and the Gender Wage Gap in the United States', Industrial Relations, vol. 54, no. 4, 2015, pp. 648-677.

64 Ms Amanda McIntyre, First Assistant Secretary, Office for Women, Department of the Prime Minister and Cabinet, Proof Committee Hansard, 27 October 2016, p. 48.

65 Office for Women, Department of the Prime Minister and Cabinet, answers to questions on notice, 27 October 2016 (received 11 November 2016), pp 2-3.

66 Workplace Gender Equality Agency, Submission 15, p. 9.

67 Workplace Gender Equality Agency, Submission 15, p. 9.

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2.60 Another employer noted:

All employees should have access to de-identified wage and salary data that shows wages for women and men across all roles within an organisation, so that all employees, especially women, have the opportunity to negotiate fair and equitable wage outcomes.68

2.61 By contrast, other employers were of the view that the legislation would lead to workplace conflict and reduce staff morale because employees may not fully understand all aspects of pay decisions. For example, the WGEA noted that one employer expressed concern that the 'fallout' from the bill would outweigh the good intentions of the bill by undermining organisational culture.69 Another employer stated:

We believe that equal pay is addressed through better communication with managers, better education of decision makers around unconscious bias as well as providing decision-makers with support and guidance by those who help set and regulate pay… Discussion between employees does not address the issue as, in most situations, they do not have all the facts to understand how pay was determined for each individual.70

2.62 The Australian Chamber of Commerce and Industry (ACCI) noted that 'the design and implementation of remuneration frameworks is a complex area of human resources management practice' and that the management of employee perceptions around performance and remuneration was particularly challenging. Consequently, employers adopted strategies to minimise potential conflict arising from pay comparisons including preventing employees from disclosing their pay. The ACCI argued that this was done in the interests of maintaining workplace harmony and not because of discrimination.71

2.63 Likewise, the Australian Federation of Employers and Industries (AFEI) argued that prohibitions on the disclosure of remuneration by employees are 'not about discrimination' and instead are a necessary part of managing workplace performance.72

2.64 On this point, Mr Gary Brack, Chief Executive Officer of the AFEI argued it was difficult for managers to provide objective justifications for pay differences and remuneration strategies that employees would accept:

Once you get involved in the debate about 'because'…then you get involved with people's perceptions and their views about whether or not they should or they should not be up there, and a lot of people think they should be up

68 Workplace Gender Equality Agency, Submission 15, p. 9.

69 Workplace Gender Equality Agency, Submission 15, p. 9.

70 Workplace Gender Equality Agency, Submission 15, pp. 8-9.

71 Australian Chamber of Commerce and Industry, Submission 9, p. 5.

72 Australian Federation of Employers and Industries, Submission 16, p. 2.

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there even though their position and their contribution do not necessarily warrant it. You argue that this is an equitable proposition, surely they should have the information and you should be able to justify objectively. I am saying that in practice, in the workplace, objective proof is much more difficult to provide to the point where it convinces someone who will then be destabilised. That is the problem.73

2.65 Evidence from supporters of the bill countered this view saying that employees are accepting of performance pay as long as the frameworks used to determine it are fair and transparent. Professor Brown stated:

One of the other points that organisations often argue…is that employees cannot cope with pay differences. That argument was probably valid back in the 1990s, but it is now pretty clear that employees accept differences in pay so long as they are based on valid performance management systems. Employers argued through the 1990s that they wanted to move away from the award system; they wanted to have performance-related pay and they wanted to pay people differently. Employees have gone with them and there is an understanding that people get paid differently on the basis of their performance. All pay transparency requires is that organisations articulate those differences.74

2.66 Ms McCoy from the ACTU further elaborated on this point during the public hearing:

I think fairness is the key here. Workers accept that different jobs get paid at different rates, and, when they understand why it is that certain work is rewarded or bonuses are given for certain performance outcomes, they are very accepting of that. But the question may be 'why am I being paid less than someone who is doing exactly the same work as me' or 'why does my employer want to hide from me how much my colleagues are getting paid'. The idea that, all of a sudden, if it is known to an employee how much others are getting paid at a general level or even at individual pay rates, that is going to create disharmony in the workplace, I think, is somewhat disingenuous. As you pointed out, the public sector have had that for many years, and it is not a major issue.75

2.67 The ACCI pointed out that enabling an employee to ascertain their comparative remuneration would do nothing to foster an objective understanding amongst employees of the underlying reasons for any pay differential. This could lead to an employee making an automatic assumption that gender was the basis for a disparity in remuneration.76

73 Mr Gary Brack, Chief Executive Officer, Australian Federation of Employers and Industries, Proof Committee Hansard, 27 October 2016, p. 20.

74 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 9.

75 Ms Erin McCoy, Industrial Officer, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 41.

76 Australian Chamber of Commerce and Industry, Submission 9, p. 9.

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2.68 Ms Alana Matheson, Deputy Director of Workplace Relations for the ACCI also voiced concerns that pay transparency would not necessarily encourage a disgruntled employee to speak to their managers, but rather would merely foster workplace resentment:

What we do question is whether or not this bill will approach that [conversations between employees and managers on pay differences] or facilitate that in a constructive way. What it might result in is resentment between colleagues, as an example, who perhaps consider that they have worked harder or contributed more than the other person, and vice versa. We would like people who feel that their pay may be set on inappropriate grounds, or may be set unfairly, to be able to discuss these issues openly with the person responsible for pay decisions, and the way to achieve that is to facilitate workplace cultures where the relationship is strong enough to be able to have those conversations.77

2.69 The Motor Trade Association of South Australia (MTA) acknowledged that the gender pay gap in the private sector is greater than in the public sector because of collective bargaining and greater political sensitivity in the public sector, whereas market forces typically determine wage outcomes in the private sector.78

2.70 However, the MTA argued that greater collectivised bargaining in the private sector would not address the gender pay gap and may cause economic damage. While it acknowledged that better information would improve an employee's ability to negotiate wages, the MTA argued that it was vital that employers kept the ability 'to reward skill differentiation and competency while retaining some control over costs without fear of employees either collectively or individually 'bidding up' wage negotiations'. The MTA also raised the possibility that employers would be left defenceless to deal with an employee who, with the intention of bidding up wages, made a false or misleading disclosure about their pay.79

2.71 The ACCI also pointed out that there are a host of legitimate reasons why pay might vary among people performing the same job, role, or occupation. In particular, a focus on personal capacities such as skills, knowledge and abilities meant that people are remunerated according to their performance or worth rather than the job they are doing.80

2.72 Mr Brack from the AFEI reinforced this argument when he stated:

It is not that there is a precise science in pay setting, but it is clear that they have to operate within a market, they have to take into account people's

77 Ms Alana Matheson, Deputy Director of Workplace Relations, Australian Chamber of Commerce and Industry, Proof Committee Hansard, 27 October 2016, p. 26.

78 Motor Trade Association of South Australia, Submission 1, p. 3.

79 Motor Trade Association of South Australia, Submission 1, p. 9.

80 Australian Chamber of Commerce and Industry, Submission 9, pp. 5-6.

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differential contributions and capacities, they have to look at their education levels and a variety of other things.81

2.73 Supporters of the bill acknowledged that there may be legitimate differences between employees, but asserted that pay transparency led to more conscious decisions around pay. Professor Brown observed:

It may well be that there are differences between people, and they are completely legitimate, and all pay transparency does is make sure organisations make very conscious and rational decisions, whereas when it is secret they do tend to be ad hoc - there is no pressure to really think about what you are doing, so that is why you get these kinds of adverse outcomes with one group of people getting paid less than another. I think the key argument for pay transparency is around more rational and conscious decision making around pay.82

2.74 Professor Brown also asserted that pay transparency worked to increase the efficacy of performance management systems:

If you do not know you are being paid less, you may not actually change your performance, so you are not getting the kinds of signals that the performance management system is supposed to be sending. We also know that the people who are performing better want to know that they are getting paid more than other people.83

2.75 On a similar point, when asked for an opinion on whether pay transparency would be a barrier to implementing performance based pay structure in the finance sector, Ms Wendy Streets, the Local Executive Secretary for the Queensland branch of the FSU responded:

I do not believe for a minute it would be a barrier. I think what they are probably fearful of is what gets exposed in the performance pay information once it is free to be discussed and be out there. It will out an awful lot of discrimination. There is probably at least 75 per cent of people who work in the finance industry on one type or another of performance based systems. We have difficulty - we have tried to enter into pay equity audits with some of our major employers. For all their billions of dollars, sometimes they are quite unable - and, more often than not, most of them are unwilling, but we have had a few who have worked with us - to produce the data.84

81 Mr Gary Brack, Chief Executive Officer, Australian Federation of Employers and Industries, Proof Committee Hansard, 27 October 2016, p. 19.

82 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 4.

83 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 3.

84 Ms Wendy Streets, Local Executive Secretary of the Queensland Branch, Finance Sector Union, Proof Committee Hansard, 27 October 2016, p. 42.

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2.76 Performance criteria and outputs are likely to become increasingly important in a globally competitive business environment. However, the ACCI was concerned that the bill would discourage employers from implementing legitimate remuneration structures based on personal capacities because of a concern that employee discussion of pay outcomes could lead to workplace conflict.85

2.77 Professor Brown responded to these concerns by emphasising the potential for reduced productivity under pay secrecy arrangements:

We have a number of studies which show that pay secrecy reduces the effectiveness of pay systems to motivate employee performance and that employee performance is lower under a pay secrecy policy because people cannot see the connection between pay and performance. The lower-performing employees do not know that they are performing poorly and getting less pay, and the high performers have no relative information that says they are working hard and being remunerated for that. The overwhelming body of research shows that pay secrecy is bad for employee performance rather than better for it.86

2.78 The ACCI was also concerned that an increased focus on pay risked undervaluing valuable non-monetary or intrinsic rewards such as job challenge, responsibility, autonomy, and task variety.87

2.79 Both the AFEI and the ACCI argued that performance pay schemes are closely linked to corporate financial performance, and that the public disclosure of pay structures could inflict damage on market performance.88

2.80 Ms Matheson from the ACCI emphasised the commercial and competitive risks of releasing pay-related information when she stated:

The Australian Chamber supports the principle that workplaces should be free of sex-based discrimination, but there are ways to achieve this other than through pay transparency. The bill also raises concerns that its blanket approach of rendering unenforceable clauses preventing employee pay disclosure will see pay-based information land in the hands of competitors.89

2.81 Similarly, the MTA argued that the amendment as currently drafted does not reflect the intention of the bill which is designed to capture the disclosure of pay information between colleagues within the same workplace. However, the MTA

85 Australian Chamber of Commerce and Industry, Submission 9, p. 7.

86 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 9.

87 Australian Chamber of Commerce and Industry, Submission 9, p. 8.

88 Australian Federation of Employers and Industries, Submission 16, p. 2; Australian Chamber of Commerce and Industry, Submission 9, p. 9.

89 Ms Alana Matheson, Deputy Director of Workplace Relations, Australian Chamber of Commerce and Industry, Proof Committee Hansard, 27 October 2016, p. 18.

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argued that because the provisions of the bill could be applied broadly, 'a literal interpretation of the legislation could lead to penalty free disclosure of a workplaces wage structures to business competitors, either inadvertently or by disgruntled employees'. The MTA was of the view that the potential for general disclosure of business wage structures created serious commercial risks.90

2.82 Finally, both the ACCI and the MTA pointed out that there were various legislative and regulatory mechanisms already in place to address factors such as discrimination and bias. For example, it is already unlawful to discriminate in pay negotiations on the basis of gender. Furthermore, the Fair Work Commission is already empowered to review employment agreements and respond to allegations of bias and poor decision-making.91

2.83 The Office for Women concurred with this point and noted:

The Fair Work Act already contains a number of provisions which support gender equality, including gender pay equity. Employers must also have regard to obligations under state, territory and federal anti-discrimination laws.92

90 Motor Trade Association of South Australia, Submission 1, p. 8; see also Australian Chamber of Commerce and Industry, Submission 9, p. 9.

91 Australian Chamber of Commerce and Industry, Submission 9, p. 8; Motor Trade Association of South Australia, Submission 1, p. 9.

92 Ms Amanda McIntyre, First Assistant Secretary, Office for Women, Department of the Prime Minister and Cabinet, Proof Committee Hansard, 27 October 2016, p. 46.

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Chapter 3

Further key issues

Proposed amendments to the bill

3.1 The committee received evidence from a number of inquiry participants highlighting flaws in the bill and suggesting amendments.

3.2 For example, Professor Andrew Stewart, a specialist in employment law and workplace relations at the University of Adelaide who appeared in a private capacity, observed a clear limitation of the bill in relation to coverage:

I do think that there is a strong argument for promoting effective measures to reduce the gender pay gap by reducing the degree of pay secrecy. However, it seems to me that the bill has a number of potential flaws in some respects - seeking to go too far and in other respects not going far enough. It does not, as the explanatory memorandum claims, in my view, 'make sure that workers are allowed to tell their colleagues what they are paid if they wish to without fear of retaliation'. That is because it prohibits pay secrecy terms but not pay secrecy practices. So for example, if workers were told, including in policies and procedures that are not formally part of their employment contract, that they are not to disclose their pay to anyone else then arguably there is restraint there that is not caught by the bill.1

3.3 Professor Stewart then outlined the way in which the bill would potentially go too far in amending the current legislation:

The aspect in which the amendment potentially goes too far is that it is concerned to remove pay secrecy for any purpose and not just for the purposes of addressing discrimination or gender pay issues. So for example, it would, on the face of it, prevent a company from requiring its employees not to disclose their salaries to a competitor where the competitor's interest is nothing to do with an interest in discrimination but simply wanting to find out what their competitor is doing. I think it might be better if the amendments were re-crafted so as to create a more specific but also more limited right to disclose pay information to co-workers, to unions or to regulators and also a right to ask for that information from co-workers rather than simply having the blunt instrument of prohibiting pay secrecy clauses for any purpose.2

3.4 Furthermore, while acknowledging that increased pay transparency had the potential to address certain aspects of the gender pay gap, Professor Stewart cautioned:

1 Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 2.

2 Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 2.

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The questions are still going to be: what is the best way to do it, and does this bill strike the right balance between addressing that issue and respecting what, to me, remain legitimate reasons for having confidentiality of pay arrangements for some purposes.3

3.5 Professor Gaze noted that there is currently no mechanism in Australia that would allow an employee to check whether their pay is fair compared to that of their co-workers. Professor Gaze argued that a transparency provision is therefore essential to prevent pay inequity from remaining hidden.4

3.6 While supporting the bill in so far as it would protect an employee who disclosed pay information, Professor Gaze pointed out that it was unclear whether an employee who asked a co-worker to share their pay information would be protected. Professor Gaze observed that the bill could be improved by adding a provision that explicitly protected a worker who requested pay information from a co-worker:

Merely preventing a secrecy term from having effect, as the Bill does, is not the same as creating a positive right to make inquiries about pay equity and comparisons from co-workers rather than the employer. Ensuring that both employees who ask and those who disclose are protected from adverse consequences for such actions is essential to ensure the rights can be exercised without penalty. This could be done by adding to the Bill a provision that expressly protects employees who ask about pay rates from adverse consequences from their employers or fellow employees. Explicit protection for both the person requesting information from co-workers and the person who provides pay information would be the most effective way to proceed. Nothing in the Bill obliges employees to provide that information, but simply asking for it or giving it on request should not be either prohibited or penalised.5

3.7 However, Professor Gaze conceded that general pay transparency may be moving too far for some employers in Australia at present. She therefore suggested a compromise position that would protect pay discussions specifically for the purpose of checking pay equity within the workforce, but not for the purpose of generally publicising rates of pay. She noted that the recent changes to the Equality Act 2010 (UK) embodied such a position.6 Representatives from VWL indicated to the committee that their organisation would support something similar as an alternative position.7

3 Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 7.

4 Professor Beth Gaze, Submission 17, p. 1.

5 Professor Beth Gaze, Submission 17, pp. 1-2; see also Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 4.

6 Professor Beth Gaze, Submission 17, p. 2.

7 Ms Sophie Brown, Co-Chair of Work Practices Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 31.

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3.8 Professor Baird and Ms Heron went further and suggested that the bill be amended to expressly ban pay secrecy clauses. They also recommended that the Fair Work Information Statement which is given to an employee at the beginning of their employment by their employer be amended to include a statement about the change made by the bill in order to inform employees about pay transparency.8

3.9 During the public hearing the ACTU indicated it supported these proposals. Ms McCoy noted:

It is important…to ensure that workers are aware of their rights to disclose information about their pay. Allowing pay gag provisions, even if they are invalid, to remain in workplace agreements or policies will have the effect of discouraging workers from identifying and challenging unfair pay.9

3.10 Over the longer term, Professor Gaze suggested that gender pay equity would be advanced by enabling employees to check pay information such as pay grades and performance pay criteria.10

3.11 The Law Council suggested that the bill be amended to more closely reflect the aims outlined in the Explanatory Memorandum and ensure the aims of the bill were effectively achieved. The Law Council noted that the bill as currently drafted would allow employees to tell people other than their work colleagues what they are paid. However, the Law Council argued that 'the stated purpose of this bill does not appear to be advanced by permitting such conduct'. Rather, the Industrial Law Committee of the Law Council proposed that the bill could be restricted to its stated purpose by adding the following bolded words to proposed section 333B:

(a) prohibits an employee from disclosing to other employees of the employer, an industrial association or professional adviser, the amount of, or information about, the employee's pay or earnings11

3.12 Mr Jonathan Kirkwood from the Law Council also noted that this particular amendment may assist in alleviating some of the concerns expressed by employer associations:

The intent behind the amendment is really to clarify, or to perhaps address, a concern that has been expressed by employer groups that if there is a right to simply disclose remuneration to the public at large that could impinge upon legitimate commercial interests of employers. So we sought to draft something that makes it more focused on achieving the stated objectives of the bill - to address pay equity within the workplace…

8 Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 7; see also Victorian Women Lawyers, Submission 11, p. 2.

9 Ms Erin McCoy, Industrial Officer, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 38.

10 Professor Beth Gaze, Submission 17, p. 2.

11 Law Council of Australia, Submission 13, p. 5, emphasis in original.

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I suspect with all proposals of this type, it is a matter of balancing competing interests. To the mind of the members of the Industrial Law Committee, some weight does have to be given to the concerns employers might hold that information about the remuneration of employees is commercially sensitive - certainly, vis-à-vis other firms and competitors - and that that information, in the hands of a competitor, could be used to damage a particular business.12

3.13 VWL took a different position to the Law Council on this proposed amendment and stated that its primary position would be to have employees entitled to disclose their remuneration regardless of context. At the public hearing VWL representatives raised concerns that any type of limited disclosure could potentially result in confusion and reluctance on the part of employees to make any disclosures at all.13

3.14 Similarly, the ACTU commented that it did not support restricting the operation of the provisions to disclosures made for particular purposes and stated that limiting the disclosure right would make the provisions 'unnecessarily complex'.14

3.15 The Law Council also argued that the bill as currently drafted does not create a workplace right for employees to reveal their remuneration to fellow employees. This means that the bill does not offer protection under the Fair Work Act 2009 if an employer took adverse action against an employee for revealing their remuneration to fellow employees.15 The Law Council noted, however, that if a new workplace right were to be created it would need to be appropriately balanced by a similar workplace right to choose not to disclose remuneration. This would ensure protection for employees who might be pressured to reveal their remuneration.16

3.16 The Law Council suggested this matter could be addressed by creating a workplace right in the form of a sub-provision that stated:

…an employee has the right to disclose or not disclose to other employees of the employer, an industrial association or professional adviser, their pay and earnings [or remuneration]17

12 Mr Jonathan Kirkwood, Member of the Industrial Law Committee, Federal Litigation and Dispute Resolution Section, Law Council of Australia, Proof Committee Hansard, 27 October 2016, p. 30.

13 Ms Sophie Brown, Co-Chair of Work Practices Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 31.

14 Ms Erin McCoy, Industrial Officer, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 38.

15 The relevant part is Part 3-1 of the Fair Work Act 2009 which relates to general workplace protections.

16 Law Council of Australia, Submission 13, p. 6.

17 Law Council of Australia, Submission 13, p. 6.

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3.17 In relation to workplace rights, the ACCI informed the committee that it would 'strongly object to any interpretation of the provision that would suggest the creation of a new workplace right'.18

3.18 The Law Council also submitted that the use of the words 'pay or earnings' in proposed section 333B would not necessarily capture all the non-monetary benefits that the explanatory memorandum seeks to have protected. The Law Council therefore argued that section 333B could be improved by replacing the words 'pay or earnings' with the word 'remuneration'. This would better align the intention of the bill with the well-understood (albeit undefined) meaning of the word 'remuneration' under the Fair Work Act 2009 as encompassing 'all monetary and non-monetary compensation for work done'.19

3.19 The ACTU, Professor Stewart and Professor Gaze expressed agreement with this point from the Law Council.20 As Professor Stewart noted during the hearing:

The better term to use would be, as Professor Gaze just said, 'remuneration', because although that too is not defined in the bill, it has been used in the Fair Work Act and previous federal legislation over many years. And there is a fair amount of case law that has been built up. In fact, in many ways, what is said in the explanatory memorandum for this bill would be captured more accurately if the term' remuneration' were used, rather than 'pay' or 'earnings'.21

3.20 JobWatch was of the view that proposed section 333B might not fully achieve its intended objectives. In particular, the amendment would only apply to situations where a modern award, enterprise agreement or employment contract specifically prohibits workers talking about their pay. JobWatch pointed out that the bill does not cover situations where a prohibition is absent, but where the employer simply directs a worker not to talk about their pay. This may be justified as a 'lawful and reasonable direction' or, even if not lawful and reasonable, a worker would nevertheless be inclined to adhere to it. Jobwatch therefore recommended inserting a clause in the dictionary of the Fair Work Act 2009 stating:

…a lawful and reasonable direction has its ordinary meaning at common law or as defined in the Fair Work Regulations. The Fair Work Regulations could define what is not considered to be a reasonable and lawful direction, being a direction by an employer to an employee not to talk about their pay and other entitlements.22

18 Ms Alana Matheson, Deputy Director of Workplace Relations, Australian Chamber of Commerce and Industry, Proof Committee Hansard, 27 October 2016, p. 18.

19 Law Council of Australia, Submission 13, pp. 5-6.

20 Ms Erin McCoy, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 38; Professor Beth Gaze, Proof Committee Hansard, 27 October 2016, p. 7.

21 Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 8.

22 JobWatch, Submission 4, p. 6.

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3.21 The Queensland Nurses' Union (QNU) noted that under the Fair Work Act 2009, employers can make individual flexibility arrangements with their employees to vary the wages set out in a modern award or enterprise agreement. The QNU therefore recommended the explicit inclusion of 'individual flexibility arrangement' within the wording of proposed section 333B and within the wording of 'Application of section 333B'.23

Reducing the gender pay gap

3.22 The committee received evidence from inquiry participants signalling that there were other methods available to reduce the gender pay gap that were not reliant on legislated pay transparency.

3.23 The WGEA stated that its extensive work with employers to address gender pay equity had showed that the most effective way to close organisation-specific gender pay gaps was to document and publish a remuneration policy with stated pay equity objectives; and to regularly conduct a gender pay gap analysis and implement corrective actions.24

3.24 In addition, the WGEA observed that best practice proactive remuneration policies to address the gender pay gap have several facets. These include:

 providing managers and employees with guidance on how pay is set, and how

performance is evaluated and rewarded;

 setting pay equity objectives such as the elimination of gender bias,

transparency and accountability;

 analysing the gender pay gap between comparable roles by level and across

the entire organisation; and

 implementing corrective actions such as identifying the cause(s) of any gaps, training, reviewing, setting targets, reporting and evaluation.25

3.25 As such, the WGEA suggested that 'the best way to address gender pay gaps is for organisations to analyse and take remedial action to address gender pay gaps'.26

3.26 The Ai Group noted that it actively promotes gender wage parity between men and women among its members, including a formal policy or strategy on remuneration that includes gender pay equity objectives and gender remuneration gap analysis. The Ai Group was of the view that these types of measures were the most effective way to address the gender pay gap.27

23 Queensland Nurses' Union, Submission 6; p. 3.

24 Workplace Gender Equality Agency, Submission 15, p. 10.

25 Workplace Gender Equality Agency, Submission 15, p. 10.

26 Workplace Gender Equality Agency, Submission 15, p. 11.

27 Ai Group, Submission 14, pp. 2 and 3.

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3.27 Similarly, the MTA suggested that the gender pay gap is best tackled by practical measures to address:

…blatant discrimination; lack of women in senior positions; industrial and occupational segregation; educational differences; and family caring arrangements that place roadblocks in the way of returning women to work.28

3.28 The ACCI was of the view that the bill was a blunt instrument and that 'voluntary, tailored organisational strategies' were a superior means of achieving 'genuine organisational commitment to gender equality'.29

3.29 During the public hearing Ms Matheson from the ACCI reinforced this view:

We refer to some great examples that the Workplace Gender Equality Agency has been promoting. The Commonwealth Bank, as a leader in this space, has implemented some training programs for the people responsible for setting pay to ensure that they were aware of the risks or pitfalls that could impact pay outcomes - things like unconscious bias. That having been said, we still stand by the position that these are voluntary initiatives that organisations are taking up and that they would be more effective in achieving pay quality than people complaining - let's not call it gossiping - to their peers.30

3.30 However, the ACTU pointed out that according to the WGEA data few organisations have even begun to address pay equity:

…the vast majority of organisations have not yet adopted a gender equality strategy or sought to address pay equity issues at the workplace. The most recent data published by the Workplace Gender Equality Agency shows that only 26.3% of reporting organisations conducted a gender pay gap analysis with respect to their employees and only 9.7% reported to the board on pay equity issues.31

3.31 Data contained in the most recent gender equality scorecard released by the WGEA in November 2016 indicated that employer action on workplace gender equality had increased in a number of areas. The 2015-16 data indicated that 27.0 per cent of organisations had conducted a remuneration gap analysis and 14.4 per cent reported pay equity metrics to the governing board.32 These statistics show a slight

28 Motor Trade Association of South Australia, Submission 1, p. 3.

29 Australian Chamber of Commerce and Industry, Submission 9, p. 12.

30 Ms Alana Matheson, Deputy Director of Workplace Relations, Australian Chamber of Commerce and Industry, Proof Committee Hansard, 27 October 2016, p. 21.

31 Australian Council of Trade Unions, Submission 10, p. 3.

32 Workplace Gender Equality Agency, Australia's gender equality scorecard - key findings from the Workplace Gender Equality Agency's 2015-16 reporting data, November 2016, pp. 14-15, www.wgea.gov.au/sites/default/files/2015-16-gender-equality-scorecard.pdf (accessed 16 November 2016).

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improvement compared to the 2013-14 figures quoted by the ACTU submission in the previous paragraph.

3.32 The WGEA gender equality scorecard also stated that according to 2015-16 data, 70.7 percent of reporting organisations had an overall gender equality policy and/or strategy in place, up from 68.4 percent in 2013-14. However, the scorecard also noted that only 23.4 per cent of these organisations had key performance indicators for managers relating to gender equality.33

3.33 Supporters of the bill acknowledged that pay transparency was just one tool that could contribute to tackling the gender pay gap in Australia. Ms Stephanie Milione, Convenor of VWL asserted:

VWL views improved pay transparency through the passing of this bill as one tool that should be used in combination with a variety of legislative and policy measure to close the gender pay gap. Other mechanisms that can be used to address pay disparity include rigorous workplace gender equality reporting requirements that ensure that employers are accountable for pay decisions that disadvantage women and the implementation of a national education campaign to raise awareness of these legislative changes should they be passed.34

3.34 In addition, Ms Johnstone from VWL emphasised that the multifactorial nature of the gender pay gap necessitated a multifactorial response:

But we do consider that since it is such a multifactorial issue and that there are lots of different things behind it, then the response needs to be multifactorial as well. If we think about the way that a policy goal can be implemented, the legislative reform is just one part. We also need to have education campaigns; we need to have rewards or funding programs; and we could have regulation or reporting requirements.35

3.35 The committee also heard evidence that recognised broader cultural change was required to combat the gender pay gap. Ms Woods from the WGEA emphasised the need for a multi-layered approach that encompassed social and cultural change:

Certainly from the agency's perspective we think that with gender equality it is really important to tackle the stereotypes that men face as well. Normalising caring and flexible work for men is a really important piece in empowering women in the professional world. So, these conversations are

33 Workplace Gender Equality Agency, Australia's gender equality scorecard - key findings from the Workplace Gender Equality Agency's 2015-16 reporting data, November 2016, p. 14, www.wgea.gov.au/sites/default/files/2015-16-gender-equality-scorecard.pdf (accessed 16 November 2016).

34 Ms Stephanie Milione, Convenor, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 29.

35 Ms Amy Johnstone, Chair of Law Reform Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 36.

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really important and it does sort of go to this business that tackling the pay gap is complex and there are lots of parts to it; there are lots of things that employers can do, and we are very focused on that. And there are bits that are really about the community and society and how our boys and girls go into the world and approach the workforce.36

3.36 Other submitters also had views on the importance of cultural change. Ms Sophie Brown, Co-Chair of the VWL Work Practices Committee observed:

I think it really raises an important point about the bill, which is a formal mechanism to tackle pay transparency, and informal pay secrecy, which is a real cultural thing. I must say that, unusually, we agreed with the Australian Chamber of Commerce when they said that we cannot change culture with regulation. Where we diverge very strongly from the Chamber of Commerce is that in our view the legislation is simply one tool which will help effect cultural change.37

3.37 Alternative approaches to tackling the gender pay gap are evident in the international sphere. For example, the UK has acted on two complementary fronts to address the gender pay gap. In addition to the pay transparency measures discussed in the previous chapter, the UK has also moved to implement a policy of mandatory pay audits for all employers of 250 or more employees. The rationale behind this measure is to increase transparency and employer accountability, as well as encourage remedial action on pay inequities where necessary. Prior to this approach UK equality agencies simply encouraged employers to undertake voluntary pay audits. However, the UK Government judged the uptake of the voluntary audits to be insufficient and subsequently deemed mandatory audits necessary in order to achieve timely and effective progress toward closing the gender pay gap. Section 78 of the Equality Act 2010 (UK) came into force on 22 August 2016, and draft reporting regulations have been through two stages of consultation. The finalised regulations are expected to be adopted in 2017.38

3.38 Evidence received by the UK House of Commons Women and Equalities Committee to its inquiry into the gender pay gap indicated that many participants welcomed the reporting regulations and believed they had potential to play a part in concentrating organisations' minds on where pay gaps existed and how they might be reduced. However, the inquiry also received evidence emphasising the limitations of pay gap reporting and suggesting how the regulations might be improved. The inquiry

36 Ms Jackie Woods, Acting Director, Workplace Gender Equality Agency, Proof Committee Hansard, 27 October 2016, p. 49.

37 Ms Sophie Brown, Co-Chair of Work Practices Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, pp. 35-36.

38 Professor Beth Gaze, answers to questions on notice, 27 October 2016 (received 3 November 2016), pp. 5-6.

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report itself noted that there was nothing in the regulations that would mandate an organisation to take action even if the compulsory reporting uncovered a pay gap.39

3.39 In October 2016 KPMG released a report undertaken on behalf of the WGEA and the Diversity Council Australia (DCA) on the economics of the Australian gender pay gap. The report discovered that gender discrimination continues to be the single largest factor contributing to the gender pay gap, having more of an impact than other influencing factors such as industry and occupation segregation, age and experience, part-time employment, tenure and employer type.40

3.40 The report set out a suite of case studies illustrating the initiatives that leading organisations in Australia have implemented to address the multiple factors underpinning the gender pay gap in their respective workplaces.

3.41 For example, AGL in the electrical distribution industry has implemented a remuneration tool to review, manage and deliver market-competitive and performance-based remuneration across all employee levels within the business:

Implemented six years ago, the reporting tool has enabled People and Culture [human resources division] to analyse and compare gender pay equity across the organisation, including distribution of performance and development ratings, and fixed and variable remuneration increases by gender. The real-time reporting alerts leaders if they have any unexpected and potentially gender-biased outcomes.

AGL has also implemented Unconscious Bias Training for all leaders and Remuneration Training educates leaders about the need to consider pay equity when they are making remuneration decisions.41

3.42 As a result, AGL leaders are made aware of any potential gender bias early in the remuneration cycle and can rectify problems promptly. The case study also noted that the insights gleaned from the initiative encourage target conversations about gender pay equity at calibration meetings for leaders and executives.42

3.43 In another example cited in the KPMG report, the insurance company TAL has successfully closed the gender pay gap in the organisation, and as of 1 April 2016 female employees earn the same as their male counterparts in like for like roles. The case study reported:

39 UK House of Commons Women and Equalities Committee, Gender Pay Gap: Second Report of Session 2015-16, March 2016, pp. 73-75.

40 KPMG, She's Price(d)less: The economics of the gender pay gap. Update report prepared for Diversity Council Australia and the Workplace Gender Equality Agency, October 2016, pp. 12- 14.

41 KPMG, She's Price(d)less: The economics of the gender pay gap. Update report prepared for Diversity Council Australia and the Workplace Gender Equality Agency, October 2016, p. 50.

42 KPMG, She's Price(d)less: The economics of the gender pay gap. Update report prepared for Diversity Council Australia and the Workplace Gender Equality Agency, October 2016, p. 50.

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This success has included taking a holistic approach to promoting gender equity; understanding where the gaps exist and why, securing senior leadership commitment, measuring and reporting regularly to their executive team and board, changing processes and procedures which perpetuate gaps, and raising awareness through education.

TAL conducts an organisational wide pay gap analysis at least twice a year. The controls they look at focus on checking direct correlation between outcomes of reward and performance ratings for males and females across multiple lenses to ensure consistency. This includes analysing gender pay equity by function, job family, by job band, and employment type to ensure they uncover any unintended discrimination and are able to target specific actions to create pay equity in like for like roles.43

3.44 Other initiatives developed by businesses and set out in the report included the use of gender pay analyses (St Barbara Ltd, KPMG), flexible or enhanced provisions for working parents (Caltex, GHD, Henry Davis York, NAB), gender recruitment targets (AECOM), and blind recruitment (King & Wood Mallesons).44

Committee view

3.45 The committee recognises that a significant and persistent gender pay gap exists in Australia, clearly illustrated by the evidence received during the course of the inquiry.

3.46 The committee understands that the gender pay gap is underpinned by a number of factors and therefore requires a multi-faceted solution.

3.47 The committee notes that the Australian Government is already investing in measures to address several of these factors, including measures centred around improving childcare access to increase women's workforce participation, initiatives to address gendered workforce perceptions, and policies to achieve equal representation of women on government boards.45

3.48 The committee notes that a number of submissions argued that in certain situations non-disclosure requirements may be a contributing factor to the gender pay gap. However, the committee also notes that no evidence was provided to demonstrate a clear understanding of the extent to which non-disclosure requirements contribute in these circumstances.

43 KPMG, She's Price(d)less: The economics of the gender pay gap. Update report prepared for Diversity Council Australia and the Workplace Gender Equality Agency, October 2016, pp. 50- 56.

44 KPMG, She's Price(d)less: The economics of the gender pay gap. Update report prepared for Diversity Council Australia and the Workplace Gender Equality Agency, October 2016, p. 56.

45 Senator the Hon Michaelia Cash, Minister for Women, 'Equal Pay Day: progress made but more action required', Media Release, 8 September 2016.

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3.49 The committee notes the raft of amendments suggested by inquiry participants aimed at improving the effectiveness of the bill. These reflect a widespread concern that the bill as drafted was unsatisfactory for many participants. The committee is concerned about the technical issues arising from the bill as it is currently drafted, and considers that in its current form the bill is a relatively blunt tool to address what is an extremely nuanced issue. The committee also takes seriously the strong evidence presented of the risk of the adverse unintended consequences, such as competitive disadvantage for businesses, which may arise should the bill be enacted.

3.50 As such, the committee agrees with the concerns of employer and industry organisations as to the range of potential unintended and negative consequence of the bill in question.

3.51 In addition, the committee is aware of the strategies already employed by some organisations to actively address the gender pay gap, as illustrated previously in the report. The committee considers that these are prime examples of business-led, organisational-specific strategies tailored to ensure genuine organisational commitment and real-world progress to reducing the gender pay gap.

3.52 The committee contends that in order to achieve meaningful progress in closing the gender pay gap there must be employer-led initiatives focused on voluntary, tailored policies designed to effect broader socio-cultural change.

3.53 As the Office for Women stated:

…any new regulation directed at addressing the gender pay gap should be well-informed, supported by strong evidence and ensure that there is social and not just legislative change. Both policy and legislative change need to be made with an understanding of how they will be implemented and the anticipated behavioural change.46

3.54 The committee remains concerned about the possible unintended consequences arising from the bill in regard to the ability of businesses to manage workplace performance and remuneration decisions, as well as the potential for competitive disadvantage. The committee is also concerned that the bill includes no protections for employees who do not wish to disclose their remuneration, nor does it acknowledge the legitimate reasons that employees and employers may have for entering into non-disclosure agreements.

Recommendation 1

3.55 The committee recommends that the Senate does not pass the bill.

3.56 To reiterate, the committee neither dismisses nor condones the extent and persistent nature of the gender pay gap in Australia. The current gap is unacceptably

46 Ms Amanda McIntyre, First Assistant Secretary, Office for Women, Department of the Prime Minister and Cabinet, Proof Committee Hansard, 27 October 2016, p. 46.

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large and the committee encourages the government, businesses and employee representatives to show leadership and accept shared responsibility for determining effective solutions that will engender meaningful cultural change.

Recommendation 2

3.57 The committee recommends that government, employer and industry stakeholders, and employee advocates collaborate to actively promote and implement best-practice strategies to tackle the gender pay gap in Australian workplaces.

Senator Bridget McKenzie

Chair

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Labor Senators' Dissenting Report 1.1 Labor senators are concerned by the extent and persistence of the gender pay gap across all industries in Australia.

1.2 In addition, Labor senators are disturbed by the culture of pay secrecy that exists in many Australian workplaces. Evidence received during the inquiry illustrated the prevalence of pay secrecy provisions in employment contracts. Some research asserted that between 50 and 90 per cent of organisations have pay secrecy provisions.1

1.3 Labor senators are of the opinion that it is not appropriate to prohibit employees from sharing their personal remuneration information in any context, or to punish employees who have chosen to share it. Conversely, employees who prefer not to disclose their remuneration details should also be able to make that choice.

1.4 On the evidence before the committee, Labor senators have concluded that pay secrecy is an obstacle to achieving gender pay equity in Australian workplaces.

1.5 Pay secrecy contributes to maintaining existing systematic discriminatory pay practices by allowing conscious or unconscious bias and gender stereotyping to persist in organisations.

1.6 As noted in the main committee report, the gender pay gap is lower in the public sector than in the private sector, and lower under awards and collective agreements than under individual arrangements. The main method of setting pay in the private sector is by individual arrangement compared to the public sector where the vast majority of pay is set by collective agreement where details are made public.2 These figures suggest that the gender pay gap is lower when pay is set by transparent standards.

1.7 Evidence received from the WGEA stated:

Pay is more likely to be unequally distributed between women and men when it is set by individual arrangements with an employer… This suggests the gender pay gap is lower when pay is set using methods which involve increased external oversight or transparent standards, such as awards.3

1 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 3.

2 Workplace Gender Equality Agency, Gender pay gap statistics, August 2016, pp. 6-8, www.wgea.gov.au/sites/default/files/Gender_Pay_Gap_Factsheet_final.pdf (accessed 31 October 2016).

3 Workplace Gender Equality Agency, Submission 15, p. 5.

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1.8 As outlined in the main committee report, the gender pay gap is a

multi-faceted problem that requires a number of different strategies to successfully address all the contribu ting factors.4

1.9 Labor senators are under no illusion that a bill prohibiting pay secrecy will singlehandedly solve the gender pay gap.

1.10 However, we do recognise that enhanced pay transparency is an important tool to support improved outcomes for gender pay equity in Australian workplaces and believe that targeted, well-drafted legislative change is an appropriate mechanism for achieving this.

1.11 Legislated pay transparency would contribute to tackling gender discrimination and assist in minimising the gender pay gap by:

 fostering merit-based pay decisions;

 increasing the accountability of managers and organisations for their pay

decisions; and

 empowering women in pay negotiations.

1.12 Labor senators are also of the opinion that pay transparency will promote pay equity on a broader level by ensuring discrimination and bias based on factors other than gender (including race, age or disability) are not perpetuated in remuneration decisions.

1.13 As Professor Michelle Brown, a University of Melbourne academic noted for her research on the relationship between pay secrecy, performance management and the gender pay gap stated in her evidence:

…transparency is going to be helpful in promoting gender pay equity, but it is also going to be useful in promoting pay equity for everybody, so that we do have pay related to the value of the job and the performance of the person in it, rather than assumptions about that person.5

1.14 Labor senators do not agree with opinions put forward by employer and industry groups stating that employees are not interested in pay matters. Furthermore Labor senators are not convinced that pay transparency would lead to workplace conflict as claimed by these organisations.6

1.15 Evidence from the inquiry suggested that remuneration is important to employees and that far from maintaining workplace harmony, pay secrecy can lead to discontent. As Professor Brown stated:

4 Majority committee report, pp. 7-9.

5 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, p. 10.

6 Majority committee report, pp. 17-23.

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We know that pay really matters to people. The difference is that it is either discontent with data or discontent in a sense without data. We know that organisations seem to think that, if people have no information about pay, they will not think about pay. That is simply not the way it operates. If people do not have information about pay, they look to other sources of information. They look at what we refer to as positional goods. You will look at someone's lifestyle, the car they drive and the holidays they have and make some assumptions about how much they get paid. All of the studies have showed that we are really lousy at guessing what other people are paid. The idea that, if you have pay secrecy there will be more conflict, is not really consistent with the way employees think about pay. They want to know, and if they do not have information from the employer, they get it from other sources. Those sources are typically inaccurate.7

1.16 In addition, Labor senators found attitudes expressed by employer and industry groups positing that employees lack the capacity to understand the factors that determine individual pay and performance measurement systems to be disingenuous and patronising.

1.17 Labor senators note that there is no requirement in the bill to force employees to reveal their remuneration. In doing this, we emphasise that not all employers are opposed to legislative changes prohibiting pay secrecy. Evidence from the WGEA revealed that some employers supported the bill and believed that such pay transparency measures were reasonable and appropriate for tackling the gender pay gap.8

1.18 Labor senators recognise the numerous suggestions put forward by submitters aimed at improving the drafting of the bill and are aware that as it currently stands, the bill has problematic aspects that may limit its effectiveness if not remedied.

1.19 Labor senators agree with the suggestion to improve the bill by replacing the words 'pay or earnings' with the word 'remuneration'.9

1.20 However, consistent with our view that it is not appropriate to prohibit employees from disclosing their personal remuneration information in any context if they so choose, Labor senators do not support the suggestion to restrict the operation of the provision to disclosures made for a particular purpose (i.e. to check for gender discrimination) to particular parties (i.e. other employees of the employer, an industrial association or professional adviser).10

7 Professor Michelle Brown, private capacity, Proof Committee Hansard, 27 October 2016, pp. 8-9.

8 Workplace Gender Equality Agency, Submission 15, p. 9.

9 Majority committee report, p. 29.

10 Majority committee report, pp. 27-28.

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1.21 As the ACTU and Victorian Women Lawyers noted, such limited disclosure could lead to confusion and discourage employees from making or seeking any disclosure at all.11

Conclusion

1.22 In conclusion, Labor senators are of the opinion that the current gender pay gap in Australian workplaces is unacceptable, and that discrimination is particularly difficult to remedy when it is hidden from view.

1.23 While noting that broader cultural change is important, Labor senators believe concrete actions must be taken to resolve the gender pay gap. Labor senators assert that enhanced transparency in regard to personal remuneration would support improved gender pay equality outcomes and represent a positive step for workplace cultures more generally.

1.24 In taking into account the evidence received during the course of the inquiry, Labor senators can see no valid reason for compelling employees to abide by pay secrecy provisions or directions relating to their own personal remuneration information, or for punishing employees for disclosing such information.

Recommendation 1

1.25 Provided the drafting concerns raised in the main report are adequately addressed, Labor senators recommend that the Senate pass the bill.

Senator Gavin Marshall

Deputy Chair

11 See Ms Sophie Brown, Co-Chair of Work Practices Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 31; and Ms Erin McCoy, Industrial Officer, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 38.

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Australian Greens' Dissenting Report 1.1 The gender pay gap in Australia is unacceptably high, and governments have struggled to find concrete solutions to address it. The Australian Greens introduced the Fair Work Amendment (Gender Pay Gap) Bill 2015 (the bill) to help fix the gender pay gap by banning 'pay gag clauses'.

1.2 According to the Workplace Gender Equality Agency (WGEA), the gender pay gap is currently 17.7 per cent for full-time base salaries and 23.1 per cent for total remuneration which takes into account perks, bonuses, superannuation and other components.1 A different dataset kept by the Australian Bureau of Statistics shows the gender pay gap at 16.2 per cent on the basis of a much broader sample of employers. WGEA analysis shows that the national gender pay gap has hovered between 15 and 19 per cent for the past two decades.2

1.3 We are very pleased that the bill has received support from a wide cross-section of groups, including academics, unions, lawyers, social service organisations and professional associations. Of the 18 submissions received by the committee, 12 were supportive of the bill, while four opposed it (all employer associations).

1.4 This bill is certainly not the only solution to the gender pay gap. To finally close the gender pay gap we must work for wholesale gender equality, including addressing discrimination, differential access to education and resources, industrial and occupational segregation (the predominance of women and men in different industries or jobs), the lack of women in senior positions, the lack of part time or flexible roles, and the unequal burden of unpaid domestic and caring labour. This bill is, however, an important first step.

1.5 The government cannot directly influence many of the above causes of the gender pay gap, which is why the opportunity to take concrete steps forward which are supported by robust expert evidence and opinion is so exciting.

1.6 The Australian Greens would like to directly acknowledge Professor Michelle Brown, Professor Beth Gaze and Ms Leanne Griffin for their leadership and crucial research on this issue. Their evidence to the committee, including at the public hearing in Melbourne, was key to ensuring the evidence in support of reform was well understood.

1 Workplace Gender Equality Agency, Australia's gender equality scorecard - key findings from the Workplace Gender Equality Agency's 2015-16 reporting data, November 2016, pp. 14-15, www.wgea.gov.au/sites/default/files/2015-16-gender-equality-scorecard.pdf 2 Workplace Gender Equality Agency, Gender pay gap statistics, August 2016, p. 3,

www.wgea.gov.au/sites/default/files/Gender_Pay_Gap_Factsheet_final.pdf

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1.7 We note that a great wealth of evidence in support of the bill has been well explored in the majority committee report and will not duplicate it here.

Outline of the bill

1.8 Many workers, especially those who receive a salary and those in the private sector, are not allowed to talk about their pay with colleagues. Many employment contracts include a 'gag clause', which means that workers can be disciplined or even sacked for discussing their pay.

1.9 Data collected by the WGEA shows that where pay is set in secret, the gender pay gap is worse. For instance, the gender pay gap is much smaller in the public sector (12.3 per cent) where workers are allowed to talk about their pay compared to the private sector (22.4 per cent) where discussion is often prohibited.3

1.10 The bill makes sure that workers are allowed to tell their colleagues what they are paid if they wish to, without fear of retaliation from their boss.

1.11 The bill would not force anyone to discuss their pay, but it would make sure that employers could not pressure their employees to stay quiet.

1.12 Sometimes people do not feel comfortable talking about their pay, but making sure that employers cannot impose secrecy clauses is the first step towards cultural change.

1.13 Importantly, many women on low incomes work in industries and occupations which are largely reliant on collective bargaining in setting wages. These industries are often overwhelmingly dominated by women. Collective action, strong unions, and equal pay cases in the Fair Work Commission will all continue to play an important role in raising the wages of these women.

1.14 Our view is that this bill would assist all workers, including those on low incomes and those on award wages, as being able to freely discuss pay and conditions is a key part of a healthy workplace culture and provides an important safeguard against discrimination, underpayment or exploitation by employers.

Proposed amendments to the bill

1.15 Some submitters and witnesses made suggestions about how the bill could be improved to better achieve its purpose of protecting employees who want to speak about their own pay. Most of these suggestions are sensible, and we intend to integrate many of them into an updated version of the bill.

3 Workplace Gender Equality Agency, Gender Pay Gap Statistics, May 2015, www.wgea.gov.au/sites/default/files/Gender_Pay_Gap_Factsheet.pdf

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1.16 In particular, we will strongly consider the following suggestions:

 Professor Beth Gaze suggested that employees who ask about the pay of

other employees should be protected, as well as those who disclose their own pay.4

 Professor Marian Baird and Ms Alexandra Heron proposed that the Bill be expanded to expressly ban pay gag clauses, especially where employers keep gag clauses in employment contracts, potentially misleading employees.5 This suggestion was supported by the Australian Council of Trade Unions (ACTU).

 Victorian Women Lawyers (VWL) suggested including a civil remedy provision to deter employers from including pay gag clauses in contracts.6

 Professor Andrew Stewart and the JobWatch both identified the fact that

employers may prohibit discussions about pay via policies or via a direction, and that the bill should be expanded to prevent those prohibitions as well.7

 The Law Council of Australia (Law Council), Professor Gaze and Professor Stewart suggested minor, sensible amendments to the terminology used in the bill to refer to 'remuneration' rather than 'pay or earnings'.8

 The Queensland Nurses' Union identified the need to ensure that 'individual flexibility arrangements' are captured by the bill.9

1.17 The Law Council and Professor Stewart both suggested that the bill could be restricted to protect only disclosures to other employees of the same employer or to employee representatives.10 Professor Gaze also raised this possibility as an alternative to the bill as it currently stands.11 Our view is that such qualifications or restrictions would present an unnecessary and unreasonable obstacle to women or other workers disclosing their pay. We agree with the ACTU, VWL, and

4 Professor Beth Gaze, Submission 17, p. 1.

5 Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 7; see also Victorian Women Lawyers, Submission 11, p. 2.

6 Victorian Women Lawyers, Submission 11, p. 2.

7 Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 2; JobWatch, Submission 4, p. 6.

8 Law Council of Australia, Submission 13, pp. 5-6 and Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 8.

9 Queensland Nurses' Union, Submission 6; p. 3.

10 Law Council of Australia, Submission 13, p. 5 and Professor Andrew Stewart, private capacity, Proof Committee Hansard, 27 October 2016, p. 2.

11 Professor Beth Gaze, Submission 17, p. 2.

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Professor Baird and Ms Heron that such restrictions risk creating an atmosphere of uncertainty, especially where employers are eager to keep pay discussions to a minimum.12

Conclusion

1.18 The Australian Greens would like to thank all those who made a submission to this inquiry, and all those individuals and organisations that appeared as witnesses at the hearing in Melbourne. We would also like to thank the other senators, including government senators who engaged thoughtfully with the complex issues raised in this inquiry. We are therefore disappointed that the majority committee report recommends that the Senate not pass the bill.

1.19 It is especially disappointing that the majority committee report relies on voluntary action by employers and others as a solution to the gender pay gap. This problem has persisted for many decades, and while voluntary action is welcome, it has not solved the problem yet and regulatory reform is required.

Recommendation 1

1.20 That the Senate pass the bill with minor amendments to ensure it achieves its purpose.

1.21 Clearly the Australian Greens and many of the witnesses think the bill should be passed, with the minor amendments discussed above for clarity. However, given the government’s attitude to date, we sadly must accept that passage of the bill in the near future is unlikely. Yet it is crucial that this issue not drop off the political agenda, given the persistently high gender pay gap and given the breadth of support for this reform proposal demonstrated during this inquiry.

Recommendation 2

1.22 That the government investigate legislative reforms aimed at increasing employees’ freedom to discuss their own pay.

1.23 We are eagerly anticipating the results of the research which Professor Brown and Ms Griffin are currently undertaking on the impact of pay gag clauses on pay equity. In light of this research and other emerging evidence internationally, our view is that the government should consider this issue during this Parliament. The Australian Greens would welcome cross-party support on this issue, and we look forward to working with all parties to achieve gender pay equity.

12 Ms Erin McCoy, Industrial Officer, Australian Council of Trade Unions, Proof Committee Hansard, 27 October 2016, p. 38; Ms Sophie Brown, Co-Chair of Work Practices Committee, Victorian Women Lawyers, Proof Committee Hansard, 27 October 2016, p. 31; and Professor Marian Baird and Ms Alexandra Heron, Submission 18, p. 5.

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Recommendation 3

1.24 That the Workplace Gender Equality Agency conduct further research on the impacts of pay gag clauses on the gender pay gap in collaboration with academic experts.

Senator Larissa Waters

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Appendix 1

Submissions and additional information

Submissions

Number Submitter

1 Motor Trade Association of South Australia

2 Queensland Law Society

3 Professionals Australia

4 Good Shepherd Australia New Zealand

5 JobWatch

6 Queensland Nurses' Union

7 Shop, Distributive and Allied Employees' Association

8 Professor Michelle Brown and Ms Leanne Griffin

9 Australian Chamber of Commerce and Industry

10 Australian Council of Trade Unions

11 Victorian Women Lawyers

12 Finance Sector Union

13 Law Council of Australia

14 Ai Group

15 Workplace Gender Equality Agency

16 Australian Federation of Employers and Industries

17 Professor Beth Gaze

18 Professor Marian Baird and Ms Alexandra Heron, Women and

Work Research Group, The Business School, University of Sydney

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Answers to questions taken on notice

1 Answers to questions taken on notice by the Australian Federation of Employers and Industries at a public hearing in Melbourne on 27 October 2016; received 2 November 2016

2 Answers to questions taken on notice by Professor Beth Gaze at a public hearing in Melbourne on 27 October 2016, received 3 November 2016

3 Answers to questions taken on notice by the Finance Sector Union at a public hearing in Melbourne on 27 October 2016, received 4 November 2016

4 Answers to questions taken on notice by the Office for Women, Prime Minister and Cabinet at a public hearing in Melbourne on 27 October 2016; received 11 November 2016

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Appendix 2

Public hearing

Melbourne, Victoria, 27 October 2016

Committee Members in attendance: Senators McKenzie, Marshall, Hume, Waters

Witnesses

Professor Michelle Brown, private capacity

Professor Beth Gaze, private capacity

Professor Andrew Stewart, private capacity

JobWatch

Mr Ian Scott, Principal Lawyer

Australian Federation of Employers and Industries

Mr Garry Brack, Chief Executive Officer

Ms Jill Allen, Manager, Research and Policy

Australian Chamber of Commerce and Industry

Ms Alana Matheson, Deputy Director, Workplace Relations

Victorian Women Lawyers

Ms Stephanie Milione, Convenor

Ms Sophie Brown, Co-Chair, Work Practices Committee

Ms Amy Johnstone, Chair, Law Reform Committee

Law Council of Australia

Mr Jonathan Kirkwood, Member Industrial Law Committee, Federal Litigation and Dispute Resolution Section

Ms Emma Hlubucek, Senior Policy Lawyer

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Australian Council of Trade Unions

Ms Erin McCoy, Industrial Officer

Finance Sector Union

Ms Wendy Streets, Local Executive Secretary, Queensland Branch

Workplace Gender Equality Agency

Ms Jackie Woods, Acting Director

Ms Janin Bredehoeft, Senior Research Advisor

Office for Women, Department of the Prime Minister and Cabinet

Ms Amanda McIntyre, First Assistant Secretary

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The Senate

Education and Employment

Legislation Committee

Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016 [Provisions]

October 2016

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ii

© Commonwealth of Australia 2016

ISBN: 978-1-76010-467-2

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was produced by the Senate Standing Committee on Education and Employment and printed by the Senate Printing Unit, Parliament House, Canberra.

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MEMBERSHIP OF THE COMMITTEE Members

Senator Bridget McKenzie, Chair, NAT, VIC

Senator Gavin Marshall, Deputy Chair, ALP, VIC

Senator Sarah Hanson-Young, AG, SA

Senator Deborah O'Neill, ALP, NSW

Senator James Paterson, LP, VIC

Senator John Williams, NAT, NSW

Substitute Members

Senator Jane Hume, LP, VIC (substituting Senator Paterson)

Senator Lee Rhiannon, AG, NSW (substituting Senator Hanson-Young)

Participating Members

Senator Chris Back, LP, WA

Senator the Hon Doug Cameron, ALP, NSW

Senator Pauline Hanson, PHON, QLD

Senator Derryn Hinch, DHJP, VIC

Senator Jacqui Lambie, JLN, TAS

Senator Malcolm Roberts, PHON, QLD

Secretariat

Mr Stephen Palethorpe, Secretary

Dr Patrick Hodder, Principal Research Officer

Ms Cathryn Cummins, Senior Research Officer

Ms Amy Walters, Research Officer

Mr Abe Williamson, Administrative Officer

PO Box 6100 Ph: 02 6277 3521

Parliament House Fax: 02 6277 5706

Canberra ACT 2600 E-mail: eec.sen@aph.gov.au

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TABLE OF CONTENTS

MEMBERSHIP OF THE COMMITTEE ...................................................... iii

Chapter 1.............................................................................................................. 1

Introduction ......................................................................................................... 1

Reference ................................................................................................................ 1

Conduct of the inquiry ............................................................................................ 1

Terminology ........................................................................................................... 1

Context.................................................................................................................... 1

Purpose and overview of the bill ............................................................................ 3

Structure of the report ............................................................................................. 6

Compatibility with human rights ............................................................................ 6

Scrutiny of Bills Committee ................................................................................... 6

Financial Impact Statement .................................................................................... 6

Acknowledgement .................................................................................................. 6

Notes on references ................................................................................................ 6

Chapter 2.............................................................................................................. 7

Introduction ............................................................................................................ 7

Key players in the Victorian firefighting dispute ................................................... 7

The Country Fire Authority Act 1958 (Vic) ......................................................... 10

Timeline of the firefighting dispute in Victoria ................................................... 11

Agencies responsible for delivering firefighting services across Australia ......... 13

Chapter 3............................................................................................................ 17

Introduction .......................................................................................................... 17

Adverse impact of the EBA on volunteers and CFA culture ............................... 18

Adverse impact of the EBA on emergency management legislation ................... 20

Power of veto—consultation and agreement requirements .................................. 25

Content of the proposed EBA............................................................................... 30

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Limitations on the role of volunteers imposed by the EBA ................................. 34

Cost of the proposed EBA .................................................................................... 41

Potential inconsistency of the EBA with Equal Opportunities legislation ........... 44

Relationship of volunteers to their local communities ......................................... 45

Scope of the bill .................................................................................................... 47

Entitlement for volunteer bodies to make submissions ........................................ 51

Constitutionality of the bill ................................................................................... 53

Overall committee view ....................................................................................... 55

Non-government Senators' Dissenting Report .................................................... 59

Executive Summary .............................................................................................. 59

Introduction .......................................................................................................... 62

Political interference ............................................................................................. 63

Productive relationships between career and volunteer firefighters at integrated stations .................................................................................................................. 71

EBA negotiation process ...................................................................................... 72

CFA consultation with volunteers ........................................................................ 76

The EBA and the CFA Act ................................................................................... 76

Uncertain scope of the bill .................................................................................... 78

Entitlement for volunteers to make submissions to the Fair Work Commission . 79

Constitutionality of the bill ................................................................................... 80

Retrospectivity of the application of the bill ........................................................ 80

Conclusion ............................................................................................................ 81

Appendix 1 ......................................................................................................... 83

Submissions and additional information received by the committee ................ 83

Appendix 2 ......................................................................................................... 97

Public Hearings ....................................................................................................... 97

Appendix 3 ....................................................................................................... 101

Examples of clauses constraining CFA decision making .................................. 101

186

Appendix 4 ....................................................................................................... 103

Volunteer Charter ................................................................................................ 103

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Chapter 1

Introduction

Reference 1.1 On 31 August 2016 the Prime Minister, the Hon. Malcolm Turnbull MP, introduced the Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016 (the bill) in the House of Representatives.1 On 1 September 2016 the Senate referred the provisions of the bill to the Senate Education and Employment Legislation Committee for inquiry and report by 10 October 2016.2

Conduct of the inquiry 1.2 Details of the inquiry were made available on the committee's website. The committee also wrote to key stakeholders, groups, organisations and individuals to invite submissions.

1.3 The committee received 334 submissions as detailed in Appendix 1.

1.4 Public hearings were held in Macedon in regional Victoria on 19 September 2016 and Melbourne on 28 September 2016. Witness lists for the hearings are available in Appendix 2.

Terminology 1.5 The enterprise bargaining agreement (EBA) between the Country Fire Authority (CFA) in Victoria and the United Firefighters Union (UFU) refers to paid firefighters as 'professional firefighters'. However, the committee is mindful of the view put by volunteer firefighters that they also consider themselves to be professional firefighters. To distinguish between the two groups of firefighters, this report refers to either career (paid) firefighters or volunteer firefighters.

Context 1.6 The Fair Work Act 2009 (FW Act) and the Fair Work Regulations 2009 provide the legislative framework underpinning the national workplace relations system, which covers the majority of Australian employers and employees. Part of that framework is to provide for the making of enterprise agreements through collective bargaining.3

1.7 In approving an EBA made under the FW Act, the Fair Work Commission (FWC) must be satisfied that it does not contain any unlawful terms. Unlawful terms

1 Votes and Proceedings No. 2, 31 August 2016, p. 48.

2 Journals of the Senate No. 3, 1 September 2016, p. 92.

3 Department of Employment, Submission 2, p. 3.

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of an enterprise agreement are legally ineffective but do not render the agreement invalid.4

1.8 The FWC is currently able to inform itself on any matter before it, including by inviting oral and written submissions. However, the FW Act does not entitle a volunteer body to make a submission about a matter involving an enterprise agreement that is before the FWC, even if the matter could affect the volunteers represented by that body.5

1.9 The CFA and the UFU have been involved in a protracted enterprise bargaining dispute for over three years. The current enterprise agreement nominally expired on 30 September 2013.6

1.10 The negotiations on the proposed EBA are complicated by the fact that the CFA is comprised overwhelmingly of a volunteer workforce (approximately 97 per cent). Moreover, the rights of those volunteers are explicitly recognised in Victorian legislation through the Volunteer Charter that is enshrined in the Country Fire Authority Act 1958 (Vic) (CFA Act).7

1.11 The former CFA Board was concerned that the proposed EBA would:

• be inconsistent with the CFA Act under which the CFA is required to operate, thereby placing the CFA in breach of its statutory obligations;

• undermine volunteers and the volunteer culture of the CFA and thereby adversely impact the predominantly volunteer firefighting capacity of the CFA;

• adversely affect how the CFA manages its large contingent of volunteer

firefighters; and

• be discriminatory.

8

1.12 On 1 June 2016, the FWC made recommendations intended to resolve the dispute. Commissioner Roe specifically noted that the requirement to dispatch seven career firefighters9 to an incident only applied to the limited number of integrated fire stations (see chapter three).10

4 Department of Employment, Submission 2, pp. 4-5.

5 Department of Employment, Submission 2, p. 5.

6 Department of Employment, Submission 2, p. 3.

7 Country Fire Authority Act 1958 (Vic), sections 6F-6I, www.austlii.edu.au/au/legis/vic/consol_act/cfaa1958292/, (accessed 22 September 2016).

8 Department of Employment, Submission 2, p. 3.

9 As noted above, the term 'career firefighter' refers to what the EBA terms 'professional firefighter'.

10 Fair Work Commission, Final Recommendation, United Firefighters' Union of Australia v Country Fire Authority, 1 June 2016, Melbourne, pp. 2-3, http://cfaonline.cfa.vic.gov.au/mycfa/Show?pageId=publicDisplayDoc&docId=026463 (accessed 22 September 2016).

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1.13 On 6 June 2016, the CFA Board was unable to approve the proposed EBA (including the recommendations made by the FWC).11

1.14 On 10 June 2016 the Victorian government accepted the FWC's recommendations as a basis for agreement and inserted additional clauses into the EBA to protect the position of volunteer firefighters.12

1.15 On 10 June 2016 the Victorian government began the process of dismissing the Board after it refused to support the proposed EBA. The Victorian Minister for Emergency Services resigned on 10 June 2016, the CFA Chief Executive Officer resigned on 17 June 2016, and the CFA Chief (Fire) Officer resigned on 30 June 2016.13

1.16 A new CFA Board was appointed with five members nominated by the government and four members nominated by Volunteer Fire Brigades Victoria (VFBV). The new CFA Board reached agreement with the UFU after some minor changes were made to the proposed EBA.14

1.17 The proposed EBA has not progressed further as the CFA has deferred putting it to a vote while proceedings continue in the Victorian Supreme Court in relation to an application by VFBV. Hearings in relation to this matter will commence on 22 September 2016.

1.18 The proceeding in the Supreme Court is primarily concerned with the question of whether the CFA Board has complied with its obligations under the Victorian CFA Act. It is not a proceeding that will consider the lawfulness of the proposed EBA in so far as it is a valid agreement under the Commonwealth FW Act.15

Purpose and overview of the bill 1.19 In his second reading speech the Prime Minister stated that the bill was a response by the federal government to protect volunteer firefighters in Victoria from a union takeover. The Prime Minister further stated that the Victorian state government had taken sides against the volunteers.16

11 Department of Employment, Submission 2, p. 3.

12 The Hon. James Merlino MP, Deputy Premier of Victoria and Emergency Services Minister, 'Statement on the CFA Board', Media Release, 10 June 2016, https://284532a540b00726ab7e-ff7c063c60e1f1cafc9413f00ac5293c.ssl.cf4.rackcdn.com/wp-content/uploads/2016/06/160610-Statement-On-The-CFA-Board.pdf (accessed 22 September 2016).

13 Department of Employment, Submission 2, p. 3.

14 Department of Employment, Submission 2, p. 3.

15 Department of Employment, Submission 2, pp. 3-4.

16 Prime Minister, the Hon Malcolm Turnbull MP, Second reading speech, House of Representatives Hansard, 31 August 2016, pp. 24-26, http://parlinfo.aph.gov.au/parlInfo/genpdf/chamber/hansardr/f706773d-28cd-4fb7-b62a-9ed884a645d8/0045/hansard_frag.pdf;fileType=application%2Fpdf, (accessed 22 September 2016).

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Objectionable emergency management term

1.20 The bill seeks to amend the FW Act to protect emergency services bodies and their volunteers. It does this by providing that a term which meets the definition of an 'objectionable emergency management term' is not to be included in an enterprise agreement, or that it has no effect, if it undermines the capacity of volunteer emergency services bodies to properly manage their volunteer operations, or terms that are inconsistent with State or Territory laws that regulate such bodies.17

1.21 The bill amends the definition of unlawful terms in enterprise agreements to include an 'objectionable emergency management term' that cannot be included in an agreement covering a designated emergency management body.18

1.22 A designated emergency management body is defined as:

• a body that is, or is a part of, a fire-fighting body or a State Emergency Service of a State or Territory (however described), or is a recognised emergency management body that is prescribed by the regulations; and

• a body that is, or is a part of a body that is, established for a public purpose by

or under a Commonwealth, State or Territory law.19

1.23 The bill also provides that regulations may be made to provide that a body is not an emergency management body.20

1.24 An enterprise agreement that covers a designated emergency management body cannot include an objectionable emergency management term—that is, a term that has, or is likely to have, the effect of:

• restricting or limiting the body's ability to engage or deploy its volunteers;

provide support or equipment to those volunteers; manage its relationship with, or work with, any recognised emergency management body in relation to those volunteers; otherwise manage its operations in relation to those volunteers; or

• requiring the body to consult, or reach agreement with, any other person or

body before taking any action for the purposes of engaging or deploying its volunteers; providing support or equipment to those volunteers; managing its relationship with, or working with, any recognised emergency management body in relation to those volunteers; otherwise managing its operations in relation to those volunteers; or

• restricting or limiting the body's ability to recognise, value, respect or promote the contribution of its volunteers to the well-being and safety of the community; or

17 Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016, Explanatory Memorandum, p. iv.

18 Explanatory Memorandum, p. i.

19 Explanatory Memorandum, p. i.

20 Department of Employment, Submission 2, p. 6.

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• requiring or permitting the body to act other than in accordance with a law of

a State or Territory, so far as the law confers or imposes on the body a power, function, or duty that affects or could affect its volunteers.21

1.25 The bill therefore applies to fire-fighting, State Emergency Service bodies and other prescribed emergency management bodies that are covered by the FW Act, established for a public purpose under a statute, use volunteers, and have made, or are seeking to make, an enterprise agreement that includes an objectionable emergency management term.22

1.26 This means that the bill will apply to the Victorian CFA and Victorian State Emergency Service because Victoria is the only state that has referred power to the Commonwealth on workplace relations matters relating to state public sector employers and employees. The bill will also apply to State Emergency Services in the Australian Capital Territory and Northern Territory. However, the bill may not apply to fire-fighting bodies or emergency services in other States as, to the extent these bodies are not constitutional ('or trading') corporations, these bodies are not covered by the FW Act because, unlike Victoria, other States have not referred their industrial relations powers over their public sectors to the Commonwealth.23

1.27 The bill is not legally retrospective but does alter how agreements in force prior to commencement will operate in the future. Clause 14 provides that the amendments will apply to new and existing enterprise agreements. At the approval stage of an EBA, if the FWC finds that an agreement includes an 'objectionable emergency management term', the FWC would not be able to approve that agreement with that term. Subclause 14(3) provides that if an existing enterprise agreement has a term that is found to be an 'objectionable emergency management term' that term would have no effect from the time the provisions commence, but the enterprise agreement would otherwise continue to operate.24

Entitlement for volunteer bodies to make submissions

1.28 New sections 254A and 281AA provide an entitlement to certain volunteer bodies to make submissions to the FWC in relation to matters about enterprise agreements or workplace determinations that affect, or could affect, the volunteers of a designated emergency management body.25

1.29 The bill provides that, in order to be able to make a submission, a body must be either:

• a body corporate that has a history of representing the interests of the

volunteers of the designated emergency management body; or

21 Explanatory Memorandum, p. i.

22 Department of Employment, Submission 2, p. 6.

23 Victorian Government, Submission 1, pp. 3-4.

24 Department of Employment, Submission 2, p. 6.

25 Explanatory Memorandum, p. i.

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• a body prescribed for this purpose by the regulations. 26

Structure of the report 1.30 Chapter two provides a background to the firefighters' dispute in Victoria. The chapter outlines the key players in the dispute, relevant sections of the CFA Act, and provides a timeline of the firefighting dispute in Victoria.

1.31 Chapter three discusses the contested elements of the proposed CFA-UFU EBA and the key issues that the bill seeks to address.

Compatibility with human rights 1.32 The bill engages the following human rights: the right to work, the right to just and favourable conditions of work, the right to equality and non-discrimination, the right to freedom of association, and the right to form and join trade unions.27

1.33 The bills' statement of compatibility with human rights states that the bill is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.28

Scrutiny of Bills Committee 1.34 The Senate Standing Committee for the Scrutiny of Bills had not reported on the bill at the time that this report was tabled.

Financial Impact Statement 1.35 The explanatory memorandum states that the bill will have no financial implications.29

Acknowledgement 1.36 The committee thanks those individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at hearings. The committee particularly thanks those on-the-ground firefighters, both volunteer and career, that appeared before the committee in Macedon.

Notes on references 1.37 References in this report to the Hansard for the public hearings are to the Proof Hansard. Please note that page numbers may vary between the proof and official transcripts.

26 Explanatory Memorandum, p. i.

27 Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016, Statement of compatibility with human rights, p. v.

28 Statement of compatibility with human rights, p. iv.

29 Explanatory Memorandum, p. iii.

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Chapter 2

Introduction

2.1 This chapter provides a background to the firefighters' dispute in Victoria. It begins by outlining the key players in the dispute, provides an excerpt of the Volunteer Charter enshrined in the Country Fire Authority Act 1958 (Vic) (CFA Act), and sets out a brief timeline of the key events in the dispute.

Key players in the Victorian firefighting dispute

2.2 The key players in the dispute are:

• the Country Fire Authority (CFA);

• the United Firefighters Union (UFU); and

• firefighting volunteers represented by Volunteer Fire Brigades Victoria (VFBV).

Country Fire Authority

2.3 The CFA is a statutory body established under the CFA Act. It delivers prevention, preparedness, response, recovery and organisational support services for fires and other emergencies in outer metropolitan suburbs, regional and rural areas of Victoria.1

2.4 The CFA has 1220 brigades that service over one million homes, protecting 3.3 million Victorians.2 It is responsible for fire and emergency services (outside the metropolitan fire district) on private property throughout Victoria including:

• 60 per cent of Melbourne's suburbs;

• all provincial cities and towns; and

• all country areas.

3

2.5 As at 30 June 2016, the CFA's workforce included 1086 career firefighters and more than 57 116 volunteers (of whom 35 796 are operational firefighters).4

2.6 The vast majority of the 1220 CFA fire stations are staffed entirely by volunteers. However, 35 non-metropolitan fire stations in peri-urban areas of

1 Victorian Government, Submission 1, p. 8.

2 Victorian Government, Submission 1, p. 8.

3 Volunteer Fire Brigades Victoria, 'About CFA volunteers', www.vfbv.com.au/index.php/about/ourvolunteers/aboutvolunteers, (accessed 22 September 2016).

4 Victorian Government, Submission 1, p. 8.

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Victoria—outer metropolitan Melbourne and major regional cities where the service demands are higher than in less densely populated regional and rural areas—are integrated: that is, they are staffed by both career and volunteer personnel.5

2.7 The Country Fire Authority District Map in Figure 2.1 indicates the division of Victoria into CFA districts.

2.8 The integrated firestations to which clause 77.5 (previously clause 83.5) of the EBA applies (see chapter three) generally surround Melbourne in districts 2, 7, 8, 13, 14, 15, and 27. Integrated stations to which clause 77.5 will apply will include Shepparton and Mildura by no later than 1 January 2017 and Warrnambool by no later than 1 January 2018.

Figure 2.1—Country Fire Authority District Map

Source: Country Fire Authority, www.cfa.vic.gov.au/contact/ (accessed 22 September 2016).

5 Victorian Government, Submission 1, p. 8.

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Figure 2.2—Volunteer and integrated brigades in Victoria6

Source: Volunteer Fire Brigades Victoria, www.vfbv.com.au (accessed 22 September 2016).

2.9 The CFA has a nine member board appointed by the Minister for Emergency Services.7 Four of the members are nominated by the VFBV to ensure there is volunteer knowledge on the board.8

2.10 The committee heard evidence from current and former senior CFA officers at the public hearing in Melbourne.

United Firefighters Union

2.11 The UFU has eight branches in Tasmania, South Australia, Victoria, ACT, New South Wales, Western Australia, Queensland and an Aviation sector branch.9

2.12 The UFU represents just over 1000 career firefighters in the CFA in Victoria. In 2010 the Victoria Branch of the UFU negotiated the CFA UFU Operational Staff Agreement 2010 which was subsequently certified in accordance with the FW Act.

2.13 That agreement expired in 2013. For the past three years the Victorian Branch has been bargaining a new agreement with the CFA and the Victorian state government with the involvement of the FWC. The proposed EBA would cover approximately 1200 CFA operation staff including firefighters.10

2.14 The committee received submissions and heard evidence from both career and volunteer firefighters from the integrated brigades at the public hearing in Macedon, as well as from the UFU leadership at the public hearing in Melbourne.

6 Please note that the numbers of brigades shown in Figure 2.2 may not exactly match the figures provided in the Victorian Government submission. Figure 2.2 provides a valuable visual illustration of the breakdown of brigades in Victoria, but the numbers of brigades provided in the text of this chapter are drawn from the Victorian Government submission and should be taken as the most up-to-date data available.

7 Country Fire Authority Act 1958 (Vic), s. 7.

8 Country Fire Authority Act 1958 (Vic), ss. 7(4).

9 United Firefighters Union, Submission 54, p. 2.

10 Victorian Government, Submission 1, p. 8; United Firefighters Union, Submission 54, p. 2.

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Volunteer Fire Brigades Victoria

2.15 The VFBV is established under the CFA Act to represent volunteers on all matters that affect their welfare and efficiency. Under the CFA Act, the VFBV nominates four members of the CFA Board.11

2.16 The committee received submissions and heard evidence from volunteer firefighters from across rural and regional Victoria at the public hearing in Macedon, as well as from the VFBV leadership at the hearing in Melbourne.

The Country Fire Authority Act 1958 (Vic)

2.17 The 2009 Victorian Bushfire Royal Commission recognised the contribution that volunteers made to the CFA:

The strength of the CFA volunteer base was evident on 7 February [2009]; this includes its surge capacity, the local knowledge of its members and its rapid response.12

2.18 As noted earlier, the CFA is constituted and operates under the Country Fire Authority Act 1958 (Vic) (CFA Act). The CFA Act also accords statutory recognition to the role and voice of volunteers in the CFA. In 2011, the Parliament of Victoria enacted the Country Fire Authority (CFA) Amendment (Volunteer Charter) Act 2011 (Vic) which amended the CFA Act by adding four new sections (6F, 6G, 6H and 6I) to the CFA Act to:

• recognise the CFA as primarily a volunteer organisation supported by

employees; and

• require the government and the CFA to, amongst other things:

• recognise the role played by volunteers;

• consult with the VFBV over matters that affect volunteers; and

• develop policy and organisational arrangement that strengthen volunteer

capacity to provide services to the CFA.

2.19 Section 6F, 6G, 6H and 6I of the CFA Act are reproduced below:

Section 6F

The Parliament recognises that the Authority is first and foremost a volunteer-based organisation, in which volunteer officers and members are supported by employees in a fully integrated manner.

Section 6G

11 Country Fire Authority Act 1958 (Vic), ss. 7(4).

12 Victorian Bushfires Royal Commission, Final Report, July 2010, p. 4, www.royalcommission.vic.gov.au/finaldocuments/summary/PF/VBRC_Summary_PF.pdf, (accessed 22 September 2016).

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The Parliament recognises that the Volunteer Charter—

a) is a statement of the commitment and principles that apply to the relationship between the Government of Victoria, the Authority and volunteer officers and members; and

b) requires that the Authority recognise, value, respect and promote the contribution of volunteer officers and members to the well-being and safety of the community; and

c) requires that the Government of Victoria and the Authority commit to consulting with Volunteer Fire Brigades Victoria Incorporated on behalf of volunteer officers and members on any matter that might reasonably be expected to affect them.

Section 6H

The Authority must, in performing its functions, have regard to the commitment and principles set out in the Volunteer Charter.

Section 6I

The Authority has a responsibility to develop policy and organisational arrangements that encourage, maintain and strengthen the capacity of volunteer officers and members to provide the Authority's services.13

Timeline of the firefighting dispute in Victoria

2.20 The negotiations over the proposed Enterprise Bargaining Agreement (EBA) have been ongoing since March 2013. Table 2.1 provides a summary outline of key milestones in the firefighting dispute in Victoria.

Table 2.1—Timeline of the firefighting dispute in Victoria

September 2013 On 30 September 2013, the current EBA between the CFA and the UFU (agreed in 2010) reached its nominal expiry date but continues to operate.

2014 Victorian state election Victorian Labor party promises to hire an additional 350 paid firefighters if elected to government.

2013-2016 Since March 2013, the CFA and UFU have been negotiating a new EBA.

October 2015 Negotiations between the UFU, CFA, and Victorian state Labor government break down.

November 2015 The Victorian government asks the FWC to intervene. 1 June 2016 The FWC makes recommendations intended to resolve the dispute. The FWC specifically notes that the requirement to dispatch seven

13 Country Fire Authority Act 1958 (Vic), sections 6F-6I, www.austlii.edu.au/au/legis/vic/consol_act/cfaa1958292/ (accessed 22 September 2016).

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career firefighters to an incident only applies to the limited number of integrated fire stations.

6 June 2016 The CFA rejects the proposed EBA. The CFA argues the EBA would give the UFU the power to veto operational decisions by the Chief Officer and undermine the role of volunteers. The CFA receives legal advice that certain clauses in the EBA appeared to be unlawful in terms of the CFA Act, and that the EBA was discriminatory.

10 June 2016 The VFBV successfully applies for a Supreme Court interim injunction to prevent the CFA putting the EBA to career firefighters (until 23 June). The court order also stipulates the parties are to meet on 20 June to talk about issues in the proposed pay agreement that might impact volunteers.

10 June 2016 The Victorian Government accepts the FWC's recommendations as a basis for agreement and inserts additional clauses protecting the position of volunteer firefighters. The Victorian Government appoints Emergency Services Commissioner Craig Lapsley to oversee implementation of the agreement particularly in relation to volunteers.

10 June 2016 Victorian Emergency Services Minister, the Hon. Jane Garrett MP resigns. Ms Garrett expresses concerns the new agreement would encroach on management decision-making and the role of volunteers. Ms Garrett does not accept the state government's proposals (based on the recommendations from the FWC) to end the dispute. The Victorian government begins the process of dismissing the CFA Board over its refusal to agree to the new EBA.

17 June 2016 The Victorian government appoints five new members to CFA Board. The VFBV nominates the remaining four Board members. The new Chair, Mr Greg Smith, is a former FWC deputy president and had portfolio responsibility for the CFA.

17 June 2016 The CFA CEO Lucinda Nolan resigns. 19 June 2016 Four volunteer representatives nominated by the VFBV appointed to the CFA Board.

20 June 2016 The Victorian Supreme Court issues orders requiring the CFA and the VFBV to meet and discuss the volunteer firefighters' concerns with the proposed agreement on 8 July. This prevents the CFA putting the agreement to a ballot of employees until 23 July.

28 June 2016 The CFA Chief [Fire] Officer Joe Buffone resigns.

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July 2016 The new CFA Board and the UFU produce a joint statement of intent affirming the agreement: • only applies to the small number of integrated fire stations with paid and volunteer firefighters; • does not require seven paid firefighters on the ground

before firefighting begins; and • incident controllers maintain their authority in deploying resources.

12 August 2016 The new CFA Board endorses the EBA and authorises the CEO to put it a vote.

13 August 2016 The VFBV again rejects the agreement and claims the EBA contains clauses contrary to the CFA Act. The VFBV seeks a further court injunction to secure an undertaking from the CFA that the EBA will not be put to a ballot until the Supreme Court makes a decision on the agreement's legality in a trial beginning 22 September 2016.

2016 Federal election The Coalition expresses strong support for the CFA and the VFBV during the election period.

31 August 2016 The Coalition Government introduces the Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016.

Sources: Victorian Government, Submission 1, p. 8; Department of Employment, Submission 2, pp. 3-4; United Firefighters Union, Submission 54; Fair Work Commission, Final recommendation, United Firefighters' Union of Australia v Country Fire Authority, 1 June 2016; Julian Teicher, Professor of Human Resources and Employment, School of Business and Law, CQ University, 'Turnbull steps in as promised, but don't expect a swift end to firefighter dispute', The Conversation, 25 August 2016; Julian Teicher, 'What's the Victorian government's dispute with the CFA about? And how will it affect the election?', The Conversation, 29 June 2016; Workplace Express, 'Court restrains CFA from proceeding with agreement', 17 August 2016; Workplace Express, 'New flare-up looms in CFA dispute', 9 August 2016.

Agencies responsible for delivering firefighting services across Australia

2.21 Individual state and territory governments are responsible for delivering emergency services. While all Australian jurisdictions have their own rural fire service:

Most jurisdictions divide responsibilities for delivery of fire services between several agencies based on the discrete function of the organisation and the geographical area, although the structure and responsibilities of individual agencies varies across jurisdictions.14

14 Colleen Bryant, Understanding bushfire: trends in deliberate vegetation fires in Australia, Australian Institute of Criminology, January 2008, p. 7, www.aic.gov.au/media_library/publications/tbp/tbp027/tbp027.pdf (accessed 22 September 2016).

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2.22 The major agencies responsible for firefighting across Australian jurisdictions are summarised in Table 2.2.

Table 2.2—Agencies responsible for firefighting across Australia

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Source: Colleen Bryant, Understanding bushfire: trends in deliberate vegetation fires in Australia, Australian Institute of Criminology, January 2008, in National Farmers Federation, Submission 7, pp. 8-9.

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Chapter 3

Introduction

3.1 The key purpose of the bill is to preclude or render ineffective any term in an enterprise bargaining agreement (EBA) that would impact on the capacity of a designated emergency management body to properly manage its volunteers, regardless of whether the EBA comes into effect before or after the bill is passed.

3.2 In addition, the bill provides a voice for volunteer bodies by according them a statutory right to make submissions to the Fair Work Commission (FWC) in respect of issues arising from an EBA that affects, or could affect, the volunteers of a designated emergency management body.

3.3 Submitters in support of the bill emphasised that numerous clauses in the proposed EBA between the Victorian Country Fire Authority (CFA) and the United Firefighters Union (UFU) would adversely affect the overwhelmingly volunteer firefighting workforce (approximately 97 per cent) of the CFA.

3.4 These submitters also argued that the proposed EBA contained numerous clauses that were inconsistent with the CFA Act and would constrain the CFA Chief [Fire] Officer in carrying out their duties.

3.5 These submitters therefore argued that the bill was a necessary, timely, and targeted response to the CFA dispute that would provide volunteers with an appropriate voice in matters where their interests were affected by an EBA.

3.6 Submitters who opposed the bill argued that the proposed EBA dealt with the relationship between the CFA and its paid employees and did not impinge on the role of volunteers in the CFA.

3.7 Submitters opposed to the bill also argued that the bill was inconsistent with the basic policy of collective bargaining, was unnecessary and uncertain in its scope, and was an unwarranted intervention into state matters.

Versions of the EBA

3.8 The committee notes that the FWC does not publish a proposed EBA until it has been finally agreed by both parties.

3.9 The EBA between the UFU and the CFA has been through various iterations. The most up-to-date version at the time of writing was provided to the committee as

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an attachment to the submission from the UFU Victoria Branch and labelled '2016 CFA UFU Operational Staff Enterprise Agreement 2016 - FINAL'.1

3.10 The reference to EBA clauses in this report is taken from version 17.6 of the EBA provided by the UFU with their submission. However, the FWC 'Final Recommendation' of 1 June 20162 referred to an earlier version of the EBA. The committee notes that the clauses between various versions of the EBA do not necessarily align. There is, therefore, some inconsistency between the numbering of the clauses to which the FWC (and some submitters) refer and the numbering of the clauses in the most recent version of the EBA. While the report refers to the clause numbers as they currently stand, where possible, the committee also provides the previous clause number in square brackets afterwards.

3.11 The rest of this chapter canvasses the key issues raised by submitters and witnesses to this inquiry in greater detail.

Adverse impact of the EBA on volunteers and CFA culture

3.12 As noted in chapter two, the CFA is a statutory agency operating under the CFA Act. That same Act also accords statutory recognition to the role and voice of volunteers in the CFA.

3.13 Mr John Peberdy was a CFA board member from September 2009 to June 2013, deputy chair from October 2013 to August 2015, and acting chair from 29 August 2015 to 17 June 2016. He argued that the aim of adding the volunteer charter (sections 6F to 6I) to the CFA Act was 'to build a strong, vibrant and capable emergency service'.3

3.14 Mr Peberdy pointed out that the role of paid firefighters under the CFA Act is to support the volunteers in a fully integrated manner4 and that, in the future, there would be an increase in the integrated station model 'in densely populated locations including peri-urban Melbourne and larger country cities/towns'.5

1 United Firefighters Union Victoria Branch, Submission 83, Attachment 6—Country Fire Authority / United Firefighters Union of Australia Operational Staff Enterprise Agreement 2016. This version of the EBA was released on 12 August 2016.

2 See Fair Work Commission, Final recommendation, United Firefighters' Union of Australia v Country Fire Authority, 1 June 2016, http://cfaonline.cfa.vic.gov.au/mycfa/Show?pageId=publicDisplayDoc&docId=026463 (accessed 22 September 2016).

3 Mr John Peberdy, Submission 4, pp. 3-5. See also ss. 6F-6I, Country Fire Authority Act 1958 (Vic).

4 Section 6F of the Country Fire Authority Act 1958 (Vic) states that 'The [Victorian] Parliament recognises that the Authority is first and foremost a volunteer-based organisation, in which volunteer officers and members are supported by employees in a fully integrated manner.'

5 Mr John Peberdy, Submission 4, p. 4.

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3.15 Mr Peberdy also submitted that during his time as a CFA board member, his experience of integrated stations was mixed. While career firefighters at some stations treated volunteers respectfully and worked well together, at other stations career firefighters expressed a disregard for volunteers and treated them as 'second-class citizens'.6

3.16 This sentiment of volunteers being treated as second-class citizens was echoed by volunteer firefighters as well. For instance Mr Greg McManus, a volunteer with 26 years of experience at the Lara fire brigade in the North Geelong district, highlighted the controlling nature of the EBA's education clauses:

It [the EBA] relates to community education as well. We are a brigade that does a lot of community education. We have a very strong community education workforce. Clause 17 actually states that community education must only be performed by paid firefighters, and volunteers can only do it if the paid firefighters are unavailable. While I have no issue with paid firefighters doing community education—and they should do it—to have volunteers subjugated and be second-class citizens when it comes to delivering community education is a real slap in the face to our members.7

3.17 Another Victorian firefighter who expressed concerns over the EBA was Mr Jay Martin. With over 22 years' experience, Mr Martin explained that he was:

…concerned that union influence and "consultation" will erode CFA management decisions making and erode the role of volunteers within CFA whereby a divide is created between paid and volunteer firefighters. The EBA will impact the ability of volunteers to fulfil operational and management roles across the organisation and relegate them to the rank of second class citizen. The EBA wishes to have volunteers closed out from applying for roles across CFA such as community education coordinators and brigade support officers. I believe this is in itself discriminatory and unlawful.8

3.18 Similar concerns were raised by Ms Leigh Sutton, a member of the Fenton’s Creek fire brigade (North West region) who submitted that:

The worth and value of the CFA volunteers would be diminished by insisting on paid firefighters taking control of a fire ground. They would be reduced to second class workers even though they have the same expertise and possibly greater experience in firefighting, especially bushfires.9

3.19 Ms Sue Bull was another volunteer who expressed deep concerns about the treatment of volunteers if the EBA is signed off:

6 Mr John Peberdy, Submission 4, p. 4.

7 Mr Greg McManus, Volunteer Firefighter, North Geelong district, Committee Hansard, 19 September 2016, p. 7.

8 Mr Jay Martin, Submission 66, p. 1.

9 Ms Leigh Sutton, Submission 170, p. 1.

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To be treated as second class members of CFA & to be minimalised in such a habitual manner is a risk to public safety. This closed shop mentality often associated with unionised work places is risking the dismantling of CFA as a community embedded volunteer based emergency service. The cost to Victoria by a grab for power & control that disempowers both CFA's Chief Fire Officer & the CFA Board will be the loss of volunteer participation in protecting their communities.10

Adverse impact of the EBA on emergency management legislation

Hierarchy of Commonwealth and state legislation

3.20 The FWC is an arbiter under the Fair Work Act 2009 (Cth) (FW Act) for determining unresolved disputes between parties, generally employers and the union representing the employees. The negotiations are usually restricted to the parties involved, and this may involve a state government if they have responsibility for funding a service provider.11

3.21 Unlike most other states, emergency services workers in Victoria are employed under the FW Act rather than under specific state legislation.12

3.22 Several submitters expressed a concern that the FW Act in its current form could override relevant state legislation such as the CFA Act. These submitters specifically argued that clauses within the proposed EBA would be incompatible with the CFA Act.13

3.23 In this regard, the VFBV drew attention to what it saw as a dangerous anomaly in that the FWC could alter the operation of state emergency management arrangements merely by approving an EBA under the FW Act:

The Fair Work Commission is bound to act and approve an enterprise agreement where there is compliance with the relevant provisions of the FWA [Fair Work Act]. Under the current FWA there is no requirement for them to be cognisant of or have regard to the provisions of state or territory emergency management legislation or matters of public safety. Therefore any terms in an enterprise agreement that are contrary or inconsistent with the provisions of state or territory emergency management legislation or

10 Ms Sue Bull, Submission 297, p. 1.

11 Fair Work Commission, Resolving disputes, www.fwc.gov.au/disputes-at-work/how-the-commission-works/resolving-disputes (accessed 4 October 2016).

12 Victorian Government, Submission 1, pp. 3-4.

13 Volunteer Fire Brigades Victoria, Submission 55, p. 12; Mr John Peberdy, Submission 4; Mr Michael Tudball, Submission 5; Ms Lucinda Nolan, private capacity, Committee Hansard, 28 September 2016, pp. 25-26; see also Mr Joe Buffone, Standing Committee on Environment and Planning, Inquiry into Fire Season Preparedness, Parliament of Victoria, Transcript, 6 September 2016, p. 76.

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public safety are currently not relevant to whether the FWC approves such enterprise agreement.14

3.24 The VFBV spelt out its concern that a substantial number of clauses in the proposed EBA would undermine CFA management prerogative and were also inconsistent with certain provisions of the CFA Act:

The UFU Agreement contains clauses requiring all manner of matters be the subject of a consultation process by consensus between CFA and the union. Under Victorian state legislation many of these matters are the preserve of CFA Board and management including matters of statutory responsibility reserved to the CFA Board and the CFA Chief (Fire) Officer under the CFA Act.

More explicitly, the UFU Agreement has more than 50 clauses on matters where no decision can be made or implemented without the union's explicit agreement. Again these matters include those that by statute are the responsibility of the CFA Board and/or the Chief (Fire) Officer including operational matters; the provision of support and equipment to volunteers; and the contribution and role of volunteers.

These requirements of the UFU Agreement represent not only the subordination of appropriate management prerogative but the contradiction of statutory requirements and responsibilities under Victorian legislation.

The CFA Act remains unaltered, with the CFA Board, CEO and Chief (Fire) Officer being held accountable for relevant decisions, however if the UFU Agreement is approved by the Fair Work Commission then they will not be able to make such decisions.15

3.25 Likewise, Mr Peberdy argued that the EBA would effectively give the UFU a veto over the decisions of the CFA board, Chief Officer and CFA management. Furthermore, the outcome of the EBA would be to hand control of resources to career fire-fighters, and thereby relegate volunteers to 'second-class' firefighters.16

3.26 Mr Joe Buffone, the former Chief [Fire] Officer of the CFA advised the Standing Committee on Environment and Planning of the Parliament of Victoria that his resignation occurred as a result of concerns with the proposed EBA, following extensive discussions with the new CFA chair, new CEO, new minister, and the emergency management commissioner. He told the Victorian parliamentary committee that:

…the reason that I resigned was as a result of the proposed EBA and that it put me in a position such that my ability to perform my statutory

14 Volunteer Fire Brigades Victoria, Submission 55, p. 15.

15 Volunteer Fire Brigades Victoria, Submission 55, pp. 12-13. Appendix 3 reproduces the table from the VFBV's submission which sets out 46 specific instances where EBA clauses constrain CFA decision making and erode the CFA's ability to meet its consultation obligations to volunteers consistent with the CFA Act and Volunteer Charter, Submission 55, p. 42.

16 Mr John Peberdy, Submission 4, p. 5.

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obligations as the chief officer under the CFA Act had been fundamentally inhibited. The Victorian government's decision to implement the proposed agreement had put undue pressure on me and made my position untenable.17

3.27 Mr Buffone stated that around 50 clauses in the EBA contained a UFU veto power that would override his ability to fulfil his role including policy-making, timely service delivery decisions and allocating resources. He pointed out that the EBA would have an operational impact beyond just firefighting:

The EBA touches on trainers, it touches on our operational command and control staff, it touches on what I would describe as our managers in the field, who are our operations officers and our ops managers who basically do the day-to-day planning and preparedness, day-to-day management, workforce management — and when I talk workforce management, that is workforce management across volunteers and career staff.18

3.28 Furthermore, Mr Buffone observed that the clauses in the EBA could not be taken in isolation because the inter-related effect of the clauses was complex and cumulative and had an impact on how the CFA conducted its operations.19

3.29 Ms Lucinda Nolan, the former Chief Executive Officer (CEO) of the CFA, agreed with the sentiments expressed by Mr Buffone. She told the committee that the EBA had not been resolved in over three years because it overreached into operational areas that would have an adverse effect on the capacity of the Chief Officer to perform his or her operational duties. For example, there were '50 new segments within it [the EBA] covering a broad range of managerial functions and accountabilities where we need to not only consult but agree'.20

3.30 Ms Nolan also pointed out that as CEO, she would, along with the Chief Officer, be fully accountable for the operations and management of the CFA and yet under the proposed EBA, the CEO and Chief Officer would be handing over 'control, management and decision making' to the UFU.21

3.31 In a similar vein, Mr Brad Battin MP, Shadow Minister for Emergency Services (Victoria), argued that the consultation and agreement requirements contained in the EBA 'will trigger a chain of events that will force the CO [Chief Fire Officer] to a time consuming dispute resolutions clause' and may end up being

17 Mr Joe Buffone, Standing Committee on Environment and Planning, Inquiry into Fire Season Preparedness, Parliament of Victoria, Transcript, 6 September 2016, p. 76.

18 Mr Joe Buffone, Standing Committee on Environment and Planning, Inquiry into Fire Season Preparedness, Parliament of Victoria, Transcript, 6 September 2016, p. 77.

19 Mr Joe Buffone, Standing Committee on Environment and Planning, Inquiry into Fire Season Preparedness, Parliament of Victoria, Transcript, 6 September 2016, p. 85.

20 Ms Lucinda Nolan, private capacity, Committee Hansard, 28 September 2016, pp. 25-26.

21 Ms Lucinda Nolan, private capacity, Committee Hansard, 28 September 2016, p. 34.

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referred to the FWC. According to Mr Battin, this outcome would compromise the ability of senior CFA management to manage their workforce and protect the community.22

3.32 Mr Michael Tudball is a Country Fire Authority (CFA) Volunteer Member, firefighter for over 36 years and a government appointed CFA Board Member first appointed in 2003 and re-appointed successively in 2007, 2011, 2014. Mr Tudball, along with the rest of the CFA Board, was removed by the Victorian State Government in June 2016.23

3.33 Mr Tudball reflected the views of many of the submitters to this inquiry when he stated that the CFA is unique as a fully integrated volunteer and career firefighting workforce. As such, Mr Tudball stated that the CFA 'requires a unique approach to ensure that throughout any deliberations or decisions these two key components of our workforce are not disadvantaged'.24

3.34 As set out in chapter two, the CFA Act accords statutory recognition to the role and voice of volunteers in the CFA. In particular, sections 6F, 6G, 6H and 6I of the CFA Act recognise the CFA as primarily a volunteer organisation supported by employees and require the government and the CFA to, amongst other things, recognise the role played by volunteers, consult with the VFBV over matters that affect volunteers, and develop policy and organisational arrangement that strengthen volunteer capacity to provide services to the CFA.25

3.35 The Volunteer Charter (see Appendix 4) to which the CFA Act refers was a document signed on 27 February 2011 by the Premier of Victoria, the Minister for Police and Emergency Services, the President of the VFBV, and the Chair of the CFA. The preamble to the Volunteer Charter states that:

Volunteers of the Country Fire Authority of Victoria (CFA) are fundamental to emergency management in Victoria and their value and importance is recognised. Volunteers and the commitment they bring to the protection of the Victorian community remain the core strength of CFA. The individual and collective interests and needs of Volunteers must be protected if they are to deliver their services safely and effectively. They must always be consulted about issues that affect them as Volunteers. This Charter recognises that the members of CFA and their Association, Volunteer Fire Brigades Victoria (VFBV), operate under the Country Fire

Authority Act 1958. This Charter is a statement of principle that will apply

22 Mr Brad Battin MP, Submission 15, p. 4.

23 Mr Michael Tudball, Submission 5, p. 1.

24 Mr Michael Tudball, Submission 5, p. 1.

25 See Country Fire Authority Act 1958 (Vic), sections 6F-6I, www.austlii.edu.au/au/legis/vic/consol_act/cfaa1958292/ (accessed 22 September 2016).

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to the relationship between CFA, the State of Victoria and CFA's Volunteers.26

3.36 Mr Tudball submitted that he had legal advice that indicated the CFA would breach its statutory obligations, in particular the Volunteer Charter embodied in sections 6F to 6I of the CFA Act, if it agreed to certain clauses in the proposed EBA such as those that provide the UFU with the power to veto operational decisions.27

3.37 In his evidence to the Victorian parliamentary inquiry, Mr Buffone also indicated that the EBA would compromise his statutory obligations with respect to the role of volunteers in the CFA:

The Parliament of Victoria acknowledges that CFA is fundamentally a volunteer organisation. I think that is an important context to put when we are talking about the relationship of an industrial agreement and the impact of an organisation that is fundamentally a volunteer organisation. CFA is not two separate organisations. It is not the same as the MFB. It is not a paid workforce or a career workforce and a volunteer workforce that sit separately. It is actually an integrated model that delivers critical services all the way from the fringes of Melbourne right out to the single shed in remote Victoria.28

3.38 Ms Nolan told the committee that her 'greatest fear' was that the EBA would alienate volunteers:

The CFA is a volunteer organisation. We rely heavily on the goodwill of our volunteers to keep our communities safe. Not only do they turn out to support and protect their own communities, but they go as part of our surge capacity, and that could be not only state but interstate and overseas. I fear that, the way this goes, the environment will become so toxic, so divisive, that it will not be an attractive place to volunteer and they will seek to volunteer their services to other emergency agencies, such as the SES or others.29

3.39 The Victorian Farmers Federation (VFF) argued that all clauses in the EBA that restricted the CFA Chief Officer and board from exercising their right to recruit, direct and allocate staff should be removed.30

3.40 The Council of Australian Volunteer Fire Associations (CAVFA) represents more than 250,000 volunteer fire-fighters and operational support volunteers across Australia. CAVFA was concerned that EBAs registered with the FWC could have

26 Volunteer Charter, 27 February 2011, Volunteer Fire Brigades Victoria, Submission 55, p. 42.

27 Mr Michael Tudball, Submission 5, p. 3.

28 Mr Joe Buffone, Standing Committee on Environment and Planning, Inquiry into Fire Season Preparedness, Parliament of Victoria, Transcript, 6 September 2016, pp. 76-77.

29 Ms Lucinda Nolan, private capacity, Committee Hansard, 28 September 2016, p. 24.

30 Victorian Farmers Federation, Submission 3, p. 2.

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adverse impacts on volunteers across Australia and that this was 'unacceptable, and untenable for any volunteer organisation serving their communities across Australia'. Furthermore CAVFA warned that if the EBA was successfully registered with the FWC, it would set a precedent for other branches of the UFU across Australia thereby creating significant issues for volunteer services Australia-wide.31

3.41 Some witnesses at the Melbourne hearing disagreed with the proposition that an EBA could override state legislation. Mr Steve Warrington, Chief [Fire] Officer of the CFA told the committee that an EBA could not override his powers under the CFA Act as Chief Officer:

The reality is that section 27 of the CFA Act essentially says that I have power—and, with that, the responsibility—to make sure Victorians are safe from fire and emergency and over all people and resources in our organisation. In my view, that overrides any form of legislation. When we are at an emergency, I do not see that happening. Leading up to it, I see that we should be consulting volunteers and our career staff in a formal consultation mechanism. This particular document has a dispute resolution officer and it has access to Fair Work; there are a number of dispute resolution processes within it. Should we get to that stage, it would be disappointing—and it is certainly not our experience to date that that has occurred.32

3.42 Likewise, Professor Andrew Stewart told the committee that the FW Act provides that an EBA cannot override state or territory laws dealing with certain matters. In particular, Professor Stewart advised that an EBA

…cannot override state laws dealing with essential services or emergency management to the extent that those laws are concerned with a direction to perform work. So, if a state essential services or emergency law—and the CFA legislation would, on the face of it, fall within that category—provides for certain things to happen, to secure essential services or to deal with an emergency, a federal enterprise agreement cannot override that.33

Power of veto—consultation and agreement requirements

3.43 The issue of the consultation and agreement requirements contained within the proposed EBA was at the heart of many of the complaints made by submitters and witnesses. These submitters argued that the requirement imposed on the CFA to reach

31 Council of Australian Volunteer Fire Associations Limited, Submission 18, p. 1.

32 Mr Steve Warrington, Chief Officer, Country Fire Authority, Committee Hansard, 28 September 2016, p. 90. The dispute resolution mechanism is contained within clauses 21A, 26 and 58 of the proposed EBA.

33 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 42.

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agreement with the UFU on numerous matters effectively conferred upon the UFU a power to veto operational decisions made by CFA senior management.34

3.44 The VFBV submitted that both the CFA and the Metropolitan Fire Brigade have 'long held serious concerns' regarding the inclusion of consult and agree clauses in previous and proposed enterprise agreements 'effectively resulting in the UFU having a veto over Government agency decision-making.'35 The VFBV submission elaborated on the veto mechanism stating:

VFBV asserts that the UFU’s ability to block, prevent, seek agreement or delay decisions of the Authority and its officers - represents veto powers. The requirement to reach agreement before something can be done, changed or implemented provides the UFU an ability to withhold agreement, and thus delay, impede or stop a decision. VFBV contends this constitutes a clear veto power.36

3.45 Attached to the VFBV's submission, and reproduced at Appendix 3, is a comprehensive table which sets out 46 specific instances where EBA clauses constrain CFA decision making and erode the CFA's ability to meet its consultation obligations to volunteers consistent with the CFA Act and Volunteer Charter.37 Examples include issues such as constraints relating to Brigade Administrative Support Officers (BASOs), cross crewing, part-time employees, training and professional development and uniforms. Many of these issues are discussed below.

3.46 In June 2016, the former Chief Officer of the Victorian Metropolitan Fire and Emergency Services Board (MFB), Mr Peter Rau, wrote to the Victorian Emergency Services Minister, the Hon James Merlino MP, raising similar concerns about the MFB-UFU enterprise agreement. In particular Mr Rau highlighted the current UFU veto power in the MFB-UFU enterprise agreement:

The current Enterprise Agreement and its power of veto over my statutory responsibilities is unworkable and undermines community safety.

I have considered the proposed UFU agreement for the CFA. This proposal would, if applied to the MFB, exacerbate the failings of the current MFB agreement. It would be inappropriate for the MFB to adopt these arrangements. The extensive consult and agree (veto) provisions would continue to permit the UFU to interfere with fundamental operational decisions of the MFB. In the MFB's experience, it is no answer to these concerns to have the Fair Work Commission arbitrate on matters that are not agreed. Such an arrangement is not compatible with effective and

34 See for example Volunteer Fire Brigades Victoria, Submission 55; Victorian Farmers Federation, Submission 3; Mr John Peberdy, Submission 4; Mr Michael Tudball, Submission 5; Mr Brad Battin MP, Submission 15.

35 Volunteer Fire Brigades Victoria, Submission 55, p. 23.

36 Volunteer Fire Brigades Victoria, Submission 55, p. 23.

37 Volunteer Fire Brigades Victoria, Submission 55, p. 50.

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timely decision making relating to emergency management and public safety.38

3.47 The VFF was highly critical of clauses in the EBA related to staff, resources, new trucks, other appliances, and policy that required referral to a consultation committee made up of equal numbers of employer and employee representatives appointed by the CFA and UFU respectively. The VFF noted that all 'Clause 21 referrals' require the consultative committee to reach consensus before the changes can proceed. If the CFA and the UFU are unable to reach agreement, the matter is referred to the FWC.39

3.48 Clause 16.1 of the proposed EBA states that:

Given the agreed impact of such programs and roles [Volunteer Support Program/Officers] on persons covered by this Agreement, the parties have agreed that the CFA will consult and reach agreement with the UFU under clause 21 on the structure of any Volunteer Support Programs impacting on employees and/or any implementation of Volunteer Support Officers (or person(s) engaged in any similar classification or position howsoever named) impacting on employees, prior to any such decision or implementation.40

3.49 The VFF pointed out that under clause 16.1, the CFA cannot change volunteer support programs/officers without consulting and securing agreement from the UFU.41

3.50 Clause 21 of the EBA sets out the terms under which consultation is to be conducted including the establishment of a Consultation Committee (clause 21.2). Clause 21A sets out the terms for the operation of the Dispute Resolution Officer:

Any dispute from a party regarding consultation shall be dealt with in accordance with this clause and the dispute resolution clause of this agreement. The Dispute Resolution Officer is responsible for ensuring consultation proceeds pursuant to this Agreement in a fair, timely and effective manner. The Dispute Resolution Officer is to act independently of the parties.

38 Correspondence, Mr Peter Rau, former Chief Officer of the Victorian Metropolitan Fire and Emergency Services Board, to the Victorian Emergency Services Minister, the Hon James Merlino MP, 30 June 2016, http://media.heraldsun.com.au/PDF/2016/Aug/1009_001.pdf, (accessed 4 October 2016).

39 Victorian Farmers Federation, Submission 3, p. 3.

40 United Firefighters Union Victoria Branch, Submission 83, Attachment 6, Country Fire Authority / United Firefighters Union of Australia Operational Staff Enterprise Agreement 2016, Clause 16.1.

41 Victorian Farmers Federation, Submission 3, p. 3.

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3.51 Clause 22 (Introduction of Change) states:

Where the employer wishes to implement change in matters affecting the application or operation of the agreement or pertaining to the employment relationship in any of the workplaces covered by this agreement, the provisions of clause 21 will apply.

3.52 As the VFF pointed out, the operation of clauses 21 and 22 effectively mean that consultation must occur 'on all aspects including but not limited to the design and specification, infrastructure, staffing levels and conditions, training and allowances related to the appliance'.42

3.53 In summary, the VFBV argued that the requirement for the CFA to obtain the UFU's agreement on a raft of matters in the EBA amounted to excessive and unaccountable union control and an effective veto over CFA management decision making:

Even though that state's legislation makes the CFA Board and its senior officers accountable for such matters the UFU Agreement dissolves any notion of appropriate responsible management prerogative and transfers an effective right of undue control to the union’s leadership.43

3.54 The UFU disagreed with the VFBV's characterisation of the process and argued that consultation process in the EBA was one of resolution:

The Agreement will not give the UFU a veto over CFA decisions but provides for a robust consultation process that enables firefighters to have critical input into the decisions that directly affect their workplace and their safety.44

3.55 Mr Peter Marshall, National Secretary of the UFU, told the committee that such a process was not usual in an EBA:

There is a process of resolution and consultation on important issues, given the nature of our industry, which not unusual. Our industry is a very dangerous one. To say that we have to be consulted on every facet of operational activities is just simply not true.45

3.56 Furthermore, career firefighters from integrated stations argued that union concerns over consult and agree requirements stemmed from legitimate concerns over firefighter safety. Career firefighters objected to the portrayal of the consultation requirements as a veto power. Career firefighter Mr Alan Thistlethwaite from Greenvale, argued that the veto contained in the EBA was not absolute:

42 Victorian Farmers Federation, Submission 3, p. 5.

43 Volunteer Fire Brigades Victoria, Submission 55, p. 21, emphasis original.

44 United Firefighters Union Victoria Branch, Submission 83, p. 16.

45 Mr Peter Marshall, National Secretary United Firefighters Union, Committee Hansard, 28 September 2016, p. 67.

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…It is portrayed as a veto but that is not a veto, and we all know that is not a veto because it states in there that it requires agreement, and if it cannot be agreed to then it goes to a committee or a distribution officer so that that decision can then be made. It is about firefighter safety, the community's safety and ensuring that we have the best possible procedures and best possible equipment that can be out there. I cannot see how anybody can be against that and say that our safety is not important.46

3.57 If a dispute cannot be resolved through the extensive processes set out in the EBA, ultimately it may be referred by the UFU or the CFA to the FWC. The FWC may utilise all its powers in conciliation and arbitration to settle the dispute.47

3.58 The explanations by the UFU and career firefighters did little to allay the concerns of individual volunteer firefighters. Volunteer firefighters viewed the UFU demands for consultation on matters that will directly impact volunteers as unreasonable. For example, Mr Chris Rutherfurd, a CFA volunteer firefighter and SES rescue responder, submitted that:

Requiring union agreement for all workplace changes including those that directly affects volunteers is unreasonable in my opinion as it will make the already complex task of tasking and crewing for large scale deployments even more complicated as it will require agreement from the union before something can be done... I don't see a problem with the union fighting to benefit career firefighters as that is the role of the union but I feel that it would be very dangerous and restrictive to give them that same power over volunteers who have at no time accepted the union for representation.48

3.59 Other volunteer representatives told the committee that the EBA's numerous 'consult and agree' clauses give the UFU an effective veto power over the operational responsibilities of the CFA. For instance, Mr David Blackburn, a CFA volunteer in the Woorndoo brigade in the Westmere group for 40 years, explained the impact of the 'consult and agree' clauses:

The current version makes reference to 50 clauses that consultation and agreement must be reached by UFU and CFA with regard to change in the organisation. Basically, these clauses have veto rights by UFU over CFA. With regard to organisational and operational issues, this is ridiculous and dangerous and undermines volunteers…49

3.60 Volunteers also expressed concern that the proposed EBA would damage the integrity of their organisation:

46 Mr Alan Thistlethwaite, career firefighter, Greenvale, Committee Hansard, 19 September 2016, p. 24.

47 Clause 26.2.6 of the proposed EBA.

48 Mr Chris Rutherfurd, Submission 62, p. 1. 49 Mr David Blackburn, volunteer firefighter, Ararat district, Committee Hansard, 19 September 2016, p. 38.

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CFA volunteers are often the first responders to hundreds of incidents annually across the state, 24 hours a day, seven days a week. Volunteers are well equipped to apply professional firefighting skills at these incidents, as they are often remote from the resources of manned CFA stations and district headquarters…Volunteers are an essential integrated force of disciplined, experienced, diverse and professional firefighters. We have become involved in this current issue not to gain status or power or with any pecuniary motivation whatsoever but really to protect the power and integrity of the CFA CEO, chief officer and board of this great organisation to allow it to function without industrial interference.50

3.61 Mr Lachlan Gales from the Wangaratta district stressed to the committee the concern volunteers had about being effectively left out of decision making:

The issue with agreement between consultation with volunteers and CFA is that we do not have an arrangement with the CFA that says that decisions will not be made without our agreement. This EBA puts in place a system where decisions will not be made without the agreement of the union. We do not have that right.51

3.62 This issue goes to whether volunteers effectively have a say in important CFA operational matters.

3.63 In regards to the committee system put in place by the EBA, Mr Gales told the committee that:

…any findings or preferences of that committee will be effectively overridden if the union choose to take a different path, because they have, or will have, an agreement that says they must agree. So they will have a power of veto which we just do not have.52

Content of the proposed EBA

3.64 One of the key areas of contention is the scope of the EBA between the CFA and the UFU. While the UFU argued that the EBA was an appropriate document to achieve the recommendations of the 2009 Royal Commission,53 the CFA and volunteers maintained that the EBA included areas which impact on their work.

3.65 Mr Marshall told the committee that the EBA represented a long process in which the UFU had sought to create common ground between the CFA and the career firefighters:

50 Mr Bill Stockdale, private capacity, Committee Hansard, 19 September 2016, p. 3.

51 Mr Lachlan Gales, volunteer firefighter, Wangaratta District, Committee Hansard, 19 September 2016, p. 12.

52 Mr Lachlan Gales, volunteer firefighter, Wangaratta District, Committee Hansard, 19 September 2016, p. 12.

53 Mr Peter Marshall, National Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 76.

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…Essentially, in Victoria there are two main fire services, and then there is Department of Environment, Land, Water and Planning (DELWP). The royal commission was extremely scathing on the fact that that assets paid by the community were not utilised to their full potential because of 'differences in processes and procedures'…. For the very first time in these enterprise agreements, in the command and control structure for career officers the classification titles will be the same—from recruit firefighter up to commander, and the senior ranks above them. We are talking about career personnel, because this does not have any impact on volunteers. The classifications above that will be referred to Fair Work for harmonisation of that classification. So when you are on the fireground you will be able to identify a commander as opposed to an operations officer, who are essentially the same thing but are a different classification and are identified differently.54

3.66 The VFBV was critical of the UFU's argument that the EBA represented a more consistent approach. Mr Andrew Ford, Chief Executive Officer of the VFBV lamented the inclusion of many extraneous matters within the EBA beyond clauses covering career firefighters' pay and conditions:

We have said all along that if this EBA extracted those matters that were not about pay and conditions, extracted particularly those matters that impact on the chief officer's decision making about resources and support to volunteers, extracted those things that are not even about the operational employees covered by the EBA—those support programs, for example— and dealt with them through the CFA Act, dealt with them through the normal process where volunteers have a voice, dealt with the issues of service gaps through the normal CFA operational planning, dealt with the issues of procedure and policy through the normal standard operating procedures work in consultation, where volunteers and paid people can be involved together, and left the EBA to the pay and conditions, it would have been signed off in January.55

3.67 Mr Ford went on to contest the argument put by several career firefighting representatives that there was no alternative avenue other than the EBA to address these important matters:

I heard that [at the hearing in Macedon] last week. It will be in the transcript. I remember those words. People said, 'We've got no other mechanism to fix this problem and we have, out of desperation, brought it to the EBA because it can make things happen.' The concern I have with that is that, if an issue should be fixed in resource planning by the chief officer or a capacity gap should be fixed by the resource support and capacity building by the organisation and the chief officer, that should

54 Mr Peter Marshall, National Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, pp. 76-77.

55 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 8.

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happen. It should happen outside of the EBA, in the organisation, and it should happen in a range of ways. The answer to every capacity gap is not more paid firefighters. It will be at times. I myself, in my past role with CFA, have been involved in actually implementing additional paid firefighters to almost half a dozen volunteer stations, so I am well aware of the times when you will need to have paid firefighters. The point I am making is that that happens as part of normal operational management and resource planning in CFA, not a pay deal, not an EBA. So that issue should certainly be fixed inside CFA and outside of the EBA.56

3.68 Senator Back summed up witnesses' concerns about the inclusion of aspects of what should be included in standard operating procedures in the EBA:

I have been agonising over this for some period of time, but what is clear to me from most of the examples that most of you have given, starting with you, Mr Dowie, in terms of the incident control the other day, and Mr Shawcross in terms of the letter that you showed me, is that this has nothing to do with enterprise bargaining. These are standard operating procedures. Mr Spicer, you eloquently and correctly explained to us why we need the seven personnel. These are all in standard operating procedures. In terms of the hierarchy of call-out, in terms of the mistake made—as evidenced in this letter; the fact that the correct group were not called out—that has nothing to do with enterprise bargaining.57

3.69 Concern was expressed that one of the main reasons the EBA was so large was that it appeared to contain several clauses that were more appropriate to an operations manual than an EBA. Furthermore, as set out in the following paragraphs, many of these particular operational type clauses caused particular concern for volunteer firefighters. Many volunteer firefighters provided examples of what they saw as the overreach of the EBA into the command structure of the CFA.

3.70 Mr Walter Aich, a volunteer firefighter from the Warragul district, told the committee that he was concerned that the EBA aims to have an impact outside of its stated scope:

I believe that the proposed EBA that led to this bill being introduced will negatively impact the other workers sharing this workplace—namely, the around 35 000 unpaid CFA firefighters—and have impact outside the scope of an EBA in that it seeks to covers workers from other awards, like BASOs [Brigade Administrative Support Program] and volunteer support officers and also has a potential impact on other emergency services like the SES. I believe that this EBA seeks to pre-empt government policy regarding the way different emergency services operate and cooperate.58

56 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 14.

57 Senator Chris Back, Committee Hansard, 19 September 2016, p. 30.

58 Mr Walter Aich, volunteer firefighter, Warragul District, Committee Hansard, 19 September 2016, p. 32.

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3.71 Mr Aich also raised concerns regarding the EBA's impact on the CFA's command structure, particularly in operational situations:

I believe that the EBA impacts on the CFA's and, more importantly, the Chief Officer's ability to manage human and physical resources by imposing a consultation process that gives the UFU effective veto power over a range of matters, which go to operating procedures and fireground practices as well as resource development and distribution of employment, and by seeking to change the way that CFA volunteers are supported and work with their communities. I believe that the EBA does not give sufficient importance to the key role unpaid firefighters play in integrated stations and the need to manage that relationship carefully.59

3.72 The likelihood of the EBA acting to constrain CFA operational decisions was frequently raised by witnesses at the Macedon hearing. Mr Neil Beer, a CFA member, explained the practical effect of the EBA's constraint on command and control in the CFA:

It has already been mentioned about the chief officer's powers, particularly under command and control. Emergency services operations can be very complex and require the need for quick decision making to suit the requirements of an incident. Under the EBA, one of the important matters is the restriction of the chief officers to allocate resources. This is completely impractical and fraught with danger. We are an organisation with approximately 60 000 members and our expertise at combating incidents on a daily basis, as well as major long-term campaigns over many years, is well known and proven. The authority of the chief officer must be reinstated. I cannot stress this strongly enough.60

3.73 Mr Greg McManus, a volunteer firefighter from the North Geelong district agreed with the assessment of Mr Beer. Mr McManus noted that:

One of the key things being called out is the power of the chief officer to make decisions about the deployment of equipment and resources and personnel, and to do that in a flexible manner. In fact, many of you may know that the Victorian Fire Services Review, which was handed down late last year, actually talked about having flexibility and having a more modern way to deploy resources, particularly staff as support volunteers.61

59 Mr Walter Aich, volunteer firefighter, Warragul District, Committee Hansard, 19 September 2016, p. 32.

60 Mr Neil Beer, private capacity, Committee Hansard, 19 September 2016, pp. 8-9.

61 Mr Greg McManus, volunteer firefighter, North Geelong District, Committee Hansard, 19 September 2016, p. 7.

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Limitations on the role of volunteers imposed by the EBA

Work organisation and incident control

3.74 Volunteer firefighters expressed considerable concern about the impact that the proposed EBA would have on the work performed by volunteers and the existing chain of command within the CFA. Volunteer firefighters were particularly concerned about clauses in the EBA that appeared to prevent career firefighters from reporting to volunteer firefighters.

3.75 Clause 35.4 (previously 36.4) currently states:

All employees covered by this agreement shall only report to operational employees under this agreement or at the rank of DCO [Deputy Chief Officer] or CO [Chief Officer] when responding to fire alarms or incidents under this agreement except in the case where the incident is a level 3 multi-agency incident or to a CFA/MFB [Metropolitan Fire Board] incident controller at an incident.

3.76 The VFBV expressed serious concerns about the negative impact of this clause upon the chain of command and control currently operating in the CFA because the clause limits the capacity of qualified volunteers to, amongst other things, control incidents. According to the VFBV, the effect would be to dismantle the CFA's integrated response to emergencies.62

3.77 The Victoria Emergency Service Association (VESA) pointed out that volunteers and staff in emergency service organisations train and operate under the current operational framework AIIMS (Australasian Interagency Incident Management System). VESA noted that AIIMS allows all agencies to work together cooperatively and be able to take on functional management of an event irrespective of which agency is in control or whether the responders are paid or volunteers.63

3.78 Mr Greg McManus, a volunteer firefighter from North Geelong, was also concerned about the EBA's intrusion into the organisation of the CFA, specifically in the command structure. He told the committee:

…clause 35, which is work organisation… is probably one of the most misunderstood and talked-about clauses. It goes to the fact of volunteers reporting to staff members or staff members reporting to volunteers on the fire ground. It talks about how, at level 3 incidents, staff members can report to volunteer incident controllers—and that is absolutely correct; it is

right. But with a number of the incidents that people have spoken about here—and I hope the committee matters can understand this—most of these incidents are multitiered in their management structure, so, while you may have a volunteer incident controller, and staff members will report to them

62 Volunteer Fire Brigades Victoria, Submission 55, p. 26.

63 Victoria Emergency Service Association, Submission 19, pp. 1-2.

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as per the agreement, there may be two or three levels of management underneath that. You might have divisional commanders, sector commanders, strike team leaders. All of those—and many of the panel members here, including me, are qualified to do those roles. If I were a sector commander, for example, staff, according to this agreement, would not report to me, simply because I am a volunteer. I am fully qualified, fully trained and have done the role a lot of times, but that is what the agreement says. It is easy to say that they will report to volunteer incident controllers, but to have the staff going around the levels of management up to the incident controller completely breaks down the incident management structure. Having that discrimination against volunteers, of not being able to have them report to you simply because they are volunteers—even though they have the qualifications, skills and, in many cases as cited here, the local experience and knowledge—takes away from the ability of volunteers to work in a fully integrated way, as they should.64

3.79 Mr Lachlan Gales, a volunteer from the Wangaratta district, observed that the EBA clause which dictates reporting arrangements, and effectively sidelines volunteers, was criticised by the FWC:

What I would like to point out is that, when this agreement [the EBA] went to the Fair Work Commissioner with clause 35.4, he amended it; one of his seven recommendations was to amend it. His recommendation was to include a line that said 'except in the case where an incident is a level 3 multi-agency incident or to a CFA/MFB incident controller'. Prior to the Fair Work Commissioner's amendment, this clause read, 'All employees covered by this agreement shall only report to operational employees.' So the Fair Work Commissioner saw that that was a flaw and he added to it, but the Fair Work Commissioner did not fully understand—or it would seem he did not fully understand—the depth of the hierarchy of control we have. There are many, many positions of rank—or not rank but many, many positions of responsibility—within incidents beyond those members. So this, coupled with other clauses in the agreement, can effectively sideline volunteers from having command roles wherever operational members— sorry, career members—are on the scene.65

3.80 Mr Ford pointed out that in an integrated organisation such as the CFA, the notion that clauses in the EBA only affected career firefighters or integrated stations was wrong:

No brigade in CFA operates in isolation. Whenever there is an incident, depending on the incident, there will be multiple brigades, so an integrated brigade will give support to and be supported by volunteer brigades. If you

64 Mr Greg McManus, volunteer firefighter, North Geelong District, Committee Hansard, 19 September 2016, p. 7.

65 Mr Lachlan Gales, volunteer firefighter, Wangaratta District, Committee Hansard, 19 September 2016, p. 11.

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change the construct of the nature of CFA's integrated approach, you impact on volunteers.66

3.81 For example, Mr Ford stated that the incident reporting requirements in the EBA would destroy the CFA:

There is a clause in the EBA that says that paid firefighters or paid employees will not report to volunteers other than to the incident controller at level 3 incidents. The reality is that the chain of command at an incident is much more than the incident controller. There will be officers, paid or volunteer, working as divisional commanders, sector commanders, strike team leaders and crew leaders. If you break that chain of command and arbitrarily say that paid people will not report to volunteers, no matter what their qualifications and experience, you have deconstructed, you have dismantled, the CFA.67

3.82 Mr Ford also outlined how the EBA would have a negative impact on volunteers and volunteer support programs:

The community support facilitator program, which is a non-operational position that has existed in the past to build volunteer and community capacity, is disallowed by the EBA.

The brigade administrative support program is another core volunteer support program. It understands that the work of fire brigades is not just responding to incidents. It is running the fire brigade. It is being prepared. It is organising training. It is recording training. It is maintaining, preparing, acquiring and practising on equipment. It is working with communities. It is doing pre-incident plans and so forth. The brigade administrative support officer has become a critical support to volunteers who are finding that workload burdensome when they need to be able to put all their energy into other aspects of their work. That program is impacted by the EBA.

There is another support program, the volunteer support officer program, which, again, is a program aimed at assisting brigades with volunteer recruitment and retention and with engagement in the community. Where there is a gap in a brigade's response capability, it helps the brigade bridge that gap, plan training, target recruitment and target people to be available at certain times of the day. That program is directly impacted by the EBA.68

Dispatch of seven career firefighters

3.83 One of the clauses in the EBA that has attracted attention is clause 77.5 (previously clause 83.5) which relates to the dispatch of seven career firefighters from

66 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 8.

67 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 8.

68 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 8.

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integrated stations to a fire ground incident before commencement of safe firefighting operations. On 1 June 2016, Commissioner Roe of the FWC emphasised that clause 77.5 (previously clause 83.5) only applied to integrated fire stations made a non-binding final recommendation on the EBA:

• Clause 83.5—the CFA will ensure a minimum of seven professional firefighters are dispatched to fire ground incidents before commencement of safe firefighting operations (applies to integrated stations in Districts 2, 7, 8, 13, 14, 15 and 27)

• the changes to clause 83.5 only relate to integrated stations and to the work of professional firefighters. The role of volunteers in remote and regional areas and in integrated stations is not altered by this Agreement.69

3.84 Clause 77.5 is densely worded and a clearer interpretation of the clause is given in the Joint Statement of Intent by the CFA and UFU.70 It sets out the application of the clause and clarifies that the clause does not require seven career firefighters to be physically present at a fireground before firefighting operations can commence:

Seven on the fire ground

6. It is the mutual intention of the parties that clause 77.5, 43.2.7 and 44.13 of the Agreement operates in the following manner:

a. The clause only relates to integrated stations in districts 2, 7, 8, 13, 14, 15 and 27, and to Warrnambool, Shepparton and Mildura once the additional resources to achieve seven professional firefighter positions per shift in Schedule 1 are in place.

b. The requirement only applies to professional firefighters, it does not prevent volunteers from providing the services normally provided by volunteers.

c. In the integrated stations where the provision applies it requires a minimum of seven professional firefighters to be dispatched to fire ground incidents before commencement of safe firefighting operations. It does not require seven professional firefighters to be physically at the fire ground before the commencement of firefighting operations.

d. Incident controllers maintain their discretion as to the management of resources in the interests of public safety after undertaking a risk assessment/sizeup upon arrival at the fire/incident.71

69 Fair Work Commission, Final recommendation, United Firefighters' Union of Australia v Country Fire Authority, 1 June 2016, Melbourne, pp. 2-3, http://cfaonline.cfa.vic.gov.au/mycfa/Show?pageId=publicDisplayDoc&docId=026463

70 The Joint Statement of Intent was released on 12 August 2016.

71 Joint Statement of Intent by the Country Fire Authority and the United Firefighters Union of Australia, http://news.cfa.vic.gov.au/attachments/article/7676/Joint%20Statement%20of%20Intent.pdf (accessed 22 September 2016).

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3.85 Given how contentious clause 77.5 has been, the committee was interested to hear the rationale behind this requirement. Mr Peter Spicer, Senior Station Officer at Craigieburn and a career firefighter, described to the committee at its hearing in Macedon on 19 September how he saw the need for seven professional firefighters to attend an incident:

Let us say we are going to a house fire. The house is going; it is alight and there are people reported inside. As an incident controller my first tasking will be for two crew wearing breathing apparatus to take a hose line, make an entry and start a search. There are my first two. I am the third—so we are now up to three—because I am the incident controller. When I am sending two people into that environment it is a totally uncontrolled environment. It is not like anybody else's workplace. It is totally uncontrolled. My job is to try and bring some control back to that and get rid of the variables.

I want another two breathing-apparatus operators on standby, outside the house, ready to assist those operators inside should the ceiling collapse, should fire increase and they get trapped or whatever that might be. It is a safety requirement that I have another two operators. Now we are up to five. These people are going inside with a hose line and they are going to put out the fire. They need a pump operator to provide water. There is my No. 6. The seventh guy should be, probably, managing BA control, knowing who is in and who is out, how long they have been gone and where they are. He will be doing that but he will also be running around, essentially, as a gopher outside the building. He will be getting a ladder off the truck. He will be running another hose line. He will be getting equipment for the guys inside as they need it. That is how we come to our seven.72

3.86 Mr Spicer explained that the need to have all seven firefighters be professionals rather than volunteers, arose from practical considerations. Mr Spicer argued that while volunteers are often qualified in the tasks required in a scenario like a house fire, it is not possible to predict whether the volunteers who attend the incident will be those qualified or not:

What we do not have is a guarantee that when I go out there with my crew of three I am going to get an additional four people who are qualified in those things to an incident. The only way I can be guaranteed I am going to get that No. 7 at the fireground when I get there or shortly after I get there is by despatching seven career firefighters. Even assuming that the volunteer brigade responding with me turns out with a full crew of four people on their truck, there is still no guarantee of the skills mix I am going to get. They may be BA qualified, they may not be. They may be pump operators, they may not be. We just do not know. As I said earlier, it is about removing those variables. Sure, I can use those people. If the volunteers turn up and they are breathing-apparatus qualified I will task them and I

72 Mr Peter Spicer, Senior Station Officer Craigieburn, Committee Hansard, 19 September 2016, p. 19.

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will use them in my fire suppression. But if they are not, my plan just went out the window and I have got two guys inside potentially compromised by a structural collapse or increasing fire activity, and I have no way to get them out—because the people who have turned up may not be qualified to do that.73

3.87 This sentiment underpins the view held by many volunteer firefighters that they are being treated as second class citizens. See also paragraphs 3.16-3.19.

Provision of support and equipment

3.88 The VFBV noted that the EBA undermines key volunteer roles in the CFA:

The UFU Agreement also provides for UFU effective control over key volunteer support initiatives such as the Brigade Administrative Support Officer (BASO), the Volunteer Support Officer (VSO) and the Community Support Facilitator (CSF) programs. These programs are delivered by paid staff who's pay and conditions are not part of the UFU Agreement. These positions are not firefighter roles and have no operational role. They directly serve volunteer brigades and are seen as effective and dedicated programs for maintaining and building volunteer capacity and capability. The UFU Agreement arbitrarily ropes them into being classified as operational positions in order that the UFU can take effective control of them.74

3.89 Mr Aich, from the Warragul district, told the committee that the EBA would lead to discrimination against volunteers:

I believe that this EBA would introduce or strengthen elements of a previous EBA that will allow discrimination against unpaid or volunteer firefighters by, for example, stipulating different clothing and protective gear and by interfering with the specialist role that volunteers can take. It is also extremely ambiguous around the relationship between unpaid and paid firefighters within fireground command structures. I have not experienced it but it has been reported to me that even under existing arrangements a number of unpaid firefighters were told that their instructions would be refused simply because they were unpaid firefighters.75

3.90 Mr Greg McManus told the committee of an example in which the EBA had already caused significant problems for volunteers. He explained that the Lara Brigade, currently a fully volunteer brigade, is to have paid staff included as at 1 July 2018. Chief amongst the concerns of the Lara Brigade was the complete lack of consultation regarding the change in staffing. Mr McManus told the committee that

73 Mr Peter Spicer, Senior Station Officer Craigieburn, Committee Hansard, 19 September 2016, pp. 19-20.

74 Volunteer Fire Brigades Victoria, Submission 55, p. 25.

75 Mr Walter Aich, volunteer firefighter, Warragul District, Committee Hansard , 19 September 2016, p. 32.

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now the Lara Brigade faced many unanswered questions regarding equipment, command and control structures, operational decisions, and station logistics:

While there may be reasons to use staff or not use staff, what we need to understand is that that is not really the point about what this clause is about. There needs to be the ability to deploy resources in a flexible and creative way, as specified by the chief when he sees fit, taking into account all factors, including building the capability of the volunteer brigade in question. This takes away that flexibility. It takes away the ability of the chief officer to make that decision. What it says is that staff will move in on a certain date, in a certain way, and that the rostering will be done without flexibility and without consultation with the brigade…

We have not been consulted, as a brigade, about that change. In fact, what has happened is the opposite over the last few months. We have had several meetings with Deputy Chief Officer John Haynes of the CFA. We have talked about various service delivery options that enhance volunteer support and enhance the use of volunteers. Some of those options actually talk about the use of paid personnel to support us, but the decision to implement clause 44 in schedule 1 actually specifies that it be done in a very cookie-cutter way, without the flexibility of the chief to do that. That, for us, is a very clear example of where a change will be made. That is why, I guess, our brigade has been somewhat surprised, and we have members of parliament and Minister Merlino and Premier Andrews standing up on stage saying, 'No volunteers will be affected by this.' I am not sure how that can be, when our brigade will have paid personnel move in—our captain will be removed and be replaced by a paid firefighter—without any consultation or agreement from us. There are lot of changes that will happen to the brigade as a result of that.

I am glad that in the next group of panels you will have paid staff members and volunteers from integrated brigades, because I think there are some really great stories to share about the success of integrated brigades. But unfortunately that is not always the case. There are clauses in the document—for those that have read it, schedule 1 has a thing about lockup arrangements. It actually specifies in the station what rooms and what doors volunteers are and are not allowed to go into. We actually paid for some of that station ourselves. We had sausage sizzles and tin rattles. It also talks about cross-crewing. If and when staff are to be moved into our station, we could have fully qualified people who are currently qualified to operate vehicles and equipment but, because of the cross-crewing clause, they will not be allowed to get on vehicles with staff members…76

3.91 In his letter to the Victorian Emergency Services Minister, the former Chief Officer of the MFB raised concerns about the MFB-UFU enterprise agreement negotiations, which are similarly troubled to those between the CFA and UFU.

76 Mr Greg McManus, volunteer firefighter, North Geelong District, Committee Hansard, 19 September 2016, p. 7.

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Mr Rau outlined a number of serious examples of when the MFB was unable to roll out new equipment due to UFU refusals:

I wish to draw to your attention some examples under the current MFB enterprise agreement that have led to unacceptable situations:

1. For over two years, the MFB was unable to deploy new advanced appliances because the UFU refused to agree to their deployment. This came to a head during a week-long heatwave when I needed these appliances to be deployed to meet the MFB's responsibilities, in particular, the MFB's responsibilities to support Ambulance Victoria. In this instance I had a direct request for support from Ambulance Victoria (at SEMT) for additional MFB resources to deliver pre-hospital emergency medical response. Over a two day period consultation occurred with the union to try and resolve the matter. Due to the inability to reach agreement we sought the assistance of the Fair Work Commission (FWC) and as such, in the middle of the heatwave, two Deputy Chief Officers spent a further afternoon and evening at the FWC seeking a resolution to release these appliances into operations the following day, distracting us from critical operational activities.77

Cost of the proposed EBA

3.92 The EBA sets out the requirement for the CFA to employ an additional 509 career firefighters by 30 June 2019:

The CFA will establish 509 additional career firefighter positions in accordance with the minimum staffing set out in the Charts in Schedule 1 as applicable from time to time. The CFA will deploy an additional 509 career firefighters into these substantive established positions between the date this agreement commences and 30 June 2019.78

3.93 The EBA also states that all employees covered by the terms of this agreement shall receive the following increase in wages:79

Table 3.1—Wage increases under the proposed EBA

1 November 2015 5% increase

1 May 2016 5% increase

1 November 2016 1.5% increase

1 May 2017 1.5% increase

77 Correspondence, Mr Peter Rau, former Chief Officer of the Victorian Metropolitan Fire and Emergency Services Board, to the Victorian Emergency Services Minister, the Hon James Merlino MP, 30 June 2016, http://media.heraldsun.com.au/PDF/2016/Aug/1009_001.pdf, (accessed 4 October 2016).

78 Clause 44.20.2, 2016 CFA UFU Operational Staff Enterprise Agreement 2016 - FINAL, p. 67.

79 Clause 89.1, 2016 CFA UFU Operational Staff Enterprise Agreement 2016 - FINAL, p. 109.

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1 May 2018 3% increase

1 May 2019 3% increase

Source: United Firefighters Union, Submission 83, Attachment 6, Country Fire Authority / United Firefighters Union of Australia Operational Staff Enterprise Agreement 2016, Clause 89.1.

3.94 Several submitters argued that the volunteer-based model is the only financially sustainable model available for emergency management in Australia.80 These submitters were troubled by the overall cost of the EBA and the additional financial burden that it would impose on all landholders and businesses through the Fire Services Property Levy (FSPL).81

3.95 The National Farmers Federation (NFF) noted that the FSPL that Victorian farmers, households and businesses pay to fund the CFA is calculated on a combined fixed and variable basis, according to land value. A farmer whose property has a capital improved value of $1 000 000 would pay roughly $473 each year.82

3.96 Many active CFA volunteers are members of the VFF.83 The VFF argued that the EBA should not be finalised until the full cost of the EBA had been subjected to independent assessment and the results made public. The VFF argued that the assessment should consider not only the impacts of additional staffing and wage increases including the cost of increased allowances, penalties and resources needed to employ the existing UFU members, but also the additional 509 paid firefighters that the EBA requires the CFA to employ by 30 June 2019.84

3.97 Mr Tudball stated the former CFA Board had serious misgivings about the financial implications of the EBA on the CFA and its ability to maintain infrastructure such as fire stations and fire trucks. Mr Tudball cautioned that the funding shortfall would impact on volunteer services and community engagement.85

3.98 Mr Tudball submitted that the CFA Board advised the former Victorian Minister for Emergency Services on 10 June 2016 that the CFA's Chief Financial Officer estimated that the EBA would cost the CFA $627 million over the 4 years of

80 For example see Mr John Peberdy, Submission 4, p. 5; Mr Michael Tudball, Submission 5, p. 2; Victorian Farmers Federation, Submission 3, p. 2.

81 Mr Michael Tudball, Submission 5, p. 5; Victorian Farmers Federation, Submission 3, p. 2; National Farmers Federation, Submission 7, pp. 10-11.

82 National Farmers Federation, Submission 7, pp. 10-11.

83 Victorian Farmers Federation, Submission 3, p. 2.

84 Victorian Farmers Federation, Submission 3, p. 2.

85 Mr Michael Tudball, Submission 5, pp. 4-5.

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the agreement. According to Mr Tudball, more recent advice to the former Board indicated that the EBA would between $671 and $755 million over 4 years.86

3.99 Similarly, the VFF was concerned that increasing the number of CFA career firefighter from about 600 to more than 1000 would lead to a 'blowout' in the CFA budget.87

3.100 The NFF argued that even though the Victorian Government has agreed to cover the base salary costs of the 509 new career firefighters, the CFA would have to cover a range of associated costs such as station and equipment upgrades, training, overtime and increased allowances 'including reimbursement of driving license costs, a minimum one hours' pay per after hours disturbance with double time after that, stamp duty reimbursement for employees promoted or transferred to a new location who purchase a new property within 4 years of moving; and gym membership where gym facilities are not provided'. The NFF stated that these unfunded additional costs would have to be recovered through an increase to the FSPL, meaning that the farm sector would be burdened with a large proportion of the costs involved in resolving the CFA dispute.88

3.101 Contrary to these concerns, Ms Francis Diver, Chief Executive Officer of the CFA told the committee that there has been an undertaking from the Victorian Government to cover the costs of implementing the EBA:

CFA has undertaken a process to cost the agreement, and that is costing the agreement with all the clarifications that we had from my appointment, which is very different to some earlier costs that the previous CFA board and management had made some assumptions about. For that costing, we have reached an agreed figure with Treasury, and Treasury has provided in writing—…The costs of the implementation of the enterprise agreement will be fully covered by government, and there will be no cross-subsidisation from volunteer initiatives. In addition to that, when the board resolved to authorise the agreement going to the vote, the board also resolved to ensure that there was no cross-subsidisation. Both at the government level funding will come, and at the board level there will be no cross-subsidisation.89

86 Mr Michael Tudball, Submission 5, p. 5.

87 Victorian Farmers Federation, Submission 3, p. 2.

88 National Farmers Federation, Submission 7, pp. 10-11; Victorian Farmers Federation, Submission 3, p. 2.

89 Ms Francis Diver, Chief Executive Officer, CFA, Committee Hansard, 28 September 2016, pp. 95-96.

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Potential inconsistency of the EBA with Equal Opportunities legislation

3.102 Mr Tudball submitted that the former CFA Board had alerted the former Victorian Emergency Services Minister on 10 June 2016 that certain clauses in the EBA may be discriminatory:

The clear advice of Melina Richards SC, Crown Counsel of the State of Victoria with Rebecca Preston, Counsel is that the proposed EA includes discriminatory, unlawful terms. In particular, the advice is that there are a number of clauses that would place the CFA in breach of its obligations to provide reasonable accommodation of an employee's responsibilities as a parent or carer and to make reasonable adjustments for an employee with a disability. This advice has been shared with you.90

3.103 Ms Nolan told the committee that, based on legal advice provided to the CFA, the proposed EBA would exacerbate the lack of gender diversity within the CFA and would discriminate against people with carer responsibilities who are unable to work full-time.91

3.104 Similarly, the VFF argued that all clauses in the EBA that require the CFA to gain UFU approval on a case-by-case basis to employ casual and part-time staff should be removed because they act as a major barrier to women working as paid CFA firefighters.92

3.105 Mr Tudball noted that diversity is a matter the FWC must take into account in exercising its functions (s.578(c)) as well as being an objective of the FW Act (s.3c). However, the former CFA Board advised the former Victorian Emergency Services Minister that the Board itself was of the view that it must also be satisfied that the EBA was lawful:

It is of no comfort to the Board to suggest the Commission (Fair Work Commission) is the entity that 'must be satisfied' of the relevant requirements on approval. It is the view of the Board that it must be comfortable that the agreement is lawful and capable of being approved. In fact, the Board would have to disclose any contrary view it held.93

3.106 However, Professor Andrew Stewart noted that sections 194(a) and 195 of the FW Act already provide that an EBA cannot contain terms that discriminate against employees on the basis of gender, family or caring responsibilities. Therefore, to the

90 Mr Michael Tudball, Submission 5, p. 3.

91 Ms Lucinda Nolan, private capacity, Committee Hansard, 28 September 2016, pp. 27 and 30.

92 Victorian Farmers Federation, Submission 3, p. 2.

93 Mr Michael Tudball, Submission 5, p. 4.

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extent that the proposed EBA between the UFU and the CFA might have discriminatory terms in it, the FWC would be required to reject it.94

Relationship of volunteers to their local communities

3.107 Mr Peberdy drew attention to the unique relationship between volunteers and their community and the unique understanding and skill set that they possess:

[Volunteers] understand the environment in which they are living and how best to communicate with the locals. They have a vested interest in looking after their family, neighbours, property and the local environs.

This understanding is not picked up in a short space of time. It comes from living in the area and understanding how to deal with the challenges the environment. Many of the volunteers have skills developed through living off the land, or providing services to those who do.95

3.108 A similar point was made by the NFF which observed that there are 'approximately 220,000 volunteer rural firefighters in Australia and a further 5900 employees. In other words, more than 97% of rural firefighters are volunteers'.96

3.109 The NFF went on to state that:

Local fire brigades are an important part of life in rural communities. They are made up of farmers, their families and friends. Volunteers give up their time and sometimes risk their lives to help others in times of emergency. They are called on to respond to a range of emergency situations, including bush and grass fires, house and structure fires, storm damage, search and rescue, motor vehicle accidents, community education and bush fire mitigation. This important contribution is one that should be recognized and supported by all Australian governments. Volunteers deserve better than to be put in a position where third party interests can dictate what they can and cannot do to support their communities in times of crisis.97

3.110 The VFBV drew attention to the fact that the unique advantage of substantial numbers of emergency service volunteers was the 'surge capacity of personnel and equipment that can be deployed to multiple and long duration emergencies anywhere within their state or territory or, where needed, across Australasia'.98

3.111 Witnesses at the Macedon hearing emphasised the important relationship between the volunteer firefighters and their local communities. Mr Lachlan Gales, a

94 Professor Andrew Stewart, Submission 17, p. 2; Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 37.

95 Mr John Peberdy, Submission 4, p. 5.

96 National Farmers Federation, Submission 7, p. 7.

97 National Farmers Federation, Submission 7, p. 7.

98 Volunteer Fire Brigades Victoria, Submission 55, p. 17.

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volunteer firefighter from the Wangaratta district, stressed the importance of the volunteers in communities:

CFA brigades are the quintessential example of how the community can effectively join together for the greater good. People are attracted to CFA because it allows them to make a contribution knowing they have autonomy and influence within an organisation that was created by volunteers for volunteers. This EBA is in effect a grasping of our autonomy and influence by a minority group within the organisation for their own benefit. If adopted, it will weaken CFA and diminish volunteerism by creating an environment not conducive to attracting or retaining the resilient, engaged and motivated volunteers that our communities have relied on for decades.99

3.112 Mrs Sharron Jones, another volunteer firefighter from the Wangaratta district, echoed Mr Gales' comments:

In my own brigade, which is the Tolmie rural fire brigade, we are the community; we are the people who live in the community and we are the people who protect our community. We are the people who go out and inspect houses and give assistance with mitigation and so on. Our community is why we do this, and the community supports us entirely, so we are the community.100

3.113 Miss Eliza Sawyer, a volunteer firefighter from the Lilydale district, explained to the committee that as the fire prevention coordinator at the Macclesfield fire brigade, a large part of her role is community safety and education. The focus on education extends to providing Fire Safe Kids sessions at the local primary school, something Miss Sawyer described as creating an emotional connection between the community and the brigade.101 Under the EBA, however, Miss Sawyer's ability to deliver community education programs will be restricted:

As per clause 17 of the EBA, our capacity to deliver community education will be prevented or restricted, despite us holding various qualifications in community education. I hold the Fire Safe Kids presenter qualification and burns table presenter qualification, which include nationally recognised units in public safety. We are experts in our own community and their needs. In line with the vision of the CFA, we take the community with us. Being a small rural community, I fail to see how our community will be better off with community education external to our local brigade. As a

99 Mr Lachlan Gales, volunteer firefighter, Wangaratta district, Committee Hansard, 19 September 2016, p. 5.

100 Mrs Sharron Jones, volunteer firefighter, Wangaratta district, Committee Hansard, 19 September 2016, p. 15.

101 Miss Eliza Sawyer, volunteer firefighter, Lilydale district, Committee Hansard, 19 September 2016, p. 8.

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result, I believe that our community will be left behind as we lose the connections that we have made with them over the years.102

Scope of the bill

3.114 Under the bill, a designated emergency management body is defined as:

(a) either:

(i) the body is, or is a part of, a fire-fighting body or a State Emergency Service of a State or Territory (however described); or

(ii) the body is a recognised emergency management body that is prescribed by the regulations for the purposes of this subparagraph; and

(b) the body is, or is a part of a body that is, established for a public purpose by or under a law of the Commonwealth, a State or a Territory.103

3.115 Submitters in support of the amendments argued that the bill was necessary to ensure that the rights of paid firefighters and volunteers were equally represented. This view was articulated by Mr Ford, CEO of VFBV:

I try to imagine if the [amended] Fair Work Act had already been in place months ago. It would have laid a clearer path for everyone to work through, there would have been a fair playing field where volunteers had a voice on matters affecting them and there would have been a clear process to deal with differences … in our mind the fix being proposed is pretty simple. It is innately fair, it is consistent with what everyone is either saying they want or claiming to be already reflected in the EBA.104

3.116 A number of volunteer firefighters also expressed strong support for the bill as drafted. For example, Mr Bill Stockdale, Secretary of Tatura fire brigade, said:

The district council strongly supports the passing of the Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016 as a safeguard for all rights of all volunteers in carrying out their vital community safety role unfettered by obstacles placed as a result of industrial agreements.105

3.117 Mrs Mary-Anne Egan, volunteer firefighter, Wangaratta district, also argued forcefully in support of the bill, suggesting that it would:

102 Miss Eliza Sawyer, volunteer firefighter, Lilydale district, Committee Hansard, 19 September 2016, p. 8.

103 Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016, Explanatory Memorandum, p. i.

104 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, pp. 3-4.

105 Mr Bill Stockdale, Secretary of Tatura fire brigade, Committee Hansard, 19 September 2016, p. 2.

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…give volunteer bodies a place at the table, in Victoria, where volunteer management and ops belong. Your bill offers us hope. It offers hope that the industrial agreements will not interfere with legislation which protects the rights of volunteers who give their services freely each and every day and night of the year if needed.106

3.118 However, some inquiry participants were concerned about the scope of the bill, arguing that there was uncertainty about the extent of its application. For example, the Victorian Government criticised the scope of the bill, suggesting that it:

…creates significant uncertainties. A number of clauses of the Bill are ambiguous and ill-defined, and on one reading, could apply to a wide range of matters in agreements. This is likely to lead to uncertainty for parties negotiating enterprise agreements as to which clauses may or may not be unlawful and result in delay in the bargaining process and lengthy and protracted litigation.107

3.119 Ryan Carlisle Thomas (RCT) Lawyers argued that while the Explanatory Memorandum states that the bill is intended to apply only to 'volunteer-based emergency management bodies', the bill's scope seems much wider because it refers to a 'State Emergency Service of a State or Territory (however described)'.108

3.120 The Police Federation of Australia (Police Federation) pointed out that only Victoria Police and the Australian Federal Police currently operate under the FW Act and that all other jurisdictions except the Northern Territory (NT) operate under various state acts.109

3.121 The Police Federation was greatly concerned that the bill would permit an emergency management body to be declared as such by regulation and that this could reduce the use of volunteers by police forces. The Police Federation observed that both the Australian Federal Police and Victorian Police use volunteers in a limited number of non-operational roles. The Police Federation noted that permitting volunteer bodies to make submissions to the FWC would be likely 'to hinder and restrict police forces from encouraging the use of volunteers'. Consequently, the Police Federation submitted that the bill should be amended to 'expressly state that the Commonwealth cannot declare a police force of any Australian jurisdiction' to be an emergency management body.110

106 Mrs Mary-Anne Egan, volunteer firefighter, Wangaratta district, Committee Hansard, 19 September 2016, p. 38.

107 Victorian Government, Submission 1, p. 1.

108 Ryan Carlisle Thomas Lawyers, Submission 8, p. 14.

109 Police Federation of Australia, Submission 6, p. 1. The police force in the NT operates under an arbitral tribunal.

110 Police Federation of Australia, Submission 6, pp. 1-2.

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3.122 The Ambulance Employees Australia Victoria (AEAV) also expressed concern over the 'ambiguous' scope of the bill:

The Bill provides no guidance, criteria or considerations as to which emergency service organisations will be covered by the legislation. The AEAV can only conclude that Ambulance Victoria will be considered a 'designated emergency management body'. The AEAV, as the Ambulance Union within Victoria, objects in the strongest terms to having individuals not covered by our enterprise agreements intervening in the setting of terms and conditions of its members.111

3.123 The perceived uncertain scope was also an issue for the Australian Nursing and Midwifery Federation (ANMF) Victorian Branch. The ANMF highlighted its concern that, if enacted, the bill would impact on the many volunteers within the Victorian health service:

…Victorian hospitals and health services would meet the description of a designated emergency management body given their role as part of the State Health Emergency Response Plan under which state health command can be implemented. Of course many hospitals have volunteers and thus the Bill might impact on a huge area of volunteerism and on employers' involved in enterprise bargaining with many thousands of employees. Similarly public hospital emergency departments may be caught by the definition simply because of their role in the provision of co-ordinated state emergency health services.112

3.124 The ANMF (National) also observed that it was unclear about the type of organisations that would be affected by the bill:

Of specific concern to the ANMF is that several elements of the definition of 'recognised emergency management body' could easily apply to various organisations in the health industry which employ nurses and midwives and engage volunteers, for example public hospitals, Australian Red Cross, etc.113

3.125 The use of regulations to include or exclude organisations from being impacted by the bill was a second area of concern. For example the ANMF Victorian Branch said:

The reliance on regulations to determine the application of the Bill, if passed, underscores the fact that it is selective and targeted at the CFA but in an attempt to appear to be of more general application the Bill has created uncertainty. The necessity of having Regulations to include, and then also exclude, agencies from the scope of the Bill underscores its uncertain reach. Of course this uncertainty is the result of the highly political motivation of the Bill itself.

111 Ambulance Employees Australia Victoria, Submission 13, p. 3.

112 Australian Nursing & Midwifery Federation Victorian Branch, Submission 14, p. 3. 113 Australian Nursing & Midwifery Federation, Submission 89, p. 3.

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3.126 The Australian Council of Trade Unions (ACTU) also expressed unease over the reliance on regulation to clarify the application of the bill:

… the scope of agreements it [the bill] applies to is uncertain and is subject to change by mere regulation. The cumulative effect of section 109(3)(d) of the Fair Work Act and the proposed section 195A(4) is that the only requirement confining the scope of operation of the Bill is that the relevant employer is a body, or part of body, that is established for a public purpose by or under a law of the Commonwealth, a State or Territory. The remainder is entirely left up to regulations and thereby lacks any effective Parliamentary scrutiny. Beyond the current discussion about the CFA, we simply do not know which public instrumentalities will be declared to be covered by these provisions.114

3.127 In response to concerns about the scope of the bill, the Commonwealth Department of Employment advised the committee that the bill was 'deliberately narrow in its application' and would only cover certain public sector organisations in Victoria, the ACT and the Northern Territory. In other states, these bodies are covered by state workplace relations law, and the Commonwealth does not have constitutional power to cover them unless they are constitutional corporations.115

3.128 The Department also specifically addressed the concerns raised by the Police Federation and the Australian Nursing and Midwifery Federation (ANMF) with respect to the scope of the bill:

To be clear, police forces and hospital workers are not covered by the legislation. Neither fall within the meaning of 'designated emergency management bodies', to which the amendments will apply, as set out at proposed section 195A(4)(a)(i), as they are not firefighting or State Emergency Service bodies. There is no intention to prescribe these bodies by regulation.116

Committee view

3.129 The committee notes the concerns expressed by employee organisations including the police and health services unions that the bill may have unintended consequences for their operational practices and use of volunteers. The committee also notes the unease expressed over the use of regulation to clarify the application of the bill.

3.130 The committee is reassured that the Department of Employment has drafted the bill to be deliberately narrow in its application, and is convinced that neither police

114 Australian Council of Trade Unions, Submission 9, p. 2.

115 Dr Alison Morehead, Group Manager, Workplace Relations Policy Group, Commonwealth Department of Employment, Committee Hansard, 28 September 2016, p. 105.

116 Dr Alison Morehead, Group Manager, Workplace Relations Policy Group, Commonwealth Department of Employment, Committee Hansard, 28 September 2016, p. 105.

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forces nor hospital services fall within the meaning of 'designated emergency management bodies'.

3.131 Nevertheless, in light of the concerns expressed, the committee believes the government should proceed cautiously and with full consultation before considering any future extension of the bill through regulation.

Entitlement for volunteer bodies to make submissions

3.132 The Victoria Emergency Service Association (VESA) considered that 'volunteers currently have few rights, are not recognised for their professional expertise, and are not given the respect they warrant for the work they undertake for the community'. VESA observed that, in many instances, SES volunteers have to accept directives through a chain of command and that volunteers may be subject to unfair treatment from paid employees.117

3.133 Consequently, VESA saw the provision for volunteer representative bodies to appear before the FWC as a 'significant step towards recognising the rights of volunteers'.118

3.134 The inability of affected volunteer representative bodies to make submissions to the FWC on matters impacting their members was a matter of significant concern for the Volunteer Fire Brigades Victoria (VFBV), as outlined by Mr Ford:

We find it hard to understand that an EBA can be adopted by the FWC under the current Commonwealth Fair Work Act with a raft of clauses that reach beyond the intended realm of the Fair Work Act and beyond the realm of employees' pay and conditions into areas that clearly impact on volunteers. Then when volunteers say, 'Hang on, how about a fair go here for volunteers? Hang on, you've gone too far. Could you leave those things that are beyond the pay and conditions out of the EBA and let them be dealt with by due process consistent with the CFA Act but also gives a voice to the volunteers,' we are told that we are sticking our nose into someone else's business. We are told that now these things are in the Fair Work process, even though they impact on volunteers in our own organisation built by volunteers on issues that directly impact on volunteers and on volunteer rights, we have no rights to have a say or for volunteer rights to be fairly considered.119

3.135 Mr Ford concluded that VFBV was 'not asking for anything other than respect and effective protection of volunteers' roles and rights'.120

117 Victoria Emergency Service Association, Submission 19, p. 1.

118 Victoria Emergency Service Association, Submission 19, p. 1.

119 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 2.

120 Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria, Committee Hansard, 28 September 2016, p. 2.

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3.136 A number of volunteer firefighters expressed concern that volunteer organisations have not been permitted to make submissions to the FWC on the impact of matters affecting their members. For example, Mr Robert Cooke highlighted the unfairness of the situation:

When the EBA went to the Fair Work Commission, they could only hear one side of the argument. The legislation that is there precluded them from hearing from the CFA, because it is a volunteer organisation, and that is what we need changed. This EBA needs to be annulled, and they need to start again. Then we will get back to an even playing field.

If I was the commissioner and that was put in front of me, I would go to the government and say, 'The law isn't right. I can only hear one side of the argument. I cannot hear the other side of it and I am called a fair work commissioner. How is that fair?'121

3.137 Dr Morehead advised that the bill addresses these concerns by enabling certain volunteer bodies to make submissions in matters before the FWC that relate to enterprise agreements and workplace determinations, and that affect or could affect the volunteers of a designated emergency management body.122

3.138 Dr Morehead explained that the reason for including this right in the bill was to ensure that volunteer organisations can:

… have a say and present their views and concerns in matters before the FWC about, for example, any clause in a proposed enterprise agreement which could potentially impact on volunteers. Previously, CFA volunteers tried to be represented at the FWC conciliation proceedings in May 2016 so they could put their concerns on record. However, Commissioner Roe determined that the volunteers did not have sufficient standing to be heard. This amendment ensures that volunteers will be able to make submissions in the future.123

3.139 RCT Lawyers observed that if a volunteer association currently had a proper interest in a matter arising from the FWC it might apply to be heard. However, RCT Lawyers argued that inserting a statutory entitlement to make a submission was flawed because it removed the FWC's discretion on who to hear from, required the FWC and bargaining representatives 'to address submissions made regardless of merit and proper interest', provided 'for a stranger to the bargaining process to intrude into the bargaining between the industrial parties', and would add complexity to an enterprise bargaining process.124

121 Mr Robert Cooke, volunteer firefighter, Wendouree district, Committee Hansard, 19 September 2016, p. 36.

122 Dr Alison Morehead, Group Manager, Workplace Relations Policy Group, Department of Employment, Committee Hansard, 28 September 2016, pp. 104-105.

123 Dr Alison Morehead, Group Manager, Workplace Relations Policy Group, Department of Employment, Committee Hansard, 28 September 2016, pp. 104-105.

124 Ryan Carlisle Thomas Lawyers, Submission 8, p. 6.

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3.140 Similarly, Professor Stewart noted that the FWC currently has the 'general discretion' to hear from affected parties such as volunteer organisations and observed that the creation of a statutory right for volunteer organisations to be heard '…goes beyond a right that is simply not available to anyone else'.125

3.141 Professor Stewart emphasised the unusualness of granting a statutory right to be heard to volunteer organisations when that same right was not afforded to any other stakeholder, including the relevant minister:

What this bill would do is remove any discretion from the FWC but only in relation to volunteer organisations, so the Victorian government would not have a right to have a say, the federal minister would not have a right, volunteers would not have a right but organisations, as long as they are incorporated or mentioned in the regulations, would.126

3.142 The ACTU described the provision of statutory right to be heard as 'puzzling',127 contending that there are a number of problems with the proposal:

These provisions are curious primarily because they are not in any way linked or limited to the issue of the presence or otherwise of 'objectionable emergency management terms' in agreements or workplace determinations. They effectively require the FWC to consider submissions that may extend to matters that are entirely irrelevant to the questions at issue in a given matter before the Commission - for example a volunteer association's views on whether or not a majority support determination ought to be issued. This may create unnecessary delay and cost.128

Constitutionality of the bill

3.143 Some submitters questioned the basis on which the Commonwealth was able to legislate in an area that restricted the ability of a state government to conclude an industrial agreement with its employees.

3.144 The Prime Minister acknowledged that while the states are responsible on a constitutional and practical basis for the provision of firefighting services, the state government of Victoria had 'abdicated its authority on this matter and capitulated to the Union'.129

125 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 39.

126 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 39.

127 Australian Council of Trade Unions, Submission 9, p. 3.

128 Australian Council of Trade Unions, Submission 9,p. 3.

129 Prime Minister, the Hon Malcolm Turnbull MP, Second reading speech, House of Representatives Hansard, 31 August 2016, p. 80.

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3.145 RCT Lawyers noted that the bill imposed restrictions on a state agency's dealings with employees by removing agency discretion and the right to determine for itself appropriate arrangements.130

3.146 RCT Lawyers also noted that the Explanatory Memorandum refers to the Commonwealth's power to legislate being derived from the states' referral to the Commonwealth of 'workplace relations matters' in section 51(xxxvii) of the Constitution. In the case of Victoria the referral is given effect by the Fair Work (Commonwealth Powers) Act 2009 (Vic) and Division 2A of Part 1-3 of the FW Act. However, given the referral of legislative power relates to the terms and conditions of employment contained in enterprise level agreements, RCT Lawyers noted it was doubtful whether the referral of legislative power would be supported in circumstances where the objective of the bill was not directed to employees but rather was to protect the role of emergency service volunteers.131

3.147 Professor Andrew Stewart began by observing that the provisions of the bill could only come into play in the dispute between the CFA and the UFU if three conditions were satisfied, namely that the EBA:

• had the support of both the CFA board and a majority of the CFA employees to be covered by the agreement;

• had been found by the Victorian Supreme Court to be consistent with the legislation governing the CFA (since otherwise the Court would presumably not have lifted the injunction that at the time of writing is restraining the CFA Board from concluding any agreement); and

• met the other requirements of the FW Act, including that the agreement not contain terms that discriminate against employees on the basis of gender, family or caring responsibilities, etc. (see FW Act ss 194(a), 195).132

3.148 With respect to the second dot point above, Professor Stewart therefore noted that the question of whether an EBA contravenes elements of state law is a matter 'that not only can be put before a state court but has been put before a state court' and that the CFA Board can only put the proposed EBA to its employees 'if the Victorian Supreme Court is satisfied that the CFA board can lawfully agree to the agreement'.133

3.149 On the question of constitutionality of the bill, Professor Stewart observed that there was an argument the bill was unconstitutional:

The High Court has said in a series of decisions that it is perfectly okay for federal law to regulate the wages and employment conditions of state government workers or state government agency workers but there are limits. One of the limits articulated in a 1995 decision involving the

130 Ryan Carlisle Thomas Lawyers, Submission 8, p. 9.

131 Ryan Carlisle Thomas Lawyers, Submission 8, p. 10.

132 Professor Andrew Stewart, Submission 17, p. 2.

133 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 37.

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Australian Education Union and also the Victorian government, as it happens, was that the Commonwealth cannot tell a state who or how many people it employs to do work. There is an argument that would be exactly what the Commonwealth would be doing with this legislation; it would be having a federal body, the Fair Work Commission, in effect overwriting the decisions of a state government body like the CFA when it decides how it wants to structure its relations with both its employees and its volunteers.134

3.150 Mr Jeremy O'Sullivan, Chief Counsel Workplace Relations Legal at the Commonwealth Department of Employment (the Department) refuted the proposition that the prospects of a constitutional challenge were high.135 He advised the committee that the government had legal advice from the Australian Government Solicitor that the bill was 'within Commonwealth constitutional power'. Mr O'Sullivan also pointed out that in drafting the bill the Department had 'carefully considered the implied constitutional limits on the power of the Commonwealth to legislate with respect to state public sector employment'.136

Committee view

3.151 The committee notes that the potential constitutionality of the bill has been raised by some submitters. The committee heard from the Commonwealth Department of Employment that the Department had given due consideration to the implied constitutional limits on the power of the Commonwealth to legislate with respect to state public sector employment. Furthermore, the committee heard that the Department had expert legal advice from the Australian Government Solicitor that the bill was within power. On the basis of the evidence provided by the Department of Employment, the committee is therefore persuaded that the bill is constitutionally valid.

Overall committee view

3.152 It is abundantly clear from the evidence presented to the committee in Macedon that both volunteer and career firefighters display an incredible level of professionalism and commitment in carrying out their roles. On behalf of the wider community, the committee commends both volunteer and career firefighters and thanks them for their dedication to keep the community safe.

3.153 With these remarks in mind, the committee considers it highly regrettable that the dispute in Victoria has driven a wedge between volunteer and career firefighters when both parties are integral to firefighting efforts across Victoria.

134 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 38.

135 Mr Jeremy O'Sullivan, Chief Counsel, Workplace Relations Legal, Commonwealth Department of Employment, Committee Hansard, 28 September 2016, p. 111.

136 Mr Jeremy O'Sullivan, Chief Counsel, Workplace Relations Legal, Commonwealth Department of Employment, Committee Hansard, 28 September 2016, p. 110.

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3.154 The committee acknowledges the legitimate safety concerns raised by career firefighters at the integrated stations arising from incidents such as the Fiskville Training Centre over which the CFA had responsibility. The committee also heard from career firefighters that there had been a distinct unwillingness over many years by the CFA to negotiate in good faith over safety concerns and the development of an agreed set of safety and Standard Operating Procedures (SOPs). In this regard, the committee notes that the inquiry currently being conducted by the Environment and Planning Committee of the Victorian Parliament into Fire Season Preparedness has also heard evidence of a poor culture at the CFA and an inability by the CFA to make substantive progress on important issues.

3.155 Nevertheless, from the evidence presented to the committee, it is clear that many of the clauses in the proposed EBA are best characterised as SOPs. The committee heard from career firefighters at the Macedon hearing that the EBA may not be the most appropriate place for SOPs. The committee is firmly of the view that a preferable outcome would be to have a stand-alone document that contained an agreed set of SOPs.

3.156 The committee further notes that the key areas of contention in the EBA for both the volunteers and the former CFA board and management do not relate to wages, but rather relate to those clauses in the EBA that are best characterised as SOPs.

3.157 The committee is therefore of the view that it is incumbent on both the CFA management and board to redouble its efforts to successfully develop a set of SOPs that are agreeable to both career and volunteer firefighters. The committee is firmly of the view that these SOPs should sit outside of any EBA negotiated between the UFU and CFA.

3.158 Given the above, and while cognisant of the frustration faced by career firefighters, and aware of the overarching importance of firefighter and community safety, the committee nevertheless considers that the UFU has pursued a highly inappropriate strategy by inserting clauses into an EBA that in effect amount to SOPs. This has proven to be highly counter-productive and has contributed enormously to the divisive nature of the dispute.

3.159 At this point, it is appropriate to acknowledge that the CFA Act places particular responsibilities on the board and management of the CFA. Furthermore, the CFA Act also accords explicit statutory recognition of the fact that the CFA is first and foremost a volunteer-based organisation in which volunteer officers and members are supported by employees in a fully integrated manner.

3.160 The committee further recognises that the Volunteer Charter is acknowledged by the CFA Act and is a statement of the commitment and principles that apply to the relationship between the Government of Victoria, the CFA, and its volunteers. The CFA Act recognises that the Volunteer Charter requires, amongst other things, that the Government of Victoria and the CFA commit to consulting with the VFBV on behalf

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of volunteer officers and members on any matter that might reasonably be expected to affect them.

3.161 The uncompromising insistence by the UFU leadership that the CFA agree to a raft of clauses in the EBA that would be better dealt with elsewhere led to the resignations of the CFA Chief Executive Officer, the CFA Chief [Fire] Officer, the Minister for Emergency Services, and the removal of the entire CFA Board.

3.162 In effect, the insistence that the CFA agree to the UFU position on the EBA placed the former CFA board, management and Minister for Emergency Services in an invidious position. This occurred because the proposed EBA would adversely affect how the CFA manages its large contingent of volunteer firefighters and would be inconsistent with the current Victorian emergency management legislation under which the CFA is required to operate. The proposed EBA would therefore place the CFA in breach of its statutory obligations.

3.163 Moreover, the terms of the proposed EBA would have a significant adverse impact on CFA volunteers by, amongst other things, restricting the types of work ordinarily performed by volunteer firefighters. In addition, the requirement under the proposed EBA for the CFA to reach agreement with the UFU over a whole range of

clauses, including many which directly affect volunteers and how the CFA manages its volunteer workforce, effectively excludes volunteers from negotiations, the results of which may have an adverse impact on them. The proposed EBA would therefore contravene the provisions of the Volunteers Charter that are acknowledged by the CFA Act.

3.164 Furthermore, the attempted resolution of the dispute by the FWC was, by the very nature of what the FWC is required to take notice of, incapable of considering both the legitimate concerns of affected stakeholders such as the overwhelmingly volunteer workforce of the CFA as well as the wider jurisdictional implications of the EBA for the CFA Act. In effect, the nature of the FWC as it currently operates effectively excludes CFA volunteers from having a voice in a forum where their particular interests are being affected. This is clearly unacceptable and will inevitably have devastating consequences for the continued participation of volunteers in the CFA.

3.165 It is therefore clear to the committee that the proposed EBA threatens the long-standing relationship between the CFA and the community. This would be a tragic outcome for what has been a world-renowned firefighting organisation that has, thus far, successfully integrated a large and devoted volunteer workforce with a small but dedicated contingent of career firefighters. Furthermore, the unravelling of the enormous volunteer commitment to the CFA would undermine the safety of large swathes of Victoria.

3.166 It is against this backdrop that the bill must be considered. Certainly, the committee considers that it would be preferable for the EBA to exclude clauses that are more accurately characterised as SOPs. Furthermore, the CFA, the UFU, and the

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VFBV should engage in good faith negotiations to develop a separate document that sets out the SOPs for the CFA with a view to maximising firefighter and community safety.

3.167 Nevertheless, the committee must consider the circumstances before it. Firstly, the exclusion of volunteers from an EBA process that intimately affects them is at the heart of the firefighting dispute in Victoria. The bill corrects this anomaly by providing relevant volunteer bodies with a right to make a submission to the FWC on matters that affect the volunteers that they represent.

3.168 Secondly, the proposed EBA between the CFA and the UFU will undermine the ability of the CFA to properly manage its large and invaluable volunteer contingent. The bill addresses these perverse outcomes by preventing an EBA from including any term that would impact the capacity of emergency management bodies to properly manage their volunteer operations (including requiring the body to consult, or reach agreement with, any other person or body, or restricting or limiting the body's ability to recognise, value, respect or promote the contribution of its volunteers).

3.169 Thirdly, if approved, the EBA would leave the CFA in breach of its statutory obligations under Victorian law, namely the CFA Act. The bill addresses this outcome by precluding an EBA from including any terms that would override the provisions of state legislation governing emergency management bodies. The bill clarifies this position in a new note which reads 'a term of an enterprise agreement could be an unlawful term and of no effect if it requires or permits a designated emergency management body to act other than in accordance with a State or Territory law and this affects or could affect the body’s volunteers'.137

3.170 Finally, the bill will render ineffective any terms such as those outlined above in an EBA, regardless of whether the agreement comes into effect before or after the bill is passed. This offers protection to volunteers who may suffer adverse consequences from an EBA that has already been agreed, but it still allows the EBA to otherwise continue to operate.

3.171 Having considered all the evidence before it, the committee is persuaded that the bill is a reasonable, necessary and proportionate response to the current anomalies in the Fair Work Act 2009 and urges the Senate to pass the bill.

Recommendation 1

3.172 The committee recommends that the Senate pass the bill.

Senator Bridget McKenzie Chair

137 Clause 2, Schedule 1, Fair Work Amendment (Respect for Emergency Services Volunteers) Bill 2016.

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Non-government Senators' Dissenting Report Executive Summary Non-government Senators summarise the key aspects of this inquiry as follows:

• As a result of 3 years of collective bargaining, and following

recommendations from the Fair Work Commission, agreement has been reached between the Board of the Country Fire Authority (CFA) and the United Firefighters Union of Australia (UFU) on the Operational Staff Enterprise Agreement 2016 (EBA).

• Clause 7A of the agreement makes it clear that the role of volunteers is not

altered by the agreement. Nothing in the agreement shall prevent volunteers in the CFA from providing the services normally provided by such volunteers without remuneration.

• The Volunteer Fire Brigades Victoria (VFBV) have claimed that the

agreement affects volunteers and as such breaches the Country Fire Authority Act 1958 (CFA Act) and the Volunteers Charter that comprise part of the Act.

• The VFBV has referred the agreement to the Supreme Court of Victoria. The

VFBV chief executive Andrew Ford said at the time 'the issue will now be dealt with where it should be dealt with: in a fair and transparent process through the Supreme Court'.1

• Prime Minister Malcolm Turnbull, on 22 August 2016 in the middle of the

election campaign, announced legislation to change the Fair Work Act 2009 (Fair Work Act) to 'protect' CFA volunteers from the firefighters union.2

• The agreement became a political football with the Prime Minister,

government ministers, and coalition backbenchers misrepresenting the implications and effects of the agreement.

• Expert evidence from Professor Andrew Stewart to the Senate Education and Employment Legislation Committee (the committee) inquiry raised a number of significant issues arising from the bill.

• Professor Stewart told the committee that an EBA made under the Fair Work

Act is 'subject to, and thus cannot override, the provisions of certain state (or territory) laws' including matters relating to provision of essential services or to situations of emergency including directions to perform work (including to perform work at a particular time or place, or in a particular way), and

1 'CFA dispute: Victorian volunteer firefighters win bid to halt workplace deal vote', ABC News, 17 August 2016, http://www.abc.net.au/news/2016-08-17/volunteer-firefighters-win-bid-to-halt-cfa-workplace-deal-vote/7751714 (accessed 9 October 2016).

2 Prime Minister the Hon Malcolm Turnbull, 'Fair Work Amendment to protect Victorian volunteer firefighters', Media Release, 22 August 2016, https://www.liberal.org.au/latest-news/2016/08/22/fair-work-amendment-protect-victorian-volunteer-firefighters (accessed 10 October 2016).

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directions not to perform work (including not to perform work at a particular time or place or in a particular way).3

• Professor Stewart found it 'hard to identify many specific examples of the current or proposed enterprise agreement being used to prevent the CFA from discharging its statutory responsibilities'.4

• Professor Stewart stated that 'if a Chief Officer gives directions, or establishes

standard operating procedures [under the CFA Act], as to the chain of command for the performance of emergency work by firefighters, those directions or procedures must prevail over anything to the contrary in an enterprise agreement'.5

• Professor Stewart raised a number of problems in relation to interpretation

issues associated with the bill, including one interpretation that 'any attempt to reserve particular work (including management) for paid employees would be unlawful'.6

• Professor Stewart raised issues of constitutionality including that 'the

Commonwealth cannot legislate in such a way as to "significantly impair, curtail or weaken" the capacity of the states to function as autonomous and independent entities.'7

• Professor Stewart concluded that the risk inherent in the bill is that 'the scope for disputation, uncertainty, delay and expense is considerable.'8

• The CFA Chief [Fire] Officer Mr Steve Warrington was unequivocal in his view that the proposed EBA would not impact the CFA's firefighting abilities. He stated that 'I am really confident that, during a firefight, operations will not be compromised.'9

• The Chief Officer also indicated 'the instrument provided to me, in writing

from the [CFA Board] Chair, gives me assurances that the powers of the Chief Officer are not being compromised by this EBA, and I can continue to exercise those powers with certainty and clarification.'10

3 Professor Andrew Stewart, answer to question on notice, pp. 1-2; see also Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 42.

4 Professor Andrew Stewart, answer to question on notice, p. 2.

5 Professor Andrew Stewart, answer to question on notice, p. 3.

6 Professor Andrew Stewart, Submission 17, p. 3.

7 Professor Andrew Stewart, Submission 17, p. 4.

8 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 38.

9 Mr Steve Warrington, Chief Officer, Country Fire Authority, Committee Hansard, 28 September 2016, p. 90.

10 Mr Steve Warrington, Chief Officer, Country Fire Authority, Committee Hansard, 28 September 2016, p. 95.

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• On the evidence before the committee the bill would simply add layers of

uncertainty, complexity and delay to any future bargaining process. Bargaining would become even more complex, with the capacity for legal appeals to the High Court including on issues of constitutionality. Volunteers will not be affected by the proposed EBA and the security and well-being of Victorians will not be compromised. However interminable legal arguments arising from the bill would exacerbate division and divert resources from firefighting. On this basis and on the evidence before the committee the bill should not be passed.

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Introduction 1.1 In 2011, the Senate Education and Employment Legislation Committee (the committee) recognised the vital and dangerous role performed by firefighters in ensuring community safety. The unanimous conclusion of that committee's report was:

The community holds a deep respect and gratitude for those who serve to protect and assist. If we are honest, however, along with this respect and gratitude comes a generous dose of expectation. We expect firefighters to come to our assistance when our homes, schools, hospitals and businesses are ablaze. We expect that a firefighter will enter a burning building when every human instinct tells us to leave. We expect they will search for those trapped inside and bring them out alive. We expect them to do what they can to minimise loss of life and damage to property. While everyone else is fleeing danger, it is the firefighter's duty to tackle it head-on, to enter an extreme and dangerous environment, armed with the best protective gear available.

It is a duty firefighters take seriously, aware of the inherent risks to their own health and safety. This awareness on their part does not mitigate the community's responsibility towards them.11

1.2 And yet a mere five years later, the majority report in this inquiry has failed to recognise or counter the profound misinformation that has been propagated about the proposed enterprise bargaining agreement (EBA) between the Victorian Country Fire Authority (CFA) and the United Firefighters Union (UFU), or indeed to condemn the gross politicisation of the EBA dispute and the consequent and potentially irreparable damage that has been done to the reputation of the CFA, career firefighters, and the morale of the firefighting community more broadly.

1.3 Senior representatives of the CFA were very clear in their evidence that the dispute is causing enormous damage to the organisation and that they want to resolve the dispute. Indeed, as the evidence later in this report makes clear, the CFA had come to an agreement with the UFU on the EBA, and the Board had instructed the Chief Executive Officer to put the EBA to the CFA's employees. The resolution of the dispute is currently stalled by the injunction taken out in the Supreme Court of Victoria by the Volunteer Fire Brigades Victoria (VFBV) to prevent the CFA from putting the EBA to its employees.

1.4 Furthermore, the Coalition government has unnecessarily inflamed the dispute for its own political ends by bringing forward a bill that is not only an unnecessary and unwarranted intrusion into state matters, but a bill that will serve to deepen an already unfortunate divide between career and some volunteer firefighters predominately from rural brigades that are not deployed with career firefighters. It will also extend a dispute that had effectively been resolved by the CFA and the UFU.

11 Senate Education, Employment and Workplace Relations Legislation Committee, Safety, Rehabilitation and Compensation Amendment (Fair Protection for Firefighters) Bill 2011 Report, September 2011, p. 45.

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1.5 Indeed, Professor Andrew Stewart, an expert in industrial relations law from the University of Adelaide, told the committee that the bill was a recipe for increased complexity, uncertainty, and disputation. Furthermore, he was of the view that the bill would require the Fair Work Commission to move into the highly problematic area of attempting to form judgments about how an organisation such as the CFA should construct a 'proper' balance between paid and volunteer firefighters. Moreover, the bill

would require the Fair Work Commission to determine matters that properly reside within the authority of the CFA and the state government of Victoria to resolve.12

1.6 This dissenting report covers some of the key issues that arose during the inquiry. But first, it makes some comments that are pertinent to the conduct and timeframe of the inquiry.

Inquiry process

1.7 This inquiry, although premised on unnecessary legislation, could have been an opportunity to bring transparency to the EBA process. The committee could have used this inquiry to draw attention to the reputational damage that has been inflicted on the CFA and career firefighters by misinformation and political interference.

1.8 Instead, the committee's inquiry has been flawed. The firefighting dispute in Victoria is both complex and contentious. Yet the timeframe set for the inquiry of just over one month was patently unreasonable. Those interested in making submissions had a mere 7 business days to do so. And the committee's hearings, conducted in Macedon and Melbourne, were held so close to the date for reporting as to give the committee little time to adequately consider the evidence gathered.

1.9 The committee spoke to 65 witnesses in two days of hearings, with the majority of witnesses appearing at the hearing in Macedon hearing. The notion that these two hearings alone allowed for a full and fair presentation of evidence is scarcely tenable.

1.10 Furthermore, a large number of senators from across the political spectrum expressed considerable interest in this inquiry. In total 17 Senators attended the hearings across the two public hearings. The number of senators attending was a clear and welcome indication of this interest but, because of the packed hearing schedules, the practical outcome of the increased interest was a reduction in the time available for senators to effectively question witnesses.

1.11 That said, non-government senators join with the rest of the committee in thanking all those who contributed to the inquiry and particularly those witnesses who travelled a considerable distance to participate in the hearings.

Political interference 1.12 The EBA between the CFA and the UFU has been the subject of gross politicisation. This politicisation has resulted in:

• the unfair vilification of career firefighters throughout the media; and

12 Professor Andrew Stewart, response to question on notice, p. 3.

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• the development of misconceptions within the volunteer firefighting ranks about the impact of the proposed EBA.

1.13 In addition, the politicisation of the entire process is amply demonstrated by the CFA hiring a renowned Chicago-based 'union busting' company to provide 'strategic' advice on the dispute and to provide options to weaken the firefighters bargaining position by, according to media reports, introducing individual contracts.13

Vilification of career firefighters

1.14 A major concern throughout the bargaining process—and indeed throughout the inquiry—has been the politicisation of the issues at hand. Perhaps the most unfortunate aspect of this politicisation has been the vilification of career firefighters and the immeasurable trauma inflicted on career firefighters and their families as a result of wilful misrepresentation during the dispute, particularly in certain segments of the media.

1.15 Mr Thistlethwaite, a career firefighter from Greenvale, told the committee of his personal experience of abuse:

I can tell you about a personal experience of mine. I was playing lawn bowls, and there was a person playing next to me who knew I was a career firefighter. He came up to me and he started abusing me, using the language that you saw in that letter [a volunteers’ fund raising flyer], calling me a thug, a scumbag and a mercenary taking money from volunteers. That is the sort of behaviour that I have had to deal with, that other career firefighters have had to deal with and that my family has had to deal with.14

1.16 The catalogue of abuse suffered by career firefighters was confirmed in evidence by Mr Peter Marshall, National Secretary of the UFU. He told the committee that the EBA dispute had severely damaged the reputation of career firefighters:

[Career firefighters'] reputation has been sorely damaged. Their children have suffered at school as a result of this irresponsible public media campaign and, now, political campaign. Most of these articles were run during the federal election. A career firefighter actually collecting money for volunteers was handed a bullet on one occasion. Children at schools have been abused and harangued because of this particular campaign. As I say, it is based on many misleading statements and blatant untruths. I do not see a change since 2011 when the Australian parliament recognised career firefighters as people who actually put their lives on the line and forego quantity and quality of life in the pursuit of protecting others, but who are being denigrated now… That damage will take a long time to repair. It is unfair on these people who, as we speak, may be going into a normal house

13 See Nick Toscano and Richard Willington, 'Firefighter stoush: Secret report for CFA reveals anti-union ambitions', The Age, 6 September 2016, http://www.theage.com.au/victoria/firefighter-stoush-secret-report-for-cfa-reveals-antiunion-ambitions-20160905-gr9dtc.html (accessed 7 October 2016).

14 Mr Alan Thistlethwaite, career firefighter, Greenvale, Committee Hansard, 19 September 2016, p. 27.

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fire that is around 1400 degrees Celsius. They may actually have to come in here and extract us out of this building, knowing that, perhaps, they will be injured, or even worse, in the process.15

1.17 A document tabled by Mr Marshall showed that the dispute has been front page news in the Herald Sun on numerous occasions since June 2015, with headlines such as 'Union Chief Bullied Me', 'Fire Storm' and 'Hands Off Our Heroes'.16 Mr Marshall highlighted the frequency of the coverage as well as its negative impact on career firefighters:

…what has, essentially, has been the front page of the Herald Sun since June to April 2015. As you can see, there are 19 front pages alone in relation to this enterprise agreement claim and 33 front pages since the 27 April. Chair, the point I raise to you is this: career firefighters have been labelled as thugs, bullies, misogynists based on untrue documents that have been released to the press… Their reputation has been sorely damaged.17

1.18 Mr Marshall said that 'it is so easy to slur people, as the Herald Sun has done over 29 articles.'18 He drew the committee's attention to the fact that this vilification has had a significant detrimental impact not just on the firefighters themselves, but also on their partners and children:

…I have never seen something affect them as much as that [Herald Sun campaign]. That actually translated into their homes, their children being abused, their being heckled down the street as a result of that irresponsible advertising campaign. I can give you letters from wives and I can give you evidence from members who have been traumatically damaged, not for any reason other than that they are a professional person who puts their life on the line to look after the community. One minute they are up here; the next minute they are thugs, misogynists and a whole range of other things that were actually being said in those articles. It has had a detrimental effect I have never seen in 31 years.19

1.19 However, Mr Marshall also pointed out that the involvement of the federal government in the dispute had exacerbated the harm done to career firefighters:

If there had not been a federal election, this dispute would have been resolved and would have been confined to the barriers of Victoria. This became a political football in the federal election, and there were many

15 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, pp. 64-65.

16 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, p. 2 (tabled 28 September 2016).

17 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 64.

18 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 70.

19 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 70.

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untruths said about things, as you can see by the acceleration of those articles. We do not say this lightly, but the firefighters dispute and the allegations against the union and its members got more coverage than the Iraq war, and we find that reprehensible given these people save lives on a daily basis. We are not denigrating the military people; we have the highest respect for them. There are some terrible things that happen in the world, but if you have a look at that one would think that career firefighters in Victoria are the devil incarnate.20

Misconceptions over the proposed EBA

1.20 It is clear from the evidence presented to the committee that significant misconceptions exist over the proposed EBA and its application. Mr Marshall suggested that this confusion was exacerbated by numerous inaccurate media reports, particularly in the Herald Sun, that implied the UFU was seeking to take over the CFA and that 'the information and the media saturation had got to the point where people did not know what to believe'.21

1.21 An example of the above was Minister Cash's opinion piece in the Herald Sun on 22 August 2016, where she claimed that seven paid firefighters had to be present before CFA personnel are able to be deployed to a fire and that paid firefighters are to report only to other paid firefighters.22

1.22 Given this was a considered opinion piece such blatant misrepresentation is objectionable and designed to create mistrust and division between volunteers and career firefighters and diminish the standing of career firefighters.

1.23 Mr Marshall contended that once volunteers closely examined the proposed EBA, many of the misconceptions and fears over its effect were allayed:

When you sit down with some volunteers—I am not saying all, because in all groups there are people you will never sway—and you take them through the actual document and all the clauses, they say, 'I did not know that; I was not told that.' For example, the allegation which was on the front page of the Herald Sun and also on the VFBV's website that for every fire

in country Victoria you will have to wait until seven career firefighters turn up was just not true, and the agreement never said that. So when we take people through that they say, 'We did not know that'.23

1.24 The perpetuation of misinformation was also identified by on-the-ground career and volunteer firefighters as being a major challenge, especially for those

20 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 80.

21 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, pp. 74 and 75.

22 Senator the Hon Michaelia Cash, Federal Minister for Employment, 'CFA volunteers deserve federal support', Herald Sun, 22 August 2016, p. 23.

23 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 74.

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volunteers who did not work at an integrated station. Mr Raj Faour, a volunteer firefighter with an integrated brigade at Hallam, reflected positively on the camaraderie that existed between the volunteer and career firefighters at his station.24 He expressed sadness at how the bargaining process had unfolded, and noted that volunteers working at integrated stations had benefitted greatly from being able to clarify information:

So it saddens me to see this situation turning into a huge political game. There is a lot of misinformation that is being pushed onto many volunteers out there who do not have the exposure to these integrated brigades or the firefighters. If I was in doubt of anything, I would always go up and I would research it. I would ask, whether it is a UFU delegate at our brigade, whether it is Steve, whether it is another friend of mine who might be up north.25

1.25 Similarly, Mr Luke Symeoy, a volunteer firefighter with an integrated brigade at Craigieburn observed that once the correct information was shared, volunteers in his brigade had concluded that the proposed EBA would have positive benefits for the community:

Right across the board there has been a lot of misinformation. People do not know what the truth is. People have not had the opportunity to find out what the truth is because of being in remote areas and all that sort of stuff and not being able to get to an integrated station and talk to the guys that have been there. We have been lucky enough to have the opportunity to ask questions and be told what the EBA is all about. By doing that, the brigade has come to the conclusion that the EBA has got nothing to do with volunteers. Basically what is going to come out of this is: we are going to be benefited better; the community is going to be benefited better.26

1.26 Mr Symeoy concluded forcefully on the critical importance of disseminating accurate information to resolve the situation as soon as possible:

Everyone gets misinformed. Everyone starts to worry that someone is going to come into their catchment and takeover and push that person aside. It is not going to happen. This has been going on for a long time…This is where we need to get this over the line and we need to fix it now because, unfortunately, people's lives, other than the firefighters, their families and also everybody else, are going to disrepute here and it is not fair on anyone. We need to fix this. We need to get the right information out to everybody.27

24 Mr Raj Faour, volunteer, Hallam, Committee Hansard, 19 September 2016, p. 21

25 Mr Raj Faour, volunteer, Hallam, Committee Hansard, 19 September 2016, p. 21

26 Mr Luke Symeoy, volunteer, Craigieburn, Committee Hansard, 19 September 2016, p. 22.

27 Mr Luke Symeoy, volunteer, Craigieburn, Committee Hansard, 19 September 2016, p. 26.

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CFA's engagement of a 'union busting' company

1.27 The third area that highlights the politicisation of the enterprise bargaining process is the engagement by the former CFA Executive of Seyfarth Shaw, a renowned Chicago-based union busting company, for advice on the enterprise bargaining process. On its face, the former CFA Executive's engagement of Seyfarth Shaw demonstrates an earlier lack of commitment in the CFA's approach to resolving the stalled bargaining process.

1.28 Ms Lucinda Nolan, the former Chief Executive Officer (CEO) of the CFA, explained that she engaged Seyfarth Shaw to get strategic advice about the enterprise bargaining process and the options available to the CFA:

This was about where we were at. It was advice from the players around that table about how we should best proceed as the CFA. I wanted to get independent advice to make sure that I was fully informed about what all of our options were that may not have come out within those discussions. That is why I used Seyfarth Shaw.28

1.29 Ms Nolan advised that Seyfarth Shaw was selected on the basis of its expertise in matters of complex enterprise bargaining agreements, rather than anything to do with the firms' reputations:

Senator CAMERON: Wouldn't you take steps, if you are spending public money, to know some basis of the company that you are spending the public money on?

Ms Nolan: I did, and the people that recommended them said that they were experienced in complex EBs.

Senator CAMERON: So that was all you were told?

Ms Nolan: That is all I can remember at this stage.

Senator CAMERON: All you can remember?

Ms Nolan: There was certainly nothing about union busting. It was around a legal firm that had dealt with significantly complex EBs, which was what I was looking for in terms of this.29

1.30 Ms Nolan denied knowing of the firms 'union busting' reputation until her appearance before the Victorian Parliament's inquiry into Fire Season Preparedness:

Senator MARSHALL: You engaged them because you knew they were specialists in what we call union busting?

Ms Nolan: No, not at all.

Senator MARSHALL: You didn't?

Ms Nolan: I did not know that until I went to the state inquiry.30

28 Ms Lucinda Nolan, Private capacity, Committee Hansard, 28 September 2016, p. 22.

29 Exchange between Senator Cameron and Ms Lucinda Nolan, Private capacity, Committee Hansard, 28 September 2016, p. 31.

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1.31 Ms Nolan provided further clarification as to her own knowledge of the firm's reputation and her reason for engaging them:

I am still not aware of their background—only the questions I was asked at the state inquiry. My understanding was that we asked around—I cannot remember, to be honest, who actually put them forward, but a number of names were put forward—who could provide very strong strategic advice around all of our options that could resolve this EB. Whether they came from our legal advisers or whether they came from someone from my organisational leadership team, I am not sure. As I said, I do not have access to my notes. They would be in the notes around where that recommendation came from. I had some initial discussions with them. I gave them some terms of reference about what I was looking for, which was around giving me as many options that we have to resolve this EB.31

1.32 When asked about his perceptions of the hiring of Seyfarth Shaw, Mr Marshall questioned the appropriateness of seeking advice from Seyfarth Shaw given the reputation of the firm and the circumstances of the dispute:

It did not surprise me when the revelation was made that that firm was engaged. If anyone wants to do a cursory google, they have been involved in union busting and are designated as a union-busting firm in the United States. In fact, they have been involved in firefighter disputes. But it does not surprise me with the CFA, and you have to ask that question about that sort of advice in the context of good-faith bargaining. Why did they get that advice? I understand they say it was just seeing what our options are. Not once was that advice talked about in the Fair Work process, and there was no disclosure.32

1.33 Ms Nolan refuted claims that the hiring of Seyfarth Shaw was based on anything other than the firm's experience in relation to complex enterprise bargaining agreements, but acknowledged that engaging them may not have been the wisest course of action given their reputation:

Ms Nolan: These people [Seyfarth Shaw] are experienced. We put out the terms of reference—what we were looking for—and they responded with their quote.

Senator CAMERON: If you had been advised of their anti-union history, would you have engaged them?

Ms Nolan: Probably not, to be honest, because it is a red rag to a bull, so that takes away from the intent about the advice that I was seeking. I was not seeking to inflame the union. I was seeking to actually work in a consultative way, and this was really around my fiduciary responsibilities

30 Exchange between Senator Marshall and Ms Lucinda Nolan, Private capacity, Committee Hansard, 28 September 2016, p. 22. Ms Nolan appeared before the Victorian committee on 6 September 2016.

31 Ms Lucinda Nolan, Private capacity, Committee Hansard, 28 September 2016, p. 23.

32 Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union, Committee Hansard, 28 September 2016, p. 78.

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as CEO to make sure that I had considered every available option so that we would get the best result for the CFA.33

1.34 Non-government senators are of the view that the evidence from Ms Nolan on this issue was evasive and disingenuous. It beggars belief that the former CEO of the CFA cannot remember who advised her to hire a Chicago-based union busting legal firm during a protracted industrial dispute with career firefighters. It also beggars belief that Ms Nolan could provide no information of any substance in relation to what has been reported in the media as a secret union busting agenda.34 Ms Nolan's evidence must, therefore, be treated with significant scepticism as to its veracity.

1.35 At the time of writing this report the committee is still waiting on requested documentation including the terms of reference and instructions to Seyfarth Shaw; and answers to questions taken on notice by the CFA in relation to this matter.

1.36 The credibility of former CFA Board members Mr Peberdy and Mr Tudball was highly questionable given they were members of the Board at the time Seyfarth Shaw were engaged, and were part of the Board that was dismissed in June 2016 in part for the continued operation of the contaminated CFA Fiskville training ground. A Victorian Parliament Inquiry found CFA Board members and management knew of contaminated soil and water yet continued to operate the training ground:

Senator MARSHALL: Did the board ever consider that they should stop sending people to Fiskville until they could be assured that it was, in fact, safe? Was that ever a consideration of the board?

Mr Peberdy: The consideration of the board was: was Fiskville safe? It was not that it was not safe. The consideration was: was it safe?—

Senator MARSHALL: So you always considered it in the negative?

Mr Peberdy: We were of the view that whilst there was evidence of PFOS and so on there, as has been found at most firegrounds around the world, that is also—

Senator MARSHALL: That is your justification?

Mr Peberdy: No, what I am saying is there is a level where it is safe and where it is unsafe. We did not have evidence to suggest that Fiskville was unsafe.

Senator MARSHALL: Mr Tudball, do you have any comments on that?

Mr Tudball: I think Mr Peberdy has answered. I was not aware we were here for the Fiskville inquiry again, and I have not prepared for it.

33 Exchange between Senator Cameron and Ms Lucinda Nolan, Private capacity, Committee Hansard, 28 September 2016, p. 29.

34 See Nick Toscano and Richard Willington, 'Firefighter stoush: Secret report for CFA reveals anti-union ambitions', The Age, 6 September 2016, http://www.theage.com.au/victoria/firefighter-stoush-secret-report-for-cfa-reveals-antiunion-ambitions-20160905-gr9dtc.html (accessed 7 October 2016).

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Senator MARSHALL: It is one of the reasons you were dismissed from the board.

Mr Tudball: Apparently.35

1.37 Non-government members of the committee are deeply suspicious of the politicisation of this dispute by the Liberal Party in Victoria in order to take advantage of this issue for the 2016 federal election.

1.38 The Liberal Party registered a 'Hands off the CFA' website in April 2016. Members of the public registered their interest in the website and that personal information was later used to solicit financial support for the campaign — which was a Liberal Party campaign.36

Productive relationships between career and volunteer firefighters at integrated stations 1.39 The committee also heard evidence from volunteer firefighters from integrated stations that they did not support the bill because the EBA had nothing to do with volunteers. Furthermore, the good relationships between volunteer and career firefighters at integrated stations had led to improvements in skills and equipment. For example, Mr Luke Symeoy from Craigieburn, told the committee:

On behalf of my brigade: we do not want this bill to go ahead. We want this settled. I would like this settled. The fire season is coming up and we do not need this. This has gone on for too long. The EBA has got nothing to do with volunteers. If anything, it is going to better us and better our skills and better our equipment, because half the equipment that we have got today we would not have if it were not for staff. That is the honest truth. I can stand here and put my hand on my heart and tell you that.37

1.40 Other volunteers were saddened that the political intervention and misinformation about the EBA were driving a wedge between volunteers and career firefighters. Mr Raj Faour, a volunteer from Hallam, told the committee:

You probably hear a lot in the media, and the VFBV love to speak about 60,000 volunteers and how they represent the 60,000 volunteers. Well, I am one—and one of many—who stands before you today and tells you that we are not represented by the VFBV. We see all these things that are happening. We see a huge wedge and divide that is being driven between the volunteers and the staff, and unfortunately there seems to be a lot of detachment from certain brigades which seem to be further out in the state and do not have much to do with staff firefighters. I jump on the truck with my comrades here, because they do not stop me from getting on the truck. They actually welcome me getting onto the truck. When I get to the station, they are like, 'Raj, are you available? Are you jumping on with us?'. My

35 Exchange between Senator Marshall and Mr Peberdy and Mr Tudball, Committee Hansard, 28 September 2016, p. 46.

36 Vincent O'Grady, Submission 319.

37 Mr Luke Symeoy, volunteer, Craigieburn, Committee Hansard, 19 September 2016, p. 23.

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first answer is, 'Boys, I'm with you 100 per cent.'…Just to show you the camaraderie between the volunteers and the staff at our station: when I am free at lunchtime, I am down at the station and I share a meal. We sit down in the mess and we eat together. We have coffees together. We have a fishing club together—we all fish together. So it saddens me to see this situation turning into a huge political game. There is a lot of

misinformation that is being pushed onto many volunteers out there who do not have the exposure to these integrated brigades or the firefighters. If I was in doubt of anything, I would always go up and I would research it. I would ask, whether it is a UFU delegate at our brigade, whether it is Steve, whether it is another friend of mine who might be up north.38

EBA negotiation process 1.41 The length of time taken to negotiate the EBA was cited favourably by those arguing in favour of the bill. Proponents of the bill argued that the EBA process had been complex; had trampled the rights of volunteers; and that the EBA itself now covered areas which should fall under standard operating procedures.

1.42 These arguments are examples of the misinformation about the EBA which has so damaged goodwill in the firefighting community. This section provides evidence from the committee's hearings which demonstrates the reality of the EBA negotiation process.

Timing

1.43 The former CEO of the CFA, Ms Nolan, told the committee that complexity and the involvement of many different individuals were the chief causes of delay in the EBA bargaining process.39

1.44 It is important to note that the previous CFA Board and CEO continued to attempt to frustrate bargaining as outlined in the Final Recommendation of Commissioner Roe. The Commissioner expressed frustration about the CFA seeking to re-agitate matters previously agreed.40

1.45 In contrast to Ms Nolan's evidence, other witnesses were certain that prior to the political interference in the EBA process, the EBA was on the point of being finalised. Ms Frances Diver, the CFA's new CEO explained how within eight weeks, she had worked with the CFA Board to resolve issues related to the EBA. Ms Diver told the committee that the process had involved discussions with the UFU, advice to the CFA Chief Officer, Mr Warrington, regarding the interaction between his powers and the EBA, and consultation with volunteers:

38 Mr Raj Faour, volunteer, Hallam, Committee Hansard, 19 September 2016, p. 21. Emphasis added.

39 Ms Lucinda Nolan, private capacity, Committee Hansard, 28 September 2016, p. 21.

40 Fair Work Commission, Final Recommendation, United Firefighters' Union of Australia v Country Fire Authority, 1 June 2016, Melbourne, p. 2,

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In my perspective, what we did was: the board came in, we consulted very heavily both externally and internally, we consulted with the volunteers association, we took on board their feedback, we went back to the UFU, we negotiated hard, we got some concessions, we got some additional assurances by way of clarification and we got some legal advice that provided the CFA board—so it was a board decision, obviously, not my decision—that, in the interests of the overall organisation, we thought we could work through any of the issues in the enterprise agreement in terms of implementation. So the task in front of us was implementation.41

1.46 Unfortunately, as Ms Diver told the committee, legal action in the Supreme Court has put the process on hold.42

Elements of the EBA

1.47 Mr Marshall told the committee that the EBA 'achieves the outcomes of the [2009 Victorian Bushfires] Royal Commission.'43 He explained that:

For the very first time in these enterprise agreements, in the command and control structure for career officers the classification titles will be the same—from recruit firefighter up to commander, and the senior ranks above them. We are talking about career personnel, because this does not have any impact on volunteers. The classifications above that will be referred to Fair Work for harmonisation of that classification. So when you are on the fireground you will be able to identify a commander as opposed to an operations officer, who are essentially the same thing but are a different classification and are identified differently.

On top of that, at the moment recruit firefighters in the MFB and CFA—I am talking about career firefighters; they have nothing to do with volunteers—are actually taught different syllabuses, terminologies, equipment procedures. So they are not interoperable. That was identified in the royal commission. As a result of this, for the very first time the MFB and CFA enterprise agreements are actually virtually the same. There will be one recruit course. The firefighters will come out as a firefighter for the state of Victoria. They will still be employed by CFA or MFB, but they will be interoperable. In other words, they will be able to utilise MFB equipment. The CFA will be able to use MFB equipment. For the very first time, there is now a secondment program, which we initially trialled in 2011, but it was stopped by the previous government. That secondment program embeds MFB career firefighters into the CFA structure and CFA career firefighters into the MFB structure to break down those parochial

41 Ms Frances Diver, Chief Executive Officer CFA, Committee Hansard, 28 September 2016, pp 90-91.

42 Ms Frances Diver, Chief Executive Officer CFA, Committee Hansard, 28 September 2016, pp 90-91.

43 Mr Peter Marshall, National Secretary UFU, Committee Hansard, 28 September 2016, p. 76-77.

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barriers. And there is a transitional course. Again, there is no impact on volunteers in relation to this. 44

1.48 Career firefighters, like Mr Peter Spicer, Senior Station Officer at Craigieburn, felt that the EBA contained provisions essential for firefighter safety. He told the committee:

[The EBA] is not just about our pay and conditions. It is probably worth noting that we rejected an earlier pay offer which was higher than the one that is currently on the table. We rejected it because the other conditions that went with that did not provide the degree of firefighter safety that we require and it did not offer the additional safety that is offered in the proposed EBA now for community. One of the things that was mentioned briefly was road accident rescue, EMR. Those are things that are included in the proposed EBA that we will be providing to the community, which is obviously a positive thing.

Firefighter safety is always going to be top of our list. We cannot help anyone else if we are injured or do not get to the fire in the first place. I have a couple of points, and PPC was one that came up earlier, I know. I might just touch briefly on the PPC, if I can, and how we came to the position we had with the PPC. That was through our consultation and the fact that we did have a union representing us.

One of the early specifications for the structural gear that we wear now, from CFA, without going into too much technicality, had the layers within it the wrong way around and it was going to create danger for firefighters. There is a thermal barrier and a moisture barrier. The moisture barrier was on the wrong side, which would have allowed moisture into the clothing and then, in a hot environment, potential steam burns for firefighters. That was one of the things that we fought and fought and fought, and finally we got through. Now the gear that we wear is safe and, as we talked about, was also issued to volunteers, so we do have the same gear.45

1.49 The repeated claims that the consultation provisions in the proposed Agreement constituted a veto for the UFU and a union take-over was not substantiated by the evidence.

1.50 The VFBV’s written submission conceded the consultation provisions were a matter of a process.46

1.51 The CFA Chief Officer, Mr Warrington, also confirmed that the consultation and dispute provisions do not constitute a 'veto':

The agreement provisions require agreement between the UFU and CFA. This does not constitute a veto power for either party.

44 Mr Peter Marshall, National Secretary UFU, Committee Hansard, 28 September 2016, p. 76-77.

45 Mr Peter Spicer, Senior Station Officer, Craigieburn, Committee Hansard, 19 September 2016, p. 19.

46 Volunteer Fire Brigades Victoria, Submission 55, p. 20.

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As I stated in my evidence before the committee, it has not been the experience of the CFA that I or the officers under my control have been 'locked away' at the FWC [Fair Work Commission], attempting to resolve a dispute whilst we are in an emergency situation. Further, the CFA has negotiated a joint statement of intent with the UFU which, among other things, records the parties' intention to resolve disputes as quickly and efficiently as practicable.47

Volunteers and the EBA

1.52 While some volunteers told the committee that the EBA would unfairly impact their situation, it was clear from evidence that these concerns were the result of misinformation.

1.53 But in brigades where accurate information had been available, the opinion of volunteer firefighters was that volunteers need have no part in the EBA negotiations. Mr Justin Rees, First Lieutenant and volunteer firefighter at the Melton brigade, told the committee:

We, as a brigade, believe that the proposed EBA does not affect volunteers and we have formally expressed this to Volunteer Fire Brigades Victoria. However, the volunteer bill 2016, if implemented, will affect our relationship with our members, staff and volunteers and impact our service delivery. Encouraging volunteer organisations to intervene into the employment matters and conditions of people employed by emergency services is not appropriate. We need to be focused on supporting our community, protecting life and property and supporting our emergency service people—volunteer and career.48

1.54 Professor Stewart, an expert in industrial relations law, was in agreement with Mr Rees' brigade regarding the need for volunteers to become involved in the EBA. Professor Stewart's view was that should the bill be passed, it would allow for intervention by volunteers and result in increased uncertainty and delays:

So, to the extent that the dispute at the CFA is about the right balance to be struck, there is a clear industrial issue there. Is it a legal issue? Not so much. What this bill will do is create a legal issue around the very specific question of how a body like the CFA manages its employees and its volunteers. Do employees have a legitimate interest in that? Yes. Do volunteers have a legitimate interest in that? Yes. Again I stress I am not here to talk about the rights and the wrongs. It seems to me from everything I have heard that there are clearly strongly held and potentially legitimate

47 Chief Officer Mr Steven Warrington, CFA combined response to questions on notice, Schedule C, p. 5, paragraphs (b) and (c).

48 Mr Justin Rees, First Lieutenant and volunteer firefighter, Melton Brigade, Committee Hansard, 19 September 2016, p. 59.

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concerns on every side of this debate. The question is: does this bill help resolve the dispute? I would say no; it just adds uncertainty.49

CFA consultation with volunteers 1.55 The view expressed by many volunteers that there is no consultation with them or their organisation by the CFA is another example of the clear and blatant misinformation being circulated.

1.56 The CFA has, does and will continue to consult with volunteer representatives through the CFA-VFBV joint consultation committees on matters including training, volunteerism, equipment, uniform and infrastructure, operations, community safety and communication and technology. These consultation processes are separate and independent of any consultation process with the UFU.50

1.57 Further the VFBV has 4 representatives on the 9-member CFA Board.

The EBA and the CFA Act 1.58 The committee heard evidence from several witnesses that a raft of appropriate checks and balances already exist within the current legislative framework to ensure that the proposed EBA would not impact on the ability of the Chief [Fire] Officer to perform his or her duties under the CFA Act.

1.59 For example Chief Officer Warrington told the committee quite clearly that his powers under the CFA Act were not compromised by the EBA:

The reality is that section 27 of the CFA Act essentially says that I have power—and, with that, the responsibility—to make sure Victorians are safe from fire and emergency and over all people and resources in our organisation. In my view, that overrides any form of legislation.51

1.60 This view was supported by Professor Stewart who told the committee that the FW Act provides that an EBA cannot override state or territory laws dealing with essential services or emergency management:

Federal enterprise agreements…cannot override state laws dealing with essential services or emergency management to the extent that those laws are concerned with a direction to perform work. So, if a state essential services or emergency law—and the CFA legislation would, on the face of it, fall within that category—provides for certain things to happen, to secure essential services or to deal with an emergency, a federal enterprise agreement cannot override that.52

49 Professor Andrew Stewart, private capacity, Committee Hansard, 28 September 2016, pp. 38-39.

50 Ms Frances Diver, Chief Executive Officer CFA, Committee Hansard, 28 September 2016, p. 98.

51 Mr Steve Warrington, Chief Officer, Country Fire Authority, Committee Hansard, 28 September 2016, p. 90. The dispute resolution mechanism is contained within clauses 21A, 26 and 58 of the proposed EBA.

52 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 42.

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1.61 The current CFA Board has released a Board Resolution which explicitly states that 'the Fair Work Act 2009 (Vic) operates so as to ensure that nothing in the Agreement [proposed EBA] can inhibit the Chief Officer from giving directions about the performance of work in an emergency situation'.53

1.62 As Chair of the CFA Board, Mr Greg Smith wrote to the CFA Chief [Fire] Officer, Mr Warrington, and set out in the plainest possible language that the proposed EBA will not affect the operation of certain Victorian laws:

The purpose of this letter is to advise you that, if the agreement becomes operative, this will not and cannot affect the operation of certain Victorian laws and your powers and obligations under those laws. The principal legislation to bear in mind is the Equal Opportunity Act 2010 and the Occupational Health & Safety Act 2004. You must at all times ensure that we comply with those laws.

It is also relevant to note that the Fair Work Act 2009 and any award or agreement made under it cannot interfere with or detract from your powers and obligations under the Country Fire Authority Act 1958 concerning directions to perform work relating to the provision of essential services or in situations of emergency. In that regard, I draw your attention specifically to your powers under section 27 of the CFA Act which places all officers and members of CFA brigades under your order and control.54

1.63 The evidence presented above clearly contradicts the erroneous and malicious assertions propagated during the course of this inquiry by former CFA Board members, the former CEO of the CFA, and by the VFBV that the EBA would somehow cause the CFA to be in breach of the CFA Act and would prevent the Chief [Fire] Officer from carrying out their duties under the CFA Act.

1.64 Furthermore, the question of whether the EBA contravenes elements of state law is currently before the Supreme Court of Victoria. As Professor Stewart told the committee, the CFA Board can only put the proposed EBA to its employees 'if the Victorian Supreme Court is satisfied that the CFA board can lawfully agree to the agreement'.55

1.65 The fact that there already exists a capacity for these matters to be put before a superior court renders obsolete one of the key reasons for this bill put forward by the government, namely to prevent an EBA from allegedly being able to override relevant state legislation.

53 CFA Board Resolution, p. 1, http://news.cfa.vic.gov.au/attachments/article/7676/CFA%20Board%20Resolution.pdf (accessed 4 October 2016).

54 Letter to Mr Steve Warrington, Chief Officer CFA from Mr Greg Smith, Chairman, CFA, Additional information No. 1, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employme nt/EmergencyServicesBill/Additional_Documents

55 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 37.

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Uncertain scope of the bill 1.66 Numerous organisations expressed great concern during the inquiry about the inherent ambiguity in the legislation and the consequent uncertain scope of the bill. The Australian Nursing and Midwifery Federation (ANMF) pointed out that, on the face of the bill, public hospitals and the Australian Red Cross could fall within the scope of the bill.56 Likewise it appears that the police force in Victoria and the Australian Federal Police might fall within the terms of the bill.

1.67 The Police Federation of Australia and the ANMF drew attention to the adverse consequences that the bill, if enacted, could have on the use of volunteers by the police and within the health services sector.57

1.68 The bill provides for the deeming of employers as 'emergency management bodies' whether or not those organisations (public or private) would be described as such. The submission from Ryan Carlisle Thomas Lawyers pointed out further

uncertainty in the scope and nature of organisations that may be captured by this bill:

At a policy level the bill has the appearance of a 'private bill' in essentially targeting a single entity, namely the Country Fire Authority. The bill has a veneer of general application. The uncertainty about its general application is reflected in the necessary use of Regulations to determine:

(a) what are designated emergency management bodies and thus caught by the bill (new section 195A(4)(a)(ii);

(b) what are not designated emergency management bodies (new section 195A(5); and

(c) what are volunteer bodies (new section 254(A)(2)(b).

It is submitted the use of Regulations to determine the actual scope and application of the bill is an inappropriate use of Regulations in such a case. 58

Reliance on regulation to determining the scope of the bill

1.69 Significant unease was expressed by both the Australian Council of Trade Unions (ACTU) and by the ANMF over the reliance on regulation to determine the scope of the bill. The ACTU pointed out that relying on regulation to clarify the inherent uncertainty in the bill had the effect of evading proper parliamentary scrutiny of the full consequences of the legislation.59

56 Australian Nursing & Midwifery Federation, Submission 89, p. 3; Australian Nursing & Midwifery Federation Victorian Branch, Submission 14, p. 3

57 Police Federation of Australia, Submission 6, p. 1; Australian Nursing & Midwifery Federation, Submission 89, p. 3; Australian Nursing & Midwifery Federation Victorian Branch, Submission 14, p. 3.

58 Ryan Carlisle Thomas, Submission 8, p. 13.

59 Australian Council of Trade Unions, Submission 9; Australian Nursing & Midwifery Federation Victorian Branch, Submission 14.

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Entitlement for volunteers to make submissions to the Fair Work Commission 1.70 Submitters such as Professor Stewart and Ryan Carlisle Thomas Lawyers observed that the bill grants an extraordinary and unprecedented power to volunteer organisations to intervene in the bargaining process between an employer and their paid employees.60

1.71 Furthermore, several submitters and witnesses pointed out that the bill strips the discretion that the Fair Work Commission currently has to determine who to hear from and who not to hear from in relation to a specific bargaining dispute.61

1.72 As a consequence, Ryan Carlisle Thomas Lawyers pointed out that the bill would not only allow 'a stranger to the bargaining process to intrude into the bargaining between the industrial parties', but would also require the Fair Work Commission and bargaining representatives 'to address submissions made regardless of merit and proper interest'.62

1.73 The granting of this extraordinary and unprecedented legal right to volunteer bodies caused deep concern to several employee organisations. For example, Ambulance Employees Australia Victoria objected strongly to the fact that the bill would allow individuals not covered by an EBA to intervene in the setting of terms and conditions for paid employees.63

1.74 Beyond this, however, the bill sets up a recipe for greater uncertainty and the ability for third parties to prolong the dispute between the CFA and the UFU. Bear in mind too that the dispute between the CFA and the UFU has now been resolved to the extent that the CFA Board had, prior to the Supreme Court injunction instigated by the VFBV, instructed its CEO to put the EBA to its employees for a vote.

1.75 However, as Professor Stewart remarked, because the bill provides for a volunteer organisation to make a submission to the Fair Work Commission that some aspect of the EBA may have some impact on volunteers, the bill sets up a scenario for potentially endless disputation.64

1.76 Furthermore, as Professor Stewart pointed out, the bill would add a further layer of complexity to the bargaining negotiations because the Fair Work Commission would then need to begin forming potentially problematic judgments about how an

60 Ryan Carlisle Thomas Lawyers, Submission 8; Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 39.

61 Ryan Carlisle Thomas Lawyers, Submission 8, p. 6; Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 39; Australian Council of Trade Unions, Submission 9, p. 3.

62 Ryan Carlisle Thomas Lawyers, Submission 8, p. 6.

63 Ambulance Employees Australia Victoria, Submission 13, p. 3.

64 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 38.

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organisation such as the CFA should be run in terms of, for example, the allocation of work or resources between paid employees and volunteers.65

1.77 Professor Stewart was not alone in his comments. Mr Matt O'Connor, Deputy Secretary from the Victorian Department of Economic Development, Jobs, Transport and Resources agreed with Professor Stewart's assessment of the bill:

One has only to read the concepts that are included under the definition of 'objectionable emergency management term' to form the impression that they potentially cover a wide gamut of matters, or at least are ambiguous in their terms. They are provisions that would require the Fair Work Commission to form opinions about a range of matters and in our view have the potential to slow down the approval process, firstly, and to open up avenues of appeal down the track. So we do have major concerns with the legislation. That is probably our major concern with it.66

Constitutionality of the bill 1.78 Professor Stewart stated quite forcefully 'that there will be an obvious argument' that the bill is unconstitutional:

The High Court has said in a series of decisions that it is perfectly okay for federal law to regulate the wages and employment conditions of state government workers or state government agency workers but there are limits. One of the limits articulated in a 1995 decision involving the Australian Education Union and also the Victorian government, as it happens, was that the Commonwealth cannot tell a state who or how many people it employs to do work. There is an argument that would be exactly what the Commonwealth would be doing with this legislation; it would be having a federal body, the Fair Work Commission, in effect overwriting the decisions of a state government body like the CFA when it decides how it wants to structure its relations with both its employees and its volunteers.67

1.79 Beyond this, Professor Stewart noted that regardless of whether a constitutional challenge was successful or not, there was a 'clear potential' for the matter to eventually end up in the High Court, resulting in further uncertainty in dealing with matters which the bill is supposedly designed to address.68

Retrospectivity of the application of the bill 1.80 The bill will apply to Agreements that are already in place and certified by the Fair Work Commission. Current agreements will be judged against these new regulations and 'objectionable term' tests. In this regard, Professor Stewart noted:

65 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 38.

66 Mr Matt O'Connor, Deputy Secretary, Victorian Department of Economic Development, Jobs, Transport and Resources, Committee Hansard, 28 September 2016, p. 100.

67 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 38.

68 Professor Andrew Stewart, Committee Hansard, 28 September 2016, p. 38.

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…if passed, the new FW Act provisions could be used to challenge terms in enterprise agreements that had already been approved by the Fair Work Commission (FWC): see cl 14 of the bill. It is true that the amendments are not in a technical sense 'retrospective', since they would not render any provisions invalid as from before the time the amendments took effect. But the amendments would have the potential effect of changing the operation or effect of agreements that had already come into force, and that may indeed have been negotiated long before this legislation was ever conceived.69

Conclusion 1.81 This bill is an ill-construed, rushed, and partisan intervention into state matters for purely political reasons.

1.82 It bears repeating that the dispute between the CFA and the UFU over the EBA had effectively been resolved when the CFA Board, having consulted widely and reviewed all the evidence available to it, instructed its CEO to put the proposed EBA to its employees for a vote.

1.83 Yet the actions of the Coalition government during and since the federal election campaign seem designed to inflame the dispute for purely political gain at the expense of the CFA, and career and volunteer firefighters on the ground.

1.84 Non-government senators object in the strongest possible terms to the obscene vilification of career firefighters, brave men and women who routinely risk their lives on behalf of others to keep the community safe.

1.85 Non-government senators also recognise the enormous damage that the politicisation of this issue by the Prime Minister and Federal Employment Minister has wrought on structural relationships within the CFA.

1.86 Non-government senators also register their deep unease about the impact that misinformed commentary has had on public perceptions of the dispute and the reputation of the CFA as an organisation.

1.87 Non-government senators are firmly of the view that the CFA dispute is a state matter and should be resolved at a state level. Commonwealth intervention such as the proposed bill is ill-judged, unwarranted, and certainly not in the interest of the overall fire service.

1.88 Non-government senators praise the outstanding contribution of both volunteer and career firefighters to the CFA and remain of the view that the restoration of a productive and harmonious working relationship between CFA management and career and volunteer firefighters is of paramount importance.

1.89 The most pressing item of business at this juncture is for the EBA to be put to employees in order for the dispute to be resolved, and for career and volunteer firefighters to continue working together to promote and provide community safety.

69 Professor Andrew Stewart, Submission 17, p. 2.

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1.90 Yet the bill contributes nothing towards the process of resolving this dispute. Instead, the bill adds another layer of complexity and, by virtue of the appeal mechanisms that it seeks to set in place, virtually guarantees that the dispute will be needlessly prolonged. This is a dangerous ploy by the Coalition government on the eve of the fire season.

1.91 Non-government senators draw attention to the concerns expressed by a great many submitters regarding the inherent uncertainty about the scope of the bill and the reliance on regulations to try to clarify the scope of the bill.

1.92 Beyond all this, non-government senators note the uncertainty surrounding the constitutionality of the bill. The Commonwealth Department of Employment stated that it had received legal advice from the Australian Government Solicitor which purportedly stated that the bill was within Commonwealth constitutional power.70 The government's refusal to divulge that legal advice creates the impression that the legal advice may not be as conclusive as the Prime Minister has previously claimed.

1.93 In summary, the bill is an unnecessary and counterproductive intrusion into state matters and will have the disastrous effect of prolonging a dispute that has already been resolved between the parties to the agreement.

Recommendation 1

1.94 Non-government senators recommend that the bill not be passed.

Senator Gavin Marshall Deputy Chair

Senator Doug Cameron Participating member

Senator Lee Rhiannon Substitute member

70 Mr Jeremy O'Sullivan, Chief Counsel, Workplace Relations Legal, Department of Employment, Committee Hansard, 28 September 2016, p. 110.

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Appendix 1

Submissions and additional information received by the committee Submissions

Number Submitter

1 Victorian Government

2 Department of Employment

3 Victorian Farmers Federation

4 Mr John Peberdy

5 Mr Michael Tudball

6 Police Federation of Australia

7 National Farmers' Federation

8 Ryan Carlisle Thomas Lawyers

9 Australian Council of Trade Unions

10 Ai Group

11 Victorian Trades Hall Council

12 United Voice

13 Ambulance Employees Australia Victoria

14 Australian Nursing and Midwifery Federation (Victorian Branch)

15 Mr Brad Battin MP, Shadow Minister for Emergency Services

16 AMMA

17 Professor Andrew Stewart

18 Mr Roger Flavell, Council of Australian Volunteer Fire Associations Limited

19 Victoria Emergency Service Association

20 Ms Louise Staley MP, State Member for Ripon

21 Ms Roma Britnell MP, Statement Member for South West Coast

22 NSW Rural Fire Service Association

23 Corangamite Shire

24 Confidential

25 Mr Michael Carnell

26 Mr David Jarratt

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84

27 Ms Samantha Rothman

28 Mr Brian Brewer

29 Mr Duncan Terry

30 Mr Randall Bacon

31 Mr Clinton Porter

32 Mr Grant Howell

33 Central Goldfields Shire Council

34 Mr Barry Roberts

35 Mr Craig Warren

36 Mr Bryan Pickthall

37 Confidential

38 Confidential

39 Mr John Phelps

40 Mr Ian Lewis

41 Mr Leonard Mainard

42 Leslie King

43 Mr Andrew Chatham

44 Hallam Fire Brigade

45 Rowville Fire Brigade

46 Greenvale Fire Brigade

47 Craigieburn Fire Brigade

48 Ballarat City Fire Brigade

49 Geelong City Fire Brigade

50 Melton Fire Brigade

51 Hoppers Crossing Fire Brigade

52 Cranbourne Fire Brigade

53 Corio Fire Brigade

54 United Firefighters Union of Australia

55 Volunteer Fire Brigades Victoria

56 Mr Tim Edwards

57 Mr Graeme Renwick

58 Mr Dale Bennett

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85

59 Mr Robert Bury

60 Mr Craig Allen

61 Kerry Clayton

62 Mr Chris Rutherfurd

63 Mr John Wilson

64 Mr Chris Jones

65 Mr Johnny Zaina

66 Mr Jay Martin

67 Mr Terry Robertson

68 Mr Nigel Holmes

69 Mr Alan Roberts

70 Mr Thomas Morley

71 Mr Stephen Hicks

72 Mr John Hansen

73 Mr Robert Fraser

74 Mr Jeremy Bergstrom

75 Mr Peter Rice AFSM

76 Lindsay McKenzie

77 Mr Ian Hamley

78 Confidential

79 Mr Ian Hiller

80 Mr Eddie Matt

81 Mr Graeme Rigg

82 Mr Barry Thomas

83 United Firefighters Union - Victorian Branch

84 United Firefighters Union of Australia, Union of Employees,

Queensland

85 United Firefighters Union - ACT Branch

86 United Firefighters Union - TAS Branch

87 United Firefighters Union - SA Branch

88 United Firefighters Union - Aviation Branch

89 Australian Nursing and Midwifery Federation

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86

90 Mr Ron Twining

91 Mr Andrew Smith

92 Mr Leo van Alphen

93 Ms Jacky Kelly

94 Mr Frank Whelan OAM

95 Ms Lynette Thomson

96 Mr John Drewett

97 Mr Kelvin Bateman

98 Mr Shane Roberts

99 Ms Jill Connor

100 Ms Margo Ashton

101 Ms Fiona Burns

102 Mr Klaus Mayer

103 Ms Miranda Bain

104 Ms Judy Clarke

105 Mr Bjorn Valsinger

106 Mr Max Green

107 Ms Sharron Jones

108 Mr Michael Coldham

109 Mrs Sarah Krumins

110 Mr Doug Pitches

111 Ms Robyn Langford

112 Mr Rob Beck

113 Mr Simon Potter

114 Mr Butch Ross

115 Mr John Hayes

116 Mr David Gerrard AFSM

117 Mr George Wright

118 Mr Michael Bourke

119 Mr Steven Forrest

120 Mr Max Mccaffrey

121 Mr John Ronald Rowe

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87

122 Mr Terry O'Brian

123 Mr Robert Bethell

124 Mr Murray Withington

125 Mr Gary Greer

126 Mr Don Barber

127 Mr Rick O'Haire

128 Mr John McLaren

129 Mrs Joy Howley

130 Mr Steven Old

131 Mr Keith Bunnett

132 Mr Graeme Milne

133 Mr John Seymour

134 Mr Denzil Kent

135 Mr Robert Woolley

136 Mr Alaine Kent

137 Mr Walter Aich

138 Mr John Cooper

139 Toni Munday

140 Mr Graham Thomson

141 Mr Russell Peucker

142 Mr Ben Reynolds

143 Ms Anne Dunn

144 Mr Ian Ashcroft

145 Mr David Gamble

146 Mr David Reid

147 Ms Robyn Gerrard

148 Mr Gary Cheesman

149 Ms Janette O'Keefe

150 Mr David Coad

151 Mr Paul Esmonde

152 Confidential

153 Mr John Davies

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88

154 Mr Ian Walter

155 Mr Brendan Regan

156 Mr Bob Chanter

157 Mr Nicholas Barton

158 Confidential

159 Mr Lachlan Gales

160 Mr David Blackburn AFSM

161 Mr Ian Smith

162 Mr David Allen

163 Mr Peter Graham APM

164 Ms Mary Anne Egan

165 Confidential

166 Mr Anthony Wright

167 Mr Michael O'Mara

168 Mr Geoff Rowe

169 Mr Darren Collins

170 Leigh Sutton

171 Mr Peter Jenkin

172 Mr John Morris

173 Terry Hedt

174 Mr Phil Stewart

175 Mr Rick Coleman

176 Mr Anthony Carroll

177 Mr Ivan Lee

178 Wayne Bourke

179 Mr Tim Buckley

180 Benalla And District Fire Brigade Group

181 Mr Peter Sandy

182 Traralgon CFA

183 Mr Tim Elrington

184 Mr Michael Ashworth-King

185 Mr Rod Stebbing

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89

186 K. L Williams

187 Molyullah Rural Fire Brigade

188 Mr Glenn Charteris

189 Association of Volunteer Bush Fire Brigades WA

190 Mr Eric Collier

191 Fire Brigade Employees' Union NSW

192 Mr John Fleming

193 Mr John Allen

194 Mr Colin James

195 Mr Stewart Matulis

196 Ms Maree Jane

197 Mr Brendan Robertson

198 Mr Shane Cramer

199 Ms Merilyn Brend Robinson

200 Mr Shane Miller

201 Mr Derek Reed

202 Mr Bill Robinson

203 Ms Sarah Ottens

204 Mr Rhys Matulis

205 Ms Joan McGrath

206 Mr Andrew Bath

207 Mr Peter Frank Raisin

208 Mr Peter Grills

209 Mr Alan Wallace

210 Mr Paul Yandle

211 Mr Barry Wiseman

212 Mr Alan Stuart OAM

213 Ms Heather Stuart

214 Mr Colin & Robyn Coates

215 Mr Peter Tischler

216 Mr Rohan Bottoni

217 Mr Tim Hill

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90

218 Ms Jody Yandle

219 Ms Christine Fyffe MP, Statement Member for Evelyn

220 Mr Gil Hopkins

221 Mr Doug McDougall

222 Ms Sue Horsley

223 Mr Greg Wickes

224 Mr Gerry Lavery

225 Mr Jason Ross

226 Ms Vickie Linaker

227 Ms Carmel Mitchell

228 Mr Adam Carrigg

229 Mr Michael Huxtable

230 Confidential

231 Mr Alex Felich

232 Mr Norman Riley

233 Mr Greg Walcott

234 Mr Rodney Franks

235 Mr Tom Spielvogel

236 Ms Melita Cordie

237 Ms Sherrie Cordie

238 Mr Peter Sharman

239 Ms Vivienne-Anne Wood

240 Mr Eric & Annette Deppeler

241 Mr Stewart McGregor

242 Mr Greg Goullet

243 Mr Peter Keays

244 Mr Rod Laidlaw

245 Mr Adrian & Mandy Straw

246 Mr Bill Stockdale

247 Mr Mark Dryden

248 Mr Patty O'Donoghue

249 Mr Eric Smith

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91

250 Mr Ian Ireland

251 Mr Trevor Harding

252 Mr Geoff & Debbie Browning

253 Mr Alan Boyd

254 Mr Richard Nankivell

255 Mr Geof Bassett

256 Mr Marc Burton-Walter

257 Ms Paula Stuart

258 VFBV District Council No.16

259 Mr Ron Schultz AFSM

260 Mr John Wilken

261 Mr Andrew Bennett

262 Confidential

263 Mr Ian Sichlau

264 Mr Geoff Howley

265 Mr Keith Clough

266 Ms Claire Griffiths

267 Mr Rob Auchterlonie

268 Mr Brendan Jenkins

269 Mr Geoffrey Barker

270 Mr Garry Nash

271 Mr Paul Marshall

272 Mr Michael Jones

273 Mr Neil Jones

274 Ms Jeanene Howard

275 Mr Colin Carter

276 Mr Kevin L'Huillier

277 Ms Jill Parker

278 Mr James Kelly

279 Mr Greg Cutting

280 Mr Frank Tobin

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92

281 Mr Bruce Corbett AFSM, Tasmanian Retained Volunteer Firefighters Association

282 Mr Robert Atkins AFSM, Tasmanian Volunteer Fire Brigades

Association

283 District 22 Volunteer Fire Brigades Victoria

284 Ms Kristian Pitches

285 Mr Richard Mansfield

286 Ms Maurie Killeen

287 Mr Paul Bannan

288 Mr Andrew Cooke

289 Mr Don Bigham

290 Ms Pat Bigham

291 Mr Greg Fithall

292 Mr Noel Nealon

293 Tatura Urban Fire Brigade

294 Mr Phillip Lind

295 Mr Adam Wightwick

296 Mr Kevin Forster

297 Ms Sue Bull

298 Lilydale Fire Brigade

299 Ocean Grove Fire Brigade

300 Ms Dianne English

301 Ms Casey Nunn

302 Volunteering Australia

303 Ms Rebekah Isaacs

304 Springvale Fire Brigade

305 Morwell Fire Brigade

306 Dandenong Fire Brigade

307 Bendigo Fire Brigade

308 Yellingbo Fire Brigade

309 Mr Rick Aitchison

310 Mr Graeme Luke

311 Ms Jan Cleary

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93

312 Mr David Farmer

313 Rural Fire Brigades Association Queensland Inc.

314 Mr Doug Steley

315 The Hon Gerry McCarthy MLA, Northern Territory Government

316 Mr Andrew Bishop

317 Confidential

318 Mr Andrew Currie

319 Mr Vincent O'Grady

320 Mr Stephen Hill

321 Mr Peter Smith

322 Confidential

323 Confidential

324 Confidential

325 Confidential

326 Confidential

327 Confidential

328 Confidential

329 Confidential

330 Confidential

331 Confidential

332 Confidential

333 Confidential

334 Confidential

Additional information

1 Country Fire Authority Board resolution and correspondence of 12 August 2016, relating to evidence provided by Ms Frances Diver at page 89 of proof Hansard transcript, Melbourne, 28 September 2016.

2 2009 Victorian Bushfires Royal Commission: Organisational Structure, Submissions of Counsel Assisting. Document referred to in answer to question on notice by Mr Geoffrey Barker, public hearing Macedon, Victoria, 19 September 2016.

Answers to Questions on Notice

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94

Public hearing Melbourne, 28 September 2016

1 Answer to Questions on Notice from Senator Cameron to the Department of Employment.

2 Answer to Question on Notice from Senator McKenzie to Professor Andrew Stewart.

3 Answers to Questions on Notice from Senator Cameron to the Country Fire Authority.

4 Answer to Question on Notice from Senator McKenzie to Mr Matt O'Connor of Industrial Relations Victoria.

5 Answer to Question on Notice from Senator Marshall to Mr Andrew Ford of Volunteer Fire Brigades Victoria. 6 Answer to Question on Notice from Senator Cameron to Mr Peter Marshall of the United Firefighters Union, public hearing Melbourne, 28 September

2016.

Public hearing Macedon, Victoria, 19 September 2016

7 Answer to Question on Notice from Senator McKenzie to Mr Luke Shearer.

8 Answer to Question on Notice from Senator Cameron to Mr Geoffrey Barker.

Tabled documents

Public hearing Melbourne, 28 September 2016

1 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

2 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

3 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

4 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

5 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

6 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

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95

7 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Peter Marshall.

8 Document tabled at a public hearing on 28 September 2016 in Melbourne Victoria by Mr Garth Head.

Public hearing Macedon, 19 September 2016

1 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Mark Hooper.

2 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Tim Van Den Driest.

3 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Tim Van Den Driest.

4 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Senator Gavin Marshall.

5 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr John Dunn.

6 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Owen O'Keefe.

7 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Patrick Shawcross.

8 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Rob Auchtelonie.

9 Document tabled at a public hearing on 19 September 2016 in Macedon Victoria by Mr Bill Stockdale.

283

284

Appendix 2

Public Hearings

Macedon (Victoria) 19 September 2016

Committee Members in attendance: Senators McKenzie, Marshall, Back, Cameron, Hanson, Hume, Lambie, Roberts.

Witnesses

Mr Walter Aich, volunteer firefighter, Warragul district

Mr Rob Auchterlonie, volunteer firefighter, Warragul district

Mr Geoffrey Barker, leading firefighter, Cranbourne Fire Station

Mr Neil Beer, private capacity

Mr David Blackburn, volunteer firefighter, Ararat district

Mr Brian Brewer, volunteer firefighter, Warragul district

Mr James Butler, career firefighter, Senior Station Officer, Ballarat city

Mr John Dunn, volunteer firefighter, Shepparton district

Mr Jeremy Egan, 1st Lieutenant, Geelong City Fire Brigade,

Mrs Mary-Anne Egan, volunteer firefighter, Wangaratta district

Mr Chris Egglestone, volunteer firefighter, Wendouree district

Mr Justin Elliot, leading firefighter, Morwell Fire Station

Mrs Dianne English, volunteer (Craigieburn Secretary), Craigieburn

Mr Raj Faour, volunteer, Hallam

Mr Lachlan Gales, volunteer firefighter, Wangaratta district

Mr David Gamble, volunteer firefighter, Seymour district

Mr Alan Gorman, volunteer firefighter, Wendouree district

Mr Mark Hooper, volunteer firefighter, Kerang district

Ms Rebekah Isaacs, volunteer firefighter, Melton district

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98

Mrs Sharron Jones, volunteer firefighter, Senior Station Officer, Hallam

Mr Stephen Keating, career firefighter, Senior Station Officer, Hallam

Mrs Sarah Krumins, Volunteer Firefighter, Lilydale district

Mr Gerry Lavery, volunteer firefighter, Wendouree district

Mr Bill Maltby, volunteer firefighter, Bendigo district

Mr Adam Matthews, Leading Firefighter, Hoppers Crossing Fire Brigade

Mr Greg McManus, Volunteer Firefighter, North Geelong district

Mr Robert McVey, Leading Firefighter, Country Fire Authority, Geelong City Fire Brigade

Mr Owen O'Keefe, volunteer firefighter, Hamilton district

Mr Des Phelan, volunteer firefighter, Wendouree district

Mr Peter Quill, Volunteer Firefighter, Cranbourne Fire Brigade

Mr John Radford, Operations Officer, Country Fire Authority district 27, Traralgon Fire Station

Mr Justin Rees, 1st Lieutenant and Volunteer Firefighter, Melton Fire Brigade

Mr David Rush, private capacity

Miss Eliza Sawyer, Volunteer Firefighter, Lilydale district

Mr Patrick Shawcross, Career Fireghter, Ballarat City

Mr Luke Shearer, Station Officer, Melton Fire Station

Mr Peter Spicer, Career Firefighter, Senior Station Officer, Craigieburn

Mr Bill Stockdale, private capacity

Mr Luke Symeoy, Volunteer, Craigieburn

Mr Alan Thistlethwaite, Career Firefighter, Greenvale

Mr Timothy Van Den Driest, Career Firefighter, Senior Station Officer, Rowville

Mr Thomas Walter, Career Firefighter, Greenvale

Mr John Zaina, volunteer firefighter, Wendouree district

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Melbourne, Victoria, 28 September 2016

Committee Members in attendance: Senators McKenzie, Marshall, Cameron, Hinch, Hume, Lambie, Paterson, Rhiannon, Roberts.

Witnesses

Volunteer Fire Brigades Victoria Mr Andrew Ford, Chief Executive Officer, Volunteer Fire Brigades Victoria Mr Nev Jones, State President, Volunteer Fire Brigades Victoria Mr Adam Barnett, Executive Officer, Volunteer Fire Brigades Victoria Mr Garth Head, Consultant, Volunteer Fire Brigades Victoria

Ms Lucinda Nolan, Former Chief Executive Officer, Country Fire Authority, private capacity

Professor Andrew John Stewart, private capacity

Mr John Peberdy, private capacity

Mr Michael Tudball, private capacity

Ambulance Employees Australia Victoria Mr Steve McGhie, Secretary, Ambulance Employees Australia Victoria

United Firefighters Union National Branch and United Firefighters Union Victoria Branch Mr Peter Marshall, National Secretary and Victorian Branch Secretary, United Firefighters Union Ms Michelle Baldini, Industrial Officer, United Firefighters Union Victoria Branch Mr Barry Thomas, private capacity

Country Fire Authority Ms Frances Marie Diver, Chief Executive Officer, Country Fire Authority Mr Steve Mark Warrington, Chief Officer, Country Fire Authority

Victorian Government Mr Matt O'Connor, Deputy Secretary, Industrial Relations Victoria, Department of Economic Development, Jobs, Transport and Resources

Department of Employment Mr Jeremy O'Sullivan, Chief Counsel, Workplace Relations Legal, Department of Employment Ms Natalie Radcliffe, Principal Government Lawyer, Department of Employment Ms Jody Anderson, Branch Manager, Workplace Relations Policy Group

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Dr Alison Morehad, Group Manager, Workplace Relations Policy Group, Department of Employment

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Appendix 3

Examples of Clauses Constraining CFA Decision Making

Attachment 6 Examples of Clauses in the UFU Agreement constraining CFA decision making

The following table provides a list of references in the latest version of the 2016 Agreement as examples that constrain CFA decision making and erode the CFA ability to meet its consultation obligations to

volunteers consistent with the CFA Act and Volunteer Charter. There are also many other

clauses not contained in the following table that require ‘consultation and agreement’ eroding CFA management prerogative, impact on timely decision making and CFA legislative accountabilities in terms of the direction, deployment and management of the CFA

workforce.

Clause Topic Term used

1 11.29 FSCC modules “..course structure agreed between the

parties”

2 12.13 Rank & Promotional

Structures

“..other than by agreement of the parties.”

3 14.3 Community Support

Facilitators

“..shall not pursue any claims in relation to CSF’s or any alternative classification performing similar duties not provided for in this agreement”

4 15.1 Brigade Administrative

Support Programs/Officers (BASO)

“..and reach agreement with the UFU on any change…to the structure of any Brigade Administrative Support Programs…”

5 16.1 Volunteer Support

program/Officers

“…will consult and reach agreement with the UFU…on the structure of any Volunteer Support Programs…”

6 23 Legislation and Reform “Any position…put to government…must be consistent with the outcomes of

consultation.”

7 30.2 Bushfires Royal

Commission Report “..and reach agreement in relation to any matter that arises out of the Royal

Commission’s report…”

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Clause Topic Term used

8 35.2.1 Work Organisation “…except where agreed…” “FWC cannot

determine that nay employee should or will carry out such work.”

9 41.1 CFA Policies “…may only be made or varied by

agreement.”

10 44.1 Minimum Staffing

Levels

“The parties have agreed…Charts in Schedule 1…”

11 44.3 Minimum Staffing

Levels

.An alteration to the number and rank of employees…by agreement between the parties.”

12 44.14 Appliance Crewing “…ensuring that there are four professional career firefighters on all appliances except as where agreed…”

13 44.15 Cross Crewing There will be no cross crewing of appliances

unless otherwise agreed…”

14 44.20.3 Schedule 1 dates “The commencement date of operations for the charts in Schedule 1 can be

extended…only by agreement…”

15 46.4 On Shift Relievers “The home location for any employee…

cannot be changed without agreement.

”No other…reliever other than district- based or station-base unless by agreement…”

16 48.3.1 Secondment & Lateral

Entry

“…in agreement with the UFU, will offer agreed secondment program training for a minimum 12 CFA…and a minimum 12 MFB…”

“…Other fire services may be considered on a case by case basis if agreed…”

17 48.3.9 Secondment & Lateral

Entry

“Any further extensions [beyond one year secondment] will be by agreement of the parties.”

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Clause Topic Term used

18 48.4.3 Secondment & Lateral

Entry

“…must be from the MFB or from another fire service that has been agreed between the CFA and UFU…”

19 48.6.4.1 Lateral Entry “…the position may only be filled, by a

career firefighter of the MFB unless otherwise agreed…” &

20 48.6.4.2 Lateral Entry “…(a recruit course agreed between the CFA

and UFU).”

21 48.6.4.4 Lateral Entry “…undertake a short course…These

requirements will be as determined by the CFA and UFU as agreed.”

22 48.7.3 Lateral Entry “Firefighting Services other than the CFA

and MFB can be considered…but such consideration must be by agreement…”

23 50.3 Part-time/Casual “The CFA will not employ an employee on a

part-0time or casual basis…unless in each case there is agreement…”

24 50.6.5.1 Part-time “work and be rostered on hours negotiated

and agreed in writing”

25 58.2 Disputes Panel “Where agreed between the UFU and CFA

the Disputse Panel may consider…any other matter agreed by the parties”

26 58.8 Disputes Panel “the Minister will accept a

recommendation…who shall become the chairperson of the Disputes Panel…”

27 58.14 Disputes Panel “Both parties agree to abide by the Dispute

Panel’s determinations.”

28 60.1.1 Peer Support “Peer support employees under this

agreement will be drawn from professional firefighters.”

29 60.1.6 Peer Support “…and agreed psychologists and doctors”

30 67.1 Marine Capability “…parties agree…to implement an enhanced Marine capability and capacity within the organisation.”

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Clause Topic Term used

31 70.2 Health and Safety “The parties agree to apply and to review

the OHS agreement…”

32 73.2 Gambling, Drug and

Alcohol Rehabilitation “The protocol will be developed and agreed…”

33 77.2 Training and

Professional Development

“In all training matters, the parties agree…”

34 77.4 Training Locations “Training will only take place at agreed

recognised training locations…”

35 77.8 Number of Courses “The CFA will provide a minimum number of courses per year of the agreement unless otherwise agreed…”

36 83.4 Uniforms, Appliances

and Equipment

“The CFA and UFU must agree on all aspects of the:

83.4.1 articles of clothing;

83.4.2 equipment, including personal protective equipment;

83.4.3 technology;

83.4.4 station wear; and

83.4.5 appliances.”

37 83.7 Uniforms, Appliances

and Equipment

“Changes to…will be by agreement only…”

38 83.10 Uniforms, Appliances

and Equipment

“…consult and agree with the UFU…”

39 83.13 Uniforms, Appliances

and Equipment

“…prior to the development/building or tendering of the appliance/s consultation will occur and CFA will reach agreement…”

40 87.6 Amenities “Where the employer seeks to make

changes to any amenities or access to communications…such changes will only occur by agreement…”

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Clause Topic Term used

41 88.4 Infrastructure “The Infrastructure Agreement may only be

varied or departed from where this is agreement…”

42 88.6.2 New Work Locations “…will adhere to and apply the

Infrastructure Agreement for the design and specification of appliances and

equipment…except as agreed…”

43 88.6.3 New Work Locations “Deployment of staff to a particular work location shall not occur…unless agreed between the parties.”

44 88.7.3 Existing Work Locations “Amy modifications to existing work locations…except as agreed…”

45 88.7.4 Existing Work Locations “Any modifications will be by agreement between…”

46 88.12 Existing Work Locations “No employee will be relocated or directed to relocate into any permanent

premises…prior to there being agreement reached between…”

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Appendix 4

Volunteer Charter1

1 Country Fire Authority, Volunteer Charter: http://www.ufba.org.nz/images/documents/Victoria_CFA_Volunteer_Charter.pdf

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The Senate

Education and Employment

Legislation Committee

Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 [Provisions]

Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 [Provisions]

October 2016

297

ii

© Commonwealth of Australia

ISBN: 978-1-76010-468-9

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website:

http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

This document was produced by the Senate Standing Committee on Education and Employment and printed by the Senate Printing Unit, Parliament House, Canberra.

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MEMBERSHIP OF THE COMMITTEE

Members

Senator Bridget McKenzie, Chair, Nats, VIC

Senator Gavin Marshall, Deputy Chair, ALP, VIC

Senator Deborah O'Neill, ALP, NSW

Senator James Paterson, LP, VIC

Senator John Williams, Nats, NSW

Senator Sarah Hanson-Young, AG, SA

Participating Members

Senator the Hon Jacinta Collins, ALP, VIC

Senator Skye Kakoschke-Moore, NXT, SA

Senator Jacqui Lambie, JLN, TAS

Secretariat

Ms Julia Agostino, Secretary

Dr Jon Bell, Principle Research Officer

Ms Aleshia Westgate, Senior Research Officer

Mr Michael Perks, Administrative Officer

PO Box 6100 Ph: 02 6277 3521

Parliament House Fax: 02 6277 5706

Canberra ACT 2600 E-mail: eec.sen@aph.gov.au

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TABLE OF CONTENTS

MEMBERSHIP OF THE COMMITTEE ...................................................... iii

RECOMMENDATIONS ..................................................................................vii

CHAPTER 1 ........................................................................................................ 1

Background ............................................................................................................... 1

Referral ................................................................................................................... 1

Conduct of the inquiry ............................................................................................ 1

Background ............................................................................................................. 1

Previous consideration of the bills ......................................................................... 2

Changes in the 2016 bills ....................................................................................... 4

Human rights implications ..................................................................................... 5

Financial impact ..................................................................................................... 5

Acknowledgement .................................................................................................. 6

CHAPTER 2 ........................................................................................................ 7

Issues for consideration ............................................................................................ 7

Context of the bills ................................................................................................. 7

Overview of the bills .............................................................................................. 7

Key issues - Jobs for Families bill ....................................................................... 13

Committee view .................................................................................................... 22

Social Services bill ............................................................................................... 23

Key issues - Social Services bill .......................................................................... 25

Committee view .................................................................................................... 28

Labor Senators’ Dissenting Report ................................................................. 31

Jobs for Families Bill .............................................................................................. 31

Impact of the Government’s decision to delay investment in early education .... 31

Impact of the activity test ..................................................................................... 32

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Limited information about the implementation of the proposed changes ............ 34

Impact on Budget Based Funded Indigenous and Mobile services ..................... 34

Social Services Bill ............................................................................................... 35

Conclusion ............................................................................................................ 38

Recommendations ................................................................................................ 40

Dissenting Report by the Australian Greens .................................................. 41

Jobs for Families Bill .............................................................................................. 41

Jobs for Families Bill ............................................................................................ 41

Conclusion ............................................................................................................ 42

Recommendations - Jobs for Families Bill .......................................................... 42

Dissenting Report by the Australian Greens .................................................. 43

Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 ................................................................. 43

Introduction .......................................................................................................... 43

Cuts to FTB-B ...................................................................................................... 43

Removal of the FTB-A and FTB-B supplements ................................................. 44

Other Measures ..................................................................................................... 44

Additional Comments by the Nick Xenophon Team ..................................... 47

Recognising the Importance of ECEC ................................................................. 47

Ensuring the Diversity and Flexibility of ECEC .................................................. 48

Consulting with Stakeholders ............................................................................... 51

Transparency ........................................................................................................ 52

Activity Test ......................................................................................................... 53

APPENDIX 1 ..................................................................................................... 57

Submissions and Additional Information received by the Committee .............. 57

APPENDIX 2 ..................................................................................................... 63

Public Hearings ....................................................................................................... 63

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RECOMMENDATIONS

Recommendation 1

2.101 The committee recommends that both bills be passed.

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304

CHAPTER 1

Background

Referral

1.1 On 15 September 2016, the Senate referred an inquiry into the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 [Provisions] (Jobs for Families bill), and the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 [Provisions] (Social Services bill) to the Education and Employment Legislation Committee for inquiry and report by 10 October 2016.

Conduct of the inquiry

1.2 Details of the inquiry were made available on the committee's website. The committee also contacted a number of organisations inviting submissions to the

inquiry. Submissions were received from 50 individuals and organisations, as detailed in Appendix 1.

1.3 Public hearings were held in Melbourne on

3 and 4 October 2016. A list of

witnesses can be found in Appendix 2.

Background

1.4 The bills seek to reform family assistance for child care by introducing the Child Care Subsidy, and an Additional Child Care Subsidy, and increase the rate of the Family Tax Benefit Part A payments and introduce a new rate structure for Family Tax Benefit Part B.

1.5 Introduced by the Hon Christian Porter MP, Minister for Social Services, the two bills seek to reintroduce major reforms under the Australian Government's Jobs for Families Child Care Package.

1.6 The Jobs for Families bill seeks to amend various Acts in relation to family assistance for child care. Its key measures are:

• the introduction of the Child Care Subsidy, replacing two current payments:

the Child Care Benefit and Child Care Rebate;

• the introduction of an Additional Child Care Subsidy, available under certain circumstances and at various rates; and

• new approved provider and service requirements, to come into effect from July 2018.

1.7 The Social Services bill seeks to reform Family Tax Benefit Part A (FTB A) and at-home under-18 year old youth fortnightly rates. Its key measures are:

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• to increase the fortnightly rates of FTB A by $10.08 for each FTB child in the

family up to the age of 19 years, with an equivalent fortnightly rate increase of around $7.48 for certain youth allowance and disability support pension recipients under the age of 18; and

• introduce a new rate structure for FTB B, and make other amendments to the rules for FTB B by:

• increasing the standard rate by $1 000.10 per year for families whose youngest child is under one year of age;

• maintaining the current standard rates for families with a youngest child

aged between one and under five, and between five and under 13 years of age;

• maintaining the current standard rate for single parents who are at least 60 years of age, grandparents and great-grandparents with a youngest child aged between 13 and 18;

• introducing a reduced standard rate of $1 000.10 per year for individuals

whose youngest child is aged 13 to 16 (currently $2 832.40), and who who are not single parents aged 60 or more or grandparents or great-grandparents; and

• remove entitlement to FTB Part B for single parent families who are not single parents aged 60 or more or grandparents or great-grandparents, from 1 January of the calendar year their youngest child turns 17.1

Previous consideration of the bills

1.8 Both bills were introduced into the 44th Parliament, and were each the subject of inquiries by Senate committees. Owing to the dissolution of the parliament, the bills lapsed and were reintroduced into the 45th Parliament by the Hon Christian Porter MP, on 1 September 2016.

Jobs for Families bill

1.9 The Senate Education and Employment Legislation Committee (Education and Employment Committee) has previously inquired into an earlier version of the Jobs for Families bill, and tabled its report on 4 April 2016.2

1.10 The Education and Employment Committee noted that the simplified system to be introduced by the Child Care Subsidy had 'attracted praise from most submitters'.3

1 Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Explanatory Memorandum, p. 6.

2 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016.

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1.11 However, the Education and Employment Committee also noted that 'other elements of the bill drew criticism and concerns from many submitters', including the activity test provision.4

1.12 The Education and Employment Committee concluded that the emphasis of the bill is to provide a greater subsidy rate to families earning the least and more hours of subsidy to families who work the most:

This approach, the committee believes, is in line with community expectations, whereby subsidies and assistance are targeted at those whom they will most benefit and reducing the subsidisation of those with the means to pay a greater proportion of the costs themselves.5

1.13 The Education and Employment Committee conducted a public hearing in March 2016, and heard from representatives of Early Childhood Australia, The Parenthood, Secretariat of National Aboriginal and Islander Child Care and the Department of Education and Training.

1.14 The committee recommended that the Senate pass the bill.

Social Services bill

1.15 The Senate Community Affairs Legislation Committee (Community Affairs committee) has previously inquired into an earlier version of the Social Services bill, and tabled its report on 1 March 2016.6

1.16 In its report, the Community Affairs Committee noted that:

Most submitters and witnesses supported reforms to the FTB payments system to ensure it is simpler, fairer and better targeted, and supported the rate increases for certain cohorts. However, submitters and witnesses generally opposed the proposed reduced payment rate for certain families and expressed concerns about the following issues:

Impacts on low income families and vulnerable families, such as single parents and families of children with disability;

The costs of raising children increase with children's age, while the measures propose a corresponding reduction in payments.

3 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 9.

4 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 9.

5 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 23.

6 Senate Community Affairs Legislation Committee, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No. 2) 2015, 1 March 2016.

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The proposed increases do not compensate for the loss of supplements.

The proposed amendments do not appropriately encourage greater workforce participation.

IT and payroll system upgrades may not address end of year FTB debts.7

1.17 The Community Affairs Committee conducted a public hearing in February 2016, and heard from the Australian Council of Social Service, The Parenthood, UnitingCare Australia, National Council of Single Mothers and their Children, Australian Catholic Council for Employment Relations, Catholic Social Services Australia, CatholicCare Melbourne & Gippsland, National Welfare Rights Network, Grandparents Australia, National Council of Women of Australia, Children with Disability Australia and the Department of Social Services.

1.18 The committee recommended that the Senate pass the bills.

Scrutiny of Bills Committee

1.19 The Senate Committee on the Scrutiny of Bills (Scrutiny of Bills Committee) drew attention to certain provisions of the Jobs for Families bill 2015, including:

• review rights;

• delegation of legislative power—Henry VIII clause; and

• trespass on personal rights and liberties—strict liability;

1.20 The Scrutiny of Bills Committee sought responses from Senator the Hon Simon Birmingham, Minister for Education and Training, and published those responses in its Fifth Report of 2016.8

Changes in the 2016 bills

Jobs for Families bill

1.21 Changes to the Jobs for Families bill relate to the dates of commencement of particular schedules, taking into account the prorogation and subsequent re-introduction of the bill. The Department of Education and Training set out the changes in their submission. The majority of the changes relate to correcting 'drafting errors and to give effect to policy intent', including:

• a new rule making power that will enable the Minister to determine

circumstances in which children over the age of 13 and/or are attending secondary school may be eligible for the child care subsidy;

7 Senate Community Affairs Legislation Committee, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No.2) 2015 [Provisions], March 2016, p. 8.

8 Senate Standing Committee on the Scrutiny of Bills, Fifth Report of 2016, 3 May 2016.

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• the removal of potential unintended consequences in relation to the way that

services calculate attendances when issuing a certificate in relation to a child;

• the expansion of the Secretary’s power to make case by case decisions about an individual’s Activity Test Result; and

• correction of an omission from the 2015 iteration of the bill that would have left the Secretary's decisions in relation to grant funding open to review.

Social Services bill

1.22 Changes to the Social Services bill relate to the commencement date for Schedule 2 of the bill, which has been changed from 1 July 2016 to 1 July 2017.

Human rights implications

1.23 The Explanatory Memorandum asserts that the Jobs for Families bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.9

1.24 In relation to Human Rights obligations, the Explanatory Memorandum for the Jobs for Families bill notes:

The current system is complex and difficult for families to navigate. It is inflexible and does not effectively meet families’ workforce participation needs. Measures in the Bill are compatible with and advance human rights under the ICCPR, the CEDAW, the CRC and the ICESCR which will ultimately enable parents who wish to work, or to work more, by providing a simpler, more affordable, more flexible and more accessible child care system. As described above, to the extent that the proposed Bill may limit some rights, those limitations are reasonable, necessary and proportionate.10

1.25 The Explanatory Memorandum asserts that the Social Services bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.11

Financial impact

1.26 The measures in the Jobs for Families bill form part of the Government’s investment of approximately $40 billion in child care support over the forward

9 Family Assistance Legislation Amendment (Jobs For Families Child Care Package) Bill 2016, Explanatory Memorandum, p. 6.

10 Family Assistance Legislation Amendment (Jobs For Families Child Care Package) Bill 2016, Explanatory Memorandum, p. 15.

11 Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Explanatory Memorandum.

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estimates. This includes more than $3 billion of additional expenditure to support the implementation of the Jobs for Families Child Care Package.12

Family Assistance Legislation Amendment (Jobs For Families Child Care Package) Bill 2016, Explanatory Memorandum.

1.27 The measures in the Social Services bill seek to provide savings in order to fund the Jobs for Families Child Care Package.13

Measure Financial impact over the forward

estimates (fiscal balance, whole of

government)

Reform Family Tax Benefit Part A and at-home under-18 year old youth fortnightly rates

Cost of $1 166.7 million

Reforms to Family Tax Benefit Part B Saving of $787.9 million

Phase out the Family Tax Benefit Part A and Part B supplements Saving of $6 253.2 million

Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Explanatory Memorandum.

Acknowledgement

1.28 The Committee thanks those individuals and organisations who contributed to the inquiry by preparing written submissions or by appearing at the public hearing.

12 Family Assistance Legislation Amendment (Jobs For Families Child Care Package) Bill 2016, Explanatory Memorandum, p. 4.

13 Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Explanatory Memorandum, p. 2.

Jobs for Families legislative measure Funding Years

Child Care Subsidy $23.2 billion Over two years from 2018-19

Additional Child Care Subsidy $173 million Over two years from 2018-19

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CHAPTER 2

Issues for consideration

Context of the bills

2.1 As discussed in Chapter 1, earlier versions of both bills were examined by Senate Committees during the previous parliament, and reports were tabled in the Senate.

2.2 As there are few changes to the bills currently being considered, this report will provide a brief overview of those bills and then focus on several key issues raised by submitters to the inquiry and witnesses who appeared at the committee's public hearings.

2.3 This chapter sets out:

• an overview of both bills; and

• key issues raised during this inquiry, including:

• workforce participation;

• the proposed activity test contained in the Jobs for Families bill;

• Budget Based Funding (BBF);

• the use of savings from the Social Services bill to fund the Jobs for Families Child Care Package; and the

• potential impact of the Social Services bill on families.

Overview of the bills Jobs for Families bill

2.4 The Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 (Jobs for Families bill) reintroduces major reforms under the government's Jobs for Families Child Care Package.1

2.5 The Hon Christian Porter MP, Minister for Social Services, set out in the second reading speech for the Jobs for Families bill, that '[t]his is the single largest investment in early learning and child care that Australia has ever seen', and that: This package will deliver genuine, much-needed reform for a simpler,

more affordable, more accessible and more flexible early education and childcare system and will invest around $40 billion in child care

1 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 32.

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and early childhood education over the next four years, including more than $3 billion in additional funding.2

2.6 The package is intended to simplify the existing child care system, by improving affordability, accessibility and flexibility.3

Productivity Commission Report

2.7 The Jobs for Families Child Care package is the Australian Government's response to a report by the Productivity Commission into Childcare and Early Childhood Learning. The Productivity Commission reported in October 2014.4

2.8 The Productivity Commission reported that this form of care is of great significance:

Formal and informal Early Childhood Education and Care (ECEC) services play a vital role in the development of Australian children and their preparation for school, and in enabling parents to work. Many families use a mix of formal ECEC and informal, non-parental care.

The number of formal ECEC services has expanded substantially over the past decade. Over the same period, Australian Government funding has almost tripled to around $7 billion per year, and now covers two thirds of total ECEC costs. Despite this, many parents report difficulties in finding ECEC at a location, price, quality and hours that they want.5

2.9 The Productivity Commission recommended reforms to achieve a more accessible, flexible and simpler system, focussing on three priority areas:

• a single means and activity tested child-based subsidy, paid directly to the

approved service;

• inclusion of children with additional needs in mainstream services, and

delivery of services for children in disadvantaged communities; and

• funding on a per child basis for approved preschool programs. 6

2 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 32. 3 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 32.

4 Productivity Commission, Childcare and Early Childhood Learning, Inquiry Report No. 73, 2014. The report was publicly released in February 2015. 5 Productivity Commission, Childcare and Early Childhood Learning, Inquiry Report No. 73 - Overview, 2014, p. 2. 6 Productivity Commission, Childcare and Early Childhood Learning, Inquiry Report No. 73 -

Overview, 2014, p. 2.

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Child Care Subsidy

2.10 The main provision of the Jobs for Families bill is the proposed introduction of the Child Care Subsidy, which will be a single, means-tested subsidy paid directly to service providers to be passed on to families. The new subsidy is intended to simplify the existing multi-payment system, and will be better targeted, providing 'more assistance to low and middle income families'.7

2.11 The subsidy will be allocated according to the combined family income, and the meeting of an activity test. The subsidy rate will taper at one per cent for every $3 000 of family income. For families earning more than $185 710, an annual subsidy cap of $10 000 per child will apply. The table below sets this out.

Combined family income Subsidy percent of the actual fee charged

Up to $65 710 85%

More than $65 710 to below $170 710 Tapering to 50%

$170 710 to below $250 000 50%

$250 000 to below $340 000 Tapering to 20%

$340 000 or more 20%

Department of Education and Training, Jobs for Families Child Care Package Overview.8

Activity test

2.12 The amount of hours of child care subsidy accessible by families will be determined by an activity test which will categorise families into three tiers, or steps. The table below sets out the hours of child care subsidy accessible per number of hours of activity.9

7 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf (accessed 21 September 2016).

8 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf, (accessed 21 September 2016).

9 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf, (accessed 21 September 2016).

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Step Hours of activity (per fortnight) Maximum number of hours of subsidy (per fortnight)

1 8 hours to 16 hours 36 hours

2 More than 16 hours to 48 hours 72 hours

3 More than 48 hours 100 hours

Department of Education and Training, Jobs for Families Child Care Package Overview.10

2.13 The activity test requirements will take into account:

• paid work;

• self-employment;

• unpaid work in a family business;

• looking for work;

• volunteering; or

• studying.

11

2.14 Those families who do not meet the minimum requirements for the activity test may be eligible for the Additional Child Care Subsidy.

Additional Child Care Subsidy

2.15 For some families who do not meet the activity test, the Additional Child Care Subsidy (ACCS) is proposed as a 'top up payment' in addition to the Child Care Subsidy.

2.16 The ACCS is part of the Child Care Safety Net, and recognises that extra support is needed for some vulnerable children, including: • children at risk of serious abuse or neglect;

• families experiencing temporary financial hardship;

• grandparents on income support who are the primary carer of their grandchildren;

• parents transitioning to work from income support; and

• low income families who do not meet the activity test.12

10 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf (accessed 21 September 2016).

11 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf (accessed 21 September 2016).

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2.17 The Department of Education and Training set out that the name of the subsidy for children at risk of serious abuse or neglect has changed from Additional Child Care Subsidy (At Risk) to Additional Child Care Subsidy (Child Wellbeing). The Department of Education and Training explained the reason for the change of name:

This change was prompted by feedback from the sector that the original name of the payment could deter families from accessing this additional support, which is at odds with the policy intent. While the name has changed, the intent, design and application of the subsidy remain the same.13

2.18 There are four types of ACCS payments, established in the following hierarchy: • ACCS (child wellbeing);

• ACCS (grandparent);

• ACCS (temporary financial hardship); • ACCS (transition to work).

2.19 The Explanatory Memorandum for the Jobs for Families bill sets out that where a person may be eligible for more than one type of ACCS for a session of care, the type higher up in the hierarchy will take precedence.14

2.20 For example, if a person is eligible for the transition to work ACCS as well as the grandparent ACCS, they will receive the grandparent ACCS.

Social Services bill

2.21 The main provisions of the Social Services bill seek to reform Parts A and B of the Family Tax Benefit (FTB) by increasing the fortnightly rates of FTB Part A (FTB A) and introducing a new rate structure for FTB Part B (FTB B). The Social Services bill also seeks to phase out FTB A and B supplements by reducing the payments until they cease on 1 July 2018.

2.22 The Family Tax Benefit (FTB) is an income tested two part payment made to families to assist with the cost of raising children. Part A is a per child payment which is made to eligible families, while Part B payments provide added assistance to single parents and families with one main income.

2.23 The Social Services bill's key measures seek to:

12 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf (accessed 21 September 2016).

13 Department of Education and Training, Submission 13, p. 2. 14 Family Assistance Legislation Amendment (Jobs For Families Child Care Package) Bill 2016, Explanatory Memorandum, p. 35.

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• increase the fortnightly rates of FTB A by $10.08 for each FTB child in the

family up to the age of 19 years, with an equivalent fortnightly rate increase of around $7.48 for certain youth allowance and disability support pension recipients under the age of 18; • introduce a new rate structure for family tax benefit Part B (FTB B), and make other amendments to the rules for FTB B by:

• increasing the standard rate by $1 000.10 per year for families whose

youngest child is under one year of age; • maintaining the current standard rates for families with a youngest child aged between one and under five and between five and under 13 years of

age;

• maintaining the current standard rate for single parents who are at least

60 years of age, grandparents and great-grandparents with a youngest child aged between 13 and 18; • introducing a reduced standard rate of $1 000.10 per year for individuals

whose youngest child is aged 13 to 16 (currently $2 832.40), and who are not single parents aged 60 or more or grandparents or great-grandparents; and • remove entitlement to FTB Part B for single parent families who are not

single parents aged 60 or more or grandparents or great-grandparents, from 1 January of the calendar year their youngest child turns 17; • phase out FTB A and B supplements by:

• reducing FTB Part A supplement to $602.25 a year in 2016-17, and to $302.95 a year from 1 July 2017 and ceasing on 1 July 2018; and • reducing FTB Part B supplement to $302.95 a year in 2016-17, and to $153.30 a year from 1 July 2017, and ceasing on 1 July 2018.15

2.24 In the Senate inquiry about the previous bill, the Community Affairs Committee heard that the measures:

…are to do with the sustainability of the system, as well as to encourage anticipation and help pay for the Jobs for Families measures. In that sense, we know that better targeting FTB B will assist the sustainability of the welfare payment system.16

Key issues - Jobs for Families bill

2.25 In this section, key issues for consideration relating to the Jobs for Families bill will be discussed, including:

15 Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Explanatory Memorandum, p. 1.

16 Ms Cath Halbert, Group Manager, Payments Policy Group, Department of Social Services, Committee Hansard, 18 February 2016, p. 42.

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• the effect of the bills on enhanced workforce participation;

• the activity test contained in the Jobs for Families bill; and

• Budget Based Funding (BBF);

2.26 The committee notes the broad support from submitters and witnesses to the reforms proposed by the Jobs for Families bill.

2.27 A joint submission was received from four major representative groups, including Australian Childcare Alliance, Early Childhood Australia, the Early Learning and Care Council of Australia and Goodstart Early Learning. The organisations also appeared together at the committee hearing. In his opening remarks to the committee, Mr Bernie Nott, Co-Chair of the Early Learning and Care Council of Australia, stated:

We support the broad reforms in the jobs for families package; however, the bill is not perfect. It needs minor changes to better deliver on child development objectives. But it does promise a more generous, simpler and better targeted childcare subsidy, leaving some 800,000 working families better off.17

Workforce Participation

2.28 According to the Explanatory Memorandum for the Jobs for Families bill:

The objective of the Jobs for Families Child Care Package is to improve access to quality education and child care, support parents as they balance work and family responsibilities, and enable greater engagement with the workforce.18

2.29 Increased workforce participation is therefore considered to be an important goal for many Australian families, and the Jobs for Families bill is designed to help facilitate this through increases in subsidised child care:

This package will deliver genuine reform by encouraging greater workforce participation and productivity and by meeting families' needs by providing increased subsidised child care.19

2.30 Historically, subsidised child care has assisted women to return to work following the birth of their children. The Productivity Commission noted, in its 2014 report into Early Childhood Education and Care, that:

17 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016, p. 10.

18 Family Assistance Legislation Amendment (Jobs For Families Child Care Package) Bill 2016, Explanatory Memorandum, p. 6.

19 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016, p 21.

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Almost all of Australia’s 3.8 million children aged 12 years or under have participated in some type of early childhood education and care (ECEC), and for around half of these children, formal or informal ECEC is the usual type of care.20

2.31 Further, they note that the rate of women returning, or wishing to return, to work after the birth of children is increasing:

The workforce participation rate of mothers with a child under 15 years has grown from 57 per cent to 67 per cent over the past two decades.21

2.32 Submitters to the inquiry generally praised the Jobs for Families bill's intention to increase participation in the workforce and invest in early childhood education and care. For instance, Family Day Care Australia submitted that the bill has:

…the potential to benefit the majority of families utilising ECEC, through more affordable ECEC and hence increased participation, which will lead to better learning and developmental outcomes for more of Australia’s children and support increased workforce participation.22

2.33 This view was supported at the hearing by Early Learning and Care Council of Australia (ELCCA):

There is also the mounting evidence from research in workforce participation that every increase in workforce participation will deliver to the bottom line. We feel that this reform package will contribute significantly in that sense.23

2.34 Goodstart Early Learning referred to a modelling report that it commissioned and provided to the committee as part of its submission.24

The model is for a specific package and shows around 20,000 equivalent full-time workers would join the workforce within three to 10 years, and within three years the budget would receive an extra

20 Productivity Commission, Childcare and Early Childhood Learning, Inquiry Report No. 73 - Overview, 2014, p. 3.

21 Productivity Commission, Childcare and Early Childhood Learning, Inquiry Report No. 73 - Overview, 2014, p. 5.

22 Family Day Care Australia, Submission 18, p. 4.

23 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016, p. 11.

24 Goodstart Early Learning, Submission 41.

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billion dollars in tax revenues and welfare savings as a result of those additional workers and the higher productivity as a result.25

2.35 Goodstart Early Learning also argued that in addition to boosting the current workforce by encouraging more parents to work, investing in early childhood education and care would have long-term positive effects:

Getting the policy settings right for the Early Childhood Education and Care…sector offers a significant opportunity for Australia to improve our national human capital potential well into the future with the added benefit of improving our productivity in the short term by promoting women’s workforce participation.

Ensuring all children have access to quality early learning is in Australia’s best long-term interests because investing in early learning now will increase our future productivity and make Australia’s economy more competitive in the future. 26

2.36 The Hon Christian Porter, Minister for Social Services, stated that the reforms would have a positive effect for many families:

We want families to choose their child care around their work, rather than limit their work hours to suit their child care. It is estimated that the package will encourage more than 230,000 families to increase their involvement in paid employment.27

Child care and workforce participation - submitter views

2.37 Some submitters expressed concerns that workforce participation was the focus of the legislation at the expense of a focus on early childhood education and care.

2.38 At the committee hearing, the Australian Home Childcare Association raised concerns about 'the overall focus of the package on workforce participation at the expense of early education'.28

2.39 The Community Child Care Association articulated a similar position:

We are concerned that the jobs for families package, by treating child care only as a means to support and incentivise parents' workforce participation, fails to recognise the right of all children to access high-quality early education and care. Furthermore, it fails to recognise that

25 Mr John Cherry, Goodstart Early Learning, Committee Hansard, 3 October 2016, p. 11.

26 Goodstart Early Learning, Submission 41, p. 3.

27 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 34.

28 Ms Natasha Randall, Committee Secretary, Australian Home Childcare Association, Committee Hansard, 4 October 2016, p. 1.

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investment in early education and care provides positive outcomes for children, families and the broader community.29

2.40 At the committee hearing, the Department of Education and Training told the committee that the definition of 'activity' had been broadened:

The last time we met with the committee we read out the definition based on our thinking at that point in time. One of the things we have been doing since then is talking with the sector about the inclusion of activity—parental-engagement-type activities. So, reading in a school or reading in centre based care. We have now proposed to broaden the definition of volunteering to pick that up as well.30

Activity test

2.41 The activity test contained in the Jobs for Families bill ties the number of subsidised hours of child care available to the number of hours of activity a parent undertakes. The amount of hours of child care subsidy accessible by families will be determined by an activity test which will categorise families into three tiers, or steps. These tiers have been set out in Chapter 1.

2.42 The activity test will take into account:

• paid work;

• self-employment;

• unpaid work in a family business;

• looking for work;

• volunteering; or

• studying.

31

2.43 While broadly supportive of an activities test, some submitters have raised concerns over the application of the new activity test provisions, including:

• the removal of the minimum 24 hours of subsidised care;

• the effect of the measures on:

• families with fluctuating employment hours;

• vulnerable children;

29 Ms Leanne Giardina, Executive Director, Community Child Care Association, Committee Hansard, 3 October 2016, p. 24.

30 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016 p. 29.

31 Department of Education and Training, Jobs for Families Child Care Package Overview, https://docs.education.gov.au/system/files/doc/other/a3_overview.pdf (accessed 21 September 2016).

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• Indigenous families; and

• the experience of parents in fly-in-fly-out employment (fifo). 32

2.44 A number of submitters put forward the view that a minimum number of hours of subsidised care be provided which is exempt from an activity test. Submitters had differing views on the minimum number of hours. Some submitters, for example, recommended that the current minimum number of 24 hours of subsidised child care per fortnight be accessible to parents who do not meet the activity test requirement proposed in the bill,33 while the Mitchell Institute recommended 15 hours.34

2.45 Similarly, witnesses at the committee's public hearings held different views about the minimum number of hours of subsidised childcare. For example, Mr Bernie Nott, Co-Chair of the Early Learning and Care Council of Australia, proposed that the 12 hours of child care provided under the 'base entitlement' per week be increased to 15 hours, and to increase the income threshold from $65 710 to $100 000.35

2.46 Mr Nott told the committee:

We believe all children should have access to a minimum of two days in a quality early learning program, but that would cost a lot more. Given the tight budget, 15 hours of early learning represents a reasonable, evidence-based outcome to support child development in Australia's future.36

2.47 Mr John Cherry, Advocacy Manager, Goodstart Early Learning, emphasised that this would deliver two days of 7.5 hour sessions:

I can speak on behalf of the country's largest provider. We certainly believe that the key to actually going from 12 to 15 is that it forces you to offer two sessions, two days, because 12 hours in the long day care environment is closest to one day but certainly when you move to 15 then you have to offer that over two days. As the largest childcare provider we would say that we would be certainly looking

32 See, for example: Ms Lisa Bryant, Submission 1; United Voice, Submission 2; Wynbring Jida MACS, Port Lincoln Children’s Centre and Minya Bunhii Childcare Centre, Submission 4; SNAICC, Submission 16; The Parenthood, Submission 24, p. 9.

33 For example: United Voice, Submission 2; National Welfare Rights Network, Submission 23, Carewest, Submission 11.

34 Mitchell Institute, Submission 7.

35 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016 p. 10.

36 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016 p. 10.

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at offering sessions over two days that would meet that 15-hour entitlement.37

2.48 Mr Cherry continued that:

One of the challenges with staffing—one of the reasons we think 7½ works better than six, for example—is to try to ensure that you can actually have as many people working a full-time shift as possible. Seven and a half equates roughly to a full-time day, so it is one of the things that attracted us to that. But if we did move to half-time sessions, obviously you would staff accordingly.38

2.49 The Mitchell Institute acknowledged that early education comes at a cost, and that reforms must be addressed within the context of funding and should address the needs of the most vulnerable children:

I think recognising that any moves to address the issues around the activity test will need to happen within the same broad funding envelope, we would suggest it is more of a priority to ensure that the most vulnerable children have access to high quality early education. Those are the children who will benefit from that access the most. They deliver the biggest return on investment, and shifting children's outcomes for those kids has flow-on effects throughout their whole lives and, therefore, to the system.39

2.50 Some witnesses discussed concerns about the unintended effects the new activity test could have in situations where parents have irregular work, such as shift work. Mr Nott stated:

We support a broad definition of 'activity' to underpin the new activity test. We also support flexibility for parents who work casual or irregular hours, and that must be compensated in the activity test. We propose a six-week transition period for families facing a cut in their subsidy.40

2.51 During discussion about how the activity test could affect families relying on casual or irregular work, Goodstart Early Learning provided the following evidence about the proposed estimation process which it characterised as 'generous':

Other than the fact that the estimation process will be based on the parents' high estimate of what they are going to need over the next

37 Mr John Cherry, Advocacy Manager, Goodstart Early Learning, Committee Hansard, 3 October 2016, p. 13.

38 Mr John Cherry, Advocacy Manager, Goodstart Early Learning, Committee Hansard, 3 October 2016, p. 18.

39 Dr Stacey Fox, Policy Fellow, Mitchell Institute, Committee Hansard, 3 October 2016, p. 43.

40 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016 p. 10.

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three-month period. So, if their work is irregular, obviously they have to plan their child care on the basis of their high points rather than their average. So they have acknowledged that it be based on a high point. That might alleviate it a little bit, but what we are concerned about are people who do drop in and out of the workforce completely or people who have lost their job and may be looking for another job. We are concerned that this provision would at least make it easier for those families to maintain their access to child care while they are looking for work, because it is really hard, as anybody would know, to find a childcare spot when you are offered a job. The best way to be available for work is to make sure you maintain your child care for as long as you can within the finances you have available.41

2.52 Following on from this point, Early Childhood Australia suggested that it 'is also a lot better for children to have continuous access on regular days'.42

2.53 However, the committee noted other evidence from Early Childhood Australia and Early Learning and Care Council of Australia (ELCCA) that suggested it may be difficult to predict how the proposed changes will affect families with parents whose work patterns are irregular.43

Budget based funding

2.54 Budget Based Funding (BBF) is a program providing a contribution to the operational costs of certain child care facilities, early learning and school aged care services in approved locations, such as rural and remote locations. Mobile services may also be covered by BBF.

2.55 There are approximately 300 facilities currently provided with funding through this program. The Department of Education and Training notes that:

These services are predominantly located in regional, remote and Aboriginal and Torres Strait Islander communities where the market would otherwise fail to deliver services to meet the needs of children and their families. Many are the sole providers of child care in their communities.44

41 Mr John Cherry, Advocacy Manager, Goodstart Early Learning, Committee Hansard, 3 October 2016, pp 11-12.

42 Ms Samantha Page, Chief Executive Officer, Early Childhood Australia, Committee Hansard, 3 October 2016 p. 12.

43 Ms Samantha Page, Chief Executive Officer, Early Childhood Australia, Committee Hansard, 3 October 2016, p. 16; Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016, p.16.

44 Department of Education and Training, Budget Based Funding Program, https://www.education.gov.au/budget-based-funded-programme (accessed 29 September 2016).

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2.56 Some submitters raised concerns over the removal of BBF, for reasons including:

• uncertainty over whether Aboriginal and Torres Strait Islander child care facilities could continue operating;

• the implications for this policy on the Closing the Gap targets; and

• the potential for children in rural, remote and very remote areas to be unable

to access the same care.45

2.57 The National Association of Mobile Services for Rural and Remote Families and Children (NAMS) represents mobile services funded by BBF that operate in rural, regional and remote areas of Australia. NAMS pointed out that mobile services are unique, indicating a mainstream approach may not work:

Mobile services operate in the communities in which they operate in Australia because they are not sustainable. They operate with an operational subsidy, which is the budget based funding.46

2.58 NAMS noted that mobile services do not have administrative staff and do not have the capacity to administer what would be required under a mainstream model.47 NAMS further argued that 'there needs to be a total review of children's services funding and something that really enhances rural and remote Australian and Indigenous services', further stating:

We would like to see growth in mobile services, not diminishment in mobile services, and we would like to see a dedicated funding model for rural and remote Australia.48

2.59 Secretariat of National Aboriginal and Islander Child Care (SNAICC) submitted that the transition for BBF facilities into mainstream services would have a strong impact of Aboriginal and Torres Strait Islander children and families. SNAICC submitted that although:

…positive changes are incorporated within the Jobs for Families Child Care Package, SNAICC is deeply concerned that the package will lead to significantly reduced participation in quality early

45 See, for example: Mr Liam McNicholas, Submission 10, p. 3; Early Childhood Australia, Submission 25, p. 9; National Association of Mobile Services for Rural and Remote Families and Children (NAMS), Submission 42, p. 5.

46 Ms Anne Bowler, President, National Association of Mobile Services for Rural and Remote Families and Children, Committee Hansard, 3 October 2016, p. 2.

47 Ms Anne Bowler, President, National Association of Mobile Services for Rural and Remote Families and Children, Committee Hansard, 3 October 2016, p. 2.

48 Ms Anne Bowler, President, National Association of Mobile Services for Rural and Remote Families and Children, Committee Hansard, 3 October 2016, p. 2.

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learning of Aboriginal and Torres Strait Islander children experiencing vulnerability.49

2.60 During the committee hearing, the Department of Education and Training addressed a number of concerns raised about the removal of BBF. In relation to mobile services, the department clarified:

We have never said that mobiles would not be funded. Mobiles are a very complex group of BBFs. They get funding from a range of different sources. Often they get a lot of state and territory government funding as well. We want to do this analysis and identify how that can be best funded going forward.

I know there are some concerns around the travel and how that will be subsidised, and that there are some concerns around the time they spend setting up, because the subsidy will just go to the hours that children are there. But there is flexibility in the CCCF—the grant process—to recognise the additional costs of travelling and of setting up, and of all the time that is non-contact time for the educator with the child, if that makes sense.50

2.61 In relation to questions about transitional plans for BBF services, the Department of Education and Training provided the following evidence:

…It was really quite disappointing to read some of the statements made yesterday, because there have been many reviews, including a 2014 review of BBF and an ANAO report, which said that there are many issues with this program—that it is flawed and that there are equity issues.

I thought they were talking about the 2014 review yesterday, based on feedback I got from people who attended. But this is a long journey. We have some BBF services that get as little as $100 per child per year and some that get tens of thousands of dollars per child per year. The program has been capped and closed for 15 years. This is about making some changes. It is not about taking the Indigenous 'culturalness' out of these programs. It is about a different funding source—not a closing of the programs or the services. I cannot say that often enough.51

49 SNAICC, Submission 16, p. 3.

50 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016, p. 29.

51 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016 p. 28.

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2.62 The Department of Education and Training also provided evidence that changes have been made to the package as a result of feedback received during consultation:

It is probably fair to say that our thinking is evolving. When we announced the Community Child Care Fund we announced it as a competitive grants process. I think that more recently, based on some of the consultation, we accepted there is a need to have a

discretionary bucket within the CCCF that is not based on competition. We have been talking to some in the sector about it.52

Only 70 per cent of kids who go to BBFs are Indigenous, but it is to help the BBFs in their transition. I guess that the other kind of misconception that seems to be out there is that the CCCF is just a one-off. It is not; it is part of the budget going forward with the whole package. So some people might transition in two years and some people might not transition for 10 years. There is flexibility in the CCCF, based on these individual plans I talked to the senator about previously—to structure that in a way that best meets the needs of the individual BBFs.

That is what we are about, and those plans will help us define how the subsidy and the CCCF funding come together.53

2.63 The committee notes concerns raised by submitters and witnesses that the removal of BBF will mean that some services become unviable. However, the committee also notes evidence provided by the Department of Education and Training that BBF is a flawed system that results in inequity, and it supports efforts to address these issues to ensure that funding is provided appropriately to all services.

2.64 The committee further notes that the Department of Education and Training is currently undertaking a comprehensive assessment of the capacity of BBF services to transition to the new package, as well as a transition support process.54 This involves extensive consultation with industry representatives.

Committee view

2.65 The committee heard from some submitters that the bill places a strong focus on workforce participation, rather than on early childhood education and care. While the bill does place some focus on workforce participation and the activities of parents

52 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016 p. 29.

53 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016 p. 29.

54 Ms Emma Sydenham, Deputy CEO, SNAICC—National Voice for Our Children, Committee Hansard, 3 October 2016, p 5

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who receive subsidised child care, the committee considers that this is entirely appropriate and in line with community expectation. Further, that the reforms can achieve quality early childhood education and care as well as provide opportunities for parents to achieve greater participation in the workforce. However, the approach must be balanced.

2.66 The committee notes the broad support by many submitters and witnesses for an increase in workforce participation, however, it also notes the view that this should not come at the expense of a focus on children and their needs. The committee is not persuaded that a focus on workforce participation has come at the expense of the needs of children, and is of the view that the bill can achieve both.

2.67 The committee notes that there is no outright objection to an activity test from submitters or witnesses, but rather that there are different views about how the activity test should be structured.

2.68 The committee considers that the activity test is both balanced and in line with community expectation that parents with children in subsidised child care are engaged in paid or unpaid work or looking for work or are studying.

2.69 The committee also notes that a number of witnesses pointed out that the Department of Education and Training has conducted extensive consultation about the provisions of the Jobs for Families package.55 This demonstrates the Australian Government's strong commitment to industry input so that the reforms can best meet community needs.

2.70 The committee is of the view that the changes to the Jobs for Families bill will result in a fairer system, where low income families receive more help and subsidies to high income families fall.

Social Services bill

2.71 The Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 (Social Services bill) seeks to reform FTB A and at-home under-18 year old youth fortnightly rates.

2.72 The savings contained in the Social Services bill will provide funding for the Jobs for Families Child Care Package. The Hon Christian Porter MP, Minister for Social Services, summarised the intention of the Social Services bill:

55 For example: Mr Scott Rollason, General Manager, Family Day Care Australia, Committee Hansard, 3 October 2016, p. 30; Ms Helen Mary Gibbons, Assistant National Secretary, United Voice, Committee Hansard, 3 October 2016, p. 35; Ms Geraldine Atkinson, Deputy Chairperson, SNAICC—National Voice for Our Children, Committee Hansard, 3 October 2016, p. 7; Ms Anne Bowler, President, National Association of Mobile Services for Rural and Remote Families and Children, Committee Hansard, 3 October, p. 7; Mr Paul Mondo, Secretary, Australian Childcare Alliance, Committee Hansard, 3 October 2016, p. 18.

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While the family payments structural reforms in this bill will pay for the Jobs for Families Child Care Package, they will also simplify the family tax benefit system and provide more money on a fortnightly basis to those families who need it the most.56

2.73 As noted in Chapter 1, the Social Services bill's key measures are the introduction of a new rate structure for FTB B, and an increase in the fortnightly rate of FTB A. The Social Services bill also seeks to phase out FTB A and FTB B supplement payments.

2.74 The Minister for Social Services set out that increased FTB A payment rates would help lower income families access higher fortnightly payments:

The government, under the terms of this bill, would be increasing the fortnightly payment rates of family tax benefit part A by $10.08 for each child in a family aged up to 19. This is worth an extra $6,000 over the lifetime of a child. What this means is that around 1.2 million lower income families (including income support families) who receive family tax benefit part A for around 2.2 million children-will now receive higher fortnightly payments from 1 July 2018. The increase in their fortnightly payments will help families better manage their day-to-day and week-to-week budgets by providing them with

timely, regularised assistance when they need it the most.

We will also provide an additional $7.48 per fortnight for under 18 year old youth allowance recipients who are living at home, bringing the payments to the same standard rate as a family tax benefit part A child aged between 13 and 19.57

2.75 The Minister for Social Services further set out the need for this reform:

While we understand families will not necessarily be enthusiastic about losing supplements, replacing a poorly targeted end-of-year payment with increased fortnightly payments and a simpler, fairer and more accessible childcare system will, in the long run, provide increased support for Australian families to meet day-to-day living expenses and will increase workforce participation.58

56 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 29.

57 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 29.

58 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 30.

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Previous consideration by the Community Affairs Committee

2.76 The Senate Standing Community Affairs Legislation Committee (Community Affairs committee) has previously inquired into an earlier version of the Social Services bill, and tabled its report on 1 March 2016.59

2.77 The committee notes that the Community Affairs Committee addressed a range of issues identified by submitters to that committee's inquiry into the bill.

2.78 The iteration of the Social Services bill currently before the committee contains a minor change relating to the commencement date for Schedule 2 of the bill, which has been changed from 1 July 2016 to 1 July 2017.

2.79 The Community Affairs Committee reported that:

Most submitters and witnesses supported reforms to the FTB payments system to ensure it is simpler, fairer and better targeted, and supported the rate increases for certain cohorts.60

2.80 However, the Community Affairs Committee reported that some submitters and witnesses had 'generally opposed the proposed reduced payment rate for certain families', expressing concerns about the following issues:

• the potential impact on low income and vulnerable families, such as single parents and families of children with disability;

• the costs of raising children increase with children's age, while the measures propose a corresponding reduction in payments;

• the loss of supplements;

• the appropriate encouragement of greater workforce participation; and

• concerns that the IT and payroll system upgrades may not address end of year

FTB debts.61

2.81 The Community Affairs Committee noted that the iteration of the bill considered in their inquiry was itself a modified version of an earlier iteration. The Community Affairs Committee acknowledged the:

…significant changes to the proposed measures…made by the Government in response to concerns raised by submitters and witnesses during the committee's inquiry into Bill No. 1.62

59 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016.

60 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 7.

61 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 8.

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2.82 The Community Affairs Committee's view was that the changes incorporated into the second iteration of the bill 'appropriately address concerns regarding the impact on certain vulnerable families'.63

Key issues - Social Services bill

2.83 During this inquiry, the key issue raised by submitters and witnesses was the relationship between the two bills being considered by the committee, with submitters and witnesses expressing concern at the 'coupling' of the two bills.

2.84 The potential impact of the bill on families, particularly families with lower incomes, was also raised by submitters.

Funding source - coupling of the two bills

2.85 Although submitters and witnesses generally acknowledged that funding for the Jobs for Families package would require a funding source, many raised concerns over drawing on savings made from the provisions of the Social Services bill.

2.86 For example, The Parenthood indicated support for the reforms to the jobs for families package, however, suggested that it is unnecessary to fund these reforms with cuts to the FTB:

I am keen to stress to you today that, whilst we are very keen to see the quick progress of an amended version of this jobs for families package of bills, we reject the notion that $4.8 billion worth of cuts to the family tax benefits system are required to pay for it—and we urge committee members to do the same.64

2.87 Catholic Social Services Australia also suggested that other avenues may be available:

It is our view that there are other policy options available to the Government to fund the Child Care Package and which would not result in the reduction of payments to the most vulnerable families and individuals in our community.65

2.88 Submitters told the committee that the coupling of the bills was not necessary in order to fund the Jobs for Families package. Mr Bernie Nott, Co-Chair of the Early Learning and Care Council of Australia told the committee that the reforms need not be contingent on the savings measures contained in the Social Services bill:

62 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 7.

63 Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 [Provisions], April 2016, p. 22.

64 Ms Jo Briskey, Executive Director, The Parenthood, Committee Hansard, 4 October 2016, p. 16.

65 Catholic Social Services Australia, Submission 28, p. 1.

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Early learning and care provides vital child development for the nation's young citizens and allows families to do the work and study which drive Australia's prosperity. Given its vital role, we call for the decoupling of funding for the package from the proposed cuts to family tax benefits. We believe the reforms stand on their own merits and have already been paid for several times.66

Impact on families

2.89 The National Welfare Rights Network (NWRN) submitted the view that the 'burden of budget repair' was being placed poor and vulnerable members of the community.67 In a submission to the Community Affairs Committee's inquiry into the Social Services bill, NWRN submitted that the bill:

…seeks to draw savings from the family payments system in a way that will have a major impact on the adequacy of payments to low income families and their children, while failing to progress meaningful reform of the well recognised issues with the family payments system.68

2.90 Early Childhood Australia told the committee that they held concerns over the impact the Social Services bill may have on lower income families:

The sector generally has supported both a reduction of welfare payments to middle- and high-income families as well as more generous payments through paid parental leave, because of the crisis of affordability in early learning. We have supported that over a number of years and have supported previous cuts. But we are getting to the point now where the cuts to family tax benefits that are being proposed to lower income families no longer have the support of many organisations that work in the sector and also work with disadvantaged vulnerable families.69

2.91 While concerns were raised during the hearings, witnesses were unable to suggest viable alternatives to fully fund the package.

2.92 The Department noted:

I would just make the point that in special appropriation there is no such thing as savings. When it goes up it also goes down. The government is required to foot the bill based on a family's eligibility. So we do not get to count them as savings. The finance process does not allow us to count them

66 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016, p. 10.

67 National Welfare Rights Network, Submission 23, p. 5.

68 National Welfare Rights Network, Submission 23, p. 9.

69 Ms Samantha Page, Chief Executive Officer, Early Childhood Australia, Committee Hansard, 3 October 2016, p. 19.

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as savings and they cannot be used to offset other spends. I am just reading to you what is in the budget rules from the Department of Finance.70

Australian Government view

2.93 The Hon Christian Porter MP, Minister for Social Services, set out the Australian Government's commitment to early childhood education and care in the second reading speech for the Social Services bill:

The jobs for families childcare packages funded by this bill introduce major reforms that will provide greater choice for almost one million families by delivering a simpler, more affordable, more flexible and more accessible child care system.71

2.94 The Minister continued to outline the Australian Government's commitment:

The government is fully committed to the jobs for families package, however more than $3 billion in additional funding must be paid for, and the measures in this bill are the government's way of making provision for that payment. The refusal of members opposite to support the passage of the measures in this bill, if that were to pass, in the previous parliament left the government with no choice but to defer the implementation of the main measures of the jobs for families package from July 2017 to July 2018. However, if the savings needed to fund the child care package are passed by parliament-that is, the savings contained in this bill-then the government will implement the jobs for families package as soon as possible.

The government's new childcare package and reforms to the family payments system supports parents as they balance work and family responsibilities, while protecting those most vulnerable, and continuing to ensure a high-quality learning experience in our childcare centres.72

Committee view

2.95 The committee acknowledges the work of the Community Affairs Committee on the Social Services bill, and notes that the provisions of the Social Services bill currently under consideration are identical to those contained in the bill previously considered.

2.96 The committee notes that the bill considered by the Community Affairs Committee contained certain modified measures that took into account previous concerns raised by stakeholders. These modifications were found by the Community Affairs Committee to appropriately address concerns previously raised.

70 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016 p. 25.

71 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 29.

72 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 29.

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2.97 The committee is of the view that multiple committee inquiries into this bill have established the key issues held by stakeholders, and the committee acknowledges the time and effort expended by members of the ECEC sector in contributing to these inquiries through submissions and appearances at public hearings.

2.98 The committee heard assertions made by submitters that the proposed reforms in the Jobs for Families Child Care Package are affordable without making cuts to related programs.

2.99 While the committee notes submitters' concerns over the 'coupling' of the measures in the two bills currently under consideration, the committee considers that using the savings made from restructuring and reforming the Family Tax Benefit payments to reform the child care system is justified. The committee notes that no viable proposals to fully fund the package were put forward during the inquiry.

2.100 The measures contained in the Social Services bill will provide greater assistance on a fortnightly basis to lower income families who need it, and will create more accessible and flexible child care system for Australian families.

Recommendation 1

2.101 The committee recommends that both bills be passed.

Senator Bridget McKenzie

Chair

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Labor Senators’ Dissenting Report Jobs for Families Bill 1.1 Labor supports additional investment in early education and care. However, Labor Senators remain concerned that despite proposed additional expenditure of approximately $3 billion over the forward estimates, many families and children will be left worse off. Analysis undertaken by the ANU Centre for Social Research and Methods reveals that around one in three families will be worse off as a result of the Bill, and that almost half of all families will be worse off, or no better off.1

1.2 Labor Senators note that a very significant proportion of submissions raised concerns in relation to:

• the complexity of the activity test, the uncertainty families will face in getting and maintaining stable access to early education and care, and the discouraging impact this will likely have on some parents’ workforce participation;

• the impact of the Bill on children’s access to early education, particularly in

relation to vulnerable children; and

• the negative impact the reforms will have on Budget Base Funded Indigenous

and Mobile services.

1.3 The issues raised in the course of the previous inquiry into this Bill during the last Parliament remain relevant, as does the dissenting report issued by Labor Senators at that time.

1.4 Labor Senators are concerned that many questions raised during the previous hearing remain unanswered. This includes identifying the extent to which families who will be worse off will be impacted by the changes.

1.5 The process of the inquiry, including timing, has hampered the full analysis of the impacts of the Bill. It has also limited the analysis and consideration of options to improve the identified shortcomings of the Bill.

Impact of the Government’s decision to delay investment in early education 1.6 The Government’s decision to delay additional support for families until mid-2018 will have a significant impact on families. Many submitters made the case for an interim increase in assistance - in line with the commitment Labor took to the last election.

1.7 The Parenthood’s submission noted:

1 ANU Centre for Social Research and Methods, Distributional Modelling of Proposed Childcare Reforms in Australia, March 2016, p. 7.

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...it’s been 656 days now since families were first promised the Coalition Government would make childcare more affordable and accessible - we simply cannot wait any longer.2

1.8 Goodstart Early Learning also noted:

… we recommend that interim relief be provided to families from July 1 2017 by increasing the cap on Child Care Rebate and the rate of Child Care Benefit.3

1.9 Further, the Early Learning and Care Council stated:

…it is recommended that families receive additional affordability support from July 2017 by increasing the rate of the current Child Care Benefit and increase the annual Child Care Rebate cap.4

Impact of the activity test 1.10 Overwhelming concerns about the impact of the activity test were again put forward to the committee. Key concerns include:

• Families facing an access cliff if their income rises above $65,000 - potentially losing access to subsidised care entirely

• Halving in hours of access for disadvantaged children from 24 per week under the current system, to 12

• Tight fortnight-to-fortnight eligibility criteria that will make it difficult for

parents who work part-time or casual hours to get back into the workforce

1.11 Ms Sam Page, Chief Executive Officer, Early Childhood Australia noted:

There are a lot of women, particularly, working in irregular patterns of work. If you… get your roster every fortnight, your hours can drop quite substantially at times… the way the legislation is proposed at the moment your eligibility will change immediately in the next fortnight… it is going to catch a lot of people when their hours are changing fortnight to fortnight.5

1.12 In line with other witnesses, Ms Page suggested longer transition or averaging periods to help parents maintain access to the early education and care they need to be able to work:

…allowing people a six-week grace period means that they can sustain that through variations in the roster, fortnight to fortnight.6

2 The Parenthood, Submission 24, p. 4 3 Goodstart Early learning, Submission 41, p. 4. 4 Early Learning and Care Council, Submission 45. 5 Ms Sam Page, Chief Executive Officer, Early Childhood Australia, Committee Hansard,

3 October 2016, p.17. 6 Ms Sam Page, Chief Executive Officer, Early Childhood Australia, Committee Hansard, 3 October 2016, p.17.

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1.13 Ms Giardina, Executive Director of the Community Child Care Association told the committee:

The proposed activity tests will take away universal access to subsidised education and care. Currently, all children can access two full days per week, up to 24 hours, regardless of whether their family meets an activity test. These changes will result in some children being excluded from early learning environments before school and children in vulnerable circumstances having their access halved. We believe that this will take Australia backwards in the early and middle childhood policy arena.7

1.14 Ms Giardina further pointed out that community services were likely to struggle to offer shorter days without increasing the hourly cost to families:

It has been suggested that with the proposed changes children can still attend for two days, with centres adjusting bookings for a six-hour session instead of whole days. This suggestion fails to recognise that services will still have to cover the same operational costs and will need to continue to charge a full-day rate or introduce a loaded sessional rate to remain viable. It also introduces additional layers of administrative complexity for services and the need to police actual hours of child attendance.8

1.15 Labor Senators have also identified concerns that not all centres would offer short days under the proposed 12 hour Safety Net entitlement, potentially leaving disadvantaged children without access to early education. This is a particular risk in areas where centres are able to fill all their available places with children whose parents are paying for 10-12 hour days. Short sessions also have the potential to act as a barrier to workforce participation if they are inflexible and a parent cannot be guaranteed immediate access to an all-day place if they secure work.

1.16 A number of solutions were put forward to the committee to address the problems that have been consistently identified with the activity test. These include:

• increasing the family income required for access to early education without meeting the activity test from $65 000 to $100 000;9

• increasing the hours a child can access early education under the proposed Safety Net to 15 hours;10

• maintaining current levels of access of 24 hours per week subsidised early education for all children;11

7 Ms Leanne Giardina, Executive Director of the Community Child Care Association, Committee Hansard, 3 October 2016, p. 24. 8 Ms Leanne Giardina, Executive Director of the Community Child Care Association, Committee Hansard, 3 October 2016, p. 24. 9 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard,

p. 10.

10 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, p. 10.

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• tapering support for families who do not meet the activity test when their

income exceeds $65 000, so they don’t abruptly lose access to early education;12 and

• averaging and transition provisions for parents working part time or casual

hours - as noted above.

1.17 Labor Senators remain concerned that - despite the implementation delay - the Government has not sought to address any of the concerns that have been raised by early childhood experts, parents and the sector in relation to the proposed activity test.

Limited information about the implementation of the proposed changes 1.18 The Committee heard evidence that 70 determinations and rules - crucial to the operation of the proposed changes - have not yet been made public for consideration.13 These determinations and rules will govern central elements of the system including: hardship provisions, eligibility for the Child Care Subsidy, access to services for children at risk, recognised activities and transition rules.14

1.19 In addition, clear information about the operation of the Community Child Care Fund has not been published, creating significant uncertainty for many services and the children and families that rely on them.

1.20 Labor Senators are concerned that despite major proposed changes to the activity test and service operating hours, no provision has been made to pilot and evaluate changes before they are applied nationally. There will be no opportunity to assess the impacts of proposed changes on viability, workforce participation or children’s learning.

1.21 Labor Senators are very concerned that the Parliament is being asked to consider a Bill - for the second time - without access to key information to determine how it will impact Australian families.

Impact on Budget Based Funded Indigenous and Mobile services 1.22 The committee heard extensive evidence about the impact of the proposed changes on Budget Based Funded Indigenous and Mobile services. The Government has been repeatedly informed that many Budget Based Funded services will not be viable under a mainstream model, and that without them, many communities will lose access to early education.

1.23 Ms Bowler, President of the National Association of Mobile Services for Rural and Remote Families and Children, told the committee:

11 Ms Erin Gillen, Acting Director, Federation of Ethnic Communities Councils of Australia, Committee Hansard, 3 October 2016, p. 37. 12 Ms Helen Gibbons, Assistant National Secretary, United Voice, Committee Hansard, p. 33. 13 Ms Jackie Wilson, Deputy Secretary, Department of Education and Training, Committee

Hansard, p. 22. 14 Department of Education and Training, Answer to Question on Notice 1.

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We estimate that under the Budget Based Funded Program, with the cessation of this funding model in June 2018, 90 per cent of mobile services that are currently funded will not be able to continue to operate.15

1.24 Ms Bowler also informed the Committee:

In terms of geographic isolation and geographic situations for families in Australia, there are many, many, many rural communities in rural and remote areas in Australia that do not receive mainstream-type services, because of viability. We see that the closing of the Budget Based Funded model will ensure that mobile services that currently operate will no longer be able to operate.16

1.25 Ms Atkinson, Deputy Chairperson, SNAICC, told the committee:

Bubup Wilam have given us proof that our services will not survive; they said they will close their doors at the end of the year. What is going to happen to our services? In 2018 they will have to close their doors. We will have to close our doors in June 2018. Nothing that has been said about what is happening with transitioning over to the Jobs and Families package makes it any clearer that we are going to be any better off—and I am talking about our budget based funded programs, our MACCS, as well as the other childcare… From the very beginning there has been uncertainty because of all the complexity of our services. With the change, we knew we were not going to get a system that would be able to sustain our models.17

1.26 Labor Senators are concerned about the rationale for the transition of Budget Based Funded services to a mainstream model, given they typically operate in areas that would be, by definition, unviable under a fee and subsidy model.

1.27 The closure or reduction in access to Budget Based Funded services will overwhelmingly impact vulnerable children and communities, despite children in these communities having the most to gain from early education.

Social Services Bill 1.28 Labor Senators reject the recommendation contained in the majority report that the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 (Social Services bill) should be supported.

1.29 This Bill has been subject to an inquiry of the Senate Community Affairs Legislation Committee of the last parliament, which reported on 1 March 2016.18

15

16 Ms Anne Bowler, President of the National Association of Mobile Services for Rural and Remote Families and Children, Committee Hansard, 3 October 2016, p. 3. 17 Ms Geraldine Atkinson, Deputy Chairperson, SNAICC, Committee Hansard, 3 October 2016, p. 4. 18 Senate Community Affairs Legislation Committee, Social Services Legislation Amendment

(Family Payments Structural Reform and Participation Measures) Bill (No.2) 2015 [Provisions], March 2016.

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1.30 Submissions to that inquiry presented strong evidence that this Bill will have significant impacts on the incomes of low and middle income families.

1.31 Submissions to this inquiry have reiterated that evidence, and the cuts have been overwhelmingly opposed by stakeholders.

1.32 If this Bill is passed, millions of families - and their children - will be negatively impacted.

1.33 Low income and vulnerable families will be hurt the most, including single parents with teenage children at the critical point of their final years of schooling.

1.34 Although these impacts have been widely publicised and considered already, Labor Senators will reiterate the impacts in this dissenting report and note the disappointment that these impacts and the concerns of stakeholders have been ignored by this committee.

1.35 Because of the abolition of FTB Part A supplements, 1.2 million families will lose $726 per child every year. Of these, 600 000 families are on combined family incomes of less than $40 000 a year.

1.36 Because of cuts to FTB Part B Supplements, 1.3 million families will lose $354 per family per year. These families are all on a single income. 130,000 single parent families will lose FTB Part B when their youngest child is 13. Of these, around 80,000 are on incomes of less than $40 000 a year. Around 3 million children will be adversely affected by these cuts.

1.37 Modelling from the ANU, presented and tabled by The Parenthood, shows that many families will be worse off as a result of the combined package of child care changes and these cuts.19

1.38 For a family with one child in early education and one in school, this new analysis shows that once the Government’s child care changes commence in mid-2018:

• A single parent family with an income of $40 000 who uses early education

two days a week will be up to $1 533 worse off per year.

• A single parent with an income of $60 000 who uses early education five days

a week will be up to $1 347 worse off per year.

• A couple with an income of $40,000 who use early education two days a

week will be up to $1 533 worse off per year.

• A couple with an income of $70 000 who do not meet the new activity test because one parent is trying to get back into the workforce will be up to $6 147 worse off per year.

19 The Parenthood, Media Release, 4 October 2016, https://d3n8a8pro7vhmx.cloudfront.net/theparenthood/pages/20/attachments/original/14755254 26/MEDIA_RELEASE_-_Struggling_families_slugged_to_subsidise_childcare_041016.pdf?1475525426

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Linking of the Jobs for Families Bill and the Social Services Bill

1.39 The link between the Jobs for Families Bill and the Social Services Bill has been artificially devised for political purposes and is not supported by Labor. Investment in early education should not be held hostage to Family Tax Benefit cuts. This is robbing Peter to pay Paul: taking money from low income families to give to other families through child care assistance.

1.40 As outlined in the majority report, stakeholders overwhelmingly oppose the linking of the bills.

1.41 The Australian Childcare Alliance recommended in relation to increased investment under the Jobs for Families Bill:

That the implementation of this much needed support is not delayed by any other legislation20.

1.42 The Early Learning and Care Council recommended:

Decouple funding for the Jobs for Families Package from cuts to Family Tax Benefit payments. We believe that the Bill is an important piece of reform that stands on its own merits.21

1.43 The Parenthood said:

The link to Family Tax Benefits looks more like a political link rather than a budgetary one. It is a political strategy which will adversely impact the same families the government argues its new childcare reforms will especially benefit.22

1.44 Goodstart submitted:

Goodstart does not agree with the Government linking funding for the Jobs for Families Package with further cuts to Family Tax Benefit payments. Since the Package was unveiled in the May 2015 Budget, the Government has won support for cuts to Family Payments of close to $1.2 billion a year, which is almost the full year cost of the Child Care Subsidy. These cuts were in addition to $600 million p.a. of cuts to Family Payments approved by the Parliament in 2014-15, and childcare compliance measures worth a further $500-700 million p.a. We also note that children from single income families appear to be disproportionately disadvantaged and are set to be worse off both under both the proposed Family Tax Benefit cuts and the changes to the Child Care Subsidy. As families are struggling with cost of living pressures across the board, we strongly urge the Government and the Parliament to proceed with the new CCS without any further cuts to family payments.

20 Australian Childcare Alliance, Submission 20, p. 9. 21 Australian Early Learning and Care Council, Submission 45. 22 The Parenthood, Submission 24, p. 6.

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When the then Prime Minister announced the Government intended to start developing a Child Care Package on 7 December 2014, he stated that the budget savings from not proceeding with the Paid Parental Leave scheme would fund it. This redirection of funding, around $2 billion a year, would have more than paid for the package.

1.45 Information provided to the committee by the Department of Education and Training related only to the impact of the proposed early education and care changes and did not take into account the proposed Family Tax Benefit cuts. This is despite the Government’s insistence that the Bills are linked.

1.46 Modelling by the ANU and submitted to the Committee by The Parenthood reinforced earlier distributional analysis by the ANU in relation to the child care changes. Taken together, the Bills will leave a very significant proportion of families worse off, or no better off. They will have an unacceptable impact on low income families, and vulnerable and disadvantaged children.

1.47 In addition, Labor Senators are very concerned that some of the families worst affected by the proposed Family Tax Benefit cuts are those with teenage children who will not benefit from child care fee assistance.

Conclusion 1.48 Labor Senators are concerned that too many families and children will be left worse off, despite around $3 billion in additional expenditure under the Jobs for

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Families Bill. Labor Senators call on the Government to put forward amendments to their proposed child care changes in order to improve the balance between children’s early education and parent’s workforce participation.

1.49 The Family Tax Benefit cuts proposed in the Social Services Bill are harsh. They will hurt low income and vulnerable families. Like the measures originally put forward in the 2014 Budget they are fundamentally unfair. The Government should take them out of the Parliament and out of the Budget.

1.50 Labor Senators also oppose the idea that low income families should be held to ransom to pay for early education and care changes.

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Recommendations

In relation to the Social Services Bill:

1. Labor Senators recommend that the Senate reject the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016.

In relation to the Jobs for Families Bill:

1. Key ministerial determinations and rules - which will set many of the parameters affecting the day to day use of the system by families - should be published before the Parliament considers the Bill. This includes those relating to children at risk, financial hardship and the activity test.

2. The transition process for Budget Based Funded Indigenous and Mobile services should be stopped and direct ongoing support should be guaranteed.

3. The Government should consider amendments to their child care changes to:

• Ensure vulnerable and disadvantaged children are provided with

adequate access to early education and care;

• Ensure the activity test - and associated determinations and rules - don’t introduce unnecessary barriers for parents trying to get back into the workforce;

• Continue providing children with access to two days early education

a week, and trial any changes to the activity test before their introduction; and

• Provide an immediate increase in assistance for families; in

recognition of the cost pressures families will face because of the Government’s decision to delay additional assistance until mid-2018.

4. Funding for early education should not be conditional on Family Tax Benefit cuts which will hurt low and middle income families.

Senator the Hon Gavin Marshall Senator the Hon Jacinta Collins Australian Labor Party Australian Labor Party

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Dissenting Report by the Australian Greens Jobs for Families Bill 1.1 The Senate Inquiry into the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 (the Jobs for Families Bill) and the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 (the Social Services Bill) received 46 submissions from peak bodies and experts in childcare and social security as well as members of the public. A substantial number of submissions raised concerns regarding these Bills.

1.2 Despite the evidence provided and concerns raised by these experts, the Chair's report has recommended that these Bills be passed.

Jobs for Families Bill 1.3 The Australian Greens support the Jobs for Families Bill's purported aim to 'improve access to the affordability of early childhood education and care' and welcome the committee's recognition that access to high-quality early childhood education and care is of substantial developmental benefit to children.

1.4 The Australian Greens remain concerned, however, that the measures included in this Bill as currently drafted will not achieve these aims, and will in fact result in a number of families being unable to access childcare or receive reduced access to subsidised care.

1.5 The Australian Greens are concerned by the imposition of a minimum requirement of 8 hours of activity per fortnight in order to receive subsidised child care and note that a number of vulnerable families may not be able to meet this minimum requirement. The Greens are therefore concerned that a number of lower socio-economic and middle-income families will be ineligible for adequate levels subsidised childcare under this scheme.

1.6 The Australian Greens also recognise concerns that the proposed activity test inadvertently creates barriers to work for families where at least one parent does not have secure, regular employment and believe amendments are required to ensure the system is fair for parents engaged in irregular work and does not leave them with inadequate child care subsidy to meet their work commitments, or higher childcare costs. Without amendment, this activity test will present a barrier for new mothers trying to re-enter the workforce through casual and irregular employment. Without a minimum amount of childcare guaranteed, many parents will find it near impossible to take on extra hours of work.

1.7 The Australian Greens also remain concerned that the Bill may have a detrimental impact on children from remote and rural parts of Australia, and in particular Aboriginal and Torres Strait Islander children. The Australian Greens refer to concerns raised by the Secretariat of National Aboriginal and Islander Child Care (SNAICC) in their submission and in their evidence provided at the public hearing, in particular:

• The proposed closure of the Budget Based Funding Program;

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• The risk posed to the loss or reduction to the Aboriginal and Torres Strait

Islander sector; and

• The increased cost of service delivery to remote areas, in particular for Indigenous communities.

1.8 The Australian Greens are further concerned that the introduction of the activity test will reduce access to subsidised childcare for vulnerable children and is counter to the acknowledged need to increase participation in early childhood services for Aboriginal and Torres Strait Islander children.

Conclusion 1.9 The Australian Greens are concerned that the Chair does not appear to have appropriately responded to and addressed the concerns raised by the vast majority of experts regarding this Bill. There is a real risk that the impacts of a tougher activity test will further disadvantage families with irregular work hours and new mothers re-entering the workforce. Some of the most vulnerable children in our nation, particularly those from Aboriginal and Torres Strait Islander communities, will lose out if these measures are introduced un-amended.

Recommendations - Jobs for Families Bill

1.10 Recommendation 1: The Australian Greens recommend that the activity test be amended to include an additional amount of base level subsidised childcare for all families that fall within the 0-8 hours of activity to a minimum of two full days care.

1.11 Recommendation 2: The Australian Greens recommend that an adequately flexible reporting grace period be adopted that allows all casual workers, part-time workers with irregular hours or people who lose their jobs to estimate their expected activity and childcare needs, so as not to be disadvantaged by the activity test.

1.12 Recommendation 3: The Australian Greens recommend that unless additional funding for services which meets the needs of vulnerable children in remote and regional Australia and Aboriginal and Torres Strait Islander children is provided, that the current Budget Based Funding levels remain in place.

1.13 Recommendation 4: The Australian Greens recommend an amendment to include mechanisms for increasing childcare places where vacancy rates are critically low, creating barriers to parents being able to find affordable care.

1.14 Recommendation 5: The Australian Greens recommend that providers of In Home Care be explicitly referenced in the Bill as being eligible for Child Care Subsidy payments.

Senator Sarah Hanson-Young Australian Greens

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Dissenting Report by the Australian Greens Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 Introduction 1.1 The Australian Greens do not support the recommendation of the majority report that the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 (the Bill) be passed.

1.2 The Bill contains measures that the Australian Greens oppose including cuts to FTB-B for single parents with children aged 13 or over (with some exemptions for specific categories), and the removal of the FTB-A and FTB-B supplements.

1.3 The Australian Greens briefly outlined our concerns regarding the measures contained in the Bill in our dissenting report to the Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill (No. 2) 2015. We expressed our fundamental concerns in our dissenting report on the previous bill, Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill 2015. The concerns we outlined in those dissenting reports still stand.

1.4 The Government's stated purpose for the measures in this Bill are to make provision for the additional $3 billion needed for the measures contained in the Jobs for Families Child Care Package.1 As the Australian Council of Social Service (ACOSS) stated in its submission:

We reject the linking of family payment cuts to increased investment in child care and are most concerned that the Committee is considering these bills in conjunction. Any additional investment in early childhood education and care should be drawn from general revenue, not from low income families.2

1.5 The Australian Greens agree that the Government should not be targeting low income families to fund the Jobs for Families Child Care Package. This is particularly the case as the measures in the Jobs for Families Package will adversely impact on many low income families. The Government's continued harsh approach towards income support recipients is unfair and unnecessary.

Cuts to FTB-B 1.6 The Bill removes FTB-B for single parents (under the age of 60) from the start of the year their youngest child turns 17. It also significantly reduces FTB-B for single parents (under the age of 60) with a youngest child aged 13-16 to $1000.10 annually. As Anglicare Australia stated in its submission:

1 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, p. 29. 2 Australian Council of Social Service (ACOSS), Submission 29, p. 2.

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We are particularly concerned about the detrimental impact of the cut of Family Tax Benefit part B (FTB B) on single low-income families with children over 13. The measure is said to encourage the parent back into the job market as their child enters secondary school, in order to increase family income, and so boost workforce participation levels and the national economy. Anglicare Australia understands this intention, but contends the reduction of payments from families with teenagers, together with the higher costs associated with raising older children, is likely make low income families even more financially vulnerable rather than less. When this 'encouragement' to find extra work fails, affected families will find it harder to fund important opportunities for their children's education and development, with flow on impacts on their life choices, and the risk of further perpetuating the cycle of poverty and disadvantage.3

1.7 The cuts to FTB-B in the Bill will hit single parents of teenagers particularly hard. The Australian Greens do not support this measure.

Removal of the FTB-A and FTB-B supplements 1.8 One of the harshest cuts in the Bill is the removing of the end of year supplements for FTB-A and FTB-B. The Government's rationale that updated computer systems will enable end of year supplements to be phased out is flawed.4 As the National Welfare Rights Network stated in its submission:

… simply abolishing the supplements, without a corresponding and equivalent increase in base rates of payment, is no more than a reduction in payments in a system where levels of support for many families are inadequate (especially following the transition of single parents with children from Parenting Payment Single to Newstart Allowance).5

1.9 The Australian Greens do not support this unfair measure.

Other Measures 1.10 There are a number of other measures contained in the Bill, namely an increase to FTB-A of $10.08 per fortnight for each child and an increase to Youth Allowance (and a number of additional income support payments) where the recipients are under 18 and are living at home of $7.48 per fortnight, and an increase to FTB-B of $1000.10 per annum for families with a child under one.

1.11 In relation to the increase to FTB-A, ACOSS stated in its submission:

The expenditure component of the package, the boost to Part A by $5 a week, does not take effect until 1 July 2018. It is far too little to compensate families for the losses imposed by other changes (amounting to an

3 Anglicare Australia, Submission 27, p. 5. 4 The Hon Christian Porter MP, Minister for Social Services, House of Representatives Hansard, 1 September 2016, pp 29-32. 5 National Welfare Rights Network, Submission 23, p. 13.

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estimated $48 per week for a single parent (under 60) with one child over 13 years) and it takes effect after the payment cuts.6

1.12 The Australians Greens do not support this measure, as it does not adequately compensate recipients for other cuts to the payment.

Recommendation 1

1.13 The Australian Greens recommend that the Bill not be passed.

Senator Rachel Siewert Australian Greens

6 Australian Council of Social Service (ACOSS), Submission 29, p. 5.

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Additional Comments by the Nick Xenophon Team 1.1 The Nick Xenophon Team (NXT) is concerned that the childcare reforms will only go ahead if savings from cuts to family tax benefits are achieved. Affordable early childhood education and care (ECEC) should not be contingent upon the Government passing Family Tax Benefit savings measures.

1.2 During committee hearings, Mr Manderson, Deputy Director of Anglicare Australia, highlighted that the linking of the two bills is arbitrary. He noted that:

…as far as I am aware, government has never argued that drought assistance can only be sustained if we cut back on supporting people dealing with floods or bushfires. Nor have I heard any minister argue that veterans' entitlements should be cut to cover the increase in the cost of new aircraft.1

1.3 We note that the Early Learning and Care Council of Australia raised during the hearings that the Government has already paid for these bills several times over through savings from cuts to family payments, and in 2014 the former Prime Minister Abbott stated that $2 billion of savings from cuts to the Paid Parental Leave should be diverted into ECEC.2

Recognising the Importance of ECEC 1.4 ECEC is integral to the health and wellbeing of Australian children, and should not be delivered as dependant on cuts to vital family benefits. NXT note that this issue was recognised in the Committee's Report, who determined that none of the submitters provided an adequate alternative funding arrangement. The NXT does not believe it should be the responsibility of witnesses to provide alternative funding arrangements.

1.5 NXT recognises the benefits of ECEC and encourages the government to do the same. For disadvantaged children, access to ECEC is integral their development. NXT notes the statement made by Goodstart Early Learning Centre at the Committee hearing, that:

…evidence from the AEDC, the Australian Early Development Census, shows that, across all income groups, children who have access to preschool before school are a third less likely to start school

developmentally vulnerable, and that holds for all income groups.3

1.6 A number of submissions addressed this concern:

1 Mr Roland Manderson, Deputy Director, Anglicare Australia, Committee Hansard, 4 October 2016, p. 8. 2 Mr Bernie Nott, Co-Chair, Early Learning and Care Council of Australia, Committee Hansard, 3 October 2016, p.11. 3 Mr John Cherry, Advocacy Manager, Goodstart Early Learning, Committee Hansard,

3 October 2016, p. 14.

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• United Voice, quoting the Australian Institute of Health and Welfare in their

submission to the Committee noted that, the greater the degree of vulnerability, the more urgent the need for ECEC.4

• United Voice also highlighted the benefits of high quality early learning for

disadvantaged children, noting that studies show it improves cognitive, language and social development.5

• The Federation of Ethnic Communities' Councils of Australia, advocated the benefits of ECEC to children of migrants, and its integral role in the development of language skills, especially important for children from non-English speaking families.6

• The National Welfare Rights Network, noted that there is 'a sound evidence

base to support the developmental benefits of early childhood education, especially for children from disadvantaged backgrounds, and the concern to ensure widespread access to these benefits should take precedence over the Government's attempt to use child care subsidies as a policy tool to promote workforce participation'.7

• The Mitchell Institute emphasised in their submission to the Committee that

'the early years are a critical window for building the essential foundations that enable all children to be confident and capable learners, and develop social and emotional skills'.8

• The Mitchell Institute also stated that 'research demonstrates that all children benefit from participation in quality early education programs and that these benefits are amplified for children from disadvantaged backgrounds, for whom extra hours and longer duration can make a significant, positive and lasting impact on their schooling and beyond'.9

1.7 The development of children through access to ECEC needs to be a priority. Children should not be worse off under these proposals.

Ensuring the Diversity and Flexibility of ECEC 1.8 The NXT wants to ensure that the current diversity and flexibility in the types of ECEC will continue under the reforms. Programs such as in-home care and Budget Based Funding (BBF) provide an important service for many families unable to access mainstream services, or for whom they may be unsuitable.

4 United Voice, Submission 19. 5 United Voice, Submission 19. 6 Federation of Ethnic Communities' Councils of Australia, Submission 20. 7 National Welfare Rights Network, Submission 23. 8 Mitchell Institute, Submission 7. 9 Mitchell Institute, Submission 7.

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In-Home Care

1.9 NXT wants to ensure that that the proposed package meets the needs of the most vulnerable, and that vital services are being continued. During the Committee hearings, the Australian Home Childcare Association gave some examples of the types of families who use their services. They noted that approximately fifty percent of all of their in-home care clients are families with children or parents with disability or medical needs.10

1.10 The Australian Home Childcare Association explained that:

In-home care naturally targets vulnerable children. In-home care is currently an approved service with strict eligibility criteria capped to approximately 5,600 equivalent full-time places. There are approximately 62 services nationally which provide care to more than 6,000 marginalised children each week. As many in-home care placements are shorter term, with eligibility being reviewed every six months, the service has the potential to impact a much greater number of Australian children.

These are children like Jake. Jake has very high medical needs. He requires oxygen and a BiPAP machine and 24-hour-a-day care. Jake cannot attend child care. His mother suffers from depression. She has two other children that also require daily care, including simple things like being taken to and from school, which is a hard task with Jake's equipment. With in-home care, Jake can be left at home with a trained educator. In-home care allows his mother to meet the needs of her other children and also maintain her mental health. In-home care also allows Jake to access early education he otherwise may not be able to. The family does not meet the activity requirement of the Nanny Pilot Program, and the NDIS does not provide support for his medical needs.

Cara is a primary school aged child with autism. Her parents are separated. Cara's therapists indicate that after-school care is not in the interests of her mental health. Furthermore, Cara's school have expressed that they are unable to care for Cara. Cara's mother was at risk of losing her job multiple times due to having time off to care for Cara. She desperately waited for in-home care for more than six months. Cara's mother expressed that the Nanny Pilot Program is too expensive with just one child and she was concerned about the training of her nanny versus the in-home educator.'11

We have situations where there might be a lot of families where there might be a mother or a father with cancer, and we might come in through their treatment period, through the palliative stage, and we might transition a family from the death of a parent through to the other side.12

10 Ms Nicole Morgan, Committee Member, Australian Home Childcare Association, Committee Hansard, 4 October 2016, p. 5. 11 Ms Natasha Randall, Committee Secretary, Australian Home Childcare Association, Committee Hansard, 4 October 2016, p. 1. 12 Ms Nicole Morgan, Committee Member, Australian Home Childcare Association, Committee

Hansard, 4 October 2016, p. 5.

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1.11 NXT are concerned this legislation does not mention in-home care. In-home care provides a special and necessary service for families to whom mainstream care is either unavailable or inappropriate. It provides a vital service for families with complex needs, such as families in remote areas, those with children with disabilities, or with parents who have multiple disabilities. This program has also evolved to include children who are marginalised and deemed at risk of harm, abuse or neglect, as explained by the Australian Home Childcare Association.13

1.12 The diversity and flexibility of Australian families need to be reflected in the types of ECEC available. NXT is concerned that these reforms will deny a range of high need, at risk and non-mainstream children access to suitable ECEC.

Budget Based Funding

1.13 Budget Based Funding (BBF) was introduced with the intention to allow early ECEC to be conducted in areas in which the market would not otherwise sustain it. Approximately 80 per cent of BBF funding goes to ECEC in Indigenous communities. We note the concerns raised by SNAICC in their submission to the Committee regarding the affect the cessation of the BBF will have on Indigenous children and Indigenous communities. As noted by SNAICC in the committee hearings, BBF supports approximately 19 000 children.14

1.14 SNAICC stated that:

…engagement in early childhood education reduces risk of harm to a child, and subsequent involvement with statutory child protection authorities, as well as reductions in remedial services and criminal behaviour in the longer term. Holistic community based Indigenous services are a central preventative measure to strengthen families and prevent child abuse and neglect.15

1.15 NXT are concerned about the impact the cessation of the BBF program would have on indigenous communities, and the resulting effect on efforts to close the gap. It is imperative that Indigenous children and children in rural and remote communities have access to ECEC just as any other child in Australia.

1.16 NXT notes that the Australian Home Childcare Association stated in the Committee hearing, that in regards to the continuation of BBF programs, they 'have not had any clear communication that gives us a pathway or a direction or certainty for those families'.16

13 Ms Natasha Randall, Committee Secretary, Australian Home Childcare Association, Committee Hansard, 4 October 2016, p. 1. 14 Ms Emma Sydenham, Deputy CEO, SNAICC—National Voice for Our Children, Committee Hansard, 3 October 2016, p. 7 15 SNAICC, Submission 16. 16 Ms Natasha Randall, Committee Member, Australian Home Childcare Association, Committee

Hansard, 4 October 2016, p. 3.

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Recommendation 1

The Department of Education clarify as a matter of urgency whether funding for in-home care will continue to be made available under the Jobs for Families package.

Consulting with Stakeholders 1.17 NXT is concerned that the government did not conduct an appropriate consultation process in the development of this package. Important stakeholders such as SNAICC were not invited to be a part of the initial reference group during the consultation period.17 When questioned about the number of Indigenous organisations involved in the consultation process the Department was unable to name a single organisation, and the response from the Department on this issue appears to be quite unsatisfactory.

Senator KAKOSCHKE-MOORE: I understand that it is an invitation-only process to consult with the ministerial advisory council. Were there any Indigenous organisations that were invited to be part of the ministerial advisory council?

Ms Wilson: There actually is an Indigenous member of the council, but that person just does not wear a hat in terms of SNAICC. Is it Judith Tempest? She is from New South Wales, so there is an Indigenous member in the that (sic) group. Judith McKay-Tempest.18

1.18 NXT believe in the benefits of a broad consultation process with appropriate stakeholders, by whom and for whom these services are provided. During the committee hearings, SNAICC noted that it appeared the Government presented a 'very clear package…with very little room for negotiation'.19 NXT are concerned that the programs may be unworkable, and that a number of families will be left without appropriate services due to this failure.

1.19 United Voice also raised concerns in their submission to the inquiry, that the Stakeholder Reference Group who were consulted during the creation of these bills met only three times and were 'not so much consultation sessions as information sessions'.20

1.20 At the Committee hearings, the Government conceded by that they have not communicated 'as often or as much as they should have with providers and with

17 Ms Geraldine Atkinson, Deputy Chairperson, SNAICC, Committee Hansard, 3 October 2016, p. 6.

18 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, 4 October 2016, p. 27. 19 Ms Emma Sydenham, Deputy CEO, SNAICC—National Voice for Our Children, Committee Hansard, 3 October 2016, p. 7. 20 United Voice, Submission 2.

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families'. 21 This failure should be addressed, and relevant stakeholders should have be consulted in the early stages to ensure that what is proposed meets the needs of the most vulnerable and marginalised. At the Committee hearing, SNAICC suggested that 'perhaps consulting earlier and with an open mind to actually listening and engaging to develop a collective package that best meets the needs of those very diverse children would be best.'22

Recommendation 2

The Department of Education review their consultation procedures to ensure that all appropriate stakeholder groups are comprehensively consulted when reform packages are being developed.

Transparency 1.21 NXT are concerned about the lack of transparency surrounding the tender process currently being undertaken by the government in regards to funding of ECEC. As noted by Ms Sydenham, Deputy CEO of SNAICC, SNAICC are concerned about the ability of this proposed package to meet the needs of the most vulnerable, and that without the information collated during the tender process, Senators may not have access to all the appropriate information. In their submission, SNAICC stated that tenders for a number of ECEC services are currently out, and that the tender information would be highly useful to determine whether the package will be able to deliver the services required.23

1.22 During the Committee hearing Ms Sydenham stated that:

All evidence available at the moment suggests that there will be a significant decrease in access for Aboriginal and Torres Strait Islander children, and other children, to early learning under the budget-based funding program. The government at the moment is undertaking probably the largest, most comprehensive assessment of the capacity of budget-based funding services to transition at all to the new package, and a transition support process. We believe this is really critical information that should be on the public record and that should be able to assist and inform senators in their decision on whether to approve this bill or what amendments are required to make sure that it does improve access for all vulnerable children. So we would seek to have the government share the reports—each service will have a report of its own; I believe they do not have the final reports as yet—or to have the government provide a review or a systemic analysis of what is coming out of that tender process or that research process.24

21 Ms Jackie Wilson, Acting Secretary, Department of Education and Training, Committee Hansard, p. 23. 22 Ms Emma Sydenham, Deputy CEO, SNAICC - National Voice for Our Children, Committee Hansard, 3 October 2016, p. 7. 23 SNAICC, Submission 16. 24 Ms Emma Sydenham, Deputy CEO, SNAICC - National Voice for Our Children, Committee

Hansard, 3 October 2016, p. 5.

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1.23 NXT believe the government needs to be transparent in the way these tenders are being offered. This information will helpfully inform any future decisions about client need and service delivery.

Recommendation 3

The Department of Education and Training make public information in relation to the tenders.

Activity Test 1.24 NXT is concerned about changes to the activity test. The government is proposing to determine the amount of hours of subsidised ECEC through an activity test, whereby families earning up to $65 710 where one parent works less than 17 hours, but more than 8 hours a fortnight, are eligible for 18 hours of subsidised ECEC a week. For parents who don't satisfy the activity test they will be able to access only 12 hours a week. Previously, if parents worked less than 15 hours a week they were eligible for up to 24 hours of subsidised ECEC.

1.25 NXT believes that all children should have access to ECEC regardless of the activities undertaken by their parents. Some concerns were raised that this could mean that parents would put their children in ECEC so they could go to the pub. Mr Manderson of Anglicare Australia addressed this concern at the Committee Hearing:

Mr Manderson: …I do not accept the poetic notion of linking it with people down at the pub drinking. I think that is facile and I think it is unhelpful.

Senator PATERSON: I do not think it is clear then what your view is about whether that is okay or not.

Mr Manderson: I am not saying it is okay; I am saying it should not cost those kids their child care.

Senator PATERSON: Should the design of the system allow for it?

Mr Manderson: The design of the system should give those children the educational opportunities they need.25

1.26 As United Voice highlighted during the hearing, and reflected in their submissions, access to ECEC is best understood as a right held by the child regardless of their parents' capacity to work or inability to pay. The noted that as a minimum, all children should have access to a minimum of 24 hours, or two days, of subsidised ECEC per week.26

Senator KAKOSCHKE-MOORE: There has been some discussion today about changing the minimum hours, and a proposition that we could shift

25 Mr Roland Manderson, Deputy Director, Anglicare Australia, Committee Hansard, 4 October 2016, p. 13. 26 Ms Helen Mary Gibbons, Assistant National Secretary, United Voice, Committee Hansard, 3 October 2016, p. 35.

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from 12 hours subsidised care per week to 15. Does United Voice have a view on that?

Ms Gibbons: I note that there were a number of submissions, and particularly the submissions from ACA, ECA and the Early Learning and Care Council, that suggested that. The current arrangement is that people are able to access 24 hours of subsidised care a week. We would prefer to maintain that because that provides two days of early learning—two full days of early learning—for children. If children are at the heart of this policy then that is an arrangement that would work for them.

It also overcomes the issues that I talked about with the casual worker who has all of these different arrangements and has to try to work out how to meet the activity test. If they have the guaranteed two days, she knows she is available to put her name on the list to pick up casual work for two days a week. I recognise that some significant stakeholders have put forward that compromise position, but United Voice's position is still that it needs to be maintained where it currently is.27

1.27 This position was mirrored in the Committee hearing by Anglicare Australia, who stated that at an absolute minimum, children should have access to at least 24 hours of ECEC.28 Anglicare Australia also highlighted that childcare should be viewed as early childhood education, and that child's ability to access education should not be dependent upon their parents' ability to satisfy an activity test.29 A compromise of 15 hours a week for parents who don't satisfy the activity test has been put forward by Goodstart Early Learning and the Australian Childcare Alliance. The NXT is concerned that 15 hours a week does not amount to two full days of care, and is ill-fitting with the business practices of many providers.

1.28 NXT are concerned about the workability of a change to 12 hours of care, for service providers. When questioned about the suitability of 12 hours of care, Goodstart, as the country's largest childcare provider, stated that they could ensure that they would be able to offer services over two days to meet the 12 hour entitlement. However, NXT note that United Voice held concerns about the impact of this change to either 12 or 15 hours will have on smaller providers:

Senator KAKOSCHKE-MOORE: If the changes were to go ahead and the 15 hours of subsidised care is rolled out, what impact do you think that will have on your members? Will it change their working patterns or hours of work?

Ms Gibbons: We do have a real concern about what that looks like. There has been no modelling about this that has been released by the department. The concern is that most care is paid for by the day. What that means is that

27 Ms Helen Mary Gibbons, Assistant National Secretary, United Voice, Committee Hansard, 3 October 2016, p. 35. 28 Mr Roland Manderson, Deputy Director, Anglicare Australia, Committee Hansard, 4 October 2016, p. 8. 29 Mr Roland Manderson, Deputy Director, Anglicare Australia, Committee Hansard,

4 October 2016, p. 8.

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when people are planning their rosters for people who work in the sector, they can structure those rosters so that they have as many people as possible during the peak times, they have enough people in the quieter times, they can stay open for as long as possible and they can provide as many full-time or full-day jobs as possible. As soon as you change the structure to 15 hours a week, what they think is proposed is two days, but that would actually change the way that the parents are currently charged. They are currently charged for a full day, which is around 10 to 11 hours. If they are only charged for 7½ hours, what does that mean for the people who work in the sector? Does that mean they have much shorter days? I think there is a real question mark. It is really hard to know what the impact will be because there has been no modelling in relation to this. There has been no unpacking of how the workforce is going to respond to what is in the package. My real concern is that you will see hours shrinking. You will see increasing casualisation. You will see less people working full eight-hour days and a lot more people working six-hour days. This is an industry that is already incredibly low paid and already has retention issues and turnover issues. The more you make the work precarious, the more you are exaggerating that problem and making that problem much worse.30

1.29 The current business structure of most childcare providers revolves around a 12 hour day model. NXT are concerned about the impact on small business if a change to the minimum subsidised hours is introduced. As highlighted by Goodstart, if a 12 hour subsidy is introduced, changes may have to be made to billing types and centre practices.

Mr Cherry: 'If we move to shorter sessions, families might love to pay for eight hours rather than 12, but they all want the same eight hours, which are between 8 am and 4 pm. Our current cost structure reflects our children and when they are actually in our services. The NQF allows you to staff your centre dependent on your children. The cost savings of shifting from billing for a day to billing by the hour would be very minimal, which means the hourly rate will go up quite significantly because you would be billing your costs over eight hours rather than 12 or 11. Families might love to be billed for only eight hours a day, but they may not be saving any money.'31

1.30 The NXT is concerned about the implication of hourly billing on providers, and the lack of consultation that was involved in this recommendation.

Recommendation 4

The Department further consults with stakeholders regarding the suitability of the 15 hours proposal and the impact on business models of ECEC providers.

30 Ms Helen Mary Gibbons, Assistant National Secretary, United Voice, Committee Hansard, 3 October 2016, p. 36. 31 Mr John Cherry, Advocacy Manager, Goodstart Early Learning, Committee Hansard, 3 October 2016, p. 14.

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Recommendation 5

The Department conduct modelling on the impact 15 hours of subsidised ECEC would have on childcare workers' workforce participation.

Senator Skye Kakoschke-Moore

Nick Xenophon Team

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APPENDIX 1

Submissions and Additional Information received by the Committee

Submissions

1 Ms Lisa Bryant

2 United Voice

3 Federation of Ethnic Communities Councils of Australia (FECCA)

4 Wynbring Jida MACS, Port Lincoln Children’s Centre and Minya Bunhii Childcare Centre

5 National Foundation for Australian Women

6 Katherine Isolated Children's Service (KICS)

7 Mitchell Institute

8 Remote & Isolated Children's Exercise Inc.

9 Mallee Track Health and Community Service

10 Mr Liam McNicholas

11 Carewest

12 Marninwarntikura Fitzroy Women's Resource Centre, Aboriginal Corporation

13 Australian Government Department of Education and Training

14 Australian Childcare Alliance, Early Childhood Australia, the Early Learning and Care Council of Australia and Goodstart Early Learning

15 Cowra Early Childhood Services

16 SNAICC - National Voice for our Children

17 Central Australian Youth Link-Up Service (CAYLUS)

18 Family Day Care Australia

19 Community Child Care Association (CCC)

20 Australian Childcare Alliance

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21 ACTU

22 Australian Home Childcare Association

23 National Welfare Rights Network

24 The Parenthood

25 Early Childhood Australia

26 UnitingCare Australia

27 Anglicare Australia

28 Catholic Social Services Australia

29 Australian Council of Social Service (ACOSS)

30 The Creche & Kindergarten Association Limited

31 Ms Leanne Gibbs

32 Northside Community Service

33 Community Child Care Co-operative (NSW)

34 KU Children's Services

35 Australian Community Children's Services (ACCS)

36 Katoomba Children's Cottage Inc

37 Isolated Children's Parents' Association of Australia

38 Contact Inc and MCSA

39 Deniliquin Children's Centre

40 Bubup Wilam for Early Learning Aboriginal Child and Family Centre

41 Goodstart Early Learning

42 National Association of Mobile Services for Rural and Remote Families and Children (NAMS)

43 Galloping Gumnut Mobile Children's Service

44 Australian Human Rights Commission

45 Early Learning and Care Council of Australia

46 Brotherhood of St Laurence

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47 Name Withheld

48 Confidential

49 Albury Wodonga Community College (AWCC)

50 Pro-forma Letter

Pro-forma letter

The committee received pro-forma letters from 66 individuals.

Letters were received from:

Kathryn Fisher Suzanne Vandenberg

Kristi Wilson Ashlea Badger

Chantelle Keyner Desley Welk

Shannon Kaye Kimberly Gowley

Brian Towart Robyn Brown

Anand Jain Brenda Woods

Anna Baranowska Adrian Cooke

Jeni Nathanielsz Linsay Davis

Dianne Fairhead Ursula Lees

Yasmin Lawrence Bernadette Hoare

Samantha Jones Rashelle Rayner

Daniel Duggan Kylie Barratt

Kylie Romero Sarah Thompson

Amy Cart Dominique Harris

Bernadette Warbrick Peter Gilfedder

Rochelle Hayes Jo Kegg

Glenn Sebestin Melissa Armstrong

Ania Sawicka Elisha Johnson

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Jayde Lees Bevan Pearson

Leonie Hutchesson Karen McNamara

Julie Brand Joseph Pellone

Jagadeesh Gandla Melissa Ansford

Jayde Stoneman Lydia Townend

Scott Fields Vivian El-Jackson

Melissa Fields Jennifer Wilson

Katrina Holway David Paul

Raelee Fechner Sara Metalli

Patricia Brown Zeba Khan

Tina Wang Sohi Nikkhah

Rae Desmond Jones Taryn Rowe

Ben Stafford Trevor Curreen

Sue Oleary Sally Stokes

Bhanu Singh Arup Biswas

Additional information

1. Anglicare Australia - Beyond supply and demand: addressing the complexities of workforce exclusion in Australia, received from Anglicare Australia at a public hearing on 4 October 2016.

2. Living Standard Trends in Australia: Report for Anglicare Australia, prepared by NATSEM (University of Canberra), received from Anglicare Australia at a public hearing on 4 October 2016.

3. Opening statement and expanded evidence, received from Australian Home Childcare at a public hearing on 4 October 2016.

4. Comparison of proposed Coalition policy of Childcare and Family payments with current policy, by Ben Phillips and Cukkoo Joseph, ANU Centre for Social Research and Methods, September 2016, received from The Parenthood at public hearing on 4 October 2016.

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Tabled documents

SNAICC - National Voice for our Children: Bubup Wilam for Early Learning Aboriginal Child and Family Centre - Aboriginal Early Years Integrated Model of Excellence, September 2016 (public hearing 3 October 2016)

Answers to questions on notice

1. Mitchell Institute: Answers to questions taken on notice at a public hearing in Melbourne, 3 October 2016 (received 6 October 2016)

2. Community Child Care Association: Answers to questions taken on notice at a public hearing in Melbourne, 3 October 2016 (received 6 October 2016)

3. Family Day Care Australia: Answers to questions taken on notice at a public hearing in Melbourne, 3 October 2016 (received 6 October 2016)

4. The Parenthood: Answers to questions taken on notice at a public hearing in Melbourne, 4 October 2016 (received 6 October 2016)

5. Anglicare Australia: Answers to questions taken on notice at a public hearing in Melbourne, 4 October 2016 (received 6 October 2016)

6. Department of Social Services: Answers to written questions on notice, provided 5 October 2016 (received 7 October 2016)

7. Department of Education and Training: Answers to questions taken on notice at a public hearing in Melbourne, 4 October 2016 (received 7 October 2016)

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APPENDIX 2

Public Hearings

Monday, 3 October 2016 - Melbourne

Committee members in attendance: Senators McKenzie, Hanson-Young, Paterson, Kakoschke-Moore, Collins

Witnesses

ATKINSON, Ms Geraldine, Deputy Chairperson, SNAICC - National Voice for Our Children

BOWLER, Ms Anne, President, National Association of Mobile Services for Rural and Remote Families and Children

BUTT, Mr Matthew, Executive Officer, National Welfare Rights Network

CHERRY, Mr John, Advocacy Manager, Goodstart Early Learning

DAVISON, Ms Linda, Deputy Chairperson, Community Child Care Association

FOX, Dr Stacey, Policy Fellow, Mitchell Institute

GIARDINA, Ms Leanne, Executive Director, Community Child Care Association

GIBBONS, Ms Helen Mary, Assistant National Secretary, United Voice

GILLEN, Ms Erin, Acting Director, Federation of Ethnic Communities Councils of Australia

MONDO, Mr Paul, Secretary, Australian Childcare Alliance

NOTT, Mr Bernie, Co-Chair, Early Learning and Care Council of Australia

O'CONNELL, Ms Megan, Policy Program Director, Mitchell Institute

PAGE, Ms Samantha, Chief Executive Officer, Early Childhood Australia

ROLLASON, Mr Scott, General Manager, Family Day Care Australia

SYDENHAM, Ms Emma, Deputy CEO, SNAICC—National Voice for Our Children

THORPE, Ms Lisa, Member, SNAICC, and CEO, Bubup Wilam for Early Learning

Tuesday, 4 October 2016 - Melbourne

Committee members in attendance: Senators McKenzie, Hanson-Young, Paterson, Kakoschke-Moore, Collins, Lambie

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Witnesses

ARCH, Ms Kerry, Parent Member, The Parenthood

BRISKEY, Ms Jo, Executive Director, The Parenthood

HALBERT, Ms Cath, Group Manager, Payments Policy Group, Department of Social Services

MANDERSON, Mr Roland, Deputy Director, Anglicare Australia

MITCHELL, Ms Gillian, Acting Deputy Secretary, Early Childhood and Child Care Cluster, Department of Education and Training

MORGAN, Ms Nicole, Committee Member, Australian Home Childcare Association

RANDALL, Ms Natasha, Committee Secretary, Australian Home Childcare Association

WILLING, Mr Jeff, Acting Group Manager, Early Childhood Strategy Group, Department of Education and Training

WILSON, Ms Jackie, Acting Secretary, Department of Education and Training

ZABAR, Mr Joseph, Director, Catholic Social Services Australia

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