Thursday, September 3, 2009

What You Lose On The Swings, You Gain On The Roundabouts

Last week I suggested that the request by industrial relations minister Julia Gillard for the Industrial Relations Commission to phase in the new modernized industrial awards system would deliver the reforms in a way which would ease concerns about increased costs to business. Apparently I was not entirely right. Now that the Commission has released its determination, which includes a six month delay to the start date as well as the five year phase-in, business groups are claiming that the process has delivered a result which breaks the promise that no employer would be subject to an increased cost burden.

Interestingly, unions are also calling foul, suggesting that the combination of transition arrangements and the introduction of changes to allowances and conditions means that some workers will experience a fall in take home pay, before any benefit from increases to award and penalty rates come into play further down the track. Unions claim that this too represents a breach of faith from a government which also promised that no worker would be disadvantaged.

On the face of it, with both the unions and business unhappy with the outcome, it might be tempting to think that the result must be a reasonable compromise. After all, both sides are equally disappointed. But that doesn’t recognize the fundamental problem which has led to this state of affairs. The Commission itself however has identified the problem exactly. The Commission’s full bench has found that the government’s objectives of reforming awards while disadvantaging no one are “potentially competing”. The Commission has indicated that it is clear that “some award conditions will increase, leading to cost increases, and others will decrease, leading to potential disadvantage to employees”. What this essentially means is that the government appears to have made a pair of conflicting promises and it cannot keep either of them.

Of course, it should have been common sense that the process of reducing the number of awards while providing uniformity across jurisdictions would inevitably lead to an outcome with winners and losers. The promise to disadvantage no one would appear to have been a rash one, unless the intention was to create no net disadvantage after all the winners and losers were tallied up. Or perhaps the intention was to weigh up any costs incurred against the economic benefits of achieving a simplified uniform national awards system. Whatever the case, the fact is that there will be increased costs to business, and the government’s promise will have been broken.

But it doesn’t have to be. The simple solution to the impasse on increased costs to employers is to offset those costs in other ways. One way to do that is to enter into an arrangement with the states to reduce payroll tax, or to cut the other compliance costs and on-costs associated with employment. Small businesses might be offered an employment tax credit to offset the cost, and encourage job creation. The benefit is that these measures would preserve the wages and conditions of workers, protect employers from increased costs, add further stimulus to the economy in a way which supports business, and in the long run increase the government’s revenue from GST and income tax as a result of the economic growth.

After all, it is a well tested economic theory that what you lose on the swings, you gain on the roundabouts.

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