by John Howard
I did not expect that the Coalition would win control of the Senate at the 2004 election. To my total surprise, the Coalition won a fourth Senate seat in Queensland, and the Family First senator, Steve Fielding, was elected in Victoria. In Queensland, the final senator elected was not, as popular legend has it, the National Party’s Barnaby Joyce. Rather it was the third person on the separate Liberal Senate team, Russell Trood. There was plenty of irony in this. As a long-time Coalitionist, and as someone who had criticised the Queensland Liberal Party for breaking the joint Senate ticket arrangement in that state in 1980, I acknowledge that if there had been a joint Senate ticket in Queensland at the 2004 election, the Coalition would not have won four Senate seats in that state.
The separate, and energetic, campaign run by the National Party candidate Barnaby Joyce, together with a tight flow of preferences from him to the Liberal Party, as well as the preferences of a number of small, right-of-centre groups, delivered that final Senate spot to the Liberal Party.
Some claimed that winning control of the Senate, via the Queensland outcome, was a poisoned chalice for the Coalition, because it encouraged it to go too far with potentially unpopular industrial relations legislation. I always gave that idea short shrift. The Coalition deserved to be judged by the electorate according to what it did in government, and nothing else.
Knowing that the Coalition would have a majority in the Senate, I turned my mind to possible further industrial relations reforms. It was common ground that we should move on unfair dismissals. This had been a bugbear of small business for many years. There was wide public understanding that a particularly disruptive employee in a small enterprise could be destructive, not only to the owner, but also the other employees, and that change here was warranted. Changing the unfair dismissal laws was in our election policy; we had a clear mandate to act.
There would also be little difficulty in securing passage of the special legislation regarding the building and construction industry as well as the Independent Contractors Act. Apart from fierce union opposition, these had broad support. They had been extensively debated for a number of years. The Coalition’s position was well known and on their own or together they would certainly not be deal breakers with the electorate.
The big question concerned further industrial relations reform, beyond unfair dismissals, as the Coalition had been given a once-in-a-lifetime opportunity to further mould the industrial relations framework of Australia. The Senate victory in 2004 was a one-off event; if the window of opportunity were not availed of then, that opportunity would not come again in the political lifetime of those who led the Government.
The overwhelming view within the Government was that it should take advantage of the unexpected majority it gained in the Senate to press ahead with further industrial relations reform. The collective attitude of the Coalition was that history would deem us policy cowards if we did not make further workplace relations changes. And by this I mean going beyond what was promulgated before the 2004 poll.
Business groups all wanted change, with some being much more radical than others. The IMF and OECD waded in, with the latter recommending that Australia cut the level of minimum wages, which were the second-highest in the developed world. The Government had no intention of doing this. Such steps have theoretical economic merit, and can boost employment because not only do they make the unemployed more employable, they also allow firms to retain more staff in a downturn. The problem is that when the starting point is a high minimum wage, any reductions are seen as harsh on the low-paid, thus violating the egalitarian ethos of Australia.
On 14 February, during an interview on the Channel Seven Sunrise program, Peter Costello argued that there was a once-in-a-generation opportunity to enhance individual contracts, to cut down on arbitral matters, to try and get wages linked to productivity improvements and enhance profitability. He also saw the opportunity to get ease-of-entry, ease-of-exit into employment situations, and to give flexibility in relation to hours and improve opportunities for part-time work.
The Government’s thinking began to take shape. We would act on unfair dismissals. In an important area, though, I thought that we should go further than previously envisaged. Although no employee number had been specified in our election policy, the assumption was that the restrictions would be scrapped for firms employing fewer than 20 people — that having been the number specified in our previous failed attempts to get amendments through the Senate without it being appreciated that if this figure were a headcount, then many small businesses would miss out because of their large number of part-timers and casuals.
This was really driven home to me during a luncheon I attended on the Sunshine Coast, early in 2005. Most of those present were motel proprietors, restaurateurs or small property developers. They attacked the notion of the ceiling being 20. One after the other they pointed out that in their own businesses, which they all regarded as relatively small, they employed full-time, casual and part-time employees well in excess of 20. Most of them said that the Government changes, if limited to a firm of 20 employees, would be of no benefit to them.
That group had made a convincing point to me. Australia had far more casual employees and many more part-time workers in the growth sectors of the economy, particularly in the service sector. We needed to revise our thinking about what constituted a small business.
Personally, I had long believed in a national industrial relations system. More than ever, Australia was a single national economy. The flow of citizens between states increased continually, and the fewer discrepancies in such things as employment rules, educational opportunities and trade qualifications, the better. Sensing that change was in the air, state Labor governments and unions began mobilising against a national system, with threats of a High Court challenge. It’s not that they objected so much to a national system, rather it was what they thought would be my national system.
In the past the Labor Party had been more vocal about the need for a national system than had the Coalition. An exception to this had been the Kennett Government in Victoria, which handed over its industrial relations powers to the Commonwealth. Speaking from opposition, the Liberal leader in New South Wales, John Brogden, said on 11 April 2005 that, if elected, the Coalition would refer its industrial relations powers to the Commonwealth. This was not a universal Coalition view. The leader of the Liberal Party in Western Australia, Matt Birney, came out against his state vacating the arena. Likewise there were dissenting sentiments coming from the National Party in Queensland and the Liberal Party in South Australia.
Speaking to the Menzies Research Centre, also on 11 April 2005, I argued for a national system in the following terms: ‘In this area the goal is to free the individual, and not to trample on the states. We have no desire at all to take over functions that have been properly discharged by the states and the territories.’ My argument was that in contrast to industrial relations at a federal level, where union power had been reduced, with individual freedoms enhanced, state industrial relations systems went in the opposite direction. To impose the federal order on the states was to free the individual and to extend the winding back of monopoly union power.
I agreed, at the request of Bob Hawke, to see Greg Combet, secretary of the ACTU, to discuss industrial relations changes. He and his ACTU colleague George Wright had an amicable discussion lasting more than an hour with me and Arthur Sinodinos in my Sydney office. The striking feature of the discussion was that Combet spent most of the time trying to persuade me to the view that if a majority of people in a particular enterprise voted in favour of a collective agreement then that collective agreement should be imposed on all workers at the enterprise, even those who had voted in favour of individual agreements. Neither of us shifted ground.
Combet argued that whilst employment conditions were robust at that time, if there were a downturn then people could be adversely affected by a freer system. There was no simple answer to this, as I pointed out.
Having more rigid conditions in employment might well advantage people who retained their jobs, but those same rigidities could well, in turn, lead to more people losing their jobs in a downturn than would otherwise be the case. This highlighted the abiding conflict in industrial relations between the interests of the unemployed and those fortunate enough to have and retain jobs.
Cabinet agreed to act on unfair dismissals. Kevin Andrews argued against my proposed limit of 100. Others argued for a compromise between 100 and 20. In the end cabinet accepted my view that we should go the extra distance. Most went along with the concept of a national industrial relations system. Kevin Andrews successfully championed a new Fair Pay Commission to replace the wage-setting role of the Industrial Relations Commission. He wanted it modelled on a body with a similar name in the United Kingdom, with strict criteria guaranteeing a balanced outcome.
The most difficult and, as it turned out, most crucial area was that relating to minimum conditions. In the final result cabinet decided to abolish the old no-disadvantage test established in 1996 and replace it with what was called a new Australian Fair Pay and Conditions Standard. It was also decided to simplify the making of employment contracts.
This standard was to be based on minimum wages as set by the Australian Fair Pay Commission (and which were to be reflected in awards), and the guaranteed minimum conditions of employment as set out in legislation. Those conditions were to be for annual leave, personal leave, parental leave (including maternity leave) and a maximum number of ordinary working hours.
The important difference between the new Fair Pay and Conditions Standard and the old no-disadvantage test was that penalty rates and overtime loadings were no longer absolutely guaranteed as part of a person’s pay package. In political terms, this proved to be a bad mistake.
Under the no-disadvantage test, a person’s remuneration under an AWA could never be less than the aggregate value of what that person would have received under the relevant award. In calculating that aggregate value, regard had to be paid to that person’s entitlement to penalty rates and overtime loadings under the relevant award. That particular stipulation was missing from the new Fair Pay and Conditions Standard. What the new standard guaranteed was the hourly rate, drawn from the relevant award, plus the minimum conditions relating to annual leave, parental leave and so on. It did not include penalty rates and overtime loadings.
The law when enacted stipulated that if the AWA was silent on the issues of penalty rates, leave loadings and the like, then the provisions of the relevant award regarding these entitlements would operate. This meant that an agreement could specifically exclude entitlements to penalty rates and leave loadings. It is my belief that fear and concern regarding the progressive exclusion of penalty rates and leave loadings did more political damage to the Government than any other issue flowing from WorkChoices.
The economic case for the change was compelling. It provided much greater flexibility. It was built on the default proviso that penalty rates and leave loadings would apply unless expressly excluded. Most importantly, however, it provided an opportunity for people not in the workforce to enter employment — albeit at lower rates, in some instances, than might otherwise be the case, but that lower rate would inevitably mean the difference between the person remaining on the dole or getting his or her first job opportunity. Once again we saw in operation that abiding conflict between the marginal employment opportunity for the unemployed and the guaranteed working conditions for the majority who are in work.
All evidence suggests that the new laws did accelerate the already downward path in Australia’s unemployment rate. It fell just under 4 per cent in February 2008, the final proof of just how effective our industrial relations changes, particularly WorkChoices, had been in generating new jobs.
The phenomenon I have just described was particularly at work in the restaurant and hospitality industry. This industry is awash with part-time and casual employees. Much of the business is done in the evenings and at weekends. As a consequence, the greater flexibility available to employees regarding penalty rates and leave loadings meant a larger number of employment opportunities being available.
From an economic policy standpoint, the change was desirable. Our economy was inexorably moving in the direction of a 24-hour day, seven-days-a-week economy. The service sector was an increasing proportion of the aggregate economy. With the desire of the community for less rigidity in their daily life, casual and part-time work was also growing. Changed family lifestyles meant changed family shopping patterns.
People wanted the opportunity to shop virtually at any hour. They did not, however, like the idea of paying higher prices for the same goods and services purchased at certain hours of the day as opposed to others. Yet inevitably that would prove to be the case unless more freedom operated in relation to penalty rates and overtime loadings.
There was a further and generic argument in favour of the change. The reforms were being introduced when the economy was operating very vibrantly. The bargaining position of Australian workers had rarely been better. Real wages were continuing to grow, and employers frequently voiced their concerns about labour shortages. The first half of 2005 — and indeed the following two to three years — was an employees’ labour market, the like of which I had not previously seen. If ever there had been a time to introduce more flexibility into the system, this was it.
Those were the arguments which finally persuaded the Government to make that crucial change. The political consequences were nonetheless quite real. In 1996 I had been able to give ‘a rock solid guarantee’ that no person would be worse off under a contract than would have been the case if he or she had remained under an award. ‘You can’t get less, but you can get more’, had been the mantra then. I could not in all honesty give that same guarantee in 2005. I knew there would be cases of some people, at the margin, being employed without penalty rates or overtime; but in the overwhelming bulk of those cases, the person concerned would have gone from the dole queue to his or her first job. Manifestly that person would have been better off.
The Labor Party frequently asked me to give the ‘rock solid’ guarantee. My regular response was that ‘my guarantee is my record’. I would then point to the impressive lift in real wages under my Government, declining levels of unemployment and generally buoyant economic conditions.
The Government did not seek to hide the change which had been made. When the legislation finally passed through the parliament late in 2005, the explanatory booklet included many cameos. One cameo, which I insisted be inserted in the booklet, spoke of ‘Billy’. He had been on unemployment benefits since leaving school. He had got his first job, without penalty rates or overtime, in a retail store. He was much better off than he would have been if he had remained on the dole. Yet plainly he was not paid penalty rates or leave loadings. I don’t think anybody could objectively argue that it would have been better for Billy to have remained on the dole than be employed without penalty rates and overtime loadings. Yet that inevitably would have been the consequence for some people if the change we launched in 2005 had not been made.
Our final position on the major changes represented a broad consensus within the cabinet. Kevin Andrews was uneasy about the 100 ceiling for unfair dismissals. He wanted it to be much lower. Tony Abbott expressed general concern about making too many changes. Peter Costello supported the changes but thought that the complexity of the award system was a real problem. We decided, late in the piece, to include a commitment to award simplification.
The time which elapsed between my statement to the parliament on 16 May and the legislation itself, in November 2005, was too long. We allowed time for a fear campaign to gather momentum. Until the final technical details of the legislation had been completed, it was impossible to refute each and every allegation, no matter how false such allegations might prove to be.
Yet through this period, the overwhelming view of the parliamentary party remained both positive
and optimistic. In one way or another, we all believed in these reforms. They attuned with our philosophy. They would further wind back monopoly union power; they would further promote direct agreement-making between employers and employees; they would be warmly welcomed by small business; and they would contribute to a further reduction in unemployment.
The attitude of most colleagues was that these benefits in the long run would blunt any short-term unpopularity flowing from the changes or the impact of any fear campaign mounted by the unions. We all believed, myself included, that the continued buoyant state of the Australian economy further reducing unemployment and sustaining high real wages would be answer enough to the doomsayers of the ACTU and the Labor Party.
Both the unions and state Labor governments behaved as if the whole issue were a life-and-death battle for the future of the union movement. On 19 June, the ACTU launched its flagship ad — an emotional and effective one — depicting a mother being threatened with dismissal if she did not turn up at work at short notice, even though she had no one to care for her children. This would not have been allowed under our proposed changes; the circumstances depicted in the ad would have constituted an unlawful termination because it disregarded the mother’s family responsibilities.
Even though the misrepresentation was pointed out immediately by Kevin Andrews, our problem was that the public knew that we were making big changes — we had said so. Therefore it was easy for the ACTU to persuade people that they would be hurt by the changes, even if there were no factual basis for most of the allegations being made.
As well as drawing criticism from the ACTU, the Labor Party and many academics, our proposed changes also drew flak from spokesmen for major Christian denominations. On 10 July the Anglican Primate joined other Church leaders, including Archbishop George Pell, in expressing concerns, especially the possibility of the minimum wage falling in real value. The new Fair Pay Commission did not cut minimum wages. The Anglican Archbishop of Sydney issued a statement arguing that changes in workplace relations must not be taken lightly, as they would affect families. He didn’t specifically attack the proposals, but raised concerns. It all added to the sense in the community that our changes could be bad for families.