WITH commentary and debate around the Productivity Commission’s ‘Review of Australia’s Workplace Relations Framework’ gaining momentum in recent days, the resource industry has included a comprehensive economic analysis building the case for workplace reform as part of its hard-hitting submission to the review process.

Compiled by the peak national resource employer group AREEA, Getting Back on Track: Delivering the Workplace Relations Framework Australia Needs advances a suite of recommendations aiming to get Australia’s workplace relations system ‘back on track’.

At the heart of AREEA’s recommendations towards a more supportive, flexible and productive workplace relations system are the economic benefits that significant reform would deliver to not just Australia’s mining, oil and gas sectors, but also the wider Australian community.

The submission also details the extent of competitive and productivity challenges facing the Australian resource industry and the possible detriment to the sector, the national economy and wider living standards if the opportunity for fundamental reforms is lost.

A tradition of prosperity

Elevating AREEA’s submission above many other contributors to the Productivity Commission process, is that the resource industry’s recommendations are built on solid economic findings of top-four analytical firm KPMG.

KPMG’s research project Workplace Relations and the Competitiveness of the Australian Resources Sector, details the extent to which the resource industry has propped up the national economy and living standards in recent years.

“According to KPMG, the national resource sector contributed $155 billion in value added to Australian GDP in 2013-2014. This represents 10% of total GDP, half of which was generated in Western Australia,” AREEA’s submission says.

“In aggregate, the resource industry directly employed 269,000 people in resource extraction and 190,000 in resource-related construction and manufacturing in 2013-14. The total (direct and indirect) contribution of the resources sector is also estimated to be almost 10% of total employment in Australia (or roughly 1.1 million people).”

Further, it was found that the resource industry accounts for 24% of all corporate tax receipts in Australia – a figure ‘significantly higher than the sector’s share of GDP’, contributing greatly to the funding of new schools, hospitals, national defence and more.

Despite discussion about reducing the nation’s economic reliance on resource exports, Australia’s dependence on the resource industry is tracking to continue over the next five years, with iron ore forecast to remain the top export in 2018-19, closely followed by LNG and coal respectively.

“Australia’s earnings from resources and energy commodities are projected to increase at an average rate of 7% a year from 2013-14, to total $274bn in 2018-19,” AREEA notes in its submission.

Collectively, the statistics pose a persuasive argument for the ‘national social and economic importance of keeping the resource industry strong and internationally competitive’, but KPMG warns that without reform, the traditional prosperity of Australia’s resource industry may be at risk.

Confronting new challenges

While the resource industry clearly remains a critical pillar of the Australian economy, AREEA’s advocacy work has also uncovered the extent to which the sector is facing new competitive and productivity challenges.

The adverse implications if this is not urgently addressed by national policy makers, are significant.

Both the KPMG report and AREEA’s submission note that over the past decade, ‘productivity in the resource sector has declined by more than 45%’, but thriving commodity prices ‘camouflaged’ the true impact of increasingly unproductive workplaces in the past.

“When commodity prices were high, resource companies absorbed challenging structural productivity deficiencies and workplace inflexibilities that created higher costs, through their profit margins,” AREEA’s submission reads.

“Now, resource companies are unable to do this due to depressed margins.”

Market movement on iron ore prices provides an example.

“In 2011, the price for iron ore fines was over $180USD/t. It has declined by over 66% since that time,” the submission says.

“There are only three iron ore producers that have a break-even cost below today’s iron ore prices, and there is a startling 11 iron ore producers that are not breaking even.”

Of concern, the submission indicates that the cost of production for many commodities has risen faster than the global average, with wages accounting ‘for 12 per cent of revenue in the resource industry’.

“In Australia, wages in the resource sector, specifically construction wages, increased two and a half times faster than the national average in constant prices,” the submission notes, giving one example of a vessel operator’s Australian costs being 150% higher than in an OECD member economy.

Putting aside cyclical commodity prices pressures, both the KPMG report and AREEA’s submission note that Australia’s workplace relations system has played a significant role in driving down the nation’s competitive advantage in the global market for investment capital.

“On a global scale, we rank very poorly on productivity,” the submission reads.

“According to the World Economic Forum (WEF) Global Competitiveness Report for 2014-15, the most problematic factors for doing business in Australia relate to ‘restrictive labour regulations’.

“Australia does not rank in the top 100 countries globally on key employment measures.”

Prolonging resource industry investment

Australia’s workplace relations system impacts the ability to attract investment to major resource projects through a number of issues including current greenfields agreement making processes and delays and costs to projects associated with industrial action, both taken and threatened.

“Consultation with industry suggests that, on large resource projects, industrial action by even a small number of workers can have significant financial implications,” AREEA’s submission states.

“These costs range from $1 million to $10m per day of action.”

Boosting productivity could inject up to $90bn per annum into Australia’s GDP, the KPMG report argues. KPMG also estimates that AREEA’s proposed workplace relations reforms alone, if implemented successfully and collectively, could generate GDP growth of up to $30.9bn and create an additional 36,000 jobs across the country.

The documents explore AREEA’s key priority areas for workplace relations reform, making the argument for:

• Balanced, sensible rules for taking legally protected industrial action.
• Balanced and effective rules for unions to enter workplaces.
• Accessible, reliable and competitive options to regulate workplace relations on new projects through greenfields agreements.
• Ensuring agreement content / strikes are restricted to employment claims.
• Providing useable individual agreement making options.
• Reducing artificial and inflated litigious risk through adverse action claims, while protecting employees from unlawful and discriminatory treatment.
• Restructuring Australia’s employment institutions, complete with a dedicated appeals jurisdiction, to better focus on employment growth, productivity and competitiveness.

To read more about the economic case for workplace relations reform, check out chapter 2 of AREEA’s submission to the Productivity Commission Review here.

The full KPMG analysis, Workplace Relations and the Competitiveness of Australia’s Resource Sector, can be read here.

Each week the AREEA News Update will unravel and explore a different key issue from AREEA’s Productivity Commission policy reform recommendations. Stay tuned for next week’s News Update when we detail our recommendations around protected industrial action.

All enquiries should be directed to AREEA’s policy team via [email protected] or 1800 627 771.