Costello Denies Misleading Parliament; Treasury Releases Executive Minute On IR

The Treasurer, Peter Costello, has denied that he misled Parliament over Treasury advice on the industrial relations changes.

Peter CostelloThe Treasury Executive Minute of October 6, 2005 was revealed by The Australian newspaper this morning. It appears to confirm arguments that lower-paid workers will be negatively impacted by the WorkChoices laws. It also appears to conflict with statements Costello made to Parliament in early November.

The Treasury minute was obtained under the Freedom of Information law.

Speaking at a press conference in Sydney this morning, Costello admitted the workplace relations changes may have a negative effect on the economy but that any effect would only be temporary.

The Treasury today released the minute and other documents. A statement on the Treasury website says:

“Attached is the Treasury Minute of 6 October 2005 that was provided under FOI on Friday 16 December to Mr Michael McKinnon. The minute was referred to in reporting in today’s Australian newspaper.

“The minute confirms that the Government’s workplace relations reforms will enhance employment and, over time, make a positive contribution to productivity.

Today’s story is the latest in a series of setbacks for Costello. Earlier this month, he was damaged by the controversy surrounding the resignation of Liberal Party donor, Robert Gerard, from the board of the Reserve Bank. Reacting to ongoing speculation about his prime ministerial ambitions, Costello backed away from suggestions he would challenge John Howard for the prime ministership in the early months of 2006.

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This is the text of the article published on page 1 of The Australian on Monday December 19, 2005.

IR Laws: What Costello Was Told – Treasury blows lid on how reforms would hit low-paid

by Michael McKinnon and Steve Lewis

Treasury has secretly told Peter Costello the workplace relations reforms will deliver smaller wage rises for low-income earners and cut productivity in the short term as employers hire greater numbers of less efficient workers.

Confidential documents also reveal the Government’s key economic advisers believe the changes will only “moderately” improve employment.

The analysis is contained in Treasury documents obtained by The Australian under Freedom of Information laws.

The documents question public claims by the Treasurer and Prime Minister John Howard that their workplace changes passed this month will boost wages and jobs and unleash a wave of labour productivity growth.

While Treasury believes the long-term economic effects of the changes will be positive, it is candid about the negative effects of the laws for up to 1.6 million low-skilled workers.

The advice concludes the laws would be good for employment, wages and productivity but would place short-term pressure on some workers.

Challenging the Government’s claims that workers will be better off, Treasury instead predicts that the wages of people who rely on minimum pay rates will fall in real terms because of smaller increases granted by the Government’s new Fair Pay Commission.

It admits the effect on employment growth will be “not huge” and says the impact on productivity growth will be “slow” and is “difficult to quantify”.

The Australian revealed last month that the Government was concealing Treasury advice which called into question its claims about the economic benefits of overhauling the nation’s industrial relations system.

The Australian’s report was based on evidence to a Senate estimates committee hearing from senior Treasury official David Tune, who confirmed that Mr Costello was provided with advice on the Government’s industrial relations changes in about May that included conclusions based on economic modelling. Mr Tune declined to reveal the advice.

Mr Costello refused to release the advice or say whether it supported the Government’s claims when contacted at the time by The Australian. His office said cabinet-related matters were confidential.

But Mr Costello told parliament three days later that no secret advice existed and “it was certainly news to me”.

“It was so secret that this report had not been written,” he said. “Not only was it so secret that it had not even been written, it was so secret that it had neither been written nor released…”

According to the documents obtained, a Treasury executive minute on the workplace relations policy was sent to Mr Costello on October 6. It argued the “economic case for reform”, including expectations of higher employment growth, while claiming that productivity would initially be “suppressed”.

Treasury pointedly argued that wages growth would be slower under the new industrial relations system.

“Due to a greater focus on economic impacts, increases in minimum wages are likely to be lower than they would have been under the adversarial (federal industrial relations commission) system,” Treasury said in its briefing minute to Mr Costello.

Other Treasury documents also confirm the department undertook various economic modelling to determine the effects of the reforms on employment.

“Economic studies generally suggest that slower growth in wages would provide moderate support to employment growth,” says a Treasury document written on October 31.

Separate documents from Treasury’s fiscal group dated October 27 predict productivity would be negative in the short term “as more low-productivity and lower-cost labour is employed, compared with capital”.

The documents predict “slower growth in award wages” as the new Fair Pay Commission began its operations next year to replace the Industrial Relations Commission in setting the minimum wage.

And they argue — contrary to the Government’s clear preference for individual employment agreements — that there is “no clear difference in productivity gains between collective and individual agreements”.

Treasury’s position damages the Government’s claims that cutting union power by favouring individual employment agreements will improve workplaces.

Still reeling from the effects of the Robert Gerard-Reserve Bank scandal, Mr Costello was accused by Labor last night of misleading parliament when he denied in November having received advice from Treasury on the effect of the workplace changes.

A spokesman for Mr Costello strongly denied the Treasurer had misled parliament.

But Opposition Treasury spokesman Wayne Swan seized on the Treasury admissions, claiming Mr Costello’s own department had “let the cat out of the bag”.

“It is crystal clear from the Government’s own economic advisers the IR package is designed to cut wages,” he said.

Mr Swan, who led Labor’s campaign against Mr Costello over the Robert Gerard affair, accused the Treasurer of misleading the parliament.

“He has misled parliament, and the Prime Minister has misled the Australian people,” Mr Swan said.


Transcript of Peter Costello’s interview with Catherine McGrath on ABC radio’s AM program.

COSTELLO:

Well the, what’s on the front page of The Australian today is a minute from the Treasury which has been publicly released and which is available for people, anybody to read. What it does, is it makes the case for workplace relations reform, and it finds that workplace relations reform will not only lift productivity but it will lift employment. It cites the reasons for that and it cites all of the findings of international bodies such at the IMF, the OECD, which have consistently argued that labour market deregulation is positive for an economy, for productivity and for employment.

McGRATH:

Well just a minute, you told Parliament that that advice didn’t exist.

COSTELLO:

No, no, no, no, the Treasury did not commission a secret report in relation to modelling.

McGRATH:

Well just a minute, I think you are playing with words here, aren’t you? You were asked whether there was information about it, whether Treasury had investigated the economic benefits. You said no.

COSTELLO:

I am sorry Catherine but a report was carried in The Australian on the 5 th of November 2005 which said that there had been specially commissioned advice from the Treasury and Catherine, not me, The Treasury put out a statement saying that there hadn’t been specially commissioned advice from The Treasury in relation to that. And that was a statement by Dr Martin Parkinson of the 5 th of November 2005.

McGRATH:

I have got that in front of me actually. It does sound like a lawyers defence though, I mean you were asked in Parliament about economic advice from the Treasury. What is printed in The Australian today looks to most Australians like economic advice from the Treasury.

COSTELLO:

No, no Catherine. The question was about modelling. It was evidence in the Senate Economics Committee and the Treasury itself put out a statement, not me. The Treasury itself put out a statement which said that that report in The Australian was not accurate. Now what has been released today is a minute which is not a specially commissioned research or modelling, but a minute which gathers together all of the economic case in relation to the importance of labour market deregulation. That has been released to The Australian . These are not secret, it has been released and it can be read by anybody, which gathers together the international research from the IMF, the OECD and everything else.

McGRATH:

Well we will let the public decide the difference between a minute gathering together the economic case and a more specific inquiry, but can I ask you particularly about some of the other points brought up in this so-called minute. It questions the productivity gains and says that low income earners in the short term will be worse off.

COSTELLO:

No, it finds that, this is the Treasury’s view, it finds that productivity will increase.

McGRATH:

But there are short term losses.

COSTELLO:

No, no, no, I think what you are referring to another thing is where they say in this minute in relation to minimum wages, they say that minimum wages under the Fair Pay Commission may not move to the same degree as they would under the Industrial Relations Commission – that is what the Treasury says. Now whether or not that is right I would be very doubtful to be frank. The Australian Fair Pay Commission is required to take into account all sorts of economic matters and I believe in a growing economy with stronger productivity you actually could see minimum wages move faster. But that statement that is made in this particular minute, it is not my view, that is a projection that is made in relation to this particular minute.

McGRATH:

Treasurer the Government has also said there will be productivity gains because of the IR changes, this minute says that employment growth will quote ‘be not huge and the impact on productivity growth will be slow and difficult to quantify.’

COSTELLO:

What it says is that there will be an increase in employment and there will be an increase in productivity. What it also says is it is very hard to actually put a figure on that and I’d agree with that. Until you actually see the system, the results, it will be very hard to say what that would be. But I would be absolutely confident that an improvement in industrial relations will lead to higher productivity and more jobs.


Transcript of the press conference held by the Treasurer, Peter Costello.

COSTELLO:

The Australian Treasury has released a Minute and it is available for people to read, dated the 6th of October 2005. It is a briefing on the Government’s workplace relations changes, the Work Choices policy which the Government has put forward. In the course of that briefing, the Treasury states that it expects higher employment growth from the new system and in the longer term positive effects on labour productivity. It makes the point that as you get more people into the workforce in the short term that can suppress productivity but as you have more flexible wage settings in the longer term that lifts labour productivity and of course it’s the longer term that we are interested in.

The briefing, in addition to that, notes the IMF recommendation that Australia move to enhance the labour market flexibility. It notes the OECD recommending that Australia move towards further industrial relations reform and it notes the OECD jobs strategy which finds that centralised or coordinating bargaining systems can have negative consequences on employment.

So I would welcome people reading this Minute from the Treasury, it is not a secret Minute, it has been released publicly, anybody is entitled to read it and it makes a finding that changes to industrial relations will lead to higher employment and over time lead to increased productivity. The kind of reform that Australia needs; the kind of reform that the Government is developing and the kind of reform that will set Australia up for better opportunities in the future.

JOURNALIST:

If it’s a public Minute why did The Australian have to FOI it? Why wasn’t it released immediately?

COSTELLO:

Well because when it was requested it was released because it is releasable, as a public document under FOI. We don’t release all Minutes of the Australian Government. There is nothing secret about this, it has been released, you can read it and The Australian can read it; it is releasable under FOI.

JOURNALIST:

Mr Costello you told ABC radio earlier this morning that it is a public document available for the public, at that stage it really wasn’t was it? It’s only been released now.

COSTELLO:

Well no. I have asked the Treasury to release it. It was released to newspapers on the weekend or on Friday and so that the public can do it I have asked the Treasury to put it on its website.

JOURNALIST:

Why wasn’t this document released earlier given that…

COSTELLO:

Well it was released to the newspapers.

JOURNALIST:

…even…

COSTELLO:

A document that is released to newspapers is a pubic document and newspapers can publish them.

JOURNALIST:

The Minute was dated October you said…

COSTELLO:

Yes.

JOURNALIST:

… you have earlier denied the existence of information pertaining to public impact. Why wasn’t it realised to the public sooner than an FOI request?

COSTELLO:

That is a separate issue. There was a separate report back in November of 2005 saying that there had been specially commissioned advice failing to show any economic benefit from workplace changes. The Australian Treasury – not me – the Australian Treasury put out a statement on the 5th of November saying that wasn’t the case and obviously this document which shows that there is economic benefit from workplace changes is not whatever was being referred to back in November 2005.

JOURNALIST:

Are you really splitting hairs here?

COSTELLO:

No, not in the slightest. Here we have a Minute which was released to The Australian on Friday, I have asked the Treasury to put it on its website so everybody can have a look at it and what does this Minute find? Higher employment growth and in the longer term positive effects on labour productivity. Far from this being a report not showing economic benefits this is a report which shows there are economic benefits both in terms of employment and productivity.

JOURNALIST:

In another document that The Australian FOIed which was a fiscal group seminar by Owen Freestone on 27 th of October it shows that there is a short term negative impact, negative effect on productivity as more low productivity and lower cost labour is employed compared with capital?

COSTELLO:

Yes. That is as I said, as you get more people into the workforce then the GDP per person, the number of increases in the workforce, the GDP per person is affected. But as they begin contributing to output because you have more flexible wage fixing, you get a lift of labour productivity.

JOURNALIST:

I was just wondering is that something that the Government has been up front about all along that there was going to be this short term slump in productivity before this long term benefit?

COSTELLO:

Well it didn’t say slump. What happens is as you get more people into the workforce for the same GDP, GDP per person can be suppressed. But as those people join the workforce and as they have an increase in output and as they contribute to GDP, a more flexible industrial relations system lifts labour productivity. Let me make this point. More flexible wage fixing is supported by the OECD; the IMF; you have got an Australian Treasury report; the Australian Government. I know of no person who has any evidence to say that centralised wage fixation can either produce the same employment or productivity outcomes. And in fact if you look at the OECD jobs study those countries that have the most centralised wage fixation systems, countries like Germany and France, tend to have the lowest employment outcomes for developed economies and lower productivity outcomes. I know of no reputable person who is arguing the contrary.

JOURNALIST:

Treasurer should the low income earners of Australia be concerned about the short term negative impact and how does that sit with the government’s claim that no worker will be worse off under these changes?

COSTELLO:

In relation to the changes from the Industrial Relations Commission to the Australian Fair Pay Commission, their entitlements are preserved. That is, what you have you keep. The Australian Fair Pay Commission…

JOURNALIST:

…that is if they keep their job. In the short term don’t these changes mean that there may be job losses in the short term…

COSTELLO:

There won’t be job losses, in fact the finding is that there will be employment growth.

JOURNALIST:

In the long term.

COSTELLO:

No, no, we have got to be very careful about that. Higher employment growth is expected. The second point is in the longer term, positive effects on labour productivity. Nobody has said there will be a short term decrease in jobs.

JOURNALIST:

How long is the short term in terms of slowing wage increases?

COSTELLO:

Well it’s a mathematical proposition. If you have the same GDP but you have more people in the workforce, productivity is lower. It’s lower until such time as those people boost GDP. And what we are interested in here is we are interested in boosting GDP. We know that a more flexible wages system, all of the international evidence is to that effect gives you a larger productivity and gives better job creation opportunity.

JOURNALIST:

How long is the short term?

COSTELLO:

Well I am not going into that. What we are interested in here is changes, I am not saying that… the bill was passed, when did they pass… a couple of weeks ago. I doubt that you would have noticed measurable effects yet, but over time in the years which lie ahead you will see measurable effects. Industrial relations changes over the years will mean that our structural unemployment rates goes down and our productivity goes up.

JOURNALIST:

Treasurer, the Department has released a statement to say that they hadn’t prepared a report on the economic impact of the changes. Has in fact anyone looked at the economic impacts of the changes and provided a report that may or may not have been available to the Senate?

COSTELLO:

Oh yes the OECD, the IMF have done many reports and they are the premier world bodies. They have done many reports on the fact that more flexible wage settings lead to higher employment and better productivity. They can do this because they can measure countries against each other. You can measure for example outcomes in Britain against outcomes in France and Germany.

JOURNALIST:

Kim Beazley has called on you to resign, how do you respond to that? For lying to parliament.

COSTELLO:

Well Mr Beazley produces no reputable economic case in favour of centralised wage fixation. Mr Beazley is a puppet for the trade union movement. He is opposed to every change in industrial relations over the last ten years. And Kim Beazley said the last lot of changes which the Government introduced would cut wages. We now know that real wages have increased 14 per cent under this Government. Kim Beazley said the last lot of changes that the Government introduced would lead to higher unemployment. Unemployment has fallen from 11 per cent under Kim Beazley to 5.2 per cent. Kim Beazley has no economic credibility. He was Minister for Employment at a time when unemployment peaked in Australia , he was the Deputy Prime Minister at a time when wages grew by miniscule amounts. He opposed the changes which have lead to a 14 per cent real increase in wages. He opposed the changes under which we have now got 5 per cent unemployment. He is opposing changes in the future and other than re-echoing the words of the trade union movement has done no serious thinking on industrial relations over the last 10 years.

JOURNALIST:

Well what about the accusation that you lied to parliament?

COSTELLO:

Plainly wrong, plainly wrong.

JOURNALIST:

Do you think you deceived parliament?

COSTELLO:

Plainly wrong, absolutely not. The Australian Treasury issued a statement on the 5th of November 2005 and I refer you to their statement, a statement which I confirmed in the parliament from the Treasury.

JOURNALIST:

Treasurer…

COSTELLO:

Last question.

JOURNALIST:

The Department put out a release saying that they didn’t do economic modelling. One of the documents The Australian received was a briefing note from Senate Estimates which says that Treasury made some indicative estimates of the employment effects in order to compare various award adjustment scenarios and did some modelling on the effect of growth on award wages. What, see, they either have or haven’t done some economic modelling.

COSTELLO:

Well all I can go on is what the Treasury says. If you have any further questions I ask you to refer those to them.

JOURNALIST:

(inaudible)…do you know if the Minute was provided to the Prime Minister’s office as well?

COSTELLO:

I wouldn’t know, I wouldn’t know. The Minute is available, I’d urge you to read it, I urge you to read it very, very carefully and I think you will see that the Minute, far from suggesting the industrial relations changes would be bad for the economy, suggest that they’ll be good.

Thanks very much.

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