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TRANSCRIPT OF PROCEEDINGS


O/N VT10311

AUSTRALIAN INDUSTRIAL

RELATIONS COMMISSION

JUSTICE GIUDICE
VICE PRESIDENT ROSS
VICE PRESIDENT LAWLER
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT LACY
COMMISSIONER HOFFMAN
COMMISSIONER LARKIN

C2002/2281, 2282, 2283, 2284,
4268, 5545, 5546, 5547, 5548,
5558, 5559, 5569, 5639, 5640,
5674, 5679, 5692, 5693, 5694
and 5716

CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL
TERRITORY) AWARD 1998

LAUNDRY INDUSTRY (VICTORIA) AWARD 1998

BUILDING SERVICES (VICTORIA) AWARD 1994

THE HOSPITALITY INDUSTRY - ACCOMMODATION,
HOTELS, RESORTS AND GAMING AWARD 1998

TIMBER AND ALLIED INDUSTRIES AWARD 1999

RUBBER, PLASTIC AND CABLE MAKING INDUSTRY
- GENERAL - AWARD 1998

GROCERY PRODUCTS MANUFACTURE - MANUFACTURING
GROCERS AWARD 1996

STORAGE SERVICES - GENERAL - AWARD 1999

COMMERCIAL SALES (VICTORIA) AWARD 1999

VICTORIAN LOCAL AUTHORITIES AWARD 2001

CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIA) AWARD 1999

TRANSPORT WORKERS AWARD 1998

GRAPHIC ARTS - GENERAL - AWARD 2000

METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998

HEALTH AND ALLIED SERVICES - PRIVATE
SECTOR - VICTORIA CONSOLIDATED AWARD 1998

RETAIL AND WHOLESALE INDUSTRY - SHOP EMPLOYEES - AUSTRALIAN CAPITAL TERRITORY - AWARD 2000

VEHICLE INDUSTRY AWARD 2000

THE VEHICLE INDUSTRY - REPAIR, SERVICES
AND RETAIL - AWARD 1983

HORSE TRAINING INDUSTRY AWARD 1998

CLOTHING TRADES AWARD 1999

Applications under section 113 of the Act
and section 108 References to a Full Bench
by the applicant unions to vary the above
awards re Safety Net Review 2003

MELBOURNE

10.38 AM, THURSDAY, 3 APRIL 2003

Continued from 2.4.03

JUSTICE GIUDICE: Mr Moir.

PN1623

MR MOIR: Yesterday, I think I was up to taking the Bench to the chart set out in annexure 1 of AIG1, but just before I go on to that, I did state yesterday that no-one has questioned the veracity of the data arising from the NATSEM study. However, your Honour, Senior Deputy President Watson, did ask the question about, as I understood it, about whether the periodic changes to the level of income support arrangements and thereby by extension, the thresholds at which income tests apply, are taken into account in that study. And I guess the implication then being that if they are not taken into account then the studies of this kind may become quickly out of date.

PN1624

And that, of course, is a very important issue because the findings from the NATSEM study underpin our analysis relating to actual benefit ratios. Well I have sought instructions on this matter, over night, your Honour and I had been given a fairly comprehensive response and I don't pretend to be, myself, fully across all the detail but the answer, in short, is that changes to the level of income support payments and the thresholds at which they apply, will not impact on the results of this sort of study to any great extend. And essentially there are two reasons for this, and I will come back to those reasons in just a moment, your Honour. But some background may be useful.

PN1625

The NATSEM study was specifically designed to assess the impact on the incidence of effective marginal tax rates as a result of the changes introduced by the new tax system or so called ANTS. Now there have not been any significant changes to the relevant variables since ANTS was introduced. So the NATSEM work is still highly relevant. And by relevant variables I mean, firstly, the rates of tax in the income tax system, the rates of the Medicare levy and the rates of withdrawal of income support payments. And then, secondly, the other variable is the - which is not changed, since ANTS was introduced, is the pattern of interaction between the income tax and income support arrangements.

PN1626

ANTS, of course, changed many of these variables and that is exactly why NATSEM undertook their study which essentially updated an earlier study they had undertaken. Importantly, neither of the variables, as I have just outlined, have changed since the year 2000. And that is why we say the NATSEM study remains highly relevant. But coming back to the reasons why changes in the level of income support payments and the thresholds at which they apply, will not impact on the results of the study. I mentioned there were two reasons. First, the effective marginal tax rates measure changes in tax paid and benefits received and due to a person or a household earning an extra dollar of private income, for example, by way of a safety net increase.

PN1627

The factors that determine these changes are generally independent of the level of payment and the level of income at which the income tests apply. They are the factors I have just mentioned, namely, the rates of tax in the income tax scale, the rates of the Medicare levy and the interactions - or should I say, the rates of withdrawal of income support payments. Now I say that these changes are generally independent of the level of payment and the level of income of which the income tests apply. I guess the qualification that has to be made, your Honour, is that some changes, in particular the thresholds at which income tests apply, will impact on effective marginal tax rates in the immediate vicinity of the relevant threshold. So, by way of an example, if there is an income test which stipulates that there is a 70 phase out of unemployment benefits, let us say, the figure $100 and this income test and increase is to $102, then clearly the effective marginal tax rate at $100 and $101 will change, however, the EMTR of $102 and above will not change.

PN1628

The second reason by we say that periodic changes to payment levels and thresholds will not impact on the results of the study, to any great extent, is because the NATSEM study looks at the incidence of EMTRs in different deciles of income distribution. In broad terms, the levels of income in these deciles will change in line with changes in inflation, wages and so forth. So then what you will see is that the level of income support payments and thresholds will also change. Now in the absence of changes in the level of income support payments and the thresholds at which the test apply, the effective marginal tax rates experienced at any given point in the income distribution, for example a third decile, would shift as inflation and wage growth have pushed, pushed the level of income up.

PN1629

In this case, then, the NATSEM results would become out of date over, say, a three or four year period, although they would still be relevant now in the year 2003. However, the changes in the income support payments and the thresholds are designed specifically to overcome this and to try to keep the income support system up to date with changes in private income. So the income test and the income distribution move together. Indeed, that is the rationale for the periodic adjustments in the first place. In this way, your Honour, the NATSEM results are not rendered out of date by the periodic changes to the level of payments and thresholds at which income tests apply but, in fact, they are kept even more up to date.

PN1630

If I could just then turn to those charts in annexure J, we say that they illustrate the very point we have been making throughout our submission, that the benefits of safety net wage increases are significantly diluted due to the interaction between the award safety net and the broader social safety net. They reveal that safety net wage increases and income support payment increases generally pull in opposite directions. Moreover, when one examines the average marginal tax rates faced by individuals in the lowest deciles of family income distribution, once again based upon the NATSEM findings, the actual benefit received from any safety net wage increase is, on average, around half of the extra cost imposed on employers.

[10.19am]

PN1631

I refer the Bench in particular to table 2 on page 35 of AIG1, which shows the average of marginal tax rates faced by individuals in those three lowest deciles of family income distribution. Many of those households most in need of income support, such as low income families with children and sole parents, will be subject to marginal tax rates in excess of 60 per cent, and will therefore receive less than a third of the actual cost to the employer. Now, this evidence clearly represents a thorn in the side of the ACTU in its claim for a large safety net wage increase, demonstrating as it does the severe imbalance between the costs to employers and the benefits actually received by employees' households.

PN1632

Now, in an attempt to avoid the implications of this evidence, the applicant has sought to re-hash many of the points which we have already comprehensively responded to in our reply submission. But can I go to them just briefly again? First, the ACTU argues that the charts in annexure J ignore relevant adjustments to benefit levels and thresholds, and we are effectively then accused of attempting to hoodwink the Commission. But nothing could be further from the truth. The charts in fact take full account of the changes to all relevant benefits and income tests between February 2002 and February 2003.

PN1633

Second, the ACTU continues to claim the charts select mere hypothetical examples, and that no regard is paid to the actual incidence of effective marginal tax rates. Accordingly, they say, there can be no basis to assert that many low income households receive little or no benefit. But let us have a look exactly at what household types are covered in the charts. They include, firstly, single income families with children. Second, two income families with children. Thirdly, sole parent families. Fourth, households with children eligible for Newstart allowances. Fifth, single persons eligible for Newstart allowance, and then finally, a single employed person.

PN1634

Now, is the applicant seriously suggesting that this selection of household types if not representative of low income households with earnings? Are there no low income households with children? Are there no low income households with sole parents? Are there no low income households eligible for Newstart allowance with children? And are there no low income households made up single employed persons? If that is correct, then how are we to judge the representativeness of the ACTUs own witness evidence, which includes these very types of households. We believe that the selection is quite comprehensive and representative of low income households with earnings, and there is no simply no point attempting to feign otherwise.

PN1635

This is the basis for our claim that many low income households receive little or no benefit from safety net wage increases, and on this score, my learned friend, Mr Watson, took you to page 15 of our reply submission, AIG2, and unfortunately, he quoted one paragraph on the page without reading out the rest. But can I take the Bench to page 15 of AIG2? You will see that the text on that page makes exactly the same points I have just been putting. The household types covered in annexure J are set out at the top of the page. The representativeness of those household types is then discussed in the second paragraph. Unfortunately, the Bench was not taken to these paragraphs.

PN1636

Instead, your attention was focused upon the next paragraph dealing with low income households without earnings. It was then suggested that this text, in that third paragraph, was the basis for our claim in the final paragraph that many low income households receive little or no benefit from safety net increases. If that were true, then it would hardly be a novel proposition, as Mr Watson himself pointed out, but the basis of the claim clearly goes further than this and scarcely needs pointing out. The charts in annexure J cover different types of households with earnings. The selection is representative of low income households with earnings.

PN1637

The households in these categories are shown to face high effective marginal tax rates over considerable ranges of private income. This inevitably leads one to the conclusion that many low income households receive little or no benefit from safety net wage increases. Now the ACTU also argues that the actual benefit ratios we have adopted do not fully account for the benefits on the employee side of the ledger. We have sufficiently dealt with this issue on pages 15 and 16 of AIG2, and therefore I don't propose to say any more.

PN1638

But the ACTU further argues that the 30 per cent estimate of additional labour costs adopted in the actual benefit ratios is too high, and the ACTU relies upon an ABS measure of on-costs. However, as we pointed out in our reply submission, this measure derives from an outdated and discontinued ABS series. In any event, we have conducted, in our reply submission, a so-called sensitivity analysis, and that analysis is set out in annexure B to the reply, and this analysis, we say, conclusively shows that actual benefit ratios do not change substantially with variations in additional labour cost assumptions, and again I refer the Bench to pages 16 and 17 of the reply, AIG2, on this point.

[10.26am]

PN1639

We submit then that a large safety net increase like that sought by the applicant would result in a net detriment for low income households, as well as employers, once account is taken of the dilution of benefits actually received, and the implications of the extra employer costs on employment opportunities. And we say by contrast that a more modest wage increase of $11 per week would have a noticeably less detrimental impact on employers and the employment prospects of the low paid. At the same time it would deliver an increase in disposable income to the average low income household of around $7.15 per week.

PN1640

VICE PRESIDENT LAWLER: Mr Moir, at paragraph 182 of the transcript Mr Watson said this:

PN1641

The NATSEM paper shows that in the first three deciles of the income distribution the average effective marginal tax rate is 30 per cent, 36 per cent, 36 per cent.

PN1642

How does that claim reconcile with your charts, or do you say that claim is just incorrect?

PN1643

MR MOIR: No. We agree with them. That is the point we have put forward, that based upon the NATSEM study what you find is that for the lowest three deciles of income distribution the effective marginal tax rates faced by individuals in those deciles are those. Namely, in the lowest decile it is 30 per cent. In the second and third deciles it is 36 per cent. Then what you do is measure what benefit employees then actually receive from a safety net wage increase, once you know exactly what the effective marginal tax rate is. So if you have a look at annexure J of AIG1 you will see there the six charts dealing with the six different types of households, which we say are representative of low income households, and for each household we have mapped, based upon the NATSEM findings, what is the effective marginal tax rate, and then we have charted what benefit, in terms of actual disposable income, a person within those households will receive as a result of any increase in private income by way of a safety net increase.

PN1644

And you will see that in many cases the effective marginal tax rates are around 30 per cent, or 36 per cent, depending upon the level of private income and the household type. But in many other cases the level of effective marginal tax rates shoot dramatically upwards. In fact, in many cases the effective marginal tax rates are in excess of 60 per cent, as I have referred to earlier, and when you have effective marginal tax rates at that level you can see then that the actual benefit received is either very little or none.

PN1645

VICE PRESIDENT LAWLER: Is there any information on what proportion of the persons who are affected by a potential increase in the safety net fall into these five categories?

PN1646

MR MOIR: No. I couldn't say to you, your Honour, precisely how many recipients of a safety net increase fit within each of these charts. But what we do say is that the selection contained in those six charts is quite comprehensive. We haven't just chosen one type of household. We have chosen six different types. You have got households with single income earners, you have got households with dual income earners, you have got households with sole parents, you have got households made up of a single person without income support, and it stands to reason, we say, that persons in receipt of safety net increases are bound to fit within these types of households.

PN1647

VICE PRESIDENT LAWLER: But if the vast majority of them fit within graphs 5 and 6, for example, then your argument loses some of it sting, doesn't it?

PN1648

MR MOIR: Well, your Honour, it still shows that at private income level from that contained in, say, the Federal minimum wage, so around, in the 400s, you will still see that the actual benefit received is just nigh on 50 per cent. It still represents, in our view, a very poor bang for the employer's buck, and that is for a single person without income support, and then when you look at other household types, the situation is of course much worse.

[10.33am]

PN1649

VICE PRESIDENT LAWLER: Thank you.

PN1650

MR MOIR: And we have, as I mentioned, undertaken that sensitivity analysis, factoring in different labour cost assumptions. And what that analysis shows is that even with the variation in the labour cost assumptions, the actual benefit ratios do not change substantially. You are talking about the difference between the highest and lowest actual benefit ratios of about five or 6 points, especially when you are talking about those households that are in the lowest three deciles of income distribution. I am referring now to page 40 of AIG2. You will see what effect on the actual benefit ratios the different labour cost assumptions have.

PN1651

So we do say that a large safety net increase would results in a net detriment, once you take into account this dilution of benefits. Whereas a more modest increase would have a noticeably less detrimental impact but at the same time it would deliver tangible benefits to needy low income households. Now on the issue of - - - 

PN1652

JUSTICE GIUDICE: We can't amend the Tax Act, Mr Moir.

PN1653

MR MOIR: That is true, your Honour. But what the Commission can be aware of is what in practice is going on - - - 

PN1654

JUSTICE GIUDICE: The effect, yes.

PN1655

MR MOIR: And that is why we have undertaken this analysis. And that is why, I might also so, your Honour, we have eschewed reliance upon the individual examples of John and Cathy and Sally and so forth, this year. We have tried to undertake a much more in depth comprehensive analysis which, of course, has resulted in the findings contained in annexure J. And then we have sought to extract some implications from that which we say are highly relevant to the Commission's determination in this matter.

PN1656

VICE PRESIDENT LAWLER: Mr Moir, have you - has your client lobbied the Federal Government with a view to seeking to have a modest alteration to the tax rates, as part of some proposal to put to the Commission that the safety net increase be proportionately reduced?

PN1657

MR MOIR: Your Honour, we have urged all sides of politics to investigate ways in which a greater complementarity between the wages and the tax and income support system can be achieved and we do note that, as we set out in our submission, there is a major review under way which has been initiated by the Federal Government and this complementarity between the various systems does appear to be a relevant issue, and we certainly will be putting forward submissions in that regard. And we did, of course, raise this issue in last year's case and we were very happy with what the Bench said about the need to take into account developments in the broader social safety net. And that provides now a platform, hopefully for concrete proposals to emerge, and we certainly will be and have been, endeavouring to pursue that avenue and encouraging such concrete proposals to emerge.

PN1658

But in the context of these proceedings, we would like the Commission to be aware of what is happening in practice and how, we say, a large safety net increase would, therefore, result in a lose lose outcome.

PN1659

Now, on the issue of employment impacts, much has been said about the employer survey evidence, all of which evidence would appear to point to negative employment impacts associated with last year's large safety net increase, and we note that the applicant has gone to considerable lengths to demonstrate what we had frankly acknowledged in the first place about our own survey, namely, that there are methodological limitations, in particular, the low response rate. Nevertheless, we say that the responses of over 600 companies cannot simply be ignored. This is a very sizeable number of respondents in anyone's language, and forms a basis for drawing at least some preliminary findings and conclusions.

[10.38am]

PN1660

The survey provides, to use the phrase adopted by the UK Low Pay Commission, the survey provides much valuable information about the impact of last year's decision, and in this case the survey provides that valuable information in reference to sectors, such as the metal and engineering industry, where there is a relatively low incidence of award dependence. If you were going to see impacts as a result of last year's increase, then as a matter of logic you would at least expect to see them in sectors where there is a relatively low incidence of award reliance. Yet the survey results pick up on some important, and in some cases quite alarming impacts.

PN1661

Moreover, we say that the survey was conducted in a balanced and even-handed manner, as Professor Gordon appears to agree in his report. A significant proportion of respondents were in fact prepared to report no negative impacts associated with last year's safety net increase. Indeed, some respondents reported positive impacts. These are hardly the kind of findings one would expect to find from a biased piece of survey research. We submit that the results of the survey do raise serious concerns about the impact of minimum award wage increases, and the key findings of the survey are set out at paragraph 5.17 of AIG1, and we say that the based upon these findings, you can hardly be as categorical as the applicants when it states that last year's safety net adjustment had no negative economic impact.

PN1662

How can you state that when the survey research, with its limitations albeit, points in the opposite direction. For example, it appears from the survey that safety net increases significantly impact upon employment opportunities for low income earners, especially within smaller firms. It also appears that the costs to employers are much higher than most parties believed, given the practice of many employers to flow-on safety net increases to non-award and over-award employees. Now, we don't say, as we have pointed out in our submission, that last year's decision proved to be a wrecking ball flattening the entire economy. We don't say that.

PN1663

Nevertheless, the survey results do raise concerns, and ultimately, this is why we say it would be very worthwhile for the Commission to conduct its own comprehensive independent survey to determine the impact of safety net wage increases upon employers, employees, and the community generally.

PN1664

JUSTICE GIUDICE: How would we do that, as a matter of statutory power? I am not saying it couldn't be done, I am just - how do you envisage it being done?

PN1665

MR MOIR: Well, if you are talking about, your Honour, the power to do it, we would say that it would be consistent with the Commission's statutory functions, firstly, to undertake such a survey. Such surveys are no uncommon in arbitral processes, and we have referred to a few examples in our submission. It would be consistent with the Commission's statutory obligation under section 110 to inform itself in a manner as it sees fit, and as far as the practicalities of such a survey go, we say that a very useful model is found in the latest report by the UK Low Pay Commission. I ascertain from that report that the UK Commission has, in previous inquiries, conducted its own survey, but for this particular inquiry, that is the latest inquiry, the Low Pay Commission, in effect, commissioned an outside group to undertake the survey, and then further follow-up analysis was then conducted and so forth.

PN1666

VICE PRESIDENT ROSS: Mr Moir, isn't the Low Pay Commission though in a slightly different position to ourselves, inasmuch as they are perhaps not tripartite but they include direct representatives from the employer organisations and the TUC as well as academic persons on the Commission. Whereas what you are proposing here, as I understand it, is that we conduct what you refer to as our own comprehensive independent survey. Speaking for myself, the concern I have with that proposal is that presumably to do that we would have to form a view about how one phrases the questions. Issues like response rates, who is asked the questions, etcetera. Leave aside, perhaps, the expense of it.

PN1667

At the end of the day might not that survey and its methodology be subject to the same sort of issues that Mr Watson has raised in relation to, for example, the ACCI survey. That might put the Commission in the somewhat invidious position of having its own survey methodology criticised by a range of parties, and then having to determine whether the criticisms have any merit. A bit like Caesar appealing to Caesar.

PN1668

MR MOIR: Well - - - 

PN1669

VICE PRESIDENT ROSS: Brutus. Yes, thank you. I didn't want to say I was Brutus but - - - 

PN1670

MR MOIR: Well, it would certainly be open to parties to comment upon the results of any such survey in a further - in a subsequent safety net review, and what we would envisage then is if there are methodological limitations associated with the survey, then they would be clearly identified up front, in accordance with normal statistical procedures. But the problem we have now is that whenever somebody conducts a survey it is subject to strident criticism from the opposing party, whether it is our side of the record or the other wise of the record.

PN1671

Whereas the great benefit we see of a survey conducted by the Commission, and it may not be just a single one-off survey. It could be an on-going process like the UK Low Pay Commission. Is that the Commission survey would be seen as independent, albeit there would always be methodological limitations, and that would at least then enable the Commission, together with the parties, and governments, to have a more adequate basis upon which to understand the impact of safety net wage increases.

PN1672

VICE PRESIDENT ROSS: I am not being critical of your objective in trying to illuminate the issue. It is the means you are suggesting that I have a reservation about. You have raised the issue of independence on a number of occasions. Have you considered approaching the ABS, given that they are the statutory body that - this is what they do. Now, I accept that Mr Kates, in this case, in relation to one survey, has raised some reservations about it, but those reflect particular circumstances of re-basing, etcetera. I haven't take his criticism to be - at fact, he has been at pains to say that it is not intended as a general award attack on the ABS and its methodology. But might that not - that be the more appropriate course, rather than involving the Commission, as it were, more directly in the matter?

[10.40am]

PN1673

MR MOIR: Well, it may be, your Honour, except that the Commission has the responsibility to establish and maintain the safety net. And such a survey would deal directly with the maintenance of that safety net. So we would just see that logically the Commission is in the best position to undertake such a project. And if - there is the risk of parties coming along in subsequent safety net reviews and then criticising the - either the methodology or the results of the survey, and I acknowledge there is that risk. Then one way to alleviate that is for the Commission to do what the UK Commission has done, and that is, commission an external body to carry out the survey.

PN1674

And you have a useful model contained within the latest report about how such a survey might be designed, what sort of questions might be asked, and there could of course be appropriate input from the relevant parties. And what we would see occurring is that all parties, before any survey is conducted, would have input, so that consensus might hopefully be achieved about how such a survey is conducted. And then, of course, the matter of carrying out that survey would not be necessarily done in house by the Commission. I mean the Commission may want to do that. I don't know, but - - - 

PN1675

JUSTICE GIUDICE: I think it is a bit unlikely.

PN1676

MR MOIR: Yes. And of course there would have to be the support, including the financial support of government here in all of this, we would have thought.

PN1677

VICE PRESIDENT ROSS: Mr Cole is getting nervous, Mr Moir.

PN1678

MR MOIR: Yes. Such a survey would not be inexpensive, we acknowledge that. Our survey certainly wasn't an inexpensive exercise, and we have gone to the trouble of conducting our own survey before putting such a proposition to the Commission about doing its own.

PN1679

JUSTICE GIUDICE: Mr Moir, the point the Vice President raises about the nature of the Low Pay Commission, I think, is a fairly valid one. It is a Commission in which the members of the Commission are actually still employed by the interests that they represent, and they are not statutory appointees in the sense that members of this Commission are. So there is a high element of tripartism in the way in which their decision are reached.

PN1680

One of the potential obstacles to your suggestion, I think, is that the Commission would be required to make a number of judgments about what kind of questions were asked, and a number of other matters which might involve subsequent suggestions that the Commission by the way in which it had decided such issues, had created a bias, or in some way favoured one interest or the other in these proceedings. I think they are the sorts of practical problems that the suggestion gives rise to. So, I am not for one moment suggesting that the proposal isn't worth consideration, but simply raising those issues.

PN1681

MR MOIR: Yes. Yes, I understand that, your Honour. This problem potentially is there.

PN1682

JUSTICE GIUDICE: There is no doubt that if the Commission were favoured with a more comprehensive base of information and a relatively high level of agreement that the results were reliable, our task would be quite a bit easier. So we encourage you all to agree on how that can be done for the next case.

PN1683

MR MOIR: But I do just raise two points, I guess, in response, your Honour. Firstly, such survey exercises are not foreign to the Commission's province. They have been undertaken in the past. But moreover, to alleviate any risk of parties alleging bias on the part of the Commission and so forth, I would just reiterate that the survey could be effectively conducted outside the Commission but under the auspices of the Commission in the sense that a questionnaire could be designed by someone independent of the Commission, a relevant expert in the field, or experts. Someone with a great deal of expertise in statistical knowledge and so forth.

PN1684

And then the survey could be carried out by someone external to the Commission, and then the results of that survey are then simply presented back to the Commission. And what then happens to those results, well, the parties can put submissions. I don't see necessarily how then the independence of the Commission is being impugned, if that sort of process is adopted. We are not suggesting for a moment that members of this bench or other Commission members actually draft the survey questionnaire, put together the questions, or then send out - mail out the survey questionnaires and someone in the Commission then receives all those questionnaires, and does a report. Far from it.

PN1685

We would see that that would all have to occur externally to the Commission. But it has been an exercise undertaken by this Commission, and not by, say, one of the industrial parties. And in those circumstances, I mean, I can't see how anybody could fairly allege that the Commission is biased. The results are the results. The limitations are the limitations, methodological or otherwise. And that can be a matter for proper input at subsequent safety net reviews, and it is a matter for the Commission to judge whether there are relevant findings arising from the survey that it has commissioned.

PN1686

What are the implications of those findings? And whether any arguments about severe methodological deficiencies or otherwise, have any validity. And then that hopefully might form a basis for making some genuine and valid conclusions about what exactly is the impact of safety net wage adjustments. [10.56am]

PN1687

I don't think I can take it any further than that, your Honour.

PN1688

JUSTICE GIUDICE: Yes, no, thanks, Mr Moir.

PN1689

MR MOIR: Other than rely upon the submissions we have advanced and what I have just said. Perhaps I might now just move on to the final ground upon which we say the ACTU claim is clearly excessive. Namely that the claim, if granted, would have a negative impact upon enterprise bargaining. Now the ACTU doesn't say much about this important issue. It gets a mention in a single paragraph buried at the back of the ACTU's reply submission. And what the ACTU says there is, in our respectful submission, thoroughly unconvincing.

PN1690

To claim, as the applicant submits in paragraph 8.10, that safety net wage increases have no bearing upon enterprise bargaining is a truly breathtaking proposition. It is a claim totally at odds with the evidence presented in the proceedings. It is inconsistent with previously sanctioned principles adopted in these kinds of proceedings and it defines what we know about industrial realities. Now the survey evidence set out in our submission this year illustrates that safety net wage increases do have a significant bearing upon wage claims and wage outcomes at the enterprise level.

PN1691

In particular, this evidence indicates that large safety net wage increases are likely to drive the cost of labour significantly upwards in the context of enterprise bargains. Now I have no doubt the ACTU will attempt to argue in response that these results, like the rest of the survey results, should not be relied upon. The response rate is just too low they say and there is a strong likelihood of bias towards those firms which are directly affected by safety net wage increases. However we respectfully suggest that the ACTU would be in a double bind here.

PN1692

The applicant cannot allege on the one hand that the results of biased towards firms directly affected by safety net wage increases and then seek to ignore the results pertaining to those employers covered by over award arrangements, in particular enterprise agreements. It would simply be a non sequitur. According to the ACTU's own logic, the result would serious underestimate the impact upon firms not directly affected by safety net wage increases. In other words, those employers covered by enterprise agreements or other over award arrangements because of this problem they identify of response bias, that is bias towards those directly affected.

PN1693

We say then that the results of the survey are quite credible when it comes to assessing the impact upon wage claims and outcomes at the enterprise level. If anything, according to the ACTU's own logic, the results underestimate the impact. The results suggest a need for caution in determining the amount of any increases in award rates. The necessity for caution is magnified in the context of significant enterprise bargaining negotiations which are either currently under way or about to get under way across literally hundreds of manufacturing firms in Victoria, in New South Wales and in Queensland.

PN1694

We have set out the details of these bargaining negotiations in chapter 7 of our submission and I won't go to those in any further detail, except to say that the outcome of these proceedings will of course coincide or immediately precede these negotiations. In our respectful submission, a large safety net increase would fuel unrealistic wage expectations and unrealistic wage outcomes at the enterprise level which the economy, and in particular the manufacturing sector, can ill afford at the present juncture.

PN1695

SENIOR DEPUTY PRESIDENT WATSON: Mr Moir, I understood the public comments of AAD officers to suggest that such unrealistic expectations and demands are already apparent in the metals around.

PN1696

MR MOIR: Well, we certainly make the point, your Honour, in our submission that some of the wage claims which are currently be pursued in the so called Campaign 2003 are excessive. You know, wage claims in the order of six percent and the like. And you may say then that a large safety net increase won't have so much bearing upon those claims because they are already clearly excessive. But it certainly will have a bearing then upon, potentially upon, the outcome, which is where it is most important. And which is why we say that a large safety net increase would, if it doesn't fuel unrealistic wage expectations, then it certainly would fuel unrealistic wage outcomes. And those outcomes can be ill afforded at the present time.

PN1697

SENIOR DEPUTY PRESIDENT WATSON: Well, I must say my own experience with the last metal ground was that it was agreement outcomes that were relied on in the bargaining by unions rather than award increases or levels.

PN1698

MR MOIR: Yes, except that the results of our survey show that last year's increase did have a significant bearing upon both claims and outcomes. And when you have got a context like now of literally hundreds of firms, either in a bargaining period or about to go into it, that, in our respectful submission, suggests a need for caution in these current proceedings.

PN1699

SENIOR DEPUTY PRESIDENT WATSON: Yes, thank you.

PN1700

MR MOIR: Finally, in our submissions this year, we have sought to clarify the operation of the statement of principles in so far as they relate to applications for retrospective safety net wage increases. And we have sought to do this in order to avoid the confusion and even inconsistency which has arisen over this issue in the time since the last safety net review. I am referring in particular to our submissions set out in paragraph, or should I say chapter 9 of AIG1 starting at page 70. And then we further deal with this issue in AIG2 in chapter 6, commencing at page 25.

PN1701

Now the ACTU has stated in its reply submission that our position in this regard should be rejected on the basis of a so called long line of authorities which establish that delays in the Commission's processing of a matter may constitute exceptional circumstances for the purposes of section 146 of the Act. And this is set out at paragraph R8.11 of the ACTU reply. However in making this statement, the applicant refers to one authority and one authority alone, and that is the decision, your Honour Vice President Ross referred me to yesterday, the Full Bench decision in re Victorian Shops Interim Award.

PN1702

Now in our respectful submission, on a fair reading of that decision, it stands for no such proposition. We submit that the Bench did not say that delays in the Commission's processing of a matter may constitute exceptional circumstances. In fact, we say that the Bench made no mention whatsoever of delays caused by the ebbs and flows in the Commission's workload. Instead, as we set out in paragraphs 6.2 and 6.3 of AIG2, the Bench stated this:

PN1703

It is to be expected that there will be delays between the filing of applications and the hearing. In some cases such delays may justify a date of operation earlier than the date of hearing.

PN1704

And that may be the sentences that your Honour was - - - 

PN1705

VICE PRESIDENT ROSS: No, I had in mind paragraph 20. Can I take you to that? I suppose it depends on how one characterises the ebbs and flows of Commission workload but there is the observation there where the Bench says that:

PN1706

The time which elapsed while the President was consulted for the purposes of principle 10 should not lead to any delay on the operative date.

PN1707

It seems to be a reference to a Commission process which shouldn't work to the disadvantage of an applicant. [11.06am]

PN1708

MR MOIR: What we are saying, your Honour, is and this, we think, is consistent with the Full Bench's observations, is you need to look at the actual reasons for the delay between the filing of application and its ultimate hearing, to then determine whether they justify retrospective date of operation. If the delay is caused by the action of one of the parties, you know, for example, an employer makes a request for conciliation over an application or - - - 

PN1709

VICE PRESIDENT ROSS: Or an adjournment request or something of that - - - 

PN1710

MR MOIR: - - - adjournment or whatever, to have discussions, then it is certainly true, we say, that this may constitute an exceptional circumstance warranting retrospectivity. However, in our respectful submission, if the reason for the delay between the filing and the hearing is simply the normal fluctuations in the Commission's workload and nothing more than that, for example, an individual member of the Commission has a very heavy diary booking at that present time, then that clearly, in our view, cannot constitute an exceptional circumstance. For such delays are to be expected in the normal course of events. And we are saying that, in those circumstances where it due to the normal ebbs and flows and nothing more than that, then, there can be no justification for retrospectivity. And given the confusion, even inconsistency which has emerged over this issue in the past 10 months or so, there are sound reasons why this Full Bench should clarify the issue.

PN1711

I guess it does come down to, your Honour, what you mean by normal ebbs and flows. But we think that such a statement about normal ebbs and flows would certainly be very useful and would help to avoid this type of confusion.

PN1712

VICE PRESIDENT ROSS: Well you say that there is - in paragraph 9.8 of your principal submission, that there is a compelling need to clarify the operation, and that is on the basis of what, two first instance decisions which you say are inconsistent?

PN1713

MR MOIR: Yes, that is the start of it, your Honour, but they are two examples of direct inconsistency, if you like.

PN1714

VICE PRESIDENT ROSS: There are others or?

PN1715

MR MOIR: Well I can't think of any other, in terms of arbitral decisions made by single Members but the inconsistency which you see there, by way of two examples, does have a trickle down effect. You may not see it in formal hearings before the Commission but it certainly does take effect in discussions between parties about safety net wage applications and so forth. And, you know, often there is a debate and argument about, you know, whether retrospectivity can be sought and whether it is justified, and that just diverts the resources of parties like ourselves from getting on with other things. And if this Full Bench were to clarify it, it would not only avoid these types of directly inconsistent decisions but it would also save the time and resources of the parties, generally, in terms of the implementation of safety net wage increases.

PN1716

JUSTICE GIUDICE: But, you would be content with an indication that, within the framework of the Act, these matters must depend on their circumstances, wouldn't you?

PN1717

MR MOIR: Your Honour - - - 

PN1718

JUSTICE GIUDICE: You don't want a rule either way, do you?

PN1719

MR MOIR: Yes - - - 

PN1720

JUSTICE GIUDICE: Or do you?

PN1721

MR MOIR: - - - that is what the Act says.

PN1722

JUSTICE GIUDICE: Yes.

PN1723

MR MOIR: You would need to look at the circumstances to see whether or not they are exceptional. But we think this Bench, with respect, can go a bit further than that and say that, were the reason for the delay is simply the normal ebbs and flows, in the Commission's workload, and nothing more than that - - - 

PN1724

VICE PRESIDENT ROSS: What are the normal ebbs and flows?

PN1725

MR MOIR: Well - - - 

PN1726

VICE PRESIDENT ROSS: I mean, what sort of length of delay is acceptable?

PN1727

MR MOIR: Well it is not the length of the delay, it is the reason for it.

PN1728

VICE PRESIDENT ROSS: No, okay, but in terms of the normal ebbs and flows of the Commission's workload, that might lead to a delay between an application being lodged and a matter being listed. What sort of normal ebb and flow are we talking about?

PN1729

MR MOIR: Well, it is the type referred to by the two single instances - decisions, set out in paragraphs 9.4 and 9.5. In the first decision the learned Commissioner, in that decision cited there, referred to the delay being caused as a result of the convenience of the Commission.

PN1730

VICE PRESIDENT ROSS: No, no, I appreciate what they are talking about but how does one form a view as to whether or not a delay is a result of what you describe as the normal ebb and flow?

PN1731

MR MOIR: Well, it is delays incurred between filing and hearing which are caused by the Commission's workload and nothing more.

PN1732

VICE PRESIDENT ROSS: Irrespective of how long they are. So a delay of like six months, caused by the Commission's workload, would still not constitute an exceptional circumstance?

PN1733

MR MOIR: Well, if there was such a delay and I don't think there have been any such delays of that magnitude, but if there was such a delay, then, we would say it would be very unfair for the employer to be saddled with a date of operation six months earlier than the ultimate hearing. In other words, it would be unfair for the employer to be burdened with a back payment liability of up to six months. And if that is the reason and nothing more than that, and we would hope that would never be the case, and I am not aware of any examples of it, then we would say that, yes, it is still not an exceptional circumstance if it is due simply to the Commission's workload. And if you had a delay of that magnitude it perhaps reflects upon the resourcing of the Commission and that is a matter for Government to address. And, you know, certainly parties like ourselves would be putting strong submissions to Government about adequately resourcing the Commission.

PN1734

But, in the normal disputes which have occurred around this, your Honour, the delays are not lengthy, they are a matter of a few days or a couple of weeks in some circumstances. And we simply say if the delay is due only to the Commission's workload, then, that by itself cannot justify retrospectivity and it would be fit and proper for this Full Bench to clarify that in order to avoid this confusion which has arisen.

PN1735

Just to sum up then, we say that the Commission should adopt a cautious approach in adjusting the safety net in these proceedings. The Commission should only grant a moderate increase o $11 per week. The position advanced by the State and Territory governments should not be accepted, and a fortiori, the claim brought by the ACTU should also be rejected. If the Commission pleases.

[11.14am]

PN1736

JUSTICE GIUDICE: Thank you, Mr Moir. Ms Harris?

PN1737

MS HARRIS: Thank you, President. The National Farmers Federation has submitted - filed two submissions, one dated 26 February and then our submission in reply on 25 March. I seek to tender those as formal exhibits, thank you, your Honour.

PN1738

JUSTICE GIUDICE: Yes.

EXHIBIT #NFF1 NATIONAL FARMERS FEDERATION SUBMISSION DATED 26/02/2003

EXHIBIT #NFF2 NATIONAL FARMERS FEDERATION REPLY SUBMISSION DATED 25/03/2003

PN1739

MS HARRIS: Thank you. The drought is real. It continues. Its impacts are not just confined to the Pastoral Industry Award, and it extends to a plethora of Federal and State agricultural awards. But more importantly, drought also extends well beyond the farm gate. The fist issue that NFF wants to address is when drought may break, given that there has been quite some discussion and assumptions about drought breaking in these proceedings. Assertions have been made by the ACTU the drought is likely to break soon. NFF certainly hope so. Yet indications are that it may not, or it may break, but not to the extent that it will affect all drought areas. Caution is required when considering when and how drought will break.

PN1740

NFF refers to paragraph 16 of NFF2 where we state that the future requirement of rain that will break drought requires the median rainfall for autumn to be exceeded in significant terms. I refer to the coloured map in attachment 3 of NFF2, which shows that for most drought affected areas, which is all of New South Wales, virtually all of Queensland, northern and central Victoria, half of South Australia, most of Northern Territory, and south-eastern Western Australia, requires that more than 200 per cent more than the median rainfall between March and May for drought to break. In some instances it is even 300 per cent more than the median.

PN1741

Yet the probability of exceeding median rainfall in autumn is not likely. NFF refers to attachment 4 of the same submission, which is a Bureau of Meteorology map showing the likelihood of exceeding median rainfall. Of course, we don't want too much rain all at once, because then there will be problems with floods, including soil erosion and loss of remaining livestock, and I refer particularly to the statement expressed by the witness statement of Simon Campbell, who is the President of Wool Producers, that is located at the end of NFF1. He states at paragraph 5.4:

PN1742

In previous droughts many properties have experienced their heaviest stock losses during the period immediately after drought-breaking rain. Heavy losses can occur at the end of a drought when rain falls on weak sheep. Sheep won't feed during rain and will leave their rations to chase the subsequent green pick. Adverse weather conditions are frequently associated with drought-breaking rains.

PN1743

As the reference to the two maps has shown, it is not necessarily likely that autumn rains will be our saviour, and this is very evident when we consider the rainfall patterns of March, and the early signs of hope in late February have been dashed in March. I would like to tender the Bureau of Meteorology rainfall map for March that was released on 1 April, that shows the rainfall patterns.

EXHIBIT #NFF3 BUREAU OF METEOROLOGY RAINFALL MAP FOR MARCH

PN1744

MS HARRIS: Thank you. This shows the rainfall patterns for March, based on whether or not median rainfall was actually recorded, and if we look particularly in the areas of western New South Wales, most of Victoria, the bulk of South Australia, we have recorded very much below average, or even the lowest on record, and the bulk of the other remaining parts of Queensland and New South Wales and the Northern Territory, we have also simply got to average. So this is the indicator that we are not even exceeding the average. In fact, we are still recording the lowest on record in some areas, yet autumn was supposed to be our saviour. So drought does continue.

PN1745

As noted by the AFFA, the Department of Agriculture, Fisheries and Forestry Australia, at a recent forum, which is quoted at paragraph 17 of NFF2, it was noted - - - 

PN1746

JUSTICE GIUDICE: Ms Harris, the predictive annexure in NFF2. It doesn't seem to have sequential page numbering, I might add. It is the one that says:

PN1747

The chance of exceeding the median rainfall March to May 2003.

PN1748

MS HARRIS: Yes, your Honour.

PN1749

JUSTICE GIUDICE: That has got a date on the bottom of it, 4 February 2003. I presume that was the date it was issued by the Bureau?

PN1750

MS HARRIS: That is correct, yes.

PN1751

JUSTICE GIUDICE: Yes, rather than the day it was printed out or something. But is there an update of that chart, do you know?

PN1752

MS HARRIS: No, there isn't. I double checked with the Bureau yesterday.

PN1753

JUSTICE GIUDICE: Yes.

PN1754

MS HARRIS: And there is not one. They do it every three months, so I understand that there will be one a month prior to the next quarter - - - 

PN1755

JUSTICE GIUDICE: Yes, thank you.

PN1756

MS HARRIS: - - - provided. Certainly if there is an updated one we could supply it to the Bench if it does become available.

PN1757

JUSTICE GIUDICE: Yes, we would appreciate that.

[11.22am]

PN1758

MS HARRIS: Just go back to the comments of the Department of Agriculture, Forestries and Fisheries Australia:

PN1759

Long term - 

PN1760

This is at paragraph 17 of NFF2:

PN1761

Long term deficits will need significant and sustained rainfall to return to normal conditions. It is unlikely that this will occur everywhere and there is likely to be some areas where drought continues and water storages are still a serious concern.

PN1762

I would now like to refer to drought recovery. The ACTU has focused their attentions on a bounce back from drought once drought breaks and infers that virtually everything will suddenly be rectified. This again is simply not the case. NFF agrees that when drought breaks there will be a bounce back but it is easy to bounce back when you hit rock bottom. The drought is significantly worse than the droughts of '82, of 1990 and 1994, in terms of both rainfall deficiency and area affected. Recovery from drought is not easy.

PN1763

Details of the drought recovery process are extensively canvassed by NFF in paragraphs 59 to 72 of NFF1 and also the attached submission of Simon - written - sorry, witness statement of Simon Campbell. We also refer to a comment from Mr Geoff File, a New South Wales Government Drought Relief Coordinator, which seems to be inconsistent with the State and Territory Governments. At paragraph 726 of transcript on 1 April, Mr File stated, and this is in relation to livestock producers:

PN1764

They are not going to have a cash flow for 18 months, these guys, and won't see a cash flow for two years by the time they have brought cows back in, got them in calf, got a calf on the ground and sell it nine months later. So we are really going to see huge cash flow drought for the next 12 months for all the livestock people.

PN1765

We also refer to a quote of Simon Campbell, the witness, at paragraph 5.1 of the witness statement. He states:

PN1766

It is estimated the drought recovery will take place between the next three to 10 years. Most enterprises will be looking at up to three years to rebuild their stock populations and then up to five years to get the farm stock mix right again. Farmers who are able to afford to restock will face competition for the purchase of stock which will push sheep prices through the roof.

PN1767

NFF also considered the difficulties of drought recovery in the NFF2. I specifically refer the Bench to paragraphs 4 to 18 of that submission. We also have to be cautious about the ABARE's forecast for 2003/2004 regarding drought recovery. In March 2002, ABARE predicted a relatively good year for 2002/2003 but unfortunately forgot to forecast a drought. Likewise, the forecast for 2003/2004 is a substantial improvement but it is on the basis of drought breaking and we have just noted that caution needs to be placed on this assertion given the March 2003 rainfall figures. I would now like to turn to the - - - 

PN1768

SENIOR DEPUTY PRESIDENT WATSON: Before you do, Ms Harris, can I take you to the chart, I think it is found in another form in the opening submission, attachment 2 to the reply submission, and it is real farming comes over a period of time. Can I ask you whether the what appear to be exceptional year last year in terms of real farm income and the second highest in the preceding year shown on the chart, whether those years of relatively high incomes have any impact on the ability of farmers to deal with the recent drought.

PN1769

MS HARRIS: There is certainly - there was - it made the ability to work through the, particularly the early stages of drought, easier than otherwise would have occurred. However, obviously there were many farmers who utilised that cash in terms of capital expenditure in properties that may not have been undertaken for quite considerable time, particularly given that we had had a number of droughts in the early '90s. So I would imagine that it has assisted some and certainly I will be mentioning later in my submission the issue of management deposits that certainly provided some assistance to those who were able to save some money up.

PN1770

The problem is that this drought has gone far beyond what we had anticipated. There was initially some hope that we would have summer rains, which did not occur, so the extent and length of this drought has really taken away any reserves that have otherwise been utilised by many farmers.

PN1771

SENIOR DEPUTY PRESIDENT WATSON: Okay, yes.

PN1772

MS HARRIS: But certainly the - my understanding that some of these issues are raised in the farm financial performance component of that attachment, again the ABARE report that goes into some detail about some of those issues that you have raised, your Honour.

PN1773

SENIOR DEPUTY PRESIDENT WATSON: Yes. Well, it does raise an issue, I suppose, about the equity of impact on rural labour. They don't, it appears, obtain any benefit from those exceptionally good farming come years but it is put that there should be some delay in the application of safety nets in the bad years, exceptionally bad years.

PN1774

MS HARRIS: Your Honour, I think we mention in NFF2, NFF actually agreed to a retrospective date in the Pastoral Industry Award last year of approximately six weeks and that was partially due to the fact that we acknowledged we had a better than expected year the previous financial year. So that was certainly the basis upon which we took that decision and yet it is now being held against us in these proceedings. So, yes, there is evidence that we have tried to establish some recognition of that good year and certainly it is difficult to know whether there are over award payments and/or bonuses given to farm labourers during that time.

PN1775

SENIOR DEPUTY PRESIDENT WATSON: Yes. Well, whilst I have interrupted you, one final issue. You have mentioned the uncertainty as to the weather outlook and the breaking of the drought, in those circumstances why would it not be more appropriate to not to award a 2003 drought exemption, as is now sought at this time, but rather to have that issue dealt with later in the year when the Pastoral Industry Award Variation would be before the Commission?

PN1776

MS HARRIS: Your Honour, we are very conscious that the drought doesn't affect those under the Pastoral Industry Award, we do recognise that is a significant award covering a number of employees. But nevertheless, it does not cover just - - - 

PN1777

SENIOR DEPUTY PRESIDENT WATSON: Or any relevant awards, yes.

PN1778

MS HARRIS: That relevant award. But ultimately it also just doesn't cover agriculture as well and certainly that is the reason why we are pursuing the principle 12 matter in this proceeding as opposed to trying to pursue it in a full range of agriculture awards but also providing other employer groups the opportunity to pursue a similar provision for small business located in rural areas that may well be also accessing the Government assistance that we are utilising as the mechanism to facilitate the automatic delay.

PN1779

SENIOR DEPUTY PRESIDENT WATSON: But if we were to accede to that now in these proceedings and the drought did break, that would result in a situation that when the Pastoral Industry Award Variation came up, it would occur in very different circumstances but be subject to a general exception granted in different circumstances 10 months earlier.

PN1780

MS HARRIS: I think, your Honour, as we identify in both of the submissions, the implications and costs associated with drought in many respects occur during drought recovery, as opposed to drought itself, and so therefore the long term impacts of drought are felt far beyond the actual rain miraculously appearing. It is extensive in terms of that drought recovery process so simply because we may have had winter rains prior to some of the inclusions of the safety net into particular awards does not mean to say that the farmers are in any less difficult circumstances.

PN1781

In fact, the Commonwealth Government assistance program for those eligible in EC areas are actually provided that assistance for two years. So the Government itself in its mechanisms recognises that it is not just drought that we need to provide farmers assistance, but also the drought recovery process to get back on their feet.

PN1782

SENIOR DEPUTY PRESIDENT WATSON: But shouldn't that be assessed in a contemporary sense? On the principle you seek, seeks a 12 month postponement without hearing so in effect you are asking us now in April 2003 to grant a general exemption postponing any increase until November 2003. That is almost two years away.

[11.32am]

PN1783

MS HARRIS: Yes. I mean, the obvious issue is, we did state in the submission that there could be a hearing if there were opposition to such an application, and if it were felt as though that there was evidence that an individual enterprise was actually doing relatively well as a result of potential drought recovery, then there could well be an opposition to that application, that would, therefore, a hearing would arise, but I doubt very much a farmer would pursue an application pursuant to principle 12 if they had been successful in gaining considerable rain and things were extending quite significantly.

PN1784

SENIOR DEPUTY PRESIDENT WATSON: But doesn't that suggest that it is better to deal with the matter in a contemporary way at the time of the award variation?

PN1785

MS HARRIS: Well, your Honour, what we are concerned about is having to go through the process of arguing an amendment, a provision that we have suggested, in every single award, and also we wanted to provide the opportunity for those small businesses that are covered in non-agricultural awards. So that certainly was the reason upon which we pursued it in this forum, as opposed to trying to argue it in every single award where rural enterprises, whatever their industry sector, may be pursued at that particular time.

PN1786

SENIOR DEPUTY PRESIDENT WATSON: Yes.

PN1787

MS HARRIS: Considering extensive nature of the drought and its impacts.

PN1788

SENIOR DEPUTY PRESIDENT WATSON: Thank you.

PN1789

MS HARRIS: Thank you. In respect to the Australian economy and the impact of drought, NFF is somewhat confused as to the ACTU's contentions regarding the impact of drought on the economy. On one hand the ACTU contends that the agricultural sector only represents 3 per cent of the economy, and should therefore minimal influence on this case. Yet, the ACTU agrees that the drought has taken at least a quarter of GDP. How can, according to the ACTU, such an insignificant sector have such a substantive impact on the economy?

PN1790

First, the agricultural industry is not as insignificant as the ACTU would like us to think. Agriculture represents 20 per cent of Australian exports, and has significant down and up stream impact on other sectors. The drought well and truly goes beyond the farm gate. Attachment 6 of NFF1 is the National Bank Quarterly Agribusiness Survey December Quarter 2002.

PN1791

JUSTICE GIUDICE: Ms Harris, I think before we give that our attention, we might adjourn for a few minutes.

PN1792

MS HARRIS: Sorry, I didn't realise the time, your Honour. Thank you.

SHORT ADJOURNMENT [11.35am]

RESUMED [11.52am]

PN1793

JUSTICE GIUDICE: Ms Harris.

PN1794

MS HARRIS: Thank you, your Honour. Just prior to the break I was about to refer to attachment 6 of NFF1 which is the National Bank Quarterly Agri Business Survey, December quarter of 2002. And this is indicative of the impact of drought beyond the farm gate. Agri business for this survey is defined as:

PN1795

Post farm gate production and processing.

PN1796

And the first paragraph of that attachment, states:

PN1797

The results of the National's latest quarterly agri business survey, indicated that agri business conditions remained weak in the December quarter, especially in retail and wholesale segments of agri business. Moreover, agri business conditions remain significantly poor than that for the non farm business sector as a whole where business conditions remained unchanged at the strongest level for three years.

PN1798

We, the NFF did check to see whether or not a more updated version of that survey had been provided for the last quarters. Unfortunately, that has yet to be released, so it wasn't available for these particular proceedings. A second example of beyond farm gate impact, is the assistance by the Commonwealth Government to non farm small businesses in drought declared areas, and I briefly refer to attachment 16 and 17 of NFF1 that outlines the terms of assistance. NFF will go into that in greater detail when we talk specifically about principle 12.

PN1799

The drought may only have had an adverse effect on farms, rural Australia and businesses with up and down Australian links with agriculture. Actually, when you put it that way, it is not quite as small as the ACTU would like us to think but its impact has been significant to those businesses and their employees. Drought cannot be quarantined from a macro evaluation of the economy or more specifically, it cannot be ignored in the determination of whether an increase is justified and if necessary, the determination of the quantum of any increase.

PN1800

Now I turn to farm management deposits and there was some discussion between the Bench and the ACTU regarding the utilisation of farm management deposits which are commonly known at FMDs. The ACTU didn't seem to know much detail about FMDs but there was, in fact, considerable detail about FMDs in the NFF2, and we refer to attachment 2 of that submission which was an extract from ABARE Commodities, March 2003 quarter report. The relevant section commences at page 132 of that report and specifically refer to page 133. And I have just read out a number of sections where we have highlighted about the utilisation of FMDs and this is from the third paragraph on the left column:

PN1801

Information from Broadacre and Dairy surveys indicate that as at 30 June 2002, around 14 per cent of Broadacre farms held FMD deposits and around 10 per cent of dairy farms. On average, farms with farm management deposits were larger than average, in terms of their scale of operations and not surprisingly were more profitable on averaging generated farm cash incomes more than twice those of farms without deposits.

PN1802

It then goes on, at the middle of the second paragraph in the second column:

PN1803

The low rate of uptake in recent high income years may reflect a number of factors, including continued preference of farmers to purchase capital items in high income years, a preference for other risk management strategies or a lack of awareness about the scheme.

PN1804

It then goes on to say:

PN1805

Low deposit rates may also reflect the fact that mainly many, mainly smaller farms, may simply not be capable of generating significant cash surpluses, even in years of high commodity prices and favourable seasonal conditions. However, at present, the fact that only a small percentage of farms hold deposits despite 2001 and 2002 having been a record year for farm incomes, is a limitation to their use in combating income downturn for the majority of farms in the current drought.

PN1806

Now I would like to turn to last year's case, the safety net review 2002 case. Drought was not even a figment of anyone's imagination during proceedings last year. Neither the NFFs submission nor the NFFs submission in reply to that case, mentioned drought or even the potential for drought. And we have previously referred to the fact that ABARE had not factored a drought into their forecasts. NFF, in that case, simply acknowledged that agriculture was in the middle of a good financial year but there were some hidden weaknesses. And it was noted in the submission in reply that ABARE has revised its forecast downwards but not due to the potential for drought, and the revisions were minor.

PN1807

In summarising the economic conditions prevalent in the agriculture sector, the Bench, in that decision P002002, stated at paragraph 46 that:

PN1808

2001 had been a good year for commodity prices, although some sectors, for example sugar and cotton, experienced significant price reductions. Crop prices increased by over 9 per cent over 2000/2001 while livestock prices increased almost 14 per cent. ABARE forecasts suggest a continuing overall strength in commodity prices notwithstanding a number of weak markets. The strength of commodity prices is, however, sensitive to the value of the Australian dollar, with its strengthening dollar threatening returns to the farm sector.

PN1809

Not one mention of drought. Unfortunately someone forgot to tell the rainmaker that there was a forecast for a relatively good year for farmers and the Commission had actually taken that into account as opposed to taking into account the worse drought for a hundred years. A drought subsequently hit and has become progressively worse, particularly since December, and it continues. NFF submits that now is the time for the Commission to take into account the broad impacts of drought. We simply cannot ignore it by concluding that because it may break in the next financial year, it should be given little weight.

PN1810

NFF submits that it is as though the ACTU is seeking the Commission to ignore the woeful outcomes for rural Australia, simply because NFF wasn't aware farmers were going to be hit with the worst drought in a hundred years, by not forecasting a drought in the 2002 wage case. This is an unreasonable and unfair proposition. If the ACTU claim is accepted by the Commission, that the focus should be on the recovery in the next financial year rather than what has and what is occurring, it is, effectively, seeking the Commission to totally ignore this current financial year for farmers and for other businesses affected by drought, and further ignores the evidence from NFF regarding the difficulties associated with drought recovery.

PN1811

Now turn to previous national wage cases which the ACTU referred to earlier this week and referred to two particular decisions, print F1600 which is the '82 national wage case and print J7400 which is the '91 case. NFF just wishes to make minor submissions in - minor observations in respect to those decisions. In '82 case a serious drought was recognised by the Bench and it was noted the drought with rising farm costs, was expected to nearly halve the net value of rural production during the current year. This is at page 4 of the decision. NFF notes that the 2002/2003 drought is significantly worse than the '82 drought, in terms of both geography but also in terms of - in respect to net value of production, with an 80 per cent decrease in the previous year and approximately 60 per cent decrease from 2000/2001.

[12.01pm]

PN1812

In respect to the 1991 wage case, the Bench stated at page 17:

PN1813

The state of rural industries is of concern because of the hardships due directly to it and because of its impact on the rest of the economy. This decision again expresses concern as to the impact of drought on both the rural sector but more importantly, the economy as a whole, and we believe it was a factor in determining the matter.

PN1814

NFF submits that these two cases acknowledge the importance of agriculture on the economy, and that the drought has been given weight in determining the decision. And we seek the Bench in this case to do likewise. In terms of employment impact of drought, as we have previously reiterated, employees affected by the drought are certainly not confined to just the Pastoral Industry Award, nor are they confined to State and Federal agricultural awards. They cover a broad range of industry sectors in both Federal and State jurisdictions.

PN1815

In terms of employment in agriculture, the fact remains that there has been enormous reduction in the employment figures in agriculture since the case last year, in all categories of employment. Taking a comparison over the last 12 months, that is February 2000 labour force figures to February 2003 labour force figures, the statistics show that employment in the agriculture, forestry and fishery sectors have decreased by 81,800 people, or 18.8 per cent.

PN1816

When considering agriculture alone, the sector accounts for a reduction in 72,500 jobs. This amounts to nearly a quarter of employment registered for the industry in 2002. NFF submits it is unreliable to compare as the ACTU has, the last quarter to this quarte,r but rather compare relevant quarters. The drought has had a devastating impact on agricultural employment, regardless of what categories employment are reviewed. Over the past 12 months all categories of employment in agriculture have dropped significantly.

PN1817

These figures do not reflect employment loss in businesses affected by drought, in terms of businesses linked to agriculture, both down and up stream. NFF noted as an indicative example in NFF1 at paragraph 76, the decision by Sun Rice to dismiss 200 workers as a direct result of the flow on effects of drought. Again, NFF refers to attachment 6, which is the National Bank Agribusiness Survey which found that agribusiness shed further jobs in the December quarter.

PN1818

I refer to the employment section of that attachment, where there is a table that shows the comparison of employment growth, which is page - sorry - 3 of that attachment at the top of the page. It states that:

PN1819

Employment index remained at an index of -9 points in the December quarter. Significantly weaker than expectations of 13 index points reported in the previous survey.

PN1820

And it has there a table which shows the decrease in agribusiness employment and compares it to employment growth in total for Australia. The State and Territory Governments stated yesterday at paragraph number 756, that States had a primary responsibility for drought assistance. And it is the States that have to deal with people affected by drought, and they do so through the State wage cases.

PN1821

NFF in this forum doesn't want to comment about the debate between the Commonwealth and State Governments about who has contributed more assistance for drought areas, regardless of the national drought strategy, although we do wish to comment on the statement made by the State and Territory Governments that seems to mean that State industrial bodies have a greater impact on agriculture than Federal awards. This is not the case.

PN1822

In paragraph 22 of NFF1, we noted that a majority of agricultural employees are covered by Federal awards, particularly in the populous State of New South Wales. It is interesting to highlight that the State and Territory Governments want to help drought affected businesses, yet they are supporting $18 increase in these proceedings, and that if successful would - they acknowledge that increases from these proceedings flow on to State agricultural awards. And that at paragraph 7 of STG1. Now, I would like to refer to principle 12, on which there has been some discussion previously.

PN1823

JUSTICE GIUDICE: Ms Harris, just before you do, and I know it is taking you back a little bit, but the submission you made about employment in rural areas refers to an 18 per cent reduction in employment in that area. Do you know whether the base for that calculation was a particularly high year, or an average year, or - presumably there are fluctuations from time to time and if one takes a snapshot of a particularly bad year against a particularly good year, it may not really be giving a - - - 

PN1824

MS HARRIS: My recollection is that agriculture has - fluctuates - seems to be 20 to 30,000 over probably the last four or five years, but there has been a definite growth in employment in the industry for the last five years.

PN1825

JUSTICE GIUDICE: Growth, yes.

PN1826

MS HARRIS: Growth. And this is the first time that we have experienced a decrease. And it is interesting that the growth has occurred even though there have been, I guess, a lot of technological changes within the sector.

PN1827

JUSTICE GIUDICE: Yes.

PN1828

MS HARRIS: So this certainly - from my recollection, and if there is incorrect, I will advise the Bench, but my recollection is we have had continual growth over the last five years on the broad sense.

PN1829

JUSTICE GIUDICE: Yes.

PN1830

MS HARRIS: Thank you.

PN1831

JUSTICE GIUDICE: Yes, well, it will probably be in the catalogue anyway. Thank you.

PN1832

MS HARRIS: Thank you. Principle 12. The capacity of an employer to readily seek an application for economic incapacity is the remedy to all our problems, according to the ACTU. It isn't that easy. The capacity for business, particularly small business, to develop appropriate material to argue economic incapacity is extraordinarily difficult and time-consuming. This is predominantly the reason why NFF and some other employer associations have over the years tried to apply industry wide economic incapacity to pay claims to ease access, but these applications have failed.

PN1833

The Commission has consistently stated that incapacity arguments should be limited to individual respondents, and/or groups of respondents where all members of the group can claim very serious or extreme economic adversity. NFF does not seek an industry wide exemption, but rather a facilitative provision that utilises an existing mechanism that proves that individual businesses are experiencing adverse or extreme economic circumstances. And this process is outlined at paragraph 128 to 130 of NFF1.

PN1834

It should also be noted that this mechanism is limited to a very small number of businesses due to the strict eligibility requirements. It represents only a small component of farms that are affected by drought. We seek this provision at these proceedings, as opposed to when an increased award that applies to specific agricultural awards, because the government drought assistance program goes well beyond one federal award, and also extends to non-agricultural small business.

PN1835

The test we rely upon is a rigorous test, to the extent that it is only accessible to a small percentage of farms located in drought declared areas. And it is a mechanism that we believe meets the needs of the Commission in respect to an evidentiary basis to prove incapacity. Details of how the tests of extreme economic circumstance and who it applies to is provided in detail in NFF1 and also to NFF2. But I would like to take the Bench through some of those just to highlight the extent of the rigour upon which the Government undertakes this process to ensure that the Bench is satisfied in terms of the test.

PN1836

I am referring to attachment 7 of NFF1, which is headed up "Exceptional Circumstances Frequently Asked Questions". The first question is:

PN1837

What is an EC declaration? An EC declaration triggers short term support for producers in situations beyond the scope of normal risk management, and when the future of significant numbers of farmers in a region is at risk. Events triggering an EC declaration have an impact so severe and prolonged that they are likely to occur only once in every 20 to 25 years. The regions become EC declared when communities or peak industry organisations approach their State or Territory governments in the first instance. When the State government is confident that the event and the case fully meets EC criteria, it can then lodge an application for EC assistance.

PN1838

And attachment 10 of our submission is actually a document that farmers fill out to assist the State government in proving an evidentiary basis for EC. The third question is:

PN1839

How is an EC application processed and assessed? Once the Commonwealth Minister for Agriculture, Fisheries and Forestry receives an application he will request a preliminary assessment of it against the EC criteria. If a prima facie case exists he then refers the application to the National Rural Advisory Council, NRAC, which is an independent panel of farmers, agribusiness, and industry experts, to determine whether a full case has been made against the EC.

PN1840

NRAC actually moves around into the specific EC areas and meets with as many farmers in that area as possible to question them on the evidence that has been provided to the government. I won't go through the whole document, but there - certainly on the second page it then goes on to highlight what income support is available for farmers, and highlights that the exceptional circumstances relief payment is available for a total of a period of 24 months, and it is equivalent to the unemployment Newstart allowance, and it also highlights family income support, business support, the small business relief, and then extra support for rural trainees.

PN1841

Once an area has been declared EC, prima facie EC or has been given interim assistance, businesses have access to various levels of Commonwealth government assistance, and all farms - sorry, all forms of assistance are subject to a non-farm asset test, and the threshold is $140,250. What is determined as a non-farm asset is contained in page 2 of attachment 15 of NFF1, where it states in the bottom section, headed "Income and Non-Farm Assets":

PN1842

Both payments are subject to non-farm assets tests. Farm assets are those which are essential to the effective running of the farm.

PN1843

It then goes on to say:

PN1844

The income test only applies to the interim income support payment. Income includes an estimate of your farm's income for the current financial year, and any income earned, derived or received from any other source.

PN1845

They note:

PN1846

If you have been forced to sell livestock during the drought, income from this may be exempt. If you are claiming such an exemption you may have to provide disposal documentation, and evidence of how the funds were deposited.

PN1847

Further on in that document, which is - it goes on from page 7 through to page 14, of all the questions that are asked by Centrelink to determine eligibility. But if we turn to page 15 to 16, it highlights what type of information Centrelink is seeking, and that includes:

PN1848

... latest income tax returns, latest farm returns, verification of farm assets, the livestock documentation and also any loan certificates.

PN1849

In terms of income assistance, the income test is based, as previously stated, on a farm and non-farm income, and the threshold is the same as the Newstart allowance, which is $620.43 a fortnight. So therefore, if a farm has got non-farm assets of $145,250 or above, then they are not eligible for any assistance whatsoever. If they go below that assets test they can claim interest relief support, however, if they exceed the income test they cannot access the relevant Newstart allowance, which is based on an eligibility of $620-odd per fortnight.

PN1850

The government assistance also applies to non-rural small businesses, again with a strict eligibility test, and we refer to paragraph 17 - sorry, attachment 17 of NFF1 where the first page in particular goes into quite some detail as to the qualification of small business interest rate relief. For example:

PN1851

You must receive more than 50 per cent of your income from the business. You must have owned the business for 12 months or more. The business must generate an average annual turnover of $50,000 over the past three years, or the life of the business. The beneficial owner must live in an exceptional circumstance area, or have a strong connection to the area. Turnover or cash receipts in the past six months must have declined by 50 per cent or more compared to the average six month turnover cash receipts, based on the same calendar period in the previous three years. The business must be solvent, and you have less than 20 full-time or equivalent employees, or rely on the farm sector in an EC area for at least 75 per cent of your business activity, and at least 60 per cent of the business activity must be in an area declared as an EC area.

PN1852

There is obviously more detail than that that I have just referred to, the key concepts of the evidentiary and eligibility criteria to determine access to Commonwealth government assistance. As seen, substantive evidence is required with a strict eligibility criteria that limits access to support to only those businesses in very serious adverse economic circumstances. Recent figures from the Department, which are contained in NFF2, show that approximately 7000 farms are now receiving some form of government assistance. We do not seek an industry-wide or geographic exemption, as much as we would like to. But NFF recognises the parameters that have been previously established in respect to economic incapacity claims.

PN1853

It is likely that there would be a number of businesses that would probably satisfy a claim under principle 12 but do not satisfy the eligibility criteria for Commonwealth government assistance. However, we believe it was appropriate to at least pursue a facilitative process to provide ease of access to those who can be readily identified, that are experiencing very serious economic impacts from the drought. NFF is not tied to the specific wording we have suggested, but seeks in general principle to provide a facilitative provision to enable automatic delay in the application of an increase by utilising an existing mechanism that we believe satisfies the requirements of Principle 12. In conclusion - - - 

[12.20pm]

PN1854

JUSTICE GIUDICE: Ms Harris, would there be any risk in adopting your proposal in relation to principle 12 that there would be any, as it were, double counting? The relief that is being provided by Government would be provided in part to cover costs such as salaries, salaries and wages.

PN1855

MS HARRIS: It is not to cover costs of salaries. The basis upon which Government assistance is provided is simply to ensure that a family can stay effectively alive in terms of basic needs of maintaining their lives until such time as a drought recovers. The income you are receiving from Newstart is the equivalent of Newstart, it is no more than that. The - - - 

PN1856

JUSTICE GIUDICE: Yes. It is not related to business costs.

PN1857

MS HARRIS: Nor is the - - - 

PN1858

JUSTICE GIUDICE: Apart from possibly the interest costs.

PN1859

MS HARRIS: The interest rate relief obviously is providing assistance, but then again it is capped to a certain level.

PN1860

JUSTICE GIUDICE: Yes.

PN1861

MS HARRIS: So it is to provide an opportunity for farmers to ensure that they are meeting loan requirements while they are getting no income.

PN1862

JUSTICE GIUDICE: Yes, thank you.

PN1863

MS HARRIS: It is also interesting to note that some areas that I early on identified is EC where areas upon which drought had, I guess, started earlier on in the piece so it slowly has crept down New South Wales into Victoria and through - now it has gone into South Australia. So the - when you compare the areas which identified as drought areas, but then specifically look at the areas of particular problems upon which Government assistance has been granted, they are in the very extreme areas upon which rainfall has been particularly low.

PN1864

That relates to Queensland and also Northern and Western New South Wales. In terms of concluding this submission, as said from the outset, drought is real, it continues, and it has had and still continues to have a detrimental impact on a broad geographical area and a large number of industry sectors and ultimately the economy. NFF submits that due to the extensive nature of drought, it is a significant factor for the Commission to consider in their determination of this case it is impossible to quarantine the impact of a wage increase from parts of the economy affected by drought.

PN1865

Its impacts are too broad to consider such a proposition and principle 12 is only confined to a small component of those affected by drought in exceptionally extreme circumstances. So drought was not included in last year's decision simply because it didn't exist. But drought subsequently started and gained momentum to the extent that it has been classed as the worst drought on record for 100 years. It has had a significant impact on farm production, an income that will not recover either this financial year or the next to any levels achieved in recent years, let alone 2001 and 2002.

PN1866

We couldn't forecast the drought last year, nor can we forecast with any certainty that it is about to break. But what can be achieved is a recognition by the Commission of the detrimental impact of drought, the problems of drought recovery and the impact to other business and the economy as a whole should be recognised as a significant factor to be considered in this case. If it pleases the Commission.

PN1867

JUSTICE GIUDICE: Thank you, Ms Harris. I might mention at this juncture that submissions have been received from the Western Australian Farmers Federation Industrial Association, who apparently don't intend to appear.

EXHIBIT #WAFFIA1 WESTERN AUSTRALIAN FARMERS FEDERATION INDUSTRIAL ASSOCIATION SUBMISSIONS DATED FEBRUARY 2003

EXHIBIT #WAFFIA2 WESTERN AUSTRALIAN FARMERS FEDERATION INDUSTRIAL ASSOCIATION RESPONSE TO THE ACTU WRITTEN REPLY SUBMISSION OF MARCH 2003

PN1868

JUSTICE GIUDICE: Mr Chesterman, are you next?

PN1869

MR CHESTERMAN: Yes, thank you, your Honour. On behalf of the Motor Trades Associations, I would seek leave to tender the exhibit, or the submissions that we presented to the Commission and other parties on 8 March 2003.

PN1870

JUSTICE GIUDICE: Yes.

EXHIBIT #VACC1 MOTOR TRADES ASSOCIATION'S SUBMISSIONS

PN1871

MR CHESTERMAN: Thank you, your Honour. In presenting the submissions this year on behalf of the Retail Motor Trades Associations, it is our intention to look at four areas. Briefly to look at the composition and nature of the industry, analysis of the effects of the drought on members, this arises, I think from some comments made by Vice President Lawler and, your Honour, the President, in relation to the implications of the drought on businesses which rely on the agricultural sector.

PN1872

Third, to look at the results of the A.C. Neilsen report, which is presented in annexure 3, and some comments made by the ACTU in their written reply of 17 March and also on transcript in relation to aspects of that survey. But to go to the first issue, that is the composition and nature of the industry, and this has been put to the Commission on a number of occasions, but briefly for the purposes of those members who haven't appeared on the National Wage Bench before, the retail motor industry, as set out in our main submission, commencing on page 1, or the Retail Motor Trades Associations represent around, or in excess of, 14,000 members.

PN1873

They are what we would characterise as members who are part of small business and we have also indicated in our submissions that we regard on the evidence of the Department of the Parliamentary Library Research Note Number 10, which we have referred to on page 2 of our submission, that small business, by employing well over 3 million people, is the largest employer in Australia and accounts for 47 percent of all private sector non-agricultural employment. Moving to page 3 of our submission deals with a profile of the Australian Retail Automotive Industry.

PN1874

Briefly, the industry comprises car resale and wholesale, motor cycle retail, trailer and caravan detailing, new and used parts retailing, wholesale, fuel retail in the form of service stations, automotive electrical services, smash repair, tyre retail and manufacture, automotive repair and service, small scale specialists vehicle manufacture and automotive component manufacturers. The latest ABS business register, as set out on page 3, indicates that the retail motor industry is made up of in excess of 66,000 businesses and employs around 285,850 employees.

[12.28pm]

PN1875

Consistently over the years when we have presented submissions in relation to the composition of the retail motor industry, we have presented the view not only in our main submissions but by way of survey that the retail motor industry is made up predominantly of small businesses comprising between one and five employees, but generally the bulk of the industry can be found in businesses which employ between one and 20. And obviously when we come to the A.C.Neilsen survey I will deal more in detail with that.

PN1876

But we have also said in the past, and as is set out on page 5 of our submissions, that predominantly those employees in the retail motor industry comprise full time employees and around 89 per cent of those are either covered by federal or state awards. We have also said, and I think it is borne out by the A.C. Nielsen survey, that the existence of not employing businesses is also evident in the retail motor industry but the number is small.

PN1877

If I can now turn to the second issue that I raised, and that is the analysis of the effects of the drought on members. We have said at page 6 of our submission - and I think to some degree it has been backed up by our friend from the National Farmers Federation that - or I think it will show that there is some inter-relation, some definite distinct inter-relation between the agricultural and non-agricultural sectors in rural communities. But for our members, that those small businesses in the rural communities, unlike big business, they more directly contribute to the local community by providing employment and through trading with other local business. And we have said that the effect of the drought on farmers has consequently directly affected the farm machinery dealers and other repairers by reduced demand.

PN1878

Now, I think that can be equally borne out or verified by the comments by the National Farmers Federation that even if the drought does break in the near future, then the cash flow of farmers - or the build-up of cash flow for farmers in order to be able to spend money in other areas is going to take some considerable time, and this is an issue that we want to address the National Wage Bench on because we have in appendix 4 of our submission dealt with an analysis of the effects of the drought on our members in a number of states which I will take the Commission to if I may.

PN1879

SENIOR DEPUTY PRESIDENT WATSON: Mr Chesterman, the submissions of the NFF in respect to the very high farm incomes of last year that they tend to be used to capital expenditure to revitalise capital stock, if you like, that would suggest farm machinery dealers probably had a very good year last year, would it not?

PN1880

MR CHESTERMAN: They may have had a good year, last year, I would assume that - well, that me say this. I think in some areas, last year, they may have had a good - a pretty profitable year. I could say, in others, such as areas of north western or mid northern Victoria of which I am aware and that is areas like Echuca, that the drought up there has actually - or even from last May when I was up there - has had quite a considerable impact on that area and on our members, having spoken to members in that area. But I can only confine my remarks to Victoria, in that respect. It could well be that in other areas, yes, farm machinery dealers have had a good year.

PN1881

Referring back to appendix 4. I don't want to go to many of the first documents that we have attached because I think that has also been dealt by the National Farmers Federation. But I would say that there is some documentation behind the blue tab which is the VACC Analysis of the Effect of Drought in Victoria and that documentation has come from the Australian Bureau of Agriculture and Resource Economics and confirms what the National Farmers Federation has said through Agriculture Minister, Warren Truss, who said that it could take between three to four years for the industry to recover and that in some other areas, and I think it is important that, in respect to the farming community, you not only look at cattle and sheep, you look at wheat and you look at crop harvests and things like that. So there will be some degree of variation in terms of recovery if and hopefully when the drought breaks.

PN1882

The main reason for referring to this section really relates to two submissions, two joint - two separate submissions, I should say, that have been directed to the Federal Government by the VACC and to the Honourable Minister for Agriculture, on 20 December 2002, and I think if I could go to the heading, VACC letterhead heading which says:

PN1883

Drought Impacts Farm Machinery Dealers

PN1884

Because there is some issues here which we think are important to the industry and have been important to the industry in the past and that relates largely to cash flow. And perhaps if I could refer to - and also, I might add, retention of skilled staff. If I might read on, read the beginning of the VAC submission, it says:

PN1885

The Farm Machinery Dealers Association calls for State and Federal Governments to implement immediate and long term structural support to assist dealers to survive the financial impacts of the protracted nationwide drought. Such measures would offer hope that FMDA businesses would remain solvent and cash flow positive until the drought breaks and income is restored and injected into rural economies including farm machinery expenditure.

PN1886

And then the submission goes on to highlight the need for dealers to retain their quality skilled staff, so that when conditions improve they would be able to provide their farmer clients with critical support staff. and we have said in our main submission and also it appears not only in the VAC submission - VACC submission, but also the submission presented on behalf of the Farm Machinery Dealers Association of Australia, that one of the biggest problems with our businesses and it is not just farm machinery dealers that are larger businesses but, also, other smaller bodies like repairers and panel shops and things like that in rural areas, is that where you train up an employee and you are unable to retain that employee, due to the economic circumstances of the business, then normally what happens is that, given that there is a supply issue in relation to skilled employees in the retail automotive industry, that that employee would leave the region and probably never return.

PN1887

And it has got to be remembered that in training up somebody like a farm machinery mechanic, you are looking at a cost of around $60,000 to outlay to ensure that that employee is in a position to handle or deal with the equipment in the farming community. The upshot of those two submissions, I can report, is that there was a meeting with the Minister last week, the Minister for Agriculture, the Federal Minister for Agriculture, and the aim of that meeting was twofold. Firstly, the problem with farm machinery dealers is that the majority of farm machinery dealers employ in excess of 20 employees. Now, obviously - one of the criteria to satisfy, in order to secure aid under the emergency or exceptional circumstances area is that there - the employers employ less than 20 employees.

PN1888

So what the VACC and the Farm Machinery Dealers Association are endeavouring to do, is to get that criterion changed. In addition, another criteria is that there has to be a 50 per cent reduction in turnover in order to qualify for aid. In this respect we would say that, with our members, particularly with cash flow issues, that if it got to that stage then there would be serious concerns for the ongoing viability of the business. The other criteria is that 60 per cent of business must be done in a drought area and we have been approaching the Federal Government on the basis that this is harsh, given that certain inventory such as secondhand equipment may be sold outside the drought areas.

PN1889

So that is one issue that the associations have tried to address with the Federal Government. The other one is that we have been taking some steps in order to obtain subsidies for training. And at the instigation of the dealers, the idea behind subsidies is that the dealers want to retain the staff in the area that they are employed in so, by obtaining training subsidies, the aim is that they can receive additional training perhaps through TAFEs or through the suppliers, themselves, in terms of increasing their skills. So they are the two issues that we are looking at, in terms of trying to address the issue of problems in rural communities as a result of the drought, for our members.

PN1890

In ours section that deals with drought, the problems with the drought, there is also a section which has an orange tab which comes from the Motor Traders Association of Queensland, setting out the analysis of the effects of the drought in Queensland. Now, I refer to the fact that we have made some submissions in relation to larger employers, being farm machinery dealers who have perhaps more than 20 employees. The Motor Traders Association, in their report on the market and economic sustainability of the industry, have indicated that it is not only farm machinery dealers who have a problem as a result of the drought. There is also engine re-conditioners, mechanical repairers, and motor body repairers.

[12.40pm]

PN1891

Now, in our submission, given my experience in the automotive industry, I would have to say that those categories of employers would employ less than 20 employees, and therefore, could have grounds to apply for aid, but unfortunately, like most things in dealing with issues of this nature, that has taken some time, or it has taken some time for those applications to be processed. The point, I guess, of coming to the Commission in terms of opposing the increase is that our view would be that the increase of the magnitude sought by the ACTU would, in our view, create more cash flow problems than are occurring at the moment anyway, and that is one of the major reasons why we would be - why we are opposing the claim of $24.60 per week.

PN1892

We would also, in concluding this section of our submissions, go to the transcript of Monday, where Vice President Lawler and your Honour the President asked some issues about, or some questions about the flow-on effect to businesses, or the flow-on effect of the drought to businesses in rural areas, and after lunch, Mr Watson made five observations about how he felt that could be addressed, and those observations commence in transcript at Paragraph Number 379, and Mr Watson indicated that:

PN1893

The first factor to bear in mind is that small businesses are overwhelmingly not employers of labour. They are, generally speaking, owner operated, and they have contributing family workers.

PN1894

Well, some of the problems that I have raised in relation to farm machinery dealers and others I think would indicate that that observation might be a bit simplistic. The second point, at Paragraph Number 380 the ACTU makes the point that:

PN1895

Small business affected by the drought, as the Commonwealth I think notes in its submissions, have had access to exceptional circumstances funding.

PN1896

Well, that is true for some, but for those in excess of 20, as I said, we are making overtures to the Federal government in order to change some of the criteria to obtain drought relief. The third point is once again at Paragraph Number 380, the ACTU said that:

PN1897

The third point is that where there are small businesses with employees, they are overwhelmingly likely, in our submission, to be covered by a State rather than a Federal award, which means that, broadly speaking, operative dates will tend to be later, although we concede in New South Wales that may not be the case.

PN1898

Well, I have indicated that the majority of our employees generally are covered by Federal awards, and so we would refute that suggestion. Fourthly, at Paragraph Number 381, the ACTU says that:

PN1899

If there is an end to the drought and there was a bounce back in spending in the agricultural sector, then one expects that that will flow through to businesses which depend on it.

PN1900

Well, we have already made comment that, even if the drought breaks tomorrow, then there is some considerable time lapse between the effects of the drought being removed from rural communities, and the other thing I would have to say would be that it very much depends on whether we can make sure that our members who have specialist staff retain them in the areas. Fifthly, the ACTU made reference to the fact that:

PN1901

If at the end of that process there are still problems, in our submission the appropriate way for them to be dealt with is the economic incapacity principle.

PN1902

Well, I think at the moment our approach would be to make overtures to the Federal government in terms of what I have outlined. I think the difficulties of bringing small businesses to the Commission, arguing the economic incapacity principle, has its problems, with members, many of whom are in the country, and I would have to say I would believe that approach may not be realistic, given the time taken to process such claims. If perhaps now I might move on to the A.C. Nielsen national report which is set out at annexure 3.

PN1903

JUSTICE GIUDICE: I think we might do that after lunch, Mr Chesterman. Are there any submissions, other than the Commonwealth, to follow? Don't think so.

PN1904

MR BARKLAMB: Your Honour, the Printers are intending to appear after lunch.

PN1905

JUSTICE GIUDICE: Yes. Thank you. Mr Cole, you might like to give some consideration to the time that is left this week. If necessary we can perhaps sit some slightly longer hours, but bearing in mind that some people might want to return to their home State tomorrow, we wouldn't really want to sit late tomorrow. Anyway, perhaps you can give some thought to it, and if there is a need to address it we should, I think, do so after lunch.

PN1906

MR COLE: Yes, sir, very well.

PN1907

JUSTICE GIUDICE: Yes. We will adjourn until 2.15.

LUNCHEON ADJOURNMENT [12.48pm]

RESUMED [2.27pm]

PN1908

JUSTICE GIUDICE: Yes, Ms Harris.

PN1909

MS HARRIS: Thank you, your Honour. During the - - - 

PN1910

MR JANSKE: Commissioner Hoffman, my name is Danny Janske. Commissioner Hoffman will remember me from Brisbane. We had a Workplace Agreement when we came to you. You were supposed to see it through. We had productivity gains that we delivered to a company that weren't honoured, that you were supposed to honour. But no, you decided to team up with the Transport Workers Union.

PN1911

JUSTICE GIUDICE: Excuse me. We are in the middle of another hearing.

PN1912

MR JANSKE: With the Transport Workers Union - - - 

PN1913

JUSTICE GIUDICE: Excuse me. We are in the middle of another hearing. Would you show respect for the people who have spent time and energy getting ready for this hearing by desisting from this interruption.

PN1914

MR JANSKE: It will only take two minutes and I am going - - - 

PN1915

JUSTICE GIUDICE: No, we don't wish to hear you.

PN1916

MR JANSKE: - - - to get some respect that should be shown to me.

PN1917

JUSTICE GIUDICE: We don't wish to hear you.

PN1918

MR JANSKE: We had an arbitration hearing where David Hoffman decided to run out of the courtroom. At the other arbitration hearing he decided no, he wants a sworn affidavit, me to swear on the Bible and - - - 

PN1919

JUSTICE GIUDICE: We will now adjourn.

PN1920

MR JANSKE: - - - we will see this matter to - - - 

SHORT ADJOURNMENT [2.18pm]

RESUMED [2.26pm]

PN1921

JUSTICE GIUDICE: Any other attempts at a sudden adjournment may not be as successful. Yes, Ms Harris.

PN1922

MS HARRIS: Thank you, your Honour. During the NFF submission a question was asked as to whether or not there were more updated maps as to the likelihood in terms of exceeding median rainfall. I have had a closer look at the Bureau of Meteorology site during the luncheon adjournment and have found - and obviously it wasn't as obvious to me as I would have liked in my last look at a map that is Chance of Exceeding the Median Rainfall April to June 2003, which is quite different from the previous one. It actually shows us the ability to exceed median rainfall is less likely. If I could please tender that into evidence, thank you.

PN1923

JUSTICE GIUDICE: Yes. That is a less optimistic forecast, is it?

PN1924

MS HARRIS: That is correct.

EXHIBIT #NFF4 MAP TITLED "CHANCE OF EXCEEDING THE MEDIAN RAINFALL APRIL TO JUNE 2003"

PN1925

MS HARRIS: If we compare from the previous one, which was March to May 2003, there is certainly a nice pink blob sitting over southern Queensland and north eastern New South Wales, with a 70 per cent chance of exceeding median rainfall. But it is interesting to note that in the previous map it was predominantly green, showing around a 50 to 55 per cent chance of exceeding median rainfall, where in this picture we have quite a substantial area of Australia actually showing less than 50 per cent in exceeding the median rainfall and this obviously needs to be considered upon the submission upon which we were submitting that 200 to 300 per cent more than the median was required to break droughts. That is just an updated map for your records. Thank you. That is all.

PN1926

JUSTICE GIUDICE: Yes. Thanks very much. Dr Kates.

PN1927

DR KATES: If I could just take this opportunity to reply to a question asked by your Honour the President on paragraph 1143 about the labour force survey. You asked for the actual statement in that publication and I tender that. I just note that these figures are different. The statement here is different from that tendered by the ACTU, which was in the February publication. These are from the January publication.

PN1928

JUSTICE GIUDICE: January, yes.

EXHIBIT #ACCI6 EXTRACT FROM JANUARY PUBLICATION

PN1929

JUSTICE GIUDICE: I think you might be able to resume now, Mr Chesterman.

PN1930

MR CHESTERMAN: Thank you, your Honour. Before luncheon adjournment I had finished the issue relating to drought and had indicated I was going to move on to the A.C. Nielsen national survey results, which is in appendix 3 of our main submission and I think it is also provided to you by electronic mail. From the outset, let me say that this is the third time we have actually utilised the services of A.C. Nielsen to do a national survey. There have been some minor changes to it in terms of presentation but some of the matters that we wanted to get across to the National Wage Bench have been consistently analysed in this survey.

PN1931

Page 3 of the survey outlines what is presented and I just give the main headings. It is Business Employee Structure, Business Performance, and Amount Implementation of Impact of the Award Increase, being last year's award increase of $18. The survey research design sample size was 1015 interviews conducted nationally by a telephone call centre, conducted by A.C. Nielsen. It involved eight motor trade associations and the survey achieved an overall response rate of 84.4 per cent. You will see on page 5 that the research design is continued when it sets out those associations who are covered by the national survey and also the sample size for each, and it has split it up into metro and non-metro, metro accounting for around 56 per cent of the survey and non-metro 44 per cent.

[2.31pm]

PN1932

The detailed findings start on page 8 under the heading business employee structure and the first graph refers to how many employees are employed at each business which was the subject of the sample survey and generally consistent with the results which we have presented to the Commission over the last few years. It shows that the largest percentage is in the area of one to five employees with the majority or 83 per cent of businesses largely employing between one to 20 employees.

PN1933

Over 20 employees in the sample survey was based at eight per cent and those employers who didn't have any employees, or those businesses that didn't have any employees, it was eight per cent. Moving to page 10 and this analyses the breakdown of casual, part-time and full-time employees in the businesses. Now, this graph was introduced because last year a question was addressed to the associations by the bench and it is quite compelling I would submit in the sense that when it looks at total employees, 85 per cent on a national overall basis of those 115 surveyed by A.C. Nielsen indicated that 85 per cent of their employees were full-time, six per cent were part-time and nine per cent were casual and then broken down again between one to 20 employees, the results indicated that 81 per cent were covered by awards, seven per cent were part-time and 12 per cent were casual.

PN1934

Then on page 11 of the survey, consistent with what we have done in previous years, we looked at the breakdown of those employees covered by Federal and State award, registered State workplace agreements and those that were award free and that first graph on page 11 deals with all employees and the outcome was that around 89 per cent were covered by either a Federal or State award. The number of registered or State workplace agreements is fairly constant at four per cent. In fact, it has been for the last three surveys.

PN1935

I think it goes to show or it does go to show in our submission that when businesses in this industry in terms of determining appropriate pay rates and I think having regard to what I have said earlier and in previous submissions, the need to retain skills employees generally means that they would rely more on paying in excess of the award than they would by entering into agreements, be they either AWAs or Federally registered agreements, although there is an exception I think with WA in that there were a number of State registered workplace agreements in that State, then the next graph on page 12 deals with a breakdown more specifically related to those employees who are employed in businesses of between one to 20 employees and once again it is quite clear from that that the overwhelming percentage are located either under Federal or State award coverage.

PN1936

Turning now to business performance and the first graph is on page 14, it does show based on the question that was asked to the businesses and let me say that the metropolitan and non-metropolitan businesses cover - well, non-metropolitan covers regional centres and also rural communities and it does show that generally across Australia, some 67 per cent of the retail motor industry rated their performance positively. From the time of the last National Wage increase, around 32 per cent did not rate their performance that well.

PN1937

They either said it was neither good nor poor, poor or very poor, but it must be said that 52 per cent was in the good range and on page 15, that particular graph was broken down into metropolitan and non-metropolitan areas and non-metropolitan areas generally were marginally ahead of the metropolitan areas in rating their performance as good. On page 16, the graph deals with the overall company position in respect to each of the associations and generally it must be said that from the last National Wage increase up until the time that the survey was done, there was a reasonably high percentage in some areas that did rate their business performance positively. Of course, there are areas where either the performance was neither good nor poor or in some cases there were obviously companies or businesses who indicated that their performance had decreased over that period of time.

PN1938

Turning to the next section of the survey, that deals with amount, implementation of impact of the award increase. Consistent with what I think happened last year with the survey, it shows that around 75 per cent of employees were paid in excess of the award rate of pay. This particular survey, or this graph deals with the percentage of all employees, Federal, State award, combined, and that would be full-time, part-time and casual, and it does show that whilst 19 per cent were paid on the award rate of pay, between a bracket of wage increases of 1 to 20 up to in excess of $81, 75 per cent of those members indicated that they were paying in excess of the award rate of pay.

[2.38pm]

PN1939

JUSTICE GIUDICE: I know that form is there, the survey form is there, but did that tell the respondents what the award rates were?

PN1940

MR CHESTERMAN: No, it didn't. But the other thing, I would make one other comment about this graph, and that is that prior to lunch I was talking about the fact that in areas - well, in areas in the country, but more so generally, I would suggest, that one of the problems that the industry has is the ability to attract and retain skilled employees, and for that reason, and I have said it last year and I will say it again. I think that there is a reason why a lot of the businesses pay in excess of the award, because there is a need to retain quality staff. Now the downside to that may be that where you are looking at - and the survey indicates that the majority of employees fall between 1 to 20, and there is a large percentage that have between one and five employees, the downside to paying the higher rates would be this issue of cash flow. In the terms of retaining staff, the cash flow could be affected by the need to pay the higher wages.

PN1941

Page 19 of the survey breaks it once again down into non-metro and metro, with the non-metropolitan areas showing a marginal percentage increase above those in the metro areas who paid in excess of the award rate of pay. Now, once again, the view would be that - and I did say before the luncheon adjournment, that where members in non-metropolitan and particularly rural areas have skilled employees they are anxious to retain them, because once they leave and they can be attracted to leave by rates, high rates in metropolitan areas, then they may not return to the area. The next graph - - - 

PN1942

JUSTICE GIUDICE: I would be a bit curious that in the metro area 10 per cent didn't know.

PN1943

MR CHESTERMAN: Yes.

PN1944

JUSTICE GIUDICE: And in the non-metro area apparently there were no "don't knows".

PN1945

MR CHESTERMAN: Correct, and I think that maybe the reason - look, every survey, and I think we have been through this previously in the last two or three days, there are some faults in the surveys, and I think one of the problems you might face with a telephone style of survey is the person you might be talking to, who may not - a lot of these businesses don't have Human Resources departments. It may be that the person who they did talk to might not have had as great a grasp on wage rates and awards as others. But that is a risk I think you take with telephone surveys, and as I said, I think every survey has a defect, and I think as we go through this there may be problems with this survey.

PN1946

But overall, we would say that some of the key issues that we were after, basically have been - well, I think show what we need to show. The next graphs deal with question 5(a) which has been the subject of some comment by the ACTU, which I will come to after we have gone through this section. But it basically deals with those businesses who paid over the award rate of pay, and passed on the $18 increase of 2002, and the survey shows that around 65 per cent of those businesses who were surveyed did pass on some of that - well, some of that increase. All employees was 41 per cent. 51 to 99 was 3. Between 1 per cent to 50 per cent, 21 per cent of those businesses did in some form pass on - did pass on that increase.

[2.43pm]

PN1947

And once again on page 21, it is broken down into the non-metro, metro analysis and it can be seen that in this graph that it is a higher percentage who passed the rates on in the non-metro areas, and I think that what I said previously, I think, goes with this particular graph. The survey on page 22, I think, is relevant for a number of reasons and it is a breakdown of those award employees who were paid either on or in excess of the award rate of pay. Now we used this graph for a number of years.

PN1948

But in our view it is significant in the sense that, particularly for full time employees under Federal awards, there is a clear indication that they pay both in the metropolitan and non-metropolitan areas, at the upper end of the scales included in that survey, that is between 41 to 60 in that bracket, or up to the $81 in excess of the award rate. I think last year there was a question raised by the Bench addressed to us about the fact that part time and casual employees, they seem to be, particularly in the Federal award, seem to be placed more squarely on the award rate of pay.

PN1949

We would have to say in relation to that, that given the graph we put in on page 10, it indicates that, whilst that might be the case, there are very few part time and casual employees generally covered in the businesses that were surveyed. And it is also, I think, noteworthy that in the State awards, casual and part time, or particularly casuals under the State award system, they actually were - well, in respect to casuals under the State award, some 37 percent actually were paid in excess of, or between 61 to $80.

PN1950

The next graph deals with the percentage of businesses that paid in excess of the award and it says that, of those paying more than the award rate, 70 percent passed on the full $18 granted to award rates of pay by the Australian Industrial Relations Commission. And then it goes on to say for those employees that did not pass on exactly the $18, 17 percent or more of the 18, passed on more than the 18, only eight percent passed on a portion of the $18. And the graph on page 24 reflects that breakdown in relation to both non-metro and metro which based on those figures is very line ball.

PN1951

Now the ACTU did raise some issues about the graphs on page 20 and 23 in their written reply submission 17 March. And this occurs at R4.25. Pardon me. There are some other issues which I would like to go to first but I would like to also address those issues raised by the ACTU. It says on the first dot point in R4.25:

PN1952

The survey questionnaire ignores altogether the possibility of employees being covered by State collective agreement. It incorrectly only recognises the possibility of State registered individual agreements in Western Australia. As a result, the number of persons properly characterised are subject to a registered agreement may have been incorrectly characterised as in receipt of over award pay under State jurisdictions.

PN1953

We would say that it is not our experience that people actually enter into State registered workplace agreements. And I personally, from a VACC point of view, that we would rarely, if ever, I can't recall doing a State registered agreement. It would be the case in WA that they would have probably done more agreements.

PN1954

The second dot point said:

PN1955

The survey results as published provide no basis on which to calculate the proportion of employees who are over-award or non-award, and receive the safety net adjustment.

[2.48pm]

PN1956

Well, we would say in relation to that that the questions in the survey were directed to award employees. That whilst we did ask the question about the number or percentage of non-award employees, generally - well, the survey did relate to award employees. The next dot point says:

PN1957

The data at page 20 of the AC Nielsen survey suggests only 16.5 per cent of businesses surveyed flowed safety net adjustments on to at least one over-award employee who was not entitled to that increase.

PN1958

Then it goes on to say:

PN1959

The results on page 23 suggests that even this is likely to be an over-estimate, as it appears that the survey comprehended circumstances in which more than $18 per week was paid. This is exhibiting evidence of the flow-on of the safety net adjustment.

PN1960

And then the next dot point says:

PN1961

Indeed, if the businesses were paid more than $18 per week, and those who were not sure how much that increased award rates of pay are excluded, only 14.3 of businesses passed on any proportion of the safety net adjustment to any over-award employee who was not entitled to receipt of that adjustment.

PN1962

I would say in relation to that, that what the ACTU has said is probably correct. It is correct because when the survey question was first asked it was different from the final question that was included in the survey, which you have a copy of, and so what happened was that the first round of telephone calls went to those who were part of the survey, and because the question was changed, it meant that all recipients or all members of the survey had to be called again, and in some cases, those members could not be contacted again. So the numbers - I would have to say that the numbers in relation to the over-award or the - sorry, those who were already paid over the award and received the $18, what the ACTU probably correctly represents what it is in that survey.

PN1963

But we would say that there have been businesses that perhaps should have been - or should have been included but weren't. But basically, what the ACTU says, on the numbers of businesses that were part of that aspect of the survey, then that is - the figures stack up for the flow-on of the safety net adjustment for those who are paid over the award. The only other question I would raise about the ACTUs comments in R4.25, they did say that:

PN1964

It is noteworthy that the number of businesses flowing-on the safety net adjustment in the Retail Motor Industry seems thus to have declined from 45 per cent in 2002 to 14.3 per cent in 2003.

PN1965

That is not a true reflection of the situation last time, because whilst businesses - whilst 45 per cent of businesses who paid over the award did pass on the increase, previous national wage increase, of that - that 45 per cent was made up of 684 businesses who responded to that aspect of the survey, and that survey dealt with, I think there were 1008 businesses involved. So the actual percentage of the total number of those sampled would have been around - who passed on the 2001 award increase would have been around 31 per cent.

PN1966

The only other graph I want to refer to is the last one which deals with last year's, which is on page 25, and is headed:

PN1967

Last year's $18 wage increase had the greatest effect on cash flow and profitability.

PN1968

So we would say that the two of the issues, that one I have addressed in the - well, addressed in my submissions prior to lunch, which deal with the cash flow issue, which is the top column, shows a 33 per cent decrease in cash flow and 54 per cent of members reported no change. And we would also point to the level of overall profitability which has decreased by some 45 per cent.

PN1969

The only other thing I would like to refer to is in relation to the survey, unless the Bench has any questions, is a matter that the ACTU raised in relation to a couple of aspects of the survey which they had received additional information on. This actually commenced at paragraph number 526 of the transcript on the Monday the 31st. One of the issues that they raised was the fact that in one of the graphs - or the analysis of the outcome of one of the graphs related to the fact that businesses which indicated they had no employees, businesses that were called and told A.C. Nielsen they had no employees, were then asked question 6 in relation to how that award increase had affected aspects of their business.

PN1970

Now, our answer to that would be that there may very well have been some businesses who had employees in the previous year or from the period from the last wage increase till the time they were surveyed. But I would have to say on reflection that next year or whenever there may be another National Wage increase that there is a need to know the number of those businesses that don't have award employees but, obviously, perhaps it was inappropriate for them to be then asked the question in relation to question 6.

PN1971

Now, I have actually filtered out - well, I didn't filter out, A.C. Nielsen filtered out 79 businesses who actually had indicated they had no employees and the outcome to the graph on page 25 is marginally different. It has no significant bearing, in our view on the aspects of the outcome of the survey in relation to that graph. In relation to the other issue that the ACTU raised, and that was in table 19 of - I think it was in exhibit 5 or tag 5 of the ACTU reply composite exhibit and it talked about some people who actually passed on an increase of more than $18 per week.

PN1972

Then these people were asked, "How did this affect the number of permanent employees in your business?" At paragraph number 528 of the transcript, Mr Watson said:

PN1973

Well, 10 per cent said they had an increase and 26 per cent said, oh, well, the award increase - these are people that passed on more than 18 per cent. Twenty six per cent said the award increase actually meant we had a decrease in employment, permanent employment.

PN1974

Now, I have got to say I would speculate on the reason why they answered that because there wasn't a follow-up question as to why that occurred but it may be - my best estimate of that would be that, given skill shortages, that even though there was an increase of more than 18 per cent, there may have been a possibility of employees going elsewhere because they were offered a better deal. But as I indicated earlier, there are aspects of this survey that may need refinement, and that is probably one of them. But, overall, we would say that the results of the survey confirm a number of things that we have always indicated in our submissions and that is that it is a representative survey.

PN1975

It had approximately an 85 per cent response rate. It has consistently shown that the industry is predominantly made up of small business with a majority of members having between one and 20 employees, that those employees are covered either by state or federal awards with little involvement in enterprise bargaining, that the majority of employees are full-time employees, that they are paid in excess of the award and that there is an element of flow-on of National Wage case decisions.

PN1976

The only other comments I would like to make in relation to the ACTUs claim would be the concluding remarks that are set out in page 18 of our submissions. And just by way of summary of some of them, we say that in opposing this claim of $24.60 we say that the small business community is the largest employer in Australia, that the retail motor industry is predominantly made up of small business employers. It is a major contributor to Australia's economy. The retail motor industry relies mainly on either federal or state awards. However, it tends to pay over award rates of pay.

PN1977

This characteristic is common whether the business operates in metro or non-metro areas. Use of Australian Workplace Agreements or enterprise bargaining agreements are uncommon, that labour and skill shortages place added pressure on employers to maintain high over award rates of pay and to pass on award increases granted by the Australian Industrial Relations; further, that the effect of drought conditions will merely exacerbate the pressure on some sections of industry. In rural communities, failure to pass on any increases will risk the loss of labour, which is difficult to replace.

PN1978

I think the other issue that I think is very important, given my submissions, is that the evidence shows that operating costs traditionally absorbed by business - resulting in reduced cash flow and profitability. Now, in addressing the issue of the claim, we said we have opposed the claim but our view would be similar to that of ACCI, that if an increase was to be granted by the Commission, we would see the upper limit proposed by the Commonwealth Government of $12. We see some attraction to the idea of an 18 month period of operation, given that we have had six or seven rounds of annual National Wage hearings.

PN1979

From the research I have done, it seems that most - well, the latest state wage variation to give effect to an increase handed down by the National Bench was last year, I think 1 August. That means that four months after that state decision we are once again back in the Commission. So we would support the view that an 18 month period would be appropriate if the Commission is to give an increase and the only other thing I would say would be what I mentioned last year and that is that our members have some problems with retrospectivity, given that they are small businesses and that we would ask that, if there is to be an increase, that any operative date be prospective. If the Commission pleases.

[3.01pm]

PN1980

JUSTICE GIUDICE: Thank you, Mr Chesterman.

PN1981

MR CHESTERMAN: Could I seek leave to withdraw from today's proceeding?

PN1982

JUSTICE GIUDICE: Yes.

PN1983

MR CHESTERMAN: Thank you.

PN1984

JUSTICE GIUDICE: Yes, by all means. Mr Hargrave.

PN1985

MR HARGRAVE: If the Commission pleases, I understand that our Sydney office have served and filed the submission in relation to this matter. I would like to just address the Commission in a very short-term way of the points that we would like taken note of in relation to the submissions. Firstly, the printing industries oppose the application as sought by the ACTU for a $24.60 safety wage increase and that increase is opposed on the general economic situation remains uncertain, bearing in mind that this submission was put together before the conflict which is occurring in the Middle East and the employment prospects we see in the industry are flat and full-time employment is not increasing and the profitability of the printing industry is down and trending further which will show in some of our submissions, if the Commission pleases.

PN1986

If I could take the Commission to page 6 at 2.1. We have a number of problems with the ABS statistics which I think the Commission would be aware of that there has been a revamping of those statistics and the survey sample used has generated a widely criticised area. As a result of that and given the problems associated with industry employment data, the printing industry believes that its wage printing industry trends which has been a survey that has been conducted consistently since 1987 is a more preferred document to look at the industry in its whole and this survey for December 2002 indicates that employment levels are reported to have declined by a balance of 8.8 per cent of respondents and a net balance of 1.4 per cent of respondents anticipated further reductions in employment during the March 2003 quarter.

PN1987

If we then move to the area of 3.1 which is at page 9, again this is comment we make in relation to the ABS statistics, but those statistics or the collection of those statistics are for employers who employ more than 20 people. The average employer in the printing industry is by definition well below the small definition used by ABS and, in fact, 85 per cent of employers in the printing industry employ less than 20 people, so the small firms are not profitable and have a lesser ability we would suggest to accommodate any increase in their cost base, whether it is due to wages or to other factors.

PN1988

At 3.2, the submission indicates that there is a trend in company sales, with a decrease of 9.2 per cent during the September 2002 quarter compared with the same period last year and that the total sales decreased by 1.8 per cent over a similar period. When one looks at 3.5 which is the gross value added at page 12, the September 2002 quarter saw a decrease of 3.9 per cent in the gross value added activity of the printing industry which reduced from 1708 million to 1641 million. Compared to the same period of September 2002, the result represents a decrease of 11.1 per cent.

PN1989

If I could then take the Commission to 3.6 which is at page 13 of the submission, the trend survey for December 2002 reveals that a significant deterioration in business confidence has taken place and that business confidence has fallen from a 19.7 positive net balance to a positive net balance of 9.6. As the Commission would appreciate, that is quite a substantial reduction in those areas.

PN1990

The other areas that we would like to take the Commission to, and it is basically a summary which is at 5.1 on page 16 of the submission, where we detail the expectations which have come from the survey and they indicate that there will be a net reduction in orders, production, sales and net profits during the March 2003 quarter. There will be a moderate net balance fall in average selling prices, there will be a reduced employment and overtime levels within the industry, declining stock levels and certainly, rising numbers of outstanding debtors. Our submission is that the industry is in a poor position to deal with an increase of the magnitude sought by the ACTU and an increase of this magnitude is inappropriate at this time.

[3.06pm]

PN1991

Generally, the printing industry is adversely affected in times of downturn, with the impact often being compounded. Printing demands are often cut back early in the downturn, as marketing and printing expenditures are cut back by various sectors. The effect of this is when a downturn occurs, the downturn in printing industry is more drastic then in the overall economy. It is for these reasons, your Honour, that printing industry opposes the application as framed by the ACTU. However, in the alternative, if an increase is contemplated it should be modest and confined to the genuinely lower paid people. We believe that such an approach is better in accord with the safety net obligations and fixation principles. Certainly, printing industry supports the position taken by ACCI and that is our submission. If the Bench pleases.

PN1992

JUSTICE GIUDICE: Yes, thank you, Mr Hargrave.

EXHIBIT #PIAA1 SUBMISSION

PN1993

MR HARGRAVE: Thank you, your Honour.

PN1994

JUSTICE GIUDICE: Yes, Mr Cole.

PN1995

MR COLE: If the Commission pleases. Firstly, as to the length of the Commonwealth submission and the Commission's timetable, your Honour - if we adjourn at the usual finishing time, today, 4.15, that would leave, at most, two hours that the Commonwealth would require, tomorrow. I have spoken to my friend and if, for example, it were possible to start at say, about 9.30 tomorrow, I believe that would both meet the Commonwealth's requirements in terms of the two hour period and that would still allow time for my friend, I understand, to complete the ACTU reply, tomorrow.

PN1996

JUSTICE GIUDICE: Yes, well, tomorrow we intend to sit from 9.30 till 12.30 and from 1.30 till 3.15. We would be reluctant to go beyond 3.15. But I suppose if some pressing necessity to do so arises, then we could. We are really in the final iteration of submissions which have been the subject of a written reply, already and to some extent an oral reply. So we would hope there would sufficient time for both the Commonwealth and the ACTU within those hours.

PN1997

MR COLE: Yes, thank you, your Honour. Your Honour, I think there are three Commonwealth written documents to be marked. That is, the original Commonwealth written submission of 26 February, the Commonwealth reply submission of 25 March and some revised information which was forwarded to the Commission and the parties late last week, headed Commonwealth's revised information.

EXHIBIT #COMMONWEALTH1 SUBMISSION DATED 26/02/03

EXHIBIT #COMMONWEALTH2 SUBMISSION DATED 25/03/03

EXHIBIT #COMMONWEALTH3 COMMONWEALTH REVISED MATERIAL

PN1998

MR COLE: Thank you, your Honour. We do ask the Commission to have regard to the entirety of our written submissions. Needless to say, they are as cogent as ever, indeed perhaps even more so on this occasion, at least in our view. And against that background, in our oral submissions, we simply propose to highlight some issues on which we are placing particular emphasis in this year's case and also to respond to some issues which have been thrown into sharper relief, perhaps, in the proceedings to date.

PN1999

Firstly, as to an overall summary of the Commonwealth position, the Full Bench will appreciate that the Commonwealth opposes the claim. We do not oppose a moderate increase of up to $12 per week in the award rates of the low paid, that is up to and including the equivalent of the tradespersons rate in the Metal Industries Award which is currently $525.20 per week. We submit that any increase awarded must apply until the next safety net review and be fully absorbed into all above award payments, including from enterprise agreements and informal over-awards. The operative date of the increase in any awards should be prospective and not less than 12 months since the operative date of the 2002 safety net adjustment in the relevant award.

PN2000

If the Commission, contrary to our submissions, were to consider awarding an increase of more than $12 per week, then the Commonwealth submits that such an increase should be phased in over a period of not less than 18 months, in order to mitigate the impact on labour costs and job loss. Our main reasons for opposing the claimed $24.60 increase, coming on top of the large $18 increase awarded last year, are five-fold. Firstly, it takes no or completely inadequate account of potential external risks to the national economy. Secondly, it ignores the adverse impact on jobs that would result from such a large increase, particularly for vulnerable groups in the labour market, such as the unemployed and marginally employed persons.

PN2001

Thirdly, it takes no or inadequate account of the adverse impact that a large increase would have in some industries sectors, particularly for businesses in regions suffering from the hardships brought on by the drought. Fourthly, it pays little regard to the Commission's role in furthering the objects of the Workplace Relations Act, particularly in regard to attaining high levels of productivity and employment and encouraging agreement making. And, fifthly, it places undue emphasis on the role of the wages system compared with other arms of national policy in maintaining social equity. [3.14pm]

PN2002

In addition, in the Commonwealth view, it is irresponsible for the ACTU and the State and Territory Governments to argue for safety net increases of more than $12 per week without putting forward any proposals to offset the negative impact of those claims and proposals on labour costs and jobs. A brief word about the primary considerations in safety net reviews. This case is proceeding at a time when the Government has proposed legislative amendments through the Workplace Relations Amendment Protecting The Low Paid Bill 2003.

PN2003

That Bill was introduced into Parliament on 13 February. We acknowledge that the timing of the Commission's decision on the $24.60 claim is likely to precede the passage of that legislation. In this present hearing, the Commonwealth urges the Commission to accept and give greater weight than may have been accorded in the past to what we submit are the primary considerations in adjusting award wage rates. That is, the employment needs of the low paid, the employment prospects of the unemployed, the capacity of employers to meet increased labour costs and the need to have due regard to the effect of safety net increases on the encouragement of agreement making.

PN2004

VICE PRESIDENT ROSS: Sorry, Mr Cole, why is it you say we should give more weight to those factors on this occasion?

PN2005

MR COLE: Your Honour, we say those are the primary considerations and our assessment of, if you like, the reasons for decision in past safety net reviews suggest to the Commonwealth, and it is only our assessment, that the weight that the Commission may have given to those factors may even not be equivalent to the weight which, from its perspective, the Commonwealth believes is appropriate to be given to those factors.

PN2006

VICE PRESIDENT ROSS: So it doesn't have anything to do with the Bill that you referred to?

PN2007

MR COLE: The relevance of mentioning the Bill is that it attests to the Commonwealth view that the emphasis on such factors has not been fully reflected, at least not to the extent that the Commonwealth considers would have been appropriate in the safety net review decisions to date.

PN2008

VICE PRESIDENT LAWLER: Parliament, through the Senate, may take a different view of course.

PN2009

MR COLE: The Bill is in its early stages of its passage, your Honour, we agree. We have some brief comments to make on the economic outlook. As the Commission is aware, the economy is expected to grow by around three percent in 2002-3 and by around four percent in 2003-4 as outlined in the mid-year economic and physical outlook, MYEFO. Economic growth in 2002-3 is forecast to moderate mainly due to the expected effects of the drought on the economy while the more positive outlook in 2003-4 assumes a return to average seasonal conditions in rural Australia and stronger world growth compared to 2002-3.

PN2010

There is a lot of common ground in these proceedings between the parties but the outlook for the economy is generally positive. However in our submission, the ACTU fails to properly recognise that recent economic developments and the range of risks around the economic outlook, that is they fail to properly recognise the impact of some recent developments and the range of risks around the economic outlook. Now, for example, at paragraph 318, Mr Watson stated that the MYEFO forecasts released last November already have taken into account uncertainties concerning the drought and the international political and economic conditions.

PN2011

And we want to direct some submissions to the essential inadequacy of that appreciation that the ACTU has advanced of the issue of risks around the outlook.

[3.19pm]

PN2012

Now, the MYEFO forecasts do provide a realistic scenario that incorporates some allowance for factors which may affect future developments. An example is that business surveys of investment intentions partly factor in uncertainty in the world outlook. MYEFO is also based on assumptions that make some allowance for high probability developments. However, the MYEFO forecasts do not incorporate all such developments and this is reflected in the risks to the outlook.

PN2013

The general assessment of the balance of the risks around the outlook shows that there is a greater probability of a weaker potential outcome arising if the risks to the outlook come to pass. Now, while the MYEFO forecasts make some allowance for possible developments in the economy, the downside risks have increased in several different ways. It may be useful to briefly compare what has changed since the MYEFO forecasts were published in November. To assist the bench and the parties follow just a brief submission on this, if I could hand up a one-page document summarising economic data release since MYEFO.

EXHIBIT #COMMONWEALTH4 DOCUMENT SUMMARISING ECONOMIC DATA RELEASE SINCE MYEFO

PN2014

MR COLE: My initial comments will address the table at the top of the page.

PN2015

JUSTICE GIUDICE: Do you have another one of those, Mr Cole?

PN2016

MR COLE: Yes, we certainly do, your Honour. I assume your Honour was referring to COMMONWEALTH4.

PN2017

JUSTICE GIUDICE: I was indeed.

PN2018

MR COLE: The table at the top of the page, the Commission will see that it carries the year 2003, so we are in fact looking here at information in respect of the 2003 calendar year. The MYEFO column in the centre repeats what the MYEFO publication forecast in respect of the 2003 calendar year. Consensus is a major company that,drawing on forecasts from hundreds of economists around the world, produces regular updates of the world economy and the outlook for the world economy.

PN2019

In the column headed Consensus October 2002, those were the Consensus forecasts as at October 2002 for 2003 calendar year, and the Commission will see in the right-hand column the Consensus forecasts for the 2003 calendar year as published in March 2003. So the Commission will observe that world growth outlooks have been revised down. The world and, for that matter, Australian growth forecasts have been revised down by Consensus forecasts. The major downward revisions to the world outlook were for the United States and the European Union where growth was revised down for each region in 2003 by around 0.5 per cent.

PN2020

I can add - it is not in the table, but the Consensus forecast for Australian GDP growth in 2003 was revised down to 3 per cent in March 2003 from 3.3 per cent in November 2002.

PN2021

The next point about changes in the risks since MYEFO was published was that - relates to the substantial geo-political tensions and the fact that they have increased with the war in Iraq under way and increased uncertainty concerning North Korea.

PN2022

The next matter is referred to in the document, oil price and their sharp rise to very high levels since November last year. The Commission will see the rise in the West Texas bulk price $US per barrel from $26.3 in November, to $US31.1 in March, at 31 March, an increase of 18 per cent. That increase reflects not only the situation relating to Iraq, but also ongoing supply disruptions in Venezuela, low private sector stocks, and strong demand for oil. Equity markets are showing renewed weakness and volatility since MYEFO. The Australia All Ordinaries has fallen by 3.9 per cent, the Dow Jones by 6.8 per cent, as measured between 15 November, when MYEFO was published and 31 March 2003.

[3.25pm]

PN2023

And exchange rates have risen substantially. The Commission will see the average trade weighted index that measures the competitiveness of Australian exports has increased by 5 per cent, and against the US dollar by 7.3 per cent, which makes them less competitive in price terms. Consumer and business confidence has weakened. The last Westpac Melbourne Institute Survey of Consumer Sentiment is 9 per cent lower than in November 2002, and business survey measures show some weakening in business expectations. The drought has yet to break, despite recent rains. 99.6 per cent of New South Wales and 66 per cent of Queensland, and 59 shires in Victoria are still drought declared.

PN2024

The dwelling sector has held up with the investor market being particularly strong. The forward indicators suggest some moderation in activity over the course of 2003/4, with total building approvals down in January and February.

PN2025

JUSTICE GIUDICE: Mr Cole, have you left COMMONWEALTH4?

PN2026

MR COLE: Yes, I have, your Honour.

PN2027

JUSTICE GIUDICE: Yes. Yes, that is all.

PN2028

MR COLE: Employment growth has been strong, despite the slight decline in February 2003. However, it is important to note that employment growth is likely to ease in coming months. Now, the ACTU asserts. for example at paragraph 386 that:

PN2029

Commentators' labour market expectations have been exceeded consistently, and hence, current expectations of a slowing in growth should be treated with caution.

PN2030

However, we would emphasise that both the ANZ Vacancy Series and the DEWR Leading Indicator of Employment have been quite successfully generally in predicting changes in employment growth. On the basis of the weakness in the ANZ Vacancy Series since August 2002, the Chief Economist with the ANZ Bank, Mr Saul Eslake, has commented that:

PN2031

Employment growth should average around 8000 to 10,000 per month over the next few months.

PN2032

We refer to that, Mr Eslake's remarks in COMMONWEALTH2, in - that is R2.10. 10,000 per month, or 8 to 10,000 per month over the next few months is much less than the average of 74,500 per month reported by the ABS in the three months to January 2003. The DEWR Leading Indicator, which is at Tag G of ACCIs written submission, has now fallen for five consecutive months from November to March 2003 and points to a possible slow down in employment growth around mid-2003. So on balance, and despite the solid outlook for domestic activity, the risks around the outlook are on the down side, reflecting the seriousness of international developments.

PN2033

If the downside risks come to fruition, the Australian economy is likely to experience weaker economic outcomes and employment prospect than forecast, that is worker employment prospects than forecast. Now, while a broad-based recovery remains the central forecast for most economies by 2003/4, the range and magnitude of the risks to the external environment are unprecedented in recent years. On top of the uncertainty in the international economy resulting from the war in Iraq the risks include, as I have mentioned, geo-political tensions, a weaker world economy, volatile global financial markets, vulnerable financial sectors, and uncertainty surrounding oil prices.

PN2034

In the Commonwealth's submission, the range of uncertainties present in the current international and domestic environment warrant a cautious approach generally in the Commission's deliberations. An increase in all award rates of the magnitude proposed by the ACTU would be damaging to the national economy. On the other hand, a more moderate increase, consistent with the Commonwealth's position, would better equip the Australian economy to weather the uncertainties and help to sustain strong economic growth.

[3.31pm]

PN2035

That is all we wish to say about the economic outlook. We want to make some brief submissions about living standards. Living standards are dealt with in section 9 of COMMONWEALTH1. However, it is appropriate in our submission, appropriate and logical to give some consideration to living standards and developments in living standards at the inception of considering the issues in the case because they set a context or a backdrop against which the Commission can consider the merits or otherwise of the claims and the key point is that living standards for the low paid have kept pace with the standard of living generally prevailing in the Australian economy and the Commission has an opportunity in its decision in this case to improve the living standards of the low paid workers by awarding a safety net increase which gives due consideration to their need for employment which in turn helps to meet their overall needs.

PN2036

We say unemployment remains the key cause of financial hardship and given the largest increase in the history of safety net review cases was awarded last year, there is a compelling case this year in the Commonwealth's submission to give consideration to those whose employment prospects we submit have suffered as a result. Now, looking just briefly at earnings, real earnings for the low paid have been growing strongly and a key statistic is that earnings at the 10th percentile increased by 4.9 per cent in real terms between May 1996 and May 2002 and by 6.5 per cent at the 25th percentile, 4.9 per cent in real terms from May '96 to May 2002 at the 10th percentile and 6.5 per cent in real terms at the 25th percentile.

PN2037

Now, the earnings distribution has been widening, but it has been widening over at least the past two decades and in the Commonwealth's submission, that does not provide grounds for a large safety net increase. Widening earnings dispersion, we discuss this in paragraph 9.8 of COMMONWEALTH1, widening earnings dispersion as experienced in Australia and, for that matter, the United States and the United Kingdom reflects changes in the labour market such as changes in employment patterns, the spread of information technology and other technological advancements and greater social diversification.

PN2038

JUSTICE GIUDICE: Does that indicate that it is something not to be concerned about?

PN2039

MR COLE: It means that there are deep and complex causes that seem to underlie that earnings - the widening of earnings dispersion and they are not matters that any decision by the Commission would be likely to influence, so the key point about earnings in our view is that low paid employees have over these last several years seen increases in their real earnings. They are not slipping backwards. They are achieving increases in their real earnings.

PN2040

VICE PRESIDENT LAWLER: Mr Cole, isn't that proposition supported by looking for macro-economic numbers and even though we have, for example, a low inflation rate at the moment, the inflation rate is contributed to in a macro-economic sense by many items which the low paid simply have no interest in buying. Changes in the prices of Armani suits and sports cars and the like have no relevance to the low paid, but isn't it a matter that one would almost take judicial notice of that the cost of meat, for example, has gone up dramatically in the last 12 months with the drought, as has the cost of fruit and vegetables, so that the low paid who would feed their family sausages are paying twice as much for the sausages now as what they were paying 12 months ago and that that is something which bears upon the realities of the low paid's life in a more immediate sense than the macro-economic figures?

PN2041

MR COLE: Yes, I understand the issue, your Honour, the Vice President, raises, but I think it is important to have regard to the fact that the CPI is based on a basket of goods, there is an average concept to that basket of goods. It does include obviously food, including meat and vegetables and so on.

PN2042

JUSTICE GIUDICE: Does it include Armani suits?

PN2043

VICE PRESIDENT LAWLER: It doesn't, no.

PN2044

MR COLE: Possibly not, unless everybody is wearing them, but I haven't noticed them coming down quite that much in price to the point that might be expected.

PN2045

VICE PRESIDENT LAWLER: I think again I was being flippant, but just if one takes fruit and vegetables and meat, just as a matter of personal experience, but meat prices have gone up dramatically in the last 12 months, as have the prices of apples and other fruits and vegetables. My concern was that when one talks about the real, the actual physical impact upon the low paid of the current economic circumstances, that an increase in the cost of sausages, an increase in the cost of fruit and vegetables has a much more pronounced impact than the bland macro-economic figures would suggest.

[3.39pm]

PN2046

MR COLE: Yes. Well, your Honour, I think what we would say in response, without repeating the point about CPI being predicated on an average basket of goods, that sort of concept, is that, with respect, the brunt of our submission is to be looking over a longer time period and setting part of the context for these proceedings, it is relevant to the context of the proceedings that over several years, then, the real earnings for low paid people have been increasing. If they had been decreasing, perhaps other conclusions or different conclusions might be drawn but what we are saying is, these proceedings come on top of several years, over which the low paid have not been slipping backwards, in terms of real living standards, their real earnings have been increasing.

PN2047

But that is the burden of my submission and it is a different point, with respect, your Honour, to the issue of what burden might be experienced at this point in time or over a shorter period of time in the prospective future according to changes in prices of particular commodities. Now if I could just make the point about income, moving from earnings to income. So, real earnings have been increasing but at a time when income inequality has not changed significantly, over the latter half of the 1990s. Although a recent study that we referred to in COMMONWEALTH1, at paragraph 9.11 by Anthanasopoulos and Vahid, suggests that employment and joblessness have become important influences on income inequality, other things being equal.

PN2048

JUSTICE GIUDICE: Sorry, where is that, Mr Cole?

PN2049

MR COLE: It is referred to, I think in COMMONWEALTH1, your Honour, at paragraph 9.11.

PN2050

JUSTICE GIUDICE: 9.12, it is footnote.

PN2051

MR COLE: Yes, sorry - part of a discussion that starts at 9.11.

PN2052

JUSTICE GIUDICE: Yes, I see it, yes. Thank you.

PN2053

MR COLE: Now, just on the question of the needs of the low paid, the ACTU in its reply submission, at paragraph R7.1 claims the Commonwealth does not deal substantially with the needs of the low paid, at all. But we say, the Commonwealth has shown that the living standards for the low paid have generally kept in line with living standard generally prevailing in the Australian community, reflected by the growth in real earnings across the distribution and the lack of evidence of any deterioration in income disparities over the second half of the 1990s. Now, while the Commonwealth's consideration includes the impact of the claim on employment, that is the employment prospects of the low paid, the ACTU touches hardly at all upon the need for employment of the low paid which is a key source of financial security.

PN2054

On unemployment, the ACTU, at paragraph R7.34 of their reply submission, say they accept that the circumstances of the unemployed are relevant to a consideration of the living standards generally prevailing. But clearly the ACTU does not share the Commonwealth's concern that the problem of unemployment deserves greater recognition in safety net review cases. In our view, the ACTU is too dismissive of the substantial body of evidence the Commonwealth presents, demonstrating the negative relationship between minimum wages and employment, particularly for the low paid.

PN2055

They present the paper from Professors Dowrick and Quiggin and Dowrick and Quiggin, at page 1 of the paper, state that:

PN2056

Where estimated elasticities of demand -

PN2057

That is for labour -

PN2058

are below 1 and minimum wages are cut, then minimum wage workers, collectively, would lose from lower earnings.

PN2059

But we say that is a totally inadequate characterisation of the problem of unemployment for minimum wage workers and their families and the problems of unemployment for those who lose out from a minimum wage increase cannot just be set off against the financial income gains of workers who receive a wage increase and manage to hold on to their jobs. We say that unemployment, on its own, warrants particular attention due to the kinds of costs it brings to bear on individuals and society. Yet the ACTU seems to want to avoid dealing with the costs of unemployment.

PN2060

Now, we deal with this issue in COMMONWEALTH1 from paragraph 9.21 and following paragraphs. As we argue at paragraph 9.30, it is not only the issue of immediate job loss that should be taken into account in safety net reviews but also the flow-on effects into the future on the ability of disemployed, low skill job seekers to gain a secure means of living. We also allude to the significant personal and social costs, including mental health problems. We refer to the costs on the wider community, including a higher propensity towards crime and less social interaction.

PN2061

In our submission, despite the progress in reducing unemployment to some of the lowest levels seen in the last 10 years, every effort needs to be made to push unemployment down further, rather than simply accept the present reduced level as somehow good enough. Long term unemployment remains a problem and a more moderate safety net decision would help to improve the prospects of long term unemployed people in getting a job.

PN2062

On the proposal by ACCER for a benchmarking exercise, if I can put it that way, we deal with that in our reply submission, COMMONWEALTH2, at paragraph R9.16 and the following paragraphs and our view on that proposed inquiry is set out there. I don't go over that material except to remind the Bench that the Commonwealth in its submission does not see the need for any inquiry of the nature proposed by ACCER.

[3.48pm]

PN2063

JUSTICE GIUDICE: Well, what empirical data do we actually have about the needs of the low paid, if one assumes that at least those on the minimum wage are low paid?

PN2064

MR COLE: Well, there is, your Honour, the evidence that is brought by the ACTU. There is the conclusion that I think safety net review benches have consistently made, either that there are unmet needs or that there are considerable difficulties experienced by low paid workers in meeting their needs.

PN2065

JUSTICE GIUDICE: I may be misunderstanding what was proposed, but I thought that that was part of it, there would be some examination of exactly what those needs are, not so much perhaps in a relative sense which is the way we tend to look at it from year to year or period to period, but in some more concrete fashion.

PN2066

MR COLE: Yes. Well, of course, whilst the Act, particularly in the context of adjusting the safety net, asks the Commission to have particular regard to the needs of the low paid, it has been - the proposition that appears to have found fairly widespread acceptance, at least up to this point by most parties is that - and for that matter by the Commission, starting with the 1997 decision is that the Act does not require the Commission to attempt to equate or match the wages of the low paid to some quantified assessment of their needs.

PN2067

The Act asks the Commission in adjusting the safety net in the context of the range of criteria which are being taken into account and balanced, the Act asks the Commission in taking an appropriate balance, having regard to the range of criteria, including economic circumstances and the other objects of the Act about encouraging agreement-making, to then endeavour to tailor its decisions, or this is how we understand the Act, so that the low paid, people with the greatest need, secure the greatest benefit in I suppose a relative sense as against other workers who are better off, so there is an issue as to - and it is not a matter that I think ACCER addressed, but there is an issue as to whether there is anything in the Act that requires the Commission to proceed on the basis of some quantified overall assessment of needs and it is understandable with respect, your Honour, and other members of the Full Bench, that that might be the case because - and you have regard to the way the system of award wage fixation has evolved.

PN2068

We are not in the days of Higgins J and the Living Wage and not least because of the way society has evolved, equal pay, the fact that the Commission fixes award rates with no particular presumption that it is fixing rates for workers depending on their particular role in the household or any particular family characteristic of the worker. This is how the system of wage fixation has evolved, but obviously nothing could be more obvious than to observe that the needs of individuals may vary immensely, depending on such things as their family circumstances, depending on whether they have or don't have dependents, depending on a whole range of considerations which it is extremely difficult to see how they could be brought into any particular account in determining the adjustment of the wage in the safety net review.

PN2069

Now, this also occurs against a backdrop, of course, where Australia has a highly targeted system of protecting all persons with low incomes, including the low paid, through the social safety net, as we have called it in previous years, the combination of the Social Security system and aspects of the taxation system.

PN2070

That social safety net represents, in effect, how the community, through the government of the day has determined to protect in an equitable and consistent manner the needs and circumstances of all persons on equivalent low incomes, and that system, of course, is highly targeted. It can address diverse needs, but the Commission, through its wage fixing system and awards, effectively cannot address the diversity of needs. So that is the context, if the Commission pleases, in which the Commonwealth does not support the need for the proposed inquiry.

[3.55pm]

PN2071

I do emphasise, however, that nothing that I have said detracts from the emphasis that we say should be placed in tailoring the safety net decisions, that is tailoring the outcome of safety net review cases, so that it is the low paid who benefit to the greatest extent possible, viz a vis other workers, and of course, one way of doing that is to - which the Commission has consistently adopted, is the means of applying increases by way of flat amounts that benefit low paid workers in a relative sense. And also, with respect, by capping increases which the Commission has not seen fit to do to date but has acknowledged is open to the Commission to do, which would also focus the outcome of safety net review cases more particularly on the low paid.

PN2072

So I move now to a brief discussion about wages and earnings. This is dealt with in section 3 of COMMONWEALTH1, and the key point we stress is that award rates up to and including the equivalent of the Tradespersons rate have more than kept place with general wage growth over the past five years. Now, that is the backdrop against which the ACTUs claim, if granted, would deliver pay rises well in excess of those prevailing in the rest of the community.

PN2073

Now we say that could have a significant flow-through effect on the wage rises sought under other pay setting methods, and contribute substantially to wage pressures, and in that regard, that potential for the claim, if granted, to contribute to wage pressures, whilst the wage cost index in the year to December 2001 and the year to December 2002 has been at 3.4 per cent in both years, we have observed that in the year to December 2001 wage growth decreased, but it has been increasing through 2002. And we have referred to the Reserve Bank statement that - this was in its February statement on monetary policy, that signs have emerged that the wage cycle has passed through its trough.

PN2074

although it is fair to also observe that the Reserve Bank believes that and I quote:

PN2075

Most labour cost indicators suggest that wage pressures remain generally moderate.

[3.59pm]

PN2076

Now, as to comparing growth in award wages with growth in average weekly ordinary time earnings or AWOTE, now the ACTU implies, in its submission at paragraph 3.1, that is its original written submission, that wages should keep pace with community wage movements and then it asserts that, increases in award wages should be commensurate with full time average weekly ordinary time earnings. Because it says, in its submission, it is wages bill measures that provide the best indicator of movements in living standards. Now if I could just interpolate a comment here, inviting the Commission to contrast the AWOTE figures from the two ABS surveys, that is the employee earnings and hours survey and the average weekly earnings survey.

PN2077

And it was data released on 26 March, from the employee earning and hours or as it is known the EEH survey. And AWOTE for full time adult employees, over the two year period from May 2000 to 2002, increased on an annualised basis by 3.5 per cent. But, according to the average weekly earnings survey, the annualised rate of increase over the same period, was 5.2 per cent. So EEH 3.5 per cent on an annualised basis over the two years, average weekly earning survey, 5.2 per cent on an annualised basis over the two years.

PN2078

VICE PRESIDENT ROSS: Mr Cole, just while you are on the EEH survey, can I ask you a question and perhaps you might take it on notice. I noted from the ACTUs supplementary submission, ACTU6 on page 3, they set out the - some key points from the most recent version of that survey, where they note that:

PN2079

The percentage of award only employees is 20.5 and those on collective agreements is 38.2.

PN2080

My question is, what does the Commonwealth say about, if you are trying to get an estimate of award coverage, as opposed to award dependence, do you simply add 20.5 and 38.2? I am just wondering if you did that that amounts to an extension of an ABS series that there used to be, called Award Coverage. I think the last version of that was in May 1990. I am just wondering about the comparison one can make between those two series and that is the first point, I guess. And the second is, that whether it would be valid to simply add those two numbers and conclude that 58.7 per cent of employees are award covered, as it were. But perhaps you might - there is no need to deal with it now, I am content for you to come back in your own time.

PN2081

MR COLE: Yes, we understand your question, Vice President Ross and we will respond to that in the morning.

[4.03pm]

PN2082

So there are these different estimates for the rate of AWOTE growth over the last two years and ABS has advised in the publication ABS Employee Earnings in Hours 6306.0 of May 2002, explanatory notes at point 16, that the sample size is larger for the EEH survey which, therefore, we say should be more reliable. I remind the Commission that that survey is suggesting that AWOTE growth on an annualised basis over the last two years is 3.5 per cent.

PN2083

So we do not cleave to the concept of AWOTE as a benchmark but if the Commission were to be attracted by such arguments put by the ACTU, well, then over that recent period at least at 3.5 AWOTE is in the area of the wage cost index itself. But we say the wage cost index is the better measure with which to compare changes in award wages because most of the other comparative measures used by the ACTU are earnings measures and the Commission determines wage levels, not earnings levels.

PN2084

The wage cost index is the only measure of wages growth that covers all employees and, unlike earnings measures, it specifically adjusts for changes in the number of hours and the quality of work, therefore represents changes over time and the pay received by a worker performing the same tasks with the same requisite skill level which is analogous to analysing the same award rate over time.

PN2085

Now, on the other hand, AWOTE reflects in addition to changes in wage rates paid for performing the same job wage variations due to changes in the duties of individual jobs and changes in the occupational and industry mix of employment. And, for example, stronger growth in high skilled occupations compared to low and middle paid occupations, such as has occurred over recent years, would contribute to a higher increase in AWOTE than in the wage cost index even if all workers received the same percentage increase in page. And as to that growth in high skilled occupations compared to low and middle paid occupations, we refer to the Commonwealth safety net review submission last year at page 57 of the printed version of that submission.

[4.06pm]

PN2086

JUSTICE GIUDICE: Can I interrupt you for a moment, a little bit back in your submission to 3.29 - - - 

PN2087

MR COLE: Yes, your Honour.

PN2088

JUSTICE GIUDICE: - - - when you were discussing earnings measures.

PN2089

MR COLE: Yes, your Honour.

PN2090

JUSTICE GIUDICE: I am not quite sure what conclusions you are inviting us to draw from that example. Is it simply that there is no necessary correlation between increases in the earnings and increases in wages.

PN2091

MR COLE: Yes. Essentially, that is the - - - 

PN2092

JUSTICE GIUDICE: Yes.

PN2093

MR COLE: That is the point, your Honour.

PN2094

JUSTICE GIUDICE: Yes. Have you got to 3.39 yet?

PN2095

MR COLE: Yes, your Honour, with - - - 

PN2096

JUSTICE GIUDICE: You have dealt with that.

PN2097

MR COLE: - - - prescience, I was about, I think, to - no, I am sorry, your Honour.

PN2098

JUSTICE GIUDICE: In any event, I had a - - - 

PN2099

MR COLE: I am sorry, your Honour, no. I thought I was about to turn to that, but it is a later - no. Does your Honour have a question? 

PN2100

JUSTICE GIUDICE: Yes. Well, look, I had a question about 3.39. It is the second sentence of the ABS release, which says the Safety Net Review Decision of $18 per week referred to in the first sentence equated to a 4.4 per cent wage increase for those jobs paid minimum award rates. That is at least ambiguous, and most wrong, isn't it? If you look at the minimum award rate it is 4.4 per cent. But it is not 4.4 per cent across minimum award rates generally.

PN2101

MR COLE: I will need to take advice on that, your Honour.

PN2102

JUSTICE GIUDICE: Yes. Well, it is just a question of what the words mean, I suppose.

PN2103

MR COLE: Yes.

PN2104

JUSTICE GIUDICE: But it rather gives the impression that all of the Commission's award rates, and adjusted by 4.4 per cent. Perhaps it depends on how familiar you are with the language that we use.

PN2105

MR COLE: Yes. We will - - - 

PN2106

JUSTICE GIUDICE: I must say I was rather startled when I read it on the ABC website.

PN2107

MR COLE: We will pursue that.

PN2108

JUSTICE GIUDICE: If you look at it as an - if you look at the $18 as an increase across all award rates, it is considerably lower than that.

[4.09pm]

PN2109

MR COLE: Yes. So if the Commission pleases, our submission is that when the Commission is comparing movements in award wages with wages - developments in the wider community, the Commission should be relying on the wage cost index and not AWOTE, for the reasons we have given.

PN2110

JUSTICE GIUDICE: Is that a convenient time for you, Mr Cole?

PN2111

MR COLE: Yes, it would be, your Honour.

PN2112

JUSTICE GIUDICE: Yes. Well, in that event, we will adjourn now until 9.30 in the morning.

ADJOURNED UNTIL FRIDAY, 4 APRIL 2003 [4.10pm]

INDEX

LIST OF WITNESSES, EXHIBITS AND MFIs

EXHIBIT #NFF1 NATIONAL FARMERS FEDERATION SUBMISSION DATED 26/02/2003 PN1739
EXHIBIT #NFF2 NATIONAL FARMERS FEDERATION REPLY SUBMISSION DATED 25/03/2003 PN1739
EXHIBIT #NFF3 BUREAU OF METEOROLOGY RAINFALL MAP FOR MARCH PN1744
EXHIBIT #WAFFIA1 WESTERN AUSTRALIAN FARMERS FEDERATION INDUSTRIAL ASSOCIATION SUBMISSIONS DATED FEBRUARY 2003 PN1868
EXHIBIT #WAFFIA2 WESTERN AUSTRALIAN FARMERS FEDERATION INDUSTRIAL ASSOCIATION RESPONSE TO THE ACTU WRITTEN REPLY SUBMISSION OF MARCH 2003 PN1868
EXHIBIT #VACC1 MOTOR TRADES ASSOCIATION'S SUBMISSIONS PN1871
EXHIBIT #NFF4 MAP TITLED
EXHIBIT #ACCI6 EXTRACT FROM JANUARY PUBLICATION PN1929
EXHIBIT #PIAA1 SUBMISSION PN1993
EXHIBIT #COMMONWEALTH1 SUBMISSION DATED 26/02/03 PN1998
EXHIBIT #COMMONWEALTH2 SUBMISSION DATED 25/03/03 PN1998
EXHIBIT #COMMONWEALTH3 COMMONWEALTH REVISED MATERIAL PN1998
EXHIBIT #COMMONWEALTH4 DOCUMENT SUMMARISING ECONOMIC DATA RELEASE SINCE MYEFO PN2014