Dec 384/99 V Print R1999

AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

Workplace Relations Act 1996
s.113 applications for variation
s.108 references to Full Bench

Australian Liquor, Hospitality and Miscellaneous Workers Union

THE HOSPITALITY INDUSTRY - ACCOMMODATION, HOTELS,
RESORTS AND GAMING AWARD 1998
(ODN C No. 00389 of 1975)
[Print P9138 [H0008]]
(C No. 25415 of 1998)

LAUNDRY INDUSTRY (VICTORIA) AWARD 1998
(ODN C No. 21626 of 1992)
[Print Q6887 [L0125]]
(C No. 25416 of 1998)

CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL TERRITORY)
AWARD, 1998
(ODN C No. 03697 of 1985)
[Print Q2724 [C0173]]
(C No. 25417 of 1998)

TANNING INDUSTRY AWARD 1992
(ODN C No. 22427 of 1991)
[Print K3165 [T0002]]
(C No. 25418 of 1998)

Textile, Clothing and Footwear Union of Australia

CLOTHING TRADES AWARD 1982
(ODN C No. 00696 of 1980)
[Print J6132 [C0037]]
(C No. 25426 of 1998)

Automotive, Food, Metals, Engineering, Printing
and Kindred Industries Union

METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD, 1998 - PART I
(ODN C No. 02568 of 1984)
[Print Q2527 [M1913]]
(C No. 25427 of 1998)

National Union of Workers

GROCERY PRODUCTS MANUFACTURE - MANUFACTURING
GROCERS AWARD 1996
(ODN C No. 01152 of 1985)
[Print P1412 [G0493]]
(C No. 39433 of 1998)

COMMERCIAL SALES (VICTORIA) AWARD 1996
(ODN C No. 31107 of 1993)
[Print N7268 [C0716]]
(C No. 39436 of 1998)

STORAGE SERVICES - GENERAL - INTERIM AWARD 1996
(ODN C No. 32518 of 1992)
[Print N2108 [S1062]]
(C No. 39437 of 1998)

RUBBER, PLASTIC AND CABLE MAKING INDUSTRY -
GENERAL - AWARD 1996
(ODN C No. 01800 of 1982)
[Print N5077 [R0007]]
(C No. 39438 of 1998)

Transport Workers' Union of Australia

TRANSPORT WORKERS AWARD, 1983
(ODN C No. 01520 of 1982)
[Print J5019 [T0140]]
(C No. 39442 of 1998)

Automotive, Food, Metals, Engineering, Printing
and Kindred Industries Union

THE VEHICLE INDUSTRY - REPAIR, SERVICES
AND RETAIL - AWARD 1983
(ODN C No. 01339 of 1974)
[Print H5658 [V0019]]
(C No. 39449 of 1998)

THE VEHICLE INDUSTRY AWARD 1982
(ODN C No. 01522 of 1979)
[Print F0813 [V0005]]
(C No. 39450 of 1998)

Shop, Distributive and Allied Employees Association

RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES -
AUSTRALIAN CAPITAL TERRITORY - AWARD 1996
(ODN C No. 30030 of 1993)
[Print N8285 [R0017]]
(C No. 39451 of 1998)

Australian Municipal, Administrative, Clerical and Services Union

CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIAN) AWARD 1995
(ODN C No. 34749 of 1995)
[Print M8184 [C1128]]
(C No. 39455 of 1998)

VICTORIAN LOCAL AUTHORITIES INTERIM AWARD 1991
(ODN C No. 36277 of 1989)
[Print J9778 [V0076]]
(C No. 39456 of 1998)

The Australian Workers' Union

HORSE TRAINING INDUSTRY AWARD 1976-1982
(ODN C No. 03039 of 1975)
[Print E8932 [H0005]]
(C No. 39459 of 1998)

Construction, Forestry, Mining and Energy Union

FOREST AND BUILDING PRODUCTS, MANUFACTURING
AND MERCHANDISING (GENERAL) AWARD 1996
(ODN C No. 00031 of 1950)
[Print P2917 [F0576]]
(C No. 50887 of 1998)

Victorian Employers' Chamber of Commerce and Industry

CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIAN) AWARD 1995
(ODN C No. 34749 of 1995)
[Print M8184 [C1128]]
(C No. 75122 of 1998)

Various employees

Various industries

   

JUSTICE GIUDICE, PRESIDENT

  

VICE PRESIDENT ROSS

  

VICE PRESIDENT McINTYRE

  

SENIOR DEPUTY PRESIDENT MACBEAN

  

SENIOR DEPUTY PRESIDENT WATSON

  

COMMISSIONER GAY

  

COMMISSIONER CRIBB

MELBOURNE, 29 APRIL 1999

CONTENTS

List of Main Abbreviations 6

The Claims 8

The ACTU's Living Wage Claim and Outline of Responses to It 8

Economic Considerations 11

Needs and the Low Paid 23

The Decision on the ACTU Wage Claim 30

VECCI Claim about the Federal Minimum Wage 32

The Statement of Principles 41

Attachment A - Statement of Principles 48

Attachment B - Economic Conditions 57

LIST OF MAIN ABBREVIATIONS

In this decision we use the following abbreviations:

ABS: Australian Bureau of Statistics

ACCI: Australian Chamber of Commerce and Industry and National Farmers' Federation

ACCIR: Australian Catholic Commission for Industrial Relations

ACOSS: Australian Council of Social Service

Act: Workplace Relations Act 1996

ACTU: Australian Council of Trade Unions

AIG: The Australian Industry Group, Engineering Employers Association, South Australia and Master Plumbers' and Mechanical Services Association of Australia

April 1997 decision: Safety Net Review - Wages April 1997 decision [Print P1997]

April 1998 decision: Safety Net Review - Wages April 1998 decision [Print Q1998]

AWA: Australian Workplace Agreement

AWOTE: Average Weekly Ordinary Time Earnings

GDP: Gross Domestic Product

Joint Governments: Commonwealth, State of South Australia, State of Victoria, State of Western Australia, Australian Capital Territory and Northern Territory

Metal Industry Award: Metal, Engineering and Associated Industries Award, 1998 - Part I [Print Q2527 [M1913]]

New South Wales: State of New South Wales

NFF: National Farmers' Federation

OECD: Organisation for Economic Cooperation and Development

Queensland: State of Queensland
RBA: Reserve Bank of Australia

Retail Motor Industry: Victorian Automobile Chamber of Commerce, Motor Traders' Association of New South Wales, Motor Trade Association of South Australia and Tasmanian Automobile Chamber of Commerce

Tasmania: State of Tasmania

VECCI: Victorian Employers' Chamber of Commerce and Industry

REASONS FOR DECISION

THE CLAIMS

[1] The main claims dealt with in this decision are:

THE ACTU'S LIVING WAGE CLAIM AND OUTLINE
OF RESPONSES TO IT

[2] The ACTU's 1999 Living Wage Claim [Exhibit ACTU 1 at 5-6] seeks:

[3] To give effect to the wage claim, applications under s.113 of the Workplace Relations Act 1996 (the Act) were, in 1998, made to vary the awards named in the heading of this decision (excluding the Clerical and Administrative Employees (Victorian) Award 1995 [Print M8184 [C1128]]).

[4] The summary of responses to the claim which follows is intended to provide no more than a brief outline. It does not summarise the arguments in support of the responses. Many of these arguments are dealt with in the parts of this decision to which they relate. We have taken all the submissions into account in arriving at our decision.
Australian Chamber of Commerce and Industry and National Farmers' Federation (NFF) (jointly ACCI)

[5] The hearing of the ACTU's wage claim should be deferred.

The Australian Industry Group, Engineering Employers Association, South Australia and Master Plumbers' and Mechanical Services Association of Australia (jointly AIG)

[6] 1. The ACTU's wage claim should be rejected.

Victorian Automobile Chamber of Commerce, Motor Traders' Association of New South Wales, Motor Trade Association of South Australia and Tasmanian Automobile Chamber of Commerce (Retail Motor Industry)

[7] The ACTU's wage claim should be rejected. If the Commission were persuaded otherwise, the increase should reflect the cost of living determined since the last safety net adjustment. Also supported ACCI's submissions.

Australian Catholic Commission for Industrial Relations (ACCIR)

[8] There is a strong need for a safety net of minimum wages and conditions to protect low paid and industrially weak workers. An annual review of the federal minimum wage is required to maintain such a safety net.

Commonwealth, State of South Australia, State of Victoria, State of Western Australia, Australian Capital Territory and Northern Territory (Joint Governments)

[9] The ACTU's wage claim should be rejected. Instead there should be an $8 per week safety net adjustment with the following features:

State of New South Wales (New South Wales)

[10] 1. Supports the ACTU's wage claim.

State of Queensland (Queensland)

[11] 1. Supports the ACTU's wage claim.

State of Tasmania (Tasmania)

[12] 1. Supports the ACTU's wage claim.

Australian Council of Social Service (ACOSS)

[13] The Commission should:

ECONOMIC CONSIDERATIONS

[14] The parties' submissions reflect agreement that Australian economic conditions generally remain positive, with reasonable non-inflationary economic growth continuing. The Joint Governments and employer associations drew attention to continuing international economic uncertainty and a deterioration in key areas such as investment, growth and export performance which were said to have become evident since the 1998 hearing. They also placed particular emphasis on the continuing high levels of unemployment and urged that significant weight be attached to the employment effects of safety net adjustments. Attention was drawn to particular sectoral performances.

[15] The ACTU submitted that current economic conditions and prospects show an economy with characteristics similar to or better than those noted in the April 1998 decision. It submitted:

It concluded that economic considerations do not constrain the granting of its claims, having regard to:

[16] ACCI submitted that the economy remains well placed for a continuation of economic growth and for long term improvement in labour market activity. It noted that, over the past twelve months, economic growth was strong, unemployment, although too high, had fallen and that inflation remains low. These outcomes were achieved in the midst of a deep recession affecting our regional trading partners. Business confidence remains reasonably strong. Against that background, it noted a range of concerns:

ACCI submitted that granting the ACTU claim would harm existing jobs and deny the unemployed an opportunity to obtain employment. It urged us to focus on employment and unemployment in considering the ACTU claim. It submitted:

[17] AIG submitted that:

[18] The Retail Motor Industry brought to our attention material in relation to that industry, reporting slow business performance in the September quarter 1998. It submitted that survey expectations data showed no prospect of improvement in business conditions in the industry.

[19] The Joint Governments identified as key issues the necessity to reduce unemployment and maintain low inflation. They submitted that a slowing in domestic demand will dampen economic growth, although projected growth of around 3.25% for 1998-99 compares favourably with other developed countries and most in our region. It submitted that the ACTU claim is unsustainable and would jeopardise the jobs of the most vulnerable in our society and threaten job prospects for those seeking employment.

Recent Economic Performance and Outlook

[20] We have set out an assessment of recent economic trends and the immediate economic outlook in Attachment B. From that assessment, we conclude that Australia's economic performance over the past year has been positive, continuing the strong, low inflationary growth which has been achieved in Australia since the early 1990s, with:

The immediate economic outlook is for the continuation of reasonable growth, notwithstanding some weakening, a less favourable investment outlook and continued international uncertainty, the maintenance of low inflation and increased employment levels. The low inflationary growth which has been achieved in Australia over most of the 1990s is expected to continue, albeit with a modest acceleration from recent historically low levels.

[21] Looked at as a whole, the economic material shows a generally favourable recent economic performance and a positive immediate outlook, although the level of economic growth is expected to moderate and private business investment is expected to weaken after six years of strong growth. These generally favourable economic circumstances are reflected in developments since the April 1998 decision:

[22] The economic material before us shows no sign of adverse economic consequences arising from the 1998 safety net increases awarded. Indeed, it suggests that the increases were compatible with a continuation of the positive economic conditions prevailing at the time of the decision. It also shows that the Australian economy has coped relatively well with the economic consequences of the financial crisis in much of Asia. Notwithstanding the generally positive Australian economic circumstances, those opposing the ACTU claim urged a cautious approach on several grounds:

The first two propositions relate to the extensive submissions as to the likely economic effects of the ACTU claim, which are addressed below.

[23] We accept the need for caution in the context of the projected slowing of growth and the fall-off in private investment. However, these developments need to be put into context. The slowing in growth is from historically high levels. Economic growth of 3.25% projected for 1998-99 compares favourably with other developed economies and most countries in our region. The 1% growth in private investment forecast for 1998-99 and the fall in anticipated investment in that year and 1999-2000 shown in the Australian Bureau of Statistics (ABS) Private New Capital Expenditure Survey [Cat No. 5625.0] comes after six years of strong growth and record high levels of investment expressed as a proportion of Gross Domestic Product (GDP). Further, as noted in the Joint Governments' submissions, the fundamentals for investment remain good, with recent improvements in business confidence, low interest rates and sound corporate profits.

Instability in World Financial Markets

[24] Those opposing the ACTU claim again urged caution in light of the instability in world financial markets. The nature of the current uncertainty is reflected in the commentary of the Organisation for Economic Cooperation and Development (OECD) in its December 1998 Economic Outlook:

[25] The Treasurer's Mid-Year Economic and Fiscal Outlook and the submissions of the Joint Governments noted risks associated with the financial market instability in similar terms. They noted vulnerability to inappropriate policies in the context of fragile financial market sentiment and risks of instability in international capital flows and increased protectionist sentiment. Against these real uncertainties, however, they noted some fundamental strengths, most notably positive economic outcomes in the United States and recent positive indications in the Japanese and some other Asian economies.

[26] The Reserve Bank of Australia (RBA) Semi-Annual Statement on Monetary Policy noted the effect of the international financial uncertainty on Australia, most notably speculative pressure on the Australian dollar which had resulted in selling pressures which took it to new lows against the US dollar. It observed, however, that:

It continued:

The RBA attributed the generally positive response in Australia to the international pressures to the economy's capacity to adjust to the changed circumstances and the macro-economic policy settings in place.

[27] In the 1998 hearing, the RBA and Treasury assessments raised concerns about the Asian developments then occurring but noted that Australia was relatively well placed to deal with their adverse effects. This was due to the favourable effect of current fiscal and monetary policy settings, the underlying strength of the Australian economy and the financial controls in Australia which would prevent the type of financial instability which lay at the root of the Asian problem manifesting itself in the Australian financial sector. In hindsight that assessment proved accurate, with the available evidence suggesting that, overall, Australia has successfully weathered the adverse Asian developments. The continuing positive economic performance of Australia supports such a conclusion. As noted by the RBA above, some sectors have suffered more pronounced effects from the Asian developments. The sectoral dimension was reinforced by the submissions of employer organisations.

[28] The ACTU recognised the need to have regard to the international developments, but submitted that they did not impede the granting of its claim because the developments related to financial markets, the soundness of Australia's economic fundamentals, the generally positive economic conditions in Australia and the positive effect of the safety net adjustments proposed on domestic demand in the face of reduced Asian demand for our production.

[29] The material before us suggests that:

We accept that there are risks to the Australian economy associated with the international uncertainty in financial markets which could translate into real economic impacts through exchange rate movements and world economic activity. As with the Asian developments in 1998 a degree of caution is required. However, the ability of the economy to withstand the effects of the recent Asian developments, the strong fundamentals of the economy and the generally positive economic performance and outlook militate against undue caution in the face of the international uncertainties.

Sectoral Effects

[30] Those opposing the ACTU claim emphasised the need to take account of sectoral considerations. It was submitted that:

[31] The Joint Governments devoted a significant part of their submissions to the regional, industry and occupational dimensions of the ACTU claim. They submitted that:

[32] AIG drew attention to the construction and manufacturing sectors, noting that:

[33] The Retail Motor Industry provided information on trading conditions in the industry and survey data, intended to show the impact of safety net adjustments on typical firms within the sector. It submitted that a high proportion of small businesses in the sector paid only award rates and would be subject to safety net adjustments.

[34] The NFF drew upon a paper prepared by the Australian Bureau of Agricultural Research Economics which examined agricultural markets in Asia, highlighting a 4.8% forecast decline in rural export earnings in 1998-99. Increased exports in the cotton, beef, veal, dairy and winegrape sectors are expected to be more than offset by forecast declines in the value of grain and wool exports. The NFF also pointed to a generally subdued financial performance for the farm sector.

[35] In determining the ACTU wage claim, the Commission must again balance a range of considerations. The differential impact across sectors and firms is one such consideration which we have taken into account.

The Economic Effects of a Safety Net Adjustment

[36] Substantive differences between the parties were also evident in relation to the likely economic effects of the ACTU claim and the most appropriate safety net outcome in light of economic considerations. The submissions focussed on the effect of an increase in safety net award wages on the economy generally, 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 aggregate effects of any safety net adjustment will vary depending on the amount, any conditions attaching to it and the general economic context. Since the safety net adjustments awarded in the April 1998 decision, economic activity has remained strong despite some moderation, aggregate wages growth has remained steady, inflation has remained low and employment growth has been strong.

Direct Costs of a Safety Net Adjustment

[37] The likely aggregate cost of a safety net adjustment involves two elements: direct costs and indirect costs. The ACTU, Joint Governments and ACCI relied on estimates of the direct cost of the ACTU wage claim based on methodologies and data put in the 1997 and 1998 Living Wages cases [the ACTU methodology and estimates were amended slightly in the course of the 1998 proceedings - see pp.16-23 of Print Q1998 for a general description of the methods used by the parties]. The ACTU provided an economy-wide aggregate cost estimate of the impact of its wage claim of a 0.3 to 0.8% gross addition to AWOTE. The Joint Governments relied on the estimate of the aggregate cost impact of its proposal put to the 1998 proceedings. In that hearing, they estimated that an $8 increase in award rates, subject to absorption and with a cut off at the C10 (trades) classification level in the Metal Industry Award (then $451.20 and now $465.20) would increase AWOTE by around 0.1%. They estimated that the ACTU claim would directly increase AWOTE growth by 0.9 to 1.2% for the economy as a whole and 0.9 to 1.3% in the private sector.

[38] ACCI provided estimates of the cost of the ACTU claim based on data obtained from a survey of its members conducted in late 1996. It estimated that the ACTU claim would directly increase the average wages of the surveyed firms by 3.7%. It attempted to equate this result with the direct cost measured by AWOTE growth, submitting:

[39] Each of the measures has been subject to consideration in the last two Living Wage decisions. It is not necessary to set out that material for the purposes of the present decision. It is sufficient to note that none of the estimates is direct and uncontroversial. None of them directly measures the likely cost of the ACTU claim. The ACTU's method does not identify employment by actual classification. The Joint Governments' method does not identify recipients of increases in award wages directly. Each method involves assumptions. None of them provides estimates on the basis of contemporary data, raising uncertainties as to the effect of recent trends in bargaining and the Commission's approach to paid rates awards. Each measure is criticised by other parties.

[40] We appreciate that there exists no entirely accurate cost estimate and that each of the parties which has provided an estimate has done so, through different approaches, to assist the Commission. Given the absence of a direct cost measure, a degree of judgment is required and it would be unwise to act on a specific estimate advanced, although each of the estimates provides guidance.

Indirect Costs of the ACTU Claim

[41] A number of parties addressed potential indirect costs of the ACTU claim. The Joint Governments provided an assessment of enterprise agreements which suggested some limited potential for safety net increases to lead to higher agreement rates and inflation. The Retail Motor Industry provided survey evidence suggesting a majority of its respondents passed on safety net increases, in whole or in part, to some employees in receipt of overaward payments, although their survey provided no guide to the numerical effect of such non-absorption on average earnings in the sector. Whilst there is likely to be some indirect cost associated with a safety net adjustment, the evidence before us does not support a conclusion that the indirect costs of a moderate safety net adjustment would be other than limited.

The Likely Effects of a Safety Net Adjustment
on Aggregate Wages Growth

[42] In assessing the impact of any safety net increase on aggregate wages growth consideration must be given to the fact that the current levels incorporate the effect of the April 1998 safety net increases. It follows that the effects of the April 1998 adjustment are already reflected in aggregate wages growth. Accordingly, the granting of a similar increase now would not of itself materially alter aggregate wages growth.

[43] Consistent with s.90A of the Act, the Commission in its April 1998 decision had regard to the operation of the Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992. It noted that the increase in average earnings arising from safety net increases coincided with an increase in superannuation guarantee contributions of one percentage point on 1 July 1998. No further increase in superannuation contributions is legislated to have effect over the coming year.

The Likely Effects of a Safety Net Adjustment on Inflation

[44] The economic effect of any safety net increase 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. The Joint Governments estimated that the ACTU claim would add 0.9% to AWOTE growth on its safety net increase method. Assuming no change in other factors, an aggregate addition to wages costs in that order would result in an increase in inflation of about 0.5%, reflecting the wages share of input costs of around 60%, all other things being equal.

The Likely Effects of a Safety Net Adjustment
on the Level of Employment

[45] The Act requires us to consider the likely effects of any safety net adjustment on the level of employment. There was a diversity of view as to the likely economic effects of granting the ACTU claim. Two aspects were dealt with in the submissions:

Macro-Economic Effects

[46] The parties have again put extensive submissions as to the effect of changes in real wages on the level of economic activity and employment. Much of the material was put to the Commission in either, or both, of the previous Living Wage cases.

[47] In the present case, the Joint Governments again relied on modelling undertaken by the Commonwealth through the Treasury Macroeconomic (TRYM) model. It explained the TRYM model and provided estimates generated by the model of the economic effects of the ACTU claim and of the 1997 and 1998 safety net adjustments and the Joint Governments' proposals. As in the past, the TRYM model outcomes provide one of many inputs before us as to the likely economic effects of a safety net adjustment. Whilst we accept that economic models such as TRYM are of assistance to policy makers, they have limitations, requiring the exercise of judgment by users [see sections 6 and 7 of the Joint Governments' paper The Macroeconomics of the TRYM Model of the Australian Economy]. Further, as noted by the Joint Governments, the TRYM outcomes reflect the results which could be derived by applying the aggregate wages cost of a safety net adjustment, estimated by the Joint Governments, to the historical labour elasticity reflected in the model. Accordingly, the TRYM results are subject to the uncertainties associated with each of these components. As a consequence, we regard the TRYM outcomes as one of many inputs for our consideration in assessing the possible economic effects of safety net adjustments. That assessment ultimately requires the application of judgment.

[48] ACCI added to the range of estimates of the elasticity of demand for labour the results of a study by P.E.T. Lewis ["The Elasticity of Demand for Labour", P.E.T. Lewis]. Lewis estimates a total elasticity of demand for labour of 0.7%, over the period 1957 to 1997, implying that a 1% rise in real wages will bring about a 0.7% reduction in the demand for labour. This is one of many estimates of labour elasticity, some of which were summarised by the Joint Governments in the following table [the Joint Governments note that the studies measure elasticity of substitution between labour and capital, but provide a good partial estimate of the relationship between real wages and employment]:

Researchers

Time period of estimation

Estimate
%

EPAC (AMPS model) (1986)

      1966-1985

      0.32

Pissarides (1987)

      1966-1986

      0.79

Lewis and Kirby (1988)

      1967-1987

      0.78

Russell and Tease (1991)

      1969-1987

      0.61

Murphy and Powell (MM2)

      1970-1992

      0.77

Dungey and Pitchford (1998)

      1984-1997

      0.40

Debelle and Vickery (1998)

      1978-1997

      0.41

Debelle and Vickery (1998)

      1969-1997 - total

      0.67

Debelle and Vickery (1998)

      1969-1997 - private

      1.04

TRYM (1999)

      1971-1998

      0.84

TRYM (1999)

      1982-1998

      0.845

[Exhibit JG1 at 138 and responses to questions]

[49] The material summarised by the Joint Governments, alone, suggests that econometric studies in Australia produce a consistent direction of labour elasticity, but a diversity in specific elasticities, reflecting different methodologies and different periods over which aggregate elasticities are measured. For example, the Debelle and Vickery results show smaller elasticities over the period since 1978 than from 1969. It would be unwise to rely on any specific elasticities reported or to assume that elasticities are fixed over time and independent of other factors, such as the general state of the economy, the level of corporate profitability or the size of real wage increases. It is commonly agreed for example that significant real wage increases in the 1970s had marked adverse employment effects. In contrast, no significant adverse employment effect is evident from recent safety net increases.

[50] 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 affect will depend upon the prevailing economic circumstances and the extent of the real wage movement. A moderate safety net adjustment will have a limited impact on AWOTE growth (and a smaller effect on real wages, to the extent that the wages growth affects inflation) and a minimal effect on employment growth. Such an adjustment would not disturb recent strong employment growth which has been associated with consequent reductions in unemployment.

Micro-Economic Effects

[51] Turning to the micro-economic effects, the parties have augmented the voluminous material, largely of an international character, which has been relied on and considered in the 1997 and 1998 Living Wage cases. [The major studies which were brought to our attention include: "The National Minimum Wage", First Report of the (UK) Low Pay Commission; "Making the Most of the Minimum Statutory Minimum Wages, Employment and Poverty", OECD Employment Outlook, December 1998; "The Youth Labour Market; Anecdotes, Fables and Evidence", Junaker, Waite and Belchamber; "Another Modest Wage Increase", J. Bernstein; "Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase", J. Bernstein and J. Schmitt; "Minimum Wages Debate and Policy Developments in Australia, the UK and the US", P. Dawkins; Discussion on "Minimum Wages Debate and Policy Developments in Australia, the UK and the US", P. Lewis; "Unemployment Policy: Government Options for the Labour Market", D.J. Snower and G. de la Dehesa; TRYM Related Paper No. 20, K. Bernie and P. Downes; "Youth Wages and Employment", Productivity Commission; "Minimum Wages, Training Wages and Youth Employment", J. Mangan and J. Johnston; "The `New Economics' of the Minimum Wage? Evidence from New Zealand", T. Maloney; and "Do Minimum Wages have an Adverse Effect on Employment? Evidence from New Zealand", S. Chapple.]

[52] We note that much of the material put before us relates to international research, although two recent pieces of research relate directly to Australia, albeit in the context of youth wages. We accept that there are difficulties in directly applying the international material to the task before us for several reasons:

[53] Apart from the recent Australian studies concerning youth wages, there is a lack of contemporary Australian research concerning the impact on employment of safety net increases. The international material does not provide direct assistance in an Australian context, particularly so given the diversity of research findings. That diversity is reflected in the commentary of the OECD in its December 1998 Outlook ["Making the Most of the Minimum: Statutory Minimum Wages, Employment and Poverty", OECD Employment Outlook, December 1998]:

The commentary notes that many studies focus on youth. It concludes from the available studies that:

[54] Noting the difficulties in identifying clear outcomes in such studies, the commentary examines the differences across countries in minimum wages. From that analysis it concludes:

[55] The OECD study importantly notes that minimum wages imply both benefits and costs. Potential adverse employment effects arising from statutory minimum wages set too high constitute one such cost. Against that, however, the commentary notes the beneficial equity effect of minimum wages in narrowing earnings differentials reflected in most studies. A balancing of the costs and benefits arises squarely in considering claims such as the ACTU's claim in the present case, given the statutory context which requires attention to competing considerations such as employment effects and the needs of the low paid.

[56] The material brought to our attention reveals a vigorous academic debate and a variety of empirical research outcomes. It does not establish an empirical basis for affording greater importance to concerns about employment effects than to other considerations to which we must have regard in determining the claim before us. Having considered the material, our assessment is that, under current economic conditions, the increases we propose to award, of themselves, will do little or nothing to diminish job prospects.

Conclusion

[57] Australia's economic performance over the past year, and since the early 1990s, has been good. Economic and productivity growth have been strong. Investment has been at historically high levels. Australia has enjoyed a long period of low inflation. Current economic conditions are sound although unemployment remains at an unacceptably high level. The immediate economic outlook is also positive, despite some projected slowing in growth and a projected fall-off in private investment. The small contribution to aggregate wages growth resulting from the safety net increases we have decided upon will have a limited effect on economic activity, inflation, employment levels and productivity. Any negative effect on the recent downward trend in unemployment is likely to be minimal. The increase we have decided upon can be sustained in the current generally positive economic environment.

NEEDS AND THE LOW PAID

[58] As on previous occasions submissions as to needs and the low paid were made by the industrial parties and by organisations involved in community welfare.

[59] ACOSS argued that there is a close relationship between wage fixation, poverty alleviation and the social security system. The shift to decentralised enterprise bargaining was said to have placed "greater weight on the role of the award safety net in protecting the living standards of low paid workers" [ACOSS written submission at p.1]. It submitted that by regularly increasing minimum wages the wage inequality which is a consequence of increases to award rates lagging behind movements in enterprise bargaining can be remedied. One result sought to be avoided by ACOSS was the socially divisive effects of wage inequality. ACOSS submitted that, at the very least, award minimum rates and the federal minimum wage should be increased consistent with AWOTE increases. As to the impact of wages on unemployment levels, ACOSS expressed concern that the wages of low paid workers should be allowed to decline relative to other groups, arguing that the claimed beneficial effect on employment levels would arise only if unacceptably low pay rates resulted. It submitted that any resulting decline in living standards could not be met through the intervention of the social security system. In ACOSS' view aggregate wage restraint rather than increasing wage dispersion is likely to be conducive to reduced unemployment. Finally, ACOSS asked the Commission to undertake an inquiry into low paid workers' living standards, referable to the broader community, to enable the determination of an objective benchmark of minimum wage adequacy.

[60] The submission of ACCIR dealt with the position of church employees in the sectors of health, education, welfare and diocesan and parish administration, together with issues of more general application. ACCIR contended for the maintenance of a just wage, that is, a wage which has regard for individual need, not solely an employee's value within the labour market. Emphasis was placed upon the role of awards as establishing minimum conditions of employment, in addition to wages, which together constitute the standard for purposes of the no disadvantage test. While ACCIR supported the objective of the ACTU to increase minimum rates, it did not quantify a level of increase or an amount for the federal minimum wage. It argued that the ACCI position as to the federal minimum wage and the removal of award entitlements from the no-disadvantage test entails the undermining of the award system as the safety net of minimum wages. In arguing for flat adjustments as a means of improving the position of the low paid, it supported the retention of skill-based relativities within awards so as to avoid inequity.

[61] More generally ACCIR supported a less adversarial method of arriving at the federal minimum wage through the establishment of "criteria, measures and indicators" to better determine the needs of the low paid. It drew attention to the needs of workers such as part-time/casual workers, migrants and those engaged in small to medium enterprises who possessed inadequate skills or bargaining power. For this group and others the award system was the means of protection. The not-for-profit sector constituted by church sponsored bodies and community agencies was raised as an area of employment where enterprise bargaining holds little attraction. Despite the funding difficulties stemming from increases in wages which do not attract commensurate increases in grants or subsidies, ACCIR stressed the importance of the Commission maintaining the award safety net both for the low paid and the industrially weak.

[62] In dealing with the needs of low paid workers and living standards generally prevailing in the community, the ACTU relied on:

It argued that the evidence of the witnesses supports the proposition that low paid workers continue to find it hard to make ends meet, that they have unmet basic needs and that safety net adjustments are welcomed and worthwhile. The following matters were highlighted:

[63] The Budget Standards Report was relied on to illustrate the needs of the low paid and generally prevailing living standards. The budget standards in the Report estimate the cost of buying the commodities, services and activities needed to attain a given standard of living. They are derived at two levels of living standards to provide an indication of the needs of the low paid and also of living standards generally prevailing. The "modest but adequate" budget standard was said to be one indication of generally prevailing living standards. It was argued that this standard was ". . . a relevant, realistic and modest standard for testing the adequacy of minimum wages in Australia" [Exhibit ACTU 1 at 54]. The "low cost" budget standard, although generally applying to unemployed adults or adults not in the labour force, was also derived for those households which include an adult employed full-time. The ACTU submitted that these two low cost budgets provide an indication of the needs of the low paid.

[64] However, the ACTU indicated that it was not pursuing a benchmark approach for determination of its claim. Rather, the indicative budget standards research was presented as "indicative consumption based" budget standards [Exhibit ACTU 1 at 69]. It argued that the budget standards research reveals that adjustments to award wages do not result in affluent lifestyles for workers dependent on awards. Changes to award wages do, however, ameliorate to some degree the disadvantages faced by low paid workers.

[65] The ACTU expressed concern regarding the increased widening in income distribution in Australia. Attention was drawn to the different rates of increase in award rates compared with increases in average earnings and increases arising from enterprise bargaining. It was submitted that since 1992, a sizeable gap has opened up between award rates and average earnings and enterprise agreement rates. It contended that this situation indicated that its claim should be granted to ensure that low paid workers do not fall behind those who receive increases arising from enterprise bargaining and overaward payments. The ACTU contended that it is essential for award rates to be kept ". . . in touch with the market through regular review and adjustment, lest the effectiveness of the award safety net is eroded and not maintained (vis s.3(d)(ii))" [Exhibit ACTU 1 at 71].

[66] As in the two most recent safety net review cases, New South Wales supported the ACTU claim. Its view was that the beneficiaries of the claim should be low paid workers who are on the award rate of pay with low or no overaward payments. The Commission should give weight to the fact that certain sectors of the workforce have not benefited from enterprise bargaining and may not in the future. Workers with no bargaining power should not be disadvantaged because of their inability to negotiate an enterprise agreement.

[67] New South Wales submitted that:

[68] Specific reference was made to the assistance that the current ACTU claim would provide to women workers. First, the comparative lack of access to overaward payments by women would be balanced by absorption of any adjustment. Second, the differential access to wage increases under enterprise bargaining would be addressed by a safety net adjustment, particularly as there was a high concentration of women in sectors which have not benefited from enterprise bargaining. Third, the strengthening of the safety net will protect women who suffer wage inequity resulting from being in an industrially weak position.

[69] Queensland submitted that the Commission should continue to focus on the needs of low paid, award-dependent workers. Workers with little or no bargaining power should not be disadvantaged because of an inability to negotiate an enterprise agreement. The position of specific groups of low paid workers should be protected, for example:

It was contended that these workers and other low paid workers, who only have access to award safety net adjustments, may be in danger of playing a diminished role in society if their wages are allowed to lag significantly behind other employees. The ability of workers to fully participate in society is linked to their financial well-being.

[70] Queensland also submitted that there is a need to contain the growing dispersion in the real earnings of full-time adult employees. There was the possibility of a two-tiered wage structure developing in Australia with an overclass of workers in permanent jobs with access to enterprise bargaining increases and an underclass of low paid award-dependent workers. Such a situation could lead to social problems in the future.

[71] Tasmania expressed its support for the ACTU's position that the intended beneficiaries of its claims are low paid workers and their families who rely on award rates of pay and conditions. Tasmania submitted that equity considerations were to be given some emphasis and if granted, the ACTU's claims would assist to redress:

[72] In addressing the needs of the low paid and living standards generally prevailing, ACCI focussed on the ACTU's witness evidence. It was dealt with on three bases:

[73] ACCI also addressed the issue of the definition of the low paid, whether any increase should be phased-in and the Joint Governments' proposal for a cut-off point. It defined "low paid" as inclusive of unemployed persons. It was asserted that the jobs that unemployed people are seeking are at the lower end of award classifications. Therefore, large real increases in award rates and the absence of phasing-in would not benefit either the unemployed or the low paid.

[74] With respect to the cut-off proposal, ACCI's position was that it was:

[75] AIG encouraged the Commission to adopt a cautious approach to the quantum of any wage adjustment on this occasion. The ACTU claim was said to be inimical to the goal of high employment, economically unsustainable and likely to undermine bargaining. AIG submitted that the $8 increase proposed is affordable given current economic conditions and appropriate because "the integrity of awards as the instrument for providing a safety net of fair minimum wages and conditions needs to be upheld" [Exhibit W1 at 6]. AIG did not support a cut-off point for safety net adjustments submitting that the absorption mechanism deals naturally with increases at upper award levels given the high incidence of overaward payments at those levels.

[76] The Joint Governments' submission as to needs and the low paid was that the $8 increase they advocated "should broadly maintain the real value of award wages for the low paid" [Exhibit JG1 at 60]. They submitted that the relevant social considerations are:

[77] The Joint Governments did not support the determination of minimum award wages in a fixed relationship to benefit levels and other protections open to low income earners through the social safety net. To do so was considered to potentially deny to the Commission and the Federal Government flexibility that may be needed in fluid economic and social circumstances in the future. Unemployment, they submitted, is the main cause of inequity and low income in Australia with the unemployed more likely to be in low income households. In contrast low wage employees were said to be concentrated in middle to high income households, while minimum wage employees are predominantly located in the middle of the income distribution.

[78] The Joint Governments stressed the wide range of non cash benefits and cash transfers available to assist workers on low rates of pay and asked us to conclude that low income is more a function of unemployment than of low wages. The likely distribution of low wage earners within the spectrum of equivalised household income was the subject of detailed submissions - aided by the analysis arising from the microsimulation model STINMOD. This approach contrasted the low income of the unemployed with the higher relative income of those employed but on low pay. We were urged to consider the distributional consequences of change to the safety net in the context of all Australian families. This was because the unemployed and those receiving transfer payments were said to "contribute to the general level of living standards" to which, it was submitted, the Commission must pay regard [Exhibit JG1 at 207].

[79] The Joint Governments also submitted that the ACTU's approach to the budget standards developed by the Social Policy Research Centre at the University of New South Wales was flawed. We were urged to find that the standards, rather than supporting the ACTU claim, reflect the difficulty in arriving at "a final objective living standards benchmark" [Exhibit JG1 at 218]. They argued that generally prevailing community living standards should be examined by reference to a range of economic indicators of the needs of the low paid.

[80] The objects of Part VI of the Act (s.88A) include the following:

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

[81] 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 s.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 s.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. Our conclusion is that an adjustment to the safety net is warranted to give effect to the provisions of the Act referred to above.

THE DECISION ON THE ACTU WAGE CLAIM

[82] As noted elsewhere, Australia's economic performance in the year since the last safety net decision has been good, as it has been since the early part of this decade. Economic and productivity growth are strong, investment has been at historically high levels and inflation has been low. The immediate economic outlook is positive. There is, however, need for caution in light of a projected slowing in economic growth and a reduction in the level of new private investment both of which may slow employment growth. Accordingly we are conscious of the need to ensure that increases in labour costs should not put at risk the downward trend in the level of unemployment evident since the end of 1997. Other reasons for a cautious approach were urged upon us. These include the uncertainties in world financial markets arising from the continuation of economic problems in a number of Asian countries, a serious economic situation in Russia and economic uncertainty in a number of Latin American countries and the continuing effects of the Asian economic downturn on some sectors of the Australian economy.

[83] In all of the circumstances we have decided that a safety net adjustment is warranted. To refuse or defer consideration of the ACTU's claim would run counter to our statutory obligations to have regard to the needs of the low paid and the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community. Equally, to grant the ACTU's claim in full would be inconsistent with our statutory obligation to have regard to economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment.

[84] Over the two years up to the end of December 1998 increases in award rates arising from safety net adjustments have not kept pace with the growth in earnings generally. Nor have they kept pace with increases resulting from enterprise agreements. The gap between income levels established as a result of bargaining and those determined by the award system has widened since 1992-93. Of employees dependent on safety net adjustments for increases, those at the lower levels have fared better than those at the higher levels because adjustments have been in dollar amounts rather than percentages. Those submissions which focus on the magnitude of the increases in the minimum wage level arising from safety net adjustments do not provide a balanced assessment of the effect of safety net adjustments on the award system or their labour cost impact.

[85] We were reminded by ACCI and others opposing the claim that the level of labour cost increases flowing from safety net adjustments varies between sectors of the economy and is greatest when employees receive the award rate without any additions by way of overaward payments or through locally bargained agreements. As we pointed out in our last decision, it is a necessary implication of the safety net concept that there be an appropriate level of minimum wages applying in all industries. One of the objects of Part VI of the Act is to ensure that awards act as a safety net of fair minimum wages and conditions of employment. Nevertheless the fact that in some sectors the scope to absorb safety net adjustments is quite limited is a matter which we have taken into account in arriving at the amounts we have decided upon.

[86] We have decided on a safety net adjustment of the following amounts:

[87] There are a number of factors which have led us to the conclusion that we should award smaller increases than were awarded in 1998. Those factors include:

As a result of the adjustment, wages at the lower levels of the award classification structure will increase broadly in line with the increase in earnings generally. The real value of wages at the higher classification levels will be maintained.

[88] The date at which increases flowing from this decision should be available was a matter of debate during the case. The Joint Governments and some employers asked us to ensure that there is a twelve month gap between the increases provided for in our April 1998 decision and any increases provided for in this case. It was said that if safety net adjustments occur too close together intolerable pressures will be placed on many employers and ultimately jobs will be lost. The ACTU opposed the proposal. We consider a case has been made out by the Joint Governments and the employers concerned. The Statement of Principles will be amended to require that at least twelve months have elapsed since the rates in the award were increased in accordance with the April 1998 decision before the award is varied as provided for in this decision.

[89] There are a number of circumstances which will tend to reduce the potential impact of this adjustment compared to last year's adjustment. First, we note that an increase in the level of employer superannuation contributions occurred in July 1998. No such increase will occur in the year in prospect. Second, as we have just indicated, we have decided to adopt proposals to bring about a twelve month gap between the implementation of the 1998 safety net adjustment and the adjustment provided for in this decision. This will ensure that safety net increases are not implemented too close together in a way which may cause economic difficulties. Third, we have amended the Economic Incapacity Principle to recognize that the impact of an increase in labour costs on employment at the enterprise level is a significant factor to be taken into account.

[90] As was the case in 1998, this adjustment will only be available to employees dependent on safety net adjustments for increases in wages. Allowances which relate to work or conditions which have not changed and service increments should be adjusted, consistent with the approach in recent safety net decisions.

[91] In previous safety net decisions the Commission has expressed concern about the potential for increases to lead to an unsustainable acceleration in earnings growth. This could occur if safety net increases are not absorbed into overaward payments and payments under enterprise agreements or if the increases flow directly into the bargaining process. On the material before us it is unlikely that previous safety net adjustments have had that effect. We wish to emphasise, however, the importance of absorption in ensuring that the labour cost increases flowing from safety net adjustments are minimised.

[92] We have maintained the practice of adjusting award rates at all levels, despite submissions that the adjustment should only apply to employees classified at or below the C10 rate in the Metal Industry Award - currently $465.20 per week. We have also decided to reject that part of the ACTU claim which seeks a percentage adjustment (of 5%) in award rates above $527.80 per week. Our decision to award flat money increases, rather than a percentage increase, will provide proportionately greater assistance to the low paid. In previous cases the Commission has drawn attention to the requirement that rates prescribed in awards be fair, to the importance of internal relativities between classification levels and to the need to provide increases for employees who, although employed at the higher levels, are dependent upon safety net increases for increases in pay. Each of these factors, on its own, favours an increase at all levels. Futhermore, we do not accept the Joint Governments' submission that the current legislative framework compels the conclusion that employees on higher award classification rates should generally not be eligible for award safety net increases. In all of the circumstances the approach we have adopted, both the amounts and the form of the increases, strikes the right balance between the competing equity and cost considerations which the parties have drawn to our attention in their submissions.

[93] With one exception we have adopted the same approach to the implementation of this decision as the Commission adopted in the April 1998 decision. The exception is that for the increases provided for in this decision to be available in an award at least twelve months must have elapsed since the increases provided for in the April 1998 decision. Implementation will be subject to the following:

Consistent with our decision the federal minimum wage will be increased by $12 to $385.40.

[94] The ACTU submitted that there is a need for periodic reviews of award rates outside of safety net reviews. It pointed to a number of reasons in support of such reviews including the need for award rates to be updated for movements in earnings, the need for flexibility in award arrangements, the need for changes in work value to be properly compensated for and generally the need to ensure the safety net is fair and enforceable and provides an up-to-date and relevant guide for bargaining. The ACTU asked us to acknowledge the utility of periodic award reviews in maintaining the effectiveness of the award system. We think it is unnecessary that we make any finding in principle about the utility of periodic award reviews. In the current circumstances, where all awards of the Commission have been or will be reviewed as part of award simplification, we fail to see any benefit in further reviews on a periodic or any other basis. Any award party wishing to initiate a further review is able to do so subject to compliance with the relevant statutory provisions and the Wage Fixing Principles.

VECCI CLAIM ABOUT THE FEDERAL MINIMUM WAGE

[95] VECCI filed an application to vary the Clerical and Administrative Employees (Victorian) Award 1995 in relation to the federal minimum wage in the following terms:

[96] The application, which was supported by ACCI, seeks to change the current federal minimum wage clause in three ways. First, to provide that the federal minimum wage will operate as the "benchmark wages comparator" for the purpose of the no-disadvantage test set out in s.170XA of the Act. Second, to provide that the federal minimum wage will not be used to calculate overtime, penalty rates and allowances. Third, to break the current link between the federal minimum wage and the award wages system.

[97] VECCI also tendered a document setting out various options in relation to the federal minimum wage. Among these options were proposals to use the federal minimum wage as the "applicable benchmark" for probationary employees, the long term unemployed and the renegotiation of enterprise agreements. It was not suggested by VECCI that one particular option should be adopted, but that the various options should form the basis of a general enquiry into the role of the federal minimum wage.

[98] The claim was opposed by the ACTU and received little or no support from any party other than ACCI. ACCIR did not support the claim because it "may encourage the payment of below award wages when bargaining" which "would significantly undermine the award system as the safety net of minimum wages". AIG submitted that there were "legal and practical difficulties" inherent in the VECCI application and accordingly did not support it. Although the Retail Motor Industry did not deal with the application in either their written or oral submissions, VECCI later advised us that the Retail Motor Industry had informed it that it supported the application. Other than this general indication of support no specific submissions were put by the Retail Motor Industry.

[99] The Joint Governments made no submission as a group on the VECCI claim. The Commonwealth confined its submissions in relation to the claim to the following statement:

It made no submissions about the Commission's jurisdiction to grant the claim.

[100] VECCI submitted that the Commonwealth's statement supported the specific changes it proposed. We disagree. In our view the Commonwealth stopped well short of endorsing the changes sought. The Commonwealth's statement only went to the benefits of raising a general policy issue, namely the interaction between award rates and agreement making. The Commonwealth did not advocate a particular means of addressing this general policy issue.

[101] We deal with each of the three elements of the claim in turn.

The Federal Minimum Wage and the No-Disadvantage Test

[102] Section 170LT provides that, if an application is made to the Commission in accordance with Division 2 or 3 of Part VIB of the Act, the Commission must certify an agreement if, and must not certify an agreement unless, it is satisfied that, among other things, the agreement passes the no-disadvantage test. Similar provisions apply to the approval of Australian Workplace Agreements (AWAs) [see s.170VPB]. The no-disadvantage test is explained in s.170XA as follows:

[103] The no-disadvantage test is intended to ensure that employees will not receive less, on balance, under an agreement than they would have received if their terms and conditions of employment were determined by relevant awards or designated awards [defined in s.170X]. It requires a comparison to be made between the overall terms and conditions of employment of employees under, on one hand, the agreement and, on the other hand, the relevant awards or designated awards and any relevant Commonwealth, State or Territory laws.

[104] VECCI submitted that its application provides that, for the purpose of the no-disadvantage test in s.170XA, the benchmark for wage rates in enterprise agreements is the federal minimum wage, not the wage rates for particular classifications in the relevant or designated awards. Indeed for this purpose VECCI said that the federal minimum wage is to subsume every monetary prescription in an award, including classification wage rates, penalty rates and allowances expressed in monetary terms.

[105] An award normally specifies rates for various classifications. For example, the Metal Industry Award specifies rates for some sixteen classifications, the lowest being level C14 and the highest level C1(b). An employee performing the duties applicable to, for instance, the C10 classification is entitled to be paid no less than the rate prescribed by the award for that classification. The rate for the C10 classification ($465.20 per week) is more than the federal minimum wage ($373.40 per week). If the no-disadvantage test were applied to an employee under the Metal Industry Award classified as C10, the award rate for that classification, together with the employee's other terms and conditions of employment under the Metal Industry Award, would be compared with the rate the employee would receive under the agreement, together with the other terms and conditions of employment the employee would receive under the agreement. In these circumstances, the application, if granted, would operate so that, for the purposes of the no-disadvantage test, the wage component of the terms and conditions of employment being compared would be, not the C10 rate plus relevant penalties and allowances, but the federal minimum wage alone. The effect of this is, for the purposes of the no-disadvantage test, to deem the award wage for an employee classified as C10 to be something it is not, namely, the federal minimum wage.

[106] VECCI argued that its proposal would:

[107] VECCI also relied on what it referred to as "significant equity requirements" in the Act for the certification of agreements and the approval of AWAs. For example, in relation to an AWA it pointed out that:

Similar requirements were said to exist in relation to agreements under Division 2 or 3 of Part VIB of the Act, for example:

It made the following submission in relation to the above requirements:

[108] As to the Commission's power to grant the application, VECCI argued that the Commission has power to make an award containing only one rate of pay and such a rate could operate as the wages comparator for the purpose of the no-disadvantage test. Because such a power exists, there is no impediment to making a rate of pay, in this case the federal minimum wage, operate in certain circumstances but not in others. It was put that it was not uncommon for employees to "move between different parts of an award" - the operation of a mixed functions clause was cited as one example of this.

[109] In relation to the allowability of the variation sought, VECCI relied on the decision in Re: Telstra Corporation General Conditions of Employment Award 1996 [Print Q8133]. In that case the Commission decided that the following clause was incidental to an allowable matter and was necessary for the effective operation of the award:

VECCI argued that this clause preserved a "notional set of terms and conditions which are separate from those under other provisions of the award".

[110] Our views on the first element of the application are as follows. First, we think there is considerable doubt about our power to grant this element of the claim. Whilst VECCI submitted that the change proposed is allowable pursuant to s.89A(2)(a) and (c), on the limited submissions before us we are not prepared to express a view on that question. Further, we doubt that this element of the claim comes within s.89A(6). Section 89A(6) provides that the Commission may include in an award provisions that are incidental to an allowable award matter and necessary for the effective operation of the award. While the variation sought may be incidental to an allowable award matter - namely "rates of pay generally" [s.89A(2)(c)] - it has not been demonstrated that the variation is necessary for the effective operation of the awards which are the subject of the VECCI application. In view of the conclusion we have reached, however, it is unnecessary for us to express a concluded view on whether the first element of the claim is allowable. Second, in our view the first element of the claim must fail because, if granted, it would create a fiction which would alter the operation of the no-disadvantage test and would undermine the legislative intent of Part VIE of the Act and in particular s.170XA. Third, we do not accept the merit arguments advanced. In this regard we note that the "significant equity requirements" relied on are directed to the process of agreement making. The no-disadvantage test is of a different character. It is not concerned with process but goes to the substantive effect of an agreement on the terms and conditions of the employees covered by it. It is directed to ensuring that the content of an agreement does not disadvantage such employees. VECCI also argued that its claim if granted would make "the process of approving an enterprise agreement much simpler". If it is thought that the relevant statutory tests require simplification, the remedy lies in the legislative process not in proceedings before this Commission. For these reasons we have decided to reject the first element of the VECCI claim.

The Federal Minimum Wage and Penalty Rates

[111] The federal minimum wage applies to the calculation of overtime and all other penalty rates. The second element of the VECCI claim seeks to change this position by providing that the federal minimum wage is to apply only to work performed in ordinary hours. Reliance was placed on the 1972-73 National Wage Case decision [(1973) 149 CAR 75 at 85] in which the Commission decided to include the following provision in the standard minimum wage clause:

This provision differs from the current federal minimum wage clause and VECCI argued that it was seeking to restore the previous position.

[112] The ACTU submitted that the issues relevant to the application of the present federal minimum wage to penalties are different from those which the Commission considered in 1973 when it decided that the minimum wage would no longer be used for the purpose of calculating penalty rates. We agree. The rationale for the Commission's earlier decision is explained in the 1974 National Wage Case decision in the following terms:

The Commission considered this issue further in the September 1978 Wage Fixing Principles Case and said:

[113] In our opinion the considerations referred to in the 1978 decision are not relevant in the current context. In 1978 the minimum wage exceeded the lowest classification rate in a number of awards. This is not the case in awards which have been through the minimum rates adjustment process resulting from the February 1989 National Wage Case decision [Print H8200; 1989/3 CAR 292]. This process has led to a consistency in minimum rates which is not affected by the federal minimum wage. Further, if the federal minimum wage ceased to apply to the calculation of overtime and penalty rates, the effect could be to reduce the wages of low paid employees. Such an outcome would be inconsistent with our statutory obligation to have regard to the needs of the low paid when adjusting the safety net [s.88B(2)(c)]. Indeed the main reason given for the introduction of the federal minimum wage in the Safety Net Review - Wages April 1997 decision (April 1997 decision) was to give effect to the requirements of s.88B(2)(c) [Print P1997 at p.76]. We have decided not to grant the second element of the claim.

The Link Between the Federal Minimum Wage and Award Rates of Pay

[114] The federal minimum wage is currently set at an amount equivalent to the C14 level in the Metal Industry Award. VECCI argued that this link should be severed. It drew our attention to the following matters:

[115] In the April 1997 decision the Commission decided to determine a minimum wage for full-time adult employees of $359.40 per week. The Commission said at pp.76-77:

[116] In the April 1998 decision the Commission rejected requests to break the link between the federal minimum wage and the C14 rate in the Metal Industry Award 1984 - Part I [Print F8925 [M0039]]. The Commission said, at p.47:

[117] We adhere to the conclusions reached in the April 1998 decision. We are obliged to deal with the matters before us in the context of the statutory framework. The material relied on by VECCI which relates to other jurisdictions and other times is of limited relevance. We reject the third element of the VECCI claim.

[118] The final matter we wish to deal with concerns the document tendered by VECCI [referred to in paragraph 97] which sets out a number of options in relation to the federal minimum wage. VECCI submitted that the document should form the basis of a general inquiry into the role of the federal minimum wage. ACCI supported that submission but there was no support from any other party. We do not propose to establish the inquiry sought. There is no impediment to any party filing an application to vary the federal minimum wage principle as the ACTU and VECCI have done in these proceedings.

THE STATEMENT OF PRINCIPLES

[119] In the April 1998 decision the Commission in response to submissions put by the parties on the operation of the then Statement of Principles, including a submission by the ACTU that the Commission should abandon the principles, decided to retain a Statement of Principles. The reasons for retaining the principles were stated by the Commission as being:

On this occasion the ACTU submitted that it would not be inappropriate for the principles to be rescinded. It was argued that the rescission of the principles would not mean that wage fixing would proceed unencumbered by any standards.

[120] Consistent with the views expressed by the Commission in the April 1998 decision set out above, we have decided to retain a Statement of Principles. In addition to the changes necessary to reflect our decision on the safety net adjustment and those of a technical nature, we have made a number of other changes. The new Statement of Principles is Attachment A.

[121] In addition to proposed changes of a technical nature, including the deletion of obsolete references, a number of amendments were sought to the present principles. The changes sought related to:

[122] This part of our decision deals with the Economic Incapacity Principle and the duration of the system. The other changes sought are dealt with elsewhere in this decision.

The Economic Incapacity Principle

[123] The present principle is in the following terms:

[124] The Joint Governments sought to amend the principle by deleting the words "very serious or extreme". It was submitted that the amendment would ensure that jobs and opportunities for the unemployed are not put at risk as a result of arbitrated increases in labour costs. It is important that enterprises in industries that employ large numbers of "low skilled employees", such as the hospitality and retail industries, remain viable to ensure that employment opportunities and prospects for such employees are maintained. The Joint Governments stated that 21.2% of firms employing fewer than twenty persons are operating at a loss and safety net adjustments impact heavily on businesses in this category. There is a need for an effective mechanism to enable business to cushion the impact of safety net adjustments. They submitted that their proposed amendments would provide access to the principle for respondents or groups of respondents who are experiencing hardship but who in the past had considered the tests specified in the principle to be set at a level which did not warrant the considerable expense associated with mounting a case. In the view of the Joint Governments, the Commission should adopt an Economic Incapacity Principle which specifically embraced:

[125] ACCI submitted that the principle should be amended by removing the requirement that any phasing-in of a safety net adjustment should be subject to the principle. The principle should recognise the important differential macro-economic effects that increases in labour costs have on different sectors of the economy. This, in ACCI's submission, could be achieved by providing for phasing-in on an industry, regional or other basis. Such an approach would not be inconsistent with past decisions of the Commission including the decisions in 1997 and 1998 in relation to the Victorian Minimum Wage [Prints P7364 and Q5101] in which the federal minimum wage was phased-in over two stages for certain named industries. To achieve an appropriate recognition in the principle that there are differential impacts of wage increases, ACCI proposed the following addition to the Arbitrated Safety Net Adjustments Principle:

As an alternative to this proposal, ACCI supported the Joint Governments' proposed amendment to the Economic Incapacity Principle.

[126] The ACTU opposed the proposals of the Joint Governments and ACCI. It submitted that it was appropriate that the principle refer to respondents or groups of respondents. The diversity of circumstances in particular enterprises within an industry would mean that the "broad brush" approach to economic incapacity as sought by ACCI would result in windfall gains to large numbers of firms within an industry and a corresponding loss for their employees. In response to the Joint Governments' proposal, the ACTU submitted that the Commission, in deciding to award a particular level of safety net adjustment, does so by taking into account the provisions of ss.3(a) and 88B(2). Small businesses in financial difficulty do not receive discounts on other inputs such as rent, interest payments and energy bills. No case has been made out that small businesses in financial difficulty for any reason, including managerial shortcomings, should be subsidised by their employees. The adoption of principles which allow safety net adjustments to be optional or readily avoided would, in the submission of the ACTU, be inconsistent with the safety net of the award system.

[127] The Commission has on a number of occasions in National Wage and Safety Net Review decisions considered the operation of the Economic Incapacity Principle. In the June 1986 National Wage Case decision [Print G3600; (1986) 301 CAR 611] the Commission considered whether the principle should specify a particular test. The Commission's decision on this point was as follows:

In the April 1998 decision the Commission considered whether the principle should have the capacity to exempt all sectors from an increase in labour costs. The Commission concluded the following:

With respect to effects on particular sectors of safety net increases the Commission said:

And further on the Commission stated:

[128] In a recent decision the Commission considered applications under the Economic Incapacity Principle made on behalf of a number of employers principally involved in the business of providing accommodation to the public. In rejecting the application for relief on a group basis, the Commission concluded:

[129] However the Commission found that two employers warranted different treatment and, in their cases, postponed the commencement date for the safety net adjustments.

[130] A number of points can be made on the basis of the decided cases:

[131] We note that in appropriate circumstances enterprise bargaining provides a means whereby the employer and employees in a particular establishment may agree to defer or phase-in a labour cost increase, such as a safety net adjustment. Sections 170LT(1) to (4) of the Act are relevant in this regard. These subsections state:

[132] The Commission, in deciding to award a safety net increase, does so having regard to, among other things, submissions on the economy including the effect on inflation and employment of a safety net increase and the impact of the increase between and within industries. In the present case, in deciding on the level of the safety net adjustment, we have taken into account all of the submissions concerning the cost impact and its effect, particularly on the level of employment at the enterprise level, of granting the ACTU claim.

[133] We also consider that given the diversity of economic conditions which exist within and between industries, it is not appropriate that we introduce a principle which would allow the exemption of industries and sectors from an increase in labour costs without an examination of the individual enterprises. We agree with the conclusion reached by the Full Bench in the 1998 decision on the Victorian Minimum Wage orders [Print Q5101] in which the Full Bench, in response to a submission that a different approach to the Economic Incapacity Principle be adopted in respect of such orders by permitting applications to be determined on a regional basis, stated:

[134] For these reasons we have decided not to modify the principle either by adopting the Joint Governments' proposal or that of ACCI. Accordingly, applications under the principle will continue to be limited to individual respondents or groups of respondents.

[135] Whilst we have not been persuaded to grant the changes sought by the Joint Governments or ACCI, we have decided that the principle should be amended. The amendment will recognise that the impact of an increase in labour costs on employment levels at the enterprise level represents a significant factor to be taken into account in determining whether an employer is experiencing very serious or extreme economic adversity. Accordingly the principle will be amended by including the following sentence:

[136] A number of the submissions relating to the Economic Incapacity Principle suggest that the operation of the principle may not be as well understood as it could be. Some explanation of the operation of the principle could be of benefit to all parties. Decided cases provide some guidance. We have decided to request Registry staff to prepare a document containing explanatory material to assist parties to applications under the principle.

The Duration of the System

[137] The ACTU submitted that the system should be of twelve months' duration. ACCI submitted that there was nothing in the Act which provides for a twelve month system or that the Commission conduct reviews on a twelve monthly basis. In its submission, the ACTU's reliance on the objects of the Act referring to "maintenance of the safety net" does not take into account other objects referring to the encouragement of agreements and the need to take economic considerations into account.

[138] We have decided that the Statement of Principles determined in this decision will operate until reviewed. It needs to be recognised that it is not the Commission that dictates the timing of reviews of the award safety net. Rather, it is applications by parties to vary awards which provide the jurisdictional foundation for a consideration of such claims and their timing. It is only when applications are made that the Commission is required to consider, in accordance with its statutory obligations under the Act, whether an arbitrated safety net adjustment should be granted and, if so, at what level, when it should operate and what conditions need to be met to access the adjustment.

Conclusion

[139] The orders necessary to give effect to this decision in the relevant awards before us should be drawn and filed by the applicants. Commissioner Gay 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:

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:

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

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

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

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

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

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

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

(h) to 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 April 1999 decision [Print R1999] 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].

(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 April 1999 decision [Print R1999] 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 April 1998 decision [Print Q1998].

(c) 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.

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

The above clause will replace the offsetting clause inserted into awards pursuant to paragraph 8(c) of the Statement of Principles determined in the April 1998 Safety Net Review - Wages decision [Print Q1998].

(e) 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.

(f) 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.

9. FEDERAL MINIMUM WAGE

In accordance with the Safety Net Review - Wages April 1999 decision [Print R1999] awards may, on application, be varied to provide for the federal minimum wage for full-time adult employees of $385.40 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 the Textile Industry Award 1994 [Print P1741 [T0007]]. 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:

(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:

(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 $385.40.

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;

(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 CONDITIONS

Since the early 1990s, Australia's economic performance has been characterised by:

Recent economic data shows that the strong medium-term performance of the economy continued in 1997 and into 1998.

Economic data released since the April 1998 decision shows a continuation of good economic outcomes in 1998 and into 1999. The Australian economy has shown considerable flexibility and strength in the face of recent financial market volatility in Asia. The continuing strength of the Australian economy is borne out by a consideration of the key performance indicators of:

Employment and Unemployment

Chart 1, drawn from ABS data in Exhibit ACCI 5, shows employment growth since March 1989.

Chart 1

The chart shows a significant decline in employment growth in the early 1990s, which was associated with weak economic activity, followed by an improvement in employment growth in the mid 1990s, peaking in mid 1995. Thereafter employment growth weakened, with limited growth from the beginning of 1996 until a recent improvement in employment, from late 1997 through to 1999.

Chart 2

Chart 2 shows significant growth in unemployment in the early 1990s, reflecting in part the reduced employment growth recorded in Chart 1 over the same period. The decline in unemployment was most pronounced in 1994 and 1995. Unemployment increased in 1996, and into 1997, associated with weak growth in that period. The downward trend in unemployment resumed in the last half of 1997 and continued into 1999. The trend unemployment rate has fallen, from 8.7% in early 1997, to 8.1% over the first half of 1998. It has fallen further, to 7.4%, in February and March 1999, the lowest level since 1991.

Wage Movements

Table 1 sets out date of wage and price movements from 1995-96 to the present.

Table 1: Annual Increase (% Change on a Year Earlier) of Wages and Prices

 

AWOTE 1

Award rates2

CPI3

     

All Groups

Underlying

Annual

        

1995-6

4.5

2.0

4.2

3.2

1996-7

3.9

1.5

1.3

2.0

1997-8

4.1

n.p.

0.0

1.5

Quarterly

        

1998 Feb

4.1

n.p.

-0.2

1.5

May

4.2

n.p.

0.7

1.6

Aug

4.3

n.p.

1.4

1.6

Nov

4.3

n.p.

1.6

1.6

Table 1 shows:

The ABS Wage Cost Index [Cat. No. 6345.0] shows wages growth of 3.1% over the year to the December quarter 1998 (3.0% in the private sector; 3.6% in the public sector).

Table 2: Wage Increases Under Federal Agreements

Quarter

Private Sector Wage Agreements

Public Sector Wage Agreements

All Federal Wage Agreements

 

No of agmts

Emp'ee (000)

AAWI per emp'e %

No of agmts

Emp'ee (000)

AAWI per emp'e %

No of agmts

Emp'ee (000)

AAWI per emp'e %

Mar 1997

806

52.8

4.6

73

18.3

4.4

879

71.1

4.6

Jun 1997

828

77.3

4.8

121

59.1

4.9

949

136.4

4.8

Sep 1997

1443

106.5

4.4

190

40.2

4.9

1633

146.7

4.6

Dec 1997

1066

163.7

3.9

147

107.9

4.3

1213

271.7

4.1

Mar 1998

933

93.3

4.0

147

39.8

2.7

1080

133.1

3.6

Jun 1998

1122

145.3

4.0

136

87.3

3.5

1258

232.6

3.8

Sep 1998

1869

151.8

4.3

264

93.0

3.4

2133

244.8

3.9

Dec 1998

1840

121.0

3.9

287

137.8

4.5

2127

258.8

4.2

Table 2 shows:

In considering Table 2, it should be remembered that:

Inflation

Chart 3

Chart 3 shows inflation on a financial year basis. It shows that, when abnormal and mortgage rate effects are removed, inflation has settled within the RBA target range of 2% to 3% over the six years to 1997-98 and fell further, to 1.5% in 1997-98.

Chart 4

Chart 4 shows the same data as Chart 3, on a quarterly basis, over the past four years. The underlying rate has continued to fall consistently since mid 1996. Australia has enjoyed a long period of low inflation. It fell to a low of 1.4% over the year to the December quarter 1997. It has remained below 2% since that time.

Productivity

Attachment B to the April 1998 decision showed an RBA comparison of productivity growth over each of the last three expansion phases of the Australian economy. It showed a significant improvement in trend labour productivity in the expansion phase from June 1991 to June 1997. The historically strong productivity improvement in recent years has continued over 1998. Table 3.5 in the Joint Governments' submissions shows:

Table 3: Productivity

Productivity Measure

Year to Sept Qt
1998
% Annual Growth

June Qt 1991 to
Sept Qt 1998
% Annual Growth

     

Labour productivity per hour worked

    

All industries (GDP, trend)

3.1

2.4

Market sector (GDP, trend)

3.6

2.9

Non-farm sector (GDP, s.a.)

3.3

2.5

     

Unit labour costs (non-farm sector)

    

Nominal unit labour costs

0.7

1.4

Real unit labour costs

-1.7

-0.1

Profits

Chart 5


The private corporate profit share, reproduced from the Joint Governments' submissions, shows corporate profitability remaining at record levels. In the December quarter 1998 profits as a share of national income was at the highest level recorded since quarterly national accounts began in 1959. ABS data for absolute company profits is consistent with the profit share data. That data shows relatively high company profits over the second half of the 1990s with strong recovery from a decline in early 1997.

Investment

Chart 6, "Private Sector Investment As a proportion of GDP" shows an improvement in investment, as a proportion of GDP, evident since late 1995. That improvement continued until the first quarter of 1998. Chart 7 shows strong and continuing growth in private sector investment since 1992.

Chart 6

Chart 7

Economic Growth

Chart 8

Chart 8 shows a period of healthy economic growth (shown as quarterly growth in gross non-farm product at constant prices) since 1991, notwithstanding moderation during 1996 and into the first half of 1997. It shows very strong growth since the last half of 1997.

The Immediate Economic Outlook

We were assisted in assessing the immediate economic outlook by the submissions of the parties and projections, which included:

The general economic picture is of a continuation of Australia's recent good economic performance with continuing strong growth, some reduction of unemployment in 1998-99 and continuing moderate inflation outcomes, albeit with slightly reduced growth levels and some increase in inflation from a level well below the RBA target range. The shorter-term outlook in the Treasury Mid-Year Economic and Fiscal Outlook 1998-99 is reproduced in Table 4 below:

Table 4: Economic Outlook for 1997-98(a)

 

1997 -98 Outcomes

1998-99 Budget Forecasts(b)

Revised 1998-99 Forecasts(c)

 

Year Average

Year Average

Year Average

Panel A - Demand and Output

      

Private consumption

4.5

4

3 ½

Private investment

      

Dwellings

14.6

10

4

Total business investment

9.3

6

-2

Other buildings and structures

15.4

9

-8

Machinery and equipment

6.8

5

0

Private final demand

6.0

5

2 ¾

Public final demand

2.6

2 ¼

6 ¾

Total final demand

5.3

4 ¼

3 ½

Change in inventories(d)

      

Private non-farm

0.1

¼

0

Farm and public authorities

0.6

0

0

Gross national expenditure

5.9

4 ¾

3 ½

Exports of goods and services

3.8

2 ½

1 ½

Imports of goods and services

9.4

9

3

Net exports(d)

-1.1

-1 ¾

-¼

Gross domestic product

4.6

3

3 ¼

Non-farm product

4.8

3 ¼

3 ½

Farm product

-2.9

-1

3

       

Panel B - Expenditure excluding Transfers and One-off Transactions(e)

      

Total business investment

9.4

8

1

Public final demand

3.5

1

4 ¼

Increase in stocks

0.3

½

0

Gross national expenditure

5.7

4 ¾

3 ½

Exports of goods and services

5.5

2 ½

2 ¼

       

Panel C - Other Selected Economic Matters

      

Prices and wages

      

    Consumer Price Index(f)

0.0

2 ½

2

    Gross non-farm product deflator

1.4

3

1 ¼

    Average earnings(g)

3.7

4 ¼

4

Labour market

      

Employment (Labour Force Survey basis)

1.3

1 ¾

2

Unemployment rate (per cent)

8.3

8

8

Participation rate (per cent)

63.2

63 ¼

63 ½

External accounts

      

Terms of trade(h)

0.0

-1 ¼

-5 ¼

Current account balance

      

$billion

-23.3

-31

-32

Percentage of GDP

-4.1

-5 ¼

-5 ½

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

(b) Calculated using seasonally adjusted constant price data.

(c) Calculated using seasonally adjusted chain volume data.

(d) Percentage point contribution to growth in GDP.

(e) Transfers are net second hand asset sales from the public sector to the private sector. One-off transactions are gold sales by the RBA. `Lumpy' imports of aircraft, ships and satellites, and the export of an ANZAC frigate.

(f) Budget forecast was on 12th series basis and revised forecast refers to the 13th series.

(g) Average earnings (national accounts basis).

(h) The Budget forecast was adjusted to exclude computer import prices. The revised forecast is calculated on a chain volume basis and hence is less distorted by computer prices.

Observations arising from the mid-year assessment include:

1. Growth for 1998-99 forecast to be below that recorded in 1997-98, but in excess of that forecast at Budget time. The slowing in growth is anticipated to arise from a reduction in private consumption and a slower growth in residential and business investment;

2. A slowing in exports, particularly in elaborately transformed manufactures and some services, is expected to be offset by a reduction in imports;

3. International economic conditions have deteriorated in 1998, with sharp contractions in Japanese and a number of other Asian economies. Uncertainties remain in the international outlook due to possible developments in world financial markets. The financial instability within Asia has broadened, affecting Russia and Latin America in particular;

4. Stronger employment growth is expected in 1998-99, with unemployment slightly reduced;

5. Inflation is expected to increase moderately from historically low levels, due to the lagged impact on retail prices of the higher import prices over the past year. It will, however, remain comfortably within the 2% to 3% RBA target range;

6. The current account is expected to grow over that recorded in 1997-98, from 4% of GDP to 5.5%; and

7. Investment growth is forecast to be relatively flat in 1998-99, after six years of strong growth.

The Treasury Mid-Year Review also provides limited parameters for 2000-2002 as follows:

Table 5: Treasury Parameters 2000-2002

 

2000-1

2001-2

Real GDP

3.5%

3.5%

Employment growth

2.25%

2.25%

Wages growth

3.5%

3.5%

CPI

2.5%

2.5%

The longer term outlook suggests a continuation of reasonable economic growth, an improved outlook for employment and the continuation of a low inflation environment.

Appearances:

G. Belchamber for all applicant unions with G. Combet, M. Gaynor and T. Harcourt
for the Australian Council of Trade Unions.

B. O'Connor for the Australian Municipal, Administrative, Clerical and Services Union.

S. Burnley for the Shop, Distributive and Allied Employees Association.

T. Ferrari for the Australian Liquor, Hospitality and Miscellaneous Workers Union.

N. Delavec for the National Union of Workers.

A. Sachinidis with D. Oliver and A. Cole for the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union.

T. Smith for the Construction, Forestry, Mining and Energy Union.

R. Marles for the Transport Workers' Union of Australia.

C. Phillips for The Australian Workers' Union.

T. Woolgar and I. Nossar for the Textile, Clothing and Footwear Union of Australia.

R. Hamilton with D. Gregory for the Victorian Employers' Chamber of Commerce and Industry, and B. Chesterman for the Tasmanian Automobile Chamber of Commerce, T. Angelopoulos for the Australian Hotels Association, R. Calver for the National Farmers Federation, M. Diserio for The Australian Retailers Association, J. Hargraves for the Printing Industries Association of Australia, for the Confederation of A.C.T. Industry, the Chamber of Commerce and Industry of Western Australia, the Tasmanian Chamber of Commerce and Industry, the Queensland Chamber of Commerce and Industry, the Chamber of Manufacturers of New South Wales, the Chamber of Commerce and Industry of South Australia, the Employers Federation of New South Wales, the Metal Industries Association Tasmania and for the Australian Chamber of Commerce and Industry.

B. Watchorn for The Australian Industry Group, the Engineering Employers Association, South Australia and the Tasmanian Chamber of Commerce and Industry.

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

L. Yilmaz for the Victorian Automobile Chamber of Commerce, the Tasmanian Automobile Chamber of Commerce, the Motor Trade Association of South Australia, the Motor Traders' Association of New South Wales.

G. Hatton for the Motor Traders' Association of New South Wales and the Motor Trade Association of South Australia.

J. Ryan for the Australian Catholic Commission for Industrial Relations.

M. Smith for the Australian Trainers' Association.

E.R. Cole with S. Mathieson and P. Downes for the Minister for Employment, Workplace Relations and Small Business on behalf of the Commonwealth and on behalf of the governments of the States of South Australia, Victoria and Western Australia and the governments of the Australian Capital Territory and Northern Territory.

J. Evans and T. Pearce for the State of Tasmania.

I. Hill for the State of New South Wales.

E. Porter with B. Reedman and L. Skelton for the State of Queensland.

Hearing details:

1998.
Melbourne:
December 4.

1999.
Melbourne:
March 1, 9 to 11, 19.

Printed by authority of the Commonwealth Government Printer

Recommended retail price $10.00