How Abbott's asking CEOs to share the pain

The debate surrounding the Coalition's reforms has largely focused on the plight of Australians from lower socio-economic groups, but alarm bells will soon be ringing in corporate boardrooms.

It’s something of an understatement to say that the reforming zeal of the Abbott government is being greeted with a lot more hostility than the equally reform-minded Hawke government.

However, most of the focus to date has been on how lower socio-economic groups will be affected -- what some rather brutally call ‘bleeding heart’ complaints.

Not as much has been said about the effect on business.

Robert Gottliebsen hit the nail on the head in this regard yesterday (Corporate ignorance is threatening Australia’s future, May 28) when he wrote: “Consumers have not seen Treasury’s [growth forecast] graph but can smell that something is wrong and in time, the consumer alarm bells will ring in the boardrooms and in the public service.”

Putting aside the public service for now, the boardroom alarm bells will ring when many CEOs realise how much their businesses relied on a ‘money-go-round’ of tax, benefits and spending among lower socio-economic status groups – the groups who have the highest propensity to consume (rather than invest) income.

That is not to argue that such a money-go-round is desirable, only that the drying up of billions of dollars of ‘social wages’ in the years ahead will be at least a short-term hit on the bottom line of many firms. We will get our first clear indicators of this in the next reporting season in mid-August.

How different the Hawke situation was. Towards the end of the Fraser era, unions were negotiating with the government to pause wages -- at least for six months -- if Fraser somehow retained power.

Fraser did not give much in that negotiating process, and was constantly threatened with strategic industrial stoppages as a result.

To the business community, whatever their ideological preferences, that lingering threat would have meant yet more damage to lean profits.

The Hawke election win in 1983, with 75 seats in the lower house to the Coalition’s 50, was decisive and helped retain the cooperation of the unions.

That meant plans for a wage freeze could be actioned, leading ultimately to the wages and prices accords that underpinned the Hawke government’s reforms.

Long-time industrial relations reporter of that time, Shaun Carney, recorded a few years later just what a relief that was to the business community.  

Carney wrote that during the 1983 National Economic Summit, “the man who was then nominally Australia’s top employer, Confederation of Australian Industry president Don Hughes, in a very relaxed mood, began expounding the talents of the new prime minister. ‘I’m impressed. I’m very impressed. He’s made it clear he wants to be the greatest Prime Minister we’ve had and I think he might get there’.”

Carney adds: “Hughes was suffering a strange form of shell-shock which had overtaken many other senior Australian employers, especially those in the corporate sector ... The dreaded unions, for so long the bane of both Labor and conservative governments, were now one-half of a partnership in the economic management of the country.”

While that caused instinctive fear in corporate Australia, at the National Economic Forum “they found themselves expressing a form of grudging satisfaction -- a sort of relief -- that the near-recklessness of the Fraser days were over. Now, at least, strikes would recede, even if the price was high. Now companies could plan ahead and not wait to be picked off as unions pursued and industry-by-industry pay rounds ...”

Wage restraint was required to quash rampant inflation, but that meant company revenues could continue to grow while one part of their cost base was contained.

Hawke’s trade-off with the ‘dreaded’ unions was the creation of a social wage, dominated by Medicare and later, the superannuation guarantee.

That social wage was expanded again in the Howard years, mainly via the creation of Family Tax Benefit parts A and B.

As an aside, Labor is currently planning to vote against the reining in of the over-generous FTB part B -- a reform they themselves suggested when in power.

One thing the Abbott government is undoubtedly correct in asserting is that the overall ‘social wage’ has become too large. Coupled with pension spending, our system of public health care, subsidised pharmaceuticals, welfare payments, family benefits and education subsidies, the bill has become too heavy a burden for the current tax base to carry.

The controversy since the release of the Audit Commission report and the federal budget a week later has been about which parts of that social wage have been shrunk, and whether the changes are too abrupt for a fragile economy to adapt to.

Moreover, as I have argued, that debate fails to account for an often overlooked factor of Australia’s strong economic performance: its stock of human capital (Weak logic beneath Australia’s biggest gamble, May 27).

Comparing 1983 to 2014, it becomes clear how different these two reform eras will turn out to be.

The first involved asking voters to freeze their wages, and receive a social wage top-up as compensation.

The second involves asking voters to take a social-wage cut, with the abstraction of ‘growth’ and ‘efficiency’ as compensation.

The selling of that second proposition, it has to be said, is not going at all well.

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