Election 2022: $50bn hit if Labor axes construction watchdog

Anthony Albanese’s plans to abolish the construction watchdog could deliver a $50bn hit to the economy, add to inflation and cut up to 4000 jobs a year, a report finds.

Anthony Albanese’s plans to abolish the construction watchdog could deliver a $50bn hit to the economy, add to inflation and cut up to 4000 jobs a year, according to an independent report ­detailing the costs of removing the industrial relations safeguards for the critical sector.

The damning findings into Labor’s pledge to dismantle the Australian Building and Construction Commission found that the policy would have significant impacts for rebuilding the post-Covid economy but also damage key sectors including housing, ­defence and health while undermining plans for a sovereign manufacturing revival.

It would also add to inflationary pressures and lead to an ­estimated $10bn blowout in the cost of state infrastructure ­pipelines, which would be borne by the taxpayer.

The report by Ernst & Young and commissioned by Master Builders Australia warned that abolishing the ABCC would ­severely impact housing costs and have an inflationary impact from rising industrial action across critical sectors that rely on construction.

Its findings will further fuel the Coalition’s election attacks over Anthony Albanese’s pro-union industrial relations policy and raise doubts about Labor’s claims to address inflationary pressures.

The report modelled three ­potential impacts ranging from a low to high range. The high range suggests economic losses of up to $75bn by 2030.

The mid-range scenario would result in a fall in the output of the construction sector of about $16.3bn by 2025 and a decline in overall economic activity of $18.4bn by 2025.

It predicts a fall in manufacturing output of $4.8bn by 2025 and $13.1bn by 2030, and a decline in services output of $5.9bn by 2025 and $19.5bn by 2030. The flow-on effects to the broader economy would be significant, it warned, considering the key role the sector plays in the productive capacity of the economy.

“To the end of the next decade, and based on the potential industry impacts, abolishing the ABCC could lead to significant economic losses,” the report said. “Output in the construction sector could fall by around $35.4bn by 2030 as higher cost inflation makes fewer projects possible, and capital is ­reallocated to other economic ­activities. Overall economic ­activity could decline by $47.6bn by 2030 as higher costs and lower productivity act as a handbrake to other sectors.”

 

The construction sector is estimated to account for almost 10 per cent of national economic activity and employs an estimated 1.5 million workers.

The report warns of major cost blowouts in the infrastructure pipelines of the state and territory governments. In NSW, the cost blowout to major infrastructure projects including WestConnex would be more than $4bn if the ABCC was abolished. A similar cost overrun would be experienced in Victoria, while Queensland would see a $2bn cost increase and WA would witness a $1bn rise all due to “an increase in labour costs and a decrease in labour productivity in the industry”.

“Abolishing the ABCC could cost the Australian economy up to 4000 jobs a year. Job losses are felt immediately as output in the construction industry falls and ­labour costs rise,” the report said.

“Despite a strong infrastructure pipeline over the forward ­period, jobs losses could be ­expected as some construction firms may need to downsize across both their office and management workforces, and their tradespeople.

“There may also be job losses felt in manufacturing and the services industry as construction cost increases push up costs in these industries.”

Under the high-impact scenario, estimating a 35 per cent ABCC mandate across the construction sector, labour costs would increase by 8.8 per cent and worker productivity would ­reduce by 9.3 per cent.

“In this scenario abolishing the ABCC could create significant negative economic impacts across multiple sectors and lead to reduced GDP,” the report said.

“Abolishing the ABCC in this high-impact scenario could lead to a total economic loss of around $80bn from the baseline by 2030.

“Over time, investment can recover due to high demand for construction and increased investor confidence, however this remains below the baseline. Investment could fall by $75.7bn from the baseline by 2030.”

The EY report said abolishing the ABCC could cause consequences for the wider economy and reduce output and employment over the next 10 years.

“With the construction industry already facing challenges from extreme weather events, high demand for construction services, and global supply chain shortages, these negative impacts could cause severe economy-wide consequences,” it said.

“These impacts are likely only to occur in worksites that are currently covered by the ABCC’s mandate. Based on conversations with the ABCC and EY’s own research, we have estimated that roughly 20 per cent of the construction industry’s future pipeline is covered by the ABCC’s mandate.”

The ABCC functions as the industrial watchdog for the building and construction sector and is considered critical to reducing project cost risks and delays due to industrial disputes.

MBA chief executive Denita Wawn said the report highlighted how Labor’s policy to abolish the ABCC would increase the costs of the construction and maintenance in hospitals, clinics, and aged care homes, construction of schools and education facilities and construction of defence bases and facilities.

“Labor abolishing the ABCC is economic self-harm,” Ms Wawn said. “It’s irresponsible economic management that takes money out of the pocket of every tax paying Australian. It’s going to increase costs just as households are being squeezed by inflation.”

Scott Morrison last week sought to make industrial relations an election wedge, vowing to double maximum penalties that can be imposed on the CFMEU for unlawful conduct and legislate six-year workplace deals on major projects if re-elected. The High Court this month unanimously ruled against the CFMEU in a case brought by the ABCC about the militant union’s lawlessness across the construction sector. It found the CFMEU treated penalties for serious breaches of the Fair Work Act as simply a “cost of doing business” and that the union was a “serial offender”.

In pledging to scrap the ABCC, Anthony Albanese said the ­organisation had been “politicised” and pursued union officials for minor “infractions” while failing to tackle worker safety and sham contracting.

In a Perth speech last week, Mr Morrison resurrected a key plank of the government’s failed industrial relations omnibus bill, pledging to legislate six-year greenfields agreements for projects valued over $500m. The ­Coalition promise would guarantee yearly pay rises for workers in line with the annual minimum wage review.

Labor and the ACTU last week launched election ads attacking Mr Morrison’s revival of elements of the government’s IR omnibus bill and falsely claiming that the Coalition would abolish the “better off overall test”.

Labor industrial relations spokesman Tony Burke warned voters that Mr Morrison was “sharpening his knife to slash your pay and conditions”.

“By scrapping the ‘better off overall test’, Mr Morrison’s laws will allow for agreements that cut the pay and conditions of workers,” Mr Burke said.

“If he succeeds, everything from shift allowances to penalty rates is on the chopping block. Mr Morrison’s radical laws would also make part-time work even less secure.”