2013 STATE WAGE ORDER PURSUANT TO SECTION 50A OF THE ACT

WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

CITATION : 2013 WAIRC 00347

DELIVERED : Tuesday, 11 June 2013

FILE NO. : APPL 1 OF 2013

CatchWords : State Wage order - Commission’s own motion - Minimum wage for employees under Minimum Conditions of Employment Act 1993 - Award rates of wage - Award minimum wage - State wage principles

Legislation : Industrial Relations Act 1979 s 26, s 50A, Minimum Conditions of Employment Act 1993 s 12, Fair Work Act 2009 (Cth) s 14, s 284

Result : 2013 State Wage Order issued

Representation:

Case(s) referred to in reasons: 

Ex parte H.V. McKay (1907) 2 CAR 1

The Fair Work Commission Annual Wage Review 2012-13 [2013] FWCFB 4000

State Wage Order Decision [2012] WAIRC 00346; (2012) 92 WAIG 557

State Wage Order Decision [2011] WAIRC 00399; (2011) 91 WAIG 1008

State Wage Order Decision [2006] WAIRC 04608; (2006) 86 WAIG 1633

Reasons for Decision

INTRODUCTION

1          This is the unanimous decision of the Commission in Court Session.  Section 50A of the Industrial Relations Act 1979 (the Act) requires the Commission before 1 July in each year, of its own motion, to make a General Order –

-          setting the minimum weekly rate of pay applicable under s 12 of the Minimum Conditions of Employment Act 1993 to employees who have reached 21 years of age and who are not apprentices;

-          setting the minimum weekly rates of pay applicable to apprentices;

-          adjusting rates of wages paid under awards;

-          varying each award affected by the General Order to ensure that the award is consistent with the order;

-          making other consequential changes to specified awards if appropriate, and

-          setting out a statement of principles to be applied and followed in relation to the exercise of jurisdiction under the Act to set the wages, salaries, allowances or other remuneration of employees or the prices to be paid in respect of their employment. 

2          The Commission gave public notice of the hearing in local newspapers on 19, 24 and 27 April and 2 May 2013, and on the Commission’s website and in the WA Industrial Gazette on 24 April 2013 (2013) 93 WAIG 397 inviting submissions from interested persons.  We set out below an outline of the submissions received.

The Hon Minister for Commerce

3          The Minister submits that the WA Government is committed to promoting flexible, fair and productive employment practices to serve the interests of employees and employers.  The Minister’s principal interest is to ensure that minimum wages meet the needs of the low paid without risking the liability of individual employers or wider prospects for economic growth.

4          The outlook for the WA economy is largely positive with an expectation that presently high levels of growth and labour demand will moderate only slightly in the coming years as major projects currently in the development phase commence operation.  The rate of employment growth in WA will slow in the short to medium term and there remains a number of risks in the international environment with a potential to threaten the State’s ongoing prosperity.  The Minister submits that under these circumstances it is fair and prudent to adjust minimum and award wage rates of pay to the extent that their real value is maintained.  Therefore the Minister supports a percentage increase to the minimum wage and award wage rates equivalent to the most recently published WA Department of Treasury estimates of growth in the Consumer Price Index (CPI) for Perth for 2012/13.  This estimate is 2.75% and would result in a $17.30 increase to the minimum wage increasing it from $627.70 per week to $645.00 per week.

5          The Minister submits that the increase should also apply to the State minimum wage and award rates of pay for junior employees, apprentices and trainees.  The Minister provides detailed submissions on the matters prescribed in s 50A(3) of the Act which the Commission is required to take into consideration. 

6          The Minister also provides a submission in relation to the coverage of the General Order to issue in these proceedings.  It is recognised that the order to issue will only affect WA employers and their employees who are not national system employers as defined in s 14 of the Fair Work Act 2009 (Cth) (the Fair Work Act) and who are reliant on the State minimum wage and or awards for wage setting.  It remains difficult to estimate the number of employees who are covered by the WA industrial relations jurisdiction because definitive data is not available.  The Minister observes that data from the 2010 Employee Earnings and Hours survey from the Australian Bureau of Statistics indicates that between 21.7 and 36.2% of WA employees are covered by the State industrial relations jurisdiction.

7          The Minister states that an adjustment of the State minimum wage for inflation maintains the real value of minimum and award wages without adversely increasing labour costs and potentially hindering employment growth.  Further, employers have already experienced price pressures associated with the carbon tax and will be subject to the extra costs associated with increases to compulsory employee contributions to superannuation from 1 July 2013.

8         The Minister presented evidence from Mr David Christmas, the Acting Director of the Forecasting Quantitative Services Division of the Department of Treasury about the WA economy and which referred also to the national economy and international data.  The Commission extends its thanks to the Department of Treasury for making Mr Christmas available.

Chamber of Commerce and Industry of Western Australia (Inc)

9         CCIWA emphasises that WA is the only State which has two different minimum wages applying within the private sector.  The current difference between the State minimum wage of $627.70 per week and the national minimum wage of $606.40 per week is $21.30 per week.  CCIWA submits that this results in an uneven playing field for business with State-based employers, who are often small businesses with a limited ability to absorb increased costs and, pay higher award rates of pay compared to their often larger national system competitor.

10      Whilst growth within the WA economy remains strong, the benefits of this growth are not shared equally throughout the economy.  WA’s strong economic performance is positively skewed as a result of growth in the resource industry which is not representative of the industries covered by the State system. 

11      Further, growth in the cost of living as measured by the CPI for Perth is in line with the national average.  Consequently, it is CCIWA’s position that the State minimum wage should be equalised with the national minimum wage by not granting any increase to the State minimum wage in 2013 unless the 2012/13 national Annual Wage Review results in an increase to the national minimum wage of more than $21.30 per week.  If the increase is greater than the current gap between the State and national minimum wage, then CCIWA submits that the State minimum wage should be increased by the difference between the 2012/13 national minimum wage and the 2012 State minimum wage.

12      CCIWA also provides data in relation to the State and national economies.

UnionsWA

13      UnionsWA submits that the State minimum wage should be increased by 7%, an increase of $43.94 per week.  While WA has arguably the strongest economy of all of the States, it is also the most unequal State in the Commonwealth in terms of income distribution between individuals, between households and between genders.

14      It is UnionWA’s contention that the State minimum wage should reflect WA’s stronger economic performance; the State minimum wage should also play its part in readdressing the growing inequalities in WA society; and while a minimum wage increase is by no means the only response to these growing inequalities, other responses will not be adequate without a sufficient minimum wage increase.

15      UnionsWA argues for a wage increase greater than the all-groups CPI increase because the components of CPI inflation can, and should, be disaggregated for low paid workers because costs have more impact for those workers than others; this is particularly so in relation to housing costs.  UnionsWA attaches to its submission a number of academic articles concerning the effect of minimum wages.

16       UnionsWA also makes submissions regarding the WA and national economies.

17      UnionsWA presented evidence from Professor Rowena Barrett, Head of School of the School of Management at Edith Cowan University and Professor of Human Resource Management.  Professor Barrett’s evidence, in summary, addressed the coverage of the State minimum wage.  It could be estimated that the numbers of employees that could be affected by the State minimum wage decision would range from 19,697 to 374,243 (although the upper limit may be too high), however not all employees of small firms would be affected by the State minimum wage decision as they may not be minimum wage employees.  If a smaller number of employees was to be affected by the State minimum wage decision, then small firms’ ability to pay is unlikely to be compromised; if the number is larger, an increase could be accommodated through various means without having a negative effect on employment. 

18      Professor Barrett’s evidence was that there are no Australian studies that have looked at the effect of minimum wages on employment but studies elsewhere address this issue.  Over the years economists have studied the effect of minimum wages on employment and this argument has not been conclusively proved.  Although traditional economic theory predicts that a number of negative consequences can result from high minimum wages, other outcomes may include employers adjusting employee hours, affecting firms’ profits, reducing other costs within the business, changes to the capital-labour ratio and growth in total factor productivity via investment, training and skill development. 

19      It is not possible to identify a particular response of all small firms to regulation generally and, in this case, an increase in the State minimum wage specifically.  How small firms respond will depend on what the owner-manager knows about the decision and how they make sense of the decision.  In a human resource management context, matters relating to wages sit within the range of practices relating to the attraction, motivation and retention of employees.  There is reliance on the award system to provide the base rate which is then subject to informal negotiations.  Therefore, the effect of the State minimum wage decision on small firm employment will depend on a range of factors and cannot be predetermined.  The owner-manager’s motivation for business, experience and capability will play an important role in shaping their response.

20      Whilst Professor Barrett’s evidence indicates that increases in the minimum wage do not cause job losses as such, there may be other responses such as employers reducing employees’ hours of work and this reduction being taken up by working owners; changes to modes of employment which suggests changes from full time permanent to part time or casual, as well as other “informal negotiation” outcomes including less diligent compliance with award provisions such as penalty rates and overtime.

Australian Hotels Association (Western Australia)

21      AHAWA’s written submission recommends that any wage increase awarded by the Commission takes into account the increase in superannuation contributions of 0.25%.  The hospitality sector has been significantly impacted by the introduction of the carbon tax.  Utility expenses have increased at a rate higher than expected because of the carbon tax and also because of general increases.  Trading conditions for hospitality businesses, which are generally small business, family owned and are more likely to be located in regional areas, are poor; there is a reduction in tourism and an adverse impact from the high Australian dollar.

22      In particular, the AHAWA submits that the federal and State minimum wages should be equal.  If there was to be an increase to the State minimum wage, consideration should be given to an $8.00 per week wage increase.  AHAWA provided detail in relation to these points.

Western Australian Council of Social Services Inc

23      In a detailed submission, WACOSS  maintains that an increase of $43.00 in the State minimum wage, and in the minimum award rates for junior employees, apprentices and trainees, is consistent with a need to maintain a fair system of wages and conditions in the current WA context.

24      WACOSS considers minimum wages to be a vital means of protecting low income employees from poverty, the benefits of which are felt by minimum wage employees, their families, their children and society at large.  It is important for the wages earned by full time minimum wage employees to be sufficient to ensure that they have the capacity to meet their basic living costs while living with dignity and respect.  As such, the primary focus of WACOSS’s claim is the increasing cost of living pressures in WA, pressures which are having the greatest adverse impact on low income earners such as those who rely on the minimum wage.

Mannkal Economic Education Foundation

25      A written submission was received from the Chairman of this foundation.  The submission addresses the economics of minimum wage laws, observing that there may be more intellectually discredited arguments than those for minimum wages, however it is not easy to find them.  The author further addresses the issues under the headings of “Minimum Wages destroy jobs”; “Do Minimum Wages ever do any good?”; “Where has support for Minimum Wage Laws originated?” and provides some comment on what are described as “historic studies”.

CONSIDERATION

Coverage of State Wage Order

26      The Minister, CCIWA and UnionsWA give submissions on the coverage of the WA industrial relations system.  It is accepted that the application of the Act to employers and their employees in WA is overidden by the Fair Work Act.  As we have noted in past State Wage decisions ([2012] WAIRC 00346 at [44]; (2012) 92 WAIG 557 at 561; [2011] WAIRC 00399 at [30]; (2011) 91 WAIG 1008 at 1012), the General Order to issue from this matter will not affect the significant majority of employers in WA which are national system employers under that Commonwealth legislation and their employees.  The State minimum wage, and the variations to the awards which result from the General Order to issue, will apply to employers and employees in the approximately 20% of businesses in the private sector in WA which are sole traders, partnerships, some trusts, and incorporated businesses which are not trading or financial corporations. 

27      As the Minister observes, the precise number directly, and indirectly, affected is not capable of precise calculation due to the absence of definitive data.  It was common ground between those persons appearing that it is not necessary for these proceedings to determine the precise numbers of persons covered by the WA industrial relations system.  We see no basis for us to depart from the conclusion of Professor David Plowman, Graduate School of Management at the University of Western Australia who prepared a report for the Commission as part of the 2006 General Order wage case ([2006] WAIRC 04608 at [58]; (2006) 86 WAIG 1633 at 1639). 

28      The report dealt with, amongst other things, the numbers of persons who would be covered by the State minimum wage.  Professor Plowman made allowances for the percentage of employees coming under the Commonwealth jurisdiction (estimated then at approximately 60%) and made a further allowance for the fact that most of those receiving only the minimum wage are award-only employees whose incidence is higher in the State system.  Professor Plowman estimated that about 2.2% of the WA workforce would be directly affected by the State minimum wage adjustment; possibly 4% of the WA workforce could be affected in differing degrees by the adjustments to other wages to maintain established relativities.

29      CCIWA submits that in considering any increases to the State minimum wage and award rates of pay, specific consideration should be given to the impact of the decision on those employers covered by the State system.  It placed emphasis upon the state of the WA economy for those employers remaining in the State system. 

30      However, the criteria which s 50A(3) of the Act obliges us to take into account do not contain the emphasis placed by CCIWA.  The Act requires us to take into consideration the need to ensure that Western Australians as a whole have a system of fair wages and conditions of employment; we are to take into account the state of the economy of WA and the likely effect of our decision on that economy, and in particular on the level of employment, inflation and productivity in WA, and not just to that part of it that remains covered by the Act.

31      Nevertheless, the Commission is required by s 26(1)(a) and (c) to act according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms; it is to have regard for the interests of the persons immediately concerned whether directly affected or not and, where appropriate, for the interests of the community as a whole.  This will ensure the outcome of our consideration will be tempered with the knowledge that the minimum wage which we set can only apply to the small minority of the workforce in WA.  We pay particular attention to the information before us regarding those industry sectors which are likely to employ minimum wage dependant employees.

The Statutory Criteria

32      Section 50A(3) sets out the matters that the Commission is obliged to take into consideration.  The submissions before us address the need to ensure that Western Australians have a system of fair wages and conditions of employment; the need to meet the needs of the low paid; to provide fair wage standards in the context of living standards generally prevailing in the community; and the need to contribute to improved living standards for employees. 

33       While there is some common ground in relation to these matters, it is the Minister’s view that their correct application will lead to the conclusion that an adjustment based upon forecast movements in prices is appropriate.  The Minister points out that it is not a simple matter to determine what sum would be required to meet the material needs of low paid employees given the potentially large variation in household incomes, assets and individual family circumstances.

34      CCIWA submits that the cost of living in WA is marginally lower than the national average thus supporting a conclusion that the State and national minimum wages should be aligned.  Further, CCIWA submits that Australia’s minimum wage is the highest compared to any of the OECD member countries.  Taking into account the tax-transfer system, consideration should also be given to whether the award rates of pay generally applicable to employees achieve the statutory criteria.  The AHAWA asks the Commission to approach the task before it by particular reference to the members it represents in the hospitality and accommodation sectors. 

35      UnionsWA and WACOSS take a quite different point of view.  UnionsWA urges the Commission to approach the criteria from the point of view that although WA is a well-performing economy overall, there are serious concerns about how many Western Australians are actually sharing the benefits of that strong performance.  An approach which matches a minimum wage increase to the all groups CPI figure ignores not only the difficulties faced by low income earning individuals and households with essential living costs, but also ignores the need for strong earnings growth to support the growth of local economies and businesses.  UnionsWA points out that this is not a new concept, and can be traced back to the landmark “Harvester” decision (Ex Parte H. V. McKay (1907) 2 CAR 1).  An increase to the minimum wage should contribute to improved living standards for employees on lower wages by promoting social inclusion.  The cumulative movement in the State minimum wage from June 2006 to June 2012 of 24.4% is less than the index numbers for that period in the subgroups measuring utility prices, rents, medical and hospital service costs and cumulative dental service costs.

36      The WACOSS 2012 Cost of Living Report examined the circumstances of three types of low income households, including households employed slightly above the minimum wage, and found that for single and dual income families, increases in the minimum wage were important for keeping pace with living costs.  WACOSS stresses the growing income inequality in Australia and expresses alarm at the rate at which the gap between minimum wage rates and median pay levels is continuing to grow in WA. 

37      In particular, WACOSS stresses that average weekly ordinary time earnings (AWOTE) in WA has increased significantly over the last 12 years, owever the State minimum wage has not kept pace with this.  In recent years the State minimum wage as a percentage of AWOTE has been falling significantly so that by August 2012, the minimum wage fell below 40% of AWOTE for the first time. 

38      WA is recorded as having the highest level of income inequality in the country and among the highest in the world.  WA has one of the highest Gini coefficients amongst OECD countries.  Correspondingly, WA has become a significantly more expensive place to live with the pressure of cost of living increases being hardest felt by people on low incomes.  The increase in, and the cost of, essentials is hardest felt by low income households who spend a much higher proportion of their household income on essentials. 

39      Low income individuals and households are, or are at risk of, slipping into poverty and these are the people for whom increases to the State minimum wage really count.  WACOSS points particularly to housing as a major cost of living pressure.  The requirement of the Commission to consider the need of meeting the needs of the low paid and to provide fair wage standards in the context of living standards generally prevailing in the community requires consideration of these issues, together with the other increases in utilities and food.

40      In reply, CCIWA points out that the term “low paid” in this context would most appropriately be described as those persons reliant on, or affected by, the State minimum wage order and that the reference to “low income” earners is an undefined and unquantifiable category. 

41      The differing positions set out above are not easy to reconcile.  They each urge the Commission to address the criteria we are obliged to address from their respective points of view to the exclusion of the points of view of others.  More fundamentally, the Mannkal Economic Foundation submission seeks to raise doubts about whether there should be a minimum wage at all. 

42      In the Harvester decision (above at page 2), Higgins J regretted that the Parliament had not indicated what it meant by “fair and reasonable” in the legislation before him.  In this case, the WA Parliament has set out the considerations to be applied.  These competing considerations must be taken into account and the Commission must reach an equitable conclusion.  The strong, and well-supported, submissions of UnionsWA and WACOSS must nevertheless be balanced against at least the capacity of employers as a whole to bear the cost of increased wages, salaries, allowances and other remuneration taking into account also the state of the WA economy and the likely effect of any increase on that economy and in particular on the level of employment, inflation and productivity in WA.

43      With all respect to the views of the Mannkal Economic Foundation, the WA Parliament has decided that this Commission should set a minimum wage each year.  On the material before us, it is not established that academic theories supporting a minimum wage are discredited.  UnionsWA points to the November 2010 publication of Dube, Lester and Reich Minimum Wage Effects Across State Borders:  Estimates Using Contiguous Counties (The Review of Economic and Statistics (November 2010), 92(4) pp 945 to 964), submitting that the authors’ estimates suggested no detectable employment losses from the kind of minimum wage increases seen in the United States. 

44       We note too the studies referred to in Professor Barrett’s evidence which question the simple neoclassical economic theory that increased minimum wages cause job losses and show a range of other effects, but none show significant negative effects on employment.  We have referred earlier to Professor Barrett’s evidence indicating that there may be other responses by employers such as reducing employees’ hours of work or changes to the mode of employment. 

45      We refer also, and more relevantly, to the conclusions of Professor Plowman in relation to the operation of the WA minimum wage in the period 1990 to 2005 which suggests that there has been little minimum wage effect on the economy as a whole, and weak effects on those sectors with higher levels of low paid employees (above at [64]).

Protecting Employees Who May be Unable to Reach an Industrial Agreement

46      The Minister’s submission is that it is generally accepted that particular types of employees are less likely to engage in workplace negotiations concerning wages and conditions.  This group includes youth, low skilled workers and those with non-permanent jobs.  Given that the award system functions as a safety net, it is expected that those on award wages would generally earn less than those on collective or individual agreements. 

47      The Minister cautions that although a CPI adjustment to minimum and award wages will not discourage bargaining, and will protect the real value of wages of those employees who cannot bargain, an adjustment in excess of real wage maintenance may have the effect of removing the impetus for employees to pursue bargaining.  This position is supported by CCIWA. 

48      The submissions before us show that the increases we have given to the State minimum wage for the last ten years have resulted in an increase in the real value of the WA minimum wage: CPI has increased by 34% while the minimum wage has increased 45.5% (Minister’s submission paragraph 30).  Correspondingly, there has been no evidence before us which could lead to the conclusion that the real wage increases we have given have discouraged bargaining in the workplace.

Encouraging Ongoing Skills Development

49      The Minister observes that although WA’s rate of unemployment has risen marginally in recent months, the State is sustaining a period of low unemployment and continues to record high levels of labour force participation.  There is a long term requirement for skilled labour.  The number of people entering into training in WA has generally increased in recent years.  Previous State minimum wage increases for apprentices and trainees have not had a significant impact on the number of apprenticeships and traineeships being undertaken in WA.  The submissions were not contested and we accept them. 

Providing Equal Remuneration for Men and Women for Work of Equal or Comparable Value

50      The distinction between this consideration and the gender pay gap has been recognised in previous State wage proceedings.  There is no evidence before us of any significant change between the relative numbers of men and women who are receiving the minimum wage.  We have recognised that in the private sector in Australia, women are much more likely than men to be dependent on the award rate and therefore annual increases to the minimum wage. 

51      We have noted also that the reasons for the gender pay gap in WA being greater than any other State, and indeed for the nation as a whole, are complex and we reiterate there are inherent limitations to the role which the minimum wage can play in reducing the overall gender pay gap.  This does not mean that we disregard the issue as a matter of relevance.  We repeat the conclusion we stated in our 2012 minimum wage decision that an increase to the minimum wage has the potential to assist in providing equal remuneration for men and women for work of equal or comparable value.

The State of the Economy of Western Australia

52       Mr Christmas’s evidence is that the WA economy is growing strongly now but there are already signs that the pace of growth in the domestic economy is easing.  Conditions in the labour market are softening.  Inflation is expected to grow at a moderate pace and within the Reserve Bank’s target range of 2 to 3%.  There are risks to the outlook.  Mr Christmas’s evidence covered in detail the sectors of the economy leading to the above conclusions.

53      We set out below Table 1.1 from attachment A to the Minister’s submissions containing the major economic aggregates of growth for the State.

54       The latest projection is for growth of 6% in the Gross State Product for 2012/13 and 5% 2013/14.  Household consumption, which accounts for around 35% of Gross Domestic Product (GDP), has been stronger than anticipated and net exports have made a stronger contribution as well. 

55      In the WA economy, the forecast for business investment for 2012/13 is 11.25%.  Business investment is expected to peak in 2013/14 and there is general consensus that resource investment is now close to peak levels; it is expected to remain high, but it will not be driving growth.

56      Consumer price growth in Perth has been relatively subdued in the past two years, rising by 1.9% in annual average terms in the March quarter 2013.  Overall, the expectation is for relatively subdued price growth: Treasury projects an increase to the Perth CPI of 2.75% pa in 2012/13 and 2013/14.  The year-to-date data is showing the actual outcome may be a little less than the Treasury projection.

57      There has been a noticeable softening in the labour market conditions in recent months and the pace of employment growth is expected to moderate in coming years in line with the projected growth in the State’s domestic economy.

58      Recent data releases suggest the unemployment rate in 2012/13 will be slightly higher than Treasury’s most recent projection: it is expected to average 4.5% pa which is slightly higher than the average of the past ten years.  For the past ten years, the State has been able to sustain strong economic growth at an unemployment rate of 4 to 4.5%. 

59      The WA Wage Price Index (WPI) has grown by an average of 0.9% per quarter in the first three quarters of 2012/13, slightly below average growth of 1%; in annual average terms it grew by 4.2% in the year to March which is equal to the average growth in the past decade.  The growth in WPI was significantly stronger than the growth in national WPI both in the March quarter and in annual average terms.  This largely reflects greater economic growth in WA than nationally and strong growth in mining wages.  Annual wages growth as measured by the WPI to the December quarter 2012 was more subdued in the accommodation and food services sector at 2.6% and in the retail industry at 2.3%.

60      Mr Christmas dealt also with the risks to the State’s economy from the Euro area sovereign debt situation, slowing growth in China, a fall in the Australian dollar relative to other currencies, population growth, and consumer and business sentiment.

61       Although CCIWA queried whether the forecast from the WA Treasury was based upon figures which are out of date, we accept the evidence from Mr Christmas that Treasury’s forecast is based upon the pre-election financial projections statement and are effectively a mid-year review. 

62       UnionsWA describes WA as maintaining its position as the leading State economy.  Its performance includes industries most likely to be affected by the State Wage order including retail trade.  Even though WA’s unemployment rate has increased, it is lower than the other States.  It points out that the November 2012 AWOTE figure for WA is $1590.60 and submits that even with figures relating to mining removed, there is a discernible and increasing disparity between Average Weekly Earnings and the State minimum wage which undermines the fairness of the minimum wage compared to the rest of the community.

The State of the National Economy

63      The Minister observes that WA employees comprise 11.3% of the national workforce.  WA is a major driver of growth in the economy.  The State’s contribution per capita is more than one and a half times higher that of the next highest contributing State.  The Australian economy itself is outperforming most other advanced economies and is currently growing around trend.  It is expected to continue that growth for the next two years with GDP forecast to increase by 3% in both 2012/13 and 2013/14. 

64      Notwithstanding this, there are a number of factors that are creating significant challenges for certain parts of the economy including the challenging global environment, high Australian dollar, cautious household spending behaviour and subdued expectations for asset price increases.

The Capacity of Employers as a Whole to Bear Costs of Increased Wages

65      The Minister observes that many employers are likely to have faced significant cost increases in the past financial year as a result of the introduction of the carbon tax.  In addition, compulsory employer superannuation contributions will increase three percentage points over the next six financial years commencing 1 July 2013.  These represent a significant impost on employers, particularly those in small business. 

66      The Minister observes that although the WA business climate is generally positive, with above-average levels of investment, household consumption and retail spending, there is potential for excessive wage increases to hinder profitability and constrain employment growth.  The Minister submits that based upon the Gross Operating Surplus plus Gross Mixed Income recorded by the ABS, viewed with caution, there is some basis to show that profits for WA businesses on the whole increased by 4.2%, which is a moderate growth when compared to the annual growth in June 2011 of 30.2%. 

67      The Minister contends that employers generally have the capacity to maintain real wages.  It is nevertheless important to recognise the potential for immoderate wage increases to act as a brake on employers’ willingness to hire, which may be especially pertinent to those employers to whom the General Order will apply. 

68      CCIWA also requests the Commission to consider the increased costs and the subdued growth referred to when assessing the capacity of employers as a whole to pay the increase.  In particular, CCIWA and the AHAWA request the Commission to discount any proposed wage increase by 0.25% being the increased superannuation contribution to apply from 1 July 2013.

The Fair Work Commission Annual Wage Review 2012-2013

69       Section 50A(3)(f) requires the Commission to take into consideration relevant decisions of other courts and tribunals.  No person sought to persuade us to revisit our conclusion in the 2012 State minimum wage decision that the Annual Wage Review of Fair Work Australia (now the Fair Work Commission (FWC)) is a relevant and significant consideration.  We noted in our 2012 decision ([2012] WAIRC 00346 at [90]; (2012) 92 WAIG 557 at 566) that although s 284(1) of the FW Act does not require consideration of the state of the WA economy and the WA award framework which we are obliged by s 50A(3)(b) and (e) of the Act to take into consideration, we consider it significant that there is a substantial overlap between the considerations of FWC’s Minimum Wage Panel and the considerations we are obliged by s 50A(3) to take into account.  Further, the timing of the Annual Wage Review and the date of operation of the minimum wage to be set by FWC is contemporaneous with the obligations on this Commission under s 50A of the Act. 

70       We consider the Annual Wage Review 2012-13 [2013] FWCFB 4000, which increased the national minimum wage by 2.6% from $606.40 to $622.20 per week, an increase of $15.80 per week, to be a relevant and significant consideration.

CONCLUSIONS

71       The primary submission that is common to the positions of CCIWA and the AHAWA is that we should not increase the minimum wage in order to allow the 1 July 2013 increase to the national minimum wage to align with the WA minimum wage.  We consider the proper application of the requirements of s 50A(3) of the Act does not permit us to do so. 

72       Section 50A(3) does not refer to the level of the national minimum wage as a matter to be taken into consideration when setting the minimum wage.  Section 51(2) of the Act as it was prior to 2006 obliged the Commission to apply the then National Wage Case increase unless it was satisfied that there were good reasons not to do so.  In 2006, changes to Commonwealth legislation meant that there was no longer a National Wage Case to follow; in turn the WA Parliament enacted s 50A to require the Commission to set the WA minimum wage independently of the minimum wage applying nationally: it is not a presumption of s 50A of the Act that the WA and national minimum wages are to be aligned.  Since 2006, s 50A(3) of the Act and the corresponding national legislative provisions have not been the same and there have been differences in the timing of both national and WA minimum wage decisions.  As a direct consequence of this, particularly given the greater strength of the WA economy relative to the national economy, the WA minimum wage is higher than the national minimum wage. 

73       If the proper application of the requirements of s 50A(3) of the Act warrants an increase in the State minimum wage, it is not open to the Commission not to award that increase in order to allow the 1 July 2013 increase to the national minimum wage to align with the WA minimum wage. 

74       We take into account the submission that employers have already experienced price pressures associated with the carbon tax.  The extra cost from 1 July 2013 from the increase to compulsory employee contributions to superannuation is an employment cost which is relevant to our consideration.  We are urged by CCIWA to quantify the extent to which we have taken these into account, in the interests of transparency.  We consider to do so will depart from the obligation under s 50A(3) to consider broadly the issues we are required to take into account.  We have been reluctant to set the minimum wage by specific reference to any one statistic or economic measure; we are similarly reluctant to adopt a mathematical approach when taking these matters into account. 

75       For that reason, we recognise the important principle underpinning the Minister’s submission that an adjustment of the State minimum wage for inflation maintains the real value of the minimum wage without adversely increasing labour costs and potentially hindering employment growth.  However, s 50A(3) obliges us to take more than this principle into consideration. 

76       In relation to the primary submission of UnionsWA and WACOSS, in our 2012 minimum wage decision we stated that we considered UnionsWA’s submission that the setting of the WA minimum wage should be significantly influenced by its past or present relativity to AWOTE not to be appropriate.  UnionsWA urges us to revisit this conclusion.  It presents material based upon disaggregating the data to exclude any bias from high wages earned in the mining sector.  We note the result.  It is important to appreciate that AWOTE, even disaggregated is merely another source of helpful information.  We recognise that growth in the State minimum wage is not keeping pace with the growth in wages generally in WA whether measured according to the WPI or to AWOTE.  That is, nevertheless only one consideration.  To significantly influence setting of the WA minimum wage by reference to AWOTE to the exclusion of the requirements of s 50A(3) would not properly give effect to the Act. 

77       The obligation imposed on the Commission requires a balancing of differing considerations.  We are obliged to take into consideration the need to ensure that Western Australians have a system of fair wages and conditions of employment; and to provide fair wage standards in the context of living standards generally prevailing in the community.  Fairness is a relative concept.  In our 2012 minimum wage decision, we stated at [86]:

Fairness, in the context of setting the WA minimum wage, necessarily includes a comparison with the national minimum wage which is applicable to comparable employees elsewhere in the State.  The observation that an employee’s judgment of whether or not their wage is fair by reference to what is being received by others, applies equally to the minimum wage received by the others who are the significant majority of low paid employees in WA, and in each other State.

78       We repeat that statement here.  An increase in the State minimum wage, and all award wages, by the 7% advocated by UnionsWA may contribute to improved living standards of low paid employees and assist them to meet their needs.  However, for the Commission to do so would be to attach no weight at all to the other considerations relevant to setting the State minimum wage.  Fairness as a relative concept obliges us to take into consideration the fact that the resulting minimum wage payable to minimum wage dependent employees of non-national system employers in WA would be almost $50.00 per week more than the minimum wage payable to minimum wage dependent employees of national system employers in WA, and in other States.   

79       We would be bound also to take into consideration the cost burden it would place upon WA employers covered by the State industrial relations system to pay a 7% increase in base rates of wage when their national system competitors in WA would have to pay less than half that amount. 

80       We also would have to take into consideration the capacity of employers as a whole to bear the costs of a 7% increase in the minimum wage and award wages.  Some award-reliant sectors of the WA economy including hospitality and tourism show that difficulties are being experienced; they show a limited capacity to afford to pay a significant increase to the WA minimum wage and award wage rates.  To repeat the words said to us during the hearing by both CCIWA and UnionsWA in support of their respective and fundamentally opposite positions: fairness cuts both ways. 

81       Further, we would not be confident about the effect of such a significant increase upon the WA economy and, in particular, on the level of employment, inflation and productivity in WA.  We would be surprised if such an increase did not have some negative consequences for employees as employers as a whole sought to pay the increase to their employees.  The evidence of Professor Barrett has assisted us to understand the different responses of small business employers to an increase in the minimum wage; however some responses may be negative to employees. 

82       It is not a question of deferring consideration of the issues raised by UnionsWA and WACOSS; we are not persuaded that accepting their submission for a 7% increase to the State minimum wage can provide the balanced response the Act requires us to provide. 

83       We consider that the submissions provided to us by UnionsWA and WACOSS make an important contribution to conclusions we have reached in previous minimum wage cases that a real increase to the WA minimum wage is warranted.  We recognise that increasing the minimum wage assists in meeting the needs of the low paid, contributes to improved living standards for employees, provides a wage increase to those employees who may be unable to reach an industrial agreement and assists in a limited way to lessen the gender pay gap in WA. 

84       We are conscious that the evidence on this occasion is that the WA economy is growing strongly now however there are already signs that growth in the domestic economy is easing.  We note that the unemployment rate is above average for the State at a time when it is desirable for there to be strong earnings growth to support the growth of the local economy.  Prices growth overall in the State is relatively subdued.  Wages growth is slowing and has been relatively low in the hospitality and retail sectors.  Correspondingly, taking into account the matters in s 50A(3), we are conscious of the evidence that WA is recorded as having the highest level of income inequality in the country and has become a significantly more expensive place to live with the pressure of cost of living increases being hardest felt by people on low incomes.

85       These matters, in the context of our consideration of the matters in s 50A(3) we have set out above, lead us to conclude that we should set the State minimum wage at $645.90 per week, being an increase of $18.20 per week.  This increase is within the range of past increases we have given to the minimum wage and which have had no measurable effect on the WA economy and in particular upon the level of employment, inflation and productivity.  We consider it to be within the capacity to pay of employers as a whole.  It is higher, though not significantly higher, than the minimum wage payable elsewhere in WA and Australia generally.  

86       On this occasion, we favour a flat-dollar increase rather than a percentage increase. This in large part is due to the emphasis we wish to place upon those employees who are on the minimum wage or slightly above it, rather than those on higher award wages.  There was no direct evidence of issues having arisen from any compression of award relativities from past flat-dollar increases.  The issue is able to be addressed on a future occasion. 

87       We are obliged by s 50A(4) to ensure, to the extent possible, that there is consistency and equity in relation to the variation of awards.  No person appearing submitted that we should not correspondingly adjust rates of wages paid under awards.  Given that position, and the role of awards in providing fair wage standards, we will adjust award wages by $18.20 per week from the first pay period on or after 1 July 2013.  The increase will apply only to employees who are paid the award wage; any wage paid over the award wage is able to be used to offset the increase.

The Minimum Weekly Rate of Pay Applicable to Apprentices and Trainees

88       Section 50A(3)(a)(vi) requires the Commission to take into consideration the need to encourage ongoing skills development.  The evidence before us shows that previous minimum wage increases for apprentices and trainees have not discouraged their uptake in WA.  No submissions were put to us on this occasion to warrant a departure from the manner by which the Commission has previously set minimum wages applicable to adult apprentices.  We propose to apply the increase to adult apprentices, other apprentices and to trainees in accordance with the usual practice of the Commission.

Rounding of Rate of Wages

89       The Minister has submitted a draft clause with the purpose of standardising how wage rates resulting from the application of the General Order are to be rounded.  We consider the draft clause is appropriate and we adopt it as an appendix to these reasons for decision.

90       We wish to record our appreciation to Ms Haynes, who appeared for the Minister, for circulating a draft clause well in advance of the hearing which enabled it to be given proper consideration by those persons appearing.

Industry/Skill Levels

91       As in previous years, the Minister has provided an updated industry/skill level classifications table based on advice from the Department of Education and Training.  This updated table will be included in Attachment A to the 2013 State Wage order to issue.

THE STATE WAGE PRINCIPLES

92       No person suggested that any change is required to be made to the State Wage Principles.  Section 50A(1)(d) of the Act obliges the Commission to set out a statement of principles to be applied and followed in relation to the exercise of jurisdiction to set the wages, salaries, allowances or other remuneration of employees or the prices to be paid in respect of their employment.  The Statement of Principles July 2013 to issue remains unchanged from the Statement of Principles July 2012 apart from the necessary and consequential amendments to Principle 9.

MINUTE OF PROPOSED GENERAL ORDER

93       A minute of proposed General Order now issues. The Commission should be advised by 2.00 pm on Thursday, 13 June 2013 whether or not a speaking to the minutes is requested.  If a speaking to the minutes is necessary, it will be dealt with on the papers and written submissions should be received by 10.00 am on Friday, 14 June 2013.

__________________________

APPENDIX A

Draft Clause to Deal with Rounding in Award Rate Calculations

Where an award does not expressly provide how the rates of wages paid under it are to be adjusted in accordance with a State Wage order, then the following methodology will apply.

1. If the award’s rates of wages are expressed as a weekly rate, then the weekly rates as published on the Commission’s website (as of the date of this Decision) will form the basis of all wage rate adjustments under the award.

2. If (1) does not apply because the award’s rates of wages are expressed as other than a weekly rate, then the following rates will form the basis of all wage rate adjustments under the award:

(a) the fortnightly rates of wages; or (if there are no fortnightly rates)

(b) the hourly rates of wages; or (if there are no hourly rates)

(c) the annual rates of wages,

as published on the Commission’s website (as of the date of this Decision).

3. The applicable rates identified in (1) and (2), as published on the Commission’s website, will be referred to as the “prevailing rate”.

4. If a State Wage order provides for a percentage or flat dollar increase to the rates of wages paid under an award, then that increase is to be added to the prevailing rate and rounded in accordance with (6). The new, rounded prevailing rate will be referred to as the “adjusted prevailing rate”.

5. The adjusted prevailing rate will form the basis of calculations for fortnightly, hourly, daily, sessional and annual rates as appropriate, and the resulting rate will be further rounded in accordance with (6).

6. Rates will be rounded in the following manner:

a. in the case of weekly or fortnightly rates of wages, the rate will be rounded to the nearest 10c (or up to the nearest 10c in the case of a 5c figure);

b. in the case of hourly, daily or sessional rates of wages, the rate will be rounded to the nearest 1c (or up to the nearest 1c in the case of a 0.5c figure);

c. in the case of annual rates of wages, the rate will be rounded to the nearest $1 (or up to the nearest $1 in the case of a 50c figure);

7. The calculation of allowances under an award is not covered by this clause.  The rounding principles set out in the Commission’s 2007 State Wage Case Decision, and clarified in the 2009 State Wage Case Decision, will continue to apply for the purposes of allowances.