Australia: Australian contribution to G20 growth requires urgent progress on IR reform

This year's global competitiveness rankings by the World Economic Forum challenge government and employers to consider carefully how Australia's labour market performance is hindering our overall competitiveness as a nation. Australia must get serious about workplace reform in a post GFC economy if we are to improve our international performance and contribute to the G20 growth targets.

Last month G20 finance and labour ministers held high-level meetings ahead of the G20 Leaders' Summit in Brisbane in November.

Reaching agreement on a common target for economic growth is a central issue for the G20 – along with the labour market, competition and other reforms needed to achieve that goal.

At the labour ministers' meeting in September, Employment Minister Senator Eric Abetz put forward the Australian Government's Employment Plan 2014. Its key points are:

  • Creating 1 million new jobs over the next five years.
  • Boosting labour force participation, and addressing long-term unemployment – particularly youth unemployment.
  • Improving macroeconomic policy settings, by achieving a budget surplus and redirecting government spending to quality investment that will enhance productivity and workforce participation.
  • Reforming the social protection system, and the efficiency of labour markets by allowing businesses more freedom to make management and investment decisions.

The Government is currently seeking to fulfil that last commitment through a number of amending bills that have been stuck in Parliament, some for almost a year now. A wide-ranging review of the Fair Work Act by the Productivity Commission is also due before the next federal election.

Increasingly, the view from the Australian business community is that workplace reform is a critical aspect of the favourable economic environment needed to promote growth and international competitiveness.

The evidence supporting the need for change is mounting. While the World Economic Forum's Global Competitiveness Report 2014-15 ranked Australia 22nd out of 144 countries for overall competitiveness, we came in 56th for labour market efficiency (down from 9th in 2009). Specifically, Australia was rated:

  • 125th for relative competitiveness of pay and productivity
  • 136th for rigidity of "hiring and firing" practices
  • 132nd for flexibility of wage determination
  • 109th for cooperation in labour-management relations
  • 50th for competitiveness of redundancy costs.

The picture emerging requires careful consideration as it is not clear-cut and the answers are not simple. The unemployment figures are volatile, coming back down to 6.1% in August from a 12-year high of 6.4% in July. Private sector wage increases remained moderate at 2.5% in the year to the June quarter 2014. And private sector productivity rose 3.3% over the same period, continuing a three-year trend.

In the mining industry, the mainstay of Australian economic prosperity for the last decade, a report by PwC Australia indicates productivity fell by 20% over the past seven years (although this may reflect the investment phase of the mining boom, with the focus now shifting to production and an expected productivity dividend).

And in key sectors such as the construction, maritime and manufacturing industries, wage outcomes are proving to be unsustainable and the lack of flexibility dampens employment opportunities.

The introduction of change and the ability for businesses to be nimble and respond to market demands is too hard. And simply telling employers to make better enterprise agreements is too simple. The framework needs to support better and more balanced enterprise bargaining outcomes. Many employers cannot endure the pain of long drawn out bargaining negotiations with significant protected industrial action. A long lockout of employees is not often the answer.

A further round of workplace reform is needed if Australia is to improve its international performance – and therefore make its contribution to the G20 growth targets.

This should begin with the Senate passing the current IR bills before it, which would see:

  • much-needed changes to the Fair Work Act to free up the use of greenfield project agreements;
  • sensible new limitations on union rights of entry to workplaces;
  • restoration of the Australian Building and Construction Commission and re-establishing the rule of law in this sector – essential to delivering the nation's infrastructure for the future.

The Government should also move as quickly as possible to have the Productivity Commission commence its inquiry.

This will involve close scrutiny of several other features of the Fair Work system which employer groups, including the Business Council of Australia and Australian Industry Group, are lobbying hard to have changed: penalty rates for overtime and weekend work, the lack of restrictions on agreement content, the central role of unions in bargaining and ease of access to protected industrial action.

Corrs' experience representing a range of private and public sector employers leads us to the view that IR reform must also encompass a number of other dimensions. These include:

  • the prevalence of award and agreement restrictions on rostering and workplace change – employers frequently have to engage in lengthy consultation processes, and in some instances, unions exercise veto rights over necessary change measures; and
  • the absence of a mechanism to conclude agreement negotiations, particularly in the public sector – to avoid bargaining dragging on endlessly, realistic time-frames could be provided for intensive mediation by the Fair Work Commission, followed by easier access to a workplace determination (if required).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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