KGB: Bill Shorten

Federal minister for financial services and superannuation, workplace relations and employment Bill Shorten tells Alan Kohler and Stephen Bartholomeusz:

– Australian manufacturing has the ability to adapt and thrive, and the Australian economy can support a two-car manufacturing industry.

– Australia's productivity levels are soaring under the Fair Work Act, and are by some measures better than at any time since WW2.

– Current high wages on LNG projects are acceptable, but Australia needs a speedier mechanism for resolving IR disputes, with help of a third party if necessary.

– The shale oil market is “doing wonders” for providing cheap energy in the US and has great development potential in Australia, in the context of moving towards a low carbon economy.

– Labor’s proposed reforms to superannuation, such as lifting concessional caps for people over 60, are inherently good for Australians and should not be used as a political football.

Alan Kohler: Well, thanks for joining us, Bill.

Bill Shorten: Alan, it’s a pleasure to be here with Business Spectator.

AK: Now Bill, only a year ago [Max] Yasuda, the head of Toyota, came out and he complained about industrial relations in Australia, workplace relations, costs were too high. Now, Ford has actually announced that it is closing. So, I’m joining the dots.

BS: Oh, I’d say that…

AK: I’m wondering to what extent the Ford closure has to do with workplace relations.

BS: Oh, I don’t think that’s joining the dots. I think that’s actually writing a fairy tale because I don’t accept that Ford is shut because you pay workers reasonably. I don’t accept that Ford is shut because they have a collective agreement. I don’t accept that Ford automotive workers’ remuneration has been the X-factor in the Ford closure. Let us not let the conservatives of Australia write a great lie and then have it unquestioned. It is a lie to say that Ford decisions on Australia are based because of what an assembly line auto worker was receiving.

The reason why Ford hasn’t done well is that they didn’t make export model cars. They kept making larger cars in Australia than the consumer wanted. Consumer preference has changed. Ford didn’t. Indeed, I drive a Ford. I like Ford motor cars. I like motor cars. I’m interested in motor cars. The Ford Territory I drive now at last has a diesel engine in it. I wouldn’t buy a Ford Territory after I had my first one because they were petrol guzzling tanks, but the diesel engine that Ford has finally put in its Territory a couple of years ago, now that is bliss to drive. But why did it take Ford so long to put a diesel engine in a Territory? My point is not that Ford people can’t make cars, but if you want to look at what’s hit the Ford automotive company, let us not blame the workers. They’re the ones losing their jobs incidentally.

AK: So, would you say therefore that the money that the government, successive governments, have given Ford has just been thrown away?

BS: Well, before we hop off your first point, you said let’s join the dots between the comments of a Toyota executive a year and a bit ago and the comment and the action of Ford. I hope I’ve put beyond any reasonable doubt that the trail between the two does not exist. Indeed when you go to that Toyota issue, part of the problem was that Toyota had to make changes. It’s that they did it in such an unfortunate manner.

I met with Mr Yasuda. I met with Toyota. What you don’t do is you don’t get a bus and you don’t drive longstanding Toyota workers to another venue, have security guards checking them, to talk about their redundancy. You know, there’s a right way of treating people and if you treat people the wrong way, you cannot be surprised if you get outbreaks of concern. Now, Toyota has settled that matter and I’m pleased that Toyota is investing in Australia the way it is.

AK: But it’s not just Max Yasuda a while ago. I mean a lot of people in business are complaining about Australian labour costs being too high. And on Tuesday Gary Gray was talking about it in relation to gas projects.

BS: I’ll come to a comment about gas. First of all, when you say everyone in business is complaining, isn’t it about time in the Australian media we stopped joining together a couple of examples and say there’s an emergency? You’re falling for the trap that the conservatives want people to believe that somehow Australia is going to wrack and ruin because we have a strong minimum wage, because we have collective bargaining, because we have free and independent trade unions in a democratic society. That is rubbish. It is rubbish and it should be called for the rubbish it is.

Now, when we want to talk about productivity – productivity has increased. It is three times under Fair Work Act what it was under WorkChoices. Not a one times increase, not two times, but three times. And if you look at the last seven quarters of labour productivity indices in Australia, time when Labor’s been in power, it’s gone up and up and up and up and up and up, seven times. We’re now hitting numbers that we haven’t seen since the Second World War. So, this argument that somehow Australian workers won’t pick up a spanner and tighten a screw, that somehow because you pay people double time and a half on one of Australia’s quite infrequent public holidays, that this is sending Australia down the toilet is not borne out by the facts. Productivity is up.

When we look at industrial action, which is arguably a crude test of how the system is working, did you know the industrial action in Australia, the amount of lost time on average that Labor has been in power for the last 5½ years, is one third what it was under the conservatives. There’s this great lie in parts of the Australian business and media community which says that somehow the Liberals are better at keeping the workers at their workstations and Labor is engaged in some frolic where everyone is back in the ‘70s going retro on industrial relations. Nothing could be further from the truth. Lost time in Australia is one third of what is was under the Liberals. And in the construction sector it is one fifth of the lost time.

So productivity up, lost time down and of course one of the most important indicators is the creation of new jobs. Twenty-eight million-plus people have joined the unemployment queues around other first world nations since the GFC. We’ve added 960,000. You know, business investment, it is now 18½ per cent of our GDP. When the Libs were in power it was a paltry 10 per cent of GDP.

So, the facts don’t bear out the hysterical sort of rumour mongering, myth making, you know, when everyone says there’s a problem. You know, I get the chairmen of large companies when they’re sitting on the back deck of the Sorrento Yacht Club at Christmas at the KPMG Couta Boat Classic may well moan about how much the workers want to be paid, but the reality is that productivity is up, industrial action is down, job creation is up, business investment is up and, by the way, that old bug bear, that old genie of inflation, it’s in the bottle. It’s only just north of 2 per cent.

Stephen Bartholomeusz: Bill, while accepting that a lot of Ford’s problems were self-inflicted, the reality is that we are now a relatively high cost economy with a still relatively high dollar. Is there a future for manufacturing without large scale restructuring?

BS: And you always need to change, so the premise of your question is, is there a future for manufacturing without change? No. You need to have change. Only a mug would tell you you can stay as you are. But we’ve been engaging in a path of change. I think it’s important.

You know, you guys are eminent economists and you’ve studied economics. I’ve done a bit of that, but my first degree at uni was in history and I think history and economic history, which is one of my passions, is a good indicator of what’s been happening in Australia. In 1960, so long before any of you gentlemen were, you know, out of short pants or even born, in 1960 we had 30 in every 100 Australians working in manufacturing. Now, it’s about 8½. Will there be more structural adjustment? Yes. But do I think we can have a future in manufacturing? Absolutely.

Our challenge is not in a race to be a commodity producing manufacturer, we’re not going to make brooms as cheaply as somewhere else, we’re not going to make rope as cheaply as somewhere else, we’re not going to make thongs that you wear on your feet as cheaply as somewhere else. But we can make all sorts of value added equipment for the emerging nations, economies of Asia very well.

AK: What about cars?

BS: Well, I think we can also make cars, provided we make cars that people want to buy. I don’t know what it is about my family, when I was a kid growing up they bought a Leyland. Oh, my goodness, that was Britain’s answer to the Trabant or the Lada. Anyway, we bought one because Dad was a British migrant. That was a clunker. And of course Leyland doesn’t manufacture in Australia anymore. If you build stuff that people don’t want, you cannot be surprised that people don’t buy it.

But what I do believe is that we can make cars which work. We make smaller cars. We make cars which have got sustainability and energy efficiency in them. I like my current Territory. The diesel engine with the SUV we’ve got is good. But we don’t need just to make good things; we need to make excellent things. How on earth do Switzerland or Germany survive on manufacturing? They’re high cost economies, but they do so because they have strong brand values, because they’ve spent a lot of their money on R&D.

I think there are a lot of lessons for us in manufacturing from Finland, from Korea, from even Israel and some of the aspects I notice are that they spend a very high portion of their budget on a skilled workforce, on engineers, on design. Everyone acknowledges the Italian economy is going through difficulties, but we still buy a lot of Italian manufactured goods. So, my point is it’s the value chain and it’s our ability to premium price. It’s the value proposition. It’s our ability to premium price. It’s access to markets. It’s having a skilled workforce. It’s prioritising research and development.

The only way we would say that we couldn’t manufacture in Australia is that we thought that Australians were dumber than the rest of the world. Well, I believe, Steve, our inventors are as smart as anywhere in the world, our designers are as capable, our workforce is as clever and as innovative. So, yeah, I think manufacturing has got a future, full stop.

SB: Bill, you referred to Germany and their car industry a moment ago. I think their assistance per head of population for their car industry is something like $48. Ours is $18 and falling.

BS: Yes.

SB: They sit in the middle of one of the world’s big markets. We sit a long way distant from them. Aren’t those factors that basically say that there is no future for actually making whole cars in this market and that we ought to concentrate on the sort of the IP elements in the industry?

BS: We should certainly concentrate on things which have intellectual property which everyone wants. When I was a union organiser there was that term which, you know, the Liberals would practically outlaw – the role of unions. I work constructively with PDO, they make dashboards, and they work constructively with Robert Bosch. I can think of other car component manufacturers I’ve worked with. There’s certainly a market for us in terms of making components which can fit into global supply chains, absolutely.

We’ve moved from, ten years ago, a four car company market to, by 2016, a two car company market. I would have hoped that that market provides some consolidation for the choices that people make, in that, with Toyota and Holden I would have thought there was some hope rationalised from four to two. I mean there was Nissan in the ‘80s, that went. Mitsubishi. Now, Ford is not manufacturing.  At a certain point our economy, I believe, is strong enough to sustain a two car manufacturing…

AK: Jacques Nasser in fact said the reverse will apply once you get…

BS: Why?

AK: That once the rest of the industry becomes subscale it’s harder for them to survive.

BS: Scale is always important, there’s no question about that. But we’ve also got to allow the ‘X play,’ which I didn’t talk about much before, the impact of the high dollar. You know, when our dollar is at $US0.96 that’s easy to manufacture than $US1.06 and if our dollar was to go below $US0.90 and sit somewhere between $US0.80 and $US0.90, I think that would also be of assistance to our manufacturers.

 The manufacturers will still be there in the future and the ones who can stand the high dollar as well. So, I think that’s an important factor. The best thing we can do is skill our workforce. I was at a company in Knoxfield in Melbourne’s outer eastern suburbs. They’re making a… name I won’t try and pronounce here on this interview because it might show that I can’t pronounce certain technological terms, but they make devices which measure smog and devices which measure the light and the interrelationship of pollution and light which allows them to make very careful measurements in cities, so you know what’s happening with pollution. Chinese cities all around China are buying our equipment. It now employs 160 people.

And we've got the food producers like Bertocchi, or Tamar Valley Dairy in Launceston. Boeing in investing in research here. I was at Warren and Brown, which is a manufacturer of NBN equipment. I met with them and our Vietnamese representatives of VietTel, which is the principle Vietnamese telecommunications carrier, who want to buy our NBN materials and have them installed so they can service some of the postcodes in Hanoi. So, I can see a lot of good news in manufacturing but, as you gentlemen know even better than me, good news doesn't sell ratings; bad news always trumps it. So it's important to talk about the good news. 

SB: Bill, you said earlier that you’d respond to those comments by Gary Gray, who said that unreasonable pay demands by unions were a factor in the cost escalation in the LNG sector.

BS: I’ve had a look. I understand that Gary is reflecting legitimate concerns from some of the employers in the industry, but I’m not sure that that’s fair. I don’t believe there are half a million dollar chefs. If you think there are a lot of them running around offshore in Australia’s hydrocarbons industry... I used to negotiate conditions for offshore camp staff. I just don’t believe those numbers and I don’t believe there’s an epidemic of chefs earning more than Gordon Ramsay. I think it’s a popular beat up.

What I do also think, though, is that we need to make sure two things are in place. One is we have our facts right and two is that if there is any industrial disturbance, we need to have the tools with which we can resolve it quickly. What I know is that the standard range for chefs who are tradespeople working offshore, and I had a look at the agreements, is between $125,000 and $150,000 per annum. As we know, some of these chefs go for longer than a year, but many of them don’t, so that’s not an unreasonable pay range I think for the hydrocarbons industry. I’m reasonably sure that the executives of those companies pay themselves a lot more than the people out there working up on the jack up rigs.

So, I don’t think there is an epidemic. On the other hand, where there’s talk of industrial action I think we need to have a more speedy mechanism to resolve disputes, so that if the two parties can’t reach an agreement they’ve got the assistance of a third party to resolve matters. But I don’t buy the argument that there’s a plague of overpaid workers just beyond the breakers of the west coast of Australia.

AK: Yeah. But the reality is, leaving aside some of the detail…

BS: But detail matters!

AK: Okay, but the reality is that we’re not going to cut wages. I mean, wages are what they are.

BS: But they’re more driven by the market. You and I want to go and work as a chef offshore. We might look at the money, but we’re not prepared to do the family destroying rosters these guys do – three weeks on and a week off… there’s a reason why people get the money they get. It’s also because working on an oil rig is not the equivalent of having a pair of Ugg boots in front of the fireplace eating Tim Tams. It’s a lot harder work than that.

AK: But what I was going to come to is that labour costs are what they are. The other big input into manufacturing and the industry generally is energy, and do you think there needs to be a more focussed approach to energy policy in this country, which is what’s going on in America where they’re actually focussing on bringing energy costs down in order to make their manufacturing industry competitive?

BS: Oh, I’m excited by the shale – what’s happened in America though is the shale oil gas which is  providing cheap energy onshore for the Yanks, and for the first time in a very long time the Americans look like being a net exporter of energy, so that’s doing wonders. So yes, cheaper energy is really important.

I’m very excited by our potential developments of shale oil in Australia. I think that’s pretty worthy of interest. What the government has been doing is, Gary Gray has taken over the process Martin Ferguson initiated with a White Paper on energy policy. It is important to have one coherent national policy on energy. So, that work is happening. I do think we’ve got reserves of our potentially cheaper energy available, but I guess that has to be prospected and tested and then capitalised and then developed. I also know that when it comes to cheaper energy, this government is certainly trying to assist the Australian economy move to a less carbon polluting future, which is very sensible.

AK: So, can you just tell us about the legislation that you’re putting through on super now?

BS:  As the Treasurer and I promised when we said all the superannuation issues at the beginning of April, we said that we wanted to lift concessional caps for people over 60, so it will move from $25,000 you can put into $35,000 years on July 1 this year.  Whatever people think about Liberal or Labor or the Greens or whomever, Labor is doing something which is demonstrably good news for we estimate at least 171,000 people over the age of 60 that we estimate could put aside an extra 10,000 into their super. Then on July 1, 2015 we’re going to lift the concessional caps for people who are aged over the age of 50, so they can put aside $35,000 per year for every year thereafter. This is good news. 

We’re also tidying up some of the offset contributions tax where people inadvertently have more money paid into their super and are given more than even the current concessional cap and so we’re tidying up some of those issues. Again, good news. So, we’ve got a fair bit on. 

We’re also importantly proposing to create a charter of superannuation rights overseen by a group of custodians. I notice Chris Cuffe, the well-known investment adviser and chairman of UniSuper, has come out and said to the Coalition don’t be political on this; this is a good idea. What I want to do, the way the custodians would work, is that whenever the government of the day – it doesn’t matter if it’s won by Tony Abbott or Clive Palmer or whoever – they would have their policies to be custodied and the custodians would be resourced to give their own invent on agenda driven views to the parliament and they’d be publically available.

And the charter would look at the long term, so interaction with certain pensions, prospective changes, not retrospective changes, life expectancy and it would help wake people up to how much they really do need to save.  We’ve got Jeremy Cooper, Alan Goldberg, Ross Jones from APRA, Elana Rubin.  We’ve got a range of experts working on what the charter might look like.  We will have that in July to show people.

AK: And is that list of names you mentioned would they likely to figure in the custodians?

BS: At this stage, we would look at I think even having more senior people as custodians. Let’s wait and see what they do. They’re doing great work. What we need to do is get custodians, a bit like the Reserve Bank, people who are trusted and seen not to have a particular axe to grind, so they would have to be people of, in my opinion – this is only my opinion at this stage – who are not active advocates for a particular point of view within superannuation, but just trusted. Former judges, former policymakers, former accountants, the consulaire of a suburban household kitchen table. These are the people we just want to say ‘does this make sense?’

I’ll tell you what doesn’t make sense.  The Liberal Party is proposing to put a 15 per cent tax on people who earn less than $37,000 on their super contributions. We got rid of that. What happens now is if you earn less than $37,000 a year, and there are 3.5 million people in that category, you pay an effective marginal rate of 9.5 per cent on your tax – take-home pay - and you pay nothing on your tax, that you get for your superannuation. The Libs want to restore it, the tax.  So, that means that if you’re a part time laundry worker or a part time nurse or a teacher, you would be paying more tax on money you can’t access ‘til you retire than you will on your take home pay. That’s just stupid. The other thing the Libs have said is they want to jam superannuation at 9.25 per cent, but that is such a mistake. 

If only Robert Menzies had introduced compulsory super in the ‘60s, the current generation of Baby Boomers would have hundreds of thousands of dollars more to retire on.  And if only John Howard hadn’t broken his 1996 promise to lift super to 15 per cent, people retiring now would have more money. So, for goodness sake, forget politics, forget partisanship, we need everyone who is interested in superannuation to say to the Liberal Party just let it go up incrementally as the law said and in fact they were saying up til March this year before they broke their own promise. Because otherwise a 30-year old, even if it’s delayed by two years the increases, is $20,000 down in their super by the time they retire and the Liberals have got DNA form that once they start delaying super increases, when will they ever lift it again? That could cost the next generation of retirees tens of tens and hundreds of thousands of dollars.

SB: Bill, the council and the charter are clearly an attempt to depoliticise superannuation and in future hopefully we don’t get the sort of comments that you’ve just had to make. Is that an admission though that future governments of whatever political colour are going to have to make far more fundamental changes to the system than what you’ve done so far?

BS: No. It’s a recognition that superannuation is now $1.6 trillion, and I’ve had this idea for a couple of years but the timing is now right to put it out there. It’s too big an institution just to leave to the, you know, day-to-day prognostications of budgetary issues. People have got a sense that it’s now a generation old. It’s now that people have got a sense it’s not just something which people tinker with. So, it’s a recognition that we need to assure that people’s retirement incomes are secure from day-to-day debates. It’s a good idea and it is depoliticisation and it doesn’t matter where I’m sitting in government or opposition, I will not give up on it ‘til we’ve got it because it is just in the best interests to the nation and Australians.

AK: Thanks for joining us, Bill.

BS: Cheers.

SB: Thanks, Bill.