CCIWA 2014 State Wage Case Submission Page 1

Submission in Reply:

Western Australian

2014

State Wage Case

CCIWA 2014 State Wage Case Submission Page 2

Industrial Relations Act 1979

In the Western Australian Industrial Relations Commission

Application No. 1 OF 2014

2014 STATE WAGE ORDER On The Commissions Own Motion

SUBMISSION IN REPLY

Filed on behalf of the Chamber of Commerce and Industry of Western Australia (Inc) by:

Paul Moss Manager, Employee Relations

180 Hay Street EAST PERTH WA 6004 Tel: (08) 9365 7555 Fax: (08) 9365 7550 Email: paul.moss@cciwa.com

Date of Filing: 20 May 2014

CCIWA 2014 State Wage Case Submission Page 3

Table of Contents

1. Background ...................................................................................................................4

2. Overview of position ....................................................................................................4

3. UnionsWA .....................................................................................................................5

4. WACOSS Submission ...................................................................................................14

5. Minister’s Submission .................................................................................................24

6. Australian Hotels Association .....................................................................................33

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1. Background

1.1 On 16 January 2014, the Western Australian Industrial Relations Commission (WAIRC) Commission in Court Session (CICS) issued Application 1 of 2014 of its own motion.

1.2 On 13 May 2014, the Chamber of Commerce and Industry of Western Australia (Inc) (CCI) filed Submissions in relation to Application 1 of 2014 (CCI Submissions).

1.3 CCI welcomes the opportunity to provide the following Submissions in Reply in relation to these proceedings.

1.4 CCI also reserves the right to provide further submissions in relation to any matters arising at the hearing of these proceedings, or otherwise.

2. Overview of position

2.1 CCI provides the following Submissions in Reply in relation to the Submissions filed by UnionsWA, Western Australian Council of Social Service Inc (WACOSS), the Minister of Commerce (Minister) and the Australian Hotels Association (AHA) in these proceedings.

2.2 In summary, CCI submits that:

a) whilst the arguments put forward by UnionsWA and WACOSS seek to show the plight of low income earners, they fail to demonstrate why the increases sought are appropriate, or how the proposed increases would address the needs of those reliant on, or impacted by, the SMW. Consequently, there is no justification for the quantum being sought;

b) much of the evidence provided by UnionsWA and WACOSS is focused on low income earners, which includes those persons on welfare payments. The material fails to differentiate between the low paid and those on low incomes and as such is seeking the CICS to take into account the circumstances of individuals unaffected by the State Wage Case (SWC) decisions;

c) UnionsWA focus on the adequacy of the State Minimum Wage (SMW) with no identification as to whom the SMW applies. It is the view of CCI that most State system employees are covered by awards providing higher minimum rates of pay. A percentage based increase claimed by UnionsWA would result in increases greater than $35.52 per week;

d) WACOSS’s 2013 Cost of Living Report advocates for an increase to the SMW which takes into account increases to cost of living. The $35 increase proposed by WACOSS is significantly in excess of a cost of living increase;

e) the data provided by WACOSS and UnionsWA is selective and paints a skewed picture of the impact of cost of living increases on Western Australian employees. CPI has previously been accepted as the most appropriate measure of cost of living increases. Both the Minister and CCI’s Submissions demonstrate that Consumer Price Index (CPI) for Perth is low and in line with the national average;

f) CCI agrees with the Minister’s comment that in the current climate it is prudent to be cautious about further increasing wage costs for employers. However we are not of the view that in increase in line with CPI is prudent in the current environment;

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g) the 3 per cent increase sought by the Minister is higher than the Treasury forecast of a 2.75 per cent increase to CPI for 2014-15; and

h) CCI agrees with the AHA that the current economic climate and the impact that this has had on the mostly small businesses remaining in the State system provides a strong argument for a lower than CPI increase to the SMW and award rates of pay.

3. UnionsWA

3.1 CCI makes the following Submission in Reply in relation to UnionWA’s Submission.

Ambit of Claim

3.2 UnionsWA is seeking a 5.5 per cent increase to the SMW along with award rates of pay generally.

3.3 The claim seeks to establish growth in the SMW and all award rates of pay at a rate significantly higher than projected inflation.

3.4 Given the current decline in the WA and National economy CCI submits that such a claim is irresponsible and would have a significant detrimental effect on those employers to whom the order would apply.

3.5 Furthermore, UnionsWA focuses on the SMW without consideration to the flow on effect to the generally higher rates of pay prescribed by the relevant State awards.

Wage Inequality

3.6 CCI submits that the CICS has previously determined that AWOTE is not an appropriate comparator in the context of the SWC.

3.7 In particular the CICS noted in the 2012 State Wage Case Decision,1 that it did not accept that AWOTE was relevant for the purposes of setting the SMW by stating the following:

We continue to have reservations regarding linking the setting of minimum wage to Average Weekly Ordinary Time Earnings…in the 2011 State Wage order decision ((2011) 91 WAIG 1008; [2011] WAIRC 00399 at 33) we observed that AWE will necessarily measure earnings across the State, including of employees in relatively high-wage sectors such as mining which are not likely to be representative of wages and living standards generally prevailing in the community. CCIWA submits that the differential between the minimum wage and WA’s AWOTE can be explained by an increase in positions in the mining, oil and gas related industries. There is a strong correlation between the rise of the mining sector’s share of WA’s total factor income and the growth in the differential between AWOTE and the State minimum wage. We consider the evidence supports this submission. The data in AWOTE represent gross earnings and provide an average of earnings in WA. However, an average of earnings is not the same thing as the earnings of an average person. There is evidence before us which suggests that since 2005, mining wages have increased by 50 per cent and the average of earnings will undoubtedly be affected by that. The average of earnings is affected by compositional shifts

1 2012 WAIRC 00346 at[50] to [52]

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which can result in fluctuations in earnings growth even though rates of pay have not changed.

Consequently we have not been persuaded by UnionsWA’s submission that the setting of the WA minimum wage should be significantly influenced by its past or present relativity to AWOTE. [Emphasis Added]

3.8 CCI submits that the differential between the SMW and Western Australia’s AWOTE can be explained by the influence of the mining, oil and gas, construction, and related industries. This conclusion is supported by the ABS conclusion that in “recent years WA has experienced a resource sector boom which has had a significant influence on wages in the Mining industry as well as those businesses providing services to Mining (for example, some businesses in the Construction and Wholesale trade industries)”.2

3.9 This is further demonstrated in the chart below, which shows a strong correlation between the rise of the mining sectors share of Western Australia’s total factor income (i.e. the contribution of mining to the economy) and the growth in the differential between AWOTE and the SMW. As seen in the chart below, the mining income/inversed bite now has a correlation of 0.876 implying it a very strong relationship between the two.

3.10 Of course it is also important to consider the impact of the approach of many unions in undertaking wage negotiations and the impact that this can have on increasing wage inequality. The current gap between the minimum wage and average weekly earnings could also be addressed through the temperance of wage demands and threats of industrial action.

3.11 CCI further submits that AWOTE is now only reported bi-annually making it even less reliable and more volatile.

3.12 On the basis of the above, CCI submits that AWOTE should not be used in the context of these proceedings.

2 Australian Bureau of Statistics. 2014. Catalogue 6302.0. Average Weekly Earnings Australia, November 2013.

http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6302.0Main%20Features7Nov%202013?opendocument&tabna

me=Summary&prodno=6302.0&issue=Nov%202013&num=&view=

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3.13 UnionsWA concerns with respect to disposable household income are difficult to understand. The data provided in their submission shows that mean income per week for each of the quintiles in WA is higher than the national average and that percentage change over the reported period is also higher in WA across each of the quintiles.

3.14 Likewise UnionsWA cites the comment of Professor Whitford3 that Australia has the lowest level of in-work poverty because we have been willing to pay relatively high minimum wages. It should be noted that reference here is to Australia as a whole, providing support for the adequacy of the national minimum wage.

3.15 As identified in paragraphs 7.3 to 7.10 of the CCI’s 2014 submission to the State Wage Case4, Australia has the highest minimum wage compared to any other OECD member country with the second highest purchasing power.

3.16 Professor Whitford’s comments highlight that in Australia the tax transfer system plays an important part in reducing poverty. This reinforces CCIs views that Government plays a significant role in furthering the interests of the low paid.

3.17 UnionsWA refers to a study conducted by Jesse Rothstein5 which claims that the tax transfer system in the United States of America may provide an unintended benefit to employers. It is very clear that this study is referencing a system that is different to arrangements operating in Australia and there is nothing in UnionsWA submission that suggests that employers in Australia benefit from the tax transfer system.

3.18 UnionsWA also raises reference to income distribution as measured by the Gini Coefficient.

3.19 CCI contends that the Gini Coefficient is an unreliable measure and would refer the CICS to our comment in paragraphs 4.20 to 4.25 of this submission which illustrate this view.

3.20 CCI further submits that the data relied upon is out dated which renders UnionsWA Submissions even more unreliable.

Percentage Increase

3.21 In its submissions UnionsWA is seeking a percentage increase for the stated purpose of maintaining wage relativities.

3.22 The CICS in the 2013 State Wage Case stated that6:

3 Whiteford, Peter, ‘Transfer Issues and Directions for Reform: Australian Transfer Policy in Comparative Perspective’,

Melbourne Institute – Australia’s Future Tax and Transfer Policy Conference (June 2009) (p.57) http://taxreview.treasury.gov.au/content/html/conference/downloads/conference_report/03_afts_tax_and_transfer_policy_conference_chap_3.pdf

4 CCIWA 2014 Submission to the State Wage Case

5 Rothstein, Jesse, ‘Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence’ CEPS Working Paper

No.184 (January 2009) (p.2) http://www.princeton.edu/~ceps/workingpapers/184rothstein.pdf

6 2013 WAIRC 00347 at [86]

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“On this occasion, we favour a flat-dollar increase rather than a percentage increase. This in large part is due to the emphasis we wish to place upon those employees who are on the minimum wage or slightly above it, rather than those on higher award wages. There was no direct evidence of issues having arisen from any compression of award relativities from past flat-dollar increases. The issue is able to be addressed on a future occasion.”

3.23 We submit that UnionsWA has not provided any argument that compression of wage relativities has created any substantive issues.

3.24 Furthermore, the previous history of flat dollar increases means a percentage based increase in this or future years won’t restore the relativities within the award. We submit that issues of relativities are best addressed through enterprise bargaining and that awards still adequately record the original relativities.

3.25 A central component of UnionsWA justification for a 5.5 per cent increase is to reduce the current inequality between the SMW and average earnings.

3.26 We submit that a flat dollar increase provides a proportionately higher benefit to the low paid. A percentage increase on the other hand provides a greater monetary increase to those employees on award rates of pay in excess of the SMW, thus further compounding the level of wage inequality.

3.27 Professor Plowman’s Report to the WAIRC identified that in determining who is affected by the minimum wage

“The prime industries of concern for present purposes are retail; accommodation, cafes, restaurants; and personal and other services. In should be noted, however, that average employee earnings in each of these industries in well in excess of the minimum wage (see below).” 7

3.28 It is CCI’s opinion that given the high level of award coverage in these industries, most employees would be paid in excess of the SMW. The compounding effect of UnionsWA proposed increase is shown in Table 1, below:

Table 1 – Impact of UnionsWA Claim on Award Wages

The Shop and Warehouse (Wholesale and Retail Establishments) State Award 1977

Classification Current Rate (per week Mon-Fri)

UnionsWA Proposed Rate

(per week)

$ Increase (per week)

Shop Assistants, et al $707.60 $746.52 $38.92

Window Dresser/ Visual Merchandiser

$714.70 $754.01 $39.31

Storeperson Operator Grade I

$719.10 $758.65 $39.55

Storeperson Operator $724.10 $763.93 $39.83

7 Plowman, D. 2006, Report to the Western Australian Industrial Relations Commission, p15. Available from:

http://www.wairc.wa.gov.au/WageCase/SWC2006/Incoming/Plowman%20Report%20State%20Wage%20Case%2006.pdf

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Grade II

Hotel and Tavern Workers’ Award

Restaurant, Tearoom and Catering Workers' Award

Classification Current Rate (per fortnight)

UnionsWA Proposed Rate

(per fortnight)

$ Increase (per fortnight)

Introductory $1,291.90 $1,362.95 $71.05

Level 1 $1,326.40 $1,399.35 $72.95

Level 2 $1,378.30 $1,454.11 $75.81

Level 3 $1,416.20 $1,494.09 $77.89

Level 4 $1,485.90 $1,567.62 $81.72

Level 5 $1,572.10 $1,658.57 $86.47

Level 6 $1,611.20 $1,699.82 $88.62

3.29 CCI submits that a flat dollar increase would assist the low paid while not posing undue risks to the WA economy. Given the decline in Western Australia’s economic performance compared to previous years, CCI believes that there is a strong argument for a flat dollar increase.

Disparity between State and National Minimum Rates of Pay

3.30 UnionsWA contends that there is no negative effect of a higher SMW upon the WA economy.

3.31 In the 2013 State Wage Case Decision the CICS reaffirmed Professor Plowman’s estimate that approximately about 2.2 per cent of the workforce would be directly affected by the State minimum wage adjustment8.

3.32 Given the exceptionally small proportion of employees directly affected by the SWC decision it can only be assumed that any increase granted through the SWC decision will have a marginal impact upon the state of the economy as a whole. Led to its logical conclusion this line of argument would suggest that the CICS should be encouraged to award irresponsibly high increases given the small group of employees who are affected. Clearly this conclusion ignores the other considerations specified in Section 50(A) of the Industrial Relations Act 1979 (IR Act).

3.33 In assessing the impact of two minimum wages, sections 50A(3)(d) and (e) of the IR Act (shown below) are the relevant matters for consideration:

(d) to the extent that it is relevant, the capacity of employers as a whole to bear the costs of increased wages, salaries, allowances and other remuneration; and

(e) for the purposes of subsection (1)(b) and (c), the need to ensure that the Western Australian award framework represents a system of fair wages and conditions of employment; and

8 2013 WAIRC 00347 at [28]

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3.34 What UnionsWA submission fails to consider is the capacity of generally small unincorporated businesses who are captured by the State system to pay higher minimum rates of pay then their incorporated, often larger, competitors and the fairness of such an outcome.

3.35 In considering the impact of the minimum wage on the economy, UnionsWA points to Western Australia having relatively high wage growth compared to the other States and relative low unemployment levels.

3.36 What UnionsWa submission fails to highlight is the drop in both of these statistics compared to last year. As identified in paragraph 4.13 of CCI’s submission the State unemployment rate averaged 4 per cent in 2012 increasing to an average of 4.6 per cent for 2013 and for the first 4 months of 2014 to 5.2 per cent. Paragraph 7.44 of CCI’s submission further shows an ongoing drop in wages growth, as measured by the Wage Price Index (WPI). These statistics, when put into the perspective of previous years, demonstrates a clear weakening of the Western Australian economy.

3.37 Reference is also made to growth in labour productivity of Western Australia when compared to the National average. The PwC Productivity Snapshot9 shows that Western Australian labour productivity of 2.9 per cent is indeed higher than the National Average of 1.7 per cent, but that it is also substantially behind the growth experience in the Northern Territory (6.0 per cent), Tasmania (4.2 per cent) and ACT (3.6 per cent). Whilst Western Australia’s labour productivity growth over previous years isn’t quoted in the PwC report, the National growth of 1.7 per cent is significantly down from the 3.6 per cent growth experienced in 201210.

3.38 UnionsWA has also identified that labour productivity in Western Australia is led by the mining industry. It must be remembered that labour productivity is measured by comparing the ratio of volume output produced to the volume of labour employed. Western Australia is moving away from a construction driven boom, which is labour intensive, with most resource projects in the North West now having moved into production. Operational mine sites are significantly less labour intensive than during the construction phase. Consequently labour productivity in this circumstance is derived from capital investment producing greater outputs with the need for fewer employees. This is a very different outcome from the picture being portrayed by UnionsWA, which seems to suggest that labour productivity is being driven by individual employees working more productively.

3.39 As identified in CCI’s 2013 Submission to the State Wage Case, the following chart shows that productivity is much higher in the mining sector as opposed to the rest of the Western Australian economy. Employees in the mining industry generates about 3.5 times as much output per hour worked than the Western Australian all industry total, while the industries that are most likely to have a high number of unincorporated businesses (Rental, Hiring and Real Estate; Other Services; Accommodation and Food Services; Administrative Support Services, and Retail Trade) produce less than half of the Western Australian all industry total.

9

PwC Productivity Snapshot December 2013, p10

10 Ibid, p8

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Who is likely to be impacted by the State Wage Case

3.40 UnionsWA seeks to infer that State system employees are more likely to be reliant upon award rates of pay increases, than National system employers on the basis that a greater proportion who are female, under 24 years of age, or in precarious employment.

3.41 UnionsWA provides no proof to substantiate this assumption. Furthermore, they associate part time employment with precarious employment. Given that the rights and protections offered to part time employees, in CCI’s opinion it is hard to reasonably make that conclusion.

3.42 To draw a conclusion that all award reliant employees are living in low income families is also incorrect. In the National 2012-13 Annual Wage Review, the Fair Work Commission (FWC) concluded that:

A significant proportion of low-paid adult employees live in middle to high income households. An analysis of 2011 Household Income and Labour Dynamics in Australia (HILDA) Survey data showed that about 30 per cent of low-paid adult employees live in households in the top four income deciles. The tax-transfer system can provide more targeted assistance to low-income households and is a more efficient means of addressing poverty11.

3.43 UnionsWA also makes reference to the gender pay gap of 23.6 per cent for WA being higher than the national average of 17.1 per cent. However, UnionsWA fails to acknowledge that the gender pay gap has fallen by 2.8 per cent in the past 12 months down from 26.4 per cent. Nationally the decline was a far smaller 0.4 per cent, down from 17.5 per cent12.

3.44 We would agree with the Minister’s conclusion, at paragraph 87 of his submission, that this change has more to do with a decline in male average earnings than any substantial gain in female earnings. CCI submits that the recent resources boom has increased earnings in male dominated industries, particularly within the construction industry.

3.45 CCI is of the view that increases to the SMW and award rates of pay are unlikely to have a measurable impact upon the gender pay gap and that this issue needs to be addressed

11

[2013] FWCFB 4000 at [57]

12 Submissions of Unions WA on the 2013 state wage order at [7.10]

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through other mechanisms. We further agree with the conclusion of the CICS in the 2012 State Wage Decision that:

“The lack of any measurable reduction in the gender pay gap in WA following the $29.00 per week increase to the minimum wage we ordered in 2008 leads inevitably to the conclusion that the gender pay gap in WA is unlikely to be reduced by any order which can issue from these proceedings: the overriding effect of the FW Act makes it likely that the coverage of the State Wage order is insignificant for this purpose.”13

Minimum Wage and Incentive to Bargain

3.46 Section 50A(3)(v) of the IR Act requires the CICS to take into consideration the need to protect employees who may be unable to reach an industrial agreement.

3.47 CCI submits that a 5.5 per cent increase to the award rates of pay does not provide protection to this group of employees, rather it seeks to advance their interests to the detriment of those employees who are covered by an industrial agreement. As such we submit that the claim is contrary to the object of the IR Act, in particular section 6(ad) – to promote collective bargaining.

3.48 UnionsWA refers to the report of the Workplace Research Centre that there may be a positive association between wage increases in enterprise agreement and minimum wage increases in that the proportion of agreements with an Averaged Annualise Wage Increase lower than the increase to the C10 classification declined after the annual wage review.

3.49 This raises the prospect of a flow on effect of the minimum wage increases to the outcomes of enterprise bargaining. As identified at paragraph 7.44 of CCI’s submission to the CICS14, wage growth in WA, as measured by the WPI was 3 per cent in the year to December 2013. CCI is of the view that a 5.5 per cent increase to award rates of pay has the potential to adversely affect collective bargaining by either acting as a significant disincentive for employees to support increases below this amount or push the wage outcomes above an amount that is sustainable given the current economic environment.

Encouraging Ongoing Skill Development

3.50 UnionsWA contends that a substantial increase to the award rates of pay would further encourage the uptake of apprenticeships.

3.51 UnionsWA seeks to apply the reasoning of the FWC in the recent Apprenticeship decision which concluded that increases to apprenticeship rates may improve the attractiveness of apprenticeships and have a positive impact upon completion rates. Whilst CCI does not agree with the reasoning of this decision, it must be noted that this decision sought to achieve these objectives by increasing the apprenticeship rates for first and second year apprenticeships.

3.52 As part of these proceedings UnionsWA is not seeking to increase the apprentice rates prescribed by the State awards which generally provide for apprentices in their first year to receive 42 per cent of any increase granted and 55 per cent in the case of second year apprentices.

13

2012 WAIRC 00346 at [54] 14

Op cit. 2014 CCI Submission to the CICS. Para 7.44

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3.53 We would therefore contend that increases arising from the SWC is a very poor tool for increasing the attractiveness of apprenticeships given the reduced flow on effect of any increase.

3.54 This argument also assumes that a key motivator for people entering apprenticeship is the apprenticeship wage as distinct from the long term benefits derived from a trade qualification.

Economic Context

3.55 In considering the state of the economy it is important to focus not on how the WA economy is placed compared to the rest of Australia, but how it currently stands compared to previous performance. UnionsWA’s submission fails to consider this.

3.56 We submit that the CICS should take into consideration that the level of unemployment has been increasing with a significant slow down in the number of new jobs being created. UnionsWA has also commented on young people under the age of 24 having greater representation in the State system. They are also the group which is most likely to be unemployed, with the current unemployment levels for 15-24 years of age at 9.8 per cent, as of April 2014.

3.57 Furthermore, projected economic growth for WA is also predicted to be substantially lower than previous years.

3.58 UnionsWA also identifies that there has been growth in the number of businesses operating between 2007/08 and 2011/12. Whilst the data is dated, an interesting observation is that of the industries selected for comparison in UnionsWA submission, growth for small businesses is substantially lower than for all businesses. Two important aspects to note with this data is the substantial decline in the number of small retail operators and total growth.

3.59 Over the period the total number of small business operators grew by only 0.1 per cent suggesting that small business growth has stagnated.

3.60 With respect to the retail industry, UnionsWA downplays the 5.3 per cent decline in small retail operators by pointing to an increase in retail turnover. When compared together these statistics would suggest that the growth is being experienced by larger retail operators who are not likely to be covered by the State system.

3.61 UnionsWA also identifies that population growth in Western Australia is higher than other States, which will increase demand for services, thus benefiting businesses, including those in the State system. CCI questions the logic of this assumption when applied to small business. Whilst increases population growth may benefit larger operators who are able to open additional outlets to accommodate the increased growth, small business will not necessary have the opportunity to capitalise on such growth, particularly where the business is located in an already established location. The exceptionally low 0.1 per cent growth in the number of small businesses between 2007/08 and 2011/12 when compared to national population growth of 8.8 per cent between September 2008-13 would seem to suggest that small businesses have not generally benefited from population growth.

3.62 Whilst consideration should be given to the state of the economy as a whole, it is also necessary to consider the experiences of those businesses that remain in the State system. A common contention of UnionsWA is that the benefits of the resources boom in Western AUstralia have not been shared equally across the workforce. The same is also true for the experiences of businesses within the Western Australian economy. CCI would refer the CICS to

CCIWA 2014 State Wage Case Submission Page 14

paragraphs 5.23 to 5.26 of our submission which examines the expectations of Western Australian businesses.

Negative Outcomes

3.63 UnionsWA contends that CPI does not reflect the true impact of cost of living pressures on the low paid and seeks to focus instead on selected components.

3.64 UnionsWA highlights the Social Policy Research Centre’s (SPRC) study which seeks to identify the top 10 issues affecting the disadvantaged. Of course it should be noted that these issues may not reflect those of employees on award rates of pay of the SMW.

3.65 To demonstrate that the cost of providing for these needs has increased greater than CPI UnionsWA has selected five CPI subgroups that at best only addresses only four of these components.

3.66 Two significant elements have been ignored in UnionsWA comparison. The first being a substantial daily meal. The Food and Non-Alcoholic Beverages Index increased by 17.3 per cent between June 2006 and June 2013 which is substantially below the stated 28.1 per cent increase in the SMW over the same period15. The second ignored element is Warm Clothes and Bedding. The Clothing and Footwear Index stagnated over the period of June 2006 to June 2013 with a decline of 0.1 per cent16.

3.67 Selective comparison of components of CPI highlights the dangers of unpacking CPI to assess the impact of individual components upon hypothetical circumstances.

Superannuation

3.68 UnionsWA’s submission seems to advocate that Superannuation should be considered as an ancillary labour cost to employers, without regarding it as part of an employee’s overall remuneration package.

3.69 Superannuation provides a direct benefit for employees in providing them with a source of income in their retirement. Whilst the benefit for employees is one which is deferred, the cost to employers is immediate.

3.70 In its interaction with Western Australian businesses it is CCI’s experience that changes to superannuation form a significant consideration in most employers’ decisions with respect to pay increases as it impacts upon the overall costs of employment.

3.71 In the Federal Budget, the Australian Government has confirmed that the next 0.25 per cent increase in the SG will proceed and legislation will not be introduced to reverse the increase. The SG will increase to 9.5 per cent on 1 July 2014 as legislated for.

4. WACOSS Submission

4.1 CCI makes the following Submission in Reply in relation to the WACOSS Submission.

15 Australian Bureau of Statistics. 2014. Catalogue 6401.0. Consumer Price Index, March 2014. Index number for Food and

non alcoholic beverages for Perth in June 2006 was 85.0 and 99.7 in June 2013. 16

Ibid. Index number for Clothing and footwear for Perth in June 2006 was 103.7 and 103.6 in June 2013.

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4.2 WACOSS identifies in paragraph 5.0 of Cost of Living Report 2013 that the needs of the low paid need to be addressed through a range of measures and that the minimum wage is only one of these. In particular WACOSS states that it advocates for “An annual increase in the State Minimum which takes into account the increasing cost of living in WA”.

4.3 CCI submits that the cost of living in WA, can be identified by the (CPI). As CPI stands currently in WA, it is 3.0 per cent17 and is projected by Treasury to be 2.75 per cent for 2014/15. However, WACOSS in their submission has advocated for a $35 increase in the SMW which is significantly higher than a cost of living adjustment.

4.4 WACOSS identifies that a holistic approach is needed to address the needs of the low paid and that the relevant branches of Government have a significant role to play in this.

4.5 A significant component of WACOSS argument focuses on housing affordability and their 2013 Cost of Living Report identifies two strategies which seek address this issue. Whilst CCI offers no opinion on the measures proposed, we believe that targeted approach to address these issues is likely to be far more effective in providing a lasting solution than an increase to the SMW.

Coverage of State minimum wage order and CICS deliberations

4.6 CCI acknowledges that there is significant disagreement as to the number of private sector employees covered in the state system.

4.7 Whilst paragraph 7.0 of the WACOSS submission indicates that the SMW is significant for the Western Australian community sector, WACOSS fails to provide any evidence about the quantity of employees which rely on, or are affected, by the SMW order.

4.8 CCI is also of the view that most state system employees are covered by award rates of pay in excess of the SMW.

4.9 The greater part of WACOSS’s submission merely refers to those on “low income”, without actually clarifying who comprises this category of persons, including whether these persons actually fall within the State industrial relation system.

4.10 The definition of “low income” is broad and includes those who are reliant on other sources of income other than paid employment. The Australian Bureau of Statistics (ABS) defines income as:

“Income includes receipts from:

wages and salaries and other receipts from employment (whether from an employer or own incorporated enterprise), including income provided as part of salary sacrifice and/or salary package arrangements

profit/loss from own unincorporated business (including partnerships)

net investment income (interest, rent, dividends, royalties)

government pensions and allowances

17 2014 State Wage Case – Economic Outlook. May 2014. Accessed online at: http://www.wairc.wa.gov.au/WageCase/SWC2014/Incoming/APPL%2012014%20-%20Submissions%20of%20the%20Minister%20for%20Commerce%20-%20Attachment%20A.pdf

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private transfers (e.g. superannuation, regular workers' compensation, income from annuities, child support, and financial support received from family members not living in the same household).”18

4.11 Section 50A(3)(a)(ii) of the IR Act obliges the CICS in making a State wage order to take into consideration the need to meet the needs of the “low paid”. It is our understanding that there is no definition of the “low paid” in this context. However, as a matter of logic, CCI submits that the term “low-paid” in this context would be most appropriately described as those persons reliant on, or affected by, the SMW order.

4.12 On this basis, CCI asserts that a significant component of the WACOSS submission relates to an undefined and unquantifiable category of “low income” earners. As a result, CCI submits that:

a) WACOSS have not provided hard evidence to support their submission as to the living circumstances of those who are SMW reliant or who are affected by SMW; and

b) How the proposed increase of $35.00 SMW increase is required in order to meet the needs, or improve the living standards of those who are SMW reliant.

Average weekly ordinary time earnings

4.13 WACOSS submission attempts to portray the argument, both through Figure 1 and paragraph 3.0, that the SMW has not kept up with the increases in Average Weekly Ordinary Time Earnings (AWOTE) over the past 12 years.

4.14 CCI submits that the CICS has previously determined that AWOTE is not an appropriate comparator in the context of the SWC. We would also reiterate our comments in paragraph 3.6 to 3.12 of this submission.

Gini Coefficient

4.15 Paragraph 3.0 refers to the Redistribution, Inequality and Growth report and more specifically that “Lower net inequality is robustly correlated with faster and more durable growth, for a given level of distribution”. It should be noted that this report is not focused on comparing average earnings against statutory minimum rather looking at broader issues of inequity and in our opinion it is not relevant to these proceedings. In particular the author offers the following cautionary note:

“We need to be mindful about over-interpreting these results, especially for policy purposes. It is hard to go from these sorts of correlations to firm statements about causality. We have not accounted for the possible effects that redistribution may have on market inequality. We have emphasized the uncertainty caused by the scarcity of reliable data, particularly about redistribution. Our measure of redistribution captures only direct taxes and subsidies, for example, so we shed no direct light on the redistributive effects of in-kind government provision of health and education which a priori would seem, if anything, to be more growth-

friendly than the measures we account for.” [Emphasis added]19

18 Australian Bureau of Statistics. 2011. Catalogue 6554.0: Household Wealth and Wealth Distribution, Australia, 2009-10.

Accessed online at http://www.abs.gov.au/

19 p26

CCIWA 2014 State Wage Case Submission Page 17

4.16 WACOSS submits, in relation to the Bankwest Curtin Economics Centre Sharing the Boom (Bankwest Report) that WA’s incomes have outpaced national averages, but that low-income households are falling behind all others at a faster rate in WA then Australia.

4.17 It should also be noted that the Bankwest Report also identifies that:

“The majority of the rise in household incomes in WA over the past six years has stemmed from wages growth. This is evidenced by the increase in wages and salaries as a proportion of total household income across the majority of household types between 2005–06 and 2011–12. For Perth, all family types have seen their wages and salaries increase as a proportion of total household income, with most household types ranked third in movements over time (and all above the national average). The biggest increase has been for lone person households, for whom around45 per cent of total household income in 2005–06 was sourced from wages and salaries. This has increased to 54 per cent in just six years.”20

4.18 It should also be noted that the report details evidence as to how all households, even lone person households, have had their wages salaries increased.21

4.19 Paragraph 3.0, and in particular Figure 4, of the WACOSS Submissions asserts that Western Australia has one of the highest Gini Coefficients and in-turn the highest levels of income inequality amongst Organisations for Economic Co-operation Development (OECD) countries.

4.20 CCI submits that the Gini Coefficient as a measure for inequality can only be ineptly be applied to Western Australia and Australia.

4.21 The primary purpose of the Gini Coefficient is as a measure of poverty indicator used by International Non-Government Organisations, such as the International Monetary Fund (IMF) and World Bank, which do not allocate a Gini Coefficient to developed nations including Australia and the USA.

4.22 The Gini Coefficient as a measure across countries is skewed by the size of the countries compared. To draw a true comparison, the countries need to be of similar size and characteristics. For example, comparing a state of 2 million with countries of hundreds of millions will not permit a true comparison. The Gini Coefficient also does not take into account taxation levels and potential social security benefits.

4.23 WACOSS submitted that Western Australia’s Gini Coefficient still remains one of the highest in the OECD. CCI would like to point out that in a state like Western Australia, the Gini Coefficient is likely to be higher due to the presence of mining, oil and gas and related sector jobs in the State, which require higher remuneration to compensate for skills and conditions. When comparing Western Australia to global benchmarks, it is clear that it places itself amongst its peers in developed economies around the world. For example, Australia’s Gini Coefficient is

20 Bankwest Curtin Economics Centre, Sharing the Boom; the distribution of income and wealth in WA (2014). Available online: http://business.curtin.edu.au/local/docs/BCEC-Sharing-the-Boom.pdf 21

Ibid, pg 18.

CCIWA 2014 State Wage Case Submission Page 18

0.32022, the United Kingdom has a Gini Coefficient of 0.34523 and the United States also has a Gini Coefficient of 0.34524.

4.24 A clear example of why the Gini coefficient is unreliable on a world scale, is that Western Australia has a higher Gini coefficient (i.e. more unequal rating) than countries such as Armenia, Kazakhstan and the Ukraine, which all have a lower Gini Coefficient25 (i.e. a more “equal” indicator under the Gini standard).

4.25 Based on the above, CCI submits that the Gini coefficient is unreliable and should not be relied on for the purposes of this submission.

4.26 CCI would also like to submit that figure 4 should be disregarded on the premise that:

a) The data relied upon is four years out of date; and

b) It seeks to compare the Gini coefficient for OECD countries during the period of 2010, with the Gini coefficient of Australian states from 2011-12.

The cost of living in Western Australia and the WACOSS 2013 Cost of Living Report

4.27 WACOSS opening statement in relation to the cost of living in Western Australia makes the very broad statement that, as a society, Australia is now twice as rich as we were only a couple of decades ago.

4.28 Although WACOSS has made this statement, there is no evidence to substantiate this claim. WACOSS refers to Commsec’s State of the States Economic Performance Reports26 “Australia’s best performing economy”. CCI submits that although Western Australia, according to this report, is Australia’s best performing economy, WACOSS failed to make mention that this is only just the case. The Northern Territory is only slightly behind Western Australia, and in fact the Northern Territory has a growth rate that is more than one and half that of Western Australia27.

4.29 Paragraph 4.1 of the WACOSS Submission refers to the 2013 Cost of Living Report. In particular, WACOSS refers to a hypothetical example (i.e. Household B) to attempt to illustrate that two working adults being paid slightly above the SMW would have a weekly disposable income of $12.90

22

ABS,Household Income and Distribution 2011-2012. Cat 6523.0. Accessed online at:

http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/B0530ECF7A48B909CA257BC80016E4D3/$File/65230_2011-12.pdf 23

OECD, An overview of growing inequalities in OECD countries: Main Findings, Accessed online at: http://www.oecd.org/els/soc/49499779.pdf 24OECD, Factbook Country Statistical Profiles – 2013 edition. Accessed online at: http://stats.oecd.org/Index.aspx?QueryId=26068# 25

World Bank. Gini Index. Accessed online at:

http://data.worldbank.org/indicator/SI.POV.GINI/countries/1W?display=default 26

CommSec April 2014 State & territory economic performance report

http://www.investing.commsec.com.au/stateofstates/docs/NationalOverview.pdf

CCIWA 2014 State Wage Case Submission Page 19

4.30 CCI submits that the Household B example in the 2013 Cost of Living Report should be treated with caution as it is a hypothetical example (with hypothetical expenses etc) and therefore it cannot be ascertained whether these findings actually reflect the reality of those reliant on the SMW.

4.31 The conclusion that can be drawn from this is that the hypothetical household in paid employment is better off than those which are highly reliant on social security payments. Employment. Both WACOSS and UnionsWA have sought to utilise AWOTE to demonstrate income inequality. However what AWOTE does show is that most employees earn above the minimum wage demonstrating that paid employment provides households with the opportunity to improve their standard of living.

4.32 In our opinion this demonstrates the need to ensure that the minimum wage does not act as a barrier for those people wanting to enter the labour market who may otherwise be disadvantaged, such as the long term unemployed or young people.

4.33 WACOSS refers to, in paragraph 4.1, the fact that additional expenses may be incurred over the course of the year, meaning that the household will probably need to find ways to cut back its spending. CCI would like to submit that regardless of whether or not a person is on SMW, there may always be unexpected additional expenses.

4.34 WACOSS finally submits at the end of paragraph 4.1 that a working family may still be just one accident or a couple of missed pay-checks away from financial crisis. CCI submits that this is a generalised statement, as is most of paragraph 4.0, as many families through the state would be placed in the same position having missed a couple of pay checks.

Rental Affordability

4.35 WACOSS asserts at paragraph 5.1 of its Submission that many low and medium income households are now bearing the brunt of the lack of affordable housing in Western Australia.

4.36 CCI would like to submit, that evidence that is apparent from the Anglicare WA (2014) Rental Affordability Snapshot 2014,that was used in the WACOSS submission, has identified that housing market is actually better off this year.

4.37 Families on a dual minimum wage, similar to the “Household B” example from paragraph 4.0, are actually better off with 2.9 per cent of the market being affordable. This is up from last year when only 2.6 per cent of the market was affordable.28

4.38 CCI acknowledges that singles and single minimum wage income earners are in a tougher position than dual income households. However, the Anglicare WA (2014) Rental Affordability Snapshot 2014 identifies that single income earners now have 0.6 per cent of the market affordable to them for housing, in comparison with 0.5 per cent from last year.29

4.39 Some further positive results that came out of rental affordability from the Anglicare WA (2014) Rental Affordability Snapshot 2014, is that average rental is down 12 per cent from 2013, making the average rental $535 per week, down from $609 in 2013.30

28 Anglicare WA (2014) Rental Affordability Snapshot 2014. Available from:

http://www.anglicarewa.org.au/theme/anglicarewaorgau/assets/public/File/2014%20WA%20Mini%20Report%20-

%20Rental%20Affordability%20Snapshot%202014.pdf 29 Ibid. 30

Ibid.

CCIWA 2014 State Wage Case Submission Page 20

4.40 The median price is also down 8 per cent from $250 in 2013 to $480 this year.31

4.41 Figure 6 of WACOSS’s Submission compares overall median rental prices in Perth against the SMW.

4.42 For the reasons set out above, CCI submits that overall median rental prices in Perth are not an appropriate comparator (see in particular paragraphs 3.10 to 3.12 above). CCI also submits that Figure 6 compares overall median rental prices in Perth against a single SMW income. Whereas, paragraph 5.1, and in particular footnote 24, of WACOSS Submission indicate that that the average household composition in Western Australia is 2.5 persons. On this basis, it is arguable that any comparison against a single SMW income is of limited relevance.

4.43 WACOSS finally submits that the affordability, availability and appropriateness of housing is a serious issue for those on the minimum wage or those who are low and medium income earners.

4.44 CCI further submits that WACOSS have failed to provide any evidence how their proposed $35.00 increase to the SMW will resolve, or in any way alleviate, the prevalent issues associated with housing affordability or availability in Western Australia for those reliant on the SMW.

Home ownership

4.45 WACOSS asserts at paragraph 5.0 of their Submission that housing is the biggest contributor to financial hardship and the biggest risk factor for financial crisis for those on low and fixed incomes.

4.46 CCI submits that the lack of housing and the costs of home ownership in Western Australia is a significant and prevalent issue which equally affects those in the community that are not SMW reliant or who are impacted by the SMW.

4.47 CCI further submits that in the current market, home ownership would likely be out of reach for many persons who earn well above the SMW.

4.48 CCI submits that sufficient housing is a wider societal issue that cannot be adequately addressed in these proceedings and is rather a matter for the State and Federal governments to address.

4.49 CCI is of the view that targeted strategies, such as those identified in paragraph 5.0 of 2013 Cost of Living Report, are far more likely to result in a long term solution than could ever be achieved through SMW increases. Some examples of the recommendations proposed by WACOSS are;

a) as significant investment in public and community housing;

b) incentives to create more affordable rentals; and

c) inclusionary zoning policies for new housing projects requiring 15 per cent of development over 10 units, is a more beneficial adjustment to be made.32

31 Ibid. 32 Wacoss Cost of Living Report (2013) Available online: http://www.wairc.wa.gov.au/WageCase/SWC2014/Incoming/APPL%2012014%20-%20Cost%20of%20Living%20Report%20(Attachment%201)%20to%20WACOSS%20Submission.PDF

CCIWA 2014 State Wage Case Submission Page 21

Utilities

4.50 WACOSS asserts in paragraph 6.1, that low income households are feeling the pressure of the rising cost of utilities more than other Western Australians.

4.51 In particular, WACOSS submits that between December 2005 and December 2013, the CPI of utilities in Perth increased by 95 per cent.33

4.52 CCI acknowledges that the rise in utility expenses impacts on low income households. However, it is also a rising expense for business, particularly small businesses.

4.53 WACOSS further submits that low income families are also disadvantaged by the fact they are unlikely to be able to afford energy efficient measures for their homes or if renting, they will often be precluded from making significant energy efficient changes to their rental property.

4.54 In December 2012, the Clean Energy Council released a consumer guide to buying household solar panels.34 Depending on the size of the system, the costs ranged from approximately $6,000 to $15,000.35

4.55 On this basis, CCI submits that the initial capital outlay required to implement energy efficient measures in homes means that such measures will likely be out of reach for those who earn well above the SMW, particularly given the timeframes that are often required to recoup the initial outlay for such measures from the savings generated. Therefore, CCI submits that this is an irrelevant consideration for the purposes of these proceedings as it is not a barrier restricted to the low paid.

Food

4.56 In paragraph 6.2, WACOSS submits that people facing financial stress due to wider cost of living pressures are often forced to make difficult choices – such as balancing the nutritional quality of food against its cost.

4.57 CCI submits that one of the main resources referred to in WACOSS’s submission, Food Insecurity Is Associated with Chronic Disease among Low-income NHANES Participants, is based on households in the United States36. Using a comparison of households in the United States with that of WA is not a like contrast. Evidence of this is that Australia’s Purchasing Power Parody (PPP) is currently at US $10.20, compared to US$7.10 in the United States.

4.58 WACOSS further submits that the Commission needs to take into account the long-term consequences of issues such as nutritional poverty.

4.59 CCI submits that WACOSS have failed to produce any evidence which indicates that “nutritional poverty” is a phenomenon relevant to persons who are reliant on, or are impacted by, the SMW.

33 Australian Bureau of Statistics (December 2013) 6401.0 Consumer Price Index, Table 11 CPI: Group, Sub-group and Expenditure Class, Index Numbers by Capital City. Available online: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6401.0Dec%202013?OpenDocument 34 Clean Energy Council, Available online at: https://www.originenergy.com.au/files/Solar_PV_Consumer_Guide_Vol18.pdf 35 Ibid, page 5. 36 Seligman, H.K., Laraia, B.A., Kushel, M.B. (2010) Food Insecurity Is Associated with Chronic Disease among Low-Income NHANES Participants, The Journal of Nutrition, Feb 2010; 140(2): 304–310.

CCIWA 2014 State Wage Case Submission Page 22

4.60 On this basis, CCI respectfully submits that the unsubstantiated phenomena of “nutritional poverty” should not be considered as part of these proceedings and that CCI nutrition is a choice and factors such as education and personal choice are greater contributors.

4.61 WACOSS also raises concerns about higher costs of food in regional WA. It is the view of CCI that the Location Allowance General Order is designed to compensate for additional cost of living in region areas, in addition to other matters, and as such it is not a relevant consideration for the State Wage Case.

Transportation

4.62 WACOSS submitted at paragraph 6.3 that transportation is a particular challenge for low income households who are likely to live in outer and fringe areas of Perth. WACOSS also submits that some of these areas face a challenge of limited or no public transport and that cost is expensive.

4.63 WACOSS provides no evidence as to which areas of Perth do not have access to public transport. Furthermore the Perth public transport system is expanding as is evidenced by the recent extension of the Joondalup rail line through to Butler.

4.64 It should also be noted that the cost of public transport is subsidised, with the State Government committing $747 million to this as part of the 2014-2015 budget37.

4.65 The WACOSS submission is also premised on low paid employees having to commute to Perth. This ignores that many jobs, particularly in the service and retail industries, are located throughout the metropolitan area meaning that employees don’t necessarily have to travel significant distances.

Workers in the WA community sector

4.66 WACOSS refers to the Equal Remuneration Order (ERO) that was recently handed down in August 2013. In the State system, this was a pay increase for employees under the WA Social and Community Services Award and the Crisis Assistance and Support Housing Award.

4.67 In short, employees under this award will receive a wage increase of 23-47 per cent phased in over eight years. Needless to say, CCI submits that the community sector area has in fact already received significant increase and quite recently as well. It has been fortunate for the social and community services sector that such increases have been facilitated through the provision of additional Government funding. Unfortunately for most of the private sector there is no Government assistance to help offset increase costs of employment.

4.68 WACOSS submits that if there is not a significant minimum wage increase, community sector workers will effectively be losing some of the pay equity remedy they have just been awarded. Equally over award payment can also be used to address any perceived wage inequalities.

Gender 4.69 Issues of gender pay inequity were addressed by the CICS in the 2012 State wage case

submission in which it stated:

37

Western Australia State Budget 2014-2015 (2014) Available online: http://www.ourstatebudget.wa.gov.au/

CCIWA 2014 State Wage Case Submission Page 23

“The lack of any measurable reduction in the gender pay gap in WA following the $29.00 per week increase to the minimum wage we ordered in 2008 leads inevitably to the conclusion that the gender pay gap in WA is unlikely to be reduced by any order which can issue from these proceedings: the overriding effect of the FW Act makes it likely that the coverage of the State Wage order is insignificant for this purpose.”38

4.70 As identified above, the CICS has indicated that gender pay inequity has no bearing on the result of the State Wage decision.

4.71 WACOSS’s submissions identifies that the gender pay gap has decreased from the 2013 figures.

In 2013, WACOSS submitted that there was a gender pay gap of $515.40. In 2014, WACOSS submitted a gender pay gap of $412.90. A decrease can be seen in the gender pay gap from last year of $102.50 using the figures WACOSS has cited.

4.72 CCI agrees with the views of the CICS and the current decline in the gender pay gap highlights

the negligible impact of the State wage case decisions and is of the view that as the resource sector continues to contract, the gender pay will gap will also continue to decline.

4.73 CCI further submits that whilst WACOSS has brought some evidence to suggest there is a gender gap, they have failed to provide any evidence that the gap exists with respect to work of equal or comparable value under section 50A(3)(a)(vii) of the IR Act.

4.74 WACOSS have identified in their submission that the cost of childcare is a reason why some women were not in the labour force. Of course, increases to award rates of pay will inevitably flow onto the child care industry, which are likely to result in higher child care fees. CCI therefore believe that increases to the minimum wage are unlikely to result in increased workforce participation for those with caring responsibilities.

Insecure Work

4.75 WACOSS submits in paragraph 9.0 of their submission, that by increasing the minimum wage, the resilience and self-sufficiency of low paid workers would be improved to the benefit of the national welfare system and the community more broadly.

4.76 CCI submits that WACOSS has failed to provide any evidence which suggests that insecure work in Western Australia has increased.

4.77 CCI further submits that WACOSS has failed to demonstrate how their proposed $35.00 increase to the SMW will improve the resilience and self-sufficiency of low paid workers. In addition, CCI submits that a significant increase to the SMW may actually increase the frequency of insecure work rather than decrease it.

Young people

4.78 WACOSS is seeking a departure from the current method of awarding pay increases to junior employees. CCI submits that this argument, to the extent that it can be dealt with through the SWC, has been made out. It also ignores the challenges faced by young people in securing work as evidence by the significantly higher rates of youth unemployment, which would be further exacerbated by such an increase.

38 2012 WAIRC 00346 at [54] and [56]

CCIWA 2014 State Wage Case Submission Page 24

5. Minister’s Submission

5.1 CCI provides the following Submissions in Reply in relation to the Minister’s Submission.

5.2 CCI would like to reiterate the Minster’s vital statement regarding the importance of ensuring that it is

“imperative that any adjustment to State minimum and award rates of pay does not damage the viability of business enterprises or the willingness of employers to create new jobs… While it is essential that an appropriate safety net is maintained for the low paid, any adjustment to the minimum and award rates of pay should be weighed against the capacity of employers, particularly in small business, to pay for wage increases.” [Emphasis added]

5.3 CCI also highlights the Minister’s submission regarding the upcoming superannuation contribution increase and encourages the CICS to take the superannuation increase into account again in the 2014 SMW decision.

The Minister’s Position and economic context

5.4 The Minister makes a submission to the CICS for an increase to the SMW of an amount equal to forecast CPI.

5.5 The Western Australian Treasury (Treasury) forecast CPI for the 2014-2015 period to be 2.75 per cent, CCI asks the CICS to also take into account the Treasury’s future CPI forecasts, which forecasts a lower rate of inflation than submitted by the Minister for the current period.

5.6 The Minister uses the current economic climate as justification for his position.

5.7 The Minister states that “Current data suggest that growth in the State’s economy has moderated significantly from the peaks experienced in recent years, and that there has been a corresponding softening of demand for labour… In such a climate, it is prudent to be cautious about further increasing wage costs for employers.” [Emphasis added]

5.8 CCI echoes the Minister’s sentiment regarding the need to be cautious in increasing the cost of wages for employers.

5.9 CCI is of the view that a more responsible approach is required when considering any increase, particularly given the ongoing declining Western Australia’s economic performance.

The capacity of employers to bear the costs of increased wages

5.10 CCI welcomes the Minister’s acknowledgement of the current position of small employers.

5.11 At paragraph 75 the Minister also highlights “a decline in overall profitability of 6.5 per cent. This represents a significant downturn when compared to the growth of 4.4 per cent over the year to June 2012”.

5.12 CCI also highlights the Minister’s submission at paragraph 78, which discussed the further superannuation increase employers will be required to bear on 1 July 2014.

CCIWA 2014 State Wage Case Submission Page 25

5.13 At paragraph 79 the Minister accurately captures small business’ inability to bear further costs, with “excessive wage increases to hinder profitability and constrain employment growth.” The Minister correctly goes on further to state in relation to wage increases “it is nonetheless important to recognise the potential for immoderate wage increases to act as a brake on employers’ willingness to hire.”

5.14 Employers in Western Australia, particularly small business, only have the ability to control costs across a small number of areas. The majority of costs are fixed and unable to lowered. Rent and utilities for example, are costs businesses have limited control over.

5.15 The cost of labour is the easiest expense for most business to control. Particularly in the case of service based industries, labour makes up a large proportion of costs and businesses are able to make instant savings by either reducing the size of their labour force or varying the number of hours worked by staff.

5.16 As stated in the CCI 2014 Submission to the State Wage Case, wages continue to be the biggest concern for West Australia businesses, according to the Westpac - CCI Survey of Business Expectations39. Over 60 per cent of businesses ranked wage costs in their top three issues for 2013 (below). This compares to 50 per cent in 2013 and 39 per cent in 2012.

5.17 This is the fourth consecutive year that wage costs have been the number one concern of business in the Business Expectations Survey and this reflects the growing concern business has in regards to wage cost pressures.

5.18 Labour availability as a business concern, has continued to fall in the rankings of top business concerns, reflecting the higher availability of labour in the current market.

The Western Australian economy and the labour market

5.19 CCI highlights the Minister’s submission around the decline in the resources sector and the impact that this is having in the wider Western Australian economy.

5.20 In line with the resource industry decline, the Minister refers to the Treasury forecast, which forecasts the rate of growth for Western Australia is expected to remain below the long run average. Economic output is also forecast to continue to decline from 5.1 per cent in 2012-13 to 2.75 per cent in 2014-15.

39

Chamber of Commerce and Industry Western Australia. 2014. Westpac – CCI Survey of Business Expectations, March quarter 2014

CCIWA 2014 State Wage Case Submission Page 26

5.21 It is important to highlight the Minister’s forecast of slowed Gross State Product in the future, reflecting a decline in the State’s upcoming production levels.

5.22 Treasury forecasts a continuation of the softening of the Western Australian economy and subdued wages growth, as can be seen in the table below.40

5.23 CCI asks the CICS to consider the state of the Western Australian economy and the forecasts that growth and CPI will continue to decline as a direct result of the decline in the resources industry. The days of high growth and subsequent flow on effects have passed and CCI urges the CICS to ensure a realistic and moderate increase that is reflective of the current economic climate. Particularly given the forecast continued decline.

5.24 The softening of the labour market is also reported in the Minister's submission. With the Minister painting a picture that includes falling employment growth, an increase and further increases forecasted in the unemployment rate, and a decrease in the participation rate.

5.25 The Treasury41 comments that “The slowdown in employment growth is consistent with sustained weakness in leading indicators of labour demand (including job advertisements and business confidence), and a decline in business investment from its peak in 2012-13. It is also in line with anecdotal evidence, which suggests that hiring has been restrained by employers’ efforts to cut costs and improve productivity.” [Emphasis added]

5.26 CCI also highlights the Minister’s reference to the growth of AWOTE in the year 2013. Western Australia’s AWOTE grew at a rate of 2.5 per cent for the year, while Australia’s AWOTE grew 0.7 per cent higher to 3.2 per cent. While we highlight this slow down in growth, CCI still maintains the unreliability of AWOTE as an accurate measure of wages. In the 2012 reasons for decision the CICS state “that the setting of the WA minimum wage should be significantly influenced by its past or present relativity to AWOTE not to be appropriate.”

5.27 The Minister also discussed the decrease in the WPI. WPI is a much more reliable measure of wages growth. The decrease in the WPI for both Western Australia and Australia has dramatically declined over the past year. The gap between the National WPI and State “has narrowed over the past year as economic conditions in the State converge towards the rest of Australia.”42

40 Government of Western Australia (2014) 2014 State Wage Case – Economic Outlook, pg.16; and Government of Western

Australia (2014) 2014-15 Budget Statements, Budget Paper No.3, Economic and Fiscal Outlook, p.18. 41 Ibid. pg 9 42 Ibid. pg 11

CCIWA 2014 State Wage Case Submission Page 27

5.28 This narrowing of the WPI gap is correctly described by the Treasury as the “State convergence towards the rest of Australia.” As a consequence of the decline in the resources sector the Western Australian economy is moving back in line with the National economy. This should be reflected in the decision of the CICS. With all of the evidence presented by the Treasury the CICS should be able to see the need for restraint and should also factor in the weakness in wages growth.

5.29 It should also be noted that for the December quarter of 2013, the WPI is equal for Western Australia and Australia. Further indicating the convergence of Western Australia with Australia.

5.30 In comparison to the WPI for 2012, the WPI for 2013 has fallen by over a quarter. In 2012 the WPI was 4.3 per cent and has decreased to three per cent in 2013.

5.31 Western Australia has recorded the equal lowest WPI ever recorded for the State. This historical low wages growth should also be factored into and reflected by the CICS’ SMW decision.

Minimum and award wage earners in Western Australia

5.32 CCI agrees with Minister’s Submissions which indicates that it is difficult to estimate the number of employees who are covered by the State industrial relations system and that extensive research would need to be undertaken to actually ascertain a reliable and accurate figure.

5.33 The Department of Commerce estimate that between 21.7 per cent and 36.2 per cent of Western Australian employees are covered by the State industrial relations system.43

5.34 CCI maintains that this is an overestimation and the true number of employees left in the State system is much lower than the Department of Commerce estimate.

5.35 CCI also notes that the underlying data used to arrive at these estimates was dated May 2010.

5.36 CCI also refers to the discussion in the 2013 Reasons for Decision where the CICS states “As the Minister observes, the precise number directly, and indirectly, affected is not capable of precise calculation due to the absence of definitive data. It was common ground between those persons appearing that it is not necessary for these proceedings to determine the precise numbers of persons covered by the WA industrial relations system. We see no basis for us to depart from the conclusion of Professor David Plowman”.

5.37 In the 2013 Reasons for Decision the WAIRC highlights Professor Plowman’s findings “Professor Plowman estimated that about 2.2 per cent of the WA workforce would be directly affected by the State minimum wage adjustment; possibly 4 per cent of the WA workforce could be affected in differing degrees by the adjustments to other wages to maintain established relativities.”

5.38 CCI prefers Professor Plowman’s estimation of employees that would be affected by an SMW increase over the inflated estimation of the Department of Commerce.

5.39 CCI submits that the more current, August 2011, census data set out in Table 1 of the Minister’s Submissions is a more reliable, yet is still an overestimate of the businesses which may be covered by the State industrial relations system.

43

See [17] of Minister’s Submissions

CCIWA 2014 State Wage Case Submission Page 28

5.40 We have inserted a copy of Table 6 in the Minister’s Submissions below for ease of reference.

Table 6:

Unincorporated enterprises (owner managers) Employing, Western Australia August 201144

Industry 1-19

employees 20 or more employees

Not stated Total

employing

Construction 5,722 77 454 6,253

Retail trade 3,090 221 98 3,409

Agriculture, forestry and fishing 3,074 41 177 3,292

Other services* 2,194 23 141 2,358

Accommodation and food services 2,161 85 78 2,324

Professional, scientific and technical services 1,894 441 98 2,433

Manufacturing 1,730 87 77 1,894

Health care and social assistance 1,570 93 77 1,740

Transport, postal and warehousing 1,045 46 128 1,219

Administrative and support services 897 38 104 1039

Wholesale trade 683 41 40 764

Rental, hiring and real estate services 386 33 29 448

Education and training 378 18 40 436

Arts and recreation services 333 19 29 381

Inadequately described/ not stated 222 11 44 277

Financial and insurance services 212 19 20 251

Information media and telecommunications 92 5 4 101

Electricity, gas, water and waste services 82 3 6 91

Mining 71 24 8 103

Public administration and safety 64 16 10 90

All Industries 25,900 1341 1662 28,903

44

ABS (2012) 2011 Census of Population and Housing, “Western Australia, Working Population Profile, Industry of

Employment by Owner Managers by number of employees”, Table W10b

CCIWA 2014 State Wage Case Submission Page 29

*NB: The “Other services” industry includes a variety of services not classified elsewhere. They include: automotive repair and maintenance; electronic repairs; jewellery and watch repairs; hairdressing and beauty services; funeral and cemetery services; and laundry and dry cleaning services.

5.41 The Minister uses the data in Table 6 to submit that according to the relevant census data, there are 94,354 owner manager employing businesses in Western Australia and that 28,903 of those businesses or 30.6 per cent are unincorporated.

5.42 CCI submits that the figures set out in Table 6 of the Minister’s Submissions should be interpreted with caution for the following reasons:

a) it is unclear whether persons indicating that they employ between 1-19 employees included themselves (i.e. sole traders) and/or sub-contractors; and

b) in the case of a business involving a trust, the employer is frequently cited as the trustee without any identification as to who the trustee is, or the legal standing of that entity. In CCI’s experience in dealing with small to medium sized businesses in the majority of circumstances the trustee is a Pty Ltd company. To the extent that the Census has labelled employers identified as the trustee of a trust as unincorporated without any examination of the nature of that entity, then these figures are an overrepresentation of the number of employers remaining in the State industrial relations system.

5.43 At paragraphs 43 and 44 of the Minister’s Submissions, reference is made to the Employee Earnings, Benefits and Trade Union Membership 2011 Survey (EEBTUM Survey).

5.44 The Minister submits that on the basis of the EEBTUM Survey, in August 2011 at least 4.8 per cent of Western Australians covered by both the State and National industrial relations system who worked more than 35 hours per week earned less than $608 per week. On this basis, the Minister further submits that many Western Australians continue to rely directly on minimum wage rates.

5.45 CCI submits that the EEBTUM Survey results are unreliable as they calculate earnings based on more than 35 hours per week, where full time employment under the Minimum Conditions of Employment Act 1993 (WA) (MCE Act) is typically based on 38 hours per week.

5.46 Further, as set out above, the Minister has provided evidence which indicates that as at August 2011, 30.6 per cent of Western Australians (which we maintain is an overestimation) fall within the State industrial relations system. Therefore, using the Minister’s estimate that 30.6 per cent of Western Australians fall within the State system and the EEBTUM Survey data, it would appear that only approximately 1.47 per cent (i.e. 30.6 per cent of 4.8 per cent) of Western Australians in the State system actually earned less than $608 per week and therefore rely directly on the State wage order.

5.47 Even though CCI concedes that it is currently not possible to provide an actual figure about the quantity of workers who rely on the SMW, using the estimates provided by the Minister and Professor Plowman it would appear that a very small percentage do so.

5.48 CCI supports paragraph 40 of the Minister’s Submissions which indicates that it is difficult to estimate the number of employees who are covered by the State industrial relations system and that contemporary research would need to be undertaken to actually ascertain this figure.

5.49 As asserted above, CCI believes the Ministers estimate that between 21.7 per cent and 36.2 per cent of Western Australian employees are covered by the State industrial relations system,

CCIWA 2014 State Wage Case Submission Page 30

is an overestimation.45 In particular, we note that the underlying data used to arrive at these estimates was dated May 2010.

5.50 Based on the above, CCI submits that the Minister’s estimate that 30.6 per cent of Western Australian businesses are unincorporated and therefore fall within the State industrial relations systems should be considered as the absolute maximum estimate.

Providing fair wages in the context of community standards

5.51 CCI also wishes to highlight the Minister’s quote from the FWC “AWOTE statistics represent average gross (before tax) earnings of employees and do not relate to average award rates or to the earnings of the ‘average person’”.

5.52 CCI also reiterates paragraph 5.12 above, regarding reliance on AWOTE.

5.53 CCI stands by these findings that AWOTE is an unreliable tool for determining the true earnings of an “average person”.

5.54 In response to Figure 3 (for ease of reference we have include the figure below) of the Minister's submission, CCI submits that the above trend increase in Western Australian AWOTE is directly linked to the resources sector and that the AWOTE figures are directly skewed by the higher earnings that were associated with mining and associated industries.

46

5.55 However, the Minister does rightly acknowledge the direct effect of the mining and associated industries on AWOTE for Western Australia.

5.56 CCI is unsure why the Minister has used AWOTE, while simultaneously pointing out its flawed nature.

5.57 CCI also highlights the extent to which the mining boom has had an effect on the WPI as can be seen in Figure 3 above. WPI is a more reliable indicator of wages growth across time. The gap between CPI and WPI can also be seen to be directly impacted by the take-off of the mining and resources sectors in and has been increasing at a higher rate than CPI since then. The

45

See [40] of Minister’s Submissions 46 Minister of Commerce, Submission to the 2014 State Wage case, pg 16

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acceleration of AWOTE too, can also be seen to be impacted by the start of the mining boom, with a sharp acceleration following on from then.

5.58 It can also be seen in Figure 3 that the Western Australian minimum wage has also been increasing at a rate higher than CPI.

5.59 As CPI and WPI do not increase at the rate of AWOTE it is inappropriate for the CICS to factor AWOTE into its decision. This further discredits AWOTE as a true wages measure.

5.60 CCI encourages the CICS to disregard AWOTE as a factor in the decision, particularly given the numerous accounts of unreliability and the need to use AWOTE with caution. CCI again reminds the CICS of the admission made in the 2013 Reasons for Decision where the WAIRC agrees that a decision influenced by “AWOTE not to be appropriate”.47

The social benefits of a productive economy and labour market

5.61 CCI echoes the comments made by the Minister at paragraphs 61 to 62 for a reasonable increase that does not negatively impact on the economy and labour market.

5.62 In particular, CCI highlights the Minister’s call for “Ensuring that economic growth and the ongoing availability of employment opportunities are not impeded by excessive wage increases can help to increase the likelihood that living standards can be improved for a greater number of people.”

Employees unable to reach an industrial agreement

5.63 CCI supports paragraph 84 of the Minister’s Submission which indicates that an inappropriate increase to minimum wage (i.e. which they say is an adjustment in excess of real wage maintenance) may have the effect of removing impetus for employees to pursue bargaining.

5.64 The Minister also submits at paragraphs 82 and 83 of his Submission that small businesses also tends to rely on annual wage cases. In support of this statement, the Minister refers to national data as at May 2012 which indicates that 38.2 per cent of award-reliant employees were working for businesses that employed fewer than 20 staff.

5.65 CCI submits that given the May 2012 data is National data and presumably deals with employees in both the State and National industrial relations systems, it should not be relied upon to demonstrate that small businesses in the State industrial relations system rely on SMW increases.

Equal remuneration for men and women

5.66 CCI repeats paragraphs 3.43 to 3.45 and 4.71 to 4.76, above which provide that gender inequality issues cannot be adequately addressed in these proceedings.

5.67 CCI wishes to again point out, that in line with the decline in the resources sector the gender pay gap has begun to decline also.

5.68 The Minister asserts that the latest AWOTE for males and females in Western Australia currently shows a gender pay gap of 23.9 per cent, which is a decline of 2.5 per cent from last

47 Ibid para 76

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year’s gender pay gap of 26.4 per cent. This represents a 9.5 per cent decrease in the gender pay gap in only one year.

5.69 The decrease in gender pay gap is largely in line with the contraction of the resources sector.

5.70 However CCI repeats paragraphs 5.33 to 5.42 above which indicates that AWOTE is unreliable in the context of these proceedings. In particular, CCI refers to paragraphs 52,53 and 58 of the Minister’s Submissions which indicate that AWOTE is often unreliable and should be interpreted with caution.

Encouraging ongoing skills development

5.71 CCI highlights the Minister’s submission of the limited effect of the SMW decision on apprentices and trainees at paragraph 93.

5.72 CCI further highlights the impact of high wages as a barrier to entry level jobs and the flow on effects this may have on young people also at paragraph 93.

5.73 The “price” of entry level employees weighs on an employer’s decision to employ that person versus a more experienced or qualified person. CCI echoes the Minister statement that “it remains important for the Commission to consider the effect of any future increase upon the appeal to employers of hiring staff with limited skills and experience and providing training for them.”

Discrepancy between State and National minimum wage rates

5.74 CCI rejects the Minister's comments regarding the discrepancy between the State and National minimum wages. The Minister overlooks the crux of the argument that by having two sets of minimum wages, the State system employers are at a disadvantage.

5.75 The Minister looks at the argument as an argument that exists only to create parity. This is not the reason why CCI is arguing for a move toward parity over the medium term.

5.76 It is well accepted that the majority of State system employers are small business. It is also widely accepted that small business has smaller profit margins and the least ability to bear further cost burden.

5.77 State system wages being higher than Federal creates an uneven playing field for the small business in the State system. Before that small business even opens their doors in the morning they will be subject to higher costs than their National system competitor. State system employers purely by virtue of the system they sit in will have to pay their staff more.

5.78 The argument to move toward parity is not for the sake of just creating parity. It is an acknowledgment that State system employers are bearing the cost of the State’s prior economic growth.

5.79 Further, the argument of Western Australia being the “boom” state justifying a higher rate of pay for the small businesses that aren't even party to the boom is even less valid than previously. If the CICS has taken that into account in the past, the CICS must now take into account the well-publicised decline in the resources sector and the impact this is already having on the economy State and Nationally.

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5.80 Furthermore, as the Western Australian economy moves further into line with the National and as a decline in the State economy is clearly taking place the argument for a two tier minimum wage system becomes less sustainable.

5.81 The time for penalising a small business for happening to be in the State system should likewise be over.

5.82 This approach could be justified if all employers shared in the benefits of the resources boom. It is CCI’s view that in the case of most State system employers this is not the case.

6. Australian Hotels Association

6.1 AHA’s submission asks the CICS for a restrained increase of one per cent or $6.46 per week. The AHA also discusses the need for the difference in the State and Federal minimum wage to be absorbed over the coming years.

6.2 CCI broadly supports the AHA’s submissions.

6.3 CCI acknowledges the AHA’s submissions surrounding the hardships small business is facing in the current climate with additional cost pressures rising.

6.4 CCI highlights the AHA’s comments surrounding the additional burden the superannuation will place on small businesses. AHA uses an example of how an increase can increase costs, as they both multiply over time, and for additional employees.

6.5 CCI also recognises the high labour costs small business faces particularly the hospitality industry. The AHA quotes that labour costs for all industries, but in the hospitality industry are between 25 per cent and 27 per cent, which is much higher than the average labour costs of between 17 per cent and 17.8 per cent. This higher wages costs are typical of service based industries which make up a large proportion of small business in the State system.

6.6 CCI also highlights the AHA discussion on penalty rates. This section further reinforces CCI’s position in CCI’s 2014 Submission to the State Wage Case48 regarding the additionally high cost burden penalty rates places on small business that operate outside of “usual business hours”.

6.7 CCI submits that most businesses in the service industries now operate outside usual hours, and these service based employers make up a large proportion of the State system.

6.8 Increases to minimum and base rates of pay are multiplied when applied as penalty rates and this should be considered by the CICS in its decision. CCI submits that the CICS should take into consideration the impact that penalty rates have in providing a set of wages and conditions of employment, and that the award rates should not be considered in isolation

6.9 CCI also accepts that the increase to utilities and land taxes will apply to businesses in Western Australia, increasing the operating cost burden across the board.

6.10 CCI wishes to emphasise AHA’s position in regards to the need to align the National and State minimum wage in recognition of the unfair burden that is placed on smaller business in the State system in Western Australia.

48 Op cit. CCI 2014 SWC Submission. Pg 12. .

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Submitted on behalf of the

Chamber of Commerce and Industry of WA

____________________________

Paul Moss

Manager – Employee Relations

Ph: 08 9365 7555

email: paul.moss@cciwa.com

20 May 2014