PR002001

AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

Workplace Relations Act 1996

s.113 applications to vary

s.108 references of applications to vary

Australian Liquor, Hospitality and Miscellaneous Workers Union

LAUNDRY INDUSTRY (VICTORIA) AWARD 1998

(ODN C No. 21626 of 1992)

[Print Q6887 [L0125]]

(C No. 23840 of 2000)

CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL TERRITORY)
AWARD, 1998

(ODN C No. 03697 of 1985)

[Print Q2724 [C0173]]

(C No. 23841 of 2000)

BUILDING SERVICES (VICTORIA) AWARD 1994

(ODN C No. 21726 of 1992)

[Print L2955 [B0344]]

(C No. 23842 of 2000)

THE HOSPITALITY INDUSTRY - ACCOMMODATION, HOTELS,

RESORTS AND GAMING AWARD 1998

(ODN C No. 00389 of 1975)

[Print P9138 [H0008]]

(C No. 23843 of 2000)

Textile, Clothing and Footwear Union of Australia

CLOTHING TRADES AWARD 1999

(ODN C No. 00696 of 1980)

[Print S1147 [C0037]]

(C No. 23863 of 2000)

Automotive, Food, Metals, Engineering,

Printing and Kindred Industries Union

GRAPHIC ARTS - GENERAL - AWARD 2000

(ODN C No. 22956 of 1995)

[Print S1716 [G0439]]

(C No. 23872 of 2000)

METAL, ENGINEERING AND ASSOCIATED INDUSTRIES AWARD,

1998 - PART I

(ODN C No. 02568 of 1984)

[Print Q2527 [M1913]]

(C No. 23873 of 2000)

THE VEHICLE INDUSTRY AWARD 1982

(ODN C No. 01522 of 1979)

[Print F0813 [V0005]]

(C No. 39213 of 2000)

THE VEHICLE INDUSTRY - REPAIR, SERVICES AND RETAIL -

AWARD 1983

(ODN C No. 01339 of 1974)

[Print H5658 [V0019]]

(C No. 39214 of 2000)

The Australian Workers' Union

HORSE TRAINING INDUSTRY AWARD 1998

(ODN C No. 03039 of 1975)

[Print R5058 [H0005]]

(C No. 23889 of 2000)

National Union of Workers

GROCERY PRODUCTS MANUFACTURE - MANUFACTURING

GROCERS AWARD 1996

(ODN C No. 01152 of 1985)

[Print P1412 [G0493]]

(C No. 39195 of 2000)

COMMERCIAL SALES (VICTORIA) AWARD 1999

(ODN C No. 31107 of 1993)

[Print R1382 [C0716]]

(C No. 39196 of 2000)

STORAGE SERVICES - GENERAL - AWARD 1999

(ODN C No. 32518 of 1992)

[Print R1040 [S1062]]

(C No. 39197 of 2000)

RUBBER, PLASTIC AND CABLE MAKING INDUSTRY - GENERAL -

AWARD 1998

(ODN C No. 01800 of 1982)

[Print R4420 [R0007]]

(C No. 39198 of 2000)

Australian Municipal, Administrative, Clerical and Services Union

VICTORIAN LOCAL AUTHORITIES INTERIM AWARD 1991

(ODN C No. 36277 of 1989)

[Print J9778 [V0076]]

(C No. 39391 of 2000)

CLERICAL AND ADMINISTRATIVE EMPLOYEES

(VICTORIAN) AWARD 1995

(ODN C No. 34749 of 1995)

[Print M8184 [C1128]]

(C No. 39392 of 2000)

Transport Workers' Union of Australia

TRANSPORT WORKERS AWARD 1998

(ODN C No. 01520 of 1982)

[Print Q8693 [T0140]]

(C No. 39293 of 2000)

Shop, Distributive and Allied Employees Association

RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES -

AUSTRALIAN CAPITAL TERRITORY - AWARD 2000

(ODN C No. 30030 of 1993)

[Print T3309 [R0017]]

(C No. 39395 of 2000)

Construction, Forestry, Mining and Energy Union

TIMBER AND ALLIED INDUSTRIES AWARD 1999

(ODN C No. 00031 of 1950)

[Print R5055 [T1733]]

(C No. 51279 of 2000)

Various employees	Various industries
JUSTICE GIUDICE, PRESIDENT
JUSTICE BOULTON
SENIOR DEPUTY PRESIDENT POLITES
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT HARRISON
DEPUTY PRESIDENT LEARY
COMMISSIONER LEWIN	MELBOURNE, 2 MAY 2001

CONTENTS

		Page	Paragraph
List of Main Abbreviations		5
The ACTU's Claim		7	[1]
Outline of Responses to the Claim		7	[4]
Economic Conditions		9	[16]
	Recent Economic Performance and Outlook	14	[37]
	Current Economic Outlook	22	[59]
	Conclusion	24	[65]
The Economic Effects of a Safety Net Adjustment		25	[68]
	Conclusion	33	[99]
Needs and the Low Paid		33	[100]
	Conclusion	38	[125]
Decision on the ACTU Wage Claim		40	[128]
The Statement of Principles		46	[145]
Orders		50	[163]
Attachment A - Statement of Principles		51
Attachment B - Economic Material		61

LIST OF MAIN ABBREVIATIONS

In this decision the following abbreviations are used:

ABS:	Australian Bureau of Statistics
ACCER:	Australian Catholic Commission for Employment Relations
ACCI:	The Australian Chamber of Commerce and Industry, the Australian Hotels Association, the Printing Industries Association of Australia and the National Farmers' Federation
ACOSS:	Australian Council of Social Services
Act:	Workplace Relations Act 1996
ACTU:	Australian Council of Trade Unions
AHA:	Australian Hotels Association
AiG:	The Australian Industry Group, the Engineering Employers Association of South Australia and The Master Plumbers' and Mechanical Services Association of Australia
April 1997 decision:	Safety Net Review - Wages April 1997 decision [Print P1997, (1997) 71 IR 1]
April 1998 decision:	Safety Net Review - Wages April 1998 decision [Print Q1998, (1998) 79 IR 37]
April 1999 decision:	Safety Net Review - Wages April 1999 decision [Print R1999, (1999) 87 IR 190]
AWIRS:	Australian Workplace Industrial Relations Survey
AWOTE:	ABS Average Weekly Ordinary Time Earnings
CPI:	ABS Consumer Price Index
EEH:	ABS Survey of Employee Earnings and Hours
GDP:	Gross Domestic Product
GST:	Goods and Services Tax package
Joint Coalition Governments:	Commonwealth, State of South Australia and the Northern Territory
May 2000 decision:	Safety Net Review - Wages May 2000 decision [Print S5000, (2000) 95 IR 64]
Metal Industry Award:	Metal, Engineering and Associated Industries Award, 1998 - Part I [Print Q2527 [AW789529]]
MYEFO:	Mid-Year Economic Fiscal Outlook
NATSEM:	National Centre for Social and Economic Modelling
NFF:	National Farmers' Federation
PIAA:	Printing Industries Association of Australia
RBA:	Reserve Bank of Australia
Retail Motor Industry:	Victorian Automobile Chamber of Commerce, the Motor Traders' Associations of New South Wales, Western Australia, Northern Territory, the Australian Capital Territory, Queensland and the Service Station Association Limited New South Wales
State Labor Governments:	States of New South Wales, Queensland, Tasmania, Victoria and Western Australia
TRYM model:	Treasury Macroeconomic model
UnitingCare:	UnitingCare New South Wales and Australian Capital Territory
WCI:	ABS Wage Cost Index
WROLA Act:	Workplace Relations and Other Legislation Amendment Act 1996

REASONS FOR DECISION

THE ACTU's CLAIM

[1] The claim dealt with in this decision is the 2001 Living Wage Claim by the Australian Council of Trade Unions (ACTU).

[2] The ACTU's claim seeks:

• a $28 per week increase in award rates of pay up to and including the equivalent of skill level classification C10 in the Metal, Engineering and Associated Industries Award 1998, - Part I (the Metal Industry Award)¹ and a 5.7% increase in award rates of pay above that level; and


• an appropriate adjustment in allowances consistent with past safety net decisions and the Furnishing and Glass Industries Allowances decision².

[3] In pursuit of the claim, applications under s.113 of the Workplace Relations Act 1996 (the Act) were made by unions in November 2000 to vary a number of awards.

OUTLINE OF RESPONSES TO THE CLAIM

Employers

[4] The employer organisations represented all opposed the ACTU's claim and put forward differing proposals for adjustments to award rates.

[5] The Australian Chamber of Commerce and Industry, the Australian Hotels Association (AHA), the Printing Industries Association of Australia (PIAA) and the National Farmers' Federation (NFF) (jointly ACCI) submitted that there should be a $10 per week increase in the federal minimum wage only. ACCI also proposed a variation to the wage fixing principles to the effect that there should be an additional twelve months delay before safety net adjustments become available in awards, unless parties to an award agree to an earlier increase.

[6] The Australian Industry Group, the Engineering Employers Association of South Australia and The Master Plumbers' and Mechanical Services Association of Australia (jointly AiG) supported an increase of between $8 and $10 per week to apply to all award rates of pay, subject to absorption. AiG also submitted that the Commission should implement measures to encourage industrial parties to rationalise award structures and significantly reduce the number of awards.

[7] The Victorian Automobile Chamber of Commerce, the Motor Traders' Associations of New South Wales, Western Australia, Northern Territory, the Australian Capital Territory and Queensland and the Service Station Association Limited New South Wales (jointly the Retail Motor Industry) did not oppose an adjustment to the federal minimum wage and generally supported the submissions of ACCI.

[8] The Australian Catholic Commission for Employment Relations (ACCER) expressed its support for the award system as the fundamental means of establishing just and fair minimum wages and terms of employment. ACCER supported the continued use of flat dollar increases to adjust award rates of pay and suggested that a tapered scale of flat dollar increases should be determined by the Commission in the present case.

Governments

[9] The Commonwealth, the State of South Australia and the Northern Territory (the Joint Coalition Governments) submitted that the ACTU's claim should be rejected. The Joint Coalition Governments proposed a $10 per week increase in award rates up to and including the equivalent of the tradesperson's rate - C10 classification in the Metal Industry Award.

[10] The States of New South Wales, Queensland, Tasmania, Victoria and Western Australia (the State Labor Governments) supported the ACTU's claim. In the alternative, the State Labor Governments submitted that the Commission should grant the maximum wage increase consistent with the evidence and do everything possible to address the needs of the low paid.

[11] The Australian Capital Territory (ACT) submitted that the present economic circumstances allow for a fair and reasonable safety net increase. However the ACT opposed the amount sought by the ACTU and submitted that any increase should only be to award rates up to and including the C10 classification.

Community Organisations

[12] Various community organisations made written submissions in support of wage increases to assist low paid workers.

[13] The Australian Council of Social Services (ACOSS) submitted that the establishment and maintenance of a fair safety net of minimum wages and conditions of employment is critically important. ACOSS supported a substantial increase in minimum wages in order to stem growing wage inequality and to enable low paid workers to meet reasonable basic living costs. At the very least, the increase granted should be sufficient to maintain parity with wage increases across the community.

[14] The Australian Bahá'í Community referred to the widening gap between the highly paid and the lowly paid in Australia and to working families struggling to pay for the basic necessities of life. The Bahá'í Community submitted that the Commission should address these problems through granting an appropriate pay increase.

[15] UnitingCare New South Wales and Australian Capital Territory (UnitingCare) supported the ACTU's claim as being the barest minimum required. On the basis of its case studies and other data, UnitingCare submitted that even if the increases are granted, many families living on a low income would be dependent on family allowance and related payments to make ends meet.

ECONOMIC CONDITIONS

[16] The parties provided the Commission with economic materials in their written submissions, filed between 2 and 19 February 2001 in accordance with directions. Subsequently on 7 March 2001, after the filing of written submissions, the Australian Bureau of Statistics (ABS) released the December quarter 2000 National Income, Expenditure and Product³ publication. It provided more recent data, which showed a 0.6% seasonally adjusted decline in Gross Domestic Product (GDP) in the December quarter 2000. As a consequence the parties spent considerable time in oral submissions updating their economic submissions, to address developments disclosed by the December quarter publication.

[17] In particular considerable attention was directed to the decline in GDP in the December quarter 2000. The December quarter decline followed a decade of sustained economic growth. The economic submissions addressed the implications of that data for the current economic outlook and the level of safety net adjustments, which could be sustained over the coming year.

[18] The ACTU submitted that the December quarter 2000 decline in GDP was caused by two primary factors:

• the Goods and Services Tax package (GST) by bringing forward activity in the construction sector, resulting in a corresponding slump in construction figures for both the September and December quarters and impacting negatively on business cash flow and confidence; and


• increases in interest rates in late 1999 and early 2000, directed in part to containing inflationary pressures arising from the introduction of the GST.

[19] The ACTU submitted that in assessing an appropriate response to the December quarter 2000 data, the Commission should:

• look through the transitional effects of the GST on activity in the same way as other parties are urging it to look through the transitional inflationary effects of that package;


• have regard to the recent cuts in interest rates and recent and likely future fiscal expansion;


• note that its decision will take effect in the June quarter 2001 and will not have a full impact on quarterly figures until September 2001, by which time the transitional effects of the GST should have largely washed through the system and recent monetary and fiscal stimulus will have had an opportunity to take effect; and


• recognise that the ACTU claim will have a stimulatory effect on demand.

[20] The ACTU further submitted that the Commission should consider all of those factors in the light of two key points:

• the cost of the claim is negligible; and


• it would be inappropriate for low paid award dependent workers to bear the brunt of an economic slowdown.

[21] The ACTU highlighted positive economic signs beyond the December quarter GDP data. These included:

• encouraging forward indicators of the housing sector of the economy. Interest rate reductions and the increased assistance for first home buyers means the impact of the housing sector on GDP growth is likely to be less significant through 2001 and will largely have washed through as a negative by the time the Commission's decision takes effect;


• recovery from a GST related bring forward effect in the retail area has been a little more prompt than that in the housing sector, with a 2.1% increase during the December quarter with turnover increasing 0.9% and 7.2% growth over the year to January 2001;


• the signs from the United States economy are not all bad. Whilst growth is undoubtedly slowing in that economy, there are some mixed recent indicators, with employment growing in recent months; and


• the dip in December quarter GDP is not like those of 1991 or 1983. Profit levels remain high, corporate balance sheets are in good shape, and credit is not short. The Australian dollar is low and this will help net exports. Asset prices are not substantially over-valued. Fiscal policy is expansionary.

[22] The ACTU submitted that the core of the argument put against it was that the economy is weak and havoc will be created if its claim were granted. It contended that the proposition is not borne out by the evidence, particularly the evidence and submissions of the Joint Coalition Governments. It submitted that this material established that:

• the Commission's decision will take effect in more favourable economic circumstances than those indicated by the December quarter National Accounts;


• the Commission can confidently and cautiously utilise the ACTU's costing estimate that its claim will add less than three-quarters of a percentage point to economy-wide earnings; and


• the Commission can disregard the exaggerated claims of economic disaster flowing from the ACTU claim, which are based on unsubstantiated assertion in the case of employers and the flawed use of modelling in the case of the Joint Coalition Governments.

[23] The State Labor Governments submitted that the national economy is expected to grow by around 3-1/2 - 4% throughout 2000-2001, with employment growing and unemployment falling, and domestic inflation remaining low.

[24] ACCI submitted that the December quarter 2000 National Accounts underscore the problems that were evident in economic materials submitted by it earlier. Growth was already slowing in the September quarter and prior to the contraction in the level of GDP in the December quarter. ACCI submitted that there is every reason to expect that the down-turn that was recorded in the national economy in December will continue into the March quarter 2001 and that it is difficult to imagine a less sensible time in which to raise award rates by the amount sought in the ACTU claim.

[25] ACCI advanced the following reasons for the slowdown in economic activity:

• the raising of interest rates in late 1999 and early 2000;


• the increased cost of crude oil and the effect of higher petrol prices on domestic transportation costs and other areas of business activity;


• the slowdown in the international economy, particularly amongst our major trading partners Japan and the United States; and


• the effects of the introduction of the GST which distorted the pattern of demand and pulled forward a good deal of production into the first half of the year 2000 leaving a lower level of activity in its wake.

[26] In assessing economic conditions, ACCI drew attention to:

• the December quarter National Accounts data, including the fall in GDP, a halving of private consumption growth over the course of 2000, falling private sector investment over the three quarters to December 2000, a small decline in business investment exclusive of investment in dwellings during the December quarter and limited export growth during the December quarter;


• improvement in Australia's external accounts derived largely from the falling level of imports rather than from an improvement in the level of exports;


• a cessation of employment growth and rising unemployment; and


• negative productivity growth in the last three quarters of 2000.

[27] The PIAA supported the submissions of ACCI and further submitted:

• the need to develop an export market is critical to the printing industry and requires improvement in the competitiveness of the industry. The granting of any across the board wage increases would hurt efforts to raise international competitiveness in the industry and to develop export markets;


• the printing industry relies substantially on imported machinery and raw materials, mainly paper and paper board. With the Australian dollar falling to record lows, the industry is currently facing intense pressure; and


• the industry trends survey shows that business confidence in the industry fell to a five-year low in the December quarter 2000, with reports of falls in net profits, employment and overtime levels and increased numbers of outstanding debts which were creating cash flow problems. Preliminary results for the March 2001 quarter survey are more disturbing.

[28] The NFF supported the thrust of the ACCI submission. It also relied on an August 2000 paper⁴ and modelling undertaken for the NFF by Access Economics in addressing the economic effects of the ACTU claim. The NFF submitted that at a time when the Australian economy is slowing, the impact of the ACTU wage increase could only adversely affect the prospects of employment in the regions where agriculture is a vital component of economic prosperity.

[29] AiG commenced its economic submissions by noting that the safety net adjustment determined in the May 2000 decision was fundamentally justified by a generally positive economic environment, but since then the economy and the economic outlook have seriously deteriorated. AiG submitted that there had been a slowdown in economic growth over the past six months with key sectors such as manufacturing and construction now experiencing close to recessionary conditions. It submitted that the ACTU claim could not be granted without seriously damaging consequences for the economy and the community generally.

[30] AiG relied on recent survey material and the December quarter National Accounts to submit that the economy is grinding to a halt and, indeed, in some sectors going backwards, the labour market is softening, business confidence and expectations are flattening, profit margins are becoming tighter and productivity is spiralling downwards. Relying on forecasts for the remainder of 2001, AiG rejected the ACTU's submission that economic difficulties will pass by the June quarter. In this regard, it submitted the labour market is notably softer, business sentiment is weak and the international economy is going from bad to worse. AiG submitted that its construction industry outlook survey confirms that non-residential construction industry activity has turned down sharply, with activity forecast to contract further over the next two years. Reference was made to the December 2000 and March 2001 Survey of Australian Manufacturing Industry⁵ and AiG submitted that manufacturing is now very close to recessionary conditions. The composite Australian Performance of Manufacturing Index derived from the Surveys is at historically low levels in both quarters, although it was suggested that the recent decline in manufacturing activity might be close to bottoming.

[31] AiG submitted that having regard to the current state of the economy and its outlook there is a markedly reduced capacity for business to absorb wage increases including minimum wage adjustments.

[32] The Retail Motor Industry referred to continuing economic pressures in the industry which, it submitted, had led to closures of businesses. It was submitted that as the industry is predominantly made up of small businesses, wage demands directly impact on profitability and costs cannot be easily passed on to the consumer. Reliance was placed on a survey of members to show that the industry is in a worse situation than it was this time last year and that expectations for the next twelve months are low.

[33] The Joint Coalition Governments drew attention to the recent slower than anticipated growth with larger than expected falls in dwelling investment, but noted positive factors for the economy, suggesting strong reasons for growth to recover from the recent temporary slowdown. The Joint Coalition Governments did not anticipate another quarter of negative growth.

[34] The Joint Coalition Governments submitted that the explanation for the December quarter 2000 decline in GDP went beyond the impact of transitional GST effects, evident most strongly in building and construction sector activity and included:

• the impact of interest rate increases in late 1999 and early 2000;


• the timing of Olympic-related activity;


• the temporary effect of droughts in Western Australia and the floods in north-western New South Wales and the poor seasonal conditions in southern Queensland which reduced farm output and agricultural exports;


• a decline in mining investment;


• a slowing of consumption growth, with a moderation of the boost associated with strong growth in wealth and growth in real incomes of the 1990s;


• the unwinding of special factors such as the AMP demutualisation, and increased spending associated with the Olympics and Australia's East Timor commitment; and


• a fall-off in construction activity independent of GST effects.

[35] The Joint Coalition Governments submitted that:

• there are tentative signs of recovery in the dwelling sector with finance approvals and building approvals improving in recent months, an expected boost from the doubling of the amounts available under the first home owner's scheme for purchases of new homes and recent interest rate cuts; and


• the prospects for the Australian economy remain sound, with low interest rates, low inflation, high commodity prices, a low exchange rate, significant fiscal stimulus to the economy from the last Budget, stimulatory monetary policy settings and an absence of domestic imbalances.

[36] However, it was also submitted that there are clearly risks which the Commission needs to consider at this time, including slower world economic growth, slower employment growth, a rise in the unemployment rate and a cyclical slowing in aggregate labour productivity in the near term.

Recent Economic Performance and Outlook

[37] We have incorporated some economic material, in the form of charts and tables, in this section of our decision. Other economic data, including Treasury forecasts, have been incorporated in Attachment B. It should be noted that the Treasury forecasts were prepared in November 2000, without the benefit of more recent statistical information, including the December quarter 2000 National Accounts data.

[38] The economic material suggests that the long period of strong non-inflationary growth experienced in Australia since the early 1990s was interrupted in the second half of 2000, most notably in the December quarter. Recent prices and wages growth have remained moderate and the inflation outlook is favourable. The last half of 2000 saw growth decline, with output falling in the December quarter and an associated stalling of the improved labour market performance experienced since 1997.

[39] The December quarter 2000 National Accounts data record a 0.6% fall in GDP, seasonally adjusted. Output, based on the ABS trend measure, grew by only 0.1%. Trend growth over the year to the December quarter fell to 2.5%, compared with growth of 3.7% in the year to the September quarter. Annual growth rates exceeded 4% from mid 1997 to mid 2000.

[40] Some perspective on the December quarter 2000 data can be gained by considering the components of total GDP set out in Table 1 below. The table uses ABS trend data. While seasonally adjusted data showed a 0.6% December quarter fall in total GDP, the data in Table 1 using the ABS trend measure, show growth of 0.1% in the December quarter.

Table 1

[Source: ABS National Income, Expenditure and Product, December Quarter 2000, tables 2 & 3]

[41] The table indicates that the slowing in the December quarter is largely the result of a significant decline in investment in dwellings and other construction. Abstracting these components GDP continued to grow at trend levels exceeding 1% per quarter in each quarter of 2000. An examination of the components of GDP shows:

• some moderation in private consumption demand over the course of 2000, following growth consistently in excess of 1% per quarter throughout 1999;


• a negative contribution from Government consumption activity in the second half of 2000 as a consequence of which, total consumption demand has moderated over the course of 2000;


• that following a sharp increase in late 1999 and early 2000, private investment demand has fallen sharply in the last half of 2000, primarily as a result of declining private investment in dwellings and other construction activity; and


• aggregate GDP growth has fallen away sharply over the course of 2000, whilst GDP growth, excluding private construction demand, has remained in excess of 1% per quarter.

[42] Table 2, below, provides some further insight into the recent aggregate GDP data, showing growth in Industry Gross Value Added (output) by sector.

Table 2

Agric = Agriculture, Forestry and Fishing; Min = Mining; Manuf = Manufacturing;

EGW = Electricity, Gas & Water; Const = Construction; WT = Wholesale Trade; RT = Retail Trade;

ACR = Accommodation, Cafes & Restaurants; T&S = Transport & Storage; Com = Communication Services; F & I = Finance & Insurance; Prop = Property & Business Services; Gov = Government Administration and Defence; Ed = Education; HCS = Health & Community Services; CRS = Cultural & Recreational Services; and POS = Personal & Other Services

[Source: ABS National Income, Expenditure and Product, December Quarter 2000, table 12]

[43] These data show:

• declines in output in the second half of 2000 in the agriculture, manufacturing, construction, wholesale trade and accommodation, cafes and restaurants sectors;


• the most marked decline in output occurred in the construction sector with declines of 4.8%, 9.2% and 11.3% in each of the final three quarters of 2000, with a 22.9% decline over the year to the December quarter 2000;


• a decline in cultural and recreational services output in the December quarter, after strong growth in the first two quarters of 2000;


• output grew strongly in the mining, communications, finance and insurance, health and community services and personal and other services sectors over the course of 2000, although the rate of growth moderated in the communications sector in the second half of the year;


• the net effect was a marked moderation in total gross value added over the course of 2000, with quarterly growth of 1.3%, 0.8%, 0.4% and 0.1% for the March to December quarters, and 2.5% growth over the year.

[44] There seems little dispute that major factors contributing to the December quarter slowdown were the transitional effects of the GST, evident most strongly in building and construction sector activity, the lagged effect of tighter monetary policy of late 1999 and early 2000 and the impact on the timing of economic activity related to the Sydney Olympic Games. There were other factors at work, as noted in the Joint Coalition Governments' submission summarised above. Equally, the major impact of the decline in dwelling and other construction investment, whilst reflecting transitional effects of the GST, also reflected an underlying slowdown in building activity.

[45] Net export performance has contributed positively to growth over the second half of 2000. Although export volumes have been subdued, falling in the December quarter, net export outcomes have been favourable due mainly to declining imports.

[46] Reflecting the slowdown in economic growth in the last half of 2000, the solid improvement in labour market performance evident over much of the 1990s stalled in the December quarter 2000 and into 2001. Employment fell marginally in the December quarter 2000. ACCI's estimate of March quarter 2001 employment (an average of monthly data for January and February) showed a further fall when compared with the December quarter 2000, although monthly employment rose, in seasonally adjusted terms, in January and February. The stalling of employment growth resulted in increased unemployment in both the December quarter 2000 and the March quarter 2001 (using the ACCI estimate which averaged January and February data), both in absolute numbers and as a percentage of the workforce.

[47] Table 3 sets out recent movements in wages and prices:

Table 3

1 Average Weekly Ordinary Time Earnings, Trend estimates for quarterly data.

Source: ABS Cat No. 6301.0 and 6302.0.

2 Source: ABS Cat No. 6312.0.

3 Source: ABS Cat No. 6401.0, Treasury Economic Roundup.

[48] The Consumer Price Index (CPI) data contain a transitional impact of the introduction of the GST. The Joint Coalition Governments put the following submission with respect to the GST effect on the CPI:

"[T]he CPI was forecast to increase by 6 per cent in 2000-01 in year-average terms and by 5-1/2 per cent through the year to the June quarter 2001. Leaving aside the direct effects of The New Tax System on consumer prices, `ongoing' inflation was expected to be around 3-1/4 per cent in year-average terms in 2000-01 and around 3 per cent in the year to the June quarter 2001. However, the lower than expected CPI outcomes in the September and December quarters provide some downside risk to the outlook for `ongoing' inflation in 2000-01."⁶

[49] The Joint Coalition Governments further submitted:

• the All Groups CPI increased by 0.3% in the December quarter 2000, significantly lower than the median market expectation of a 0.8% increase;


• the December quarter outcome confirms that the introduction of the GST had only a one-off impact on prices;


• the 5.8% increase in the CPI over the past year largely reflects the one-off impact from the introduction of the GST on 1 July 2000 and the temporary effect from higher world oil prices; and


• looking through these influences, the CPI is estimated to have increased by around 2% through the year to the December quarter, at the lower end of the medium-term inflation target band.

[50] The Average Weekly Ordinary Time Earnings (AWOTE) data show significantly greater recent increases in earnings than the Wage Cost Index (WCI) data. AWOTE data are derived by dividing total earnings by the number of employees and, as a result, average earnings are affected not only by changes in the level of earnings but also by changes in the composition of the workforce. All parties have commented on the dangers of relying on AWOTE as a measure of wages growth. The Joint Coalition Governments, for example, noted in their written submissions:

"The strong growth seen in AWOTE over the past year is not matched by data on wages growth from any other source. For example, the annual growth in the WCI, while showing some pick up, remains close to 3 per cent. It is important to note, in this context, that the AWOTE series does not provide a reliable indicator of changes in wage rates because the series is affected by compositional changes in the structure of employment. It is also worth noting that the ABS have made changes to the release arrangements for the WCI and the AWE Survey. These changes are designed to increase the focus on the WCI for the tracking of wage and salary movements, given that the ABS was concerned about the attention that was being given to results from the AWE Survey as an indicator of changes in wage rates."⁷

[51] The chart below shows wage outcomes from bargaining since 1998.

Chart 1

[Source: Workplace Agreements Database, December 2000]

[52] The data show a continued decline in the rate of bargaining outcomes in current agreements since mid 1997, with a similar but more variable pattern in wage outcomes in agreements certified in each quarter. Bargaining outcomes for all currently operating agreements remained steady, at 3.6% to 3.7% over 2000, although wage outcomes in agreements certified in the second half of 2000 increased by around a half of a percentage point to around 4% per annum.

[53] Table 4 shows various estimates of productivity growth provided by the Joint Coalition Governments.

Table 4

Notes: (a) Annual National Accounts.

(b) Quarterly National Accounts.

(c) Figures in parenthesis are on a market sector basis.

* Updated from ABS Cat No. 5206.0 in Exhibit JCG3 attachment SA5.

[Source: Joint Coalition Governments' submission (original source: ABS Cat. No. 5204.0, 5206.0 & 1364.0.15.003.)]

[54] The productivity data:

• confirm the strong productivity performance of the Australian economy over the past decade relative to both past Australian performance and productivity growth in other countries;⁸


• show a stronger level of productivity growth in public sector enterprises as against private sector enterprises, although there has been strong growth in both sectors relative to the past; and


• illustrate a slowing in recent productivity growth associated with the moderation in economic growth in the last half of 2000.

[55] The Joint Coalition Governments submitted that it is necessary to look beyond aggregate productivity data to examine differential productivity performance between public and private sectors and sectors most affected by safety net adjustments. They submitted:

"But perhaps more pertinent to the case is the distribution of productivity growth by industry. Safety net increases have their main impact in low productivity growth service sector industries. Only 1.2 per cent of all award employees are employed in the four highest productivity growth industries in Chart 3.1, namely communication services, electricity gas and water, mining and finance and insurance. In comparison, 45 per cent are employed in three of the lowest four productivity growth industries below, namely distributional services (retail trade, wholesale trade, and transport and storage), cultural and recreational services, and accommodation, cafes and restaurants. Another 44 per cent work in sectors where productivity is such that it is not measured by the ABS. In these sectors (personal and other services, property and business services, government administration and defence, education, and health and community services), the ABS makes the assumption that labour productivity growth is unchanged over time."⁹

[56] The ACTU noted the significant contribution of high award dependent sectors to the pick-up in productivity growth of the 1990s. In this respect, it relied on:

• A paper by Gruen, in which it is said:

"Several Sectors experienced rapid productivity growth in both the 1980s and 1990s expansions, including utilities (electricity, gas and water), communications, and mining. But since these sectors experienced strong productivity growth in both decades, they clearly contributed very little to the pick-up in productivity between the two decades. Instead, the sectors which made the largest contribution to this pick-up were the non-traded sectors of trade, retail trade, and construction. Together these sectors accounted for more than 100 per cent of the pick-up in market-sector productivity growth between the two decades, despite contributing only 40 per cent of the hours worked in the market sector."¹⁰

• The AiG paper How Fast Can Australia Grow? Mark II, which states:

"While most industrial sectors displayed some improvement between the decades, the big lifts came from wholesale and retail trade, construction and, to a lesser extent, the hospitality sector of accommodation, cafes and restaurants." ¹¹

[57] The productivity data disclose differential productivity performance between sectors, with significant employment in sectors with lower than average productivity growth. Equally, they show improved productivity growth in most sectors over the past decade, from different bases, with sectors with lower than average productivity contributing most to growth in aggregate productivity.

[58] There has been some slowing in profits growth over the past year, but profit levels and the aggregate gross operating surplus share of national income remain high. Aggregate data mask variability in profitability between sectors and between firms.

Current Economic Outlook

[59] The Joint Coalition Governments provided the official Treasury outlook data contained in its Mid-Year Economic Fiscal Outlook (MYEFO). That data is presented in Attachment B. It should be noted, however, that the MYEFO material was prepared in November 2000, without the benefit of the December quarter GDP data and should be considered in the context of the more recent evidence of slowing economic activity disclosed in those data.

[60] In addressing the MYEFO forecasts, with the benefit of later economic data, the Joint Coalition Governments submitted:

• MYEFO pointed to a moderation in growth from the high growth rates of recent years. In light of the December quarter 2000 data, the moderation in growth has been greater than expected;


• a change in the composition of growth is expected with a move away from domestic demand and towards net exports;


• growth in the international economy has slowed since MYEFO was published;


• employment growth has been slower and the unemployment rate has risen to 6.9% in February 2001;


• outcomes for wages and prices in the second half of 2000 have been a little lower than expected. Wage outcomes since MYEFO was published suggest that the year average figure may be less than the 4-1/4% forecast. Leaving aside the direct effects of the GST on consumer prices, ongoing inflation is expected to be around 3-1/4% in year average terms in 2000-01, declining to 2% in 2001-02;


• the cyclical decline in productivity is now also likely to be greater than anticipated in MYEFO as a result of the greater than anticipated slowing in activity;


• the current slowing in productivity growth is likely to represent some risk in the form of higher nominal unit labour costs to business; and


• profitability has been relatively stable over the last decade. Nominal growth in profits has been strong.

[61] As noted above, whilst the Joint Coalition Governments drew attention to the recent slower than anticipated growth, they noted positive factors for the economy, which suggested that growth would recover from the recent temporary slowdown.

[62] The Reserve Bank of Australia (RBA), in the 7 March 2001 Statement by the Governor on Monetary Policy, announcing a second interest rate cut in 2001¹² observed that:

• recent wage cost and inflation expectations data have confirmed a more secure outlook for inflation;


• there was a marked weakening in economic activity toward the end of 2000, with activity remaining weak in the first months of 2001. One factor in the weaker activity was the transitional GST effect. Whilst the transitional effects will soon fade, there is a risk that recent weakness, together with lower prevailing levels of business confidence, could continue to dampen growth; and


• there has been a deterioration in the outlook for the international economy.

[63] Further, the RBA observed:

"The Board believes that the Australian economy should show considerable resilience, even if the world economy is weaker. Despite recent falls, business profitability is still high, corporate balance sheets remain in good shape and credit is freely available. Unlike earlier expansions, the present one has not led to significant rises in price or wage inflation, clearly over valued asset prices or over investment and excess capacity. In addition, the settings of fiscal and monetary policy are both contributing to growth, and the level of the exchange rate has made the traded goods sector extremely competitive."¹³

[64] On 4 April 2001, after our decision had been reserved, the RBA announced a further 0.5% point reduction in interest rates. The Governor's statement at the time expressed the view that the Australian economy's medium-term growth prospects are very good, but identified two risks to short-term growth - the weaker world economy and a potential weakening of confidence which, if realised, could dampen domestic demand in the short term. The RBA thought it prudent for monetary policy to further support domestic demand under such circumstances.

Conclusion

[65] Positive features of the current economic context are found in the continuing strength of economic fundamentals, with the absence of imbalances in profit shares and unit labour costs, a benign outlook for wages and prices inflation, supportive monetary and fiscal policy settings, a low Australian dollar supporting the traded goods sector, low interest rates supporting investment and the expected passing of the transitional effects of the GST on both prices and output. Against these factors must be considered the decline in activity in the December quarter, the consequent weakening in the labour market, the poor productivity outcomes in the final part of 2000, weakness in the key building and manufacturing sectors, weakness in the international economy, particularly in the US economy, and continuing uncertainty and effects on business confidence resulting from the December quarter decline in growth and the GST.

[66] Economic conditions remained strong through to the middle of 2000, when growth moderated, and GDP contracted in the December quarter, with a consequent weakening in the labour market conditions. The December fall in GDP substantially, but not entirely, reflected transitional factors and was concentrated in particular sectors of the economy. Treasury and the RBA anticipate the prompt passing of the transitional effects on the December quarter outcomes. They expect a resumption of reasonable non-inflationary growth, reflecting a view that Australia's economic fundamentals remain sound and that fiscal and monetary policy settings are supportive of growth. Nonetheless, the weak overall growth and employment outcomes in the last half of 2000, together with other considerations such as recent weak productivity performance and the weaker labour market performance in late 2000 and into 2001, warrant a degree of caution in assessing the immediate economic outlook.

[67] In our view, a degree of caution is required in light of the uncertainty arising from the most recent National Accounts data. Although Treasury and the RBA expect a timely recovery from the December quarter stalling in growth, and although transitional influences were significant contributors to the slowdown, there is some evidence of an underlying slowdown in growth. Further, there are risks to future activity from negative sentiment and slowing world growth. The recent weakening in labour market performance reinforces the need for caution, particularly in light of the requirement to have regard to the desirability of attaining a high level of employment. Notwithstanding the need for some caution we think that some further adjustment of the minimum wages safety net is appropriate and sustainable.

THE ECONOMIC EFFECTS OF A SAFETY NET ADJUSTMENT

[68] The parties put extensive submissions directed to the likely economic effects if the ACTU claim is granted. The submissions focussed on the effect of an increase in safety net award wages on the economy generally, and on particular sectors, with specific attention directed to employment, inflation and productivity. The likely economic effects of the ACTU claim have been raised at two broad levels:

• the effects in aggregate terms on wages growth, inflation, employment and productivity; and


• the effects at the sectoral or enterprise level, recognising that the application of safety net adjustments will vary, as a result of the different incidence of enterprise bargaining and overaward payments, between and within sectors of the economy and the impact on the employment prospects of those employees benefiting from safety net adjustments.

[69] The aggregate effects of any safety net adjustment will vary depending on the amount awarded, any conditions attaching to the adjustment and the general economic context. As discussed earlier, economic activity declined in the December quarter 2000, with an associated weakness in employment. However aggregate wages growth has remained moderate and inflation has remained low. No party suggested that the $15 adjustment awarded in the May 2000 decision played a role in the slower growth recorded in the last half of 2000.

[70] As in past cases, the ACTU and the Joint Coalition Governments advanced cost estimates of the ACTU claim based on elaborate methodologies, made necessary by the absence of any direct and generally accepted cost estimate.

[71] ACCI focussed its submissions on the likely impact on particular employers. It submitted that the real effect of safety net increases is felt by employers subject to an actual increase in labour costs. That effect is substantially masked by a concentration on the impact on aggregate wages growth. ACCI broadly supported the Joint Coalition Governments' estimate of the aggregate economy-wide cost of the ACTU claim, to the extent that a consideration of an aggregate figure was relevant.

[72] The ACTU relied on the methodology used by it in the past safety net cases, utilising unpublished data collected in the May 2000 ABS publication Distribution and Composition of Employee Earnings and Hours.¹⁴ It also provided an alternative cost estimate (EEH method) based on the May 2000 ABS Survey of Employee Earnings and Hours (EEH).¹⁵

[73] The traditional ACTU method compares alternative minimum hourly rates for various classifications said to be representative of its claim with hourly earnings in the ABS earnings distribution data for relevant groups of employees. From this comparison it derives the increases in hourly rates necessary to bring all rates up to the proposed minimum rates (where the claimed minimum rate exceeds the earnings shown in the ABS data). It uses three classification levels for its comparisons in order to calculate low, medium and high estimates. The ACTU then translates this information, applying various assumptions, to estimate economy-wide cost increases, with low, medium and high estimates provided.

[74] Using this methodology, the ACTU produced the following cost estimates in relation to its $28/5.7% claim:

Whole Economy
	%
Low	0.35
Medium	0.68
High	0.99

[75] The ACTU submitted that the impact of its claim on aggregate wages growth was likely to be in the order of its mid-range estimate of 0.68% points, which constituted a 0.34% points net impact on wages growth, having regard to the "pipeline" effect of the 2000 increase. It submitted that the costing indicates a negligible or near negligible impact on inflation of its claim of 0.18% points, net of the "pipeline" effect of the 2000 increase. This impact was said to be modest and consistent with continued employment growth.

[76] The EEH method involves identifying the proportion of employees benefiting from its claim in various workforce groups and calculating the impact on aggregate wages growth. The ACTU, estimated using this method, that what it described as the "maximum percentage increase in total ordinary time earnings" as a result of its claim would be 0.748% points. The term "maximum" was a reference to evidence that in the past not all "award reliant" employees received the benefit of safety net increases. It estimated the aggregate wages cost, using the EEH methodology, to be between 0.62 and 0.75% points.

[77] The Joint Coalition Governments also advanced costings of the ACTU claim based on the EEH. The major methodological difference from the ACTU EEH method concerned the assumption about the application of safety net adjustments to "award reliant" employees in the public sector, a group comprising 12.8% of all "award reliant" employees. The ACTU methodology is premised on there being no benefit from safety net adjustments for such public sector employees. The ACTU submitted that the premise was supported by evidence of public sector union officials. That evidence was to the effect that award dependent public sector employees gained no benefit from safety net adjustments due to residual amounts above properly fixed minimum rates in some awards and the existence of some s.170MX awards. In contrast, the methodology of the Joint Coalition Governments assumed "award reliant" public sector employees would benefit from safety net increases.

[78] The Joint Coalition Governments costing methodology¹⁶ was applied to the ACTU claim, as follows:

Where:

• a is the proportion of workforce at each income level (<=C10 or >C10);


• b is the proportion of the workforce who are award dependent on an hours worked basis (20.1% is derived from the EEH survey result of 24.1% of award dependent employees, adjusted for hours worked);


• c is the % increase for each group, the flat $28 has been converted to a percentage of average earnings (the 3.7%). The 5.7% is the ACTU claim above C10. This slightly overstates the cost as is acknowledged by the Joint Coalition Governments;¹⁷


• a X b X c multiplies the three figures to derive the addition to average earnings; the cost estimate.

[79] On this basis, the Joint Coalition Governments estimated that the ACTU claim, if granted, would add 0.97% points to aggregate wages costs.

[80] At the request of the Commission, the Joint Coalition Governments provided cost estimates, using their methodology, of the impact on aggregate wages growth of various safety net increases, for all sectors and the private sector.

Table 5

Costing of Various Safety Net Adjustment Scenarios

(% point contribution) - All Sectors

Table 6

Costing of Various Safety Net Adjustment Scenarios

(% point contribution) - Private Sector Only*

* The Joint Coalition Governments private sector estimates are expressed as a contribution to private sector ordinary time hourly earnings.

[81] Data previously relied on by the Joint Coalition Governments, from the 1999 Award and Agreement Coverage Survey and the 1995 Australian Workplace Industrial Relations Survey suggest that not all employees classified by survey respondents as "award reliant" benefit from safety net increases.¹⁸ This is most likely to reflect the absorption by residual amounts of safety net increases in some formerly paid rates awards, and to some degree reliance on s.170MX awards, together with some reporting errors by survey respondents who are unable to identify the award rate. As a consequence, data for "award reliant" employees might be better described as showing the potential cost impact, rather than the actual impact.

[82] The various cost estimates provide assistance to the Commission in considering the ACTU claim. They do not, however, provide a direct and uncontroversial measure. The position remains that there exists no completely reliable and accepted cost estimate, with each of the different methodologies being subject to criticism.

[83] A number of parties addressed potential indirect costs of the ACTU claim, said to arise from the flow-on of safety net adjustments to agreement rates of pay and to overaward payments. The indirect costs were said to arise because workers in a strong bargaining position might press for higher outcomes to maintain relativities. Safety net adjustments would raise the floor under bargaining outcomes. Further, it was contended that some employers might pass on safety net increases where there is no legal requirement to do so.

[84] In its Safety Net Review - Wages May 2000 decision (May 2000 decision) the Commission reviewed the evidence then before it and concluded:

"Whilst there is likely to be some indirect cost associated with a safety net adjustment, the AACS survey suggests that it would be limited."¹⁹

[85] In the current proceedings, the Joint Coalition Governments essentially reiterated material and argument put in past proceedings. ACCI relied on material produced by the Retail Motor Industry and anecdotal evidence reported to it. The Retail Motor Industry provided new survey material of a similar nature to that relied upon in past proceedings. That material showed some evidence of indirect effects. However, nothing put to us in the present proceedings causes us to depart from the conclusion reached on this issue in the May 2000 decision.

[86] We consider that the safety net adjustment we have decided upon will have a very limited impact on aggregate wages growth. The impact of the increases we have decided will not materially affect the aggregate net rate of wages growth over the next twelve months, given the "pipeline" effect of the May 2000 increases. Unlike the May 2000 decision, safety net increases arising out of our present decision will not coincide with an increase in the minimum employer superannuation contribution required by the Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992.

[87] The economic effect of any safety net increase on inflation will depend upon a number of factors including any monetary and fiscal policy response and the effect of any productivity improvements made by employers in an attempt to offset the cost of the increase. Given a limited impact on aggregate wages growth, any effect on inflation would be minimal because wages form only part of total costs. Further, measures taken to offset the impact of the increases through productivity improvement would also limit the impact.

[88] We are required by the Act to ensure a safety net of fair wages and conditions is established and maintained, having regard to, amongst other matters, the desirability of attaining a high level of employment (s.88B(2)(b)). It is generally agreed that a moderate level of minimum wages and moderate safety net increases would have little impact on the level of employment, with debate focussed on what would constitute a moderate safety net adjustment in the context of the present proceedings. The likely employment effects of granting the ACTU claim were the subject of considerable disagreement.

[89] Two main aspects were dealt with in the submissions:

• the macro-economic effects, including the effect of a higher general level of real wages on economic activity and employment; and


• the micro-economic effects, including the extent to which wage increases which impose or accentuate a pattern of wage relativities different from that which would emerge from the market will cause structural unemployment.

[90] The parties put extensive submissions as to the effect of changes in real wages on the level of economic activity and employment. Many of those submissions have been put to the Commission in previous cases.

[91] The Joint Coalition Governments relied on modelling undertaken by the Commonwealth through the Treasury Macroeconomic model (TRYM model). The NFF relied on economic modelling undertaken for it by consultants, Access Economics, together with the paper by Tulip referred to above.

[92] As in the previous case, the reliance on the TRYM model by the Joint Coalition Governments prompted criticism of the model by the State Labor Governments and the ACTU. On this occasion, the criticisms were based, in part on a comparison of differences between the TRYM and Access Economics modelling outcomes and a comparison of the magnitude of the TRYM model outcomes with errors in past Treasury forecasting.

[93] Whilst the TRYM and Access Economics modelling provide some guidance as to direction of effects, we think it unwise to place weight on the specific magnitude of effects arising from the models. Econometric models are the product of technical specifications which are open to debate. The output of the models is a product of their construction and must be assessed carefully. The differences between the outcomes of the two models relied on in the present proceedings reflects the underlying construction of the models. The major differences between the TRYM and the Access Economics models described by the NFF are twofold²⁰. First, different economic theory underlies the models, with the TRYM modelling a neo-classical world, while Access Economics models a neo-Keynesian world. Second, the different manner in which wages "shocks" are fed into the models. The outcomes of both models reflect their construction including the historical labour elasticity contained in them. Further reservations about the TRYM model arise from the practice of retrospectively adjusting the TRYM model safety net inputs and the absence of any estimates of standard errors associated with the results. The modelling outcomes are properly seen as one of many inputs for our consideration in assessing the possible economic effects of safety net adjustments. That assessment ultimately involves a wider range of inputs and the application of judgment.

[94] The Tulip paper examines the impact of a 10% increase in the minimum wage relative to wages generally on the Non-Accelerating Inflation Rate of Unemployment in the United States²¹. The ACTU claim does not entail a wages shock of that nature. As such, the Tulip paper is of limited assistance.

[95] We are not persuaded to depart from the conclusion expressed in past decisions that whilst there is no automatic relationship between the two, real wage growth will have a tendency to adversely affect aggregate employment growth. The extent of such effect will depend upon the prevailing economic circumstances and the extent of the real wage movement.

[96] The micro-economic perspective addresses the reality that safety net increases will impact differently on sectors of the economy and enterprises. The differential impact reflects a range of considerations. These include:

• the incidence of award dependent employees, whose wages will be directly affected by safety net increases;


• different economic circumstances, evident in the recent relatively poor performance of the construction and manufacturing sectors;


• differential productivity performance;


• differential profitability;


• varying competitive pressures; and


• different institutional arrangements, for example in the role perceived of insurers and petroleum suppliers revealed in the Retail Motor Industry surveys.

[97] The sectoral considerations are important. The fact that a safety net increase will impact differently across sectors and enterprises is a relevant consideration, amongst others, to be taken into account in determining the level of safety net adjustments to be awarded. The Economic Incapacity Principle recognises that the impact of an increase in labour costs on employment at the enterprise level is a significant factor to be taken into account in determining whether an employer is experiencing very serious or extreme economic adversity.

[98] Further material was put to us in the present proceedings, arising out of a continuing academic debate and a variety of empirical research outcomes in assessing the impact of minimum wages on employment. The additional material does not establish a basis to depart from the conclusion of the Commission in previous decisions that moderate wage increases in the wages of the low paid, of themselves, do little or nothing to diminish job prospects. In the current economic conditions the adjustment we propose to award will have minimal impact on job prospects. We recognise however that in the context of recent weaker labour market performance, some caution is required in adjusting minimum safety net wage levels.

Conclusion

[99] As we have concluded earlier, the economic outlook as a whole suggests that the economy can accommodate further reasonable improvements in the safety net of minimum wages. The contribution to aggregate wages growth from the safety net adjustment we have decided upon will have a limited effect on economic activity, inflation, employment levels and productivity. In determining both the level and structure of safety net increases, we have had regard to the level of uncertainty about immediate economic prospects and the recent weaker labour market performance. We have also had regard to the differential impact of safety net increases and sought to protect employment by giving weight to the potentially greater employment impact of increases at the level of the lowest skilled classifications.

NEEDS AND THE LOW PAID

[100] Consideration of the needs of the low paid is one of a range of statutory objects and prescribed considerations to which the Commission must have regard. The objects of Part VI of the Act (s.88A) include the following:

"The objects of this Part are to ensure that:

(a) wages and conditions of employment are protected by a system of enforceable awards established and maintained by the Commission; and

(b) awards act as a safety net of fair minimum wages and conditions of employment . . ."

Subsection 88B(2) requires the Commission to establish and maintain a safety net having regard to:

"(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;

(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;

(c) when adjusting the safety net, the needs of the low paid."

Subsection 90(b) requires the Commission in performing its functions to take account of the public interest and for that purpose to have regard to:

"(b) the state of the national economy and the likely effects on the national economy of any award or order that the Commission is considering, or is proposing to make, with special reference to likely effects on the level of employment and on inflation."

[101] The parties put diverse submissions concerning the manner in which the Commission should approach the consideration of the needs of the low paid.

[102] The ACTU submitted that the situation of the low paid is one of unmet needs which continues to feature tight finances and modest expenditure which is overwhelmingly directed toward the necessities of food, clothing, housing and utilities. There is the ever present financial stress which requires low paid employees to carry a level of debt in order to make ends meet, and to go without things and activities associated with full and active participation in society.

[103] As in previous cases the ACTU relied on statements from employees in a range of occupations to demonstrate the difficulties those employees had in affording basic necessities. Those opposing the ACTU claim did not seek to cross examine any of the employees who provided statements.

[104] It was also submitted by the ACTU that, whilst all employees are contributing to improved productivity and national wealth, unless the Commission adjusts minimum award rates of pay, those workers who are paid under the award system will not share the benefits.

[105] Among the materials relied upon by the ACTU was a study by the Smith Family, "Financial Disadvantage in Australia 1999; the Unlucky Australians?" which concludes:

"In Australia today having a job no longer guarantees that you and your family will not be in poverty."²²

[106] The ACTU also relied on statistical data provided by the ABS in the Household Expenditure Survey Australia 1998/1999²³ and on research conducted for a series of newspaper articles entitled "Advance Australia Where?".

[107] The ACTU submitted that safety net adjustments to award wages have provided an important buffer against entrenched poverty for low paid workers. It relied on research by Buchanan and Watson²⁴ of the Australian Centre for Industrial Relations Research and Training. This research showed that the proportion of workers employed on low hourly rates increased during the late 1980s and early 1990s and then declined during the 1990s. Those authors also suggested a level of protection had been afforded to the low paid in employment by "the series of safety net adjustments to minimum rates of pay which have been handed down by the AIRC during the mid to late 1990s" which they say has sustained a "floor" beneath the working poor and "protected low paid workers from the worst excesses of deregulation".

[108] The ACTU also addressed the impact of the GST on low income workers. It submitted that tax cuts for those on lower incomes were smaller than those on higher incomes and argued that there is no sign that any other section of the community has moderated its wage outcomes by reason of the impact of the GST. In this respect the ACTU observed that an employee on the federal minimum wage received a tax cut of $9.15 per week compared to a high income earner who received a tax cut of $61.80. Accordingly, it was submitted by the ACTU, any suggestion that the Commission take into account the tax benefits or increases in family welfare in considering the award of a safety net wage increase should be dismissed. The ACTU also argued that the overall effect of the GST on low paid employees did not compensate for bracket creep and movements in prices.

[109] The State Labor Governments submitted that research suggests that earnings mobility at the bottom of the labour market is quite limited and that with the growth of part-time, casual and contract work, low paid workers are more likely to be entrenched into a future of low paid work. They submitted that research by Mitchell²⁵ reveals that a larger proportion of the workforce now face lower real wages due, in part, to deregulation of the labour market.

[110] AiG submitted that low income earners had received benefits from tax cuts and lower interest rates. It said that excessive safety net wage increases would have a negative impact on all classes of wage earners but in particular low income earners. AiG submitted that the responsibility for addressing any social problem for low paid workers should not rest with employers but that Governments should ensure that social welfare systems are adequate to address the social security needs of constituents.

[111] ACCI argued that the ACTU position ignored the effect of an increase in the minimum wage on employment levels. It argued that the increase sought by the ACTU would affect the employment prospects of the very people it seeks to assist. It also said that the evidence provided by the ACTU in its witness statements did little to support its claim other than to demonstrate that different individuals and different households have different expenditure patterns and requirements.

[112] The Joint Coalition Governments submitted that a flat dollar increase of $10 per week should apply only to award rates up to and including the equivalent of the tradesperson's rate. They submitted that there have been strong rises in living standards for low income working families and strong increases in real award wage rates, arguing that the ACTU and the State Labor Governments presented an unduly pessimistic account of recent changes in living standards for low paid workers.

[113] The Joint Coalition Governments also submitted that unemployment remains the key cause of poverty in Australia and that to reduce unemployment will reduce poverty. Their submission was that to award the claim sought by the ACTU would not reduce unemployment and that any increase to award wages would benefit mainly middle to high income families, not families in poverty.

[114] The Joint Coalition Governments then submitted that granting the ACTU's claim would put at risk the continued employment of many low paid and lower skilled workers and worsen the job prospects of the unemployed. As an example they submitted that the lowest classification in the Metal Industry Award (which is equivalent to the federal minimum wage) was 8.8% higher in real terms in June 2000 than in June 1996. They also observed that employment growth among less skilled workers has been lower than the overall average in recent years.

[115] A considerable amount of the Joint Coalition Governments' submission and the material tendered in support of those submissions focussed on the complexity of measuring poverty and deprivation generally, as well as the limitations upon affecting specific distributional outcomes by means of adjustments to the wages safety net prescribed by the award system.

[116] The ACTU and the Joint Coalition Governments disagreed concerning the conclusions which could be drawn from the statistical information about the link between wages and poverty. This disagreement concerned the extent to which Australian society is witnessing the emergence of an economic strata of working poor, namely, a group of employed persons whose wages are insufficient to avoid poverty. The Joint Coalition Governments strongly submitted that the evidence does not support the conclusion that the emergence of a group of working poor is an observable and growing tendency.

[117] The Joint Coalition Governments focussed at length on the level and distribution of income in families and households. Their submission was that the adjustment of the award safety net of wages should have regard to the fact that low paid employees do not all live in households which could be described as living in poverty. On the contrary, they said, many low paid employees live in families or households whose capacity to share economic resources provides the means for low paid employees to meet their needs.

[118] ACOSS provided brief written submissions which in general terms reflected submissions presented in previous cases. It noted that the most recent data from the National Centre for Social and Economic Modelling (NATSEM), published by the Smith Family,²⁶ indicates that in 1999, among households whose main source of income was wages, 297,000 adults and 164,000 children live in poverty. Although this represented just 5% of children and 3.9% of adults living in such wage-earning households, it represented 19% of all people living in poor households. ACOSS submitted that:

"Adequate minimum wages are particularly important in sustaining a decent standard of living for the growing number of casual and part-time workers. [ABS 1999(a) `Australian Social Trends.' 1999]. In addition, intermittent work has become a feature of life for many job-seekers, blurring the previous sharp distinction between employed and unemployed workers."

[119] It also submitted that along with the social security system, minimum wages are a key foundation for the living standards of a growing number of people who move in and out of employment. Given the tenuous nature of their employment, those persons are less likely than the majority of workers to benefit from individual or collective bargaining arrangements.

[120] ACOSS said that although there is a relationship between wage levels and employment growth, there is considerable debate over the likely magnitude of the employment response to any decline in low wages. Whilst it is concerned about the impact of wages on unemployment levels, it rejects any suggestion that low paid workers should bear a disproportionate burden of aggregate wage restraint and reiterated its previous submissions that the burden of wage restraint should be fairly shared. ACOSS also expressed the view that minimum wages should be set significantly above the poverty level for a single person, to provide a fair reward for labour and to preserve work incentives for unemployed people.

[121] Again ACOSS urged the Commission to undertake an enquiry to ascertain an appropriate, adequate benchmark for minimum wages and sought that the Commission substantially increase minimum wages to ensure they do not fall any further behind movements in average earnings.

[122] The Australian Catholic Commission of Employment Relations provided submissions on behalf of Catholic organisations operating in the education, health and aged care and welfare sectors and in parish and diocesan administration. ACCER submitted that it considered the award system as a necessary feature of the Australian industrial relations system and supported the system as a means of establishing fair minimum wages and conditions of employment. It supported any increase being a flat dollar increase to award rates to provide primary assistance to the low paid and suggested a tapered scale of flat dollar increases which might provide the best balance between meeting the needs of the low paid and maintaining vertical relativities. As in previous cases ACCER did not propose any particular increase but noted:

"[T]here does not appear to be any identified evidence to suggest that the $15 per week increase awarded in the Safety Net Review Decision 2000 has had a negative impact on the Australian economy."

[123] The Australian Bahá'í Community submitted that extremes of wealth and poverty in society are profoundly harmful to society's well-being and progress. Its submission was that the gap between the highly paid and the lowly paid is widening and sought that the Commission address the issue of pay rises for the low paid. The case before the Commission provides an opportunity to ensure that society deals justly and equitably with its members and provide the low paid with the means for living a dignified life.

[124] UnitingCare provided a number of case studies to demonstrate the plight of the low paid. It submitted that where employers successfully argue the case for lower wages, they shift the responsibility for ensuring workers have an adequate income from themselves to taxpayers. It also referred to studies which concluded that many workers on low wages are living in poverty. Those studies looked at the effect of economic stress on families and in particular children. It submitted that, in terms of workers' needs, the increase sought by the ACTU seems a very moderate rise, a mere amelioration of the situation.

Conclusion

[125] As noted in previous decisions the statutory scheme does not give to the Commission a supervening social welfare responsibility either for incomes generally or their distribution. The scheme regulates wages and conditions of employment and requires the adjustment of the minimum wages safety net contained in awards having regard to particular considerations. The information about income levels and distribution provided by the parties is informative of Australian living standards. However, it must be taken into account having regard to the limited nature of our task and statutory responsibilities. In the April 1999 decision the Commission said:

"Considering the needs of the low paid requires the exercise of judgment as to varying income levels and the resultant living standards attained in the Australian community. There is clearly a gap between income levels derived from bargaining and those provided by the award system. The evidence and submissions inform the Commission in its task of adjusting the safety net. Central to the adjustment of the safety net consistent with ss.88B(2) is a consideration of the economic factors, the desirability of attaining a high level of employment and the needs of the low paid. In this context we reject the proposition that the low paid include people who are unemployed. The relevant statutory provisions deal separately with the low paid and the unemployed and the expression `the low paid' in ss.88B(2)(c) is intended to refer to persons who are in employment. However, we are required by ss.88B(2)(b) and 90(b) to take the level of employment into account and we have done so. Many low paid employees are unable to afford what are regarded as necessities by the broader Australian community."²⁷

[126] The Commission reiterated that conclusion in the May 2000 decision. We again see no reason to depart from it. The evidence presented in this case again revealed that employees on low wages do experience difficulties making ends meet and in affording what are generally considered by the broader community as basic necessities. In this context we note the disagreement between the parties about the size of the group of employees in this position. It is not necessary, even if it were possible, to identify the size of the group in order to reach a decision in this case. We acknowledge that the material does indicate that people on low incomes face particular difficulties and that is one of the factors which we have taken into account.

[127] We were presented with arguments by the Joint Coalition Governments about the distribution effects of a minimum rate adjustment. In the May 2000 decision the Commission considered similar arguments and concluded:

"The Joint Coalition Governments submitted that limiting safety net increases to at or below the C10 classification rate would better target those in need. We are not convinced on the material before us that providing a cut-off at C10 would prevent spillage of some of the benefit of safety net adjustments to those not in need. Indeed we are not sure where any such cut-off could be set in order to better target the benefit of safety net adjustments.

As a result of societal change it is often the case that there are two wage earners (sometimes more) within a family unit. It is not surprising that it is no longer as simple as it once may have been to view the income of an employee as an indicator of household income. It may be that safety net wage increases intended to assist the low paid will supplement the income of some households of relatively high means. We accept that safety net adjustments are not perfectly targeted to meeting the needs of the low paid. They do, however, assist in meeting those needs."²⁸

Nothing in the material presented on this occasion by the Joint Coalition Governments leads us to alter the view there expressed.

DECISION ON THE ACTU WAGE CLAIM

[128] We have already noted that after several years of strong non-inflationary economic growth, growth fell away in the second half of 2000, with GDP declining in the December quarter. There was a consequent weakening in the labour market. Whilst there is some disagreement about the cause of the slowdown in growth no party submitted that there are structural imbalances in the economy and the ACTU, all governments and some employers submitted that growth is likely to recover during 2001. Furthermore most parties who opposed the ACTU's claim nevertheless supported an increase of some kind whether at the level of the minimum wage only, up to the level of the C10 classification in the Metal Industry Award or to all award rates. Since the last adjustment in the wages safety net in May 2000 earnings generally have continued to increase at the rate of 3% per annum or more. Wages and salaries included in certified agreements have been growing at an even faster rate. Inflation, when the effect of the introduction of the GST works through the economy, is likely to remain within the RBA's target band of 2-3% per annum. There are signs of an increase in the rate of unemployment, although it is hard to say whether they indicate a temporary setback or a more fundamental change in the labour market. We have taken all of these factors into account in reaching our decision. We agree with those who submitted that in the current economic environment a degree of caution is required.

[129] On a number of occasions since 1997 the Commission has drawn attention to the fact that adjusting the award safety net by uniform dollar amounts erodes relativities between award classifications and has the potential to cause structural problems and unfairness to higher paid employees. In the May 2000 decision we said:

"The last occasion on which the Commission awarded a percentage adjustment to award rates generally was in the April 1991 National Wage Case [Print J7400, 1991/4 CAR 204]. Since that time there have been six adjustments to award rates generally which have been in flat money amounts. Relativities have been compressed further by the tapering of the amount of the increase at the higher levels in 1998 and 1999. As a consequence the rate of increase in award rates at the lower levels has continually exceeded the rate at the higher levels. Each of these decisions has given priority to the needs of the low paid and in relative terms the low paid have benefited significantly from this approach. We have decided to maintain the approach of granting a flat dollar increase on this occasion. We indicate now, however, that on the next occasion that award rates are reviewed we shall expect to be addressed on whether a return to percentage adjustment is appropriate to ensure that the award system provides fair wages for employees paid at the middle and upper award classification levels. A proper examination of that question will necessarily include an assessment of whether the reasons for percentage adjustments contained in the extract from the April 1997 decision which we have set out remain valid."²⁹

All of the major parties made submissions on this issue in the present case.

[130] As noted earlier in this decision the ACTU seeks a flat money adjustment up to the level of the C10 classification in the Metal Industry Award and a percentage increase above that level. It argued that the percentage increase it seeks above the C10 level will ensure that the award system provides fair wages for employees at the middle and upper classification levels. In support of its position the ACTU argued that there has been a significant compression of relativities in the award rate structure since 1991. Such a compression undermines fairness by diminishing the extent to which award rates properly reflect the relative skills and responsibilities of jobs covered by awards and by diminishing the extent to which award rates act as a genuine safety net. It also submitted that a substantial gap is emerging between award rates and rates generally prevailing in the community. The award system will not act as a genuine safety net if it lags so far behind the market as to be irrelevant. Unless minimum rates for upper and middle level classifications are properly maintained there is a risk that these classifications will cease to have practical effect and the overall structure of the safety net will be weakened.

[131] The State Labor Governments supported the position of the ACTU arguing that adoption of the proposal would significantly arrest the compression of relativities particularly at the upper classifications levels where compression has been more marked, with the needs of the low paid still being emphasised through a flat money increase to classifications below the skilled tradesperson level.

[132] The Joint Coalition Governments supported a flat money increase capped at the C10 level. In support of this position they argued:

• by awarding flat dollar amounts since 1997 the Commission has given weight to the needs of low paid workers;


• safety net adjustments should continue to be targeted to the low paid;


• the role for relativities under the Act is confined to relativities between awards and that the labour market no longer exhibits the problems which prompted the establishment of the structural efficiency principle and the award restructuring process. Workplace relations are now focussed at the enterprise level and maintaining historical relativities is no longer relevant in the current labour market;


• there is no evidence to substantiate presumptions of unfairness to the higher paid by imposing a cap at the C10 level, nor is there evidence to suggest that in general employees at workplaces are not being adequately paid for their skills or that the compression of relativities in awards is causing particular problems at workplace level;


• there is no reason to expect compression in award wage relativities will lead to a fall in the incentive to undertake more skilled work as employers are always free to pay above award wage rates either through formal or informal arrangements; and


• it is not necessary for workplaces to rely on using award clauses to establish skills development and/or training arrangements to suit their organisational needs. If the increase is not capped there is a danger of diminished incentive for employees at middle and upper award levels to engage in agreement making which could stifle flexible approaches to skills development and classifications structures which benefit skilled employees.

[133] ACCI in support of its submission that an increase be applied only to the federal minimum wage rather than to all award classifications made reference to the lack of use in certain sectors of award career structures. It submitted that important aspects of award classification systems are not being implemented. Thus they provide no support for any arbitrated increase to apply other than to the federal minimum wage. It argued that workplace relativities are a matter for the market and will be set by the market. It also submitted in its answers to questions that:

"Nor is now in any way a good time to revisit an approach of applying a percentage adjustment rather than a flat amount, given the increased distributional effects of a percentage adjustment."

[134] AiG submitted that the compression of relativities to date had not caused a significant problem and that it would be unfair and damaging to make any attempt to restore the 1991 position. It accepted that the following points from the Safety Net Review - Wages April 1997 decision (April 1997 decision) remain important:

• "Internal award relativities remain an important determinant of the fairness of the minimum wage structure within awards and award rates cannot be fair if they do not properly reflect the relative skills, responsibilities, etc of jobs covered by the award.


• It is not appropriate to leave it to workplace agreements to establish appropriate relativities, particularly, given the fact that it is common for workplace agreements to build uniform percentage increases on to the established award rates; and


• the provision of skill-based career structures in awards is a significant way in which employees are encouraged to improve their skills, contribute to higher productivity and advance to higher wages."

[135] AiG argued that there is a fundamental tension between the requirement to protect the low paid and a desire to protect the integrity of skills based classification structures. It submitted that there must come a point where flat increases threaten the integrity of the relativity structure. However, it agreed with the State Labor Governments that such a point had not yet been reached and that given the conflicting goals of protecting the low paid and protecting the integrity of classification structures a flat increase without cut off should be awarded on this occasion.

[136] In arriving at a conclusion on these issues it is necessary to first deal with the Joint Coalition Governments' submission that maintaining an historical set of internal relativities is no longer relevant to current legislative arrangements or the current labour market. The Joint Coalition Governments submitted that the Workplace Relations and Other Legislation Amendment Act 1996 (the WROLA Act) recognised these factors by "removing from Part VI of the Act the object that underpinned and supported the Structural Efficiency Principle", that object s.88A(d) of the Industrial Relations Act 1988 required that "regard is had, in connection with making, reviewing and varying awards, to stable and appropriate relativities based on skill, responsibility and the conditions under which work is performed, and on the need for skill-based career paths".³⁰ The Joint Coalition Governments submitted that the omission of s.88A(d) was intentional and that the concept of an award safety net focusing on low paid workers should inevitably result in those on higher classifications rates not being eligible to receive a safety net increase.

[137] We are unable to accept the Joint Coalition Governments' submission. The Commission has previously rejected the submission that the legislative scheme compels the conclusion that employees on higher award classification rates should generally not be eligible for award safety net increases. We reaffirm that rejection. Section 88A(b) of the Act provides that it is an object of Part VI to ensure that awards act as a safety net of fair minimum wages and conditions of employment. Section 88B(2) of the Act provides that in performing its functions under Part VI the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained. It is true that s.88B(2)(c) of the Act provides that when adjusting the safety net the Commission must pay regard to the needs of the low paid. However we do not think that this object can be elevated in such a way as to displace the obligation on the Commission to maintain a safety net of fair minimum wages for all employees. In this respect we do not see how the use of the plural term "wages" can be ignored. We are fortified in this conclusion by two additional factors. First, s.89A of the Act provides that classifications of employees and skill-based career paths are allowable award matters. We think it follows that where classification structures and skill-based career paths are included in awards they are a relevant feature of the safety net of fair minimum wages and conditions which the Commission is obliged to maintain. Second, awards play an important role in the operation of the no-disadvantage test. Agreements for which certification is sought under other divisions of the Act must be tested against appropriate safety net awards. In this context it would be incongruous if the Commission was not obliged to maintain fair minimum wages for employees at higher levels of the award structure. While there may be circumstances in which a safety net adjustment may be appropriate only at lower classification levels, we do not accept that such a position is an inevitable consequence of the present legislative scheme. As we have already noted this is not the first occasion on which the Commission has rejected such an argument. In a number of recent safety net review decisions the Commission has pointed to the tension in the Act between the obligation to maintain the award safety net and, when adjusting the safety net, to have regard to the needs of the low paid. In future safety net reviews we would be assisted by submissions which recognise that tension and make proposals as to how it should be resolved in the particular case.

[138] In relation to the Joint Coalition Governments' submissions about current labour market conditions we consider it is clear from the material before us that relativities remain an important feature of the labour market in general. As AiG pointed out in its written submission some 94.6% of agreements certified in the third quarter of the year 2000 contained a percentage increase and 93% of employees covered by agreements certified in the same quarter received a percentage increase. There is a compelling inference from this material that relativities within the labour market remain important.

[139] We believe that there will be occasions where in order to comply with the statutory objects discussed above, and to avoid further erosion of relativities in skill-based classification structures, a percentage adjustment may be appropriate. In our view skills, responsibilities and the conditions under which the work is performed remain relevant considerations in the fixation of fair minimum wages. However the form of the increase is a matter for determination on the merits of the particular case taking into account all of the relevant statutory provisions. In this case we have concluded that it would not be appropriate to award a percentage adjustment. No party has sought such an adjustment throughout the award structure. The ACTU claim is for a flat increase for workers at lower classification levels and a percentage adjustment above the level of the C10 classification in the Metal Industry Award. We are also mindful of the need for caution in a period of economic uncertainty and the lack of adequate material and data regarding the likely impact of any return to percentage adjustments. However we consider that it is appropriate on this occasion that the safety net adjustment be in such a form as to address the issue of compression and the need to ensure the maintenance of a fair safety net of minimum wages for all award dependent employees. In reaching this view we recognise the tension in the Act referred to earlier.

[140] We turn then to consider the appropriate form and amount of the increase in this case. Section 88B(2) of the Act reads as follows:

"(2) In performing its functions under this Part, the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained, having regard to the following:

(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;

(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;

(c) when adjusting the safety net, the needs of the low paid."

Section 88B(2)(a) emphasises fairness. Since 1994 the adjustments to award rates in safety net review cases have all involved flat dollar amounts. In most cases the increase has been the same at all award levels. On two occasions the amount of the increase has been less in dollar terms at the higher than the lower levels. As a result those employees on award rates at the middle and upper levels have received less in relative terms than those at the lower levels. Although it would be open to the Commission to award an increase only to those persons employed on the federal minimum wage or only to those employed at or below the level of the C10 classification in the Metal Industry Award we are convinced it would be unfair to limit the increase in that way because of the effect on employees at the higher levels. In the May 2000 decision we decided that because of our concern about compression of relativities we would award a uniform increase at all levels rather than one which was lower at the higher levels. On this occasion we think that it is appropriate to recognise the different impact of flat dollar increases at the different award classification levels by awarding higher amounts at the middle and upper levels. At the same time while the increase at the lower level is substantial it is not so great as to put undue pressure on employment. The amount and form of the increases are an appropriate outcome to the ACTU's claim. The form of adjustment is appropriate for reasons of fairness and as a measure towards avoiding the further compression of relativities between job classifications. Furthermore the result is consistent with the obligations upon us to have regard to economic factors, including the desirability of attaining a high level of employment, and to have regard to the needs of the low paid. The adjustment will be the following:

1. a $13.00 per week increase in award rates up to and including $490.00 per week;

2. a $15.00 per week increase in award rates above $490.00 per week up to and including $590.00 per week; and

3. a $17.00 per week increase in award rates above $590.00 per week.

[141] We are confident that the economic impact of the adjustment will be manageable. Whilst the adjustment is greater in dollar terms at the higher levels than the adjustment last year, the majority of employees to benefit are at the middle or lower levels of the award classification structures. At those levels the amount of the adjustment is the same as or less than last year. It is also relevant that the cost impact of the increase is less than a comparison with last year might suggest because this year the increase will apply to a higher base.

[142] In recent years there has been strong growth in real earnings across the economy. In the generally favourable economic conditions which have prevailed the Commission has been able to make significant adjustments in the wages safety net. We mentioned earlier our concern about some adverse developments in the labour market. The December quarter 2000 National Accounts also give cause for concern, particularly the growth statistics. Nevertheless we have given weight to the predominant view among the parties that because of the underlying strength of the economy growth will recover during the course of 2001.

[143] As we indicate later in dealing with amendments to the Statement of Principles we have decided to modify the requirement that safety net adjustments increases not be available within twelve months of the previous safety net adjustment. That modification will only apply to cases in which the parties consent and there is no cost impact arising from the adjustment. Apart from that modification implementation of the adjustment provided for in this decision will be subject to the usual conditions. The conditions are:

(a) the increases will be fully absorbable against all above-award payments;

(b) except where specifically permitted by the Statement of Principles, the increases will be available from a date no earlier than twelve months after the increases provided for in the May 2000 decision in the award in question;

(c) the commencement of award variations to give effect to this decision will be no earlier than the date on which the award is varied, with phasing-in of increases permissible where circumstances justify it. Any application for phasing-in will be referred to the President for consideration as a special case;

(d) by consent of all parties, and where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates; in the absence of consent, a claim that award rates be so expressed may be determined by arbitration; and

(e) allowances which relate to work or conditions which have not changed and service increments are to be varied; the method of adjustment is to be consistent with the Furnishing and Glass Industries Allowances Decision.

[144] Consistent with our decision the federal minimum wage will be increased by $13.00 per week to $413.40 per week.

THE STATEMENT OF PRINCIPLES

[145] In this part of our decision we deal with a number of issues raised in the submissions concerning the Statement of Principles and some related matters concerning the Commission's award-making function.

[146] ACCI suggested that agreement making could be encouraged by providing for a longer period of delay before a safety net adjustment becomes available. It submitted that there should be a new wage fixation principle which provides that an award may be varied for the arbitrated safety net adjustment after a period of twenty-four months since the rates in the award were increased in accordance with the May 2000 decision. It proposed that after a twelve month period since the previous safety net adjustment an application may be made with respect to a business or group of businesses which have developed a bona-fide enterprise agreement which includes application of the arbitrated safety net adjustment. If the award was then varied to reflect the safety net adjustment it should only be with respect to that business or group of businesses.

[147] In the April 1999 decision the Statement of Principles was amended to require at least twelve months to have elapsed since the April 1998 safety net adjustment. In the May 2000 decision the Commission said:

"We also intend to maintain the requirement introduced in the April 1999 decision that at least twelve months must have elapsed since the rates in the award were increased in accordance with the last safety net adjustment before the award is varied as provided for in this decision. The purpose of the requirement is to avoid the cost pressures which might arise if more than one safety net adjustment is implemented within a twelve month period". ³¹

[148] We are not persuaded by the ACCI submission that we should delay, beyond a twelve month period, access to the increases allowable under this decision. Nor are we persuaded that a delay in excess of twelve months between safety net adjustments would be likely to encourage agreement-making. We also doubt that the proposal of ACCI is consistent with awards operating as a fair safety net of wages. For an award to be such, access to safety net increases should not be contingent on matters more appropriate to be dealt with in bargaining. Nor should safety net adjustments operate from different dates for different groups of employees in the one award based on the outcome of bargaining.

[149] ACCI submitted that the Commission should ensure there are no other major labour cost increases to employers arising from award variations additional to increases as a consequence of a safety net adjustment. It submitted that any other increases should be strictly limited and be justified as a special case only. It submitted that such a case be "special, isolated and unique with no flow-on". It asked the Commission to reinforce the nature of a special case.

[150] Principle 10 provides that "an application to make or vary an award for wages or conditions above or below the safety net will be referred to the President for consideration as a special case". There is no evidence about any difficulty in the application of this principle in the past. In our view it is not appropriate to place restraints on the circumstances that may constitute a special case. Each case that is said to be special should be able to be considered consistent with the provisions of the Act and on its own merits and facts.

[151] We have considered whether the Statement of Principles should be amended to allow for more than one safety net adjustment to be awarded at the same time. This issue has arisen in particular in relation to the award simplification process. No party was opposed to such an amendment to the principles however it was submitted that certain conditions should be complied with before any award could be varied.

[152] The justification for the twelve month delay between safety net adjustments has been referred to already. We have decided that a member of the Commission should be able to waive the requirement for twelve months to have elapsed between wage adjustments allowable under previous safety net decisions provided that each party to the award consents to the variation and there is no cost to any employer party to the award. In any other case where a party seeks to vary an award for more than one safety net adjustment that party will need to apply for and justify the variation as a special case.

[153] The Statement of Principles will be amended to reflect this decision. With some additions we have adopted the Joint Coalition Governments' proposed amendment to Principle 8, which will be in the following terms:

"(c) In awards where the variation for a safety net adjustment arising from the April 1999, May 2000 or May 2001 decision is by consent and does not result in an increase in the wage rates actually paid to employees or increase the wage costs for any employer, any applicable twelve months' delay between variations, may be waived."

[154] The NFF submitted that variations to expense related allowances referred to in Principle 5(a) should be subject to the same requirement as applies to safety net adjustments, namely such variations should only be made after a period of twelve months has elapsed since the last variation. NFF submits that such allowances should not be able to be varied more frequently. It justifies its proposal on the ground of administrative convenience and to avoid a plethora of applications.

[155] There is, however, no evidence of any such plethora of applications being made nor of any inconvenience, administrative or otherwise about the way in which this principle, now in existence for several years, operates. We are aware that in some industries the parties to awards wish to have the allowances varied on a more frequent basis than annually. We are not persuaded there exists a need to vary the principle in the manner suggested by the NFF or that it would be appropriate to do so.

[156] AiG made a submission concerning award structures. It suggested that the Commission should implement measures to encourage the industrial parties to rationalise their award structures and reduce the number of awards. It submitted that whilst benefits had flowed from the simplification of the contents of awards little had been done to rationalise and simplify the scope of awards. It proposed that only one award should apply to each major industry sector. As an alternative interim step, awards could be combined within major segments of each industry. This matter was said to be appropriate to be considered as part of the current safety net review as it concerned the structure of the award safety net. AiG submitted that it would be appropriate for the Commission to convene a conference of the major parties during the year to explore relevant issues and endeavour to achieve consensus. If no consensus was achieved the issue could be dealt with in subsequent safety net proceedings and it may then be necessary to amend the wage fixation principles to deal with this matter.

[157] We accept that this issue is important. However we are not persuaded that now is the time for a conference. Many of the parties to awards are currently required to commit a significant amount of time to the simplification of awards which is a process required by the WROLA Act. This process should continue to be given priority. We note that simplification has already led to significant rationalisation of award coverage in a number of areas. We encourage award parties to continue to consider rationalisation of award structures either as part of award simplification or independently. The desirability of a conference subsequently to discuss the rationalisation of awards is a matter which may be raised again at an appropriate time.

[158] ACCI submitted that the Commission should ensure that its awards provide the flexibility required to assist employees with family responsibilities. It suggests that when an award is varied to include the arbitrated safety net adjustment the Commission should enquire whether the award appropriately provides for personal/carers leave and regular part-time work consistent with the Family Leave Test Case³² and the Personal Carer's Leave Test Case Stage 2.³³

[159] It is open to any party to an award to apply for an award variation to reflect those test case decisions. It is desirable for parties to make such applications where appropriate to their circumstances and the circumstances of the particular industry or industry sector concerned. We also note that as part of the simplification of awards required by Item 51 of the WROLA Act the Commission must review each award to determine "where appropriate that, it contains provisions enabling the employment of regular part-time employees". This provision allows a party to raise the issue of part-time employment during award simplification and requires the Commission to consider the appropriateness of such employment. There are, in our opinion, adequate opportunities for parties to incorporate into awards the flexibility to which ACCI refers.

[160] ACCI also submitted that the Commission should endorse the need for majority clauses in awards. AiG suggested a discussion about majority clauses could be part of the conference it asked the Commission to convene in relation to award structures.

[161] Majority clauses were discussed in the Safety Net Adjustments and Review decision of September 1994³⁴ when the Commission considered how flexibility in the award system may be promoted. The role and function of a majority clause was there described and examples of such clauses which had been determined by arbitration were given. The issue was again referred to in the October 1995 Third Safety Net Adjustment and Section 150A Review decision.³⁵ In that case it was said that:

"The debate about majority clauses is not new. In the April 1991 National Wage Case decision [Print J7400], the Commission said:

`In light of the Commission's experience with majority clauses in awards, we suggest that the parties should give consideration to inserting such clauses in awards . . . The parties should give particular attention to the practical implementation and application of such clauses having regard to, among other things, the ambit of the dispute upon which any proposed order is based and the results expected to follow from the adoption of a majority clause.'"36

The October 1995 decision provided that the availability of the third award level arbitrated safety net adjustment was to be subject to a test that, where there was disagreement between the parties on majority clauses, there should be conciliation and if necessary arbitration. Two principles were established to guide the Commission when arbitrating the question of whether majority clauses should be inserted into awards.

[162] As is apparent from the above there have been several occasions when the Commission has given attention to majority clauses. However material produced by ACCI suggests that few such clauses have been introduced into awards. We do not however propose to require ACCI or any other party to make application to vary any particular awards to introduce a majority clause. Despite the encouragement the Commission has given previously to such clauses being introduced into awards it seems parties have not seen the need to introduce them into many awards. Nothing has been put to us to justify revisiting this matter. Our support for majority clauses as a means of rationalising conditions of employment in particular enterprises remains.

ORDERS

[163] The orders necessary to give effect to this decision in the awards before us should be drawn and filed by the applicants. Commissioner Lewin will settle the orders with recourse to the Bench.

ATTACHMENT A

STATEMENT OF PRINCIPLES

1. ROLE OF ARBITRATION AND THE AWARD SAFETY NET

Existing wages and conditions in the relevant awards of the Commission constitute the safety net which protects employees who may be unable to reach an enterprise or workplace agreement. The award safety net also provides the benchmark for the no-disadvantage test that the Workplace Relations Act 1996 (the Act) requires be applied before agreements are certified.

As a result of the award simplification process, awards will, where necessary, be varied so that they:

• act as a safety net of fair minimum wages and conditions of employment (s.88A(b));


• are simplified and suited to the efficient performance of work according to the needs of particular workplaces or enterprises (s.88A(c)); and


• encourage the making of agreements between employers and employees at the workplace or enterprise level (s.88A(d)).

This evolving award system will remain the safety net referred to in the Act. It will, and is intended by the legislature to, change in response to economic, social and industrial circumstances.

2. WHEN AN AWARD MAY BE VARIED OR ANOTHER AWARD MADE WITHOUT THE CLAIM BEING REGARDED AS ABOVE OR BELOW THE SAFETY NET

In the following circumstances an award may, on application, be varied or another award made without the application being regarded as a claim for wages and/or conditions above or below the award safety net to:

(a) include previous National Wage Case increases in accordance with Principle 3;

(b) incorporate test case standards in accordance with Principle 4;

(c) adjust allowances and service increments in accordance with Principle 5;

(d) adjust wages pursuant to work value changes in accordance with Principle 6;

(e) reduce standard hours to 38 per week in accordance with Principle 7;

(f) adjust wages for arbitrated safety net adjustments in accordance with Principle 8;

(g) vary an award to include the federal minimum wage in accordance with Principle 9; and to

(h) make orders under Part VIA of the Act.

3. PREVIOUS NATIONAL WAGE CASE INCREASES

Increases available under previous National Wage Case decisions such as structural efficiency adjustments, minimum rates adjustments and previous arbitrated safety net adjustments will, on application, still be accessible.

4. TEST CASE STANDARDS

Test case standards involving allowable award matters (s.89A(2)) established and/or revised by the Commission may be incorporated in an award. Where disagreement exists as to whether a claim involves a test case standard or a non-allowable award matter, a party asserting that it does must make and justify an application pursuant to s.107. It will then be a matter for the President to decide whether the claim should be dealt with by a Full Bench.

5. ADJUSTMENT OF ALLOWANCES AND SERVICE INCREMENTS

(a) Existing allowances which constitute a reimbursement of expenses incurred may be adjusted from time to time where appropriate to reflect relevant changes in the level of such expenses.

(b) Adjustment of existing allowances which relate to work or conditions which have not changed and of service increments for monetary safety net increases will be determined in each case by the Full Bench dealing with the safety net adjustment.

(c) In accordance with the Safety Net Review - Wages May 2001 decision [PR002001] allowances which relate to work or conditions which have not changed and service increments will be adjusted as a result of the arbitrated safety net increase. (The method of adjustment is to be consistent with the Furnishing and Glass Industries Allowances decision [Print M9675].)

(d) In circumstances where the Commission has determined that it is appropriate to adjust existing allowances relating to work or conditions which have not changed and service increments for a monetary safety net increase, the method of adjustment should be consistent with the Furnishing and Glass Industries Allowances decision [Print M9675]. Such allowances and service increments should be increased by a percentage derived as follows: divide the monetary safety net increase by the rate of pay for the key classification in the relevant award immediately prior to the application of the safety net increase to the award rate and multiply by 100.

(e) Existing allowances for which an increase is claimed because of changes in the work or conditions will be determined in accordance with the relevant provisions of the Work Value Changes Principle of this Statement of Principles.

(f) New allowances to compensate for the reimbursement of expenses incurred may be awarded where appropriate having regard to such expenses.

(g) Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the relevant principles of this Statement of Principles. The relevant principles in this context may be Work Value Changes or First Award and Extension to an Existing Award.

(h) New service increments may only be awarded to compensate for changes in the work and/or conditions and will be determined in accordance with the relevant parts of the Work Value Changes Principle of this Statement of Principles.

6. WORK VALUE CHANGES

(a) Changes in work value may arise from changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. Changes in work by themselves may not lead to a change in wage rates. The strict test for an alteration in wage rates is that the change in the nature of the work should constitute such a significant net addition to work requirements as to warrant the creation of a new classification or upgrading to a higher classification.

In addition to meeting this test a party making a work value application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against external classifications to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position.

These are the only circumstances in which rates may be altered on the ground of work value and the altered rates may be applied only to employees whose work has changed in accordance with this Principle.

(b) In applying the Work Value Changes Principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed (s.88B(3)(a)).

(c) Where new or changed work justifying a higher rate is performed only from time to time by persons covered by a particular classification, or where it is performed only by some of the persons covered by the classification, such new or changed work should be compensated by a special allowance which is payable only when the new or changed work is performed by a particular employee and not by increasing the rate for the classification as a whole.

(d) The time from which work value changes in an award should be measured is the date of operation of the second structural efficiency adjustment allowable under the August 1989 National Wage Case decision [Print H9100, (1989) 30 IR 81].

(e) Care should be exercised to ensure that changes which were or should have been taken into account in any previous work value adjustments or in a structural efficiency exercise are not included in any work evaluation under this Principle.

(f) Where the tests specified in (a) are met, an assessment will have to be made as to how that alteration should be measured in monetary terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work.

(g) The expression "the conditions under which the work is performed" relates to the environment in which the work is done.

(h) The Commission will guard against contrived classifications and over-classification of jobs.

(i) Any changes in the nature of the work, skill and responsibility required or the conditions under which the work is performed, taken into account in assessing an increase under any other principle of this Statement of Principles, will not be taken into account under this Principle.

7. STANDARD HOURS

In approving any application to reduce the standard hours to 38 per week, the Commission will satisfy itself that the cost impact is minimised.

8. ARBITRATED SAFETY NET ADJUSTMENTS

In accordance with the Safety Net Review - Wages May 2001 decision [PR002001] awards may, on application, be varied to include an arbitrated safety net adjustment in this decision subject to the following:

(a) The operative date will be no earlier than the date of the variation to the award.

(b) That at least twelve months have elapsed since the rates in the award were increased in accordance with the Safety Net Review - Wages May 2000 decision [Print S5000].

(c) In awards where the variation for a safety net adjustment arising from the April 1999, May 2000 or May 2001 decisions is by consent and does not result in an increase in the wage rates actually paid to employees or increase the wage costs for any employer, any applicable twelve months' delay between variations may be waived.

(d) At the time when the award is to be varied to insert the safety net adjustment, each union party to the award will be required to give a specific commitment as to the absorption of the increase. In particular, the union commitments will involve the acceptance of absorption of the safety net adjustment to the extent of any equivalent amount in rates of pay which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

(e) The following clause must be inserted in the award:

"The rates of pay in this award include the arbitrated safety net adjustment payable under the Safety Net Review - Wages May 2001 decision [PR002001]. This arbitrated safety net adjustment may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset arbitrated safety net adjustments."

The above clause will replace the offsetting clause inserted into awards pursuant to paragraph 8(d) of the Statement of Principles determined in the Safety Net Review - Wages May 2000 decision [Print S5000].

(f) By consent of all parties to an award, where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration.

(g) The safety net adjustment will only be available where the rates in the award have not been increased, other than by safety net adjustments, or as a result of the application of the Minimum Rates Adjustment or Work Value Changes Principles, since November 1991.

(h) The implementation of an arbitrated safety net adjustment in a converted paid rates award is governed by the principles set out in the Paid Rates Review decision [Print Q7661].

9. FEDERAL MINIMUM WAGE

In accordance with the Safety Net Review - Wages May 2001 decision [PR002001] awards may, on application, be varied to provide for the federal minimum wage for full-time adult employees of $413.40 per week and, for junior, part-time and casual employees, proportionate amounts subject to the following:

(a) The operative date will be no earlier than the date of the variation to the award.

(b) The federal minimum wage is to be provided for in a separate clause as contained in Re Textile Industry Award 1994 [Print P1741, 11 June 1997]. Where classification rates are below the federal minimum wage there should be an indication that the federal minimum wage applies to those classifications.

(c) The separate clause referred to in (b) is as follows:

"Federal Minimum Wage

1. The Federal Minimum Wage

No employee shall be paid less than the federal minimum wage.

2. Amount of Federal Adult Minimum Wage

(a) The federal minimum wage for full-time adult employees not covered by subclause 4 [special categories clause], is $413.40 per week.

(b) Adults employed under a supported wage clause shall continue to be entitled to receive the wage rate determined under that clause. Provided that such employees shall not be paid less than the amount determined by applying the percentage in the supported wage clause applicable to the employee concerned to the amount of the minimum wage specified in subclause 2(a).

(c) Adults employed as part-time or casual employees shall continue to be entitled to receive the wage rate determined under the casual and part-time clauses of the award. Provided that such employees shall not be paid less than pro rata the minimum wage specified in subclause 2(a) according to the number of hours worked.

3. How the Federal Minimum Wage Applies to Juniors

(a) The wage rates provided for juniors by this award continue to apply unless the amount determined under subclause 3(b) is greater.

(b) The federal minimum wage for an employee to whom a junior rate of pay applies is determined by applying the percentage in the junior wage rates clause applicable to the employee concerned to the relevant amount in subclause 2.

4. Application of Minimum Wage to Special Categories of Employee

(a) Due to the existing applicable award wage rates being greater than the relevant proportionate federal minimum wage, this clause has no application to employees undertaking a National Training Wage Traineeship, an Australian Traineeship, a Career Start Traineeship, a Jobskills placement or an apprenticeship.

(b) [Leave reserved for other special categories.]

5. Application of Federal Minimum Wage to Award Rates Calculation

The federal minimum wage:

(a) applies to all work in ordinary hours;

(b) applies to the calculation of overtime and all other penalty rates, superannuation, payments during sick leave, long service leave and annual leave, and for all other purposes of this award; and

(c) is inclusive of the arbitrated safety net adjustment provided by the Safety Net Review - Wages May 2001 decision [PR002001] and all previous safety net and national wage adjustments."

(d) At the time when the award is to be varied to insert the federal minimum wage clause, each party to the award will be required to give a specific commitment as to absorption of any increase arising from the insertion of the federal minimum wage clause. In particular, the union commitments will involve the acceptance of absorption of any increase arising from the insertion of the federal minimum wage clause to the extent of any equivalent amount in rates of pay which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

(e) The following clause must be inserted into the award:

"The rates of pay in this award include the federal minimum wage payable under the Safety Net Review - Wages May 2001 decision [PR002001]. Any increase arising from the insertion of the federal minimum wage clause may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.

Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset the federal minimum wage."

(f) Any disagreement as to the variation of an award to include the federal minimum wage (including whether the federal minimum wage should be phased-in) will be referred to the President for consideration as a special case.

(g) Federal minimum wage clauses may be inserted in awards in which the minimum classification rate exceeds $413.40 per week.

Note: In determining whether an increase is payable because of the introduction of the federal minimum wage, the arbitrated safety net adjustment in this decision and all previous safety net and national wage adjustments are first to be taken into account.

10. MAKING AND VARYING AN AWARD ABOVE OR BELOW THE SAFETY NET

An application to make or vary an award for wages or conditions above or below the safety net will be referred to the President for consideration as a special case.

Applications involving a consideration of s.89A(7) are subject to this Principle. Applications involving claims to incorporate agreements (expired or not) into awards (paid or minimum rates) ordinarily will not be considered to constitute a special case.

A party seeking a special case must make an application pursuant to s.107 supported by material justifying the matter being dealt with as a special case. It will then be a matter for the President to decide whether it is to be dealt with by a Full Bench.

11. FIRST AWARD AND EXTENSION TO AN EXISTING AWARD

Any first award or an extension to an existing award must be consistent with the Commission's obligations under Part VI of the Act.

In determining the content of a first award the Commission will have particular regard to:

(a) relevant minimum wage rates in other awards, provided the rates have been adjusted for previous National Wage Case decisions and are consistent with the decision of the August 1989 National Wage Case [Print H9100, (1989) 30 IR 81];

(b) the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which the work is performed (s.88B(3)(a));

(c) section 89A and the need to ensure that it does not contain provisions that are not either allowable award matters, or both incidental to allowable award matters and necessary for the effective operation of the award; and

(d) the award simplification criteria in s.143 of the Act.

12. ECONOMIC INCAPACITY

Any respondent or group of respondents to an award may apply to, temporarily or otherwise, reduce, postpone and/or phase-in the application of any increase in labour costs determined under this Statement of Principles on the ground of very serious or extreme economic adversity. The merit of such application will be determined in the light of the particular circumstances of each case and any material relating thereto shall be rigorously tested. The impact on employment at the enterprise level of the increase in labour costs is a significant factor to be taken into account in assessing the merit of any application. A party making such an application must make and justify an application pursuant to s.107. It will then be a matter for the President to decide whether it should be dealt with by a Full Bench.

Any decision to temporarily reduce or postpone an increase will be subject to a further review, the date of which will be determined by the Commission at the time it decides any application under this Principle.

13. DURATION

This Statement of Principles will operate until reviewed.

ATTACHMENT B

ECONOMIC MATERIAL

This attachment sets out charts and tables containing some of the economic information considered and referred to in the body of this decision. Other charts and tables have been incorporated directly into the body of the decision.

The attachment contains:

A. Recent Economic Data

i. Gross Domestic Product (GDP)

• Chart 1: Annual Percentage Trend Growth in GDP


• Chart 2: Quarterly Percentage Trend Growth in GDP

ii. Labour Market

• Chart 3: Annual Percentage Growth in Total Employment


• Table 1: Recent Employment Trend Data


• Chart 4: Unemployment (Trend Data)


• Chart 5: Percentage Unemployment Rate (Trend Data)

iii. Profits

• Chart 6: Profit Share of Total Factor Incomes

iv. Business Investment

• Chart 7: Annual Percentage Change


• Chart 8: Level of Business Investment

B. The Immediate Economic Outlook

November 2000 Mid-Year Economic and Fiscal Outlook (MYEFO)

• Table 2: Domestic Economy Forecasts for 2000-01


• Table 3: Major Forecasts/Projections 2000-01 to 2003-04

The Joint Coalition Governments provided the official Treasury outlook data contained in its Mid-Year Economic Fiscal Outlook (MYEFO). That data is presented in Table 2. It should be noted, however, that the MYEFO material was prepared in November 2000, without the benefit of the December quarter GDP data and should be considered in the context of the more recent evidence of slowing economic activity disclosed in the GDP data.

A. RECENT ECONOMIC DATA

i. Gross Domestic Product

Chart 1

[Source: Exhibit ACCI 3, Table 1, replacement Tab 4]

Chart 2

[Source: Exhibit ACCI 3, Table 1, replacement Tab 4]

ii. The Labor Market

Chart 3

[Source: ACCI 3, table 11, replacement Tab 4]

Table 1

* Average of January and February 2001

[Source: ABS Labour Force (Preliminary), Cat No. 6202.0]

Chart 4

[Source: ACCI 3, table 12, replacement Tab 4]

Chart 5

[Source: ACCI 3, table 12, replacement Tab 4]

iii. Profits

Chart 6

[Source: ABS Cat No. 5206.0]

iv. Business Investment

Chart 7

[Source: Exhibit ACCI 3, table 9, replacement Tab 4]

Chart 8

[Source: Exhibit ACCI 3, table 9, replacement Tab 4]

B. THE IMMEDIATE ECONOMIC OUTLOOK

Table 2

(a) Percentage change on preceding year unless otherwise indicated.

(b) Calculated using original data, except average earnings and the labour market measures which are calculated using seasonally adjusted data.

(c) Chain volume measure.

(d) Excluding transfers of net second-hand asset sales from the public sector to the private sector.

(e) Percentage point contribution to growth in GDP.

(f) Calculated at basic prices.

(g) One-off transactions are Olympic ticket sales, the international sale of Olympic broadcasting rights, other direct Olympic-related travel service exports, the change in inventories resulting from transactions by the Sydney Organising Committee for the Olympic Games (SOCOG), imported and re-exported gold, imports and exports of goods for processing and the export of an ANZAC frigate.

(h) The 'ongoing' Consumer Price Index is the headline measure abstracting from the impact of the introduction of The New Tax System.

(i) Average non-farm compensation of employees (National Accounts basis).

(j) The level in the June quarter of each year.

Table 3

Notes:

(a) Labour Force Survey basis.

(b) Average earnings (National Accounts basis).

Appearances:

A. Watson with G. Combet, M. Gaynor, C. Robertson and G. Belchamber for the Australian Council of Trade Unions; with A. Sachinidis for the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union; with S. Burnley for the Shop, Distributive and Allied Employees Association; T. Veenendaal for the Australian Liquor, Hospitality and Miscellaneous Workers Union.

R. Hamilton with J. Hargrave and M. Ray for the Printing Industries Association of Australia; with V. Paul for the Australian Retailers Association (Victoria); with D. Edmonds and T. Angelopoulos for the Australian Hotels Association and for the Victorian Employers' Chamber of Commerce and Industry; the Northern Territory Chamber of Commerce and Industry; the Queensland Chamber of Commerce and Industry; the ACT and Region Chamber of Commerce and Industry; the Tasmanian Chamber of Commerce and Industry; the Chamber of Commerce and Industry of Western Australia; Australian Business Industrial; Business SA; the Metal Industries Association of Tasmania; The Motor Inn, Motel and Accommodation Association and the Australian Chamber of Commerce and Industry.

M. Moir for the Australian Industry Group and the Engineering Employers Association of South Australia.

E.R. Cole with L. Lipp, M. Jones and P. Downes for the Minister for Employment, Workplace Relations and Small Business on behalf of the Commonwealth and the State of Western Australia and the Northern Territory.

G. Martin SC with A. Crack of counsel for the States of Queensland, New South Wales, Victoria and Western Australia with J. Evans for the State of Tasmania.

R. Calver for the National Farmers' Federation.

G. Charles for the Australian Trainers' Association.

L. Yilmaz for the Victorian Automobile Chamber of Commerce, The Motor Trade Association of South Australia Inc and the Service Station Association Ltd (New South Wales) with G. Hatton for the Motor Traders' Association of New South Wales, the Motor Trade Association of Western Australia, the Motor Trades Association of Northern Territory Inc, the Motor Trades Association of ACT Ltd and the Motor Trades Association of Queensland.

P. Ryan for Australian Road Transport Industrial Organisation.

C. Harnath for The Master Plumbers' and Mechanical Services Association of Australia.

E. Watt for the Timber Merchants' Association.

Hearing details:

2000.

Melbourne:

December 7; (before Giudice J, Watson SDP, Harrison SDP, Leary C and Lewin C only)

2001.

Melbourne:

March 13, 14, 20, 21, 22 & 27.

Printed by authority of the Commonwealth Government Printer

<Price code L>

1 Print Q2527 [AW789529]

2 Print M9675, 21 March 1996

3 ABS Cat. No. 5206.0

4 Peter Tulip, US Federal Reserve Board Do Minimum Wages Raise the NAIRU?

5 Exhibit AiG 1, Annexure A; Exhibit AiG 3

6 Exhibit JCG 1, para. 3.71

7 Ibid. para. 3.65

8 I. McFarlane, Governor of the RBA: Address to World Economic Forum September 2000 and US Federal Reserve Bulletin: Productivity Developments Abroad, October 2000 (Exhibit ACTU2, Tag 3)]

9 Exhibit JCG 1, para. 3.46

10 Dr D. Gruen, Head of Economic Research, Reserve Bank of Australia, Australia's Strong Productivity Growth; Will It Be Sustained?

11 Exhibit AiG 1, Attachment H

12 The RBA reduced the official cash rate by 0.25% point, following a 0.5% point reduction in February.

13 Exhibit AiG 2

14 ABS Cat. No. 6306.0

15 ABS Cat. No. 6305.0

16 Exhibit JCG 2, Appendix E, Table E3

17 Exhibit JCG 3, para. S181, p. 35

18 May 2000 decision, para's 50 to 54

19 Ibid. para. 65

20 Exhibit NFF 2

21 Exhibit NFF 1, Annexure H

22 Financial Disadvantage in Australia 1999: The Smith Family/NATSEM, The Smith Family, 2000

23 ABS Cat. No. 6527.0

24 Article published in the Canberra Times of November 2000 entitled "The Hidden Cost of Casual Work"

25 Deborah Mitchell (1999) Labour Market Regulation and Low Wages, p.160

26 Financial Disadvantage in Australia 1999: The Smith Family/NATSEM, The Smith Family, 2000

27 April 1999 decision, para. 81

28 May 2000 decision, para's 107 to 108

29 May 2000 decision, para. 118

30 Exhibit JCG 1, para. 9.17

31 May 2000 decision, para. 122

32 Print L9600

33 Print M6700

34 September 1994 decision, pp. 24-25

35 Print M5600

36 Print J7400, p.47