Australian Industrial Relations Commission Wages and Allowances Review 2007 Australian Catholic Council for Employment Relations Submission to the 2007 Wages and Allowances Review 8 AUGUST 2007 AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION Workplace Relations Act 1996 (Cth) Wages and Allowances Review 2007 SUBMISSION BY THE AUSTRALIAN CATHOLIC COUNCIL FOR EMPLOYMENT RELATIONS 8 AUGUST 2007 Introduction 1. This submission is made by the Australian Catholic Council for Employment Relations (“ACCER”) to the Australian Industrial Relations Commission (“AIRC”) for the Wages and Allowances Review 2007. 2. ACCER submits that: (a) it is appropriate to now flow on the increase of $10.26 per week in the Federal Minimum Wage (“FMW”) granted by the Australian Fair Pay Commission (“AFPC”) in its Wage-setting Decision No. 3/2007 (“AFPC 2007 Decision”); (b) however, the AIRC should go further and increase the FMW by $27.00 per week (inclusive of the $10.26 per week granted by the AFPC) for the reasons set out below. Statutory scheme 3. As a result of the reforms in the Workplace Relations Amendment (Work Choices) Act 2005 (Cth) (“Work Choices Act”) there has been a bifurcation of the wage setting functions under the Workplace Relations Act 1996 (Cth) (“WR Act”). 2 (a) The AFPC is to: (i) establish a new Australian Pay and Classification Scale (“APCS”); and (ii) adjust those rates from time to time; and (iii) (at least in its initial phase) adjust preserved APCSs (ss.214 to 216 of the WR Act) in respect of minimum rates of pay, applicable to employees of employers who come within the scope of the definition of “employer” in s.6 of the WR Act (“s.6 employers”); (b) The AIRC is required by Schedule 6 of the WR Act to adjust rates of pay in awards made by the AIRC prior to the Work Choices Act (“transitional awards”) which are binding upon employers who are not s.6 employers. AFPC wage setting functions 4. The AFPC’s wage setting functions are to be performed having regard to the matters set out in s.23 of the WR Act.1 5. Section 176 of the WR Act requires the AFPC to act in accordance with these wage setting parameters when exercising its wage setting powers. Importantly, for the purposes of this submission, the AFPC is 1 Section 23 of the WR Act provides as follows: “The objective of the AFPC in performing its wage setting function is to promote the economic prosperity of the people of Australia having regard to the following: (a) the capacity for the unemployed and low paid to obtain and remain in employment; (b) employment and competitiveness across the economy; (c) providing a safety net for the low paid; (d) providing minimum wages for junior employees, employees to whom training arrangements apply and employees with disabilities that ensure those employees are competitive in the labour market.” 3 to have regard to providing a safety net for the low paid. In addition, s.222 of the WR Act requires that, when exercising any of its wage setting powers, the AFPC must, amongst other things: “… (d) take account of the principles embodied in the Family Responsibilities Convention, in particular those relating to: (i) preventing discrimination against workers who have family responsibilities; or (ii) helping workers to reconcile their employment and family responsibilities; and (e) ensure that its decisions do not contain provisions that discriminate because of, or for reasons including, race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin.” AIRC wage setting functions 6. In exercising its wage setting powers under Schedule 6, the AIRC is to be guided by similar, albeit not identical, principles. 7. The AIRC’s function is to ensure that minimum safety net entitlements are maintained for wages and other specified monetary entitlements. 8. In contrast with the wage setting function of the AFPC, the AIRC’s wage setting function is underpinned by the conciliation and arbitration power (as it has been since its creation). The limitation on the ability of Parliament, through the conciliation and arbitration power, to direct the AIRC as to the level of wages to be paid was identified by Barwick CJ in R v Commonwealth Conciliation and Arbitration Commission; Ex parte Amalgamated Engineering Union (Australian Section) (1967) 118 CLR 219, at 242: 4 "The constitutional power in this area is to make laws with respect to the settlement of industrial disputes extending beyond the limits of one State by a specific means, namely, by conciliation and arbitration. The Parliament is unable itself to legislate the level of wages to be paid. Nor has it power to direct the arbitrator as to the level of wages he shall prescribe in the settlement of a dispute as to wages. The constitutional power requires that settlement of the dispute be left to the arbitrator." In the same case, Windeyer J said (at 269): "…the Parliament has no power under the Constitution to direct that it go about its task of settling industrial disputes by fixing wages according to some particular principle or formula. It must be given a discretion as to means having regard to the end, the prevention and settlement of industrial disputes by conciliation and arbitration. If the Act commanded that the Commission fix wages by reference to a basic wage it would, I consider, be invalid." 9. In exercising its powers to vary transitional awards, the AIRC must perform its functions in a way that furthers the objects of Schedule 6 and has regard to the matters set out in clause 8.2 2 Clause 8 of Schedule 6 provides (with emphasis added): “(1) The Commission must perform its functions under this Schedule in a way that furthers the objects of this Schedule. (2) In performing its functions under this Schedule, the Commission must ensure that minimum safety net entitlements are maintained for wages and other specified monetary entitlements, having regard to: (a) the desirability of high levels of productivity, low inflation, creation of jobs and high levels of employment; and (b) the principle that the wages and other monetary entitlements of transitional employees should not place them at a disadvantage compared with the entitlements of employees (within the meaning of subsection 5(1)); and (c) the principle that the costs to transitional employers of wages and other monetary entitlements should not place them at a competitive disadvantage in relation to employers (within the meaning of subsection 6(1)). (3) In having regard to the factors referred to in paragraph (2)(a), the Commission must have regard to: (a) wage-setting decisions of the AFPC; and (b) in particular, any statements by the AFPC about the effect of wage increases on productivity, inflation and levels of employment. (4) In performing its functions under this Schedule, the Commission must have regard to: (a) the desirability of its decisions being consistent with wage-setting decisions of the AFPC; and (b) the importance of providing minimum safety net entitlements that act as an incentive to bargaining at the workplace level.” 5 10. For the purposes of its wage setting functions, the principal object of Schedule 6 is to ensure that the AIRC’s functions and powers to vary transitional awards are exercised so that wages and other monetary entitlements are not inconsistent with wage-setting decisions of the AFPC. 11. However, it is clear that the drafters of the legislation were aware of the constitutional limitations on the Parliament in regard to the AIRC’s consideration of the AFPC’s decisions. Clause 8(2) specifies matters that the AIRC must have regard to, but it does not purport to restrict the range of matters that the AIRC could take into account. Consistent with that, clause 8(4) only goes so far as to require the AIRC to “have regard to…the desirability of its decisions being consistent with the wage-setting decisions of the AFPC”. The obligation in clause 8(3) to have regard to the wage setting decisions of the AFPC when having regard to the factors in clause 8(2)(a) also shows an intention to avoid an impermissible fetter on the AIRC’s capacity to arbitrate wage disputes. 12. Finally, and importantly for this submission, clause 9(1) of Schedule 6 requires the AIRC to observe various anti-discrimination provisions similar to those to which the AFPC must have regard. 3 3 Clause 9(1) of Schedule 6 provides that: “Without limiting clause 8, in exercising any of its powers under this Schedule, the Commission must: …. (d) take account of the principles embodied in the Family Responsibilities Convention, in particular those relating to: (i) preventing discrimination against workers who have family responsibilities; or (ii) helping workers to reconcile their employment and family responsibilities; and (e) ensure that its decisions do not contain provisions that discriminate because of, or for reasons including…family responsibilities…” 6 Family Responsibilities Convention 13. The Family Responsibilities Convention is reproduced at Schedule 5 to the WR Act.4 14. Relevantly, for the purposes of the wage setting functions of the AFPC and the AIRC, the Family Responsibilities Convention requires each member nation to make it an aim of national policy to: “…enable persons with family responsibilities who are engaged or wish to engage in employment to exercise their right to do so without being subject to discrimination and, to the extent possible, without conflict between their employment and family responsibilities.” 15. Further, Article 4 of the Family Responsibilities Convention requires members to take all measures compatible with national conditions to 4 Articles 3 and 4 of the Family Responsibilities Convention provide (with emphasis added): “Article 3 1. With a view to creating effective equality of opportunity and treatment for men and women workers, each Member shall make it an aim of national policy to enable persons with family responsibilities who are engaged or wish to engage in employment to exercise their right to do so without being subject to discrimination and, to the extent possible, without conflict between their employment and family responsibilities. 2. For the purposes of paragraph 1 of this Article, the term "discrimination" means discrimination in employment and occupation as defined by Articles 1 and 5 of the Discrimination (Employment and Occupation) Convention, 1958. Article 4 With a view to creating effective equality of opportunity and treatment for men and women workers, all measures compatible with national conditions and possibilities shall be taken-- (a) to enable workers with family responsibilities to exercise their right to free choice of employment; and (b) to take account of their needs in terms and conditions of employment and in social security.” 7 enable workers with family responsibilities to exercise their right to free choice of employment. 16. The Family Responsibilities Convention adopts the definition of “discrimination” from Articles 1 and 5 of the Discrimination (Employment and Occupation) Convention 1958.5 17. For the purposes of the wage setting functions of the AFPC and the AIRC, the definition of “discrimination” includes: 5 Articles 1 and 5 of the Discrimination (Employment and Occupation Convention, 1958 relevantly provide (with emphasis added): “Article 1 1. For the purpose of this Convention the term discrimination includes-- (a) any distinction, exclusion or preference made on the basis of race, colour, sex, religion, political opinion, national extraction or social origin, which has the effect of nullifying or impairing equality of opportunity or treatment in employment or occupation; (b) such other distinction, exclusion or preference which has the effect of nullifying or impairing equality of opportunity or treatment in employment or occupation as may be determined by the Member concerned after consultation with representative employers' and workers' organisations, where such exist, and with other appropriate bodies. 2. Any distinction, exclusion or preference in respect of a particular job based on the inherent requirements thereof shall not be deemed to be discrimination. 3. For the purpose of this Convention the terms employment and occupation include access to vocational training, access to employment and to particular occupations, and terms and conditions of employment. Article 5 1. Special measures of protection or assistance provided for in other Conventions or Recommendations adopted by the International Labour Conference shall not be deemed to be discrimination. 2. Any Member may, after consultation with representative employers' and workers' organisations, where such exist, determine that other special measures designed to meet the particular requirements of persons who, for reasons such as sex, age, disablement, family responsibilities or social or cultural status, are generally recognised to require special protection or assistance, shall not be deemed to be discrimination.” 8 “…such other distinction, exclusion or preference which has the effect of nullifying or impairing a quality of opportunity or treatment in employment or occupation as may be determined by the member …” 18. For the purposes of the Discrimination (Employment and Occupation) Convention, by Article 1(3) the terms “employment” and “occupation” include access to employment and to particular occupations, and terms and conditions of employment. Application of the statutory criteria by the AFPC AFPC 2006 Decision 19. In its Wage-setting Decision and Reasons for Decision – October 2006 (“AFPC 2006 Decision”), the AFPC noted at p.92 that it: “…is required to have regard to providing a safety net for the low paid. A number of factors contribute to the financial situation of the low paid including wages, other income, government benefits and pensions and income transfers … Any assessment of the adequacy or otherwise of the safety net must take account of the contribution that income transfers make to disposable income.” 20. The AFPC acknowledged that in setting a safety net for the low paid it is required to act with fairness. At pp.95-96 it stated that: “Fairness is seen to embody attributes of: • adequacy (ability to enjoy a reasonable or ‘decent’ standard of living); • equity (relativity with higher-paid workers); and • incentive (gap between in-work and out-of-work disposable income).” 21. In order to achieve “adequacy” when setting the safety net for the low paid, the AFPC stated (at p.96) that: 9 “There is general agreement that minimum wages should, in combination with cash transfers, provide an income ‘well above poverty’.” 22. Having regard to the principles embodied in the Family Responsibilities Convention, in setting a safety net for the low paid, the AFPC focussed at least in part on the income of a single income earner which enables his or her family to live “well above poverty”. It stated (at p.96): “The income support and family assistance safety net, and its continued improvement over recent years, allows people with family responsibilities to rely solely on a single wage to support their families. This means that they are able to compete for jobs on a more equal footing with people who do not have such additional responsibilities.” The AFPC recognised that a failure to set the FMW at a level which, when taken with available transfer payments, affords those with family responsibilities the opportunity to compete for jobs with those without family responsibilities, would not accord with the principles embodied in the Family Responsibilities Convention, and would be discriminatory having regard to s.222(1)(e). AFPC 2007 Decision 23. In the AFPC 2007 Decision, the AFPC acknowledges that the rates it sets are not, first and foremost, an “anti-poverty device” (p.68). Rather: “Statutory minimum wages, along with the tax/transfer system, have a significant role to play in providing a safety net for the low paid.” 24. Consistent with the AFPC 2006 Decision, in 2007 the AFPC sought to provide families with at least one full time wage earner on the 10 standard FMW with incomes well above Henderson Poverty Lines (“HPLs”).6 25. It sought to display this through Table 1.10 (at p.69). The Commission’s modelling in Table 1.10 does not purport to represent the disposable income of all low-income families, or even the average low- income family. Rather, it seeks to compare family disposable incomes resulting from typical combinations of low wages and income transfers to commonly-accepted poverty lines. This is done to judge whether the combination of wages and transfers provide a variety of family types with a level of disposable income that exceeds the relevant Henderson Poverty Lines (HPLs). The table indicates that for all family types the level of disposable income is well in excess of the relevant HPL. Table 1.10: Comparison of Henderson Poverty Lines with disposable income of income units earning varying proportions of the FMW, December 2006. Sources: Melbourne Institute of Applied Economic and Social Research, Poverty Lines: Australia December Quarter 2006, University of Melbourne, 12 April 2007; AFPC modelling. Assumptions: HPLs include housing costs. Dual-earner figures include additional ‘cost of work’ component of $65.53 pw. FMW = $511.86 per week at 31 December 2006 . Tax/transfer parameters as at 31 December 2006. Children aged 8-12. Households paying sufficient private rent to receive maximum rent assistance, where applicable. Singles on 50% FMW and couples on 50% and 100% FMW eligible to receive Newstart Allowance. Dual-earner examples assume income split 2:1. 6 The AFPC 2007 Decision adopts the HPL as a test of poverty (p.70) 11 Table 1.10 assumes that any entitlement to income support is taken up. Rent assistance is also included since the HPLs include housing costs and it is likely that many low-paid employees live in private rental accommodation. To the extent that individuals with similar characteristics are either ineligible for particular benefits or choose not to take up those entitlements, their disposable incomes will, of course, be lower. [emphasis added] 26. On the basis of Table 1.10, the AFPC concluded (at p.70) that: “Continued improvements over many years in the extent and coverage of income transfers for working families have resulted in families on the current minimum wage now having disposable incomes well in excess of relevant HPLs. …[It] remains satisfied that the combination of minimum wages and available income transfers provide families with at least one full time wage earner on the standard FMW with incomes well above the HPLs.” 27. In reaching this conclusion, the AFPC remained conscious of its obligation to: (a) provide a safety net for the low paid; and (b) have regard to the principles embodied in the Family Responsibilities Convention and avoid discrimination of the kind identified in s.222(1)(e), by seeking to ensure that, in setting the safety net at a level which allows workers with family responsibilities to rely solely on a single wage to support their families, those workers are able to compete on an equal footing with those without family responsibilities. The income levels which it assesses as being “well in excess of” or “well above” the HPLs are generally in the range of 27% to 30% above HPLs. 12 The AIRC’s regard to the AFPC 2007 Decision 28. In exercising its function to ensure that minimum safety net entitlements are maintained, the AIRC, like the AFPC, must take account of the principles embodied in the Family Responsibilities Convention and must not discriminate against those with family responsibilities (cl.9(1)(d) and (e) of Schedule 6) 29. Two particular aspects of the 2007 AFPC Decision warrant further scrutiny. (a) The first is that, for the purposes of calculating disposable incomes in Table 1.10, the formula includes in the transfer payments, the Newstart allowance, an allowance which is available only to individuals who enter into an activity agreement which requires them to actively seek employment. (b) Secondly, the measure of poverty that is used for the purposes of the comparison between disposable incomes and poverty, the HPL, is an inadequate measure. The Newstart Allowance 30. In order to satisfy its statutory obligation to have regard to: (a) the principles embodied in the Family Responsibilities Convention and the obligation to avoid discrimination against those with family responsibilities; and (b) the AFPC desire to provide families with at least one full time wage earner on the standard FMW with incomes well above poverty, the AIRC must consider for itself the appropriateness of including the Newstart Allowance in the calculation of disposable income. 13 31. The AFPC regards individuals as if they are in receipt of transfer payments even if they choose not to take them up and, importantly, even if they are not entitled to receive those transfer payments. The inclusion of the Newstart Allowance in the calculation of disposable incomes for those who are not entitled to the allowance impacts on: (a) that family’s disposable income; (b) the capacity of families to choose to live on one income so that one parent is able to care for the children without having to seek employment; and (c) the ability of the single income earner supporting his or her family to compete for jobs on a more equal footing with those who do not have family responsibilities. 32. The following Table shows the impact of the inclusion of the Newstart Allowance in the AFPC’s calculation of disposable income in circumstances where the family has no such entitlement. Jul ‘06 Dec ‘06 Jul ‘07 Oct ‘07 1. AFPC FMW 1A. FMW Gross 484.40 511.86 511.86 522.12 2. Single Person 2A. FMW Net/single DI 432.69 450.34 459.13 467.85 2B. Single HPL 333.45 346.47 357.56 363.10 (est.) (est.) 2C. Single DI>HPL (%) (2A÷2B) 29.8% 30% 28.4% 28.9% 3. Family DI (incl. Newstart) 3A. Family DI (AFPC) 815.46 829.42 848.73 859.92 (est.) 3B. Family HPL 626.32 650.78 671.60 682.02 (est.) (est.) 3C. Family DI (AFPC)>Family HPL 189.14 178.64 177.13 177.90 ($) (3A-3B) (est.) (est.) 3D. Family DI>Family HPL (%) 30.2% 27.5% 26.4% 26.1% (est.) (3A÷3B) (est.) 14 Jul ‘06 Dec ‘06 Jul ‘07 Oct ‘07 4. Family DI (excl. Newstart) 4A. Newstart allowance 107.79 103.20 103.20 104.75 (est.) 4B. Family DI without Newstart 707.67 726.22 745.53 755.17 (3A-4A) (est.) 4C. Family DI without Newstart 81.35 75.44 73.97 73.15 >Family HPL (4B-3B) (est.) 4D. Family DI without Newstart > 13% 11.6% 11% (est.) 10.7% (est.) Family HPL (%) (4B÷3B) In the table: “DI” is Disposable income “HPL” is Henderson Poverty Line 2A. The figures are from AFPC Table 5.2, Table 1.10, Table 1.8 and ACCER’s calculation, respectively. Table 5.2 is in the 2006 Decision and Tables 1.8 and 1.10 are in the 2007 Decision. 2B. The July 2006 and the December 2006 amounts are taken from quarterly publications of the Melbourne Institute of Applied Economic and Social Research. The July amount is the June quarter 2006 amount. The December 2006 amount is the amount for the December quarter 2006, which was used by the AFPC in Table 1.10. The July 2006 amount replaces a slightly lower amount in Table 5.2. At the time of the publication of the 2006 Decision the June amounts were not available. The figures for July 2007 and October 2007 are estimates based on the changes over the 12 months prior to the March quarter 2007. The increase over that time was from $330.77 to $352.16, an increase of 6.5%. It is assumed that the increase in each quarter will be 1.6%. The amount for July 2007 is 3.2% higher than the December quarter 2006 and the amount for October 2007 is 4.8% higher than the amount for December 2006. 3A. The amounts for July 2006, December 2006 and July 2007 are taken from the AFPC’s Table 5.2, Table 1.10 and Table 1.8, respectively. The net wage component of each is the net wage applicable to the single worker. The footnotes to Table 5.2 refer to the inclusion of the maximum rent assistance and the Newstart allowance in the composition of the non-wage income for July 2006. The footnotes to Tables 1.8 and 1.10 state that the amount includes “Tax/transfer parameters”, but do not give the composition of those items. The Commonwealth’s Centrelink/Family Assistance Rate Estimator provides on-line calculations of the maximum rent assistance and the Newstart allowance. The Newstart allowance in July 2007 for a person who had a partner employed on the FMW was $103.20 per week and the maximum rental assistance was $61.11 per week. The amount for October 2007 is based on the July 2007 figure, plus the FMW increase operative from 1 October. In the period July to October 2007 bi-annual indexed adjustments will be made to rental assistance and the Newstart allowance. It is assumed that both will be adjusted by 1.5% for the six-month period and that rental assistance will increase by 92 cents per week and the Newstart allowance will increase by $1.55 per week. These amounts and the after tax wage increase of $8.72 from 1 October will result in an increase in disposable income of $11.19 per week. 15 3B. The July 2006 and the December 2006 amounts are taken from quarterly publications of the Melbourne Institute of Applied Economic and Social Research. The July amount is the June quarter 2006 amount. The December 2006 amount is the amount for the December quarter 2006, which was used by the AFPC in Table 1.10. The July 2006 amount replaces a slightly lower amount in Table 5.2. At the time of the publication of the 2006 Decision the June amounts were not available. The figures for July 2007 and October 2007 are estimates based on the changes over the 12 months prior to the March quarter 2007. The increase over that time was from $621.29 to $661.45, an increase of 6.5%. It is assumed that the increase in each quarter will be 1.6%. The amount for July 2007 is 3.2% higher than the December quarter 2006 and the amount for October 2007 is 4.8% higher than the amount for December 2006. 4A. The Newstart allowances are means-tested and are adjusted bi- annually to reflect price movements. The amounts for July 2006, December 2006 and July 2007 have been calculated by ACCER using the Family Assistance Rate Estimator. The amount for October is based on an estimated increase of $1.55 per week from September 2007; see note 3A above. 33. In October 2007 a family of four reliant upon a single income will have a disposable income that is $73.15 above the relevant HPL. On no assessment could this be said to be living “well above poverty” or “well in excess of” or “well above” the relevant HPL. 34. It cannot be consistent with the principles embodied in the Family Responsibilities Convention that: (a) compared with the position of a single income earner living about 28.9% ($104.75) above the relevant HPL, the single income family lives only 10.7% ($73.15) above the HPL; and (b) when the Newstart Allowance is properly excluded, the single income earner must seek higher paid employment in order to achieve a disposable income which is “well in excess of” or “well above” the HPL. 35. Such an outcome: (a) is inconsistent with the principle of enabling “workers with family responsibilities to exercise their right to free choice of employment” without being subject to discrimination and 16 “without conflict between their employment and family responsibilities”; (b) discriminates against workers with family responsibilities; and (c) impedes the access that a person with family responsibilities has to employment, particular occupations and terms and conditions of employment. In order to maintain the relevant level of disposable income for the family the sole breadwinner must secure higher paid employment than a person without family responsibilities. They cannot compete on an equal footing. Use of the HPL 36. On the basis of Table 1.10, in assessing adequacy, the HPL was critical to the AFPC 2007 Decision.7 37. The use of the HPL in wage setting is novel, despite its availability to industrial tribunals for more than 30 years.8 Its utility as a kind of 7 The AFPC did recognise (at p.70) that: “While there are other poverty measures that could be used for comparison (for example, OECD poverty lines based on a proportion of median or mean equivalised household disposable income), the results of these comparisons are not dissimilar to those using the HPLs.” 8 The HPL was derived from research conducted by the Institute of Applied Economic and Social Research in 1966 and from subsequent adjustments made by the Commission of Inquiry into Poverty in 1973. The HPL for each of a number of households are published quarterly by the Institute of Applied Economic and Social Research, which describes how the poverty lines are calculated: “The poverty lines are based on a benchmark income of $62.70 for the September quarter 1973 established by the Henderson poverty enquiry. The benchmark income was the disposable income required to support the basic needs of a family of two adults and two children. Poverty lines for other types of households are derived from the benchmark using equivalence scales. The poverty lines are to periods subsequent to the benchmark date using an index of per capita household disposable income. A detailed description of the calculation and use of poverty lines is published in the Australian Economic Review, 4th Quarter 1987 and a discussion of their limitations is published in the Australian Economic Review, 1st quarter 1996.” (Poverty Lines: Australia ISSN 1448-0530 March Quarter 2007) 17 benchmark was rejected in the Safety Net Review Case 1997 (1997) 87 IR 90, when the FMW was first introduced to industrial awards. 38. The use of the HPL by the AFPC is inappropriate because: (a) it is not a relevant measure (for poverty or as a reference point for wage setting) for any one or more of the household units identified in Table 1.10;9 (b) it underestimates the disposable income needed to avoid poverty in the defined household units, in particular the family household of two adults and two children; and (c) the relativities underpinning the various poverty lines are inappropriate.10 Conclusion 39. Even disregarding the question of the appropriateness of the HPL as a wage setting parameter and its utility as a measure of poverty, the Table at paragraph 32 above indicates that the minimum wage set by the AFPC, when considered in association with the transfer payments which are actually available to families with a single income 9 The HPL was fixed at $62.70 in 1973 for a family of four. The primary question is whether the updated figure is appropriate as a measure of need (or a reference point for wage setting) more than 30 years later. ACCER submits that the HPL dollar amounts are not realistic today. Table 5.2 in the 2006 AFPC Decision showed that the HPL for the family of four was $621.29 per week. That figure is for the March Quarter 2006 and was, we submit, out of touch with reality. The figure applies to the “couple plus 2” where the head of the household is in the workforce. The figure for the family where the head is not in the workforce was $558.73. The family needed a lot more than $629.29 in order to stay out of poverty; and more again to compensate and reward the breadwinner for working. 10The HPL does not provide a proper basis for comparison across household units. The HPL purports to establish a line that indicates the amount of income needed to yield the same standard of living, below which the households would fall into poverty. The poverty line for a single person household, for example, is 53% of that of a family of four. Put another way, the costs of the same standard of living are assumed to be 89% higher for a family of four. That is very contentious. 18 earner, is manifestly inadequate to allow him or her to support a family. 40. If it is said that, even without the inclusion of the Newstart Allowance, the disposable income of the family with a single income earner is sufficient to allow the family to live well above poverty, ACCER submits that: (a) there is no proper factual basis for that conclusion; and (b) such a submission does not overcome the discrimination against those with family responsibilities. 41. The single income family is still left in the position where the income earner has to seek out higher paid employment in order to secure a level of income which exceeds poverty by the same amount as those without family responsibilities. 42. ACCER submits that the appropriate adjustment to the FMW should be $27.00 per week, rather than $10.26 as awarded by the AFPC. The formulation of the figure of $27.00 per week is set out in ACCER’s submission to the AFPC, a copy of which is Annexure 1 (see paragraphs 25 to 52 and 71 to 73). 43. If the matters raised by ACCER cannot be adequately dealt with in argument at the scheduled hearing on 13 and 14 August 2007, ACCER submits that the matter be listed at the AIRC’s earliest convenience for further submissions. Annexure 1 Australian Fair Pay Commission 2007 Minimum Wage Review ACCER Submission to the AFPC 2007 Minimum Wage Review 30 MARCH 2007 AUSTRALIAN FAIR PAY COMMISSION Workplace Relations Act 1996 MINIMUM WAGES REVIEW 2007 Submission by the Australian Catholic Council for Employment Relations 30 March 2007 Table of Contents Paragraphs Introduction 1-5 ACCER 6-11 The Inaugural Review 12-18 The AFPC’s First Decision 19-24 The Wage Safety Net 25-28 The Family Wage Issue 29-32 The Adequacy of the FMW and Transfer Payments 33-35 Table 5.2 36-39 The Newstart Allowance 40-42 Parenting Payments 43-47 Parenting Payments in Young Families 48-52 Rent Assistance 53-55 The Family at 150% of the FMW 56-57 The Henderson Poverty Line 58-60 The Need for Contemporary Research 61-66 International Comparisons 67-68 Conclusion 69-79 Appendix A: The Effective Minimum Wage 80-85 Appendix B: The Living Wage for Families 86-99 Appendix C: Research Proposals 100-110 2 Introduction 1. This submission is made by the Australian Catholic Council for Employment Relations (“ACCER”) to the Australian Fair Pay Commission (“the AFPC”) for its 2007 review of minimum wages. 2. The establishment of the AFPC, and a range of associated provisions, came as part of far-reaching amendments to the Workplace Relations Act 1996 (“the Act”) by the Workplace Relations Amendment (Work Choices) Act 2005 (‘the Work Choices amendments”). The Work Choices amendments were the most fundamental changes to Australian employment law since Federation. The Act applies to employers and workers previously covered by Federal legislation and to many employers and workers who were previously covered by State legislation. Under the Work Choices amendments perhaps 75% to 80% of Australian workers will be covered by the minimum rates set by the AFPC. One of the major changes of the Work Choices amendments was the transfer of Federal wage-setting powers from the Australian Industrial Relations Commission (“the AIRC”) to the AFPC. 3. The Work Choices amendments provide that the many award classifications and rates of pay previously fixed by Federal and State industrial awards are “preserved” in the Australian Pay and Classification Scale (“APCS”). The AFPC may adjust those rates (section 216), but its more substantial function (section 214) is to establish a new APCS and to adjust those rates from time to time. It has been estimated that there are some 4,000 awards encompassed by this initial APCS, containing some 40,000 pay classifications. 3 4. The Federal Minimum Wage (“the FMW”) was first set in the Safety Net Review Case 1997, following a series of amendments to the Act in 1996. The FMW was expressed as a full time weekly amount and increased annually in successive safety net review cases. The Work Choices amendments inserted a “standard FMW” of $12.75 per hour into the Act to reflect the hourly value of the FMW set by the AIRC in the Safety Net Review Case 2005. The vast majority of Australian workers are employed in work classifications which have minimum rates of pay that are higher than the Federal Minimum Wage. It has been estimated that the “Effective Minimum Wage” is around 7% higher than the FMW; see Appendix A 5. Arbitrated wage rates are a vital part of the protection of Australian workers. Approximately 20% of Australian workers are paid no more than the minimum rates of pay that have been prescribed by Federal or State wage determinations. The AFPC's determinations cover approximately 60% of this group of workers, with the balance covered by State determinations. These workers do not have the capacity to bargain for higher rates. They are “award- dependent” or "pay scale-dependent". The rates of pay for workers who are paid more than the arbitrated rates are often based on the level of, and movement in, those rates. 4 ACCER 6. ACCER is an agency of the Australian Catholic Bishops Conference. It provides the Conference and Catholic employers with advice, research and advocacy on matters affecting the employment relationship in Australian workplaces. 7. The Catholic Church has an established body of teaching, within Catholic Social Teaching, on work and the employment relationship. The Church’s public advocacy on employment issues is based on that teaching. The teaching is also important in the life of the Church. The Church, through its many agencies, is one of the largest employers in Australia and its agencies are required to manage their activities in accordance with Catholic Social Teaching. 8. Catholic teaching on the spiritual, economic and social aspects of modern industrial societies has its genesis in Pope Leo XIII’s 1891 encyclical Rerum Novarum. Rerum Novarum “expounds … the Catholic doctrine on work, the right to property, the principle of collaboration instead of class struggle as the fundamental means for social change, the rights of the weak, the dignity of the poor and the obligations of the rich, the perfecting of justice through charity, [and] on the right to form professional associations”; Congregation for Catholic Education, Guidelines for the Study and Teaching of the Church’s Social Doctrine in the Formation of Priests,1988, page 24. 9. This submission expounds values that are derived from the doctrines of the Catholic Church. They are also values shared by most Australians: the 5 equality and dignity of men and women; the obligation of society to care for all of its members; the obligation of governments to support the poor and the vulnerable; and the support of the family for the well-being of individuals and society as a whole. They are values that are consistent with the proper promotion of the economic prosperity of the people of Australia and essential for their welfare. 10. Most relevant to the current review of minimum wages is the Church’s teaching that wages should be sufficient to support the worker and the worker’s family. On the centenary of Rerum Novarum the Australian Catholic Bishops issued a Pastoral letter in which they referred to the need for adequate wages: “It was his [Pope Leo XIII’s] view that human society is built upon and around productive human work. When a person is employed to work full-time for wages, the employer, in strict justice, will pay for an honest day’s work a wage sufficient to enable the worker, even if unskilled, to have the benefits of survival, good health, security and modest comfort. The wage must also allow the worker to provide for the future and acquire the personal property needed for the support of a family. To pressure or trick the worker into taking less is, therefore, unjust.” (A Century of Catholic Social Teaching) 11. The minimum wage necessary to support the worker and his or her family may be termed a Living Wage, or a family wage. It is a wage which permits one of the parents to work in the home and not undertake paid employment and which enables the family to achieve an appropriate standard of living. It calls for the fixing of a wage that is based on the needs of a family, not the needs of the single person. An explanation of aspects of the Living Wage is set out in Appendix B. 6 The Inaugural Review 12. The AFPC undertook its inaugural review of Wages in 2006 and published its first decision on 26 October 2006. Submissions were required to be filed by 31 July 2006 and were posted on the AFPC’s website. 13. ACCER filed written submissions in which substantial reference was made to the family wage issue and the need for fairness. ACCER drew that part of the submissions from an earlier submission that it had made to a Senate inquiry into the Work Choices amendments prior to their enactment. That submission had set out ACCER's concerns about aspects of those amendments. 14. Under the heading “Some jurisdictional issues”, ACCER urged the AFPC to resolve the family wage issue: “ACCER submits that the family wage issue should be considered by the AFPC in its inaugural review of wages. The question of whether the needs of the low paid include the costs of meeting the needs of their dependants is a question raised by section 23(c) [which refers to “a safety net for the low paid”] and it is a question that goes to the proper exercise of the AFPC’s jurisdiction. It requires the AFPC to form a view about the needs of the low paid in order to enable it to properly consider the balance and outcome of the various factors specified in section 23. The determination of the scope of section 23(c) will also be relevant to the undertaking of research and to the quantification of future wage increases. The AFPC should make a ruling on this aspect of its jurisdiction; a ruling to the effect that the needs of the low paid include the costs of meeting the needs of their dependants Some other parties may take a different view to ACCER on the family wage issue. It is a matter on which all interested parties should be heard, if they so wish, and appropriate notice should be given. ACCER would also want to have the opportunity of responding to any submissions made in opposition to the AFPC setting a family wage.” (Paragraphs 33 and 34) 7 15. ACCER also referred to the uncertainty of the AFPC’s ability or obligation to take fairness into account when setting wage rates and to the importance of this issue. It said it was a matter on which the AFPC should invite submissions and on which it should make a ruling. Neither of these two matters was listed for any kind of hearing, nor was ACCER invited to make further submissions on them. 16. ACCER’s conclusions included a reference to the consideration of needs and fairness: “The Federal Minimum Wage must meet the needs of the worker and his or her family. When account is taken of taxation and transfer payments, that wage must be sufficient to enable a couple with two children to achieve an acceptable standard of living. The current Federal Minimum Wage and some other classifications are insufficient. The setting of an appropriate Federal Minimum Wage cannot be achieved in one year and must be achieved over time, following the undertaking of appropriate research. The Federal Minimum Wage (and other classifications) should not be limited to the wage that merely meets the minimally acceptable standard of living. In good economic times award-dependent workers should receive real increases in their wages, consistent with the economic circumstances. For this reason, the AFPC should consider not only the needs of workers and the maintenance of the real value of wages, but it should also consider wage dispersion and equity between award-dependent workers and those who are in the bargaining sectors of the economy.” (Paragraphs 77-8) 17. ACCER made some proposals for the undertaking of further research to better understand the needs of low paid workers and their families. In substance, they are now set out in Appendix C. 18. ACCER argued that an increase of more than $26.60 per week or 70 cents per hour. Those increases were based on the Consumer Price Index movements of 4.6% from the time of the last Safety Net Review Case to the end of the June quarter 2006. The calculation was based on the wage at the lowest trades level 8 of $578.20 per week. As the Submission was filed at the end of July 2006 and there was a possibility of the decision being made after the publication of the September 2006 quarter CPI movements, ACCER submitted that the figure of $26.60 would need to be increased after that time. ACCER argued that the figure should be in excess of $26.60 in order to reflect the strength of the Australian economy and productivity increases. The AFPC’s First Decision 19. The AFPC published its Wage-Setting Decision and Reasons for Decision (“the Decision”) on 26 October 2006. Wage rates up to $700.00 per week were increased by 72 cents per hour, or $27.36 per week. Wage rates over $700.00 per week were increased by 58 cents per hour, or $22.04 per week. The decision came into effect on 1 December 2006. These figures need to be seen in the light of five quarterly movements in the Consumer Price Index since the previous Safety Net Review Case in the AIRC in June 2005. The AFPC’s wage determination, which is included in the Decision, is dated 6 October 2006, ie prior to the announcement on 25 October 2006 of the September 2006 quarter price movements. 20. The effect of the decision was to increase, by varying degrees, the real value of wages below $595 and to decrease the real value of wages above that figure, particularly for those earning in excess of $700.00 per week. The real value of the FMW was increased by $5.08 per week. The decrease in the real value of wages paid for higher classifications may be illustrated by reference to the classification that paid 50% more than the FMW, ie $726.20. That wage 9 was increased by $22.04 per week, or 3.03%. It represented a real wage reduction of $11.36 per week. 21. In a speech delivered on 15 March 2007 the Chair of the AFPC referred to these increases and to their “rationale”. The increase of $27.36 covered just over one million Australia workers, or about 10% of the workforce and the increase of $22.04 covered another 220,000 workers, or a further 2% of the workforce. The rationale for these amounts were “• higher increase for pay-scale reliant workers earning up to $700 per week reflects research findings and advice that lower-paid workers are more reliant on minimum wages • research also shows that higher paid workers are generally more likely to negotiate wage increases directly with their employers by agreement-making.” (http://www.fairpay.gov.au/fairpay/Media/) 22. We do not disagree with these views, but they are not, in our view, matters that justify a reduction in real wages. The 2% may be a small minority of the wage earners, but it represents 220,000 workers and families who have been denied fair treatment. These workers and their families comprise a population of almost that of the whole of Tasmania, approximately 490,000 people. These workers are not well paid and there is no apparent rationale for their less fortunate treatment. 23. The reduction in the real value of higher classification rates in 2006 has continued a trend since at least 1997. To illustrate, we take the case of the worker employed on a classification rate 150% of the FMW in July 2006, ie $726.60. Over the years since the Safety Net Review Case in April 1997, the increases for this classification have been (in reverse order): $17.00 (2005); $19.00 (2004); $17.00 (2003); $18.00 (2002); $17.00 (2001); $15.00 (2000); 10 $10.00 (1999); and $12.00 (1998). The rate after the 1997 adjustment was $601.60. As at July 2006 the increases totalled $125.00 per week. The increases to and including the AFPC's Decision took the rate to $748.64, a total gain of $147.04, or 24.44%. 24. In the period 30 June 1997 to 31 December 2006, the CPI Eight Capital Cities index moved from 120.2 to 155.5, or 29.36%. The comparison with the 24.44% increase in wages shows a substantial real wage reduction. The maintenance of the real value of the 1997 wage required a wage of $778.22 at the end of 2006, not $748.64. These workers have had a real wage reduction of $29.58 per week since 1997. These are not highly paid workers and it is a matter of concern that they have not been able to maintain their real wages in a period of substantial economic growth. They number 220,000 and in many cases the worker will be the sole or principal breadwinner in their families. Furthermore, as we mentioned earlier, many workers who are paid higher rates of pay often have their wages fixed by reference to the arbitrated rates. That is, the reduced real wages will have a wider impact than 200,000 workers and their families. The Wage Safety Net 25. The AFPC considered the issues of fairness and the family wage. It referred in its Decision to the various approaches of the parties to its obligation to have regard to a safety net for the low paid when setting wages. It accepted that the safety net should be fixed by reference to fairness. It considered that fairness had three attributes: adequacy (the ability to enjoy a reasonable or “decent” standard of living); equity (relativity with higher-paid workers); and incentive 11 (reflecting the gap between in-work and out-of-work disposable income); see pages 95-8. 26. The AFPC referred to the differing views of the parties on the single worker/family wage issue in the context of the first of these attributes, ie adequacy: “While the majority of submissions accept that wages can no longer be based on the needs of the entire family, a minority argue in favour of a family-based minimum wage. Others point out that wages are insufficient to enable some workers to support their families and also present evidence comparing wages with total household expenditures. The income support and family assistance safety net, and its continued improvement over recent years, allows people with family responsibilities to rely solely on a single wage to support their families. This means they are able to compete for jobs on a more equal footing with people who do not have such additional responsibilities. While many submissions indicate that current arrangements do not always provide an adequate income, there is little consensus as to an appropriate benchmark of adequacy. There is general agreement minimum wages should, in combination with cash transfers, provide an income ‘well above poverty’. The Commission’s modelling shows that this is indeed the case, for a variety of family types and commonly used definitions.”(Page 96, emphasis added, footnotes omitted.) 27. The Decision then sets out a table that compares Henderson Poverty Lines with the disposable income of various income/household units earning various proportions of the Federal Minimum Wage: 12 Table 5.2: Comparison of Henderson Poverty Lines with disposable income of income units earning varying proportions of Federal Minimum Wage (FMW), July 2006 Family Type Henderson DISPOSABLE INCOME (DI) DI AS PROPORATION OF HPL Poverty Line (HPL) 50% 100% 150% 50% 100% 150% FMW FMW FMW FMW FMW FMW Single adult, no children 330.77 358.10 432.63 588.85 1.08 1.31 1.78 Single parent, one child 424.65 516.80 630.02 778.97 1.22 1.48 1.83 Single parent, two children 513.99 599.61 712.83 862.57 1.17 1.39 1.68 Single earner couple, no 442.48 525.21 590.54 629.60 1.19 1.33 1.42 children Single earner couple, one 531.89 647.12 732.64 778.97 1.22 1.38 1.46 child Single earner couple, two 621.29 729.93 815.46 862.57 1.17 1.31 1.39 children Dual earner couple, no 505.04 *nm 629.76 705.44 nm 1.25 1.40 children Dual earner couple, one 594.45 *nm 736.01 825.40 nm 1.24 1.39 child Dual earner couple, two 683.85 *nm 818.82 909.00 nm 1.20 1.33 children Henderson poverty lines as at March 2006 (Melbourne Institute of Applied Economic and Social Research 2006), including housing costs and “cost of work” component of $62.56p.w. for each person in workforce. Federal minimum wage (FMW) = $484.40. Tax and transfer parameters as at July 2006. Children aged 8-12. Households paying sufficient private rent to receive maximum rent assistance, where applicable. Singles on 50% FMW and couples on 50% and 100% FMW eligible to receive Newstart Allowance. Dual earner examples assume income split 67:33. *nm not modelled. Source: Australian Fair Pay Commission “Wage-Setting Decision and Reasons for Decision” October 2006 13 28. ACCER has two concerns about this part of the Decision: first, the family wage/single worker issue, in particular the majority position as described by the AFPC; and, second, the claim that level of wages and transfer payments “allows people with family responsibilities to rely solely on a single wage to support their families.” The Family Wage Issue 29. As we noted earlier, ACCER submitted: “The Federal Minimum Wage must meet the needs of the worker and his or her family. When account is taken of taxation and transfer payments, that wage must be sufficient to enable a couple with two children to achieve an acceptable standard of living. The current Federal Minimum Wage and some other classifications are insufficient.” 30. This was described as a minority position. (A footnote to the passage indicated that ACCER’s view was the minority position.) However, the submissions published on the AFPC’s website do not show that the majority of submissions accepted that “wages can no longer be based on the needs of the entire family”. It was not, for example, the position of the Commonwealth, any of the six States and two Territories, the Australian Chamber of Commerce and Industry (“ACCI”) or Australian Industry Group. ACCI, for example, said: “Most of the parties to the National Wage Cases under the AIRC focussed on the family unit as the primary unit for analysis and we recommend that the AFPC continue this practice.” (para 9.9, page 221) 31. The Australian Council of Social Services (“ACOSS”), however, submitted: “Decisions on the level of minimum wages should be informed by ‘benchmark’ estimates of the costs of attaining a ‘decent basic living standard’ 14 for a single adult according to contemporary Australian standards.”(page 1). In a footnote to that passage ACOSS said: “The social security and family payment systems should adequately supplement minimum wages in families with jobless adults and children”. This is a repetition of what ACOSS put in its submissions to the Safety Net Review Case 2005 and in earlier safety net review cases. ACCER has contested ACOSS’s position, partly because transfer payments are not sufficient to meet the needs of dependants. It continues to contest that position because it is unrealistic, especially given that, as we understand it, ACOSS believes that transfer payments are insufficient to meet the needs of those who are not employed. There is good reason to maintain the long-standing position that wages must be fixed by reference to the needs of families, a position re-affirmed by the AIRC in the Safety Net Review Case 2004, when it said: “Whilst a significant proportion of Australian families continue to rely upon a single wage as their sole source of income, the needs of single income families will continue to be relevant in connection with consideration of the needs of the low paid.” (Safety Net Review-Wages, May 2004, Print PR002004, paragraph ) 32. The family wage issue also raises the operation of the anti-discrimination provisions in section 222 of the Act. Section 222 applies to the AFPC when exercising its wage-setting functions. The section seeks to ensure that the AFPC’s decisions do not contain provisions that discriminate because of, or for reasons including, family responsibilities. The AFPC is also to take into account the principles embodied in the Family Responsibilities Convention, which include principles relating to the prevention of discrimination against workers who have family responsibilities. The adoption of a policy to set wages by reference to the needs of the single person would be in breach of 15 section 222. Similarly, if the AFPC left the question of the adequacy of payments for dependents to the tax and transfer decisions of Government. The majority position as set out in the first sentence of the quotation from page 96 of the Decision is contrary to the obligation imposed by section 222. The Adequacy of the FMW and Transfer Payments 33. The AFPC did not expressly resolve the jurisdictional issue concerning the family wage question, apparently because it took the view that transfer payments are sufficient to meet the needs of dependants. It found that “income support and family assistance safety net, and its continued improvement over recent years, allows people with family responsibilities to rely solely on a single wage to support their families.” If this were truly the case then the single wage/family wage issue would be moot, and would remain so for as long as the transfer payments are sufficient. As we explain, ACCER contests this conclusion. 34. In this discussion about the family wage it should be made clear that ACCER accepts that there may be circumstances where a single person evaluation is sufficient for determining the adequacy of wage levels. Catholic social teaching does not exclude it. In his encyclical Laborem Exercens (at 19) Pope John Paul II referred to the need for a “family wage” sufficient for the worker and the worker’s dependants, or the availability of “other social measures such as family allowances [that]… correspond to the actual needs…” 35. A single person test may be appropriate if the following conditions are met: governments are committed to providing sufficient transfer payments to meet the reasonable living needs of dependents; the basic point of reference for 16 wage sufficiency is the family in which there is one breadwinner; the wage- setting authority is satisfied on proper evidence that the transfers are sufficient; and any shortfall in transfer payments is compensated for in the wage rates. Table 5.2 36. We turn now to the basis of the AFPC’s decision that transfer payments are sufficient to allow low paid workers “to rely solely on a single wage”. This is a matter of major importance in any discussion of the adequacy of minimum wage levels, particularly the Federal Minimum Wage. 37. Included in Table 5.2 is a comparison, as at July 2006, between the disposable income (ie after tax) of $432.63 for the single adult on the Federal Minimum Wage and the disposable income (ie after tax and transfers) of $815.46 for a family of four, comprising a couple, with one of them employed on the Federal Minimum Wage, and two children aged between 8 and 12. The footnotes to the table indicate that the figures took into account allowances under the Newstart programme. The calculations appear to be derived from Chapter 6 of the Australian Government submission, particularly the tables at Appendix A6. The figure of $815.46 also included rent assistance, calculated on the basis that the household is paying “sufficient private rent to receive maximum rent assistance, where applicable”. The Commonwealth’s calculations did not include Rent Assistance. 38. It appears, therefore, that the disposable income of $815.46 in Table 5.2 came from four sources: net wage ($432.63), the Newstart allowance ($107.79), Family Tax Benefits Parts A and B ($213.78) and Rent Assistance. The 17 amount referable to Rent Assistance appears to be $61.14, although the maximum rent at the time was $59.15 per week. 39. The basis of the calculation of the family disposable income is questionable in two respects: the inclusion of the Newstart allowance and the use of rental assistance. The Newstart Allowance 40. The Newstart allowance is not an allowance that is payable to a parent who stays at home to look after children and which, in combination with other income, “allows people with family responsibilities to rely solely on a single wage to support their families.” The payment of the Newstart allowance is conditional upon the search for paid employment and is a benefit payable to those who are seeking paid employment. 41. In order to receive the Newstart Allowance a person has to meet an “activity test”. It requires an applicant to look for suitable work and be willing to accept any reasonable job offer or training opportunity which could improve the applicant’s job prospects. The applicant is also required to enter into an “Activity Agreement” which sets out what he or she is obliged to do in order to receive the allowance, and which may include: • the number of job contacts the applicant is required to complete each fortnight; • a requirement to attend a Job Network agency; • a requirement to undertake a “mutual obligation” activity (such as “Work for the Dole”); or • a requirement to attend a particular training program. 18 42. ACCER seeks the setting of a wage that is sufficient, along with taxes and transfer payments, to maintain a family of four with one parent able to stay at home. It is inappropriate to take into account a payment that is directed at getting the non-employed parent back into the workforce. The Newstart allowance should not be taken into account when assessing the family’s disposable income. Parenting Payments 43. The Commonwealth’s Submissions (at Chapter 6) also referred to the Parenting Payment (Partnered) (“PPP”) as a source of family income. There are two aspects to this payment that require explanation, because it operates in different ways according to the age of the youngest child. 44. Parenting Payments for both single and partnered parents have undergone a number of changes as a result of the Commonwealth’s welfare to work changes. Special rules apply to PPPs, depending on when the payment was first claimed. Where a Parenting Payment has been claimed after 1 July 2006 the applicant is required to enter into a “Parenting Payment Activity Agreement” once the youngest child turns six years of age (it is eight years of age in the case of a single parent). Parents who first claimed the Parenting Payment before 1 July 2006 will be required to enter into a “Parenting Payment Activity Agreement” after 1 July 2007 or once the youngest child turns seven, whichever happens later. 45. The Parenting Payment Activity Agreement operates in a similar way to the Newstart activity agreement. It may require the recipient to look for part-time work of at least 15 hours per week and to accept a job of up to 25 hours per 19 week. If the recipient is offered a “suitable” job of at least 15 hours per week he or she will be required to take the job or risk an eight week suspension of the payment. Centrelink determines the suitability of the job according to a number of considerations. 46. A parent seeking unemployment income support is able to claim the Newstart allowance or a PPP payment. The amount of the payment is the same and in both cases one of the matters taken into account in calculating the amount payable is the income of the partner. In both cases, however, the payment is not relevant to the question of whether wages and transfer payments are sufficient to allow parents to rely solely on a single wage to support themselves and their families. 47. The AFPC’s calculation of $815.46 as the disposable income of a family of four where one of the parents is employed full time on the Federal Minimum Wage overstates that family’s disposable income by at $107.91 per week because of the wrongful inclusion of the Newstart allowance. The disposable income of the family is no more than $707.55. As we discuss later, the disposable income should be further reduced because of the AFPC’s inclusion of the maximum rental assistance. Parenting Payments in Young Families 48. As we noted earlier, the PPP operates differently in the case of parents with younger children; where the youngest child is under six (or under seven in transitional cases). However, the entitlement to make a claim in these cases is contentious if the parent does not want employment and wishes to stay at home to look after the children. 20 49. This eligibility issue was in contention in the Safety Net Review Case 2005 because the Commonwealth had relied on the PPP payment in a calculation of the weekly cash incomes of a family of four, with one worker on the Federal Minimum Wage. At that time the restrictions imposed by the Government’s welfare to work policies were not as onerous as they are now. ACCER argued that the PPP was not a general entitlement to stay at home parents; transcript 13 April 2005 at PN714-815. ACCER referred to, for example, published information from the Family Assistance Office about the range of benefits to families that made no reference to the PPP. This remains the case; see http://www.familyassist.gov.au/Internet/FAO/fao1.nsf/content/payments. The AIRC did not make a finding on the issue, but it is one that the AFPC should now make after hearing from interested parties. 50. If the AFPC were to come to the conclusion that the PPP is a general entitlement (subject to a means test) that is available to a partnered parent of children under 6 (or under 7 in transitional cases) who stays at home and does not seek paid employment, then some recognition would need to be given to this payment. It would be necessary to consider the proportion of families who receive it. 51. The Family Characteristics Survey 2003, Australian Bureau of Statistics, June 2003, 4442.0, provides some guidance regarding the proportion of families in which the youngest child would be under a particular age and the proportion of low income families who would qualify for a PPP payment (if the eligibility criteria are met). However, the age groupings do not coincide with the PPP ages. The data (Table 7) shows that, in regard to couples with children, there 21 were 788,900 with children aged under 5; 949,200 with children aged 5 to 14; and 330,700 with dependent children aged 15 to 24. These figures mean that the PPP would apply to a minority of families. Those figures are also broken down by reference to the employment status of the parents (Tables 9 and 11). 52. If the AFPC were to come to the conclusion that the PPP is a general entitlement for low paid families with young children where one parent chooses to stay at home to look after them, it should only take that benefit into account to a limited extent. The material to which we have referred shows that it should be discounted by at least 50%. In regard to the July 2006 calculations in Table 5.2 of the AFPC’s Decision, the PPP could not have been $107.91 and was no more than half that figure. That is, had the Table not been limited to families with two children in the 8 to 12 age range, but to the whole range of dependent children, the PPP should have been reduced by at least $54.00 per week. (We note also that a table reflecting all dependent children, rather than those in the 8 to 12 range, would require an adjustment to reflect the higher rate of Family Tax Benefit Part B which applies where the youngest child is under 5. In July 2006 the Part B payment was $18.34 more per week. It remains the difference between the two rates) Rent Assistance 53. The maximum rental figure has been used for all relevant cases in the calculations of disposable income in Table 5.2. ACCER accepts that rental assistance is a factor that should be taken into account when making an assessment of housing costs for low income workers and their families and necessarily requires averaging over the relevant population. If rental 22 assistance is calculated as a component of income it requires averaging over the same population. 54. In ACCER’s view, the inclusion of the maximum rental assistance when setting a general rate of pay is inappropriate and it should not have been included in Table 5.2. There are at least four reasons for not including the maximum rental assistance. First, some families might be unable to afford the rent that would attract the maximum figure. Second, rental assistance is not available to people who are paying rent to a government housing authority. Third, some low income families will be living with a relative because they cannot afford to rent or wish to save for a deposit on their own home. Fourth, rent assistance is not available to low income earners who are buying their own homes, though the number in this category is likely to be small. 55. There are at least two evidentiary questions that need to be addressed. First, what proportion of low income families receives rental assistance? Second, what is the average rental assistance paid to low income families. We would expect that the Commonwealth would have data that is relevant to these questions. If, for example, the questions were answered “90%” and “$55.00”, the amount of rental assistance to be included in the income calculations would be $49.50, rather than the figure of about $61.00 used in Table 5.2. In the absence of evidence about the extent of rental assistance to low income families, either no amount should have been included, or only a very conservative estimate of it. The Family at 150% of the FMW 23 56. We return to the workers on 150% of the FMW. Table 5.2 refers to disposable income in various family groupings. Table 5.2 demonstrates that families who are dependent upon a single wage of up to 150%, at least, of the FMW should be regarded as low paid. Table 5.2 shows that, despite a weekly gross wage of $242.20 more than the FMW, the family of four has a disposable income of only $47.11 cents more than the amount that AFPC regarded as yielding an appropriate minimal standard of living. This serves to emphasize the unfairness of the continued reduction in their real wages that we have described. 57. The calculation of the disposable income of the “150% family” is not affected by the issues concerning the PPP. Because of the withdrawal rate of PPP payments, a family on this income level will not receive any payment, regardless of the ages of the children. Rental assistance is still payable at this income level, but our earlier reservations about the appropriateness of its inclusion still apply. Because the family in Table 5.2 has children in the 8 to 12 range, the higher Family Tax Benefit for families where the youngest child is under 5 has not been included. The higher payment is at the rate of $18.34 per week and would need to be taken into account when calculating an average across all dependent children. The Henderson Poverty Line 58. The AFPC said that there was “general agreement that minimum wages should, in combination with cash transfers, provide an income that is ‘well above poverty’.” The reference point for poverty was the Henderson Poverty Line (“the HPL”). The HPL was derived from research conducted by the 24 Institute of Applied Economic and Social Research in 1966 and from subsequent adjustments by the Commission of Inquiry into Poverty in 1973. The Commission established poverty line relativities for various family/household types, which included a specified relativity between the couple and two children and a single person in which the figure for the single person was set at 53% of the figure for the family of four. The various poverty lines are based on a benchmark income of $62.70 for the September 1973 quarter. That figure has been adjusted since that time and quarterly adjustments are published by the Institute. 59. Table 5.2 shows that the single person on the FMW and the family of four with one breadwinner on the FMW were both 31% over the relevant HPL figure. This was obviously relevant to the AFPC’s view that the overall level of disposable income “allows people with family responsibilities to rely solely on a single wage to support their families”. As we have explained, the calculation of the disposable income of the family was erroneous. 60. The use of the HPL in wage setting is novel, despite its availability to industrial tribunals for more than 30 years. Its utility as a kind of benchmark was rejected in the Safety Net Review Case1997, (1999) 87 IR 90, Print P1997. As a result, various parties to subsequent cases have sought to rely on other material and/or have pressed for the undertaking of more contemporary research on the needs of low paid workers and their families. The Need for Contemporary Research 61. In past Safety Net Review cases the Australian Council of Trade Unions has sought to rely on research conducted by the Social Policy Research Centre 25 (“the SPRC”). A description of that research and some of the issues surrounding it is set out in Appendix C. The SPRC research identifies two standards of living: “Low Cost” and “Modest but Adequate”. The former was established as a measure of an acceptable minimum standard of living in the setting of income support payments. It does not take into consideration fairness and incentive factors that should apply to those in the workforce. The Modest but Adequate budget is a budget that seeks to describe a standard that is about the median living standard in the Australian community as a whole. 62. The SPRC material was last considered in the Safety Net Review Case 2004. On that occasion there were updated figures regarding each of these budgets for a family of four in which there was a single breadwinner and two children, a girl aged 6 and a boy aged 14. ACCER supported the use of material on the basis that it was the “best evidence” available. The material was rejected by the AIRC; see Appendix C hereof. 63. The SPRC budgets were updated in ACCER’s 2006 submissions to the AFPC. After taking into account the movements to the June 2006 quarter they were $40,382 ($774.49 per week) and $49,453 ($948.46 per week), for the Low Cost and Modest but Adequate budgets, respectively. The figure of $815.46 per week in Table 5.2 is some $40.00 per week above the adjusted Low Cost figure in the SPRC research. In ACCER’s view, the margin of $40.00 per week is not sufficient incentive and compensation for working, but accepts that this may be a matter of contention. The APFC, however, saw an income of $815.46 per week as providing an acceptable standard of living for a family of four, with one breadwinner and two children aged between 8 and 12. 26 64. This emphasizes the need for further research into the material and financial needs of the low paid and their families. One particular matter that does need further research is the proper relativity between the various groups within Table 5.2, in particular single workers and the various family units. The HPL ratio of 100:53 in relation to the single person and the family needs to be considered. It is necessary to examine for example, whether the costs of the three dependants are only 89% of the costs of the single person at the same standard of living. Again, research is needed on the position of the single parent. The HPL shows that when earning 150% of the Federal Minimum Wage, the single parent with one child has a margin of 78% above the HPL, in contrast to the family of four which is only 39% above the applicable HPL level. The figure of 78% seems too high, especially given the costs of child care. Another matter is the relativity between a single adult and the single parent with one child. The HPL is set on the basis of the costs of the parent and child being 28.4% more than a single person. It does not appear to be realistic. We also draw attention to the comparison between the single adult with no children and the single parent with one child where both adults are earning 150% of the FMW. Table 5.2 indicates that the single parent and child have a relatively higher standard of living than the single adult; compare the relativities of 1.83 and 1.78. The relativities set in the early 1970s do not appear to be appropriate for contemporary analysis. When fixing a contemporary safety net wage, knowing how much it costs to raise a family is no less important than having statistics about the economy. 65. In its 2006 submission to the AFPC, ACCER argued in support of the development of the substantial research already undertaken by the SPRC. The 27 AFPC noted in its Decision that ACCER and other parties had proposed that it commission research into living costs for the purpose of setting safety net wages and advised that it would undertake further consultation and seek advice on priority areas of research for future decisions (Decision at pages 180-1). Consultation has not yet occurred. 66. The AFPC was satisfied that the figure of $815.46 was consistent with the three attributes of fairness: adequacy, equity and incentive (see Decision at pages 95-98). Despite ACCER’s reservations about the sufficiency of $815.46 in July 2006, it can, and should, serve as an interim benchmark for wage setting, pending the undertaking of further research. International Comparisons 67. The AFPC also referred in its Decision to an analysis of government benefits and wages policies by the Organization for Economic Co-operation and Development (“the OECD”), which “confirms that the combination of minimum wages and income transfers provides a higher level of protection for low-paid workers and their families from poverty than in other countries surveyed.” (at page 97). The relevant footnote in the Decision refers to Benefits and Wages; OECD Indicators 2004, at pages 86-7. 68. A reading of the OECD report makes it apparent that rent assistance has been included (at page 36) and that the PPP has been included. At page 41 of the report there is a table setting out childcare benefit schemes. The table includes “Benefits to care for children at home (“child-raising allowances”, “non- activity” tested.)”. Against the entry for Australia it states: “Parenting payment provides support to low income persons who have primary care of 28 children under 16 years of age. Families must have no other income support payments. However, recipients can work while receiving the benefit (subject to a means test).” The figures at pages 86 – 7 of the OECD report and dated 2001. The report does not present a set of figures from which the relevant figures can be extracted. However, the passage quoted from the OECD report is not a correct description of the PPP as it now operates and demonstrates that the data upon which the OECD report was based is now out of date, if it ever was correct. The OECD report does not provide a proper basis for concluding that “the combination of minimum wages and income transfers provides a higher level of protection for low-paid workers and their families from poverty than in other countries surveyed.” Conclusion 69. As we explained earlier, the AFPC’s 2006 determination was made on 6 October 2006 and published on 26 October 2006. The September 2006 quarter CPI changes were published on 25 October 2006 and post-dated the determination. Since then the changes for the December 2006 quarter have been published. The changes for the March 2007 quarter will be published on 24 April 2006. 70. ACCER proposes three different increases: the Federal Minimum Wage, other wage rates up to $770 per week and wage rates over $770 per week. 71. Federal Minimum Wage. For the reasons given earlier, the position of workers on, or close to the Federal Minimum Wage calls for a particular response. As we have explained, the $815.46 interim benchmark (as we have described it) in Table 5.2 of the Decision contains an overestimation of the disposable 29 income of a family of four, with one parent employed. These families have at least $54.00 per week less than they were thought to have when their disposable income was calculated in the AFPC’s October 2006 decision. These are circumstances that require correction. We accept that the attainment of the interim benchmark, adjusted by CPI movements, cannot be achieved in one year. 72. ACCER seeks an increase in the Federal Minimum Wage of $27.00 per week. Further substantial increases over the next few years will be required to achieve the benchmark and to take account of price increases since July 2006. Those amounts and their timing may be affected by the results of any future research on the appropriate level of the benchmark. 73. An increase of $27.00 per week in the Federal Minimum Wage is responsible and fair. Having regard to limited numbers of workers on or close to the Federal Minimum Wage, the economic costs of this increase will be negligible. As we noted earlier, ACCI has estimated that the Effective Minimum Wage is about 7% more than the Federal Minimum Wage. This percentage is well in excess of the amount proposed for the Federal Minimum Wage. 74. Other wage rates up to $770. The weekly rate of $770 is a rounding up of the wage rate for workers on 150% of the Federal Minimum Wage (presently $767.64). ACCER submits that these rates should be increased by the total of the three CPI increases and a further amount that provides a fair distribution of the continuing gains in the Australian economy. 30 75. The Australian economy remains one of the strongest economies in the world. Pay scale-dependent workers should also share in Australia’s economic prosperity. Their entitlement to share in the nation’s economic prosperity is found in the AFPC’s obligations to promote the economic prosperity and welfare all of the people of Australia and to exercise its powers fairly. 76. Wage rates above $770 per week. We have referred to the position of these workers in these submissions. They have suffered a substantial real wage decrease over the period since 1997. These workers are vulnerable and dependent upon the fairness of the AFPC because they are unable to bargain for a higher rate of pay than that fixed by the AFPC. As a matter of fairness and equity they should now have an increase in their real wages, particularly in view of the strength of the Australian economy. ACCER submits that these rates of pay be increased by a percentage that is in excess of the aggregate of the three CPI movements since the June 2006 quarter. The percentage should be no less than the percentage required to produce a money amount of $771 per week that is the same or more than the amount payable to a worker on $770 per week. 77. The inaugural increase in wages was operative from Friday 1 December 2006. It caused administrative difficulties for a number of employers because it was a day within a pay period. ACCER has a preference for the commencement of wage increases to be at the beginning of the first pay period on or after a specified date. It proposes that the date be 1 June 2007. 78. There is one further matter that ACCER wishes to raise with the AFPC. An issue has arisen in regard to Catholic agencies in the social and community 31 services sector in New South Wales and their potential coverage by the Workplace Relations Act 1996. Although it must be doubted that a corporation established for charitable or religious purposes is a trading corporation in the constitutional sense, there has been a serious concern among Catholic and other agencies about the operation of the AFPC’s inaugural decision. Prior to the introduction of Work Choices the Industrial Relations Commission of NSW granted prospective wage increases of 10.5% to employees covered by the Social and Community Services Employees (State) Award over the period to July 2008. These wage increases were awarded partly, but not wholly, in recognition of work value, and, therefore, some increases were offset against future State Wage increases. They became preserved entitlements under the Work Choices amendments. There is an issue as to whether the AFPC increases should be offset or absorbed by the State award wage increases which took effect from 27 March 2007. If not, the employer would be paying safety net or minimum wage increases twice during the same calendar year. 79. The Catholic Commission for Employment Relations (“CCER”) has written to both the AFPC and the Minister for Employment and Workplace Relations to express its concern about this matter. It asked the AFPC to review its decision due to the undesirable effect of a “double increase” within the industry. The AFPC advised that it would not review its decision. The Minister suggested that CCER’s concerns could be part of a submission to the AFPC during the next minimum wage review. ACCER and CCER would welcome the opportunity of elaborating on this matter and suggest that this kind of problem might be addressed by the insertion of a “leave reserved” clause into the next determination so as to enable particular problems such as these to be 32 considered. Further, ACCER would ask that the specific issue in the social and community services sector in New South Wales be addressed by the insertion of an absorption provision into the AFPC’s determination. Appendix A: The Effective Minimum Wage 80. This Appendix is drawn from ACCER’s Submissions of July 2006. It concerns the number of workers who are paid the Federal Minimum Wage and the difference, or gap, between that wage and other minimum rates of pay 81. The relationship between the Federal Minimum Wage and other award rates has been the subject of submissions before the AIRC. In both 2004 and 2005 the Australian Chamber of Commerce and Industry (“ACCI”) sought to establish that the importance given to the Federal Minimum Wage by ACCER and others was overstated because, it submitted, very few workers are employed on the Federal Minimum Wage. ACCI introduced the concept of the Effective Minimum Wage. The relevant parts of its March 2005 submission, at pages 5-39 to 5-49, and its April 2005 submission, at pages R4- 18 to R4-23. The submissions also identified a Transitional Minimum Wage, a wage of limited duration for newly-employed workers. 82. ACCI refers to material that “…show[s], in practical terms, very few employees would ever be employed on the Federal Minimum Wage.”; page 5- 40. The ACCI material shows that the Effective Minimum Wage is substantially in excess of the Federal Minimum Wage. It said: “A proper analysis of award rates of pay demonstrates the award dependent employees, while they may be lower paid relative to other groups of employees in the community (e.g. those covered by agreements), are unlikely to be receiving rates of pay such as the Federal Minimum Wage in almost all instances.” (Page 5-46.) 33 83. The ACCI submissions presented an estimate of the gap between the Federal Minimum Wage and the Effective Minimum Wage. At a time when the Federal Minimum Wage was $467.40 per week, the sample of awards used by ACCI produced an average of $502.35, an amount 7.48% higher; see page 5- 45. Applying that percentage to the current Federal Minimum Wage, the Effective Minimum Wage would be $550.04 per week. 84. Workers on the Federal Minimum Wage, however small in number, must have a sufficient wage set for them. Furthermore, because they are a small proportion of the award-dependent workforce, the cost impact of a decision to increase their wages would have a negligible economic impact on the economy. 85. The ACCI material is also relevant to the AFPC’s proposed review of work classifications and the introduction of new classification structures. ACCER is concerned that the new classifications may not recognize the point made by ACCI, ie that the Effective Minimum Wage in Australia is substantially in excess of the Federal Minimum Wage. There is a risk that the new classification structures may place more workers on the Federal Minimum Wage and reduce the current relativities between the Federal Minimum Wage and the higher classifications in which low paid workers are employed. 34 Appendix B: The Living Wage 86. This Appendix is drawn from ACCER’s July 2006 Submissions to the AFPC. 87. The minimum wage necessary to support the worker and his or her family may be termed a Living Wage or a family wage. It is a wage that allows one of the parents to work in the home and not undertake paid employment and, at the same time, it enables the family to achieve an appropriate standard of living. The living Wage is based on the needs of a family, not the needs of the single person. 88. The family wage has a long history in Australia. From the early days of Federation, following the Harvester case in 1907, the Living Wage became a central feature of employment regulation in Australia and became part of the fabric of Australian life. Its expression was a product of the times: it was fixed by reference to the needs of the male breadwinner, his wife and three children. But its substance was fundamental and enduring. The Living Wage was important because it recognised the need to fix fair and reasonable wages, the need for workers to live in dignity and the need for the worker to be provided with a wage sufficient to support a family. This was done even though many workers were not the sole breadwinner in a family of five. 89. The importance of the family was recognised in the Harvester Living Wage. In an address entitled The Failure of the Family delivered on 22 August 2001 Cardinal George Pell DD said: “The family in Australia once enjoyed a privileged place at law and in social and economic policy. Nothing epitomised this more than…the Harvester case…. 35 The Harvester case is usually referred to as one of the key elements in the development of a raft of benevolent laws and social legislation…in the wake of the economic crash of the 1890s. These laws were intended to minimize social conflict, especially conflict between labour and capital…; to ensure a decent standard of living for workers and their families; and more broadly through the system of tariffs and economic protection, to encourage local industry and to maintain Australia’ independence…. Harvester placed the welfare of the family at the centre of social and economic policy from the beginnings of Federation. In a new nation concerned to minimise the divisions between rich and poor and to lay a solid basis for social stability this made perfect sense. As I will discuss in a moment, over the last thirty years an enormous amount of empirical work has been done on the relationship between marriage breakdown and family dysfunction, and the rise of the different social pathologies that pose such problems today for all of us, but especially for law enforcement agencies and health and welfare workers. One of the many things this research makes clear is that if you want to preserve social stability or to prevent it being slowly eroded, it makes good sense to buttress the stability of the family.” (The Failure of the Family, 2001) 90. The relevance of Harvester to wage-setting in Australia is debated, but the debate often concentrates on the formula and avoids the substance of the decision. It is also said that the Harvester family unit is not so common, that the second parent often works and that we should not pay a minimum wage to the many who do not support a family. However, Harvester was not based on the preponderance of the identified family in society, but on the importance of the family to society. 91. The increasing pressure on, and the breakdown of, the Australian family in the last decades of the twentieth century is not a reason to move from this position. Rather, it is a reason to reinforce the family, including its economic circumstances, by the payment of a contemporary Living Wage. Nor is the fact that more parents, especially mothers, work a reason to depart from the objective of providing a Living Wage. Regrettably, our experience tells us 36 that now the income of a second parent is frequently needed for the family needed to achieve (in the words of Harvester) “frugal comfort”. A Living Wage capable of supporting a family is needed because of its importance to families and to society. 92. The setting of a Living Wage necessarily involves some degree of averaging across families; in particular, children of different ages have different needs. It also requires an assessment of family size. Harvester was based on a family of three children. Having regard to the size of contemporary Australian families, the determination of the needs should be made on the basis of a family of two adults and two children. 93. There is a major aspect of the Harvester Living Wage that has been overtaken by the events of the past century and is the reason why we cannot return to the Harvester formulation and the reason why we must have a contemporary Living Wage. In the early 20th century the wage packet was required to provide for the total support of the worker and the worker’s dependants. It was not supplemented by a welfare system. The wages system was made possible by tariff protection. The relative importance of the wage in the support of the family has declined as government transfers to families have increased, particularly in the last 20 years. 94. Family assistance changes in the last two decades have been accompanied by significant economic change. Arguably they have been required by, and have facilitated our adaptation to, that change. The high levels of tariff protection of the last century have gone. In general terms, for the best part of a century after Federation, the wages of Australian workers and Australia’s employment 37 levels were supported by tariffs. The costs of this support were borne by Australians as consumers. Now the incomes of many workers and their families are being supported by Australians as taxpayers. A substantial part of the cost of supporting workers and their dependants has moved from the employer to the taxpayer, from the wage packet to the public purse. 95. The balance between the wage packet and the public purse in the support of dependants is an important policy issue; but has been given little recognition in public and political discussion in Australia. This is a key area for the integration of economic, wages, welfare and taxation policies. Taxation rates, the equity of the taxation system, the level of transfer payments and the terms on which transfer payments are made cannot be separated from wages policy. At present a full time worker on the Federal Minimum Wage pays12.04% of the wage in income tax. As ACCER argued in its paper The Tax Debate and Wages Policy, there is an economic case for moving towards zero income tax for those in receipt of income less than the full time Federal Minimum Wage. The income tax burden on low income earners needs to be addressed in any comprehensive review of taxation policy. 96. The availability of the tax cuts and transfer payments has prompted some to promote them as an alternative to wage increases and some to claim that there are better ways to meet the needs of the low paid than giving them a pay increase. In the 2005 Safety Net Review case the Commonwealth said that safety net adjustments “are a poor means of addressing the needs of the low paid”. In response, ACCER said: 38 “An argument used by some of those opposing the claimed wage increase is that there are other and better means of addressing the needs of the low paid. By this they mean tax relief and government transfer payments. As ACCER has demonstrated in its earlier submissions, the needs of low paid workers and their families are, and must continue to be, addressed through both the wage packet and the public purse. The employment impact of taxation on needs-based wages must also be considered. To the extent that there is a connection between wage and employment levels, income tax levied on low paid workers may be seen as a tax on employment. On the other hand, targeted government transfers will enhance employment opportunities. There is, therefore, a strong economic case for supporting low paid workers and their dependants by way of targeted tax reductions and transfer payments. These measures enhance the competitiveness of Australian businesses. ACCER has stressed, however, that the obligation to pay a just wage, with appropriate recognition of tax and transfer payments, remains with the employer. The Commission in the exercise of its statutory jurisdiction is required to fix fair minimum wages having regard to the matters identified in section 88B(2) of the Workplace Relations Act 1996. This cannot be done without regard to the impact of taxation and transfer payments.” (ACCER Post-Budget Submission, 17 May 2005, paragraphs 2 and 3) 97. The progressive reduction of the tax burden on low paid workers would tend to reduce the costs of employment, stimulate employment and assist Australia in maintaining its international competitiveness. There is an economic case for increasing government transfers to low income working families in order to reduce their reliance on wages. This point is not a novel one: it is the basis of the past claims by employers that tax reductions are to be preferred to wage increases. Indeed, there is also an economic case for moving towards zero taxation for workers on the Federal Minimum Wage. This might be achieved by tax offsets for low income earners, earned income tax credits, changes to taxation thresholds or by a combination of these and other measures. 39 98. The imposition of taxation on low paid employees without a proper consideration of their needs runs the risk of taxing them into poverty. A critical requirement for informed and appropriate wages and budgetary policies to support low paid working families is sound research on the financial needs of those families. Better information on this aspect will facilitate discussion on the appropriate balance between the respective contributions of the wage packet and the public purse. 99. The relationship between wage levels and employment prospects in an economy is a vexed question amongst economists. As ACCER noted in its 2005 Post-Budget Submission, to the extent that there is a connection between wage and employment levels, income tax levied on low paid workers may be seen as a tax on employment. Those who argue that minimum wage levels are too high or that we cannot afford to pay higher wages to unskilled workers should also address the consequences of taxation rates on low paid employees. 40 Appendix C: Research on the Needs of Families 100. This Appendix is drawn from ACCER’s July 2006 submissions to the AFPC. 101. ACCER’s advocacy of the family wage has been based on the firm belief that the Federal Minimum Wage and other low paid classifications are insufficient to meet the needs of families. Clearly, the sufficiency of some of those other classifications will be a matter of debate. 102. The ability of the AFPC to commission and undertake research, particularly in regard to the needs of low paid employees and their families, provides an opportunity to develop a better understanding of the circumstances of low paid workers. In this regard there are some background matters to which we wish to refer. 103. In several Safety Net Review cases ACCER and other organisations proposed that the AIRC should conduct an investigation or inquiry into the needs of the low paid and establish a benchmark against which the Federal Minimum Wage should be set. In 2003 ACCER pressed for an inquiry through which an appropriate benchmark could be established for the fixing of a fair and equitable Federal Minimum Wage under Federal awards. In the 2003 Safety Net Review decision (Safety Net Review – Wages May 2003, PR002003) the AIRC rejected the claims by ACCER and the Australian Council of Social Services (“ACOSS”) for an inquiry to be conducted into these issues, but it indicated its preparedness to consider further material: “Our rejection of the proposals for an inquiry should not be taken as a rejection of the utility of empirically determined “benchmarks” such as the poverty line. Indeed, it seems to us that the use of such measures is relevant to an assessment of the needs of the low paid … 41 There is no impediment to ACOSS and ACCER, or any other party, bringing forward such material in any future safety net review. It is not, however, desirable for the Commission to establish a separate inquiry for that purpose particularly in view of the absence of any support for the proposal from any other party or intervener.” [Paragraph ). 104. In 2004 the ACTU relied on very detailed statistical material on the costs of living from the Social Policy Research Centre (“the SPRC”) at the University of NSW. The research was initially commissioned by one of the Commonwealth’s departments. It identified two standards of living. The “Low Cost” budget had been developed as a standard for unemployed families and for social security purposes. The “Modest but Adequate” budget was an attempt to describe the situation of a household whose standard of living falls somewhere around the median standard of living within the Australian community taken as a whole. The SPRC material showed, amongst other things, that a family of four (including a boy aged 14 and a girl aged 6) required a annual disposable income of $36,980 to meet the “Low Cost” budget and $45,287 to meet the “Modest but Adequate” budget. Movements in the Consumer Price Index to the September quarter 2003 were included in these figures. 105. ACCER supported the ACTU’s use of the SPRC material on the basis that it was the best evidence available and that it was sufficient. ACCER said: “ACCER anticipates criticism of the SPRC material along the lines referred to by Professor Saunders [from the SPRC] in his [witness] statement. This will require debate between the parties and appropriate responses from the Commission. Any party that is opposed to this material should indicate its proposed method of establishing the needs of the low paid. For example, if it is said that the reference to a six-year old girl and a fourteen-year old boy is not 42 representative or appropriate for the identification of the costs in a two-child family, it is incumbent upon the critic to identify more representative or appropriate pairs of siblings.” (ACCER 2004 written submission, paragraph 48.) 106. The SPRC material was criticized by some parties. However, no contribution of the kind suggested by ACCER was forthcoming and the Commission was not provided with the assistance that it could have been. 107. In its 2004 Safety Net Case decision (Safety Net Review – Wages May 2004, PR002004) the AIRC found there was substance in a number of the criticisms made about the SPRC material. It was not prepared to adopt the “SPRC budget standards as an Australian benchmark... [because, on] the material presently before the Commission, we do not think that we can responsibly attempt to establish such a benchmark” (paragraph ). However, the AIRC added: • “Nevertheless, in our opinion, the SPRC budget standards provide an indication that for certain household types, the federal minimum wage is significantly below the amount which is necessary to provide a modest living standard for those households in the context of living standards generally prevailing in the Australian community” (Paragraph ). • “The Commission will receive and consider evidence directed at establishing an appropriate benchmark for the adequacy of minimum wages in the context of a future safety net review” (Paragraph ). • “The Act makes no reference to a “poverty line” but rather focuses on the issue of the needs of the low paid... However, we do not accept that the Commission could not rely upon a poverty line as a tool to assist it in determining the needs of the low paid if it had probative evidence by which a poverty line could be accurately identified” (Paragraph ). 108. Regrettably, no further research was undertaken. Cost was, no doubt, a factor. Furthermore, an important consideration in the commissioning of this kind of research is whether there is some consensus on the purpose and methodology 43 of the research or, at the least, some indication of the kinds of objections that may be taken to the proposed research. No guidance was given by the AIRC, perhaps because none of the objectors indicated (as ACCER sought) any other method of establishing the needs of the low paid. 109. ACCER maintains its position that the SPRC material is the best evidence available regarding the needs of the low paid. It provides the best starting point for future research on this matter. Knowing how much it costs to raise a family is no less important than having statistics about the economy. In order to properly exercise its jurisdiction, the AFPC should have the relevant data, even if (like other areas of research) arithmetical precision may be illusory. 110. ACCER’s submissions emphasize the needs of the worker in the “2 plus 2” family (as identified earlier) and research on these families should be of central importance. However, the needs of some other workers should be covered; in particular, the needs of single parent families. The high cost of child care is a particularly important issue and one that is not sufficiently addressed by transfer payments. The proper support of single parent workers and their children is essential.
Pages to are hidden for
"Australian Fair Pay Commission Minimum Wage Review"Please download to view full document