ACTU Secretary Greg Combet says that to reverse a trend towards a US-style working poor minimum award wages must be lifted, there needs to be targeted tax relief for low income families and industrial laws must allow employees to collectively bargain.
I’d like to start by telling you a bit about Leonie McDermott, who was a witness in the ACTU’s Living Wage case this year.
Leonie lives in Wynnum, and works as a full-time sewing machinist. She takes home just $363 a week. She can’t afford a car, and she hasn’t had a holiday or a weekend away for more than three years. She has no savings or access to credit.
Leonie lives from week to week, spending almost 70% of her income on food and rent. She has had to increase her workload and output in recent years but has not gained from the extra effort.
She is 59 and is worried about her security in retirement.
This is not an exceptional story.
But it helps to illustrate why I have been giving much thought to the wages system in Australia, and to the circumstances of low paid workers.
And I believe it is timely to take a look at these issues for a number of reasons.
Firstly, the method of determining wages and salaries in a society remains a key determinant of the division of economic wealth.
Secondly, it is approaching a decade since enterprise bargaining was formally introduced into the Australian wages system, and it is possible to examine some of the social and economic consequences of that change.
Thirdly, I am acutely aware of the fact that inequality is widening. The evidence of this can be found in the development of an Australian working poor.
And finally, with a Federal election in the offing, it is an important time to consider the changes to the wages system, as well as other policies, that could make Australia a fairer place.
Features of the current wages system
What are some of the features of the present wages system?
The first thing that must be recognised is that the number of workers in Australia whose rate of pay is set by an award has substantially diminished. Less than a quarter of all employees now depend solely upon award rates. And in the total national wages bill, award workers take home only 12.6% of total earnings.
The wages of other employees are determined by the market, by collective bargaining, or by the law of the jungle.
In this system, low paid workers are lagging further and further behind. 10% of the Australian adult workforce still earn $10 or less an hour. Draw a line at just $12 an hour and more than 20% of the adult workforce fall under it. That’s a fifth of all adult workers earning less than the full-time equivalent of $456 gross per week.
In some of the fastest growing areas of the economy like retail and hospitality the number of adults earning $12 or less an hour is higher than 35%. But we are also talking about many other employees – including health care, child care, aged care, cleaners and administrative staff.
The average gap between workers relying on the award safety net and average earnings is now more than $200 per week and widening, while the gap between award pay and collective agreements in many industries is much more.
These trends in pay rates reflect wider movements in income inequality in the society, which has been increasing in Australia since the mid-1970s but which has accelerated rapidly in the last five years.
The top 20% of income earners in this country now get 48% of gross weekly income. At the other end of the scale the bottom 20% of income earners are left with just 4% of gross national weekly income to take home to their families.
But there is not just a widening in the distribution of pay. The wages share of national income is also diminishing. In September last year the profit share of national income reached its highest level ever. The wages share, on the other hand, is close to historic low levels.
Healthy profit levels are essential for the well being of Australia’s economy, but there is no doubt that what we have experienced in Australia over the past fifteen years represents a long-term redistribution of national income from wages to profits.
Growth with inequality
All of these trends towards a less fair society have intensified despite a period of prolonged economic growth.
Prior to the introduction of the GST, Australia had experienced a dramatic period of economic expansion and productivity growth. Gross Domestic Product per head of population grew by a robust 3% per year since 1992. GDP grew at an annual average rate of 4.4% between 1996 and 2000.
Yet the only group to have increased their share of gross weekly income under the Howard Government is the top 20% of income earners. The share of income of every other group has fallen since 1996.
Mr Howard recently challenged some of these facts in an address that he gave to the Institute of Company Directors, but no one believes him.
Not the Governor General who used his Centenary of Federation address to remind our political leaders not to forget the unacceptable gap between the haves and have nots in this land of the fair go.
Not welfare agencies like St Vincent de Paul or Anglicare Victoria which recently published reports cataloguing the growing poverty and inequality in our society.
And not the vast bulk of ordinary Australians who’s commonsense and experience say he is wrong.
The fact is that Australia is a country where there are now, more than ever, winners and losers. We may be proud of our egalitarian values, but in reality the society is increasingly divided. Many people are not sharing in the benefits of our prosperity.
Australia’s working poor
One result is that Australia is developing a US-style working poor.
ABS data shows that for 816,000 households in the bottom 20% of working households – that is households where wages are the principal source of income – average weekly expenditure of $562 exceeds average weekly income of $510 by more than $50. More than 1.8 million people live in these circumstances.
And for a very human illustration of what this means, consider that 30,000 of these working households go without meals from time to time and cannot afford to heat their homes due to a lack of money. More than a quarter of a million of these families cannot afford to go on a holiday.
The Living Wage
The ACTU was acutely aware of this trend toward deepening inequality when we launched our last Living Wage claim late last year. We sought an increase in the award safety net wages of $28 per week.
We have had some success of course, in recent years, in lifting minimum award rates. Our Living Wage applications have lifted the Federal Minimum Wage by $64 a week, or 16.6%, since 1997.
But it has not been enough to make a substantial difference to people. And it has certainly not been enough to turn around the widening inequality.
I was particularly disappointed with the decision handed down by the AIRC last month. It awarded only $13 a week to the lowest paid workers, with $15 and $17 to those higher up the skill levels.
This was a decision that lacked guts.
It represented a 3.2% increase at a time when inflation is 6%. By comparison with the $13 awarded to low paid workers, average collective bargaining outcomes are around $30 per week for workers on average earnings.
I was at a conference of delegates representing many low-paid workers when the decision was handed down. They were insulted not only by the $13 amount but also by the higher increases awarded to those up the classification scale.
Those delegates shared my view that the lowest paid have suffered the most from the introduction of the GST. They got the smallest tax cut, just $9.15 a week for a single person on the Federal Minimum Wage of $400 per week, they pay the tax on most things they buy, and they have been denied a decent wage increase because of a GST-induced economic slow-down.
The ACTU presented a very strong and well-argued case. We tackled the difficult issues head on – the negative growth in the December quarter last year, and the economic consequences of our claim.
I have no hesitation in asserting that the veracity of our material was at no time under serious challenge. The $28 increase we claimed would have added about 0.7% to aggregate wages growth – no threat to inflation or interest rates. There is no doubt that a larger increase could have been responsibly awarded.
But it is clear that the combination of the GST economic slow-down – and the mean spirited negativism of the Howard Government and the employers – nourished the natural cautiousness of the Commission.
The decision only emphasises that the current wages system is leaving the lowest paid in our community behind.
One of the key reasons for this is the fact that safety net adjustments are the only wage movements that can be centrally controlled. The control of award increases is the only direct economic lever left available to influence aggregate wages growth.
This is leading to extraordinary unfairness.
For example, if executive salaries, market forces and bargaining outcomes cause aggregate wages to grow at a rate that creates inflationary concerns, it is only the lowest paid who must forgo a decent increase in the interests of the economy – no one else.
Indeed, any factor that generates inflationary pressure – the GST, the falling exchange rate, tax cuts for the wealthy, sloppy fiscal or monetary policy – these all inevitably result in low-paid workers being told they must go without in order to serve the greater good.
And yet, if we are to attack inequality, we must lift the income of the low paid.
As a society we have to break this mould. I am personally very committed to this. If we want to build a fairer society, to avoid the social consequences of widespread poverty, there must be change.
Directions for the future
Which brings me to some ideas for the future.
I think that change is needed in three key areas.
Firstly, minimum award wages must be substantially lifted. This can and should be done in an economically responsible way.
Secondly, I believe that there is a compelling case for targeted tax relief for low income families.
And thirdly, it is important that industrial laws throughout Australia provide fair and reasonable rights for employees to associate in unions, and to collectively bargain. Because, at the end of the day, it is union organisation that delivers for working people and their families.
Lifting minimum wages
Let me deal firstly with the issue of lifting minimum award wages.
This is essentially a matter of political will. If the Commission lacks the courage then political leadership is required. Governments cannot turn their back on this responsibility. They must advocate substantial as well as economically sustainable improvements in minimum wages.
The community will support political leaders who demonstrate the courage to do this. There is widespread and deepening concern about inequality. Polling conducted for the ACTU consistently confirms this. The media support for the ACTU’s $28 claim this year including the backing of Melbourne’s Age newspaper and two front page leads in Sydney’s Daily Telegraph illustrates that the plight of Australia’s working poor is well and truly on the mainstream political agenda.
And you will note that my qualification that an increase should be economically responsible. I have already pointed to the fact that a $28 increase would have added only 0.7% to aggregate wages growth. But even if the Commission had awarded $20 it could have done so secure in the knowledge that only 0.4% would have been added to aggregate wages.
These are not figures that threaten employment, inflation or interest rates. They are costed using methodologies that have been submitted to the rigour of analysis in national wage cases for the last six years.
And so the ACTU will continue to press the case for a decent increase. If, as I expect, the Federal election is held later in the year there is every likelihood that we will be making our next Living Wage claim during the election campaign. We will make it an issue.
And I think that low paid workers in this country will be looking for support from the political parties.
But whatever the outcome in award rates I think there is also a need for tax relief for low income households. Low paid workers, and especially part-timers, received the smallest income tax cuts in the GST package.
Despite the fact that almost 70% of taxpayers earn less than $40,000 a year, only a little over 30% of the GST income tax cuts went to this group. If the effects of the GST tax cuts are adjusted to account for tax bracket creep since 1993, the proportion of tax cuts delivered to the under $40,000’s was less than 17%.
And that’s without even considering the impact of the tax cuts for companies under the business tax reforms.
The fact is that John Howard’s tax package was one of the most regressive measures ever exacted on Australian people. It was the brainchild of John Ralph’s Business Council cheer-squad. It was devised by the big end of town, for the big end of town.
Last week’s Budget also highlighted the fact that Howard doesn’t care about working families.
Employers got their tax rate down to 30%. But workers got nothing.
The effective increase in the tax-free threshold for many aged Australians to $20,000 a year was a reasonable recognition of the heavy burden the GST has placed on the elderly. But it will leave low-income workers who are also struggling under the burden of the GST asking ‘what about us.’
While some retired couples on a combined income of $32,000 a year will pay no tax, a working family on the same gross income will pay more than $5,000 in tax and Medicare levy. A single wage earner on just $20,000 a year will pay more than $2,500 a year in tax and Medicare levy, while some retirees on $20,000 pay nothing. The inequity of this is hard to justify.
So if there is a case for further tax cuts, it must in my view come in the form of tax relief for low income working families.
This should occur by two methods – a roll-back of the GST on a range of basic household expenditures, and carefully targeted income tax relief.
The best way of targeting income tax relief may well be through tax credits for low income families. An across-the-board tax cut for individuals would not necessarily enable the maximum benefit to be paid to those most in need.
Fairness demands these tax changes.
But Howard and Costello have tried to subvert Labor’s ability to deliver any such change by spending everything they can. They have blown $25 billion from the Budget over the next four years. It is an act of wilful vandalism, and they have the hide to tout themselves as responsible economic managers.
If a Labor Government had done it you’d be deafened by the screams of indignation from the elite. But instead we have the Australian newspaper welcoming Howard’s fiscal irresponsibility as a clever tactic to ‘corner’ Labor on tax.
If the US economy turns down this year, and we follow, Howard will have locked in future deficits, and further inequality, because of his desperation to be re-elected. It is a shameful performance.
And all the while people are out there, toiling away on lousy pay, in casual jobs, struggling to meet their family commitments and worrying about the security of their jobs. Some reckoning at the ballot box is called for.
The right to organise and to collectively bargain
While improvements in award wages and tax relief are important in the battle against inequality, fair and reasonable rights to organise in unions and to collectively bargain are in my view vital. They are fundamental to the achievement of better living standards for working families, and they are essential to democratic society.
If you think that is just a self-serving observation, consider the evidence. Based on year 2000 ABS data union members earn on average $109, or 17.5%, more each week than non-union members.
And the more marginalised or disadvantaged a person is in the labour market, the greater the differential between union and non-union rates of pay. Women workers who are union members earn an average $120 or 25% more a week than their non-union colleagues. Casual workers who are union members $90 or 25.5% more, and part time workers $117 or 42% more.
Union organisation and collective bargaining deliver better living standards. A society interested in equality, fairness and justice should support the right of workers to organise.
But in recent years conservative governments have tried their best to destroy the ability of people to organise in unions and to collectively bargain. This has undoubtedly pushed down the relative living standards of low-paid workers.
In the Federal jurisdiction there is no legal obligation on an employer to collectively bargain – even if every single employee wants to, and even if they are all in a union. Howard and Reith’s laws have been found repeatedly by the International Labour Organisation to breach our obligations under the ILO conventions.
It’s time to rectify this. It’s time to bring some balance back into the workplace – the pendulum has swung too far against the interests of working families.
This will not of course be achieved under a Liberal-National Government. And that is one more reason that unions will campaign for political change – and campaign we will.
And so I hope that my comments provide some insight into the ACTU’s rationale for change to the wages system. They are driven by the long-standing values of Australian unions, of our desire to achieve a fair distribution of the nation’s wealth, of our commitment to lift people up – not leave them behind.
Almost one hundred years on from the Harvester judgement the pursuit of that goal continues. But the issues I have raised are not just concerns of unions – they are issues for all Australians. And in an election year I ask you to think carefully about them, to look beyond the trivialisation of politics and to consider the direction of the society.
And when you do, spare a thought for Leonie McDermott, and the other couple of million low paid workers in this country.
Greg Combet gave this address to Industrial Relations Society of QLD, Patron’s Lunch. Friday June 1, 2001, Mercure Hotel, North Quay Brisbane.