State Wage Case 2009 [2009] NSWIRComm 120

State Wage Case 2009 [2009] NSWIRComm 120 - NSWIRComm 2009 case summary — Zoe

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(j) To refuse the application even though the vast majority of employers affected by the claim are viable and profitable would not in our view be fair or just. 8 In support of its claim, Unions NSW tendered into evidence a number of affidavits and witness statements: (1) Dr Frank Gelber, Director and Chief Economist with BIS Shrapnel Pty Ltd. Dr Gelber's evidence went to the outlook for the world economy, an overview of and short to medium term prospects for the Australian economy, current state and prospects for the New South Wales economy and an economic assessment of a 3.8 per cent increase in wages for award workers in unincorporated enterprises in New South Wales. (2) Dr Ian Watson, Freelance Researcher and Visiting Senior Fellow at Macquarie University. Dr Watson prepared a 50-page report for Unions NSW entitled 'Low Paid Workers in NSW. Insights from HILDA (Wave 7)'. (3) Dr John Buchanan, Director, Workplace Research Centre, University of Sydney. Dr Buchanan prepared a report for Unions NSW entitled 'Wage Movements covering NSW workers in 2008'. (4) Ms Sally McManus, Secretary of the Australian Services Union of New South Wales. Ms McManus gave evidence regarding the capacity to pay of employers subject to coverage by the Social and Community Services Employees Award 2006 and the financial stress and hardship faced by employees under that Award receiving the award rate of pay. (5) Ms Elaine McInnes, Shop Assistant. Ms McInnes is employed in a bakery on a casual basis under the terms of the Shop Employees' (State) Award receiving $19.87 per hour (which includes the statutory pro rata annual leave payment). Ms McInnes described the difficulty she and her husband experience in living on her wage, supplemented as it is by social security payments. (6) Ms Lisa Khodeir, Team Leader Case Work, Wesley Mission. Ms Khodeir is employed under the Social and Community Services Employees Award 2006 on a full time basis on an hourly rate of $25.58. Ms Khodeir gave an account of her weekly expenditure and described the modest life style she was forced to lead on the award wage. (7) Mr Stephen Bali, Assistant Secretary, Australian Workers' Union, Greater New South Wales Branch. Mr Bali's witness statement addressed the horticultural, agricultural, hairdressing and beauty industries. Mr Bali set out the award rates of pay applicable in these industries and described how workers under these awards were reliant on the award rate of pay because of their inability to successfully bargain with their employer. (8) Mr Karva Wong, Chartered Accountant. Mr Wong prepared material for Unions NSW showing the class of persons (which included sole traders and individual partners of partnerships) who were eligible to receive benefits from the federal Government's recent stimulus package and other tax benefits and tax offsets and deductions available to small business.

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Minister for Industrial Relations and Director Public Employment 17 Mr J V Murphy of counsel appeared for the Minister for Industrial Relations and the Director of Public Employment (for convenience, collectively referred to as 'the Minister'). Counsel submitted that an appropriate decision would be one that balanced employment security, particularly during the current economic crisis, with the desirability of maintaining the real incomes of award-reliant workers in New South Wales. It was submitted that a 2.5 per cent increase to minimum wages would be a responsible approach, striking the right balance between economic sustainability and the maintenance of real wages for award-reliant workers. The Minister defined 'award-reliant workers' as those workers where a particular award is the sole mechanism used to set pay and conditions at the workplace. Such workers were seen as those who are paid at the rate of pay specified in the award and are not paid more than that rate of pay. 18 In outlining his Government's position in the proceedings the Minister submitted: (a) The New South Wales (NSW) Government is of the view that maintaining fair minimum wages is essential to achieve sound economic and social outcomes. (b) There are approximately 564,000 employees of unincorporated entities in the private sector of NSW who remain in the NSW industrial relations system. Of these between 190,000 and 250,000 are reliant on minimum award rates and would receive a direct benefit from any increase to minimum wages in NSW. This represents approximately 7.4 per cent of the NSW labour force. (c) This year the Industrial Relations Commission of New South Wales (the IRC) will be making its decision in a time of significant economic stress. The global economic crisis is having an impact upon all sectors of the Australian economy, with business revenue and investment falling and confidence across the economy declining. At the same time, the crisis is having an impact on the labour force through rising unemployment. (d) The detrimental effects of a contracting state economy are likely to be most pronounced for low paid workers. In the coming year it is expected that unemployment will continue to rise, with a higher incidence of redundancies and increased trends towards greater part-time employment and less full-time employment. In this type of environment therefore it is fair and reasonable to ensure that the low paid sector of the labour force does not bear a disproportionate share of the burden while the economy is contracting. (e) In addition, as reflected in the Federal Government's economic stimulus packages, minimum wage workers play an important role in maintaining economic activity through their spending decisions. There are therefore potential economic benefits in ensuring that real wages are maintained in these difficult economic times. (f) At the same time, however, the NSW Government acknowledges that any decisions on wage growth need to be cognisant of the impact on NSW employers, and in turn, on job security. Wage costs usually represent a significant portion of business operating costs. Wage growth therefore needs to be considered in light of the broader economic conditions under which businesses are currently operating. 19 One further matter raised by the Minister was that whilst the New South Wales Government considered the protection of award-free employees to be an appropriate matter to be regulated by the Commission, it believed the establishment of conditions of employment for this group of workers was best achieved by way of the making of an award specifically intended to cover this group of workers. 20 The Minister reiterated the view expressed during last year's State Wage Case proceedings that any issue concerning the enhanced protections for award-free, low paid adult employees should be considered in the context of current and ongoing discussions between NSW, the other States and Territories and the Commonwealth regarding the establishment of a harmonised system of industrial relations regulation. 21 In support of his case for a 2.5 per cent increase, the Minister relied on a range of economic, industrial and social data. 22 In relation to Unions NSW's proposed amendment to Principle 8, the Minister supported option 2. In relation to the continued operation of the Wage Fixing Principles, the Minister submitted they should be maintained. In that regard it was submitted: [T]here's very real concern if the wage fixation principles as they currently exist were essentially abandoned that there might be a perception amongst some in the industrial community that it's a return to that free for all type approach despite the fact that there are degrees in the statute which regulate the way wages can be dealt with. Australian Federation of Employers and Industries

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23 Mr G M Boyce of counsel appeared for the Australian Federation of Employers and Industries and its affiliated associations ('AFEI'). Mr Boyce said AFEI opposed the claim by Unions NSW. It proposed that consideration of any application for increased award wages should be deferred until such time as there is clarity as to extent, impact and duration of the economic downturn. In the event that the Commission did not adopt AFEI's submission and did not defer consideration of the State Wage Case 2009, it was submitted there should be no wage increase awarded. 24 AFEI submitted that New South Wales had already experienced weak economic conditions for some years, and with the nation now facing an unparalleled economic downturn. AFEI noted there was no official forecast for recovery in 2009-2010, with Treasury forecasting very gradual recovery with growth forecast below trend at 2.25 per cent in 2010-2011 (Treasury Budget 2009-2010: Budget Strategy and Outlook). 25 Instead, it was submitted there was: [S]ignificant uncertainty on the medium and longer term outlook for the Australian economy and labour market. The timing and extent of any Australian recovery is essential to the determination of this matter, but we have not yet reached the point where this will become clear. Whilst the negative impacts of the economic downturn on Australian jobs and communities are yet to become fully apparent, it is clear that they will be negative and that they will be significant. This uncertainty means that the consideration and determination of wage adjustments involves greater risk, and forecasting the effects of wage adjustments is made more difficult. There are clearly significant risks of getting wage fixing wrong in 2009 with the threat of displacing jobs and business viability, particularly for SMEs. 26 AFEI contested the proposition put by Unions NSW that an increase would 'provide a small but much needed stimulus to the NSW economy', submitting that as affected employers face demand conditions which reduce their ability to offset any wage increases with higher prices, they are more likely to reduce hours or reduce numbers employed. This outcome, it was submitted, could not be described as a stimulus to the economy. 27 AFEI submitted the Full Bench should give prime consideration to ensure that: any decision unequivocally facilitates job retention and growth in the current highly uncertain economic circumstances confronting employers in this State. This includes having regard for the flow-on effects of increases in NSW awards to wage levels in the labour market generally. 28 AFEI conceded that the number of employers directly affected by wage decisions of the Commission was relatively small and the estimated direct wages cost to the State economy was consequently estimated to be small. However, it submitted: [T]his an inadequate measure of the impact of increases in award rates. Minimum increases determined by this Commission, and other wage setting bodies, are referred to and provide the benchmark floor for wage increases throughout the labour market. This flow on effect has a major impact on wage costs throughout the economy. 29 It was further submitted the Full Bench should also have particular regard to the circumstances of the employers who will be directly affected by such an increase and the particular vulnerability of these employers, and as a consequence those employers' employees, to changes in their employer's labour costs. AFEI described the employers affected by any State Wage Case decision as employers who are primarily small unincorporated employers in the retail and hospitality sectors, and the community services sector. It was submitted these sectors were labour intensive with wage costs relatively high as a proportion of total costs, with higher proportions of employees paid at award rates and less capacity to absorb any increase in award rates: Significantly, these predominantly small employers in the retail and hospitality sectors have levels of output and profit which do not match those of larger employers. While employment levels have risen in these sectors over the past decade, employment growth has been concentrated the higher skilled areas. Low skilled growth, where are award dependent employees are concentrated, has been predominantly in part time and casual work, reflecting employer preferences to better manage labour costs in response to changes in the business cycle, seasonality and variable peak demand. Additionally these sectors have consistently had above average levels of underemployment and utilisation, indicating that rates of pay are already too high relative to the capacity of the business to offer sufficient hours of work to those employees. 30 AFEI proposed that the Full Bench should also have regard to the 2009 changes in taxes and government transfer payments which, it submitted, would increase household incomes: The two stimulus packages announced by the Federal government have provided a significant boost to low income households and further measures announced in the 2009-10 Budget are intended to improve real disposable incomes and the net tax thresholds. The Commission in assessing the need for increases in award wages should take into consideration such relevant government initiatives. 31 In relation to the claim by Unions NSW to amend Principle 8 of the Wage Fixing Principles, AFEI opposed the claim. On the future of the Wage Fixing Principles AFEI concurred with Unions NSW and the Minister. It was submitted that it is not an appropriate time to entertain the proposition to remove the principles altogether. AFEI opposed the submissions of the Minister to the extent they contended that an award be made setting minimum conditions for adult employees whose employment was not currently covered by an industrial instrument. Further, it was submitted that this was not the time for a determination to be made as to whether separate proceedings were appropriate or should occur for this group of workers.

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42 Mr E D Leahy appeared for the Catholic Commission for Employment Relations ('CCER'). He addressed two matters. First, it responded to the application filed by Unions NSW. Second, it addressed the existing order for a minimum wage in New South Wales and sought the continuation or implementation of a permanent minimum wage in New South Wales whether by order of the Commission or by the making of an award. 43 As to the first matter, CCER submitted the minimum wage should be increased by 4.17 per cent, that is, $23.00, in line with the inflation figures for those households dependent on the minimum wage. CCER submitted that maintaining the real level of the minimum wage would support demand in the economy, support the Federal Government's fiscal stimulus package and support the objectives of the Reserve Bank's monetary policy. By supporting these policies, it was submitted, an increase in the minimum wage would minimise the harm caused by the recession. The figures for Gross Operating Surpluses for unincorporated businesses indicated that business has adequate capacity to afford an increase of 4.17 per cent in the minimum wage. However, CCER made no submission as to the application per se. 44 In relation to the second matter, CCER noted that in the State Wage Case 2008 decision the Commission found that CCER 'had established an overwhelming case on merit' in considering the submission of CCER that a State Minimum Wage be established in respect of those employees who were not currently governed by an industrial instrument. CCER reiterated the 'core basis' of its original application in the State Wage Case 2008, namely, that of an overriding concern for low paid and disadvantaged employees, particularly those workers whose employment is not subject to the basic and minimum protections afforded to those covered by an industrial instrument. 45 It was further submitted that the State Minimum Wage order be continued on a permanent basis or, alternatively, an award be made in accordance with s 52 of the Act having regard to, inter alia: (i) the importance of a minimum wage level in ensuring that certain employees are in a position to sustain a meaningful standard of living notwithstanding that such employees are not employed pursuant to any industrial instrument; (ii) the fact that employees who are not employed pursuant to an industrial instrument, would, in the absence of the continuation of the order, fail to receive the full benefit of any annual increases awarded through State Wage Cases and, therefore, suffer more than award workers; (iii) that low paid workers are not generally in a position to engage in meaningful and equitable negotiations concerning pay and conditions with their employer; and (iv) the importance of a harmonious and consistent approach that is in keeping with the steps taken by the Federal Parliament to create and maintain a federal minimum wage to afford protection to the wages of all employees in the federal industrial relations system regardless of whether they are covered by an industrial instrument. 46 The case put by CCER addressed the current economic environment, employment and unemployment, employers' capacity to pay a wage increase, Catholic principles and virtues and tax breaks and other transfer payments and their relevance to the setting of minimum wages in these proceedings. Importantly, in a supplementation of material relied upon by Unions NSW and the Minister, CCER focused on the struggle being experienced by minimum wage dependent households. ADDRESSING THE NEEDS OF THE LOW PAID IN A WEAKENED ECONOMY 47 In giving consideration to the claim in these proceedings we have, on the one hand, an economy that has been seriously weakened by the Global Financial Crisis. That has led the employer parties to oppose the claim and to call for a nil increase or, in the alternative, to defer consideration of any increase. 48 On the other hand, there is evidence from Unions NSW, the Minister and CCER that the lowest paid workers (about 240,000 employees in New South Wales), which includes those receiving the minimum wage of $552.70 per week, are facing 'housing stress' (spending more than 30 per cent of gross household income on housing costs), are experiencing episodes of financial hardship such as being unable to pay utility bills on time, are unable to pay rent/mortgage on time, are pawning or selling something, are going without meals, are being unable to heat the home, are asking for financial help and are asking for help from welfare organisations. 49 There is obviously a tension between a seriously weakened economy and the granting of pay rises to employees whilst the economy is in that state. The employers contend that to grant a wage increase in these proceedings will have the effect of displacing jobs and have an adverse effect on business viability in circumstances where business and consumer confidence remains low, demand is weak and credit is tight. The employers referred to the recent decision (7 July 2009) of the Australian Fair Pay Commission ('AFPC') and the reasons for that decision as being the exemplar this Full Bench should follow. In that decision the AFPC decided that minimum wages would remain at their current levels and not be increased. The federal minimum wage, therefore, will remain at $543.78 per week. ECONOMIC CONSIDERATIONS Economy in a weakened state 50 The economic material tendered in the proceedings confirms our assessment of an economy in a weakened state. On Dr Gelber's evidence: · Australia's near term economic growth has deteriorated sharply as a result of the international financial crisis; · consumer confidence has collapsed. This, together with uncertainty and fear of unemployment, has stalled consumer expenditure. Businesses, in turn, expecting weak demand and falling profits, are in cost cutting/cash preservation mode and as a result are contributing to a stalling of overall spending in the economy; · the international financial crisis and resulting world recession has undermined the economy's strong run of business investment. The business investment boom over the past five years had come to an abrupt halt due to a shortage of finance and downturn in demand. This has adversely impacted on short term economic growth prospects. 51 In Statement 1 'Budget Overview' of the Federal Budget, it was stated: The 2009-10 Budget has been framed against the backdrop of the deepest global recession since the Great Depression. Early and decisive policy action is helping to support the Australian economy. The world economy is expected to contract by 1½ per cent in 2009, with virtually every advanced economy now in recession. The deepening global recession is having a significant impact on the Australian economy, with GDP forecast to contract by ½ of a per cent in 2009-10. Without early and decisive policy action, the contraction would have been significantly deeper. Government action is expected to support up to 210,000 jobs. 52 In Statement 2 'Economic Outlook', it was stated: The global economy is experiencing the sharpest synchronised downturn since the Great Depression, and is expected to contract in 2009 for the first time in six decades. The magnitude and speed of transmission of the global recession means that a recession in Australia has become inevitable. New South Wales economy 53 Dr Gelber in his evidence acknowledged that New South Wales has had a long period of weak growth; that it had a relatively low benefit from the minerals investment boom; and that it suffered the most from the downturn in residential property market. Dr Gelber was of the opinion that over the short term the New South Wales economy will be hit by the demand shock gripping the national economy. He observed that consumers had 'essentially stopped spending on discretionary items and have shifted to cheaper lower quality goods in an endeavour to cut costs further'. He said that: The weak conditions, in turn, will put pressure on business profits. Job losses will occur, bankruptcies are likely to increase and some businesses will stop trading altogether - all a direct consequence of weakness in demand and some due to a jump in imported goods and services costs due to a lower $A.

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· The nature and effectiveness of the Federal and even State Government responses to these mounting problems. While the unprecedented economic stimulus packages are clearly having some effect on consumer demand there is still doubt about whether this will translate into a more permanent lift in consumer spending or whether the Government bonuses and lower interest rates result in a significant multiplier effect. 63 Of the New South Wales economy, Mr Bennett said: Will the NSW economy recover sufficiently during 2009-2010 so that consumers and businesses will regain some confidence in the economic outlook? Will housing, retail sales and business investment gain some momentum and at best not slip back or stay at or near the bottom of the economic cycle throughout the next twelve months? There is insufficient evidence to suggest that the NSW economy will move from being one of the worst performing States to one of the leading States. Indeed as recovery will depend on mining, infrastructure spending and returning confidence amongst consumers and businesses, the opposite would seem more likely. 64 Mr Bennett suggested that predictions about a recovery in 2009-10 were 'optimistic at best and probably premature.' 65 Dr Gelber was more sanguine. He believed that in Australia there were some forces offsetting the effect of the international financial crisis that would keep Australia's GDP growth in positive territory in 2008/09 and prepare it for a recovery in 2009/10. According to Dr Gelber these forces include: [A] healthier contribution from agriculture than in recent years (driving strong increases in Farm GDP and rural exports); ongoing growth in public investment (though perhaps at a weaker rate than in recent years); a low Australian dollar which has significantly boosted the competitiveness of exporters, tourism, education services and import competing industries; a positive external contribution as weak growth in export volumes outpace weaker or falling import volumes; and a recovery in dwelling construction; all of which will support economic activity over the next year. Moreover, unlike many of the developed world economies currently in a recession, Australia has a strong banking sector and a lack of oversupply in property markets (and significant undersupply in housing). 66 Dr Gelber also considered that low interest rates would also provide some support for the economy. He opined that most homeowners will still be able to cover their mortgage payments and, consequently, given strong pent-up demand for housing, and increasing interest from residential property market investors, sharp falls in house prices are unlikely. He said that 'once the situation stabilises there is a significant housing construction upswing waiting in the wings.' 67 On balance, Dr Gelber was forecasting the Australian economy to slow substantially in the current financial year, but the Reserve Bank and Government 'have adequate leverage to provide the economy with a comparatively soft landing.' 68 Dr Gelber's relative optimism regarding the Australian economy was tempered, however, by the following statement: The magnitude and duration of the Australian economy's downturn depends largely on the resilience of the household sector. Government stimulus packages, lower petrol prices and interest rate cuts are supporting disposable incomes, but as unemployment starts to rise there is a real danger that spiralling consumer confidence could trigger a self-fulfilling prophecy, with the risk of a larger slowdown in growth than forecast here. 69 In relation to New South Wales, Dr Gelber acknowledged that the State has had a long period of weak growth and that '[f]or 2008/09 financial year, the NSW economic activity will weaken in light of the demand shock gripping the national economy.' However, he said: We believe that the NSW economic growth over the next five years will be the strongest state performance with dwelling investment a key driver of the state economy. The state will also benefit from the sharp depreciation of the Australian dollar which will support the competitiveness of domestic tradeables industries i.e. agriculture, manufacturing and tradeables service sectors like tourism and education services.

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72 The Sensis Business Index - Small and Medium Enterprises is a survey based on a sample size of 1,800 SMEs in manufacturing, wholesale and retail trade, hospitality, construction, communication, property, business services, health, community services, cultural and recreational industries throughout Australia. The June 2009 survey was tendered by ABI in the proceedings. A key finding of the survey was that business confidence among SMEs rebounded strongly during the past quarter, recording the strongest increase in a single quarter since the inception of the survey in May 1993. 73 In addition, current perceptions of the economy rose for the first time since November 2007, 'with perceptions about the future economic direction up by 30 percentage points.' However, whilst the survey noted that business confidence increased in all States and Territories, the lowest confidence levels were recorded in New South Wales. On the other hand, for the coming quarter, SMEs in New South Wales recorded the highest level of expectation of any State or Territory for employment. 74 We also note from the Sensis survey that a net balance of 21 per cent of businesses expected a rise in total wage costs in the year ahead. 75 ABI also tendered the 'Sensis Consumer Report' for June 2009. The Report is based on a survey of 1,500 Australians conducted between 12 and 26 May 2009. The Report found that: [A] net balance of 39 per cent of Australians reporting confidence in their financial prospects for the year ahead. This result was an increase of 18 percentage points from last quarter, the largest increase in confidence recorded in a single quarter since the start of the Sensis® Consumer Report in May 2004. These latest results are a significant turnaround from the 40 percentage point deterioration in confidence recorded between November 2007 and February 2009. 76 The NSW Business Chamber conducted its Business Conditions Survey in July 2009. The report on the survey notes that the Reserve Bank's 'expectation remains that the economy will be well placed for expansion towards the end of this year' (Economic Update by the Governor of the Bank, June 2009 at 33). This appears to be consistent with the survey results, with the report stating that 'businesses seem to be more optimistic than they were in the last quarter', with 26.9 per cent of businesses expecting the economy to improve over the next three months and 29.7 per cent of businesses expecting business conditions to improve over the next three months. Conclusion regarding economic outlook 77 Despite some tentative signs of improvement, including signs of increasing consumer and business confidence, the economic outlook remains clouded by considerable uncertainty. Improvement is likely to be slow and unemployment is forecast to continue to rise during 2009-10 and 2010-11. These conditions necessarily require a cautious approach in any consideration of a claim that seeks a minimum increase in wages of $21.00 per week, which is what 3.8 per cent represents on the minimum wage in New South Wales. EMPLOYERS AFFECTED BY STATE WAGE CASE DECISION 78 The lowest paid workforce in New South Wales, according to Dr Watson's study, is concentrated in four industries: retail trade (23 per cent); accommodation, cafes and restaurants (17 per cent); property and business services (14 per cent); and manufacturing (10 per cent). We think that health and community services should be added to that list. It was Ms McManus' evidence that the average weekly wage of persons employed under the Social and Community Services Employees Award 2006 is $750.50. Ms McManus said that the only pay increase the 20,000 employees under this Award would receive in 2009 would be an increase awarded in these proceedings. 79 It was submitted for AFEI that the Commission should have particular regard to the circumstances of the employers in the foregoing industries who will be directly affected by any increase and the particular vulnerability of these employers, and as a consequence those employers' employees, to changes in their employer's labour costs: Award wage increases raise their labour costs. These increases are not related to productivity or other offsetting changes at the workplace. In no growth or negligible growth conditions they have the potential to increase unemployment. Those employers who employ workers under NSW State awards are primarily small unincorporated employers in the retail and hospitality sectors, and the community services sector. These sectors are labour intensive with wage costs relatively high as a proportion of total costs, with higher proportions of employees paid at award rates and less capacity to absorb any increase in award rates. Significantly, these predominantly small employers in the retail and hospitality sectors have levels of output and profit which do not match those of larger employers. While employment levels have risen in these sectors over the past decade, employment growth has been concentrated in the higher skilled areas. Low skilled growth, where award dependent employees are concentrated, has been predominantly in part time and casual work, reflecting employer preferences to better manage labour costs in response to changes in the business cycle, seasonality and variable peak demand. Additionally these sectors have consistently had above average levels of underemployment and utilisation, indicating that rates of pay are already too high relative to the capacity of the business to offer sufficient hours of work to those employees. 80 Data provided by the ARA (Table 1 below) shows the number of employers of unincorporated businesses in New South Wales in seven industry sectors Table 1 81 There was very little specific information about the economic or financial circumstances of the industries identified in Table 1, or their particular capacity to pay any increase that might be granted, other than the retail trade. In this last respect the ARA made the following main points: · Governments have directly supported the community and thus those on minimum pay through initiatives such as:

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· When these cash incentives are considered then there is no financial justification for an increase at this precarious economic time. Decisions taken by federal and state governments as well as State wage fixing bodies need to re-inforce a commitment to job security as a prelude to growth which will help to achieve a more sustainable economic outlook. · According to the 'ARA Australian Retailers Index' (The Australian Retailers' Index analyses the Sensis® Business Index results for businesses which are in the retail sector, and compares results for retail SMEs with SMEs in general) Australian retailers recorded deteriorating business confidence in the past quarter, with confidence falling to the lowest level of any industry sector. Confidence for Australian retailers fell by nine percentage points over the past quarter, taking retailer confidence to negative six per cent. This was significantly lower than the positive 12 per cent net balance recorded for SME confidence overall. · The economic issues most likely to be causing problems for retail SMEs were the level of the Australian dollar, the lack of consumer confidence and the economic climate in general. · New South Wales has recorded the largest fall in retail sales performance for all SMEs, and the second largest fall after Tasmania (February 2009). · New South Wales had the poorest performance of all States for retail profitability (February 2009). · Looking forward, Australian retailers were anticipating significantly weaker results in sales and profitability. With economic conditions impacting on the retail sector more than average, the survey found that retailers were reacting to this by cutting costs, adding new products and advertising more. · Of those retail SMEs that had been impacted by economic conditions, 37 per cent of retailers had reduced their cost base, which was up from 30 per cent last quarter. The second most frequent response was they were adding new products, with 19 per cent of retailers impacted by economic conditions reporting this strategy, which was considerably higher than was the case for SMEs in general (eight per cent). · Retailers were more likely to be taking some form of action to address the impact of economic conditions, with only nine per cent of retail SMEs impacted reporting that they had taken no action in response, lower than the 13 per cent of SMEs on average that were impacted but had taken no action in response. · Australian retailers reported the lowest net growth in employment over the past quarter of any sector. The 11 per cent of retailers who reported increasing their employment in the past quarter was significantly lower than the 23 per cent reporting a decrease. The resulting balance, at negative 12 per cent, was a fall of 20 percentage points since the previous quarter. · Looking forward, retailers reported higher expectations for positive three per cent of retailers reported expecting to increase their employment levels in the coming quarter, up by five percentage points from employment expectations for the last quarter. This would be in response to the short term effects of the federal government stimulus package rather than a perceived substantial turn around in market conditions. · Reflecting the decline in numbers employed, fewer retailers reported increases in their wages bill over the past quarter. Overall, 15 per cent of retailers reported an increase to their wages bill in the past quarter with 25 per cent reporting a decrease. · Looking forward, the proportion of retailers expecting their wages bill to increase lowered to a net balance of positive two per cent. This was higher than the result for SMEs in general, which was net negative two per cent. 82 The ARA's submission contained an overview of the Australian retail industry, noting amongst other things that:

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85 It is important to realise in assessing the impact of any wage increase the Full Bench might contemplate awarding, that at best we are concerned with only about 8.95 per cent (302,556) of all employees in New South Wales. This is because we are only concerned with employees employed by employers who are unincorporated and, therefore, not subject to coverage by federal industrial laws. The Minister estimated the number of employees to be 250,000 or 7.4 per cent who are award-reliant. He further estimated that approximately 24 per cent of award-reliant employees in New South Wales are employed under federal awards. The Minister suggested that the actual number of employees who are reliant upon the State Wage Case for an increase in their weekly rates of pay is estimated to be between 190,000 and 250,000 employees. 86 There are public sector employees subject to the coverage of State industrial awards, but almost all public sector employees are covered by agreements or awards which have traditionally provided regular wage and salary increases in excess of State Wage Case adjustments and such adjustments have not applied to those public sector employees. It is anticipated that the cost impact of any State Wage Case decision on wages and salary levels in the NSW Government in 2009 will be negligible. Cost impact and flow-on 87 The Minister estimated that the 2.5 per cent increase proposed by him for 220,000 full-time employees would add around $183.8 million to the wages bill of private sector employers in New South Wales. The private sector wages bill in New South Wales in 2008-2009 was in the region of $150 billion. The Minister estimated, therefore, that the proposed increase would further increase the total private sector wages bill by no more than 0.12 per cent. An increase of 3.8 per cent, based on figures used by the Minister, would mean an increase in the total private sector wages bill of about 0.19 per cent. 88 It was submitted by AFEI that whilst the number of employers directly affected by wage decisions of this Commission was relatively small and the estimated direct wages cost to the State economy was consequently estimated to be small, this was an inadequate measure of the impact of increases in award rates. It was contended that minimum increases determined by this Commission, and other wage setting bodies, were referred to and provided the benchmark floor for wage increases throughout the labour market. This flow on effect, it was said, had a major impact on wage costs throughout the economy. The submission continued: While difficult to quantify the effect in aggregate terms, in providing the benchmark floor, award wage increases influence wage increases paid to above award employees and contribute to growth in wages across the economy. Award wage increases are used as a reference point in negotiations. Award rates feed into market determined rates both overaward and formal agreement rates which include premiums for skill, scarcity and other determinants of above award rates. 89 There would appear to be little doubt that award wages constitute a floor for wage rates paid by employers covered by awards. However, there is no reliable evidence that increases awarded in proceedings fixing minimum wages constitutes the starting point for negotiating increases in overaward payments or in the negotiation of increases under formal enterprise agreements. It is unlikely, for instance, that because the AFPC granted a nil increase in 2009, unions or employees will use that as the starting point for wage negotiations in the next enterprise bargaining round. Further, in so far as overaward payments are concerned, award increases are absorbed into those payments by virtue of Principle 8(d) of the Commission's wage fixing principles. In our experience most formal agreements contain an absorption provision similar in effect to Principle 8(d). 90 On one view of it, AFEI's submission amounts to the proposition that tribunals such as this Commission should not move award wages because of a perceived flow-on effect into agreement making. The submission is untenable given the Commission's obligation to maintain fair and reasonable employment conditions in its awards. In any event, rather than movements in award wages setting a benchmark, the submissions by Unions NSW, CCER and the Minister in these proceedings suggests the opposite. That is to say, in determining an increase in minimum award wages, the Commission should consider the wages environment overall and that minimum wage increases should not be allowed to fall behind general increases in wages in the wider economy. 91 In this last respect, the Minister submitted that without regular minimum wage adjustments, the inequity that has emerged when one compares movements in the minimum wage with Average Weekly Ordinary Time Earnings ('AWOTE') for full-time employees (see Table 2 below) would be significantly exacerbated. THE LOW PAID

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95 It was submitted, in effect, by some of the employer parties that the way in which to treat the low paid fairly was to keep them in employment and that a wage increase would be unfair because it would lead to more unemployment. 96 As the Minister observed, there has been an ongoing debate concerning the relationship between wage adjustments and employment outcomes. As he further observed, however, a large number of empirical studies have investigated a possible link between increases in minimum wages and unemployment and have not been able to conclusively support such a view. 97 The AFPC noted in a report (Economic and Social Indicators - Monitoring Report, July to December 2007) that it is difficult to determine whether changes in employment of low-skilled workers have been influenced by increases to minimum rates of pay. However, in its July 2009 decision the AFPC noted, with apparent approval, the following conclusion by the Centre for International Economics ('CIE'): [T]hat if minimum wages were to continue increasing into the future at the rate that they did in 2008, the effects on employment and unemployment would be larger. Instead of the average increase of around 0.05 of a percentage point in unemployment during the period 2005 to 2008, the effects would be: around 0.1 of a percentage point increase if the unemployment rate were to rise to 7.5 per cent in 2009-10; and 0.12 of a percentage point increase if the unemployment rate were to rise to 8.5 per cent. The respective reductions in employment would be 17 000 and 20 000, compared with an average of 8000 in the earlier period. That is, the effects on employment and unemployment of a minimum wage increase would be approximately two and a half times as high as in the 2005 to 2008 period. 98 The CIE model has been criticised by the Australian Council of Trade Unions ('ACTU') as based on unrealistic assumptions, they being 3.1 per cent weighted increase based on the 2008 $21.66 increase in the Federal Minimum Wage. The ACTU's criticism was that a $21.66 increase in the current Federal Minimum Wage was equivalent to a 4.0 per cent increase in circumstances where there is no forecast that the Consumer Price Index ('CPI') will approach 4.0 per cent over the next four years and where earlier decisions of the AFPC increasing the Federal Minimum Wage have not contemplated a 4.0 per cent increase. 99 The criticism, if it be right, makes it difficult for the Full Bench to place much reliance on the CIE modelling and the conclusions drawn from it, certainly as to the scale of the impact of minimum wage increases on employment levels. It must be remembered that the nature of the AFPC deliberative process is such that the ACTU critique was never considered by the AFPC, as the ACTU did not apparently know of the commissioning or contents of the CIE Report until after the AFPC had issued its decision. Its critique was volunteered, as it were, after the deliberative process had concluded. 100 The OECD has noted that empirical evidence concerning a negative impact of minimum wages on employment is mixed, with a number of studies finding an adverse impact is modest or non-existent (OECD Employment Outlook 2006, Boosting Jobs and Income p 86).

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· When asked to assess their financial situation, about 38 per cent of the low paid workforce---nearly 240,000 workers---assessed their well-being in negative terms: as either very poor, poor or just getting along. 107 In addition to Dr Watson's evidence, which was not challenged, Unions NSW tendered affidavits/witness statements from Ms Elaine McInnes, Shop Assistant, and Ms Lisa Khodeir, Team Leader Case Work, Wesley Mission. Their evidence went to the difficulties experienced by them in living day to day on award rates of pay. For example, Ms Khodeir's evidence was: My partner and I consider marriage a very significant milestone in our lives. The fact that we would like to pursue that commitment and cannot due solely to financial restraints is the cause of great stress in our relationship. Authorised Overtime is paid as Time in lieu in my workplace, which means that there is no movement in my weekly wages from week to week. I would desperately like to undertake greater paid overtime where possible, whoever that would require my employer to start authorising paid overtime. Due to my inability to work paid overtime, it is particularly hard to meet each expense without strictly adhering to budgetary planning. Even then, there are times which I have to borrow money from my parents to meet other weekly expenses after I have paid for certain bills. Due to my limited income it is difficult to go on holidays or make any long term plans that require the dedication of funds. I would dearly like to take my fiancé to dinner or the movies more frequently than what we currently do, yet we cannot afford those expense and it would negatively impact on our budget. My main form of entertainment is watching DVDs or television with my partner either's house. I also often read, usually books that I borrow from the Local Council Library or my friends. Accessing the first home buyers market has proven extremely difficult for my partner and I. The main cause for me, as I see it, is predominately the low wages that I earn. 108 Ms McInnes said her fortnightly income, including social security payments to her and her husband, was about $1,400 to $1,500 and their fortnightly expenditure was about $1,200. 109 In her affidavit Ms McInnes stated: In 2002 we ran down our savings for my husband's heart operation. There was a $3,000 gap payment at the end of the operation. We no longer have private health insurance as it is unaffordable. My husband is currently undergoing treatment for lung cancer. The medical and associated costs for this treatment are uncertain. Whilst we have rebuilt a portion of those savings the future medical and associated costs (eg, travel, telephone, etc) for this treatment are uncertain. 110 There is no reason to doubt the evidence of Ms McInnes and Ms Khodeir, although it should only be taken as illustrative because, of itself, it is not sufficient for the Full Bench to draw conclusions about the plight of the low paid in general. 111 The evidence of Mr Bali and Ms McManus corroborates that of Dr Watson, Ms McInnes, and Ms Khodeir in relation to the financial pressure that award reliant employees continue to be under. Mr Bali and Ms McManus also gave evidence as to why a wage case increase is important in the Hairdressing and Social and Community Services awards. Minister 112 The Minister submitted that low pay is generally found in jobs of low social status and/or performed by workers with low labour market standing and bargaining power. The types of workers who are more likely to rely on minimum wages include women, indigenous, migrant, young, non-unionised workers, and workers with a disability. 113 In relation to the needs of the low paid, the Minister referred to the ABS, Household Expenditure Survey, 2003-2004, Cat. No. 6530.0. Reference was made to this source in the 2008 State Wage Case and was dealt with there. Although the data is now somewhat dated it is not inconsistent with Dr Watson's findings. 114 The Minister also referred to the ABS General Social Survey 2006. It was submitted a comparison of the income characteristics of households experiencing financial stress shows that it was more difficult for those in the lowest income quintile to be able to raise money quickly for something important. Such households are also more likely to have experienced cash flow problems in the last twelve months and are more likely than people in the top income quintile to have spent more than their income in the past twelve months. This is consistent with Dr Watson's finding. CCER

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115 CCER has contended in the past, and again on this occasion, that the composition of the actual basket of goods consumed by households which depend, in part or full, on the minimum wage, (minimum wage dependant households - MWdH) is significantly different from that used by the ABS to calculate the aggregate CPI. It was submitted that the basket of MWdHs includes a high proportion of essential goods and services that have experienced above average price increases, particularly housing costs, which CCER submitted had been underestimated. For instance, the latest report issued by Housing NSW showed that by the December 2008 quarter, rents (rather than mortgages) had generally risen in Sydney by 10 per cent per annum, 2 per cent higher than the ABS statistics for general housing for the same quarter. The median rent for a two bedroom flat in Sydney rose by 12.5 per cent per annum. It was submitted this figure was more relevant to those MWdH which are likely to be struggling. An estimate of the CPI based on these considerations was, according to CCER, 4.17 per cent. 116 CCER further submitted: Going beyond measures of inflation, the lowest quartile of rents for two bedroom units in Sydney is $250, the median being $315. This means that a person earning a single full-time income MWdH and who lives in a such a dwelling is spending at least 25% of their income on rent, well over the 20.3% estimated for the third quintile by the ABS in 2004. These figures support the proposition that MWdHs are commonly facing housing stress. CCER believes that the minimum wage should increase by the re-estimated averaged CPI… that is, 4.17%. 117 Other submissions made by CCER concerning the low paid were that: (a) A high proportion of minimum wage earners are young, female and working part-time and a significant proportion of them are also the sole or most significant bread-winner for their household. There is a very high likelihood that they are facing not only housing stress but poverty-related stress in other areas of their lives. That likelihood is very alarming where the children of these households are concerned because well-know evidence, such as that submitted by CCER to the Full Bench in 2007, shows that there are very serious inter-generational effects of poverty. (b) Relevant trends in the labour market include: (i) A high incidence of part-time work and of low income earners seeking more hours of work. Almost 60% of award wage earners in NSW are part-time. These people also tend to report that they seek to work more hours.

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118 CCER further submitted: In its submission in 2007, CCER pointed out that many MWdHs struggle to make ends meet. Children in such households suffer disadvantages where educational, health and social connection outcomes are concerned and those disadvantages normally have negative long-term intergenerational effects. These considerations still hold especially once one understands that MWdHs include a high proportion of part-time and female workers. The calculations CCER offers in this submission along with those offered by its colleague, the ACCER, to the Australian Fair Pay Commission indicate clearly that the reality faced by these households is worse than that presented by the statistics offered by the Melbourne Institute to the Australian Fair Pay Commission and relatively worse than most Australian households because inflation is still much higher for the basic goods that they must buy with the fewer resources at their disposal, particularly housing, utilities, food and public transport. An adequate rise in their income is needed to avoid serious harm in the medium to long term. Fair treatment in this context can be usefully and authentically rephrased as "fair share of the burdens and benefits of economic activity". These workers contribute to the economy through the burden of their work for which they receive the benefits that a wage can offer to buy goods and services. If the gap between either the amount of work they must do or the benefits that they gain compared to others in our society grows it effectively means that their work is valued less compared to others. It is an unfortunate fact that economic value and human value overlap so strongly in this context to the detriment of the latter. 119 CCER has taken an increasing profile in State Wage Cases and in 2008 was successful in its submission seeking a significant amendment to the Wage Fixing Principles to include the introduction of a Minimum Wage for all non-award employees in the State of New South Wales. In 2008, CCER submitted that it would be fair, reasonable and appropriate for the Commission to grant an increase in the Award Review Classification Rate ('ARCR') of $5.79 per week higher than the general increase to take into account the plight of low paid employees and having regard to the need to raise the wages of those employees paid at the ARCR rate higher than the Henderson Poverty Line. CCER was unsuccessful in that respect. On this occasion, the submission is that the Full Bench should have regard to what CCER contended is the real cost of living for the low paid, boosted as it is by housing costs. 120 The CCER analysis of the cost of living for the low paid remains somewhat controversial. The AFPC's view of the data relied upon by CCER was that it was not possible to generalise about the effects on low-paid employees of changes in either interest rates or rents. The AFPC's view was that while around one-third of low-paid employees with low household income may currently be vulnerable to rising rents, a similar proportion has recently benefited from the substantial lowering of mortgage interest rates. 121 Nevertheless, there was evidence in the proceedings that provided some support for CCER's analysis and that was the evidence of Dr Gelber. He referred to the cost-of-living index for various population sub-groups published by the ABS. The index is designed to measure changes in living costs for four household types, including 'Employee households' - those households whose principal source of income is from wages and salaries. 122 Dr Gelber noted that the analytical cost-of-living indexes have been designed specifically to answer the following question: By how much would after tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services as purchased in the base period? These indexes are published annually and are available as part of Cat No 1350.0.

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INFLATION, INTEREST RATES AND TAX CUTS 128 AFEI submitted that in setting fair and reasonable conditions of employment, the Full Bench should also have regard to other factors which are increasing the incomes of employees on award rates: stimulus packages, tax cuts, interest rate cuts and a drop in the inflation rate should not be ignored. 129 In this regard, AFEI submitted: Both the Economic Security Strategy and the Nation Building and Jobs Plan contained one off cash payments. The increase in the Low Income Tax Threshold in recent years has led to a significant rise in the incomes of low income earners, with further benefits scheduled for I July 2009 and 1 July 2010. The Tax Bonus for Working Australians provides taxpayers with an assessable income of up to $80k in the 2008-2009 financial year with a $900 cash payment, those with assessable incomes between $80k and $90k will receive a $600 cash payment while taxpayers with assessable incomes between $90k and $100k will receive a $250 payment. Averaged over a year the payments constitute a significant boost to per week household income of $17.31, $11.54 and $4.81, respectively. Families with children will also receive sizable cash payments as a result of the Single-Income Family Bonus and the Back to School Bonus announced the package. The Single-Income Family bonus provides a $900 cash payment to single-income families receiving Family Tax Benefit B, spread over a year this averages to $17.31 per week. The Back to School Bonus provides a $950 cash payment per child for families receiving Family Tax Benefit A, averaged over twelve months this amounts to $18.27 per week per child. The cash payments provided in the government's fiscal stimulus packages have been substantial and lead to a considerable increase in the incomes of the low paid. A low income family with two working adults and two children would have received $2,000 lump-sum payments a s a result of the Economic Security Strategy and further cash payments totalling $3,700 under the Nation Building and Jobs Plan. In total they would have received $5,700 in cash payments as a result of both packages. This equates to a more than $100 per week increase in household income averaged over 52 weeks. 130 Reference was made to the AFPC's decision which concluded (in Section 4) that: Recent changes to the tax/transfer system have delivered substantial increases in disposable income to a range of low-paid households. Over the life of the Commission, these increases, combined with increases from the Commission's general Wage-Setting Decisions, have been well in excess of consumer price inflation. Disposable incomes for the households that are most heavily reliant on the wages and tax/transfer safety net are also well above the income that can be received when unemployed. In addition, the Australian Government's economic stimulus packages have boosted the disposable income of low-paid households in the short term. These payments, which in some cases are quite substantial, should have helped to mitigate financial pressures for many families. Recent evidence suggests that about one in five low-paid workers experience low living standards overall. The evidence also indicates that unemployed people have considerably lower levels of household income than people in low-paid jobs and are more likely to experience financial stress. The Commission expects that, while increases in living costs will vary widely across individual households, for many households containing low-wage earners, recent increases in disposable income have outpaced increases in living costs. This is not true for many households whose members are unemployed. By emphasising the protection of jobs when household disposable incomes have kept pace with inflation, the Commission regards its decision as reaching an appropriate balance between helping to maintain the safety net for low-paid workers and safeguarding employment during the economic downturn. 131 The ARA put forward similar material to AFEI regarding the benefits that employees have received from the Stimulus package and tax cuts.

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135 The Minister's response to the employers' submissions regarding tax benefits was that, notwithstanding the benefit that low paid workers may have received, the New South Wales Government supported a wage increase. Moreover, the Minister submitted that taking into account tax/transfer changes discriminated against award-dependent employees compared to employees covered by enterprise agreements, who have their wages set without reference to the tax/transfer system. 136 The Minister also submitted that to offset or discount the wage increase that was being sought by Unions NSW on the basis of the impact of the Commonwealth's stimulus packages 'would only undo or diminish the policy intended with those packages.' 137 CCER adopted a similar approach, contending that: Maintaining the real level of the minimum wage will support demand in the economy, support the Federal Government's fiscal stimulus package and support the objectives of the Reserve Bank's monetary policy. By supporting these policies, an increase in the minimum wage will minimise the harm caused by the recession. 138 In its reasons for decision (2009 WAIRC 00375, 11 June 2009) granting an increase in the minimum wage of $12.30 per week, the Western Australian Industrial Relations Commission referred to the Commonwealth's stimulus package in the following terms: [47] We take into account the Commonwealth Government's fiscal stimulus packages. The packages themselves are a matter of record. Their significance for these proceedings lies in the fact of them having occurred. They are unprecedented in recent times and thus underline the seriousness of the economic situation facing the nation and therefore this State. We note that they have stimulated consumer spending in December 2008 and January 2009.… We observe that these payments are "one-off" in nature and are not designed as a substitute for increases to wages which otherwise might be expected to occur. … [50] We consider it to be inconsistent with the Commonwealth's fiscal stimulus payments stimulating consumer spending to reduce the value of the minimum wage by awarding no increase at all. The minimum wage is an important part of the social safety net and we consider that the requirements upon us in s 50A(3)(a)(ii) and (iii) in particular, to ensure that Western Australians have a fair system of wages which meets the needs of the low paid and provides fair wage standards in the context of living standards generally prevailing in the community, argue against no increase being ordered at all. 139 We note that the Western Australian Commission also had regard to cuts in payroll tax: [48] We also regard as relevant the WA Government's recent budget measures designed to give payroll tax relief to small and medium enterprises. These are likely to comprise the majority of unincorporated private sector businesses affected by the WA minimum wage and such relief may assist businesses to retain employment. 140 We take a similar view to the Western Australian Commission in relation to the stimulus package. The package was not designed as a substitute for wage increases; rather it was directed at stimulating the economy to avoid or mitigate the harsh consequences of a damaging recession brought about by the Global Financial Crisis. 141 Nevertheless, it must be acknowledged that the stimulus package and changes to the income tax and tax transfer system have had a beneficial effect on the disposable income of the low paid in the same way that cuts to payroll tax (and other benefits identified in Mr Wong's affidavit) have had a beneficial effect on employers' capacity to pay wage increases. 142 In its Safety Net Review - Wages - May 2004 (2004) 129 IR 389 at [308], and in the context of submissions by employer parties calling for the Australian Industrial Relations Commission to moderate any wage increase in the light of changes in the social safety net, the Commission acknowledged that increases in award wages were a blunt instrument in addressing the needs of the low paid in employment but, nonetheless, concluded that: [I]ncreasing award wages is the only instrument that the Parliament has conferred upon the Commission in order to discharge its statutory obligation to maintain a system of enforceable awards that act as a safety net of fair minimum wages and conditions of employment in the context of living standards generally prevailing in the Australian community. 143 It is similarly so with this Commission. The Commission is required to maintain a system of awards that set fair and reasonable conditions of employment for employees. Historically, this tribunal has not fixed wage levels according to what governments might, from time to time, deem appropriate by way of social welfare payments, including income support payments, that are payable to all manner of recipients depending upon how they are classified. The Commission will have regard for the social safety net in fixing minimum award wages because it is relevant to a consideration of whether a low paid worker can live decently, but the Commission will not be driven by the social welfare system in determining wage movements. 144 Further, there is a complex historical relationship between minimum wages deriving from various systems of labour market regulation and social security arrangements which are not sufficiently grasped by the relatively simplistic notion that welfare payments (or adjustments thereto) might be factored into the calculation of minimum wage adjustments. The relationship requires much more thorough research and, ultimately, submissions before us. Some issues requiring consideration are: the historical dependence of social security payment levels upon the fixing of appropriate minimum wages over time (and the consequent implications of reducing in relative terms the minimum rate in more adverse economic circumstances) and the adverse employment participation effects of reducing the minimum wage relative to welfare payments. 145 In so far as interest rates and inflation are concerned, the Commission will have regard to these matters as part of its general consideration of the economy. We note that the annual rate of inflation in the June quarter 2009 dropped from 2.5 per cent to 1.5 per cent. That is a significant drop. We also note, however, that the underlying rate of inflation is 3.9 per cent. In relation to interest rates, the cash rate is 3.0 per cent, the lowest level since 1960. 146 These figures must have a moderating influence in the determination of wage outcomes. However, of themselves, they cannot be allowed to dictate those outcomes. In that respect, it has been our experience that if interest rates are high and putting pressure on businesses, that is put as a reason not to increase wages and, if interest rates are low, that is again put as a reason not to increase wages because employees are obtaining a benefit from lower rates. The same applies to inflation. As is the case with social welfare payments, the Commission cannot be driven by an isolated consideration of fluctuations in interest rates and inflation.

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147 We noted earlier, the tension between a weakened economy and claims for pay increases by unions on behalf of their members. The claim in these proceedings is for an increase of 3.8 per cent in minimum award wages, which translates to a minimum dollar increase of $21.00. 148 There is also a tension between the undoubted need for wage restraint brought about by a weakened economy and the needs of the low paid. It is inconceivable, though, that a tribunal charged with the obligation to set fair and reasonable wages and to protect low paid employees would award a nil increase in circumstances where: (a) the WPI is estimated to be 3¼ per cent in 2008-09 and forecast to increase by 3½ per cent in 2009-10 and 3¼ per cent in 2010-11 in New South Wales; (b) for currently operating New South Wales enterprise agreements the Average Annualised Wage Increase is 3.9 per cent; (c) for all currently operating enterprise agreements in those sectors where most of the lowest paid workers are concentrated the AAWI is: 3.4 per cent in accommodation, cafes and restaurants; 3.5 per cent in the agricultural industry; and 3.6 per cent in the communication services industry; (d) the manager of the State economy, the New South Wales Government, believes a moderate wage increase is sustainable; (e) over one fifth of low paid workers are in households facing 'housing stress', where more than 30 per cent of gross household income goes on housing costs. Amongst the lowest paid workers, the proportion facing housing stress reaches 24 per cent; (f) low paid workers are much more likely to face episodes of financial hardship, with difficulties in paying bills, rent or mortgage being much more common. Low paid workers also face restricted access to cash and credit and are more reliant on relatives for emergency financial assistance since their access to savings is more limited; (g) low paid workers disproportionately experience the effects of price inflation (even if, as we have noted, the rate of inflation is declining); (h) earnings dispersion in the labour market has grown strongly over the last decade, placing low paid workers at greater risk of social exclusion; (i) the low paid find it difficult, and in some industries impossible, to engage in bargaining over wage increases and their only chance of receiving a wage increase is through an adjustment to their award; (j) there is no conclusive link between increases in minimum wages and unemployment and the relationship will vary depending on an industry basis and other factors such as the elasticity of demand and the minimum rate paid by competitors of the employers subject to the minimum rate adjustment; (k) there will be job losses over the next year. However, employment losses are far more likely to be caused by a demand shock instigated by precautionary saving behaviour of households and businesses and (lack of) availability of finance, rather than wage costs; (l) whilst New South Wales has had a long period of weak growth and having a large services and financial sector, which have been severely affected by the global recession, there is some foundation for believing that over the next five years the State will register a strong performance, with dwelling investment a key driver of the State economy; (m) there are signs, albeit tentative, that business and consumer confidence is returning;

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(n) the cost of granting the claim would have a minimal impact on the State's private sector wages bill and negligible impact in the public sector; (o) a moderate increase will not put upward pressure on inflation and will support aggregate demand in the economy by not providing a contractionary effect; (p) the Commonwealth has responded to the Global Financial Crisis and the consequential downturn in the Australian economy by announcing a $42 billion Nation Building-Economic Stimulus Plan which is designed to support jobs and economic growth; and (q) the New South Wales Government will spend $56.9 billion on infrastructure over the next four years, and work with the Commonwealth to deliver the Federal Government's economic stimulus package. 149 The judgment that has to be made is, therefore, not whether any increase should be granted, but rather what amount of increase is an appropriate outcome given the state of the economy - with particular regard to those industries that will be most affected - and the needs of the low paid. 150 The amount that represents the right balance in our judgment is 2.8 per cent. Accordingly, minimum award wages will be increased by 2.8 per cent. Relevant allowances shall be increased by a similar percentage increase. The Award Review Classification Rate, which is presently $552.70 will also increase by 2.8 per cent, making the new rate $568.20 per week. 151 We would also indicate that we are mindful of the submissions made by the Minister as to the fact that the minimum wage constitutes a declining proportion of AWOTE (see Table 2). This will need to be addressed in future State Wage Cases. The Commission will also review on a further occasion the CCER submission that the minimum wage may warrant a larger increase than that provided for employees otherwise the recipient of wage increases under awards affected by a State Wage Case decision. 152 In setting the amount of increase we have had regard to the Commission's 'Economic incapacity' Principle, which allows any employer subject to this decision to 'apply to, temporarily or otherwise, reduce, postpone and/or phase in the application of any increase in labour costs determined under the principles on the ground of very serious or extreme economic adversity.' 153 We considered the alternative put by some employer parties that we should defer any increase until the economy improves. We are not attracted to that proposition given the uncertainty associated with it and what we regard as the need to ensure the low paid are afforded some protection. MINIMUM WAGE ORDER

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Preamble These principles have been developed with the aim of providing for their period of operation, a framework under which all concerned - employers, workers and their unions, governments and tribunals - can co-operate to ensure that measures to meet the competitive requirements of enterprises and industry are positively examined and implemented in the interests of management, workers and, ultimately, Australian and New South Wales society. In exercising its powers and obligations under the Industrial Relations Act 1996 ('the Act'), the Commission will continue to apply structural efficiency considerations including minimum rates adjustment provisions. Movements in wages and conditions must fall within the following principles.
When an Award may be Varied or Another Award Made Without the Claim Requiring Consideration as a Special Case In the following circumstances an award may, on application, be varied or another award made without the application requiring consideration as a special case: (a) to include previous State Wage Case increases in accordance with Principle 3; (b) to incorporate test case standards in accordance with Principle 4; (c) to adjust allowances and service increments in accordance with Principle 5; (d) to adjust wages pursuant to work value changes in accordance with Principle 6; (e) where the application is consented to by the parties it will be dealt with in terms of the Act; (f) to adjust wages for the State Wage Case 2009 in accordance with Principle 8; (g) to approve of an enterprise arrangement reached in accordance with Principle 11; and (h) to adjust wages pursuant to an application claiming that work has been undervalued on a gender basis in accordance with Principle 14.
Previous State Wage Case Increases Applications for increases available under previous State Wage Case decisions will be determined in accordance with the relevant principles contained in those decisions.
Test Case Standards Test case standards established and/or revised by a Full Bench of the Commission may be incorporated into an award in accordance with the Act. Where disagreement exists as to whether a claim involves a test case standard, those asserting that it does must make an application for a special case.
Adjustment of Allowances and Service Increments (a) Existing allowances which constitute a reimbursement of expenses incurred may be adjusted from time to time where appropriate to reflect relevant changes in the level of such expenses. (b) Existing allowances which relate to work or conditions which have not changed, including shift allowances expressed as monetary amounts and service increments, may be increased by 2.8 per cent for the State Wage Case 2009 adjustment. (c) Existing allowances for which an increase is claimed because of changes in the work or conditions will be determined in accordance with the relevant provisions of the Work Value Changes principle of these principles. (d) New allowances to compensate for the reimbursement of expenses incurred may be awarded where appropriate having regard to such expenses. (e) Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the relevant principles of these principles. The relevant principles in this context may be Work Value Changes or First Award and Extension to an Existing Award. (f) New service increments may only be awarded to compensate for changes in the work and/or conditions and will be determined in accordance with the relevant provisions of the Work Value Changes principle of these principles.
Work Value Changes (a) Changes in work value may arise from changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. Changes in work by themselves may not lead to a change in wage rates. The strict test for an alteration in wage rates is that the change in the nature of the work should constitute such a significant net addition to work requirements as to warrant the creation of a new classification or upgrading to a higher classification. In addition to meeting this test a party making a work value application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against external classification to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position. These are the only circumstances in which rates may be altered on the ground of work value and the altered rates may be applied only to employees whose work has changed in accordance with this principle. (b) In applying the Work Value Changes principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed. (c) Where new or changed work justifying a higher rate is performed only from time to time by persons covered by a particular classification, or where it is performed only by some of the persons covered by the classification, such new or changed work should be compensated by a special allowance which is payable only when the new or changed work is performed by a particular employee and not by increasing the rate for the classification as a whole. (d) The time from which work value changes in an award should be measured is the date of operation of the second structural efficiency adjustment allowable under the State Wage Case 1989, 30 IR 107. (e) Care should be exercised to ensure that changes which were or should have been taken into account in any previous work value adjustments or in a structural efficiency exercise are not included in any work evaluation under this Principle. (f) Where the tests specified in (a) are met, an assessment will have to be made as to how that alteration should be measured in money terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work. (g) The expression 'the conditions under which the work is performed' relates to the environment in which the work is done. (h) The Commission will guard against contrived classifications and over-classification of jobs. (i) Any changes in the nature of the work, skill and responsibility required or the conditions under which the work is performed, taken into account in assessing an increase under any other principle of these principles, will not be taken into account under this principle. (j) In arbitrating an application made under this Principle, the Commission is required to determine whether or not future State Wage Case general increases will apply to the award.
Standard Hours In approving any application to reduce the standard hours to 38 per week, the Commission will satisfy itself that the cost impact is minimised. Claims for reduction in standard weekly hours below 38 will not be allowed.
State Wage Case Adjustments In accordance with the State Wage Case 2009 decision awards may, on application, be varied to include a State Wage Case adjustment of 2.8 per cent subject to the following: (a) The operative date will be no earlier than the date of the variation to the award. (b) That at least twelve months have elapsed since the rates in the award were increased in accordance with the State Wage Case 2008 decision. (c) In awards where the variation for a safety net adjustment arising from the 2005, 2006, 2007, 2008 or 2009 State Wage Case decision is by consent and does not result in an increase in the wage rates actually paid to employees or increase the wage costs for any employer, any applicable 12 months' delay between variations may be waived. (d) At the time when the award is to be varied to insert the State Wage Case adjustment (or a proportionate amount in the cases of part-time and casual employees, juniors, trainees, apprentices, employees on a probationary rate, employees on a supported wage or with permits under s 125 of the Act), each union party to the award will be required to give a specific commitment as to the absorption of the increase. In particular, the union commitments will involve the acceptance of absorption of the adjustment to the extent of: (i) any equivalent overaward payments, and/or (ii) award wage increases since 29 May 1991 other than safety net, State Wage Case, and minimum rates adjustments. (e) The following clause must be inserted in the award: 'The rates of pay in this award include the adjustments payable under the State Wage Case 2009 . These adjustments may be offset against: (i) any equivalent overaward payments, and/or (ii) award wage increases since 29 May 1991 other than safety net, State Wage Case, and minimum rates adjustments.' The above clause will replace the offsetting clause inserted into awards pursuant to the Principles determined in the State Wage Case 2008 decision. (f) By consent of all parties to an award, where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration. (g) The State Wage Case adjustment will only be available where the rates in the award have not been increased, other than by safety net or State Wage Case adjustments, or as a result of the Minimum Rates Adjustment principle, since 29 May 1991. (h) The State Wage Case adjustment may apply where the rates in an award have increased under the Work Value and/or Equal Remuneration Principles in accordance with the Commission's Decision as set out in Principles 6(j) and 14(p) respectively.
Award Review Classification Rate The Award Review Classification Rate of $568.20 shall be the rate below which no full-time adult employee (excluding trainees, apprentices and employees on a supported wage or on a probationary rate) should be paid under the relevant award. Where a classification in an award is below the Award Review Classification Rate the following process will apply on application: (a) The award will be listed for a mention at which the parties will report as to: (i) how the Award Review Classification Rate will be achieved, or (ii) whether the award is obsolete.

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9A. Minimum Wage (a) The Minimum Wage shall apply to those adult employees who are employed in the jurisdiction of the Commission and whose employment is not subject to the terms of an industrial instrument. (b) The minimum weekly rate of pay payable to an adult employee (as defined in s 5 of the Act) engaged on a full time basis whose employment is not subject to the terms of an industrial instrument (as defined in s 8 of the Act) shall be an amount of pay equal to the Award Review Classification Rate, as varied from time to time by the Commission. (c) The minimum hourly rate of pay payable to an adult employee (as defined in s 5 of the Act) engaged on a part-time basis whose employment is not subject to the terms of an industrial instrument (as defined in s 8 of the Act) shall be an amount of pay equal to the Award Review Classification Rate, as varied from time to time by the Commission divided by 38. (d) The Minimum Wage will not apply to those employees who are trainees, apprentices and employees on a supported wage or those employees employed on annual remuneration which is greater than the amount specified in regulation 12.3 of Chapter 2 of the Workplace Relations Regulations 2006 of the Commonwealth from time to time or that amount as indexed from time to time in accordance with regulation 12.6 of Chapter 2 of those Regulations. (e) Any person, body or organisation affected by the introduction of the Minimum Wage is given liberty to apply to the Commission so that it may be heard. 10. Special Case Except for the flow on of test case provisions, any claim for increases in wages and salaries, or changes in conditions in awards, other than those allowed elsewhere in the principles, will be processed as a special case before a Full Bench of the Commission, unless otherwise allocated by the President. This principle does not apply to applications for awards consented to by the parties, which will be dealt with in the terms of the Act, or to enterprise arrangements, which will be dealt with in accordance with the Enterprise Arrangements principle. 11. Enterprise Arrangements (a) The Commission may approve of enterprise arrangements reached in accordance with this principle and the provisions of the Act. (b) Industrial unions of employees and industrial unions of employers, or industrial unions of employees and employers, or employees and employers may negotiate enterprise arrangements which, subject to the following provisions, shall prevail over the provision of any award or order of the Commission that deals with the same matters in so far as they purport to apply to parties bound by the arrangements, provided that where the arrangement is between employees and an employer a majority of employees affected by the arrangement genuinely agree. (c) An enterprise arrangement shall be an agreed arrangement for an enterprise, or discrete section of an enterprise, being a business, undertaking or project, involving parties set out in paragraph (b). (d) Enterprise arrangements shall be for a fixed term and there shall be no further adjustments of wages or other conditions of employment during this term other than where contained in the arrangement itself. Subject to the terms of the arrangement, however, such arrangement shall continue in force until varied or rescinded in accordance with the Act. (e) For the purposes of seeking the approval of the Commission, and in accordance with the provisions of the Act, a party shall file with the Industrial Registrar an application to the Commission to either: (i) vary an award in accordance with the Act; or (ii) make a new award in accordance with the Act. (f) On a hearing for the approval of an enterprise arrangement, the Commission will consider in addition to the industrial merits of the case under the State Wage Case principles:

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(g) Due to the variety of existing award superannuation provisions and the impact and complexity of the SGA Act, all applications to the Commission may not be capable of being dealt with in accordance with the approach set out above. In any such case it may be appropriate for the application to be dealt with as a special case. 13. First Award and Extension to an Existing Award Any first award or an extension to an existing award must be consistent with the Commission's obligations under Part 1 Chapter 2 of the Act. In determining the content of a first award the Commission will have particular regard to: (a) relevant wage rates in other awards, provided the rates have been adjusted for previous State Wage Case decisions and are consistent with the decision of the State Wage Case 1989; (b) the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which the work is performed; (c) for conditions of employment, other than wage rates, prima facie the existing conditions of employment; (d) that the award would comply with the requirements of s 19 of the Act. 14. Equal Remuneration and Other Conditions (a) Claims may be made in accordance with the requirements of this principle for an alteration in wage rates or other conditions of employment on the basis that the work, skill and responsibility required, or the conditions under which the work is performed, have been undervalued on a gender basis. (b) The assessment of the work, skill and responsibility required under this principle is to be approached on a gender neutral basis and in the absence of assumptions based on gender. (c) Where the under-valuations is sought to be demonstrated by reference to any comparator awards or classifications, the assessment is not to have regard to factors incorporated in the rates of such other awards which do not reflect the value of work, such as labour market attraction or retention rates or productivity factors. (d) The application of any formula, which is inconsistent with proper consideration of the value of the work performed, is inappropriate to the implementation of this principle. (e) The assessment of wage rates and other conditions of employment under this principle is to have regard to the history of the award concerned. (f) Any change in wage relativities which may result from any adjustments under this principle, not only within the award in question but also against external classifications to which the award structure is related, must occur in such a way as to ensure there is no likelihood of wage leapfrogging arising out of changes in relative positions. (g) In applying this principle, the Commission will ensure that any alternative to wage relativities is based upon the work, skill and responsibility required, including the conditions under which the work is performed. (h) Where the requirements of this principle have been satisfied, an assessment shall be made as to how the undervaluation should be addressed in money terms or by other changes in conditions of employment, such as reclassification of the work, establishment of new career paths or changes in incremental scales. Such assessments will reflect the wages and conditions of employment previously fixed for the work and the nature and extent of the undervaluation established. (i) Any changes made to the award as the result of this assessment may be phased in and any increase in wages may be absorbed in individual employees' overaward payments. (j) Care should be taken to ensure that work, skill and responsibility which have been taken into account in any previous work value adjustments or structural efficiency exercises are not again considered under this principle, except to the extent of any undervaluation established. (k) Where undervaluation is established only in respect of some persons covered by a particular classification, the undervaluation may be addressed by the creation of a new classification and not by increasing the rates for the classification as a whole. (l) The expression 'the conditions under which the work is performed' has the same meaning as in Principle 6, Work Value Change. (m) The Commission will guard against contrived classification and over classification of jobs. It will also consider:

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