The PC review that could bring the government unstuck

Choosing the Productivity Commission to review industrial relations could prove politically embarrassing for both Workplace Relations Minister Eric Abetz and Prime Minister Tony Abbott. Paul Miller/AAP

Australia’s federal government has made a major political error, possibly terminal, in asking the Productivity Commission (PC) to inquire into industrial relations.

Before the 2013 election, the strategy of the Coalition appeared to be to say as little as possible, especially about industrial relations. It would then go to the 2016 election, bolstered by the “sophomore surge” of new members building their personal support, and seek a mandate for a bold plan, to get an otherwise “once in a generation” reform through the parliament. This would follow the model of John Howard’s 1998 electoral success with the goods and services tax after promising, some time before the 1996 election, to “never, ever” introduce one.

While some IR changes were foreshadowed in 2013 and have yet to make it through the parliament, the key part of this strategy involved setting up a promised PC inquiry. The expectation was it would make recommendations for “bold” changes for which the Coalition sought justification. The Coalition could pick and choose those recommendations it wished to pursue. The PC could be relied upon to make bold (some would say, “politically correct”) recommendations, as it is seen as a body of overwhelmingly liberal market economists.

The Productivity Commission and IR

Indeed, the IR issues papers released last week show the PC adopting a very broad-ranging approach to the topic, consistent with ultimately making “once in a generation” recommendations.

The PC is challenging some issues, such as the distinction between competition law and IR law, that are fundamental to the nature of IR and to the concept, underpinning IR law, of achieving some sort of balance of power in the workplace.

While the issues papers raise questions in a fairly even-handed way, not wanting to appear to pre-empt the PC’s findings, it is no friend of the union movement.

The focus of the review is revealed by its use of language. It is a review for employer issues of productivity and flexibility, not employee issues of equity and justice. In the issues papers, there are 40 mentions of “flexibility” and 50 of “productivity”, but only three of “equity”, while “justice” is only mentioned in others’ titles. “Penalty rates”, “dismissal”, “minimum wages” and “awards” – all sources of employer complaint – get 45, 50, 142 and 123 mentions respectively; “women” gets three (mostly historical), “gender” another three, “inequality” two and “poverty” one.

Observers on both sides either expect or hope the PC will recommend radical change: substantial deregulation in some form of penalty rates, dismissal provisions, minimum wages and awards, with the intent of boosting productivity and flexibility. There is strong reason, though, to be sceptical of both outcomes. History tells us the results, if implemented, would include lower real wages, especially for low-paid workers, and probably increased insecurity for them.

The demise of the 2013 strategy

The government’s poor showing in opinion polls, though, has undermined its original political strategy. It cannot guarantee re-election even with its current policies, let alone with the addition of radical IR changes.

The union movement could be expected to campaign against the expected changes. It may well argue the Coalition would plan a return to “WorkChoices”. Literally, this would be untrue, as the Coalition has been keen to bury and cremate the phrase and to avoid repeating the exact components of WorkChoices, which principally caused its defeat in the 2007 election.

But WorkChoices is not the only way by which governments could seek to individualise IR, reduce conditions and shift power in the workplace away from employees. Any new approach would likely place relatively more emphasis than did WorkChoices on attacking unions and collective bargaining power, and less on overtly cutting individuals’ pay. It would still form a salient rallying point for unions.

Moreover, unions will have more support from other community groups than before - or at least, more ability to build a common front against the government. This is due to the way in which the government has, more than the Howard government of 2004-07, alienated a broad range of community groups and voters through its budgetary policies. Unions would have to do better than they did in the 2007 Your Rights at Work campaign to engage with community groups (something they tried but partially achieved). Government decisions over the past year increase their potential to do this.

The great advantage and disadvantage of a PC inquiry concern its separation from the government. The government needs an “independent” rationale for radical IR change. But this independence takes a highly contentious and potentially embarrassing issue out of the control of the Prime Minister. That’s a curious decision, given the criticism of the Prime Minister’s Office that it is obsessively control-focused.

The government will face two major embarrassing moments: when the PC presents its draft report mid-year; and its final report end of year. The government cannot, politically, withhold release of the final report until after the 2016 election (unless it calls an early election in 2015). Even if it tried, the draft report would already be publicly available.

While the government can rely on the economic beliefs of the PC, it cannot control it. The government wishes to chip away at penalty rates through the Fair Work Commission; the PC would go for a more “market-determined” approach. That the issues paper became public just over a week before the Queensland election is an illustration of how little control the federal government now has over the process.

The government is likely to have difficulty persuading people it only plans to adopt some of the PC’s milder recommendations and ignore the more contentious ones. The fate of promises made before the 2013 election (in health, education, ABC funding, and so on) have greatly reduced trust in the government. Voters will be reminded that WorkChoices was introduced without an electoral disclosure beforehand. Why call a PC inquiry if you don’t plan to act on it?

Why persist?

It is surprising the government has continued down this path, despite the change of circumstances and the obvious political sensitivities.

But IR is an area of strong ideological conviction for Coalition members – it is the issue on which surveys show the greatest difference between Coalition and Labor party candidates. Queensland Premier Campbell Newman’s unwillingness to dissociate himself from potential radical reform, despite a looming election, shows how IR clouds the political thinking of Coalition politicians. Likewise, the Prime Minister has been unable to resist advocating unspecified changes to penalty rates as he has trouble finding alcohol on religious holidays.

Many still hold strong views on IR, but think that WorkChoices has been ‘neutralised’ as an issue. They may believe polls suggesting little trust in union leaders mean voters see little role for unions or are happy to see penalty rates and other employment conditions cut, but other polls demonstrate the reverse is the case.

Treating IR reform as “an article of faith” drew John Howard into over-reaching into IR legislation. It seems to be doing the same with the Abbott government. But that is too late now to fix. The PC train has left the station.

We also need to consider these issues in the context of the broader leadership tension within the government, about which we have seen speculation in recent times, fuelled by events of Australia Day. It is very feasible that the level of voter disaffection reaches such levels that the only way the government can credibly persuade voters that it will not do everything radical suggested by the PC is to replace the key players in this area, including (but not only) the Prime Minister.

What could possibly go wrong?

Everything.