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National Affairs

A penalty lifted off the economy

24 February 2017

Labor is creating unrealistic expectations by refusing to accept the decision of the umpire it created

Right:

Thinking straight? Labor leader Bill Shorten. Lukas Coch/AAP Image

Thinking straight? Labor leader Bill Shorten. Lukas Coch/AAP Image


Nothing is more central to Labor’s view of what makes Australia such a great place to live in than our long tradition of having an independent umpire to stop employers exploiting workers. Former Liberal prime minister Sir Robert Menzies shared that view; like others in the centre-left and centre-right, he argued that it was a key to Australia’s relative harmony and social equality compared to Britain or the United States.

The independent umpire was one of the original demands of the union movement in the 1890s. Labor supported Alfred Deakin when he introduced it at federal level, and it soon led to the groundbreaking Harvester judgement, which set minimum pay rates at levels that would allow a worker to support a family.

In recent decades, Labor has been the greatest supporter of arbitration, with the Liberals much more ambivalent. True, one of the Keating government’s great reforms was to open up an alternative path through enterprise bargaining, but even those outcomes had to be run past the umpire.

When John Howard’s WorkChoices allowed employers to ignore the commission and effectively impose rates and conditions on workers, Labor was loud and fervent in its support for keeping the umpire. Bill Shorten has referred to it as one of the key reasons why workers are much better off in Australia than in the United States.

But having an independent umpire means you have to accept its decisions when they go against you. If one side succeeds in overturning the decisions it doesn’t like, then there is no longer an independent umpire. The tradition that has underpinned our social fairness will be gone, thrown out the window.

And stunningly, it seems to be Labor that wants to do that. It looks like the narcotic self-indulgence of Coalition politics has crossed the floor, and normally sensible people on the Labor side can’t think straight anymore.

The Fair Work Commission’s decision to reduce penalty rates for Sundays and public holidays in four awards was a defeat for Labor and the union movement. But it is neither as severe nor as sweeping in its impact as they are trying to con Australians to believe.

A reforming Labor Party could have responded quite differently. Recent research by various groups, and reporting by Adele Ferguson and her Fairfax colleagues, has revealed an epidemic of underpayment of workers by employers. That is where Labor ought to be promising serious action to defend workers’ rights. It should not set out to overturn a decision made by an umpire it itself appointed.

Labor and the unions have misrepresented the decision by leaving out key elements. They have tried to blame it on the Turnbull government, when it was the decision of a five-member tribunal made up entirely of Labor appointees, under a process Labor initiated. One of the five helped draft the Fair Work Act. Two more are former union officials, including its chair, Iain Ross, Bill Kelty’s former deputy at the ACTU. This is not a Coalition hit squad.

The claims by Labor and the unions – losses of up to $6000 per worker, pay cuts of up to 30 per cent, a million workers affected – are unsubstantiated, implausible and misleading. For the most part, permanent workers will be paid time and a half (150 per cent) for Sunday work, and casual workers 175 per cent. The commission has made it clear that the new rates will be phased in over several years, and will coincide with rises in the minimum wage.

The changes are mostly moderate. The new penalty rate for working on public holidays is 225 per cent for full-time and part-time staff, and 250 per cent for casual workers. To me, that is ridiculously high. (New Zealand specifies only that employers must pay workers “at least time and a half,” or 150 per cent.) To employers, it is not much lower than the 250 and 275 per cent rates applying now.

The penalty rates decision applies to just four out of 122 workplace awards. It applies only to workers without an enterprise bargaining agreement, or EBA. The commission insists there will be no automatic flow-on to any other award; each case will be decided on its merits.

Moreover, the very success of the centre and the left in creating a highly targeted welfare system will mean that many of the workers left worse off by the decision will see their welfare benefits rise as their income falls. It will cushion their losses, as will their reduced tax rates, through bracket creep in reverse.


Labor and its union allies always knew that the review of penalty rates would be a problem for them. Why? Because the case they are trying to defend – insisting that workers must be paid twice as much to work on Sundays as they are on Mondays – is a very weak one.

Yes, working on Sundays and public holidays can be a drag, and socially inconvenient, but to insist that it requires double pay is absurd. Even a pro-worker tribunal like the Fair Work Commission panel found it impossible to defend as fair compensation for the actual inconvenience of Sunday work.

(A disclosure: in my previous life I worked frequently on Sundays as a journalist. Our penalty loading for Sunday work was 15 per cent. To me, that was a fair measure of the real level of inconvenience I suffered for working when my friends and family had the day off.)

But unions have a cultural problem: they are not used to the commission taking away pay rates and conditions they have previously won. The unions have been willing to trade off penalty rates as part of enterprise agreements – the retail industry argues that in fact most retail workers have already traded down their penalty rates for other gains in EBAs – but they are so used to winning in the commission that they find it hard to accept a decision under which they have to give up something unilaterally.

Labor must have expected this decision, or something like it. It’s had plenty of time to prepare its response. Why has it made such a mess of it?

During last year’s election campaign, it was hopping on hot coals on the issue. Bill Shorten kept insisting to workers that penalty rates would be at risk under a Turnbull government, and that a Shorten government would protect them. Yet when Neil Mitchell asked him on air if Labor would accept the commission’s findings on Sunday penalty rates, he replied unequivocally: “Yes. I said I would accept [the findings of] the independent tribunal.”

Right on, Bill. If a Labor government can interfere with the findings of an independent tribunal, what’s to stop a Liberal government doing so? If Turnbull can find a way to regain momentum by the next election, the Coalition would be much better placed in the next Senate. A Coalition–One Nation majority on the Senate floor in 2019 is not impossible. A Labor pledge to intervene to overrule the commission would invite the Coalition to do the same, wherever and whenever it suits it.

An umpire can’t be half-independent.

Second, what can Labor realistically do from opposition? Nothing, except to foment expectations, and promise to reverse the decision, if and when it wins office in two years’ time.

Whether that promise would be kept if Labor actually wins government is a fair question. By then, the decision would be largely implemented, and accepted. The idea of going back to double pay for Sunday work would be very difficult to sell. It is quite likely that once in power, a Labor government would decide it was too late to change the decision.

You can see why shadow attorney-general Mark Dreyfus was floundering almost comically on AM on Friday morning. He declared, “We will do everything within our power to make sure you can’t get these outcomes from our industrial relations system,” but then refused to say how they might do so – while also declaiming, “Sabra, I could not be clearer!”  He is paid well to create such fogs.

But let’s be clear: it would be an act of extreme cynicism if Labor were to pretend that it will overturn this decision in office, and then not do so. Yet the political reality is that if it got into office, this might be what happens. It would be better if Labor did not go down that track, and accepted that sometimes umpires make decisions we don’t like but must accept.

Labor’s lack of leadership on penalty rates has opened the way for Malcolm Turnbull to seize the initiative with real policies to protect the interests of the low-paid workers Labor claims to be defending. He can do what Labor should be calling for.

First, Turnbull and his ministers should actively support the decision, pointing out that it is the Australian way to have such decisions made by independent experts, and that while the Coalition supports the principle of penalty rates, paying people twice as much to work on Sundays is over the top in today’s world. He could echo the commission’s words – yes, the decision will make a substantial number of low-paid workers worse off – but emphasise that the effect will be cushioned by its gradual implementation and by the built-in supports provided by a highly progressive tax and transfer system.

Second, he could take the initiative by providing new funding to beef up government policing of the labour market, to detect and prosecute employers who are cheating their workers. Coalition values surely have no place for a culture of cheating by employers. The exposures by researchers and reporters suggest that, in the real world, many weekend workers don’t receive their full penalty rates anyway. By putting more cops on the beat, the government would be working to increase the wages they are actually paid.

Third, Turnbull could emphasise a key point ignored in the hysterical overreaction to the commission’s decision: excessive penalty rates have made some employers shut their doors on Sundays, while others employ only a skeleton staff. Sure, no one knows how many jobs will be created by this decision; only time will tell. But unless someone has repealed the laws of supply and demand, more people will be working as a result of this change, and more hours of work will be available, at premium rates.

Look at New Zealand: it did away with regulated penalty rates altogether, but the sun kept rising, people have kept working and spending, and its economy is clearly outperforming Australia’s. Unemployment is down to 5.2 per cent. GDP is growing at 3.6 per cent and the budget is back in surplus.


Some of you will have read all this with pursed lips. That’s all very well, you say, but the ultimate effect is that several hundred thousand low-paid workers will have their pay cut, and they will become worse off as a result. I don’t want to see that happen, you say, so I’m against the decision.

I take your point. But these are not the only low-paid people in Australia: they’re just some of the few who now double their wages by working on particular days. In future they will still get time and a half for working Sundays, which many other low-paid workers would envy. If there is a problem with workers at the bottom being paid too little, then our focus should be on all of them, not just those now in the spotlight.

The reality is that if the law requires employers to pay workers more than the revenue and sales they bring in, they will not be employed – or employers will cheat and pay them less than their due. In a world of competitive global markets, we can’t just make employers responsible for ensuring that our workers have adequate incomes. That’s the job of government.

If we think low-paid workers in Australia have too little income, then it’s government, not employers, whom we should be asking to right the balance – and for all low-paid workers, not just those being paid penalty rates at indefensible levels.

This decision is much smaller in its impact than the Labor–union scare campaign implies. It was a fair decision, by an independent umpire, made on the merits of the case. We should thank them for carrying out a very difficult job with such objectivity, fairness and conscientiousness. Labor should pull back from the brink, and drop its threats.

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