docs.employment.gov.au · Web viewbe hired under the collective agreement before they can be offered an IFA, even where such individual agreements are widely chosen by workers in

MINERALS COUNCIL OF AUSTRALIA

SUBMISSION TO THE REVIEW PANEL ON

AUSTRALIA’S FAIR WORK SYSTEM

FEBRUARY 2012

www.minerals.org.au

SUBMISSION TO THE REVIEW OF THE FAIR WORK ACT

Introduction:

This Submission is made by the Minerals Council of Australia (MCA). The MCA represents Australia’s exploration, mining and minerals processing industry, nationally and internationally, in its contribution to sustainable development and society.

This is a critical time for Australia to address the question of whether the Fair Work Act (2009) is meeting its objective to be “flexible for business [and] promote productivity and economic growth for Australia’s future economic prosperity”.

Australia’s economic circumstances, though generally buoyant, are vulnerable. The dangers of economic reform complacency after a sustained period of growth are manifest in deteriorating productivity, escalating operating costs structure, a structural budget deficit, and a regressive transformation in workplace relations to a past era marked by a culture of confrontation and divisiveness.

Reform of the workplace relations system, and specifically the Fair Work Act (FWA), is critical in regaining the momentum of the past thirty years of economic reform that transformed the culture of the workplace in providing for flexibility and choice and direct employee and employer relationships. This transformation gave rise to a safe and healthy, harmonious and productive workplace environment founded in a culture of individual enterprise and personal accountability, proper recognition of individual contribution and performance, a shared commitment to skills and personal development, and a culture of mutual dependency and prosperity. These factors have been critical to ensuring that the workplace is responsive to the needs and expectations of the employee and the employer to mutual benefit and to the dynamic operating environment of a mining enterprise competing for finance and human capital, technology and custom in a highly competitive, globalised industry.

The imperative is safety and competitiveness, the driver is productivity growth, the benefit is national prosperity and improving quality of life, and the opportunity cost is a deterioration in investment, growth and national welfare.

Fundamentally, productivity growth, and thus economic growth and the quality of life, is founded in the quality of the direct relationship between the employer and the employee, and the effectiveness of that direct engagement in determining to mutual benefit, the terms and conditions of employment and the functioning of the business.

The legal instruments governing workplace arrangements, in whatever form, should give effect to that relationship, not compromise it. Legal instruments that compromise or undermine confidence in the integrity and effectiveness of that direct relationship is tantamount to a policy failure that must be redressed if the stated underlying objectives of those legal instruments are to be realised in providing a balanced framework for cooperative and productive workplace relations that, to quote the Act, are “fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity.”

The Minerals Council of Australia (MCA) has long contended that the national workplace relations system should provide for flexibility and choice in the full range of employment instruments underpinned by an effective safety net; and that system should provide for, and ensure the observance of, freedom of association – the right to belong or not to belong to an organisation or a union, and the right to choose or refuse to be represented by an external third party in any negotiations or bargaining in the workplace.

There is a variety of legal instruments available to employers and employees. The Fair Work Act (FWA), however, seeks to limit the options to collective enterprise bargaining under the auspices of union third party intervention. As described by the then Deputy Prime Minister, “[the Fair Work Act]… put collective bargaining at the level of the enterprise at the very heart of the system”1. Seeking to emphasise or restrict “choice” to a specific legal instrument is counter-intuitive to the important objective of FWA to be flexible and promote productivity, and contrary to the undertakings given in the run-up to the 2007 Federal Election.

And, it is a mistake to assume that the legal instrument in itself can promote a safe and productive workplace, rather than being the vehicle by which those arrangements might be formalised. Indeed, as is evident, such an approach is regressive and runs counter to the transformation in the minerals industry’s workplace arrangements over the past three decades of industrial relations reform.

Fuelling this regression are key provisions within the FWA that reintroduce an adversarial framework in workplace arrangements and an effective union third party veto over the prerogative of management to run the business, clearly

1 The Hon. J Gillard, Speech to the World IR Congress, August 2009.

Minerals Council of Australia | 2


compromising the collaborative culture and direct relationships for mutual benefit that characterises the operations of a modern Australian minerals industry. This, specifically in:

re-institutionalising union third party direct involvement in the bargaining process, exacerbated by flawed union representation rules;

re-establishing in the bargaining process a legitimacy for matters not directly relating to the employment relationship; rendering individual agreements virtually inaccessible mired in unnecessary complexity; good faith bargaining rules that serve to create adversarial and position bargaining rather than bargaining for mutual

advantage; and misapplication of proper anti-discrimination provisions.

Australia has a comparative advantage in natural endowment but this does not equate automatically to competitive strength in an increasingly globalised and changing world economy. The ability of Australia to fully capture the benefits of an unprecedented economic expansion in the Asia-Pacific region is at stake.

The rebalancing of global economic development and strategic power, shifting the world’s centre of economic gravity from the developed economies to the developing industrialising and urbanising economies of Asia, is a fundamental structural change, giving rise to a bipolar global economy and unprecedented enduring demand for minerals and energy products.

While Australia is well positioned to supply the burgeoning demand, there are real dangers in being seduced by our natural endowment in minerals resources and the increase in national prosperity from the strongest terms of trade in 150 years. The intersection of complacency, economic reform inertia, the twin forces of rising costs and declining productivity, an emerging protectionist sentiment, and real perceptions of increasing sovereign risk in getting the policy mix wrong, are counter-productive to future investment, growth and national prosperity.

The pace with which companies and countries redress capacity constraints to supply is increasingly the point of competitive differentiation for resource rich countries competing for human and financial resources and custom in the highly globalised minerals industry and product and capital markets. The “kingmakers” to investment and growth are:

the relative position on the global cost curve – increasing labour, energy and transport costs are pushing Australia up the cost curve;

public policy and sovereign risk factors – Australia’s sovereign risk standing as determined by the complex of natural endowment and public policy factors is slipping relative to other resource rich jurisdictions;

productivity and innovativeness – Australia’s labour, capital and multi factor productivity growth are declining after three decades of growth; and

the social license to operate – though markedly improved in line with continuous improvement in social and environmental stewardship within the industry’s commitment to the global pursuit of sustainable development, is a continuous challenge.

The focus on the basic factors determining productivity should be the primary consideration of the deliberations of the Review Panel into Fair Work Act. The oft-quoted observation of economist Paul Krugman is as pertinent now as it was in 1992:

Productivity isn’t everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. World War II veterans came home to an economy that doubled its productivity over the next 25 years; as a result, they found themselves achieving living standards their parents had never imagined. Vietnam veterans came home to an economy that raised its productivity less than 10 per cent in 15 years; as a result, they found themselves living no better - and in many cases worse - than their parents.2

Australia is seriously challenged by its capacity constraints to supply, poor productivity, and lingering perceptions in global markets of increasing sovereign risk.

The promise of investment in new production and infrastructure-related projects is significant – and not just in Australia but around the globe as mining houses, confident in demand outlook, plan to gear and increase capacity. But this investment is prospective, not yet realised, and the competition among resource rich countries is strong.

2 Paul Krugman, The Age of Diminished Expectations: US Economic Policy in the 1980s, MIT Press,Cambridge, 1992, p. 9.



The increasing interdependency of the world’s trade and commerce – globalisation – and the extent to which the global minerals industry has rationalised and consolidated to increasingly globally diversified companies, means that the industry’s financial and human capital, global custom and technology and services, will be deployed rapidly where it is strategically opportune to do so.

Among the key factors that determine a global company’s strategic deployment of human and financial capital are national public policies and sovereign risk, which affect the key determinants of competitiveness, productivity and growth.

Perceptions of sovereign risk and business investment confidence are highly elastic.

The key point is that in an increasingly globally competitive market for capital, people, technology and product supply, Australia will languish as supply laggards if the industry cannot operate in an environment conducive to the welfare of its workforce, to being in the lower quartiles of the cost curve and to productivity growth, and if it is faced with inconsistency and uncertainty in the foundation to, and the manner by which, government’s intervene in the market and its businesses – specific to this Review, workplace arrangements.



The competitive context of the global minerals industry

The world is moving through the most significant global structural adjustment since the industrial revolution of the 1800’s.

This is no short term phenomena. While still cyclical in nature – this rebalancing of the global economy is the product of underlying secular structural change, far more so than what many would attribute to normal business or commodity cycles.

The integration of the key structural drivers are well documented, but worth recounting in the context of this Review.

The rebalancing of global economic development and strategic power is shifting the world’s economic centre of gravity from the developed economies to the developing industrialising and urbanising economies of Asia.

The developing economies currently represent in excess of three quarters of global growth and just on 50 per cent of the global economy today. By 2050 these economies will account for almost 80 per cent of global GDP. It’s not just a China growth story; it is also an Indian, Latin American, African, Russian, and South East Asian growth story.

The world’s growth centres are going to look more like they did for the first 1800 years of the Common Era, and it is producing a starkly bipolar or two-speed global economy.

The developed world is limping along the bottom of the growth curve, paralysed by economic reform inertia, political indecision and profoundly weak underlying economic fundamentals and high debt to GDP ratios, principle among them.

The developing or emerging economies are struggling with the trifecta of constraining inflation, rebalancing economic growth from foreign direct investment (FDI) and export led growth to consumption driven, and in transitioning to normalisation of floating exchange rates and monetary and fiscal policies.

Global economic growth is the primary determinant of demand for minerals and metals, particularly growth in industrial production, urbanisation and consumer purchasing power.

In line with long-term trends, rates of urbanisation in China and India are expected to rise further in coming decades. In China, this represents 15 to 20 million people a year moving to urban areas while in India the figure is closer to 10 million. Projections by the United Nations point to almost 70 million people being added to the world’s urban population every year from 2010 to 2050 (more than three times the population of Australia), or 2.8 billion people in total. Linked to long-run processes of urbanisation with its enormous demand for infrastructure growth is the accompanying deep phase of resource-intensive industrialisation in emerging economies.

On even just a rough calculation on the relationship between the growth in per capita income and the consumption of metals and energy in these emerging economies, these nations will not exit the zone of high commodity intensity until somewhere between 2020 and 2025.



On this basis, the next 15-20 years will see a doubling of demand for most minerals products: iron ore, coal, uranium, base metals, so-called rare earths, and even precious metals.

Globalisation – the interdependency of the world’s economies and commerce – is increasing competition, especially among resource rich countries, for financial and human capital, land access, technology and services and global custom – all capable of being deployed at breath taking speed. Three decades of pro-competitive open market economic reforms have been a fundamental driver to the speed and depth of globalisation. These reforms have broken down barriers to the market, driven the flow of goods and services, financial and human capital, immigration, technologies and information/knowledge. They have transformed developed and developing economies progressively from rigid, tightly controlled economies where government intervention was a key feature of markets and rigid control of macro-economic policy, to more market orientated deregulated economies that are open, outward-looking and better able to compete for human and financial resources and custom in dynamic global markets.

Concomitantly, the global minerals industry has rationalised consolidated and increased the integration of its operations. They are globally operating companies, irrespective of their ownership structure. They are globally well positioned to strategically deploy their people, capital, technology and custom to optimum return, with a speed and clinical determination that transcends any consideration of the national and localised roots of their origins.

Complementing this shift is the global minerals industry’s practical adoption of the global commitment to sustainable development – in recognition that the industry’s future is integral to the global pursuit of sustainable development – has markedly changed the industry’s modus operandi, its standing in the communities in which it operates and, increasingly the wider community. The industry today understands the importance of earning and maintaining a social licence to operate with those communities, on a platform of continuous improvement in the stewardship of the environmental and social assets under its care, and in the engagement with people who hold direct and indirect interest in the industry’s activities on a platform of mutual recognition and respect.

The other major contributing factor to profound structural change has been innovation and technological developments. This has driven change in the industry almost beyond recognition to its roots, in scale, culture, relative productivity and physical presence. Mining is now knowledge-based, high-tech, industrial logistics activity more than time in its history. The mine of the future will centre on sophisticated information communications technology, remote control driverless trucks and trains, automated operations and the use of robotics.

The pace of this underlying structural change of the global economy and the minerals industry will undoubtedly be checked from time to time – witness the global financial crisis – and there will continue to be extraordinary volatility in capital and product markets as they struggle to reconcile unchartered waters. But, this “mega cycle” of demand will not materially shift from its axis – driving unprecedented growth in demand for minerals products, commodity prices and the imperative to gear supply to capture the opportunities of a once in a century expansion.

Supply capacity constraints to meet demand growth are a global phenomenon, and proven not to be transient. To date, increased demand has sponsored higher commodity prices more so than sponsoring additional supply. Capacity constraints are limiting industry’s capacity to meet burgeoning demand and to fully capitalise on market growth opportunities; are increasingly a critical determinant of a companies and countries international competitiveness and attractiveness to foreign direct investment; and are driving commodity prices to higher plateaus of volatility, which, at least in the short to medium term, are well beyond a long-term equilibrium approximating marginal costs of production.

As a result of the slowdown in global growth and improving supply prospects, prices for most minerals commodities are expected to further ease in 2012. Beyond the impact of European efforts to restore economic confidence, the commodities outlook remains heavily reliant on emerging economy prospects where most demand growth is concentrated. Australia is well-placed to meet the demand potential and respond to these drivers. A recent study by Port Jackson Partners (PJP) for ANZ entitled Earth, Fire, Wind and Water: Economic Opportunities and the Australian Commodities Cycle has identified the dimensions of the opportunities this entail, not just or the mining and agricultural sector but for the wider economy. The new pattern of global economic growth dominated increasingly by developing Asia has brought with it a profound, and in all likelihood enduring, shift in Australia’s comparative advantage towards minerals and energy resources.

The PJP report finds that the shift of economic growth from the developed to the developing world presents Australia with “one of the greatest opportunities in its economic history” based on growing demand for minerals, energy, food and fibre.



With well over five billion people in developing countries still to reach middle class income levels, this is “not the stuff of a routine commodities ‘boom’, but rather a more fundamental global process already underway that will see billions more achieve middle class living – and it has decades to run”.

At the same time, the report cautions that “Australia can’t continue to rely on commodity price rises to support growth – rapid volume growth is now critical”3

It is important that Australia not underestimate either the scale of the challenge in building Australia’s capacity to respond and the threat of increased competition for investment and global custom, in making the most of the mining boom.

Coal is mined commercially in more than 50 countries, with Australia accounting for less than 9 per cent of global black coal production. Australia faces stiff competition for market share from a range of other low-cost producers in Indonesia (thermal), Columbia (thermal), South Africa (thermal), Mozambique (metallurgical and thermal), Mongolia (metallurgical and thermal) and India (thermal), as well as interior provinces of China (metallurgical and thermal).

High grade iron ore resources remaining in Western Australia are eclipsed by those in the Carajas region in Brazil and there are substantial high-grade resources in other countries. According to the PJP report, Brazil, Guinea in West Africa and also India combined “have more than enough resources to take all of the future growth” in demand.

While Australia has a geographic advantage over Brazil and Guinea, these two producers have significant quality advantages. Brazil, in particular is alleviating its geographic disadvantages with massive new low-cost ships and related port facilities. Indian iron ore producers have the enormous advantage of being adjacent to a large, growing source of demand, with reasonable quality ore.4

As the Minister for Resources and Energy argued recently:

We cannot underestimate the importance of sound government policy in attracting investment and facilitating economic growth. Investment capital is footloose, and Australia is competing globally to attract this capital and investment. 5

Indeed, during the first decade of this century, from 2002 to 2007, despite substantial increases in production, Australia’s global market share fell across the eight major commodities, including iron ore and coal. With the recovery since the Global Financial Crisis, only iron ore has achieved significant market share, while coal and nickel enjoyed small gains.

3 Earth, Fire, Wind and Water: Economic Opportunities and the Australian Commodities Cycle”, a report from Port Jackson Partners (PJP) commissioned by ANZ, ANZ Insight, Issue 1, August 2011.4 Ibid.5 The Hon. Martin Ferguson, Minister for Resources and Energy, “Resources and Energy at the Heart of Structural Change in Australia’s Economy”, Kevin McCann Lecture, 27 September 2011.


-50% -30% -10% 10% 30% 50%

Iron ore

Nickel

Coal

Zinc

Copper

Aluminium

Lead

Relative change in 2000 market share by 2010

Change in Australia’s relative global market share, 2000 – 2010


Australia has a comparative advantage in natural endowment but this does not equate automatically to competitive strength in an increasingly globalised and changing world economy. As indicated, globally operating companies will deploy human and financial capital, technology and knowledge where it is strategically opportune to do so as determined through the prism of prospective returns on investment – the key determinants being:

the cost curve –principally labour, energy and transport costs and capital costs; public policy factors and sovereign risk – the relative attractiveness of different regions to exploration and mining

investors based on the intersection of mineral endowment characteristics and public policy factors; productivity and innovativeness – the policy environment conducive to labour, capital and multi-factor productivity

growth; and social license to operate - the industry’s corporate social responsibility standing and its practical commitment to the

global pursuit of sustainable development.

The complex of stronger production growth, generally higher commodity prices and buoyant terms of trade have masked the eroding effects of an inflationary costs structure, declining productivity, and enduring capacity constraints speed limits to supply growth, which without vigilance and remedy will compromise companies’ competitiveness and attractiveness to investment, exacerbating the opportunity costs of missed growth and increasing the economy’s vulnerability to external shocks.

For mining firms labour, energy (and increasingly, carbon) and transport make up an increasing proportion of firms costs.

Industry-wide high cost inflation has been reported by many member companies in financial reports over the past 12 months.

Coal Mining input costs price rises



Sep-1987

Mar-1990

Sep-1992

Mar-1995

Sep-1997

Mar-2000

Sep-2002

Mar-2005

Sep-2007

Mar-2010

0.0

50.0

100.0

150.0

200.0

250.0

Index - Open cut miningIndex - Underground mining

Source: Australian Bureau of Statistics, 6427.0 - Producer Price Indexes, Australia

Relentless increases in costs – increasing 3 to 5 per cent on average at present – without commensurate increases in labour and multifactor productivity change the long-run marginal costs of individual projects.

This is now an economy wide phenomenon. As economist Saul Eslake has noted, a modest acceleration in wages growth, interacting with negative labour productivity growth has led to very fast unit labour inflation. This is unsustainable for employers and employees alike.

General economic estimates suggest that a 10 per cent fall in productivity could cost the economy up to $8 billion by 2020.6

Source: Saul Eslake, Grattan Institute, 2011.

With a wide range of investment options across the globe, global companies assess existing and prospective projects, ranking them on the basis of the long-run net present value and make investment decisions accordingly. The very nature of the business, where investment decisions are for long-lived assets, once made are rarely revisited, suffice for suspension or closure of a project.

6 The Allen Consulting Group, The Economic Importance of the Australian Construction Industry in Australia, August 2007. Report on behalf of the Australian Constructors Association.



The minerals industry workforce

The minerals industry’s direct employment profile is relatively small within the national context, yet is significant in its contribution within the communities in which it operates and across the nation. In remote and regional Australia, the industry is either the primary or sole source of economic activity and employment opportunities. The industry contributes significantly to related communities – particularly the direct and indirect suppliers of goods and services. The exponential growth in mining technology and services is a case in point. Further, the proportion of Indigenous Australians and women in the workforce has increased markedly, to the point where the industry is the largest employer of Indigenous Australians.

Notwithstanding the relative size of the industry’s workforce, employment growth has been strong and remains so prospectively. The minerals industry employs over 225,000 workers, over double the number of direct employees a decade ago. The National Resources Sector Employment Taskforce, in 2010, projected that an additional 61,500 workers would be required up to 2015. The industry is well on its way to passing this projection within two years of the first five years of the projection. The sector contributes to the employment of approximately another 720,000 employees in support industries.

Further, the industry’s workforce is well remunerated, highly skilled and continuously trained, increasingly diverse in age, culture and gender, and mostly full-time employees, vis:

provides an average wage of $2202 per week – 62 per cent higher than the all industries average of $1358 pw; sixty-seven per cent hold a post school qualification compared to 61 per cent for the national workforce. Thirty per cent

of mine workers hold a Cert III or IV qualification and 24 per cent hold a Bachelor or higher degree; spends more than three times the national average on training which is almost entirely funded by industry and has 5

per cent of its workforce as trainees or apprentices. is older than the national average with a median age of 40 years compared to 37 years for the national workforce. Coal

sector workers are generally older than metalliferous sector workers. is increasing its indigenous workforce, presently averaging 5 per cent, rising to 10 per cent in major firms in areas like

the Pilbara and at some sites the percentage is as high as 25 per cent. The industry is the largest private sector employer of Indigenous Australians.

has maintained a steady proportion of female employees, about 18 per cent; and is primarily a full time workforce (97 per cent).

Choice and flexibility in workplace arrangements on a platform of mutual respect and interest is critical to catering for the inherent operational diversity within and between projects across the industry, specifically:

the recruitment of skilled professionals and tradespeople from diverse backgrounds in a wide range of occupations in a highly competitive labour market;



employees operating in dramatically different workplace environments – from head offices in capital cities, to remote locations hundreds of kilometres from the nearest town or community, within small regional communities near provincial population centres to small hamlets adjoining traditional Indigenous communities;

the need to cater for vastly different operational requirements and operating parameters within and between enterprises as a result of diverse geography, geomorphology (differing ore bodies), prevailing local circumstances and operational function (exploration, development, mining, processing, closure);

the challenges of operating in an inherently hazardous industry which requires absolute and unconditional commitment to the management of risks to ensure the safety and health of its workforce; and

in providing flexible working arrangements to address structural and cultural barriers that have historically limited the participation of women and Indigenous people in the industry.



The imperative of choice and flexibility in workplace arrangements

To meet the minerals sector’s operational needs, the industry requires flexibility and choice in workplace relations.

It needs a highly skilled, versatile, dynamic workforce which can adapt to operational requirements. This means a workforce that can engage in continuous improvement through adaption, innovation and workplace training or education.

It needs a workforce that can meet the safety challenge of a hazardous industry by being well trained in risk assessment and response to mitigate against danger and harm.

Skilled workers to construct and operate mining projects are in high demand. The minerals industry faces critical shortages of mining engineers, geoscientists and mechanical and electrical tradespeople.

Employees bring important considerations of their own to the modern workplace, most particularly the need for more employment options to facilitate work-life balance including family responsibilities. Varieties of work arrangements – either through part-time arrangements, shorter shifts, different combinations of shift rosters – or increased access to information and communications technology on remote sites are part of a the mosaic of workplace arrangements in a modern mining project.

At a time of record prospective investment in minerals and related projects, the need to adapt internal workplace arrangements is critical for productivity and for ensuring an efficient return on that investment. Skills, working patterns and deployment need to match the capital investment timeline. Any mismatch of labour and capital investment runs the risk of undermining future competitiveness, investment and growth. Indeed, at a time of such large scale investment, increased vigilance is required to ensure the increased activity of expansion does not disguise operational productivity problems that will emerge in the future and with financial performance is maintained where the commercial balance of the operation is vulnerable to shifts in commodity prices.

A workplace culture characterised by collaborative, direct relationships is fundamental to the industry’s commitment to corporate social responsibility. The wellbeing of its workforce and surrounding communities is the foundation for a continuing social licence to operate.

The future of the Australian minerals industry is inseparable from the global pursuit of sustainable development. Through the integration of economic progress, responsible social development and effective environmental management, the industry is committed to contributing to the sustained growth and prosperity of current and future generations.

The Australian minerals industry recognises acutely the importance of a ‘social licence to operate’ as a complement to a regulatory licence issued by government. To the minerals industry ‘social licence to operate’ is about operating in a manner that is attuned to community expectations and which acknowledges that businesses have a shared responsibility with government, and more broadly society, to help facilitate the development of strong and sustainable communities.

The Australian minerals industry’s commitment to the social licence is embodied in Enduring Value – the Australian minerals industry’s framework for sustainable development. Through this framework, MCA member companies commit to:

Implement and maintain ethical business practices and sound systems of corporate governance. Integrate sustainable development considerations within the corporate decision-making process. Uphold fundamental human rights and respect cultures, customs and values in dealings with employees and others

who are affected by our activities. Implement risk management strategies based on valid data and sound science. Seek continual improvement of our health and safety performance. Seek continual improvement of our environmental performance. Contribute to conservation of biodiversity and integrated approaches to land use planning. Facilitate and encourage responsible product design, use, re-use, recycling and disposal of our products. Contribute to the social, economic and institutional development of the communities in which we operate. Implement effective and transparent engagement, communication and independently verified reporting arrangements

with our stakeholders.

Individual companies will strive to meet their social licence requirements (and those expressed in the industry’s framework) based on their own circumstances and operational requirements. Their ability to meet these goals will depend largely on the quality of the workforce and that workforce’s shared commitment to the values of the individual company.



The requirements for attracting this workforce, training them in culture of the organisation and retaining them through the transformation of the business necessitate a workplace relations system that promotes rather than impedes the development of mutually beneficial direct relationships between employers and employees.

These relationships are critical for building mutual respect, trust, direct equity in the enterprise, and personal accountability and the sharing of responsibility for safety, health and productivity.



The product of workplace transformation

Direct employer-employee relationships in the Australian minerals industry have provided the foundation for improved safety and health performance, improved productivity and business performance, greater job satisfaction, increased wages and salaries and greater benefits to the communities (particularly those in which the industry operates), through employment opportunity and prosperity.

These relationships are founded in individual leadership, individual enterprise and personal accountability, recognition of contribution and performance, a shared commitment to skills and personal development, and a culture of mutual dependency and prosperity.

Labour market reforms spanning three decades, and three passages of legislation under both Labor and Coalition Governments have delivered:

the steady decentralisation and reorientation of Australia’s industrial relations system to the individual worker and individual enterprise;

support for the fundamental principle that arrangements between employers and employees are best negotiated in the workplace of the individual enterprise;

that the primary responsibility for determining matters affecting the relations between employers and employees rests with the employer and employees at the workplace or enterprise level; and

a move away from compulsory arbitration and towards agreement making at the workplace level.

These reforms created the framework for the Australian minerals industry to remove out-dated, restrictive work practices transforming workplaces from a culture of confrontation and divisiveness that were battlegrounds of a “them and us” conflict to a workplace culture of collaboration and direct relationships. They provided for flexibility and choice in workplace arrangements and transformed pay and conditions, delivering significant tangible dividends in the form of increased productivity, increased earnings, increased training, improved occupational health and safety performance, reduced industrial disputation.

In the decade preceding the introduction of the FWA:

employees in the minerals industry earned over 60 per cent more than the Australian all-industry average:o annual average full time adult ordinary time earnings (in real terms) in the minerals industry in 2007 were $1,110

per week compared with the all industry average of $719 per week;o ordinary full time earnings of males in the minerals industry grew by an average 2% per annum during the

decade 1996-2006 compared with the all industry average of 1.5% per annum multifactor productivity was on average 11 per cent per annum higher in mining than the all-industry average,

averaging 2.3 per cent per annum (when accounting for the unique effects of capital effects and the access harder to mine reserves – see Appendix);o between the three periods - 1990 to 1995, 1996 to 2001, and 2002 to 2004, mining multi-factor productivity

increased on average 2.1%, 9.4% and 5.9% per annum respectively,o labour productivity has outstripped the performance of any other sector in Australia, and the economy more

generally, when measured by gross product per hours worked – at 5.1 per cent compared with the all industry’s average of 2.4 per cent;

occupational health and safety improved dramatically, though it fell short of the industry’s goal of zero harm; days lost to industrial disputation were at the lowest level on record; investment in new projects increase five-fold; and a strong training culture developed with:

o expenditure on training per employee at three times the national average;o 96 per cent mining industry employers engaging workers in training;o 83 per cent of mining industry employers engaging with the VET sector, primarily private training providers.

The significant increase in productivity and operational performance in the decade to 2006 was the product of three inter-related primary market drivers:

strong external market pressures –



o during the 1990s and early into the new century, the industry was barely recovering the cost of its investment capital – supply in excess of demand and strong global competition for market access meant that the industry’s significant productivity gains and cost savings were transferred to customers in the form of lower prices;

government policy/reforms that have improved the functioning of markets: o national competition reforms encouraged ‘supply’ industries (e.g. electricity and transport) to become more

efficient,o more flexible labour markets allowed the reorganisation of work practices to take advantage of improvements in

technology and skills,o more flexible financial markets gave new, developing industries access to the capital they required, ando strong macroeconomic fundamentals bolstered business expectations thereby encouraging investment and

growth. business confidence in investing in the micro drivers of productivity:

o technology adoption and advances (e.g. GPS to monitor truck deployments); o smarter work practices (e.g. quicker operator turnaround times, reduction in idle time etc.);o accumulation of both physical and human capital (education, technical skill, health); o culture of innovation which promotes high responsiveness to external and internal developments, threats and

opportunities; o efficient resource allocation (i.e. labour and capital); o motivation/incentive;o good management; o investment in larger more efficient and effective equipment (i.e. plant turnover); and o increases in scale (via consolidations, mergers & acquisitions, joint ventures etc.).

Economy wide benefits

The improvements in the minerals industry fostered by the broad-ranging economic reforms over the past 30 years including the labour market reforms, delivered a sustained boost in real incomes and productivity across the entire economy. These improvements are well documented. Unemployment fell and business investment rose. As Productivity Commission chair Gary Banks noted in 2010, growth in labour productivity accounted for around 80 per cent of the growth in per capita incomes of Australians over the past four decades, with ‘multifactor’ productivity growth (which abstracts from the growth effects of increasing capital) accounting for about 40 per cent of that.7

Other commentators identify workplace relations changes as being integral, along with financial, trade and competition reform, to producing socio-economic dividends. Greater choice in agreement making facilitated a greater alignment between the strategic goals of the corporation and employee terms and conditions, thereby promoting the essential drivers of productivity: responsiveness, innovation, motivation, incentive and efficient resource allocation.

As Review Panellist Dr John Edwards noted in study on the long period of expansion since 1991: “The combination of stronger competition, new technologies and new labour flexibility impelled cost cutting and labour saving innovation, which turned up as higher productivity growth”. 8

Research by the Reserve Bank of Australia, looking at 18 Organisation for Economic Co-operation and Development (OECD) countries over the past 30 years, found not only a link between higher productivity and lower levels of regulation but that “labour and product market deregulation have more of an effect in combination’’.9 This has seen Australian perform more strongly than other nations.

7 Gary Banks, Successful Reform: Past Lessons, Future Challenges (Annual Forecasting Conference of the Australian Business Economists, 8 December 2010), Productivity Commission, 2011. 8 Dr John Edwards, Quiet boom: How The Long Economic Upswing Is Changing Australia And Its Place In The World, Lowy Institute, 20069 C Kent and J Simon, Productivity Growth, The Effect of Market Regulations, Research Discussion Paper, Reserve Bank of Australia, 2007.



Moreover, both the OECD and the International Monetary Fund (IMF) have noted the contribution of labour market flexibility in Australia’s economic performance and urged caution over the direction of changes prior to the introduction of the Fair Work Act into the Federal Parliament.

The simplification and gradual decentralisation of industrial relations since the early 1990s has made the economy more resilient..... The (proposed) reform will strengthen collective bargaining at the firm level, widen the minimum employment conditions safety net, restore the right to appeal against unfair dismissal and introduce a uniform national system of labour relations in the private sector. While equity concerns need to be addressed, care should be taken not to undermine labour market flexibility.10

The IMF in September 2008 said that “maintaining labour market flexibility will be crucial to facilitate smooth adjustment of the economy to potential swings in commodity prices or other shocks”.11

It is argued by some that the benefits of domestic economic reform may fade and the biggest gains in Australian productivity will depend upon business investment, and technical innovation, and, above all, on improving the skills of the workforce.12 To the extent that is true, it follows that any backsliding on flexible direct relations built up particularly over the past two decades would be counterproductive.

As the Productivity Commission’s Dean Parham says, while there are disputes among academic economists about the scope of the surge of productivity in the 1990s and the contribution of product and labour reforms, most research points to “the importance of accumulation of physical and human capital, combined with a policy and institutional environment that promotes competition openness and flexibility’’. 13

10 Organisation for Economic Co-operation and Development, Economic Survey of Australia 2008, Chapter 4.11 International Monetary Fund, Australia: Article IV Consultation – Staff Report, 2008.12 Edwards, op. cit.13 Dean Parham, Sources of Australia’s Productivity Revival, Productivity Commission, 2003.



The Fair Work Act Reforms

In the lead up to the development of the FWA, the Labor Government promised that workplace relations changes would provide a fairer and more flexible industrial relations system that would help to build a high-productivity, high skill economy. The Government’s plan, first outlined from Opposition in the lead-up to the 2007 election, indicated they would provide for more flexible direct agreements and awards as well as more flexible collective enterprise agreements and that changes to the legislation would not see a change to right of entry provisions.

As then Opposition leader, Mr Kevin Rudd and his then spokeswoman on industrial relations, now Prime Minister, Ms Julia Gillard said in their pre-election statement: “Federal Labor understands that most employers simply want to get on with running successful businesses and creating jobs”. 14 Mr Rudd said in his media conference after the release of the policy:

We emphasise flexibility and the importance to providing appropriate flexibility for businesses across Australia to keep our economy strong. 15

The ALP stated that it understood there were a variety of workplace arrangements and greater use of direct relationships in the workplace and that for many workers it was “increasingly possible for people to look after themselves’’.

The MCA considers that the Fair Work Act exceeds the commitments made and the mandate sought at the 2007 federal election, with direct and indirect impacts that undermine its stated goals of flexibility, fairness and boosting productivity. The FWA introduced changes that were not clearly articulated or explained in policy documents and are counter to public undertakings provided in the lead up to the writing of the Act. Specifically, these undertakings were that:

the existing right of entry provisions would not change – unions would not be allowed more frequent site access regardless of whether they have a member or not;

that the new workplace system would provide a full range of employment instruments to cater for the diversity of enterprises, and would not seek to emphasise or restrict negotiations on agreements to any particular instrument;

ensure employers would be able to make genuine agreements directly with its employees; ensure there would be no scope for uninvited third parties – no automatic right for unions -- to be involved in collective

bargaining; and workplace agreements would be restricted to matters directly relating to the employment relationship.

The operation of the FWA has revealed shortcomings and restrictions that run counter to these express undertakings and the policy intent as articulated by the Government in 2007.

While the overall intent of the legislation was said to be to improve workplace arrangements for improved productivity, flexibility and fairness, in line with the trend of earlier reforms, the legislative package contained substantial flaws in critical areas that industry warned would be counterproductive. This has unfortunately proved to be the case, and without repeal of the draconian provisions of the FWA, the circumstances of Australia’s workplace relations will continue to deteriorate. There is a profound foreboding across the minerals industry, reflected in many parts of the extended business community, of the prospect of further erosion of the advances secured by previous workplace relations reforms with consequent and alarming deterioration in workplace arrangements that have proved, in the main, to have served Australia so well. Again, for the purposes of this Review, we observe that:

Unions are using the good faith bargaining provisions to move beyond matters of the direct employment relationship. An increasingly legalistic approach is giving rise to questionable interpretations of the laws, such as strike action being authorised by the “industrial umpire” before any proper discussion has even taken place.

The legitimate form of direct contractual agreement which was placed into the Fair Work Act – Individual Flexibility Agreements – is mired in complexity and tortuous legalism, such as the requirement that new employees to a firm must be hired under the collective agreement before they can be offered an IFA, even where such individual agreements are widely chosen by workers in the enterprise.

14 Joint Statement, Kevin Rudd MP Federal Labor Leader and Julia Gillard MP Deputy Labor Leader and (then) Shadow Minister for Employment and Industrial Relations, Media Release, Flexibility – Federal Labor’s Policy Implementation Plan for a More Flexible Industrial Relations System, 28 August 2007.15 Federal Labor Leader Kevin Rudd, Transcript of joint press conference with Julia Gillard, (then) Shadow Minister for Industrial Relations, Parliament House Canberra, 28 August 2007.



Right of entry provisions have seen an explosion of applications to enter the workplace, beyond the legitimate occupational health and safety matters, disproportionate to union membership in the workplace. Demarcation disputes are re-emerging with competition between unions, particularly over greenfield sites.

The new provisions of “adverse action” – which include a reverse onus of proof on employers whereby they must prove that a management decision did not impinge on a workplace right – are vague and unnecessary given the raft of state and federal discrimination laws and other provisions against unlawful or unfair dismissal. These developments raise the risk that conflict rather than co-operation for mutual advantage will return as the basis for workplace relations.

The fundament root of the deterioration in workplace relations is that the FWA has by, in effect, mandating third party union intervention and changing the basis upon which unions are engaged in the bargaining/negotiations process, reinstated an adversarial framework rather than collaborative arrangements for mutual benefit. As a former ACTU vice president noted in February:

Our workplace relations architecture is essentially an attempt to institutionalise conflict, not to forge productive workplaces… It was created at the turn of the last century to provide a process for reconciliation between workers and their employers. While better than the law of the jungle, it is nevertheless adversarial. It relies on each party unambiguously asserting the interests of its constituency with no or little understanding or sympathy for the interests of the other side.16

This manifests itself in at least three ways.

First, over the decade prior to 2010, the level of industrial disputation in Australian workplaces fell steadily – a point acknowledged by the Review Panel in its issues paper – but it has now returned to the highest level since 2004. In the highly unionised sectors, such as coal mining, disputes involving lost time are rising rapidly. In the hard rock and other mining sectors where union membership rates average about 10 per cent of the workforce, disputation remains low. The data in the following table only records stoppages. The data does not record the insidious yet highly damaging bans and non-productive behaviours at mine sites which are the product of a climate of rapidly escalating dispute and conflict.

Industrial Disputes, By industry–Working days lost per '000 employees17

Mining Manufacturing Construction

Period Coal Other

Metal product,

Machinery and

equipment Other2007–2008 68.8 0.9 35.7 7.3 11.82009–2010 42.8 4.7 51.2 20.7 43.22010–2011 466.3 3.0 46.8 17.8 72.5

Second, this adversarial approach undermines the bargaining process through the prospect of judicial administrative intervention. The prospect of compulsory conciliation/ arbitration creates an environment of “position” bargaining – where parties resist concessions in anticipation of the compromise that will be forced upon them by the arbitrator – rather than bargaining with an attitude of mutual interests.

And finally, the culture created by institutionalised conflict undermines the confidence and independence of employees to make their own decisions about their own individual employment arrangements (including any representation arrangements if they wish).

The evidence presented in this Submission to the Review is underscored by external surveys. Research by the RMIT University, commissioned by the Australian Mining and Metals Association (AMMA), has shown an erosion of confidence in the workplace relations system. In the second survey of the series released in 2011, RMIT researchers suggest bargaining under the Fair Work Act is more difficult than under the former regime and, where employers and employees are seeking to

16 Anna Booth, Co-operation for the Common Good, Australian Financial Review, 11 February, 2011.17 Australian Bureau of Statistics, Australian Economic Indicators, February 2012.



maintain the culture of direct engagement, it has become more difficult, even problematic, to achieve in the face of increased union involvement in the workplace.

RMIT reports that two concerns were more commonly cited by respondents:

the increased presence of union representatives at the worksite and the implications this was having on the workplace relations arrangements of the business, such as right of entry arrangements; and

issues associated with bargaining for new enterprise agreements including greenfield agreements.

Other issues raised by respondents in the six months previous to the report (in order of frequency) were:

inflated wage and condition claims and outcomes; the prospect of protected or unprotected industrial action; termination of employment/redundancy concerns including the prospect of unfair dismissal claims; staff performance management issues; the transition to modern awards; staff shortages; a lack of workplace flexibility; issues with the FWA’s transfer of business and adverse action provisions; issues with contractor arrangements; and union demarcation disputes.

In general, our members also share many of the concerns raised in the third survey by Deakin University for the Australian Institute of Human Resources released this month which found:

almost one third (30 per cent) of the 691 managers and human resources professionals surveyed said productivity decreased under the FWA (up from 13 per cent in 2010);

the productivity decline came with rising labour costs, with 58 per cent of respondents saying the Act had a direct effect on costs;

one-half (50.7 per cent) reported that it is more difficult to deal with disputes under the Act (up from 30 per cent in 2010);

two-thirds of respondents said the FWA required them to spend more time on industrial relations, with the 62 per cent saying the costs of this management has risen;

fifty-six per cent reported that employment arrangements are more complicated; and twenty-seven per cent said workforce morale had decrease (compared with 17.2 per cent in 2010) “directly due” to the

introduction of the FWA.

In addition, while jobs expansion is likely to continue in the minerals industry it is telling that respondents also suggested that the FWA will materially decrease the willingness of organisations to employ people over the next three years (up from 37 per cent in 2010).18

These surveys, and the evidence of MCA member companies, reveal a trend, which if unaddressed, will adversely manifest in the economic indicators of the nation. Particularly, they point to the ‘intangibles’ of workplace relations – the breakdown of trust, the diversion of time from the core business of the enterprise, an undermining of the culture of continuous improvement – which are not apparent in month by month statistics on industrial action or output, but will leave the nation poorer over time.

As stated at the outset of this Submission, Australia is well positioned to supply the burgeoning demand for minerals resources, but there are real dangers in being seduced by our natural endowment in minerals resources and the recent increase in national prosperity flowing from the strongest terms of trade in 150 years. The intersection of complacency, economic reform inertia, the twin forces of rising costs and declining productivity, an emerging protectionist sentiment, and real perceptions of increasing sovereign risk in getting the policy mix wrong, are counter-productive to future investment, growth and national prosperity.

18 Australian Human Resources Institute/Deakin University, The Fair Work Act: Its Impact within Australia Workplaces, January 2012.



Reviving the reform agenda

The MCA considers that the role and responsibilities of this Review Panel to be both timely and crucial. Evidently, the MCA does not contest the Object of the Fair Work Act to be “flexible for business [and] promote productivity and economic growth for Australia’s future economic prosperity”. We contend that the primary consideration is whether the legislative provisions enable the workplace relations system to operate in accordance with those Objects. It manifestly does not.

Accordingly, we request the Panel consider the following recommended changes to the Fair Work Act to better give effect to the Objects (of the Act), and the underlying imperatives for direct relationships, choice and flexibility in the workplace to the mutual benefit of employers and employees:

Agreements must only be about employee entitlements and employer/employee responsibilities. There should be a clear definition of responsibilities and activities such that third parties cannot not seek to veto decisions of management.

Individual Flexibility Agreements must be a viable and competitive employment instrument as intended. It should be prohibited for any agreement to constrain the use of IFAs. A legislated model IFA Agreement should be inserted into the Act.

Good faith bargaining rules need to be amended by: o strengthening the specific provisions that good faith bargaining does not necessarily require one party to concede

to the demands of the other. Good faith bargaining orders should be rare and only for egregious behaviour; o removing the legislated protection from legal action for fanciful claims or claims contrary to the national interest

and ensuring good faith bargaining rules respect commercial arrangements and the confidentiality of companies’ commercial operations; and

o amending the rules associated with the appointment of bargaining representatives of employees so that the representative is expressly appointed by the employees, not appointed by default.

Arbitration should be available by agreement of the parties – compulsory arbitration must only be a last resort and then only where there is a national interest test.

Relief for employers from sustained industrial action. “Protected action” during a bargaining period should only be available where a party can show it has undertaken exhaustive negotiations and reached an impasse; parties seeking protected action must show that their claims are not fanciful; parties should not be able to conduct secret ballots unless bargaining on permitted content has taken place (not just by an assertion). The Act must not create an environment that relies upon, or presumes, the invocation of compulsory conciliation.

Right of entry rules need to reflect worker interest not union claims or coverage rules. Employees should not be required to be subject to a default union or other third party representative.

Similarly, greenfield agreements must not be subjected to a lengthy tortuous, onerous negotiation process arrangements caused by default representatives of a yet to be appointed workforce; and

Adverse action deliberations must make an assessment of subjective intent; the “sole and dominant purpose test” for judging an adverse action claim flowing from the introduction of contractors should be re-introduced (that is, introduction of contractors alone should not be grounds for an adverse action claim).

The Australian Mines and Metals Association (AMMA) – the resources industries “respondent organisation” under the Fair Work Act – has underscored 10 priority reform areas to which the MCA fully subscribes including genuine individual flexibility agreements, majority support as a prerequisite for industrial action, a public interest test on protected industrial action, restrictions on subject matter in enterprise agreements to matters pertaining to the direct relationship, prohibitions on pattern bargaining and balanced right of entry provisions.

These changes can be made within the existing framework. They are consistent with the Objects of the FWA to be “flexible for business [and] promote productivity and economic growth for Australia’s future economic prosperity”.

Minerals Council of AustraliaFebruary, 2012



Appendix - Understanding minerals sector productivity figures

The dividends of flexible workplace arrangements are not simply measured in output, but also in a new modern progressive workplace culture, which is safer, more harmonious and productive, and more conducive to the needs and expectations of individual workers, the business and the communities in which the minerals industry operates. The direct relationship between the employer and the employee creates the environment for innovation and productivity.

Unfortunately Australia’s productivity performance has subsided over recent years, stalling at the beginning of 2007. As argued in this submission, workplace laws are putting pressure on productivity performance. Another factor appears to be a statistical anomaly created by the surge in minerals production with the rise of commodity prices over the past three years.

Capital investment and employment have risen sharply and this can create a drag on productivity ratios. In the case of the minerals industry, there appears to be another “hidden’’ variable, which is the quality of minerals reserves. The Productivity Commission (PC) has examined the effect of this variable in the calculation of the sector’s contribution.19

While the mining sector has been characterised by a high level of labour productivity, in terms of output per hour worked, multifactor productivity (MFP) for the sector declined by 24 per cent between 2000-01 and 2006-07. The PC’s analysis shows that the increasing difficulty of mining and processing minerals, as represented by an index of mining ‘yield’, is a key explanatory factor in the observed decline in MFP between 2000-01 and 2007-08. The index was defined to represent a composite of features that characterise the quality of natural resource inputs used in mining, such as ore grade (metal per tonne of ore), ore quality (impurities, milling characteristics), reservoir pressure (flow rates of crude oil or gas), overburden ratio (waste material to ore or coal production), mine or well depth, distance from markets or key inputs and complexity of terrain/mine geology. Measures of resource depletion are identified as key contributor to the decline in MFP. The PC concludes that resource depletion in the form of yield declines is estimated to have had a significant adverse impact on productivity in the mining industry.

Once the effect of resource depletion is removed, mining MFP grew at an average rate of 2.5 per cent per year, compared with 0.01 per cent per year in conventionally measured mining MFP.

Periods of large capital investment can also temporarily reduce MFP, by changing the ratio of capital to output. The PC study suggests that with capital effects removed MFP would also be higher. These technical issues can distort figures in the short run and ultimately productivity is a long run measure which shows the minerals industry at the fore-front of boosting

19 Vernon Topp et al., Productivity in the Mining Industry: Measurement and Interpretation, Productivity Commission Staff Working Paper, December 2008. See Also Brian S. Fisher and Sabine Schnittger, Autonomous and Remote Operation Technologies in the Mining Industry: Benefits and Costs, BAEconomics, February 2012.



economic performance. Indeed, the Productivity Commission’s paper suggests that the mining sector has maintained a healthy productivity growth of 2.3 per cent per annum over the past 30 years.

Nonetheless, even with these factors taken into account, productivity has been declining over recent years.19

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Documents

docs.employment.gov.au · Web viewbe hired under the collective agreement before they can be offered an IFA, even where such individual agreements are widely chosen by workers in