[2014] FWCFB 3500 FAIR WORK COMMISSION DECISION



Fair Work Act 2009

s.285—Annual wage review

Annual Wage Review 2013–14

(C2014/1)

JUSTICE ROSS, PRESIDENT

SENIOR DEPUTY PRESIDENT WATSON

COMMISSIONER SPENCER

COMMISSIONER HAMPTON

MR HARCOURT

PROFESSOR RICHARDSON

MR COLE MELBOURNE, 4 JUNE 2014

Contents

Abbreviations

2009–10 Review decision Annual Wage Review 2009–10 decision 2010–11 Review decision Annual Wage Review 2010–11 decision 2011–12 Review decision Annual Wage Review 2011–12 decision 2012–13 Review decision Annual Wage Review 2012–13 decision AAA Accommodation Association of Australia AAWI average annualised wage increases ABI Australian Business Industrial ABS Australian Bureau of Statistics ACCER Australian Catholic Council for Employment Relations ACCI Australian Chamber of Commerce and Industry ACOSS Australian Council of Social Service Act Fair Work Act 2009 ACTU Australian Council of Trade Unions AFEI Australian Federation of Employers and Industries AHA Australian Hotels Association Ai Group Australian Industry Group ANRA Australian National Retailers Association ANZSIC Australian and New Zealand Standard Industrial Classification APCSs Australian Pay and Classification Scales Apprentices decision Re Modern Awards Review 2012—Apprentices, Trainees and Juniors ARA Australian Retailers Association AWE average weekly earnings AWOTE average weekly ordinary time earnings AWR annual wage review C10 Engineering Tradesperson Level I C14 Engineering/Production Employee Level 1 CCIQ Chamber of Commerce and Industry Queensland Commission Fair Work Commission CPI Consumer Price Index ECAQ East Coast Apprenticeships—Queensland EEH Employee Earnings and Hours GDP gross domestic product HES Household Expenditure Survey HIA Housing Industry Association HILDA Household Income and Labour Dynamics in Australia IMF International Monetary Fund IPA Institute of Public Affairs Junior Rates decision Modern Awards Review 2012—General Retail Industry Award 2010—Junior Rates LCI Living Cost Index MGA Master Grocers Australia NFF National Farmers’ Federation NMW national minimum wage NTWS National Training Wage Schedule OECD Organisation for Economic Co-operation and Development Panel Expert Panel for annual wage reviews R&CA Restaurant and Catering Australia RBA Reserve Bank of Australia Review Annual Wage Review 2013–14 RNNDI real net national disposable income SG rate superannuation guarantee rate Statistical Report Statistical Report—Annual Wage Review 2013–14 SWSS Supported Wage System Schedule VACC Victorian Automobile Chamber of Commerce VECCI Victorian Employers’ Chamber of Commerce and Industry WPI Wage Price Index

1. The Decision

[1] The Fair Work Act 2009 (the Act) requires the Expert Panel (the Panel) to conduct and complete a review of minimum wages in modern awards and the national minimum wage (NMW) in each financial year. The Panel may set, vary or revoke modern award minimum wages and must make a national minimum wage order. This decision deals with the 2013–14 annual wage review (the Review) and directly affects over 1.5 million employees in Australia who are award reliant. 1

[2] The Act sets out some important procedural fairness requirements for the Review. The Panel must ensure that all persons and bodies (referred to collectively as parties) are given a reasonable opportunity to make and reply to written submissions. In this Review, a number of parties took up this opportunity by lodging one or more written submissions, participating in consultations on 4 March 2014 and 20 and 21 May 2014, or both. The timetable for the Review and all of the submissions, transcript, research reports, and some additional economic data were published on the Fair Work Commission’s (the Commission) website to ensure that all parties had a reasonable opportunity to participate. The Panel considered all of the material received from parties and the published research in making its decision.

[3] This chapter summarises the matters we have considered, our reasoning and the increase we have decided upon. A more detailed discussion of these matters is provided in the subsequent chapters.

[4] The Act provides that in conducting the Review, the Panel must take into account the general objects in s.3, the modern awards objective in s.134(1) and the minimum wages objective in s.284. We have taken all of these matters into account. These provisions contain some common elements and to a large extent this decision has been structured around the statutory considerations we are required to take into account and we deal with them in Chapters 2–9. We do not repeat all of that material here but the views expressed in this chapter should be seen in the context of our decision as a whole. We turn first to the nature of the Panel’s task.

[5] A number of submissions contended that the increases in award rates of pay in past reviews had overcompensated workers for a projected increase in inflation which did not eventuate. Similar submissions were put in last year’s Review proceedings. These submissions proceed on a false premise.

[6] As the Panel has observed before, there is often a degree of tension between the economic, social and other considerations which the Panel must take into account. It is this complexity which has led the Panel to consistently reject a mechanistic or decision rule approach to wage fixation, such as the adoption of real wage maintenance.

[7] The real wages of award-reliant employees are relevant to our task but not determinative. To adopt real wage maintenance as a decision rule would fail to take into account other considerations including, for example, relative living standards (as we are required to do by s.284(1)(c)) in circumstances where the rate of growth in average earnings and bargained rates of pay have outstripped growth in award rates of pay.

[8] The submissions of the parties focus, naturally enough, on those statutory considerations which support the outcome for which they contend. However, the Act requires the Panel to take into account all of the relevant statutory considerations and the range of matters we are required to take into account is not limited to economic considerations.

[9] The statutory considerations we are required to take into account calls for the exercise of broad judgment rather than a mechanistic approach to minimum wage fixation.

[10] In terms of the nature of the Panel’s task, a number of parties advanced submissions in favour of an award-by-award review of minimum wages or a differential wage increase for specific employers or industries. The scheme of the Act is more consistent with establishing adjustments across the range of modern awards, and in the absence of exceptional circumstances, taking the sectoral variations into account when determining the level and nature of adjustments that will apply to the modern awards generally. Exceptional circumstances can and should be considered on their merits as required by the Act.

[11] Before turning to the relevant statutory considerations it is convenient to deal with the issue of proposed legislative change. This issue is discussed in more detail in Chapter 5.

[12] The Superannuation Guarantee (Administration) Amendment Act 2012 increases the superannuation guarantee rate (SG rate) from 9 per cent to 12 per cent. The increase is to be phased in, commencing with increases of 0.25 percentage points on 1 July 2013 and 1 July 2014.

[13] The Annual Wage Review 2012-13 decision (2012–13 Review decision) concluded that it was consistent with the statutory framework to have regard to the SG rate increase to take effect from 1 July 2013 in its determination of the level of increase in minimum wages. While the Panel took the 0.25 percentage point increase in the SG rate into account in determining the level of increase in minimum wages in the 2012–13 Review, it did not apply a direct, quantifiable, discount to the minimum wage increase. In the 2012–13 Review decision, the Panel said:

“The SG rate increase to apply from 1 July 2013 is a moderating factor in considering the adjustment that should be made to minimum wages. As a result, though it would not be appropriate to quantify its effect, the increase in modern award minimum wages and the NMW we have awarded in this Review is lower than it otherwise would have been in the absence of the SG rate increase.”

[14] In our view, such an approach is consistent with the objects of the Act, the modern awards objective and the minimum wages objective and, in particular, the legislative requirements that we take into account:

the special circumstances of small and medium-sized businesses (s.3(g));





the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden (s.134(1)(f)); and





the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth (s.284(1)(a)).



[15] The 0.25 percentage point increase in the SG rate to take effect from 1 July 2014 is the second increase in the SG rate since the contribution rate reached 9 per cent on 1 July 2012. For the reasons given in the 2012–13 Review decision, we have decided to take the scheduled 0.25 percentage point increase in the SG rate into account in our determination of the level of any minimum wage increase.

[16] Submissions in these review proceedings also addressed the proposed repeal of the carbon pricing mechanism.

[17] The Australian Government has announced its intention to repeal the existing carbon price arrangements. The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (the CTR Bill) was tabled in Parliament on 13 November 2013. It sought to repeal the legislation that establishes the carbon pricing mechanism. The CTR Bill was defeated in the Senate on 20 March 2014. It has not, to this date, been reintroduced.

[18] The Australian Government submitted that the Panel should “take account of the carbon tax repeal (and the continuation of compensation) in its 2014 decision”. 2 The carbon price compensation is also part of the rationale stated by the Australian Chamber of Commerce and Industry (ACCI) in support of the position it has taken in these proceedings. ACCI submitted that the Panel should increase minimum wages by not more than $8.50 per week. In determining that figure ACCI stated that it had regard to, among other things: “the retention of the carbon price compensation for low income earners”. In its reply submission, ACCI addressed the proposed repeal of the carbon pricing mechanism and put a similar submission to that put by the Australian Government.

[19] Implicit in the submissions of the Australian Government and ACCI is that the Panel should award a lower increase than it otherwise would on account of an asserted improvement in living standards consequent upon the abolition of the carbon price. In essence, the Panel is being invited to speculate on the outcome of an uncertain political process. We reject that approach. The prospect of legislative change is not something we propose to take into account in making our decision.

[20] For the same reasons, we have not taken into account the proposed changes to the tax-transfer system announced in the 2014–15 Budget. At the time of this decision, the Australian Government has introduced its appropriation bills and they remain before parliament. Further, in the event that the proposals are enacted without amendment, a number of the proposed changes will not commence until 1 July 2015 or later.

[21] We now turn to the considerations which we must take into account. The matters of direct relevance to the Review can be grouped into three broad categories: economic; social; and collective bargaining.

Economic considerations

[22] The outlook for the Australian economy remains sound, with solid growth, relatively low unemployment and continuing moderate inflation anticipated in the near future. Global conditions are expected to continue to improve with stronger growth expected in the world economy and within Australia’s major trading partners.

[23] Gross domestic product (GDP) growth was solid, although slightly below trend, increasing by 2.8 per cent over the year to the December quarter 2013, with stronger growth in the second half of the year. Domestic GDP growth is forecast to remain slightly below trend before increasing in 2015–16. The transition to broader growth extending beyond the resources sector is underway. Exports in a range of sectors have grown over the past year. Some strengthening of household consumption activity and new dwellings investment has occurred, although non-resources investment remains weak and is projected to remain subdued.

[24] Labour productivity has risen by over 2 per cent per annum over the past two years. Some diversity of productivity growth is evident across the award-reliant industries, with some above and some below the national average. Over the longer term, growth has benefited capital disproportionately to labour and the labour share of income has declined materially over the past two decades.

[25] The inflation rate remains within the Reserve Bank of Australia’s (RBA) target band of 2–3 per cent, although it has accelerated over the year to the March quarter 2014, whether measured by the Consumer Price Index (CPI) or Living Cost Index (LCI) for employee households. The CPI grew by 2.9 per cent over the year to the March quarter 2014. Inflation is anticipated to decline toward the midpoint of the RBA range in 2014–15.

[26] Based on various measures, the rate of wages growth fell in 2013 to its lowest recorded level over the past decade. It is expected to increase a little in 2014–15. Bargaining outcomes, measured by average annualised wage increases (AAWI), grew by more than other wage measures over the year to the December quarter 2013 but at a lower rate than over the past decade.

[27] Nominal unit labour costs bring together wages growth and productivity. Nominal unit labour costs increased by around 3.0 per cent annually, on average, between the December quarter 2003 and the December quarter 2013, but barely rose over the past year. Real unit labour costs, which remove the effect of inflation, fell by 3.9 per cent over the last decade, and by 1.8 per cent over the year to the December quarter 2013. They are at historically low levels, contributing to improved international competitiveness. In aggregate, there are no signs of cost pressures emanating from the labour market.

[28] Labour market conditions were subdued in 2013 and into 2014. Employment increased by 0.9 per cent over the year to April 2014, although hours worked did not grow over that time. Employment growth is expected to be stronger in 2014–15. The unemployment rate has edged up since the middle of 2011, to 5.8 per cent in April 2014. The unemployment rate is forecast to peak at 6ï¿½ per cent in the June quarters of both 2015 and 2016, although it could peak at a lower level given the positive labour market developments since the start of this year. Youth unemployment, while high, is not showing signs of a structural shift from its longer-term relationship with aggregate unemployment.

[29] There is no evidence to suggest that the economic conditions for small businesses have diverged materially from those of businesses generally within the industries in which they operate, as reflected in aggregate and sectoral economic data.

[30] The diversity in outcomes between the award-reliant industries indicates that the most award-reliant industries do not face a uniformly difficult economic environment. The industry data does not provide a basis for concluding that recent minimum wage increases have significantly impacted on the economic performance of the award-reliant industries.

[31] Overall, Australia’s economic performance and outlook remains sound and consistent with a moderate increase in minimum wages. The continuing moderate inflation and historically low aggregate wages growth provide scope for increasing minimum wages without inflationary consequences.

Social considerations

[32] The minimum wages objective and the modern awards objective both require us to take into account relative living standards and the needs of the low paid. These are different, but related, concepts.

[33] The relative living standards of award-reliant employees are affected by the level of wages that they earn, the hours they work, tax-transfer payments and the circumstances of the households in which they live.

[34] We find that the real value of the NMW (as adjusted by the CPI) rose by only a cumulative 0.9 per cent in the five years to December 2013 and declined by 0.1 per cent in the past year. It should be noted that this does not include the 0.25 per cent rise in the superannuation guarantee levy, which was taken into account in our 2012–13 Review decision. Other award rates of pay have grown more slowly or declined in real terms over the same five year period. All award rates of pay have fallen relative to the Wage Price Index (WPI) and to measures of median and average earnings over the past five years.

[35] The ratio of the NMW to median earnings has fallen since the first annual wage review adjustment from 54.4 per cent in August 2009 to 52.7 per cent in August 2012 (the latest date for which data are available).

[36] Although Organisation for Economic Co-operation and Development (OECD) data show that the NMW in Australia remains relatively high as a proportion of average earnings, it also discloses a significant reduction over the past two decades, both in an Australian context and in an international context. Whilst the ratio of the NMW to average earnings within Australia provides one measure of the relative living standards of the low paid, it remains our view that data about the Australian minimum wage bite relative to other OECD countries is of limited significance in evaluating the relative living standards supported by award wages.

[37] We accept that the evidence is clear that households of various types that are reliant on award rates of pay or the NMW have had a fall in their relative earnings and that on this measure their relative standard of living has declined. We accept also that the distribution of earnings has become steadily less equal over recent decades. However, we note that in the most recent years this has not translated directly into rising inequality of equivalent household disposable income.

[38] We note that a number of the proposed changes to tax-transfer payments announced in the 2014–15 Budget will particularly impact on families, rather than individuals. The appropriate reference household for the purposes of setting minimum wages is the single person household, rather than the couple household with children. For this reason, it should not be assumed that the tax-transfer payments announced in the Budget will automatically be taken into account in determining the level of the increase in next year’s Review.

[39] The needs of the low paid are difficult to identify and to quantify, since many live in households with others. We considered their needs by examining changes to the real value of their earnings, to the real value of household disposable income in the lower deciles, to hypothetical families that are reliant on low award wages, and to indicators of material stress in low-earning families. For some of these indicators, there is no new data to add to the material that was before us in the 2012–13 Review.

[40] We conclude that the capacity of the low paid to meet their needs has seen little improvement from the contribution made by award wages in recent years. Some, but not all, low-paid households have made gains through the effects of the tax-transfer system, and potentially from changes in the composition and level of workforce participation of the family.

[41] The evidence on the changes in the relative living standards of those on award rates of pay is consistent. Those on the lowest award rates, including the NMW, have fallen relative to rates of pay, as measured by the WPI. The higher award rates have fallen even further behind on this measure, although at the same rate over the past three years.

[42] The Panel is also required to take into account promoting social inclusion through increased workforce participation. We accept that our consideration of social inclusion is limited to increased workforce participation. This involves a consideration of the increased incentives that higher minimum wages can provide to those not in employment to seek paid work, balanced against potential impacts on the demand for low-paid workers and hence the supply of low-paid jobs, from increases in minimum wages. However, we also accept that the impact of minimum wages upon an employee’s capacity to engage in community life and the extent of their social participation can appropriately be considered in the context of the legislative requirements to “maintain a safety net of fair minimum wages” and to take into account “the needs of the low paid”.

[43] The Panel’s view continues to be that modest minimum wage adjustments lead to a small, or zero, effect on employment. What is considered to be a modest minimum wage adjustment will depend upon the prevailing circumstances.

Bargaining

[44] As part of the modern awards objective, the Panel must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account the need to encourage collective bargaining.

[45] Several of the submissions commented on findings presented in Research Report 6/2013 3 and Research Report 7/20134 on award reliance and the incentives to bargain. The research does not reveal any particular relationship between minimum award increases and the incentive to bargain. Instead it points to a complex mix of factors that may contribute to employee and employer decision making about whether or not to bargain.

[46] The available evidence indicates that the level of increases in minimum award wages over the past decade or so have been compatible with the encouragement of collective bargaining. We are satisfied that the increase awarded in this Review is also compatible with the need to encourage collective bargaining.

[47] It is convenient at this point to note the broader findings of Research Report 7/2013 regarding the flow-on of annual wage review increases to non award-reliant employees (whether covered by an enterprise agreement or otherwise) and the reasons for this. We have taken into account the evidence that the impact of annual wage review decisions extends beyond award-reliant employees and employers, while acknowledging that there is some uncertainty about the nature and extent of this impact.

The decision

[48] A number of considerations have led us to award a higher increase than that determined in last year’s 2012–13 Review decision. The economic outlook remains sound, with GDP growth expected to ease in 2014–15 before increasing to just below trend in 2015–16. Employment growth is expected to be stronger in 2014–15, and the unemployment rate is expected to increase only slightly over the forecast period. Inflation has been contained, and is anticipated to slow in the period ahead, approaching the mid-point of the RBA’s target band.

[49] Annual growth in the WPI has declined each year from the December quarter 2010, and average weekly ordinary time earnings (AWOTE) recorded its lowest annual growth in a decade in the year to the December quarter 2013. Wages growth is forecast to increase only moderately from current low levels. The outlook for contained inflation growth and relatively low aggregate wages growth provide scope for increasing minimum wages without inflationary consequences.

[50] The real value of award minimum wages and the NMW would decline if no adjustment were awarded. The CPI increased by 2.9 per cent over the past year.

[51] The rise in labour productivity together with the low growth in wages has meant that nominal unit labour costs barely rose over the past year and real unit labour costs remained at an historically low level. In aggregate, there are no signs of cost pressures arising from the labour market.

[52] The SG rate increase to apply from 1 July 2014 has been a moderating factor in our assessment of the adjustment that should be made to minimum wages. As a consequence, though it would not be appropriate to quantify its effect, the increase in modern award minimum wages and the NMW we have awarded in this Review is lower than it otherwise would have been in the absence of the SG rate increase.

[53] We have not taken into account the proposed repeal of the existing carbon price arrangements or the proposed changes to the tax-transfer system announced in the 2014–15 Budget. It has been a long-standing practice of the Commission and its predecessors to determine the matters before it on the basis of the existing legislative framework and not otherwise.

[54] We noted in the 2012–13 Review decision that, if sustained, the recent improvement in labour productivity could provide the capacity to address the declining relative position of the low paid and for them to share in increasing community living standards. Labour productivity has risen by more than 2 per cent per annum over the past two years. We also note that a number, but not all, of award-reliant industries recorded labour productivity growth above that for all industries in the year to June 2013.

[55] As we have mentioned, relative living standards and the needs of the low paid are among the matters we are required to take into account in the fixation of minimum wages. The relative living standards of award-reliant employees have declined over time.

[56] Over the past decade, all award rates of pay have fallen relative to measures of median and average earnings. The NMW has fallen from 47 per cent to 43.3 per cent of AWOTE and from 59.8 per cent to 55.8 per cent of average weekly earnings (AWE) over the five year period from the December quarter 2008 to the December quarter 2013. We conclude that earnings from jobs paid at the award rate are contributing less to the maintenance of relative living standards than they have in the past decade.

[57] The real weekly earnings of full-time workers have become progressively less equal over the past decade—for each decile, the lower the earnings, the lower the rate of growth in earnings—although this rising inequality has become less pronounced in the past five years. No party disputed the fact that the distribution of earnings has become more unequal in Australia over recent decades and the Panel acknowledges that annual wage review decisions have a role to play in ameliorating inequality.

[58] While real earnings have generally increased over the past decade, earnings inequality is increasing. Over the past five years, the rate of growth in average earnings and bargained rates of pay have outstripped growth for award-reliant workers. This has reduced the relative living standards of award-reliant workers and reduced the capacity of the low paid to meet their needs—needs being a relative concept. Chart 1.1 shows these changes.

Chart 1.1: Change in real value of C14, C10, WPI, AWOTE and AAWI—December quarter 2008–December quarter 2013

Source: ABS, Average Weekly Earnings, Australia, Nov 2013, Catalogue No. 6302.0; ABS, Wage Price Index, Australia, Dec 2013, Catalogue No. 6345.0; Department of Employment, Trends in Federal Enterprise Bargaining, December quarter 2013, < http://employment.gov.au/trends-federal-enterprise-bargaining >; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).

[59] We have decided that the range of considerations we are required to take into account favours the award of an increase which will result in a modest improvement in the real value of modern award minimum wages. There has been almost no growth in the real value of award rates over a period when other employees have had substantial wage increases in circumstances in which the economic environment has been sound. The deterioration in the relative living standards of award-reliant workers; the needs of the low paid; the recent widespread improvement in labour productivity growth; the historically low levels of real unit labour costs; and the absence, in aggregate, of cost pressures from the labour market are all factors favouring a real increase in minimum wages. These factors are moderated by the SG rate increase to apply from 1 July 2014.

[60] As to the form of the increase, past flat dollar increases in award minimum rates have compressed award relativities and reduced the gains from skill acquisition. The position of the higher award classifications has reduced relative to market rates and to average earnings and has fallen in terms of real purchasing power. These considerations led the Panel to determine a uniform percentage increase. The increase in modern award minimum wages we have decided on is 3 per cent. Weekly wages will be rounded to the nearest 10 cents.

[61] The national minimum wage is currently set at the minimum wage for the C14 classification. 5 We have not been persuaded to depart from that relationship. The national minimum wage will be $640.90 per week or $16.87 per hour. The hourly rate has been calculated by dividing the weekly rate by 38, on the basis of the 38 hour week for a full-time employee. This constitutes an increase of $18.70 per week to the weekly rate or 50 cents per hour to the hourly rate.

[62] The determinations and order giving effect to our decision will come into operation on 1 July 2014.

[63] A number of parties sought differential treatment in respect of any determination arising from this Review being applied to certain modern awards. In terms of those parties arguing exceptional circumstances the onus is on a party submitting such circumstances to justify this. We recognise particular drought conditions and other industry circumstances and associated hardships affecting a number of businesses. But, for the reasons given in Chapter 10, those advocating differential treatment have not persuaded us that their proposals have sufficient merit. The evidence does not support a conclusion that the industry circumstances are such that would warrant the differential treatment sought. We have, however, taken these matters into account in our consideration of the economy and in the decision more generally.

[64] In relation to incapacity arguments more generally, we again draw attention to the practical difficulties which arise from the interaction of ss.157(2), 285(1) and 286 of the Act. In particular, there is no mechanism in the Act for revisiting a determination varying modern award minimum wages after an annual wage review has been completed. As a result of this legislative inflexibility, a small or large business; a sector; or a region facing circumstances warranting the deferral of, or exemption from, an annual wage review increase can only make such an application in the context of an annual wage review. So if the adverse circumstances arose in, for example, July, the businesses affected would have to wait until the following year (i.e. the next annual wage review) before they could seek relief. This is a matter which requires legislative amendment to provide parties with an avenue to seek relief from increases flowing from an annual wage review. Such relief could be available to an individual employer or on industry sector or geographic basis.

[65] The Panel drew attention to these issues in the 2011–12 and 2012–13 Review decisions but no legislative amendments have been made and, as a consequence, the practical difficulty created by the legislative framework remains.

2. The Statutory Framework

[66] The Act requires the Panel to take into account a number of considerations in reviewing modern award minimum wages and the national minimum wage order. The minimum wages objective in s.284 applies to the exercise of functions and powers under the Parts of the Act concerning minimum wages (Part 2–6) and modern awards (Part 2–3). Section 284 is in these terms:

“284 The minimum wages objective What is the minimum wages objective? (1) The FWC must establish and maintain a safety net of fair minimum wages, taking into account: (a) the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and (b) promoting social inclusion through increased workforce participation; and (c) relative living standards and the needs of the low paid; and (d) the principle of equal remuneration for work of equal or comparable value; and (e) providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.”

[67] In setting, varying or revoking modern award minimum wages, we are also required to take into account the modern awards objective in s.134(1). Section 134(1) states:

“134 The modern awards objective What is the modern awards objective? (1) The FWC must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account: (a) relative living standards and the needs of the low paid; and (b) the need to encourage collective bargaining; and (c) the need to promote social inclusion through increased workforce participation; and (d) the need to promote flexible modern work practices and the efficient and productive performance of work; and (da) the need to provide additional remuneration for: (i) employees working overtime; or (ii) employees working unsocial, irregular or unpredictable hours; or (iii) employees working on weekends or public holidays; or (iv) employees working shifts; and (e) the principle of equal remuneration for work of equal or comparable value; and (f) the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and (g) the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and (h) the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.”

[68] The modern awards objective applies to the performance or exercise of the Commission’s “modern award powers”, which are defined to include the Commission’s functions and powers under Part 2–6, so far as they relate to modern award minimum wages. The provisions relating to the annual wage review are set out in Part 2–6 of the Act, and so requires the performance or exercise of the Commission’s “modern award powers”. It follows that the modern awards objective applies to the Review proceedings.

[69] Section 578(a) of the Act is also relevant—it directs the Commission to take into account, among other things, the objects of the Act in performing functions or exercising powers.

[70] Sections 284, 134 and 578 all direct the Commission to “take into account” certain specified considerations in reviewing modern award minimum wages and the national minimum wage order. To take a matter into account means to evaluate it and give it due weight, having regard to all other relevant factors. 6 A matter which the Commission is directed to “take into account” is a “relevant consideration” in the Peko-Wallsend7 sense of matters which the decision maker is bound to take into account.

[71] The minimum wages objective, modern awards objective and objects of the Act contain some common elements. As we indicated in the Annual Wage Review 2011–12 decision (2011–12 Review decision and the 2012–13 Review decision, the matters of direct relevance to the Review can also be understood by grouping them into three broad categories: economic; 8 social;9 and collective bargaining.10 We have considered these matters in making our decision and specifically address them in Chapters 4 and 6–9 of this decision. Chapter 3 discusses the proposals of the parties to the Review.

[72] It is important to appreciate that there is often a degree of tension between the economic, social and other considerations which the Panel must take into account. For example, a substantial wage increase may better address the needs of the low paid and improve the relative living standards of award-reliant employees, but it may (depending upon the prevailing economic circumstances) also reduce the capacity to employ the marginalised and hence reduce social cohesion. It is this complexity that has led the Panel to reject a mechanistic or decision rule approach to wage fixation, such as the adoption of real wage maintenance. 11 The real wages of award-reliant employees are relevant to our task, but not determinative. The range of considerations we are required to take into account calls for the exercise of broad judgment rather than a mechanistic approach to fixing minimum wages.

[73] We note that a number of parties again contended that the Panel should adopt an award-by-award approach to the review of minimum wages. We deal with the submissions at Chapter 10. Three further aspects of the statutory framework have been the subject of submissions to this Review:

whether the Panel made an “error of law” in its previous approach to interpreting s.284(1);





whether the Panel should include payments to pensioners as part of its consideration of relative living standards; and





whether and how the Panel should take into account new section s.134(1)(da).



[74] We consider each of these matters in turn below.

Error of law

[75] As part of submissions to this year’s Review, the Australian Catholic Council for Employment Relations (ACCER) submitted that in the 2012–13 Review decision the Panel made an “error of law” in its construction of s.284(1) and failed to give proper effect to the intended operation of the provision and to paragraph 284(1)(c) in particular. Section 284(1)(c) directs the Panel’s attention to “relative living standards and the needs of the low paid”.

[76] In previous review decisions, the Panel has stated that the Act required it to take into account all of the relevant statutory considerations, 12 and that the relative living standards and needs of the low paid were “one of a number of considerations that [the Panel] must take into account.”13 In the 2012–13 Review decision, the Panel stated:

“[56] As noted in the Annual Wage Review 2009–10 decision (2009–10 Review decision), both minimum wages and the tax-transfer system are relevant to the maintenance of an effective safety net for the low paid—each has its part to play. Minimum wages play a particularly important role in the disposable income of households that do not receive income support payments. We agree with the following observation from the 2009–10 Review decision: ‘[244] Our view is that the low paid need the highest level of wages that is consistent with all other objectives including low unemployment, low inflation and the viability of business enterprises. At the least, this level of wages should enable a full-time wage earner to attain a standard of living that exceeds contemporary indices of poverty. We are open to evidence that there are particular economic developments that are placing unusual and severe strain on the budgets of the low paid.’” 14 [footnotes omitted]

[77] In the preliminary consultations to this Review, ACCER submitted that the above extract from the 2012–13 Review decision contained an error of law. Two propositions were advanced in this regard. 15 The first is that in considering s.284(1), and in particular paragraph 284(1)(c), “all factors had to be assessed and that it was not a matter of distributing what is left over after priority has been given to the other factors.”16 The second proposition was that the Annual Wage Review 2009–10 decision (2009–10 Review decision)—and therefore the 2012–13 decision which adopted parts of the 2009–10 Review decision—did not give adequate consideration to the needs of the low paid.17 ACCER’s complaint is directed at the extract from the 2012–13 Review decision, which is set out above at paragraph [76].

[78] ACCER’s submission is misconceived, for two reasons.

[79] First, it is simply wrong. ACCER’s analysis suffers from the vice of reading one passage in the Panel’s decision in isolation from the decision as a whole, pouncing on an infelicitous expression and contending that it warrants the inference of an error of law. Such an approach should be rejected. 18 In the 2012–13 Review decision, the Panel also said that:

“[9] The submissions of the parties tended to focus, naturally enough, on those statutory considerations which support the outcome for which they contend. But the Act requires the Panel to take into account all of the relevant statutory considerations.” 19

[80] Further, the proposition that the “needs of the low paid” were not taken into account in the 2012–13 Review decision is devoid of merit. Chapter 6 of that decision dealt directly with “relative living standards and the needs of the low paid”, as required by sections 134(1)(a) and 284(1)(c) of the Act.

[81] Secondly, the submission is advanced in the abstract and is not directed towards the adoption of a particular construction of the relevant provisions of the Act. It is not the function of review proceedings to embark on some sort of judicial review of past Panel decisions.

[82] We make it clear that there is nothing wrong with a party advancing a submission that a past Panel decision had wrongly construed a statutory provision and advancing an alternate construction. ACCI took such a course in last year’s Review proceedings in relation to the proper construction of s.284(1)(b). The Panel acknowledged the force of ACCI’s submission and accepted the proposition that the Panel’s consideration of “social inclusion” in s.284(1)(b) is limited to increased workforce participation. 20 But that is not what ACCER has sought to do in these proceedings. During the preliminary consultations, the Panel asked ACCER to articulate the formulation of any proposed remedy to this contention in their main submission.21 In its subsequent submissions, ACCER did not directly address the question of the formulation that should be applied.

Relative living standards

[83] The second matter concerns ACCER’s submission that the Panel make “a ruling” that the living standards of pensioners are relevant to the determination of “relative living standards” under section 284(1)(c). 22 ACCER submitted that the Panel has construed the term “relative living standards” in s.284(1)(c) to mean the relative living standards of wage earners and that this “narrow” interpretation excludes comparisons between the minimum wage safety net and payments received by pensioners.23

[84] ACCER’s submission proceeds on a false premise. Contrary to ACCER’s contention, the Panel has not proceeded on the basis that payments received by pensioners are excluded from its consideration of relative living standards. In the 2012–13 Review decision the Panel stated:

“[361] The minimum wages objective and the modern awards objective both require us to take into account two particular matters, relative living standards and the needs of the low paid. These are different, but related, concepts. The former, r elative living standards, requires a comparison of the living standards of award-reliant workers with those of other groups that are deemed to be relevant . The latter, the needs of the low paid, requires an examination of the extent to which low-paid workers are able to purchase the essentials for a “decent standard of living” and to engage in community life. The assessment of what constitutes a decent standard of living is in turn influenced by contemporary norms ...

[365] In assessing relative living standards, the comparison we focus on is other employed workers, especially non-managerial workers. There is no absolute relationship that the living standards of award-reliant workers should bear to all employees. In taking into account relative living standards, we pay particular attention to changes in the earnings of the award-reliant compared to changes in measures of average and median earnings more generally.” [emphasis added]

[85] The Panel’s assessment of relative living standards focuses on the comparison between award-reliant workers and other employed workers, especially non-managerial workers. Given the context and the nature of the review proceedings such a focus is appropriate—no party contended otherwise. Indeed, ACCER submitted that “primary emphasis needs to be given to the wages of other workers across a broad range of incomes”. 24 The fact that the Panel focuses on the comparison with other employed workers does not exclude a consideration of the comparative living standards of award-reliant workers and other groups, including pensioners. It is a matter of the weight to be given to such comparisons.

[86] We also note the Australian Federation of Employers and Industries’ (AFEI) submission as to the relevance of pension rates to our consideration of relative living standards:

“Specific consideration of pension levels – funded by the taxpayer and established within the social welfare system – should not a [sic] determining factor in setting the minimum wage.

The aim of the proposition advanced by the ACCER appears to be introducing an equivalent mechanism in the minimum wage which installs the pension’s link to the higher of price/living cost indexes and the wages benchmark of male total average weekly earnings …” 25

[87] To the extent that ACCER’s submission sought the application of the mechanism for adjusting pension payments to the adjustment of minimum wages, we reject that proposition. As we observed earlier, the range of considerations we are required to take into account calls for the exercise of broad judgment, rather than a mechanistic or decision rule approach to minimum wage fixation.

[88] In taking into account relative living standards the Panel has paid particular attention to changes in the earnings of the award reliant compared to changes in measures of average and median earnings more generally. We are not persuaded to depart from that approach.

Consideration of s.134(1)(da)

[89] The modern awards objective is directed at ensuring that modern awards, together with the National Employment Standards, provide a “fair and relevant minimum safety net of terms and conditions” taking into account the particular considerations set out in paragraphs 134(1)(a) to (h).

[90] The Fair Work Amendment Act 2013 (Cth) amended the modern awards objective by inserting an additional matter to be taken into account, in the following terms:

“(da) the need to provide additional remuneration for:

(i) employees working overtime; or

(ii) employees working unsocial, irregular or unpredictable hours; or

(iii) employees working on weekends or public holidays; or

(iv) employees working shifts.” 26

[91] The Explanatory Memorandum to what became s.134(1)(da) states:

“This amendment promotes the right to fair wages and in particular recognises the need to fairly compensate employees who work long, irregular, unsocial hours or hours that could reasonably be expected to impact their work/life balance and enjoyment of life outside of work.”

[92] CCIQ submitted that the Panel must ensure that it:

“considers the impact of the new section 134(1)(da), which provides for additional remuneration for employees through overtime, penalty rates and allowances. This will have potentially significant implications for employment costs in traditionally award reliant industries, including retail and hospitality.” 27

[93] CCIQ’s submission seems to assume that parties will seek to rely on s.134(1)(da) in support of applications to vary modern awards to increase overtime payments, penalty rates and allowances and, further, that such applications will be granted, resulting in increased employment costs in award-reliant industries.

[94] At this time there are no applications to vary modern awards in the manner contended by CCIQ. To the extent that such applications are made in the context of the 4 yearly review of modern awards they will be assessed against the relevant statutory provisions. In the decision dealing with some of the preliminary jurisdictional issues related to the 4 yearly review of modern awards the Commission stated:

“a party seeking to vary a modern award in the context of the Review must advance a merit argument in support of the proposed variation. The extent of such an argument will depend on the circumstances ... where a significant change is proposed it must be supported by a submission which addresses the relevant legislative provisions and be accompanied by probative evidence properly directed at demonstrating the facts supporting the proposed variation.

...

What is ‘necessary’ in a particular case is a value judgment based on an assessment of the considerations in s.134(1)(a)–(h), having regard to the submissions and evidence directed to those considerations. In the Review the proponent of a variation to a modern award must demonstrate that if the modern award is varied in the manner proposed then it would only include terms to the extent necessary to achieve the modern awards objective.” 28

[95] Implicit in the submission put by CCIQ is the proposition that the Panel should award a lower increase than it otherwise would on the basis that s.134(1)(da) may result in variations to modern awards which may increase employment costs.

[96] There is no factual basis for the submission. Even if applications were made to vary modern awards in the manner suggested the outcome of such applications is far from certain. Section 134(1)(da) requires the Commission to take into account certain considerations but it does not dictate a particular result. The modern awards objective is very broadly expressed and no particular primacy is attached to any of the considerations set out in s.134(1)(a) to (h). CCIQ’s submission is entirely speculative and on that basis we reject it.

3. The Parties’ Proposals

[97] A wide range of proposals were put forward by the parties over the course of the Review. The Panel received submissions from the Australian and state governments, collective bodies representing employees and employers and other organisations. Views were divided on the quantum and form of any increases to modern award minimum wages and the NMW. A number of parties identified issues for consideration but made no particular recommendation as to whether there should be an increase in the rate of the NMW or modern award minimum wages, or the extent of any such increase. Some submissions recommended that there should be no increase to the NMW or to minimum wages in certain modern awards, 29 while others sought an exemption from any variation determination.30 A summary of the submissions made in relation to the proposed adjustments to minimum wages is provided at Appendix 1 and the claims for exemptions and differential outcomes are addressed in Chapter 10. This chapter summarises the range of parties’ submissions in respect of the quantum and form of increase to be awarded in modern award wages and the NMW.

Proposals for a flat dollar increase

[98] A number of business and industry associations recommended flat dollar increases, although views on the appropriate quantum of any increase differed. ACCI, AFEI, Business SA, the Chamber of Commerce and Industry Queensland (CCIQ), the Victorian Employers’ Chamber of Commerce and Industry (VECCI), the Australian National Retailers Association (ANRA), the Pharmacy Guild of Australia and the Victorian Automobile Chamber of Commerce (VACC) proposed an increase of not more than $8.50 per week to the NMW and modern award wage classifications. 31 The recommended increase was determined having regard to a range of matters, including the forthcoming increase to the superannuation guarantee, continuing assistance to low income earners for the carbon price, and increases awarded in the previous two reviews that were said to be in excess of projected increases in inflation.32 ACCI submitted that:

“It may be proposed that the Panel should increase wages more rapidly than it did last year so that minimum and award wage employees continue to receive a real wage increase. However in the current labour market conditions this will mean job losses. Low wages growth has also been the key moderating influence on inflation, and a significant increase in minimum and award wages is likely to add to inflationary pressure, making it more difficult for the RBA to keep interest rates low to support investment and export growth. In any case there have been significant real increases in the NMW in recent years, and ACCI’s recommended increase will ensure that there will have been a real increase over the span of the Panel’s wage determination.” 33

[99] The Australian Retailers Association (ARA) provided qualified support for a flat dollar increase. ARA submitted that the Commission should review minimum wages on a modern award by modern award basis. 34 However, in the event of an increase, ARA recommended that it should be no more than $8.50 per week, or 1.3 per cent on the NMW.35

[100] Both the National Retail Association and ANRA expressed opposition to a percentage increase. 36 The National Retail Association submitted that if a percentage increase is applied to modern award wages, “the average impact of that increase across levels should be no more than $9.30 for a 38-hour week”.37

[101] A number of other submissions recommended no increase to minimum rates of pay in respect of particular modern awards. The Australian Hotels Association (AHA) recommended no increase to the NMW and award rates specified within the Hospitality Industry (General) Award 2010 38 but added that if the Panel decides an increase to the NMW is justified, then AHA recommends that an increase of not more than $8.50 per week be applied to modern award wages and the NMW.

[102] The Accommodation Association of Australia (AAA) also recommended no increase to minimum wages in the Hospitality Industry (General) Award 2010. 39 The AAA submitted that if the Commission increased the NMW and minimum wages in modern awards, such an increase should be “minimal”.40

[103] Restaurant & Catering Australia (R&CA) submitted that there should be no increase for modern award wages in the hospitality sector, 41 namely the Restaurant Industry Award 2010, Hospitality Industry (General) Award 2010 and the Fast Food Industry Award 2010.42 R&CA limited its recommendation to the hospitality sector and did not specify a quantum in respect of the NMW or other modern award wages.

Proposals for a percentage increase

[104] Four submissions from employer groups put forward proposals for a percentage increase. The Australian Industry Group (Ai Group) proposed that a 1.6 per cent increase be applied to both the NMW and modern award wages. This figure represents an increase of $10.00 per week in the NMW and an increase of $11.60 per week in the C10 rate. 43

[105] Australian Business Industrial (ABI) recommended an increase in the NMW and modern award wages of not more than 1.3 per cent. ABI explained that this proposal was based on “the implications of changes in economic conditions”. 44

[106] Master Grocers of Australia (MGA) recommended an increase of not more than 1.25 per cent be applied to modern award wage rates. 45 Cost pressures arising from the combination of payroll tax liability, the increase in the superannuation guarantee levy and wage increases from the final stage of phasing in modern award pay rates were raised as key considerations for the Panel in this Review.46

[107] The National Farmers’ Federation (NFF) recommended that a 1.1 per cent increase be applied to minimum wages in modern awards and the NMW, the lowest of the proposed percentage increases. 47

Proposals for a tiered approach

[108] Two submissions put forward a tiered approach. 48 The Australian Council of Trade Unions (ACTU) recommended a flat dollar increase of $27.00 per week to the NMW and to modern award wages up to and including the C10 level,49 and a 3.7 per cent increase to all modern award minimum wages above that level.50

[109] The flat dollar increase of $27.00 per week is equivalent to an increase at the C10 level of approximately 3.7 per cent. The increase represents larger percentage increases over the classifications below the C10 level, ranging from around 3.9 per cent at the C11 level to 4.3 per cent at the NMW and C14 level.

[110] The ACTU submitted that:

“We believe that an increase structured in this way best balances the range of factors that the Panel must take into account. It delivers the largest proportionate increase to the lowest paid, while preserving the existing skill-based relativities for award classifications above C10. Research for this Review finds that 75% of award-reliant workers are employed below the C10 rate of pay, strengthening our contention that there should be special emphasis on the needs and relative living standards of the lowest paid.” 51

[111] United Voice supported the ACTU’s recommendation for a flat dollar increase in the NMW and to modern award wages up to and including the C10 level, and a 3.7 per cent increase to all modern award minimum wages thereafter. 52 Noting that its members were some of the “lowest paid workers in society”, United Voice argued that a flat increase would be most beneficial to the workers it represents.53 United Voice submitted that “[t]he minimum wage needs to maintain some link to average or median earnings to ensure economic imbalance (growing inequality) does not impede the goals of social inclusion.”54

[112] ACCER also put forward a tiered approach. ACCER proposed an increase to modern award minimum wages at or above the C10 level equal to the sum of the quarterly CPI increases from the March quarter 2013 to the March quarter 2014, plus another 1 per cent for productivity increases. 55 This equates to an increase of 3.9 per cent, based on a 2.9 per cent increase in the CPI through the year to the March quarter 2014.56 For all modern award wage rates below the C10 level, ACCER proposed a flat dollar increase equal to the C10 increase as a dollar figure,57 which amounts to $28.30 per week.58 ACCER considered that a flat dollar increase for employees at these classifications, rather than a percentage increase, was the best way to “improve the living standards of other low paid workers who are on a wage rate in excess of the NMW and living in poverty.”59

[113] In respect of the NMW, ACCER proposed an increase equivalent to the change at the C10 rate plus a further $10.00 per week. 60 In arriving at this recommendation, the principal objective of ACCER is “to increase the NMW to the level of the lowest award rate for cleaners” and, more generally, “to obtain increases in safety net rates that reflect cost of living increases, productivity gains and the improvements in incomes across the broader Australian community”.61

Other proposals

[114] The majority of submissions did not make any recommendation as to the quantum of any change to the NMW or modern award minimum wages.

[115] The Australian Government supported a “cautious approach” 62 and submitted that the Panel “should not limit its focus to the effect of an individual annual wage review decision but consider matters of broader context.”63 The Australian Government recommended that the Panel should have particular regard to the impact of any decision on “the hiring of the low paid, especially considering the economic and labour market outlook”.64 The Australian Government made no submission as to whether wages should be increased or the extent of any increase.

[116] The New South Wales, Victorian and Queensland Governments also recommended that the Commission exercise caution in determining the level of any adjustment in minimum wage rates. 65 The New South Wales Government did not elaborate on what outcome would constitute a “cautious approach” but offered the following explanation of its position:

“The NSW Government has arrived at its position after giving careful consideration to the relevant economic indicators. These reveal that economic growth continues to be below trend and appears likely to remain so in the short term. More broadly, current economic conditions and the outlook in the medium term remain uncertain.” 66

[117] The Victorian Government argued that it was essential to take into account “the current and prospective relative weakness in labour demand”. 67 In its written response to the questions for final consultations, the Victorian Government indicated that the Victorian Government’s public sector wages policy may be relevant in the context of determining what constitutes a “cautious approach” to the 2013–14 Review:

“the Government’s public sector wages policy has a wage guideline rate of 2.5 per cent per annum, with any enterprise agreement outcomes in excess of the guideline rate being fully offset by genuine productivity gains linked to workplace reform achieved as part of the agreement negotiations.” 68

[118] The South Australian Government submitted that the Panel “should increase national minimum wages taking into account current economic conditions”. 69

[119] The Western Australian Government did not specify a quantum of increase in its initial submission but supported the Panel taking “a balanced approach to the 2013–14 Review”. 70 In response to questions for final consultations on what would constitute a “balanced” approach, the Western Australian Government submitted that:

“On 13 May 2014, the Minister for Commerce, on behalf of the Western Australian Government, made a submission to the Western Australian Industrial Relations Commission State Wage Case 2014 which also supported a balanced approach being taken to minimum and award wage setting.

The Minister submitted to the State Wage Case that it is fair and prudent to adjust minimum and award wage rates of pay to the extent that their real value is maintained and the spending power of employees is preserved while ensuring that wage costs for employers remain sustainable.

The Minister’s submission to the State Wage Case therefore advocated a percentage increase to minimum and award wage rates equivalent to the most recent Western Australian Department of Treasury estimate of growth in the Consumer Price Index (CPI) for Perth for the financial year 2013-14, as published in the 2014-15 Western Australian State Budget, which is 3.0 per cent.” 71

[120] The Australian Council of Social Service (ACOSS) submitted that a substantial increase in real minimum wages was necessary in order to reduce the growing gap between minimum wage and median pay levels. While ACOSS supported setting the minimum wage “well above” poverty levels, it recognised the need to “maintain a gap between maximum social security payments and minimum wages to preserve work incentives”. 72

[121] While the Housing Industry Association (HIA) did not recommend a specific change to the NMW or modern awards, it opposed the increase sought by the ACTU and made a number of submissions in that regard. HIA argued that an increase of $27.00 per week in the NMW was “unsustainable and unreasonable” and would not alleviate housing affordability pressures. 73

[122] Similarly, the South Australian Wine Industry Association Incorporated opposed a percentage increase and recommended that any variation should be “a flat increase that is fair to all employees and capped no higher than the rate of inflation”. 74

[123] The Australian Road Transport Industrial Organization took the view that any increase in wages should be “modest”. 75 The submission highlighted unemployment, a fall in the labour force participation rate and modest wages growth as providing “useful guidance to the Fair Work Commission in terms of its decision making”.76

[124] The Institute of Public Affairs (IPA) submitted that “the current minimum wage be frozen at its current level”. 77 In relation to the statutory framework within which the Panel must operate, IPA argued:

“We consider that nothing in the FW Act precludes the Fair Work Commission from freezing the minimum wage, reducing the minimum wage, or indeed setting the minimum wage to zero.” 78

4. The Economy

[125] As part of the minimum wages objective, the Panel must establish and maintain a safety net of fair minimum wages, taking into account, amongst other things, the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth.

[126] The modern awards objective requires the Panel, to ensure that modern awards provide a fair and relevant minimum safety net of terms and conditions, amongst other things, to take into account: the need to promote flexible modern work practices and the efficient and productive performance of work; the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.

[127] In this Chapter, we consider:

the recent economic performance of the Australian economy:





economic growth, at an aggregate level and at an industry level;







productivity and real unit labour costs;







business competitiveness and viability;







inflation;







wages growth; and







labour market activity, at an aggregate level and at an industry level;





small business;





the award-reliant industries; and





the economic outlook.





Recent economic performance

Economic growth

[128] Submissions described the Australian economy as performing below trend despite growth picking up in the December quarter 2013. The domestic economy was described as being in transition, in response to the recent falls in the terms of trade, recent falls in the exchange rate and with mining investment having reached its peak. Submissions also noted that net exports had offset the fall in business investment as a key driver of growth. All data are seasonally adjusted unless otherwise noted.

[129] GDP increased by 0.8 per cent in the December quarter 2013 and 2.8 per cent over the year to the December quarter 2013 (Chart 4.1), which is slightly below trend growth. GDP growth in 2013 was almost the same as that for 2012 and 2011, and higher in the second half of the year.

Chart 4.1: Economic growth, annual and quarterly growth rates

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2013, Catalogue No. 5206.0.

[130] The contributors to increased expenditure on GDP in the December quarter 2013 were net exports (0.6 percentage points), final consumption expenditure (0.5 percentage points), public gross fixed capital formation (0.2 percentage points) and changes in inventories (0.2 percentage points). The main detractor was private gross fixed capital formation (–0.5 percentage points). 79

[131] Over the year to the December quarter 2013, the significant contribution from net exports reflects a 6.5 per cent increase in exports and a 4.6 per cent reduction in imports. Household and government consumption growth both contributed to GDP growth, rising 2.6 per cent and 2.7 per cent respectively. The terms of trade fell by 1.2 per cent, continuing the decline since its peak in the September quarter 2011. Private gross fixed capital formation fell by 0.4 per cent, whilst public capital formation fell by in excess of 10 per cent.

[132] Growth in household consumption expenditure of 2.6 per cent over the year to the December quarter 2013 was slightly higher than the 2.4 per cent recorded over the year to the December quarter 2012. Quarterly retail turnover data beyond the December quarter 2013 suggest consumption growth has further increased. In current prices, the seasonally adjusted estimate for Australian retail turnover rose 1.2 per cent in the March quarter 2014 and 3.2 per cent over the year to the March quarter 2014, with growth accelerating in each quarter within that year. Retail turnover increased in each industry segment, other than department stores, over the year to the March quarter 2014.

[133] The household saving ratio was 9.7 per cent in seasonally adjusted terms in the December quarter 2013, around its historical norm, 80 and down from 10.9 per cent in the December quarter 2012 and 11.8 per cent a year earlier.

[134] The stronger growth in real net national disposable income (RNNDI) 81 relative to real GDP associated with the prolonged and large increase in the terms of trade in the decade to the September quarter 2011 produced a substantial cumulative gap between real GDP and RNNDI by the middle of 2011. The subsequent fall in the terms of trade in the two years to the December quarter 2013 has caused RNNDI to increase by only 1.8 per cent, while GDP has grown by 5.7 per cent.82

[135] The Australian economy continues to outperform the average of the OECD Major 7 countries in terms of quarterly GDP growth (Chart 4.2). The strong growth relative to the OECD Major 7 countries has been evident since the global financial crisis.

Chart 4.2: International comparisons of quarterly GDP growth

Source: OECD, Economics: Key Tables from OECD, OECD iLibrary, Table No. 13, 4 April 2014, < http://www.oecd-ilibrary.org/economics/economics-key-tables-from-oecd_2074384x

[136] Data for gross value added by industry, which provides information about the sectoral contribution to aggregate growth, reveals diversity over the past year. Chart 4.3 shows the average annual percentage change in gross value added by industry over the year and over the decade to the December quarter 2013. Mining; Health care and social assistance; and Financial and insurance services continued to grow strongly during 2013, while Agriculture, forestry and fishing; Rental, hiring and real estate services; and Public administration and safety grew at a pace that was well above their decade average. In contrast, against the longer term trend, gross value added fell in Wholesale trade; Electricity, gas, water and waste services; and Accommodation and food services while Manufacturing continued its long-term decline.

Chart 4.3: Average annual change in gross value added by industry—December quarter 2003–December quarter 2013(Percentage)

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2013, Catalogue No. 5206.0.

[137] Over the decade to the December quarter 2013, the strongest growth in gross value added occurred in the Mining; Construction; and Professional, scientific and technical services industries, and service industries such as the Health care and social assistance; and Financial and insurance services industries. Gross value added in the Manufacturing industry fell marginally over the decade. The differential growth in gross value added between industries evident over the past decade reflects structural change in the economy, driven particularly by the resources boom and a shift in community spending toward services such as those provided by the Health care and social assistance industry.

[138] In its more recent decisions, the Panel considered structural change in the economy, most notably change associated with the resources boom. 83 In that consideration, the Panel noted the RBA’s analysis84 which suggested that resources investment as a share of GDP was expected to peak over the course of 2013, although remaining high for a time, with a shift toward the production and export phase.85

[139] Investment and export data suggest that the resources sector has moved, as expected, from the investment to the export phase. Investment declined for the economy in aggregate in the past year, with capital expenditure falling by 5.7 per cent over the year to the December quarter 2013. Chart 4.4 shows Mining investment declining by 7.1 per cent over the year to the December quarter 2013, with investment declining by 11.1 per cent in Manufacturing and 2.2 per cent in other selected industries over that time.

Chart 4.4: Average annual change in actual private capital expenditure by selected industries, over the year, five years and 10 years to the December quarter 2013 (Percentage)

Note: Other selected industries includes Electricity, gas, water and waste services; Construction; Wholesale trade; Retail trade; Transport, postal and warehousing; Information media and telecommunications; Finance and insurance (excluding ANZSIC class 6330: Superannuation funds); Rental, hiring and real estate services; Professional, scientific and technical services; Accommodation and food services; Administrative and support services; Arts and recreation services; and Other services. All data are seasonally adjusted, based on chain volume estimates.

Source: ABS, Private New Capital Expenditure and Expected Expenditure, Australia, Dec 2013, Catalogue No. 5625.0.

[140] The fall in mining investment from peak levels, following the exceptional growth over the past five and ten year periods, confirms the shift from the investment phase of the resources boom. Mining investment is no longer contributing to growth in investment or GDP. However, it remains at high levels (Chart 4.5) and continues to constitute over half of total new capital expenditure and over 5 per cent of total GDP. 86

Chart 4.5: Actual capital expenditure—Mining

Source: ABS, Private New Capital Expenditure and Expected Expenditure, Australia, Dec 2013, Catalogue No. 5625.0.

[141] Export growth is strong, with net exports being the major contributor to GDP growth in the December quarter 2013. Growth in exports over the year to the December quarter 2013 improved markedly over the average of the past five years (Chart 4.6).

[142] Sectoral export data support the proposition that the resources boom has moved into the production and export phase. Mining exports have risen by 24.8 per cent over the year to the December quarter 2013, significantly stronger growth than the 6.6 per cent per annum growth over the five years and 13.9 per cent per annum over the eight years to the December quarter 2013.

[143] Exports of Agriculture, forestry and fishing also grew strongly, at about double the average rate over the five years to the December quarter 2013. Of particular note is the recent growth in non-primary exports (Manufacturing and Other services). From a recent history of almost no growth, these sectors grew by 5.6 and 9.0 per cent, respectively, over 2013. Strong growth has occurred in both goods and services exports over the past year.

[144] Export growth now comes from a number of sectors, providing reason for cautious optimism that the economy is adjusting to the peak in mining investment. Although the exchange rate is still relatively high, this has not prevented export growth over 2013.

[145] We note the Ai Group submission that around three-quarters of manufacturing exporters are seeking to take advantage of the high dollar by importing components and capital, with the proportion of their cost base represented by imports increasing significantly towards the end of 2013. Ai Group also reported that its member surveys indicated that the proportion of businesses that say they are exporting has increased. 87

Chart 4.6: Average annual change in exports by selected industries, over the year, five years and eight years to December 2013 (Percentage)

Note: The point at which exports are valued is on a free on board (FOB) basis. A FOB price at the customs frontier includes the transaction value of the goods, the value of outside packaging (other than international containers used for containerised cargo), and related distributive services used, up to and including loading the goods onto the carrier at the customs frontier of the exporting country. Data for this series commences in July 2005. All data are in original terms.

Merchandise exports are allocated to an ANZSIC 2006 industry. Mining includes all related Mining subdivisions apart from Exploration and other mining support services. The ‘Other’ category includes subdivision 54: Publishing (except internet and music publishing) and also includes the sum of items not readily classified and those which are confidential and cannot be more specifically classified.

Source: ABS, International Trade in Goods and Services, Australia, Mar 2014, Catalogue No. 5368.0.

[146] Private investment in new housing, reflected in Australian Bureau of Statistics (ABS) building approvals data, 88 shows a 19.4 per cent increase in the total number of houses approved over the year to March 2014, although falling from a peak level within that year in January 2014.

[147] The necessary transition in the sources of economic growth following the passing of the acceleration in investment in resources extends beyond the shift to increased resources exports to broader-based growth.

Productivity and real unit labour costs

[148] Many submissions provided data about and discussed GDP per capita, labour productivity, the wages/profits share and unit labour costs. These concepts were discussed extensively in the Panel’s 2012–13 Review decision. 89

[149] Chart 4.7 presents the annual changes in productivity each year over the decade to the December quarter 2013 in trend terms. Productivity is defined as GDP per hour worked for “all sectors” and gross value added per hour worked for the “market sector”. GDP per capita is also included in the chart. Short-term measures of productivity should be interpreted with some caution as productivity is best measured over a business cycle.

[150] On both measures, trend labour productivity has risen over the past two years, though at a somewhat faster rate in 2012 (2.5 per cent) than in 2013 (1.7 per cent for all sectors and 1.8 per cent for the market sector). GDP per capita also rose in both years, at the lower rate of 0.9 per cent per annum (reflecting a faster growth in population than in hours worked).

Chart 4.7: Measures of productivity—Annual growth rates

Note: Data are in trend terms. Gross value added measures the value of output at basic prices minus the value of intermediate consumption at purchasers’ prices. The series “Gross value added per hour worked—market sector” has been introduced by the ABS from the September quarter 2011, and replaces the “GDP per hour worked—market sector” series. The market sector includes all industries except for Public administration and safety; Education and training; and Health care and social assistance.

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2013, Catalogue No. 5206.0.

[151] Several parties directed our attention to productivity at the industry level. The Australian Government submitted that the lower rates of productivity growth in award-reliant industries affect the affordability of award wage increases in these industries 90 and that since productivity only happens at the firm level, it should be addressed through enterprise bargaining.91 In the responses to final consultations questions, the Australian Government noted that:

“The capacity for firms to pay wages is determined at the firm level. As such, improvements to productivity at the firm level also improve the capacity to pay for increases in wages. The productivity performance of the industry reflects an aggregate measure of firm level productivity within that industry. Therefore, labour productivity increases within an industry provide a more accurate reflection of the capacity for employers in that industry to afford potential wage increases. This is more direct than considering the national aggregate of productivity growth. For example, high productivity growth in Agriculture, the industry with the highest productivity growth in the current cycle, does not increase the ability of employers in the Accommodation and Food services sector to afford higher wages (particularly if productivity in the latter industry has not improved).” 92

[152] ACCI submitted that productivity has been increasing largely in the mining sector and it makes no sense to examine productivity growth across the economy. 93 However, the ACTU provided industry labour productivity data for 2012–1394(Table 4.1) which showed productivity was growing in a number of non-mining sectors.

Table 4.1: Labour productivity growth by industry—2012–13

Change (%) Financial and insurance services 7.6 Administrative and support services* 7.0 Electricity, gas, water and waste services 6.5 Rental, hiring and real estate services* 5.7 Health care and social assistance 5.2 Public administration and safety 4.2 Mining 3.2 Retail trade* 2.2 All industries 2.1 Transport, postal and warehousing 1.2 Construction 0.8 Arts and recreation services 0.0 Manufacturing –0.1 Professional, scientific and technical services –0.1 Wholesale trade –0.5 Education and training –0.9 Agriculture, forestry and fishing –1.3 Accommodation and food services* –2.2 Other services* –3.5 Information media and telecommunications –4.4

Note: *Award-reliant industries.

Source: ABS, Australian System of National Accounts, 2012–13, Catalogue No. 5204.0.

[153] Whilst both aggregate and sectoral productivity are relevant in considering Australia’s recent economic performance, when considering the relative living standards of the award reliant, aggregate productivity performance is relevant in that it provides a measure of increasing community living standards.

[154] We disagree with the argument that productivity improvement is generated entirely at the enterprise level. It arises also from enterprises networking and sharing information and technology, transferring knowledge, improved infrastructure and human capital, and from structural reform overall in the economy. The distribution of productivity entirely at an enterprise or sectoral basis through wages outcomes would not necessarily help the flow of resources into more productive areas.

[155] The proposition that recent aggregate productivity growth is driven by the mining sector is not supported by industry level productivity data, shown for 2012–13 in Table 4.1.

[156] As shown by Table 4.1, productivity growth by industry varies considerably around the all industries average of 2.1 per cent in 2012–13, ranging from –4.4 per cent in the Information media and telecommunications industry, through to 7.6 per cent in the Financial and insurance services industry. Productivity growth in the Mining industry was 3.2 per cent, ahead of the all industries average but by no means the highest productivity growth sector in 2012–13.

[157] The five industries in Table 4.1 in which the highest proportions of employees are award reliant are indicated by an asterisk. The Accommodation and food services and Other services industries show a decline in productivity. The Administrative and support services and Rental, hiring and real estate services industries show productivity growth well in excess of the all industries average. Productivity growth in the Retail trade sector was marginally above the all industries average. The 2012–13 data indicate that labour productivity has increased over the last financial year in three of the five most award-reliant industries.

[158] The usual caveats about annual productivity statistics and their volatility and the proposition that productivity outcomes are best measured over a productivity cycle apply even more strongly to such data at an industry level. However, the growth in labour productivity in award-reliant sectors is confirmed by a consideration of the average level of growth over the past two financial years. Over that two-year period, average annual labour productivity has increased in each of the most award-reliant industries—by 0.8 per cent in Accommodation and food services, 0.4 per cent in Other services, 1.9 per cent in Administrative and support services, 2.7 per cent in Retail trade and 4.9 per cent in Rental, hiring and real estate services (with an all industry average of 2.1 per cent).

[159] At both an aggregate level, and within award-reliant sectors, growth in labour productivity has been sustained, providing some support for a modest rise in the real value of minimum wages.

[160] In the 2012–13 Review, the ACTU drew attention to the falling labour share of national income since 2000, and the decoupling of wages and productivity over that period. In its decision the Panel noted that the recent relationship between wages and productivity is a complex story, given:

the divergence between producer prices and consumer prices associated with the significant recent escalation in Australia’s terms of trade;





the implications of capital deepening and changes in the ratio of capital and labour inputs;





the widespread incidence of declining labour shares of the national incomes in developed economies; and





productivity, factor share and unit labour costs series, both in aggregate or by sector, are measured across the workforce as a whole rather than simply for award-reliant employees. 95





[161] The Panel did not draw conclusions about the gap between award wages and productivity for the purpose of its determination. We invited further submissions on the implications of the fall in the labour share of national income over the last decade for minimum wage fixation in the current Review. 96

[162] The ACTU again relied on the falling labour share of national income over the decade to 2012–13, contending that the increase it sought would help to deliver some benefits from productivity growth to low-paid workers. It submitted that whilst labour productivity grew by 12.3 per cent between 2002–03 and 2012–13, the real (CPI-adjusted) value of the NMW rose by only 3.4 per cent, and that the real value of minimum wages lagged behind labour productivity growth in all but one of the four more award-reliant industries. 97 The ACTU submitted that while many, though not all, OECD countries experienced a falling labour share of income in recent decades, the fall in Australia’s labour share (or, equivalently, real unit labour costs) has been larger than in all but one other OECD country.98

[163] The New South Wales Government, ACCI and AFEI cited a recent Productivity Commission research paper (authored by Mr D Parham) 99 submitting that it provided explanations for the fall in labour’s share of income in Australia since the 2000s. These submissions argued that the research found that although labour’s share of income fell sharply over this period, labour was no worse off as the real income of labour had nonetheless grown.100

[164] ACCI provided a summary of recent international research conclusions about the reasons for the widespread fall in the labour share of national income across OECD countries as follows:

“Various drivers have been suggested, including shifts in industry composition, technological change allowing the substitution of capital for labour, increased global trade allowing more mobile capital to demand higher returns, additional competition created by global trade reducing economic rents that had been captured by labour, and a growing financial sector creating more pressure to improve returns to capital.” 101

[165] They go on to summarise Mr Parham’s view of the developments in Australia in the following terms:

“economies tend to become more capital intensive over time. This means that the increase in the ratio of capital to labour needs to be offset by a fall in the returns received by capital relative to wages. In other words, wages actually have to increase relative to capital rents more quickly than capital volumes increase relative to hours worked. These two factors offset each other during the 1990s. In the 2000s, the rate at which the relative rent for capital declined was largely unchanged. However, it was outstripped by unprecedented growth in capital investment.” 102

[166] We summarise the main points of Mr Parham’s paper as:

the reasons for the fall in labour share in Australia are different from those that apply elsewhere;





while the labour share of income fell by 4 or more percentage points in the 2000s, labour was made no worse off by this because labour income grew at a faster rate in the 2000s than in the 1990s through stronger growth in both real wages and employment;





the labour income share only fell because capital income growth accelerated even more, with the large rise in Australia’s terms of trade bringing strong growth in real income which provided scope for growth in both labour and capital income;





the rise in the terms of trade meant that producer prices rose faster than consumer prices, so that the purchasing power value of each dollar earned rose for consumers, including but not confined to employees;





the mining boom was overwhelmingly responsible for the fall in labour share in Australia, through the development of capacity which added to the economy’s capital stock and resulted in more capital-intensive production overall;





as the terms of trade decline, the labour income share will rise, but the share is unlikely to revert fully to previous levels given a more capital-intensive economy;





action to restore the old labour income share or to recover ‘lost’ income share through wage rises would probably only have adverse consequences for employment and inflation and for industries already facing adjustment pressures; and





with a declining terms of trade, increasing productivity growth will be the way to sustain growth in real wages.



[167] It is generally accepted, and we accept, that the labour share of income has declined materially over the past two decades. There has been a redistribution of income from labour to capital. It is true that real wages have grown over that time but, as is apparent from Mr Parham’s paper, capital income growth (including its capacity to purchase consumer goods) accelerated more rapidly. The benefits of the increase in Australia’s income associated with the terms of trade increase over the past decade has benefited capital disproportionately to labour.

[168] We note that the terms of trade, which have been an important cause of the rise in the purchasing power of labour and capital income in the past decade, has declined over the past two years, although it remains at historically high levels. At the same time, labour productivity, if not multi-factor productivity, has begun to rise. Both of these are indicators that the major shock to the economy caused by the very high prices of resources, and subsequent capital investment in mining, is beginning to pass. With it will pass, at least to a degree, the unusual impact on the labour and capital shares of national income, and the boost to employee purchasing power from a high exchange rate.

[169] It is our view that shorter-term volatility in the shares of labour and capital, caused by exceptional circumstances, do not provide a foundation for altering the NMW and award rates. We agree that changes in labour productivity that are sustained provide a firmer basis for any increase in real minimum rates. Longer-term trends in the labour share of national income should be kept in mind, as they can influence assessments of the fairness of, and relative standard of living provided by, minimum wages.

[170] We are required by s.134(1)(f) of the Act to have regard to the likely impact of our decision on business, including on productivity.

[171] In the 2012–13 Review decision, 103 the Panel noted research undertaken for the United Kingdom’s Low Pay Commission and the OECD which suggested that a higher minimum wage was likely to promote productivity improvement but noted that the evidence was limited and was not directed to the impact of minimum wage increases in the context of the annual wage review in Australia.

[172] In the current Review, many submissions discussed productivity, but few addressed the issue of the impact of minimum wage movements on productivity. The Australian Government referred us to various reports of the Productivity Commission from 1998–2000 which suggested that enterprise bargaining provided an opportunity for productivity improvement at the workplace. 104 An impact of our decision on that opportunity for productivity improvement would only arise if it affected the extent of enterprise bargaining undertaken, an issue considered at paragraphs [472]–[473], where we conclude that the level of increases in minimum wages over the past decade or so have been compatible with the encouragement of collective bargaining. The increase awarded in this Review is also compatible with the need to encourage collective bargaining.

[173] Nothing in the limited submissions and evidence put to us in relation to the likely impact of our decision on productivity causes us to depart from the conclusion of the Panel in the 2012–13 Review that:

“There is no evidence that minimum wage increases arising out of the annual wage review will have an adverse impact upon productivity, at an aggregate level or at the firm level. The limited evidence before us suggests that minimum wages increases are more likely to stimulate productivity measures by some employers directly affected by minimum wage increases.” 105

Business competitiveness and viability

[174] The profits and wages shares of national income represent the returns to capital and labour, respectively, in the process of production. Over the decade to the December quarter 2013, the profits share increased by 1.0 percentage point while the wages share decreased by 0.5 percentage points (Chart 4.8). The profits share increased by 1.0 percentage point over the year to the December quarter 2013, to be 27.3 per cent. The wages share fell by 1.1 percentage points over the year, to be 53.3 per cent.

Chart 4.8: Profits and wages shares of total factor income

Note: Total factor income represents the value added by labour and capital in the process of producing GDP.

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2013, Catalogue No. 5206.0

[175] For the non-Mining industries, company gross operating profits rose by 0.9 per cent over the year. For all industries, including Mining, company gross operating profits grew by 10.7 per cent over the year. (Chart 4.9). Company gross operating profits in Mining rose by 36.4 per cent over the year.

Chart 4.9: Company gross operating profits, quarterly growth rates—All and non-mining industries

Source: ABS, Business Indicators, Australia, Dec 2013, Catalogue No. 5676.0

[176] The business bankruptcy rate is defined as the number of business-related bankruptcies divided by the number of self-employed and employers in the economy. Over the first half of the decade to 2012–13, these rates fluctuated between 0.3 and 0.4 per cent, before increasing to a peak of 0.47 per cent in 2012–13.

[177] Levels of business closures and insolvencies were also raised by employer groups 106 by reference to data from the Australian Securities and Investments Commission (ASIC) and ABS business entry and exit data.107 The AAA and R&CA submitted that company insolvencies were the “highest on record” in the 2013 calendar year. R&CA also submitted that business-related bankruptcies continued to rise in 2012–13.108 VACC and Business SA noted the closures of major companies in the Manufacturing sector, such as Holden, Ford and Toyota.109 The ACTU relied on RBA analysis,110 arguing that business failure rates for incorporated enterprises “eased slightly and is around its typical level” and that the rate for unincorporated enterprises fell “sharply” over the past year or so.111

[178] ASIC publishes insolvency data derived from information provided by liquidators, receivers and voluntary administrators in accordance with obligations under the Corporations Act 2011 (Cth). The most recent data 112 showed 2552 companies entering external administration (EXAD) in the December quarter 2013, 2.5 per cent lower than the December quarter 2012. Over 2013, 10 821 companies were reported as entering external administration, the highest level recorded.

[179] The upward trend in the absolute numbers of companies entering external administration has been evident over the past decade 113 (and probably longer) and reflects increased numbers of incorporated businesses in Australia: the number of incorporated businesses has grown by around 0.8 per cent per annum over the eight years to 2013. The rate at which companies have entered external administration has changed little over the past eight years and at March 2014 is at a relatively low 0.03 per cent (Chart 4.10).

Chart 4.10: Rate of new company registrations and rate of insolvencies (EXADs) per month as a percentage of total companies incorporated

Note: ASIC has a concern that the number of new business registrations may be biased upwards as a result of an increase in recent years in the registration of self-managed super funds. The number of self-managed super fund companies entering EXAD is very small, within the natural variation of the series. Accordingly, there is no plan to revise the EXAD series. All data is seasonally adjusted and current up to March 2014.

Source: Reproduced from data provided by ASIC. See ASIC, Corporate insolvencies: December quarter 2013, ASIC Insolvency statistics summary, https://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Insolvency-stats-summary-Dec-Qtr-2013.pdf .

[180] ASIC information shows that the number of companies entering external administration on average is only 6 per cent of the number of new business incorporations. The ratio was lower in 2013 than was typical for the eight year period to the December quarter 2013.

[181] The ASIC data show continuing low levels of incorporated companies entering external administration relative to the total population of incorporated companies over the past decade. The RBA data for unincorporated businesses show a broadly similar position, although the relative level of unincorporated business failures increased from the time of the global financial crisis through to December 2012, before falling in 2013.

[182] ABS Counts of Australian Businesses data show that the number of businesses declined by 2.9 per cent in 2012–13, following limited increases in the preceding two years. 114 It should, however, be noted that a significant proportion of businesses do not employ labour. At the beginning of 2012–13, 61 per cent of the total 2 141 280 businesses counted were non-employing businesses.115 For non-employing businesses the entry rate in 2012–13 fell from 14.7 per cent to 12.4 per cent and the exit rate rose from 16.2 per cent to 17.4 per cent. For employing businesses, the entry rate in 2012–13 fell from 11.6 per cent, to 9.3 per cent, and the exit rate rose from 8.1 per cent to 8.8 per cent. New entries of employing businesses exceeded business exits in 2012–13, although by a reduced level than in recent years. The