Gillard caught in workplace trap

A DEFINING conflict of this Labor era is unfolding inexorably as Australia struggles to manage a "once-in-a-century" resources boom with its Fair Work Act that has weakened productivity, flexibility and workplace change.

The squeeze has begun and will only tighten. The rumble of alarm is sounding from Labor's friends and enemies, from big business and sole traders alike. It is a test from which Julia Gillard cannot hide because it goes to the viability of her main achievement and the policy on which Labor defeated John Howard.

The squeeze is caused by the China resources boom that has driven a 40 per cent Australian dollar appreciation that, in turn, is ruining our competitiveness while Labor's new industrial system is a dead weight on any solution via revived productivity.

Australian Industry Group chief Heather Ridout has seen enough. Widely recognised for her constructive dealings with the Labor government, Ridout called this week for a new review of the IR laws.

She warns that Australia, even compared with Europe, is uncompetitive. Ridout is not asking Labor to abandon its laws but she wants them modified. "We have tested these laws over the past 18 months and we now think it is time for amendments to the act," Ridout told Focus. "As for productivity, our members consistently tell us it is very hard to achieve any productivity gains in the bargaining process."

Ridout is speaking for a large slice of industry, notably manufacturing, construction, engineering and transport among others.

In a 15-page speech this week Ridout identified the failures of the Fair Work Act and specified the changes her group wants. "No country can afford to freeze in time its workplace relations system, least of all a country like Australia with such an open economy," Ridout said. Her challenge is polite yet stark.

The truth, however, is that Ridout's comments are rank heresy. They strike at Labor's deluded psychology over industrial relations. They challenge the fantasy world that Labor conjured up when, in triumph, it replaced Work Choices with the Fair Work Act that started on July 1, 2009. Chief advocate of such fantasy was Gillard.

"The best thing about Labor's industrial relations plan is that it will be good for productivity," Gillard said at the outset in November 2007. It was Labor's mantra for the next two years.

Good for productivity? When, where, how? What industry or business says so? Ridout's point is that the act is not working for productivity. This means, in effect, that the economic justification for the Fair Work Act, introduced to the cheers of most of the Australian political media, is a fraud.

There is no sign the act will assist the challenge of competitiveness or productivity. Just the reverse. It seems decoupled from assisting Australia's open, competitive economy.

Meanwhile, at small business level a political war has broken out with potentially vast consequences. The big unions, spearheaded by the Construction Forestry Mining and Energy Union, are using the Fair Work Act in a campaign against what is called "sham contracting".

The aim is to force independent contractors into employer-employee relations, thereby opening the way to unionisation. Australian Chamber of Commerce and Industry chief Peter Anderson said: "It was only a few years ago that both sides of politics were calling independent contractors the new aspirational workers. Yet we are now having to re-fight old battles. It seems we have to re-legitimise the supply of labour through independent contractors."

This struggle comes at the precise time the NSW Labor Party has been all but obliterated off the back of anti-productivity trade union driven policies sanctioned by the ALP machine. The alienation of small business, among other constituencies, is basic in the NSW failure and the loss of male voters aged between 30 and 50 years. This new war on independent contractors exposes the schism between the interests of the union movement and the Labor Party.

The union campaign has a head of steam with momentum from government agencies. The CFMEU says this sham practice gives lawbreaking employers an advantage over legitimate employers. Its 284-page report, Race to the Bottom, released this month, claims that a huge 26 per cent to 46 per cent of all independent contractors in the construction industry are shams.

It estimates the lost tax revenue at $2.475 billion annually. The union has launched a campaign involving "hundreds of organisers and thousands of delegates" and calls on Labor to tighten the Fair Work Act.

Housing Industry Association executive director Glenn Simpson said: "Our members want to be small business people. They want to be contractors. I don't think this issue and the threat it poses to independent contractors could be more serious."

Independent Contractors Australia executive director Ken Phillips said the union agenda would replicate conditions in NSW under Labor.

He said: "It will add fear to commercial dealings where self-employed people and their clients won't know whether their honest dealings will be subject to the indiscriminate wrath of a government enforcer."

An inquiry into sham contracting has been initiated by the Australian Building and Construction Commission. The Australian Taxation Office has also canvassed tighter tax treatment of contractors and this is central to the union campaign.

In her speech Ridout said: "Tough laws are already in place which prohibit sham contracting. It is vital that the common law approach to defining an 'independent contractor' is maintained."

In short, Gillard faces workplace challenges at the big and small end with direct economic and political fallout. Such pressures will only intensify as the resources boom squeezes the non-resources sectors.

Anderson explains the story. "What we are seeing is a slow burn on the economy," he said of the Fair Work Act. "Trade union demands are hitting corporate desks along with legal advice about what these claims mean. The shift in power from employers to trade unions is significant. It's not subtle. And the trade unions are confident. With cost pressures building, businesses are being forced to look at restructuring and efficiencies changes. But the responses they would normally make are now at risk because of industrial action. And the attitude of ministers is passive. They think the system should find its own level."

This is what Ridout rejects. She wants the defects fixed now before the damage gets worse.

Asked for the government's response to Ridout, Workplace Relations Minister Chris Evans welcomed her call for "a mature and rational" discussion. He backed the need for productivity growth. But he made no commitment whatsoever to review the act along the lines she wanted.

Meanwhile the present Qantas dispute perfectly illustrates Anderson's point. Chief executive Alan Joyce says the airline's "ability to be flexible" is now vital to survival. Joyce rejects the union "job security" campaign that wants any outside contract to equate to the terms and conditions of the union agreement. Indeed, Joyce calls this a "veto" on his ability to run the business.

Ridout's main request is repeal of the Fair Work Act provisions that restrict engagement of contractors and on-hire employees. At present, unions can stop contractors coming on to site unless they have an enterprise agreement with a union, justified under the false claim of "job security".

Ridout's wider argument - that productivity growth "is much worse in Australia than in other economies" - is simply not addressed by Labor in relation to the industrial system. To be fair, Evans said Labor would back genuine independent contracting arrangements, but how this is interpreted nobody really knows.

Ridout warns Australia's annual average unit labour costs rose by 3.2 per cent between 1999 and 2009, well above the industrial nations average of 1 per cent. Australia was "well and truly behind the eight ball".

At this point all roads lead to Gillard. And they lead to one question: who is the real Julia?

The contradictions within Gillard seem vast and untenable. While penetrating to many policies (the economy, climate change, immigration and social policy), they reach a zenith in industrial relations.

Gillard is a "Harvester Judgment" politician. Introducing the Fair Work Act, she regularly invoked the 1907 Harvester Judgment. This is when Justice Higgins found that employees had to be paid a wage based on fairness (as determined by him) and not on the company's ability to pay. Ever since, this judgment has been enshrined by the union movement while it cast a long pall over Australia's economic progress for seven decades.

In November 2007 Gillard even likened the Harvester Judgment to an "uncodified" but "highly influential social clause of the Australian Constitution". That is real faith and it is bedrock union tradition.

This week in her Whitlam Oration, Gillard cast Labor as the champion of mateship and the fair go. Yet in the same breath she cast Labor as the party of economic reform, productivity enhancement and work, not welfare. She has pledged to increase workforce participation and manage the economic challenges arising from the resources boom, the exact productivity challenge that Ridout said Australia was failing.

Let's say it loud and clear: you cannot believe in a Harvester Judgment industrial system philosophy and deliver the workplace productivity growth that Australian now needs. These ideas are incompatible.

This is Labor's unresolved contradiction. It is Gillard's unresolved contradiction. It is a contradiction on almost daily display in the workplace tensions now being played out. The Labor Party has introduced an industrial system that doesn't fit with the resources boom challenge of contemporary Australia.