The future of industrial relations in Australia

3 min read

Industrial relations in Australia has traditionally been a defining policy issue central to political debates between the nation’s major political parties.

The last Federal Election campaign brought the issue into new headlines with a strong focus on wages and pay equity, both relevant to the current environment of stagnating wage growth and weaker productivity. These dynamics, amongst others, have challenged Australia’s economic growth and competitive positioning against global peers over the years.

The Liberal Party

The Government’s approach to addressing low wage growth through the industrial relations system has been less interventional than the Opposition. In line with their philosophy and beliefs, the Morrison Government has focused on building a stronger economy that flows into stronger employment and wage growth1. The Government’s plan to introduce tax cuts over the short to medium term is intended to increase jobs and boost spending power for working Australians. Other commitments announced to achieve this goal included plans to boost regional employment, greater investment in infrastructure to improve productivity, and increased funding for vocational education and training. 

Relevant to the industrial relations framework, the Coalition tended to converge with Labor on certain issues, including introducing criminal penalties for deliberate wage underpayments and targeting sham contracting and other unethical labour hire practices.

The Australian Labor Party

Prior to the 2019 election, the Australian Labor Party (ALP) put forward significant proposals for change relating to the industrial relations framework, focused predominately on addressing the record low wage growth2 through policies targeting inequality in the labour system. In recognising that the 21st century’s workforce has a different makeup to that of previous decades as a result of greater participation from a more diverse population, the Opposition had committed to achieving improved working and living standards for all working Australians3.

One of the Opposition’s defining proposals was to raise the minimum wage to a living wage, being a socially acceptable minimum that keeps workers out of poverty4, to improve relative living standards of low paid workers. The national minimum wage is currently $19.49 per hour, with casual employees receiving at least an additional 25% casual loading5. Labor then encouraged the Fair Work Commission (FWC) to further consider gender pay equity in their annual review of the minimum wage, and had committed to restoring the Sunday and public holiday penalty rates that had previously been lowered for some categories of employees by the FWC6.

Wage growth

Recent research from the Australian Government Treasury found wage growth to be subdued across all methods of pay setting7. However, modern award wages have grown faster than other methods as a result of the FWC’s recent decision to increase the minimum wages at an above-average pace8. Wage growth for those covered by enterprise agreements (EAs) have been relatively lower, demonstrated by the Average Annualised Wage Increase (AAWI), which has been in steady decline since March 20069.

The trend of increasing reliance on awards and minimum wages as a method of pay setting was highlighted as a challenge by the ALP. The Opposition raised the argument that the minimum wage is no more than a safety net and is insufficient to provide a decent standard of living10. To address this, Labor expressed its intent to amend the Fair Work Act to instead introduce a living wage, but did not specify the magnitude of increase.

The ALP also flagged the alternative system of enterprise bargaining as flawed, particularly with the rise in agreement terminations, wage freezing, and declining number of enterprise agreements entered into. Industry groups have attributed this to the system’s complexity, describing it as “a minefield of unnecessary processes, procedures, and legalities”11. The Productivity Commission has also raised a need to give preference to substance over procedure12. To address the inequality and workplace disputes that have emerged from the complex system, Labor floated the idea of enhancing multi-employer bargaining to improve access to collective bargaining, while also delivering improved arbitration capability through the FWC, Fair Work Ombudsman, and small claims procedures in the courts13.

Australia’s major political parties have traditionally differed in their approach to industrial relations reform. The recent Federal election saw Labor propose reforms centred on the introduction of a living wage and revival of Sunday and public holiday penalty rates, and an extensive review into the current enterprise bargaining system. While these changes would have posed some implications for employers with an employment base of low-paid and non-regular workers (part-time and casuals) through a possible rise in the cost of labour in addition to new regulatory reforms around enterprise bargaining, the outcome of the election saw the Coalition retain government whose proposed changes were relatively less interventional in their requirements of employers. Immediately following the election the Coalition passed its revised $158 billion, three-stage package of income tax cuts.

However, industrial relations is only one of the many contributors to subdued wage growth. Other factors include, but are not limited to, labour market spare capacity, inflationary expectations, and shifts in bargaining power14. It is now up to the Government and other stakeholders to work co-operatively in addressing the complexities that have given rise to our current system.

1. Liberal, 2019 https://www.liberal.org.au/our-plan
2. Parliament of Australia, 2019 https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1819/WageSlowdown
3. ALP, 2019 https://www.alp.org.au/media/1539/2018_alp_national_platform_constitution.pdf
4. University of Melbourne, 2019 https://fbe.unimelb.edu.au/newsroom/explainer-what-exactly-is-a-living-wage
5. Fair Work, 2019 https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/minimum-workplace-entitlements/minimum-wages#current-national-minimum-wage
6. ALP, 2019 https://www.alp.org.au/media/1539/2018_alp_national_platform_constitution.pdf
7. Australian Government, Treasury, 2019 https://treasury.gov.au/sites/default/files/2019-03/p2017-t237966.pdf
8. RBA, 2019 https://www.rba.gov.au/publications/bulletin/2019/jun/pdf/wages-growth-by-pay-setting-method.pdf
9. Parliament of Australia, 2019 https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1819/WageSlowdown
10. Bill Shorten, 2019 https://www.billshorten.com.au/labor_will_make_sure_the_minimum_wage_is_a_living_wage_tuesday_26_march_2019
11. Australian Chamber of Commerce and Industry, 2019 https://www.australianchamber.com.au/news/business-welcomes-prime-ministers-emphasis-on-workplace-relations-and-skills/
12. Productivity Commission, 2015 https://www.pc.gov.au/inquiries/completed/workplace-relations/report/workplace-relations-overview.pdf
13. Australian Labor Party, 2018 https://www.alp.org.au/media/1539/2018_alp_national_platform_constitution.pdf
14. Productivity Commission, 2019 https://www.pc.gov.au/research/ongoing/productivity-bulletin/2019/productivity-bulletin-2019.pdf

Perspectives 04 Sep 2019
Investors have faced a low-growth environment with low yield for some time now and this does not appear to be changing anytime soon.
Perspectives 22 Oct 2019
Magellan: Today’s low inflation, low growth and high debt world will likely call on fiscal remedies that erode central bank autonomy.
Perspectives 29 Oct 2019
RARE article: Global listed infrastructure is becoming a way for investors to gain access to inflation protected income.

This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac). This information is current as at October 2019. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.