AustralianNationalRetailersAssociation

Submissionto
FairWorkAustralia

MinimumWageReview2010
March2010

AustralianNationalRetailersAssociation
8/16BougainvilleStreet
MANUKAACT2603

TABLEOFCONTENTS

ExecutiveSummary

Introduction

RetailSector:CurrentConditionsandOutlook

ModernAwards:Impactonwages

Recommendation

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EXECUTIVESUMMARY
ANRArecommendsthattheFederalMinimumWageisincreasedby$10perweekandthat
for the retail sector this increase does not come into effect until October 1, 2010.
Thisrecommendation is underpinned by exceptional circumstances currently confronting
theretailsectorandcomprisingtwokeyfactors;thepersistentchallengingoutlookforthe
retailsectorandtheimpactofthenewmodernawardssystemonwageratesfromJuly1,
2010.
The Federal Governmentsstimulus package, released in early 2009, kept the retail sector
relatively buoyant in the first half of last year. But during the second half of the year the
impact of the cash payments disappeared, interest rates started to increase and retail
spending growth slowed. The Reserve Bank of Australia has indicated that it intends to
movetheofficialcashrateuptowardsmorenormallevels.Thisimpliesmoreinterestrate
risesduring2010.Theserisinginterestrates,combinedwithatighteninginfiscalpolicyas
theFederalGovernmentfocusesonrepayingdebt,andareluctancebyhouseholdstoadd
toborrowings,allpointtoachallengingyearforretailersin2010.
ANRAisalsourgingFairWorkAustraliatoconsidertheimpactoftheintroductionofnew
wageratesaroundthemodernawardsystem.Formanyretailemployees,especiallycasuals
andthosewhoworkonSundays,thereisalreadyalegislatedwageincreasethatwillbegin
on July 1 2010, by virtue of the award modernisation process. The new modern award
system will add considerable costs to retailers. ANRA estimates that even allowing for
transitionalarrangements,changestoSundaypenaltyratesonpermanentemployeesalone
willcostthesectoraround$19milliononJuly1.
Consequently, we are urging Fair Work Australia to delay the introduction of the new
FederalMinimumWageuntilOctober12010.Thisdelaywillminimisethepotentialdouble
hitonemployersofariseintheminimumwageandtheimpactoftheintroductionofthe
newmodernawardswagerates.
A delay in the start date would also allow employers sufficient time to deal with the
administrative and implementation issues around any increase in the Federal Minimum
Wage.

INTRODUCTION

The Australian National Retailers Association (ANRA) represents the leading national
retailersinAustralia,acrossabroadrangeofretailproductsandservices.Membersofthe
Association include Australias most trusted household names in supermarket chains,
departmentstoresandspecialityretailers.

ANRAmembersare:

WoolworthsLtd*
McDonalds

BunningsGroup
ColesGroup

JustGroup

Best+Less
Franklins

DavidJones

RedGroupRetail
Reece

LuxotticaAustralia
HarveyNorman
Spotlight

FortyWinks

SupercheapAutoGroup
CostCo
*incorporatingSupermarkets,BigW,DickSmith

ANRA members employ over 450,000 Australians, which represents almost 1 in 20

Australianemployees.

ANRAwasformedin2006toensurethatgovernments,andthecommunity,understandthe
contributionretailingmakestothenationaleconomy.Theretailsectortouchesthelivesof
all Australians every day. An efficient, competitive retail sector generates tremendous
consumer and economic benefits. ANRA seeks to ensure that public policy makers
understandtheretailsectorandsupportpolicieswhichenhancethecapacityofthesector
tomeetconsumerneeds.

TheAustralianNationalRetailersAssociation(ANRA)appreciatestheopportunitytoadvise
FairWorkAustraliaonthestateoftheretailsector.

RETAILSECTOR:CurrentConditionsandOutlook
Generaleconomicconditions
The global economy experienced a major slowdown in 2009, when the world economy
contractedby0.8%,from3.0%in20081.
Australiawasnotimmunetothisslowingingrowth,butperformedbetterthanmostother
major economies and better than expected by most economic forecasters. Australian
growth slowed from 3.6% in 2007/08 to 1.0% in 2008/09 and is expected to grow
1percentin2009102.ThiswasastrongerperformancethaninitialTreasuryforecastsof
0% growth for 2008/09 and a 0.5% contraction in 2009/10, as detailed in the May 2009
Budgetpapers.
More recently broad economic data has been generally more positive, implying the
Australianeconomyhasstartedonthepathtorecovery.
However, this recovery is a twospeed one. Commoditybased industries are being
supported by a return to strong export demand, especially from China. Similarly, the
construction industry is being underpinned by continuing government support and
populationpressures.Incontrast,retailspendinggrowthremainsbelowtrendamidreduced
governmentstimulusandrisinginterestrates.
There are also considerable risks around the sustainability of the recovery; in particular
threatsfromtheworldeconomyremain.Thisismostevidentintheshakyrecoveriesofthe
USandUKeconomiesandthecontinuingchallengesinEurope,suchasGreece.Sofarthe
signsarepositiveforAustralia,butcautionneedstobeexerciseduntiltherecoverytakesa
firmerhold.
Currentstateofretailsector
Inearly2009theretailsectorwaspartiallyshieldedfromtheimpactofageneralslowdown
intheeconomybytheeffectoftheFederalGovernmentsstimuluspackage,especiallythe
cashpaymentsmadetomosttaxpayers.
Buttheimpactsofthesepaymentsstartedtodissipateas2009progressed.
This reduced impact of the stimulus package coincided with a turnaround in the interest
ratecycle,astheReserveBankofAustraliastartedtoraisetheofficialcashrateinOctober
2009.Theofficialcashrateisnowat4%,from3%atitslowpoint.
Fig.1showshowretailspendinggrowthtrendedover2009asolidstartwhichdissipated
astheyeardrewtoaclose.Retailsalesarestillgrowingbelowtheirlongtermtrendof0.5%
permonth.

1
2

IMF,EconomicOutlook,Jan2010
MYEFODec2009,FederalTreasury

Fig.1
RetailSales,trend
monthly%change

0.7

0.6

0.5

Longtermtrend
growth

0.4

% 0.3

0.2

0.1

0.0
Jan2008

0 1

Mar2008

May2008

Jul2008

Sep2008

Nov2008

Jan2009

Source:8501.0, Australian BureauofStatistics

Mar2009

May2009

Jul2009

Sep2009

Nov2009

Jan2010

This belowaverage consumer spending growth, in the face of rising interest rates, is the
currentclimatefacingretailers.

Risinginterestratestokeeplidonretailspending
Overthenext12months,risinginterestrateswillcontinuetocapretailspendinggrowth.
Othersectorsoftheeconomyareshowingsignsofrecovery.However,theretailindustrys
recoveryremainsintheveryearlystagesandactivityisnowherenearthelevelsitwasprior
totheGlobalFinancialCrisis.
Comments by Reserve Bank of Australia officials and Board meeting minutes suggest
interest rates are likely to rise further during 2010. This will not only directly crimp
consumption,itisalsolikelytorefocusconsumersonreducingdebtlevelstominimisethe
impactofthesehigherinterestratesonthehouseholdbudget.
Thisshifttodebtreduction,andthusawayfromimmediateconsumption,isbestillustrated
through the household savings ratio. This quarterly measure compares the level of
household income with the level of household saving. Fig 2 shows that this rate was high
during late 2008 and early 2009 as households focus on debt repayment. It still remains
abovedecadeaveragesdespitefallsinthelast2quartersof2009.

Fig.2
HouseholdSavingsRatio

7.0

6.0

5.0

4.0

Decade averagelevel
3.0

2.0

1.0

0.0
Mar2000

Mar2001

Mar2002

Mar2003

Mar2004

Mar2005

Mar2006

Mar2007

Mar2008

Mar2009

1.0

2.0

Source: ABS 5206.0

3.0

The outlook for rising interest rates also puts direct pressure on retailers own borrowing
costsandcapitalinvestmentplans.Thisaddstothelistofchallengesfacingtheindustryin
2010.
InitsMarch2010RetailForecastspublication,AccessEconomicshasamixedoutlookforthe
retailsectorandexpectsannualretailsalesgrowthtoremainbelowitslongtermtrenduntil
atleast2014.Thesurgeinjobsgrowthinlate2009andearly2010wouldmostlikelyassist
retailers as households become less concerned about their employment prospects.
However,thiswouldbeoffsetbyheadwindsfromrisinginterestratesduring2010.
Inessence,theretailsectorislikelytofacecontinuingtoughconditionsin2010.
Employmentoutlook
Thesofteninginretailspendinginlate2009isbeingreflectedintheemploymentsituation
intheretailsector.
TheAustralianBureauofStatisticsquarterlyreportonemployment(6291.0)showsthatthe
retailsectorlost34,700jobsinthe12monthstoFebruary2010(sea.adj).Theprospectof
onlymodestretailspendinggrowth,asinterestratesriseduring2010,suggeststhatfurther
employmentfallsarepossibleoverthenext12to18months.
AnyincreaseintheminimumwageaboveANRAssuggested$10/weekmayexacerbatethis
sluggishoutlookforemploymentinretailoverthenext12months.
In addition, any wages decision that adds to costs, while not accompanied by rising sales,
also increases the risk of underemployment. If retailers face increased wages bills but

stagnant sales, then they would be forced to look at policies such as reducing working
hours,leadingtounderemployment.

Retailhasrelativelyhighexposuretoawardsystem
The annual minimum wage decision is critical for the retail sector for two reasons the
relatively high proportion of award employees within the sector and the strong flowon
effectthishastononawardenterpriselevelnegotiations/agreements.
FairWorkAustraliasResearchReport1/2010highlightsthattheretailsectorisoneofthe
mostawarddependentsectorsoftheAustralianeconomy.Thelevelofawardreliancehas
decreasedslightlyfromapeakin2002butretailingremainsoneoftheindustrieswiththe
highestawarddependence.Thisexposuremeansthattheannualminimumwagedecision
hasasignificantdirectimpactonmanybusinessesinthesector.
Inadditiontothishighdirectexposure,retailerswhooperateundercollectiveagreements
or enterprise agreements also feel the effects of awardbased decisions. The desire of
employee representatives to maintain wage relativities between award and nonaward
employeesmeansanydecisioneffectingawardratesinevitablyflowsthroughtothewage
negotiation process and becomes the minimum increase for any collective bargaining
agreements.

Inlightoftheeconomicclimatefacingretailers,thecontinuingemploymentoutcomesrisks
andtherelativelyhighexposureofretailingtomodernawardsweurgeFairWorkAustralia
toexercisecautionwhenconsideringitsminimumwagedecision.

MODERNAWARDS:Impactonwages
ANRAisurgingFairWorkAustraliatoconsidertheimpactoftheModernAwardsystemon
employment costs in the sector once new wage rates come into effect on July 1. This
includesdelayingthestartdateforanyriseintheminimumwagetoOctober1,2010.
TheGeneralRetailIndustryAward2010incorporatestransitionalarrangements,whichwere
welcomedbyANRAwhenannouncedinlate2009.Thesearrangementsmeanthatwhilethe
newAwardcameintoeffectonJanuary12010,newpayratesdonotcomeintoeffectuntil
July 1 2010. The arrangements also allow for pay increases to be gradually implemented
over 5 years in instances where the new award rates andpenalties are higher than those
prescribedinthepreviousaward.
Nevertheless, even allowing for these transitional arrangements, many retail sector
employeeswillbereceivingawageincreaseonJuly12010viatheModernAwardsystem.
This,inturn,meansthatmanyretailemployerswillbefacingrisingcostsonJuly1.Thiswill
put additional pressureon retailerswho are already facing deteriorating conditions in the
sector.
TheexactimpactofthenewModernAwardrateswillvaryfrombusinesstobusinessdueto
differences in past rates across states and the different combinations of casual and
permanentstaffthatmakeuptheirindividualworkforces.
Fig. 3 shows the impact across different states, for permanent employees that work on
Sunday.Fig.4showstheimpactacrossdifferentstates,forcasualemployeesthatworkon
Sunday.
Fig.3SundayPenaltyRatesPermanentEmployees

ModernAward$31.58(whenfullyimplemented)

State/Territory

Existing
Sunday rates

Change in
when
implemented
-$0.14

wages
fully

Victoria
New South Wales

$31.72
$23.76

$7.82

Wage
increase
on
July 1 2010
na
$1.56

Queensland
Non exempt stores

$31.72

-$0.14

na

Queensland exempt and

independent retailers

$23.79

$7.79

$1.56

Western Australia part

time
South Australia shops
open after
12.30pm Saturday

$31.76

$0.18

na

$26.45

$5.13

$1.03

Tasmania

$31.70

-$0.12

na

%
wage
increase on
July 1 2010
6.6%

6.6%

3.9%

Northern Territory
ACT

$31.72
$23.76

-$0.14

na
$1.56

$7.82

6.6%

ANRA has calculated that the changes to Sunday penalty rates for permanent employees
alonewillliftthesectorswagebillbyaround$90to$95milliononcethemodernawards
systemisfullyimplemented.Allowingforthetransitionalarrangements,theincreaseinthe
wagesbillduetoSundaypenaltyratesforpermanentemployeeswillbearound$19million
in2010/11.

Fig.4SundayPenaltyRatesCasualEmployees

ModernAward$35.53(whenfullyimplemented)

State/Territory

Existing
Sunday rates

Victoria
New South Wales
Queensland
Non exempt stores

$33.04
$28.84
$31.72

Queensland exempt and

independent retailers

$23.79

Western Australia part

time
South Australia shops
open after
12.30pm Saturday
Tasmania
Northern Territory
ACT

Change in wages
when
fully
implemented
$2.49
$6.69

Wage
increase
on
July 1 2010
$0.50
$1.34
$0.76

%
wage
increase on
July 1 2010
1.5%
4.6%
2.4%

$3.81
$11.74

$2.35

9.9%

$38.12

-$2.59

na

$33.73

$1.80

$0.36

1.1%

$34.87
$38.06
$27.32

$0.66
-$2.53
$8.21

$0.13
na
$1.64

0.4%
6.0%

Casualwageswillalsoincreaseinmanystates,duetotheimpactoftheincreaseingeneral
casual loadings. In Queensland, South Australia and Western Australia casual loadings will
risefrom20%to25%.InNSW,ACTandQueenslandcasualloadingsincreasefrom23%to
25%. This means that, even allowing for transitional arrangements, casual employees will
receiveawageincreaseofupto1%onJuly12010.
Thesenumerouslegislatedwageincreasesneedtobetakenintoaccountwhensettingthe
FederalMinimumWage,includingsettingthestartdate.

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RECOMMENDATION
ANRArecommendsthatFairWorkAustraliagrantsa$10perweekincreaseintheFederal
MinimumWagefromOctober1,2010.
Thisrecommendationrecognisesthattheretailsectorfacesanumberofchallengesin2010,
including rising interest rates, increased Federal budgetary constraint and a focus by
householdsonrepayingdebtratherthanconsumption.TherearesignsthattheAustralian
economyisrecovering.However,thisrecoveryisbothtwopacedandremainsvulnerableto
furthershocksfromworldeconomy.
Thisrecommendationalsotakesintoaccountthealreadylegislatedwageincreasesthatwill
be coming into effect for many retail employees on July 1 as part of the Modern Award
system.

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