May 4, 2012

Checking the docket on how expensive it is to do business in Oz

The business claim that the government is making Australia more expensive to invest is is completely wrong.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

Update below Australia is a high-cost place to do business, apparently. I know because I read it in the papers regularly. Tom Albanese, of Rio Tinto, complained this week about the high cost of doing business in Australia. BG Group saying the cost of its Gladstone coal-seam gas project have blown out. The Business Council cited high costs back in April. One of those absurd "business roundtables" the AFR conducts, back in February, was given over to business executives lamenting "we’re becoming a high-cost, low-productivity nation". Usually the fault is laid at the blame of the government. Labor was "anti-business", complained Graham Bradley in February, mainly because of the Fair Work Act. But the carbon tax cops criticism too. Today the head of the AIG complained that the carbon tax was creating uncertainty because, unlike the GST, businesses couldn't calculate its impacts. So let's look at the evidence. Has the Fair Work Act increased costs for business? Let's look at the ABS's unit labour cost index. When the index is above 100, wage pressures are assumed to exist. How has it fared under this government?

So, this is pretty much the only government in 30 years to eliminate wage pressures for business. The only area where the government has failed to curb wage pressures has been in executive remuneration, which continues to relentlessly increase at rates well ahead of inflation. How about industrial disputes? Let's have a look at the long-term trend. This is the number of days lost to industrial disputes per thousand employees. There was a much-vaunted spike in disputes in the September quarter last year, mostly driven by aggressive employers, but otherwise the level of disputes remains at historic lows.

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53 thoughts on “Checking the docket on how expensive it is to do business in Oz

  1. Jimmy

    Gee if only some this rational fact based analysis hit the MSM!!

  2. Peter Ormonde

    Excellent Mr K.

    I await with enthusiasm the avalanche of complaints from these industry groups about the absurd wages being paid to these whining executives in Australia. Seems they get paid for making excuses and blaming everything but themselves.

  3. Matt Cowgill

    This is a really good piece, but Keane has misunderstood the index of real unit labour costs (RULCs). RULCs are not like a confidence index or a PMI in which 100 (or 50) represents a balance between positive and negative movements.

    Rather, RULCs represent the average labour cost of producing a unit of ouput, adjusted for inflation (using the GDP deflator). Because RULCs are presented in the National Accounts as index numbers, they need a base period. The index is set to equal 100 in the base period. The series could be re-based and set to equal 100 in any other period.

    The level of the RULC index has no meaning. The RULC index is only used to show the rate (and direction) of change in labour costs.

    Stable RULCs imply that the wages share of national income is stable, whereas falling RULCs imply a falling wages share*. If the real compensation of labour grows at the same pace as labour productivity, then both the wages share and RULCs will remain constant. The falling RULCs (and falling wages share) in the 2000s imply that the growth in the real compensation of labour has lagged behind productivity growth.

    [*Note: RULCs are not exactly equivalent to the wages share, as RULCs use gross value added as a denominator, which is broader than the total factor income used as a denominator in wages share calculations. They are nevertheless close to equivalent.]

  4. Marion Diamond

    Taxes pay for an infrastructure and a health system, both of which are unavailable in many places where companies do business. In much of Africa, for instance, mining companies employ workers who are HIV positive, and have to provide (admittedly rudimentary) health care for them.

  5. Gavin Moodie

    Thanx for this piece, and thanx to Matt Cowgill for clarifying index of real unit labour costs.

    Good afternoon Peter. The right wing trolls seem to avoid pieces that report inconvenient truths, but should they emerge I look forward to reading you play Whac-A-Mole.

  6. swingingvoter

    As evidenced by the second graph the new IR regime and ‘Fair Work Australia’ has presided over an increase in work days lost due to industrial dispute. Whilst historically the disputes are still low, if they were to continue to increase it would be bad news for everyone – right wing trolls and left wing lunies included.

  7. Gavin Moodie

    But as Keane pointed out:

    1 the increase in work days lost due to industrial disputes spiked in September 2011 – it has since fallen;

    2 this was driven by aggressive employers.

    However, I agree that if employers further increased the loss of work days by lock outs and other confrontational tactics it would be worth restricting their scope for these tactics. I suggest that employers not be permitted to take industrial action without a vote of their board if not of their shareholders.

  8. Suzanne Blake


    The cost of doing business is growing out of control. Take Australia Post for example, they have increased the price of business post by up to 36% in the last 37 months. Thats not the 60c stamp, that the media / public would be all over, but the sneaky items, like parcels, red satchels, express post etc.

    ACCC alseep at the wheel again, and all for more rake for incompetent Swan.

  9. swingingvoter

    The spike was due to the new IR environment that encourages all parties to pursue adversarial tactics to the detriment of genuine enterprise bargaining. To suggest the disputes were driven by agressive employers is bunkum. As my granny is so fond of saying – It takes two to tango.

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