Stephen Smith (Perth, Australian Labor Party, Shadow Minister for Industry, Infrastructure and Industrial Relations) Share this | Hansard source

I rise to speak on the Appropriation Bill (No. 3) 2005-2006 and the Appropriation Bill (No. 4) 2005-2006. Australia’s living standard fell from about the highest in the world at the beginning of the 1900s to nearly 20th by 1990. Largely because of the major structural economic changes effected by the Hawke and Keating Labor governments, Australia is now enjoying the second quarter of its 15th year of continuous economic growth. As a result, our relevant international position in terms of living standards has risen from 19th in 1990 to eighth in 2004. But Australia still faces significant economic challenges that this government is either unwilling or unable to address—challenges that include the parlous state of our nation’s productivity, industry and export trade performance; challenges that with national political leadership can be met and overcome.

During the 1990s, Australia enjoyed our best run of productivity growth on record. Against the United States, we went from 79 per cent of the US productivity rate in 1983 to 86 per cent by 1998, but since that time we have gone backwards. We are now at 81 per cent of the United States productivity rate. Since 2002, we have fallen behind the OECD average. For every quarter of the past year, our national productivity has been negative.

In terms of our trade performance, Australia today has a massive $450 billion foreign debt. That is up from the nearly $210 billion foreign debt when John Howard first came to power in 1996. Today it soars above the debt of countries we might have once considered economic basket cases—countries like Argentina, Brazil and Russia—and we are beaten only by Qatar and Iceland. I now know where Mr Howard and Mr Costello have hidden the debt truck: under the desert sands of Qatar or under the ice of Iceland. In the 1990s, Australian foreign debt was around 40 per cent of GDP. Due to increases in the current account deficit, foreign debt is now around 51 per cent of GDP, with a current account deficit trending as a proportion of GDP at about six per cent. With GDP at around $890 billion, this amounts to more than $50 billion of new debt every year. Despite the favourable historic high prices that Australia receives for our commodity exports and the best terms of trade we have seen in more than 30 years, the Treasurer still manages to run a current account deficit in the order of $60 billion—some six per cent of GDP.

These challenges, in terms of productivity, trade and exports, are the result of 10 long years of economic complacency—a complacency characterised by short-term politics rather than long-term planning; a complacency that has the potential to do real damage to our economy and our economic future. This neglect has been particularly evident within areas under my direct shadow ministerial responsibility—those of industry and infrastructure, and today both of those areas are hot topics in our national debate. The problem for our nation is that they are policy areas that the Howard government has neglected for 10 long years. Instead of focusing on the real drivers of productivity, the government has pursued an ideological obsession that the Prime Minister has had since the 1960s: a slashing of wages and conditions for ordinary working Australians—an approach which will not deliver a productivity benefit for our nation.

The government’s approach to industrial relations is both extreme and unfair, and it is neither sensible nor economically efficient. Last year, the Prime Minister argued that his industrial relations changes were essential to the future economic benefit of our nation. The Prime Minister argued that these changes were needed to maintain and build on Australia’s economic performance. The Prime Minister and the government assert that these changes are the magic bullet needed to improve employment, wages and productivity. At the time the legislation passed in the parliament at the end of last year, the Prime Minister’s benchmark claims were that these changes would increase employment and reduce unemployment, increase national and workplace productivity, and provide a boost to the economy.

Let us examine those various assertions. By removing the independent umpire, the Australian Industrial Relations Commission, from setting the level of the minimum wage, the government seeks to realise its ambition of a reduction in real terms of the value of the minimum wage. In the government’s view, reducing the value of the minimum wage in real terms will lead to an increase in employment. But Australian and overseas experience shows that the assertion that high minimum wage levels inevitably lead to high levels of unemployment does not stack up. The Australian experience shows that it is possible to have falling unemployment while experiencing real wages growth. In Australia, we have experienced annual minimum wage increases over the past five years at the same time as unemployment has fallen. Over the past five years, jobs growth has increased by 10.4 per cent while minimum wages have grown by 5.3 per cent in real terms.

International evidence also questions the government’s claims. In the United States, over the past five years jobs growth has risen by only 2.9 per cent while the minimum wage in real terms has fallen by a massive 12 per cent. We have better employment levels for men aged between 25 and 65, while those mature age workers who did not complete high school also have a better employment record in Australia than in the US. During a similar period in the United Kingdom, the minimum wage has more than doubled from around £2.30 to its current level of £5.05, whilst employment has risen by a significant 4.4 per cent.

At the same time as seeking to reduce the minimum wage for the fundamentally flawed view that it will increase employment, the government talks up the alleged benefits of these changes. The Prime Minister uses as his justification for this the fact that since 1996 real wages have increased by more than 15 per cent compared to less than two per cent during Labor’s period in office.  But that ignores that, during Labor’s period in office, disposable income for average Australian families increased by more than 40 per cent through the so-called social wage, which constituted elements such as superannuation and a universal health care system, both of which the current Prime Minister vigorously opposed. And it ignores the most important measure of real wage growth, namely, against the level of inflation. When Labor came to office in 1983 it inherited a 10 per cent inflation rate from then Treasurer, John Howard. When it left office 13 years later in 1996 Australia’s inflation rate was just two per cent.

On the issue of real wages growth, the empirical evidence simply does not support the government’s assertions that these benefits will come from a deregulated labour market. We only have to look at research undertaken by Professor David Peetz of Griffith University to see that. Professor Peetz’s research shows that labour productivity growth prior to the prices and incomes accord of the 1980s averaged 2.6 per cent annually. The introduction in 1983 of the accord radically altered this, and through the shift to enterprise bargaining we saw labour productivity eventually peak at an annual rate of 3.2 per cent during the years 1994-2000. Contrast this with the current productivity cycle, which according to Peetz commenced in 1999-2000—the first full cycle subject to the government’s Workplace Relations Act 1996 with its emphasis on individual contracts—and annual labour productivity growth has fallen to just 2.3 per cent.

My own state, Western Australia, stands alone as an example of the most egregious consequences of the policy approach being implemented by John Howard. In Western Australia, between 1994 and 1996 around five per cent of employees had agreements that provided below award rates in their agreements. By 1998 this had climbed to around 25 per cent of all agreements registered with the Western Australia Commissioner of Workplace Agreements. This meant that under the Court-Kierath industrial relations system labour productivity fell to an average annual growth rate of 3.8 per cent, compared to 6.29 per cent under the current state government’s industrial relations system, a year-on-year increase of nearly 10 per cent in 2003-04.

How productivity will be improved as a result of the government’s industrial relations changes has never been explained. It has only been asserted, despite being one of the government’s central assertions. Certainly, neither the Treasury nor the Department of Employment and Workplace Relations claim any economic analysis of their own to that effect.

The government’s approach has been to equate productivity improvements with lower wages. Simply put, the government’s extreme industrial relations changes will see Australia introduce a system of labour market changes that will drag wages and conditions down, may or will increase profits, but will not increase productivity or efficiency. This is because an industrial relations system that suppresses labour costs reduces the incentive of business to focus on capital investment and other more sophisticated sources of competitive advantage.

And that is the likely outcome of these changes. We only need to look to New Zealand for proof of the impact of this approach, where according to a 2004 New Zealand Treasury report:

… changes in factor market regulation may have changed firms’ incentive to source output growth from employing more labour versus investing more in physical capital, because of a change in the relative price of labour to capital.

The New Zealand industrial relations experience served to discourage investment and innovation, with the result that Australia’s labour productivity is now more than 23 per cent higher than New Zealand’s. Even the Commonwealth Treasury here has echoed this sentiment, saying in advice to the Treasurer on 6 October that, as a result of the government’s changes, labour productivity growth may be ‘suppressed’.

The government’s assertion that its industrial relations changes will fix any economic problems Australia faces is not just simplistic, it ignores the real drivers of productivity in our economy: the knowledge and skills of our workforce, the ability to innovate through quality research and development and the adequacy of our infrastructure.

In dealing with these issues, let me return to Australia’s external imbalance, particularly our current account deficit, as it is the clearest manifestation of the government’s complacency and neglect in these areas. While one of the causes of Australia’s current account deficit has been a lack of domestic savings, the current account deficit has really come to the fore as our trade deficit has ballooned. The Howard government has to date presided over 45 monthly trade deficits in a row, the longest run of any Australian government—and it is still continuing. Australia’s share of world exports has now fallen from a high of 1.22 per cent in 1989 to 0.94 per cent today, its lowest level since records began in 1946. This is not surprising when, over the past five years, manufactured exports have grown by a trend rate of only 1.7 per cent while at the same time manufactured imports have grown by 5.4 per cent. And according to ABS estimates, our negative net export position reduced economic growth by 0.3 per cent in the September quarter last year.

In 2004-05 Australia’s trade deficit in goods and services stood at nearly $26 billion, with a deficit in manufactured goods of more than $88 billion. Is it any wonder then that we have seen manufacturing decline as a proportion of GDP to its current level of 12.6 per cent, down from 19 per cent in 1975? If manufacturing continues to shrink as a share of GDP then our current account deficit will continue to grow. While export growth generally is less than half that achieved under Labor, our manufacturing exports are even more dire. Today, manufactured exports are growing at only 3.6 per cent, more than four times smaller than the growth recorded under Labor. Particularly disturbing is the composition of our manufacturing export performance.

One of the biggest failures of the Howard-Costello government has been that it has let slip Labor’s focus on the export of elaborately transformed manufactures. While knowledge-intensive manufacturing accounts for 8.4 per cent of the economic value add in Europe, it accounts for only three per cent of the value add in Australia. Worse still, while Australia’s share of knowledge-intensive manufacturing was rising strongly during the early 1990s, it has declined since 1995 by an average 1.5 per cent a year. This is impacting on our jobs market and our skills formation. If the Australian Industry Group, AiG, is right, over 40,000 manufacturing jobs are being lost each year, year in, year out. That ultimately will hurt our skills base and our ability to innovate in the future. There is little doubt that Australian manufacturing is bleeding—so much so that if these trends were to continue Australia would cease to have a manufacturing industry by about 2025.

We cannot prosper as a nation by simply lowering wages and neglecting efforts that encourage industry innovation and productivity. We need to continue to seek out ways to work smarter, not just harder. This means it is essential that we look creatively at adopting measures to boost research and development innovation, not relying on labour market participation or labour market deregulation. Australian business innovation today is at only half the average of OECD nations, a situation achieved in the 1980s and early 1990s when taxation arrangements encouraged companies to triple their investment in research and development. Now into our 15th year of continuous economic growth, Australia remains near the bottom of the international research and development league table, with a meagre 0.89 per cent of GDP for R&D expenditure, against an OECD average of 1.5 per cent of GDP. That is 15th on the OECD table, half the effort achieved by the United States, a third of Sweden and substantially less than both Germany and Belgium. Today, expenditure on R&D is no better than it was nearly 10 years ago when this government came to office. This should obviously be a much higher and greater investment.

Since 1996, business investment in research and development has been growing at only 2.6 per cent, while in the previous decade R&D investment grew at 11.4 per cent. In manufacturing the fall has been even more pronounced, with R&D growth of 10.5 per cent to 1996, down to just 0.8 per cent a year since then. Research conducted by Melbourne university in its 2005 R&D and intellectual property scoreboard found that, of the over 5,000 Australian companies that undertake any form of R&D, fewer than 50 spent more than $10 million on it in 2003-04. That scored us a rating of C minus.

Meanwhile, our international competitors are marching ahead. Companies in China have been boosting expenditure on R&D at a rate of 21 per cent a year. The Howard-Costello government has no policy or political strategy to deal with these issues. At best it does not understand them; at worst it does not care about them.

Labor’s approach in government was to recognise that a viable and vibrant manufacturing industry relied on our ability to be globally competitive and to build on our success by encouraging a culture of innovation and exporting. Australia needs an economy where manufacturing plays its part as a producer of technology, alongside goods and services rich in intellectual property. Commonsense sees that the future of a modern, dynamic, successful manufacturing industry must be based on a foundation of skills, quality and innovation. This requires national leadership from the Commonwealth to develop a comprehensive national industry strategy, to revitalise the COAG Industry and Technology Ministerial Council, and to expand and encourage joint research and development activities to move Australian industries and exports up the value chain. Of course, the Howard government simply will not do this.

The government’s neglect of the productive capacity of our economy is not confined to just manufacturing. After 10 years of government economic complacency, Australia’s competitive edge is being further undermined by an economy pressing up against capacity constraints—a direct result of the deterioration in our key infrastructure assets. Speaking to the Committee for Melbourne in July 1995, John Howard said:

… I’ve been struck by the need to improve the coordination of infrastructure policy at the Commonwealth-State level.

In November 2005, John Howard told the Australian Davos Connection’s infrastructure conference:

… no-one disputes that better coordination across different levels of Government is an important part of getting the right environment for … [infrastructure] investment.

The problem is that, over 10 years, there has been no tangible progress. While the recent COAG outcome on infrastructure is a positive step, it comes off the back of 10 years of neglect and indifference and has the trappings of a government seeking a political fix to a substantial public policy problem.

The approach to infrastructure adopted at last Friday’s COAG meeting was not only belated but vastly inadequate. The COAG communique merely agrees to think about reform rather than undertake actual reform itself. According to communique timelines, no progress will be seen until at least 2007, while a number of potentially substantive issues are pushed back until well into 2010-11.

In addition, the communique contained no reference to any independent coordinating body, an initiative long called for by the infrastructure sector itself. There was no plan for any audit of national infrastructure assets, merely a report every five years, with little or no accountability or transparency.

In a modern, dynamic and outwardly looking Australian economy, real productivity improvements can only come from a commitment to the adequacy of our infrastructure; a commitment to the education, skills and training of our workforce; and a commitment to our ability to support and foster innovation and the commercialisation of our ideas. Such commitments represent an investment in our nation’s future, not something to be viewed merely as an expense or a budgetary item.

In contrast to the government, Labor recognises that the current national process for the integrated coordination and planning of our future infrastructure requirements is either dysfunctional or does not exist. Labor believes that there needs to be a more mature, collaborative relationship between the Commonwealth and the states, the territories and local government. That is why Labor believes that the Commonwealth should work with the states to give priority to long-term strategic planning of the nation’s infrastructure needs.

Strategic planning for our national infrastructure needs is complex. It requires cooperation amongst the three tiers of government and it requires sound research and projections of likely trends in population growth, economic development, exports, consumer demand and technology.

That is why a federal Labor government will conduct a national infrastructure audit; establish a national infrastructure priority list; create Infrastructure Australia, a Commonwealth body to drive rebuilding; and seek to reduce complex and overlapping regulations between the Commonwealth and the states. The priorities of this government encompass none of these commitments—commitments that would substantively and sustainably increase the productive capacity and capability of our nation.

The period since 1996 is a missed opportunity that has hurt Australia’s ability to remain internationally competitive—a fact that is being acutely felt today. Although the government makes noises about the need to improve productivity, it is trying to achieve this through an industrial relations approach which will likely reduce wages, particularly at the lower end of the scale.

Australia needs a government that is committed to the national interest and long-term solutions rather than political considerations and short-term fixes. Australia needs a government that has a vision and is committed to building an economy geared towards long-term production, not just short-term consumption. The Howard-Costello government is not the government to do that. Only a federal Labor government will effect that long-term planning for our nation’s future.

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