Supermarkets not the only players under pressure from wage decision

While the overruling of Coles’ pay deal might hit supermarket profits, the fallout could also spread to other sectors.

The overturning of the Coles enterprise agreement is a staggering development. For Coles/Wesfarmers and probably Woolworths it could have serious short- and long-term profit implications.

Grace Collier sets out one outcome where Coles will suffer a $420 million profit blow (Federal Election 2016: dodgy deals expose rank hypocrisy, June 1). However, the supermarket is working on other scenarios that would involve a much smaller impact. The next few weeks will be important. Of course, the decision may be appealed.

But as it now stands, the implications go far beyond Coles and Woolworths and represent the first time that the close links between large companies, unions and the ALP have been upset. And once one domino falls it can lead to many others going the same way.

So, let’s first look at how the Coles, McDonalds and Woolworth’s agreements work and how different sorts of big union/big corporation deals are done in other industries to achieve a similar result.

While the deals have different structures, the ultimate outcome is the same — large amounts of money end up with the ALP and the Greens.

All these agreements are carefully crafted by top people in both the unions and the corporations. Both the Shop Distributive & Allied Employees Association union and top executives at Coles know exactly how much Coles saved by paying workers less money at weekends. And they knew the advantage that it gave Coles over retailers that did not have such a good deal.

On the other side of the deal with the union, all Coles staff are encouraged to join the union and, as Coles is one of the largest employers in Australia, it represented a huge union income. The Shop Distributive & Allied Employees Association union is one if the biggest contributors to the ALP. McDonalds has a similar weekend deal which gives it a big advantage over small restaurants that don’t. Once again the union and the ALP win and small business loses.

But even before Coles’ enterprise agreement was overturned, there was already a snag in the retail area. Aldi refused to play the big company/big union ALP game. It did deals directly with its work force which maximised efficiency and the use of modern equipment. Aldi’s store costs are substantially less than Coles and Woolworths. Part of that gap reflects the fact that Aldi carries only house brands but there are also no union shackles so the Aldi work force is very productive.

The decision by the Fair Work Commission means that Coles will be even further behind Aldi in costs. Woolworths maybe be in an even worse situation.

So, without that low cost weekend advantage via these enterprise bargain deals, Coles and Woolworths will need to manage their work forces to maximise productivity or Aldi will gather even greater momentum.

And do Coles and Woolworths want to be shackled with a highly unionised workforce when their main competitor does not have one?

A lot will depend on whether the union disrupts the changes that will now be required.

But if the money from the retail unions is interrupted, it will damage the future funding of the ALP.

What is happening in retail that curbs small business is not that different to transport. In that case, the ALP set up a tribunal which ignored the fact that modern technology is now the big driver of road safety when it comes to trucks. The tribunal tried to make the roads ‘safer’ by forcing owner-drivers to charge two and three times the market rate so that TWU-employed members, who had no such price restrictions, could take the business and owner-drivers would be bankrupted.

It had nothing to do with safety. The Parliament abolished the tribunal but Bill Shorten wants to bring it back. Any new tribunal will not be as foolish as the last one, which tried to rid Australia of owner-drivers quickly. Instead, if Shorten wins next time around, elimination of owner drivers will be done over time, thus building up ALP donations as the TWU becomes bigger and bigger.

The large transport operators will be huge beneficiaries but so will the union and the ALP.

We have just seen most of the major commercial builders sign an enterprise agreement that locks in union control over small contractors. It makes it very hard for new competitors, so the big builders win but the building unions are made very rich. The building unions pass on a share of their wealth to the ALP and the Greens.

Australia is full of such stories which hold back our productivity and prosperity. But they generate large profits for companies, help unions and are essential for ALP funding.

The Coalition has not yet woken up to how it all works. However, in the budget, Scott Morrison tangibly helped small enterprises but then he muddied the waters by offering tax cuts to banks and other large enterprises over 10 years.

At some point the Coalition will work out how the system works and understand that they are the losers.