Tuesday, July 08, 2008

Delicious disappointments

It’s almost delicious. The ACCI is, as I write, undergoing its annual tearing out of the hair and rending asunder of its opulent board room curtaining. Yes the AFPC has ruled on the latest National Wage case. It has awarded an increase of $21.66 per week to those “pay scale reliant” low paid Australian workers.

“Pay scale reliant” is code for those paid at a rate prescribed by an award. Thus a worker engaged under the benchmark Metals, Engineering and Associated Industries Award must be paid a minimum weekly wage of $543.78.

The reaction from The ACCCI has been predictable. It is forecasting that this increase will flow into price increases and, obviously, fuel inflation. It had wanted something limited to last year’s ruling at tops and preferably under. Its argument for this is that wages are a function of money paid to workers and tax cuts granted by the government. It claimed that something near to or fewer than ten dollars plus the government’s tax cuts would be sufficient. This is a position it has advocated religiously. No matter that tax cuts are not wages; the government does not “pay” workers via tax cuts.

The ACCI statement states:

This minimum wage increase is likely to flow on into price increases. The AFPC has underplayed the impact of recent economic developments, including interest rate increases and fuel price volatility, on the businesses which must apply this wage increase. The AFPC has also overstated the extent to which economic conditions support such an increase.

In other words, prices go up, inflation goes up and the economy will not support it (= loss of jobs). Sound familiar?

2005: Today’s $17 increase is at odds with Australia’s slowing economy and the ongoing challenges of unemployment and underemployment. The economic and labour market material before the Commission did not justify the level of increase awarded.

2006: Employers will be entitled to feel disappointed and concerned at the magnitude of this increase. They will be forced to pay this large increase without any accompanying requirements for increases in productivity in their businesses.

A wage increase of this size has the strong potential to be economically damaging. This decision will not assist jobs growth or the employment prospects of those out of work.

2007:...today’s $10.26 increase to the minimum wage means that employers, mainly small businesses, will have to pay increases of $37.62 per week in the 10 months from last December to this October.

While we welcome the more moderate nature of today’s increase, we remain concerned that the Fair Pay Commission has ordered another increase when the ink is barely dry on the last increase.

However, $10.26 still equates to a 2% increase on the minimum wage. We estimate, based upon official forecasts, 10 months of inflation since the last increase to be 1.65% to October first.

In other words unaffordable, irresponsible and dangerous to the economy. In all those years (and those the ACCI opposed prior) the economy sailed on and the jobs market became tighter.

That last – the harping about inflation – is another theme run each year. The ACCI constantly compares these rises in percentage terms to the rate of CPI. It then, every year, claims that the rises are ahead of inflation and therefore are unaffordable and inflationary. A clue to its logic is in its reaction to the 2006 decision:

It appears that the 5.6% increase completely matches the 5.6% headline inflation rate that occurred over the last 18 months. If the AFPC has used the headline rate of inflation as its benchmark for increases, that is a significant improvement on the old system…

You see the ACCI always uses the underlying inflation rate, not the “headline” rate. That is the rate that either severely discounts volatiles such as petrol, rent, some foodstuffs and the like. Problem is, when the low paid worker rocks up to the pump to fill his car his petrol price is not discounted or ignored. Nor does his real estate agent discount his rent increase in line with “underlying inflation”. No, these people pay those volatiles at the prices asked.

Yet another gem in that 2006 release is this:

If the magnitude of this rise is based … on the fact that 18 months have passed since the last decision (rather than the usual 12 months), then the AFPC has made a fundamental error. A high wage rise payable in perpetuity cannot be explained …

Meaning one shouldn’t compensate “in perpetuity” for the fact that six months rather than eighteen months had passed since the last increase. Presumably it is fine to treat it as twelve months and underpay “in perpetuity” the other six months.

What is delicious though is this appended to the 2005 critique of the last decision by the AIRC:

It is entirely appropriate that this is the final national wage increase under the current law. The government should now move to implement the major workplace relations reforms recently outlined by the Prime Minister.

Employers will call on the proposed Australian Fair Pay Commission (AFPC), supported by appropriate legislation, to deliver more balanced and targeted minimum wages, which take better account of the circumstances and capacities of employers, and better support them in creating and maintaining jobs..

This – the AFPC – was to be the forum where the ACCI would take back the high ground. The AFPC – a creature of Work Choices – would provide the home ground advantage.

The utter surprise at the first decision and the awful disappointment that has settled over the ACCI since is palpable.



Anonymous Jacob said...

An interesting piece, Father Park. Maybe you could cross-post at WD, probably get more of a response?

I recall the 2006 AFPC minimum wage decision was interpreted by one commentator as "terrific politics for the government but questionable economically" -- i.e., politically "terrific", because there was an election on the horizon.

So, good politics? Not bad for an independent body, eh?

11/7/08 8:59 AM  

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