Is Tony Abbott's 'cop on the beat' worth $6 billion?

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The claim

Although not proud of his role as the minister first responsible for WorkChoices (he was "one of two cabinet ministers who opposed it") Tony Abbott is very pleased with his role in creating the Australian Building and Construction Commission.

Tony Abbott's claims that the Australian Building and Construction Commission has saved $6 billion were found to be mostly false.

"That led to the achievement of some $6 billion a year in productivity savings and in cost reductions to consumers in the commercial construction sector," he told the Brisbane people's forum.

He promised to reinstate the ABCC, the "tough cop on the beat" that was abolished last June by the Gillard government after an inquiry headed by Justice Murray Wilcox.

The claimed boost of $6 billion from the mere existence of a Commission is an unusually big sum. But the ABCC had unusually big powers. It could compel building and construction witnesses to answer questions under the threat of imprisonment, even where it would implicate them in a crime.

Supporting evidence

Mr Abbott sourced the $6 billion figure from a 2010 report prepared by the Canberra consultancy Econtech for the Master Builders Association. It was updated this week.

The series has an interesting lineage.

It began life as research commissioned by the ABCC itself to examine whether it and its predecessor, the Building Industry Taskforce, had boosted productivity as intended.

The 2007 EconTech report found they had. Building industry productivity had jumped 9.4 per cent.

And there was more.

"Consumer prices are lower (by 1.2 per cent) and Australian GDP is higher (by 1.5 per cent) than would have been had the ABCC not existed."

EconTech used four methods to calculate productivity. One of them compared the cost of completing standard tasks such as laying concrete between the (largely non-union) housing sector and the (more unionised) commercial construction sector.

It found there had been a big gap, which had narrowed considerably since the arrival of the Commission.

The Queensland government's department of industrial relations and academics from Griffith University reexamined the data and failed to find any narrowing. They found that, if anything, the gap had slightly widened. They concluded the data had been "not accurately used" by EconTech.

EconTech acknowledged the error and redid the task for the ABCC a year later. But it reached much the same conclusion. It had assumed "an ABCC-related gain in construction industry labour productivity of 9.4 per cent for the purposes of economy wide modelling".

In his report on the ABCC delivered to the Gillard government in 2009 Justice Wilcox found the first EconTech report "deeply flawed".

"It ought to be totally disregarded," he said.

ABCC Commissioner Leigh Johns later told a Senate hearing that he had removed both EconTech reports from the ABCC website.

Since then the Master Builders Association has several times commissioned EconTech to provide it with updated versions of the research. EconTech has typically found roughly the same gain each time – $6 billion per year as a result of the ABCC and associated measures, the figure Mr Abbott quoted. In the latest version released this week if found a payoff of $7.5 billion.

Does it stack up?

EconTech, now called Independent Economics, has confidence in its finding. The ABCC was abolished in June 2012. Without data for the few months since (it isn't available yet) this week's update assumes that without the ABCC any productivity gains generated by it and its predecessor will be "wound back by 75 per cent".

The Australian Council of Trade Unions is scathing about the finding.

"It piles unsupported assumptions on top of each other," said assistant secretary Tim Lyons. "It pretends the mining boom never happened, and simply assumes without citing evidence, that any positive change in labour productivity was a result of the ABCC and that most of that will disappear."

The Australian Bureau of Statistics produces more widely accepted measures of productivity in the construction industry.

Its measure of so-called gross value added multifactor productivity per per hour worked shows a lift of 7.8 per cent in the seven years of the ABCC's life. In the seven preceding years productivity climbed 8.7 per cent.

Its measure of gross value added multifactor productivity per productivity "quality adjusted" hour worked climbed 9.2 per cent in the seven years of the ABCC. In the seven preceding years it climbed 8.0 per cent.

Taking a longer timeframe back to the start of the Building Industry Taskforce which preceded the ABCC, gross value added multifactor productivity per quality-adjusted hour worked climbed 16.9 per cent over ten years. In the previous ten years it climbed 10 per cent.

Many things contribute to productivity. An increase (or a fall) in productivity after the arrival of the ABCC does not necessarily mean the ABCC lifted (or cut) productivity. And it does not mean it was responsible for the entire effect.

Finding

Mr Abbott based his claim that the establishment of the ABCC led to productivity and cost savings of around $6 billion a year on research commissioned by an industry association. It was in turn based on research commissioned by the ABCC itself.

The inquiry into the ACCC headed by Justice Wilcox found the original research "deeply flawed". The ABCC removed it from its website.

A Politifact rating of mostly false applies where a statement contains an element of truth but ignores critical facts that would give a different impression.

PolitiFact rates the claim "mostly false".

Details at www.politifact.com.au

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