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Salient. Official Newspaper of the Victoria University Students' Association. Vol 44 No. 11. June 2 1981

Meaningless Negotiations — The Wage/Tax Trade-Off

page 10

Meaningless Negotiations

The Wage/Tax Trade-Off

Photo of two men with their hands clasped

In recent weeks there has been a lot of noise, particularly from the Prime Minister, about "wage/tax trade-offs", the likely wage increases for the up-coming award round and so on. Given all this activity the time seems opportune to look behind the headlines and try to piece together some of the issues and arguments developing between the Federation of Labour, the Government and the Employers Federation.

The wage/tax offset issue was unilaterally raised by the Prime Minister in January 1981 and has been the subject of much public debate since. In presenting the government's position on the issue, the PM was responding to an agreement reached in August 1980, of the wage policy discussions with the employers and the FoL. It is understood that this agreement requires that the initiative for the development of a specific proposal rests with the Government.

At a meeting with employers and the FoL on 19 May 1981 no specific proposal was put it seems. The Government merely requested that the FoL accept in principle the concept that tax cuts in the coming budget will be offset in the forthcoming award round.

There were no specific proposals about
  • the amount of any tax cuts
  • the mechanism whereby it would be offset
  • the extent to which other earners would be asked to offset their incomes against the cut.

Blaming the FoL

For obvious reasons the FoL and CSU (Combined State Unions) refused to agree to such an 'open ended' proposal. In his usual 'good form' the PM has retaliated by blaming the problems caused by the failure to initiate tax reform on the FoL. In his attempt to pass the buck, he threatened that
  • If the unions do not accept the trade-off principle there will be no tax cuts in the 1981 budget.
  • There will be no continuation of the wage policy talks at least not until after a long pause.
  • That the failure of this proposal will have serious and wide-spread economic effects. And, of course, the 'unions' will be totally responsible for this.
More recently the PM has threatened wage controls specifically related to whether or not the Unions accept the Government's proposal for a 9% wage increase for this award round. To go back, the August agreement between the Government, employers and FoL comprised three mair elements:
  • The repeal of the Remuneration Act
  • A cost of living hearing
  • Reforms to the wages system.

So while the first two elements have been completed there remains no progress in the third area. Until the intrusion of the wage/tax issue, debate on the wage system had been very general. No specific proposals had been made, and no papers tabled other than Government papers outlining the difficulties with the present system and analysing the 1979/80 award round.

Now it appears likely that the wage policy discussions will 'break down'.

No Specific Proposal

In essence the talks on a wage/tax trade-off have not produced any concrete results because the government has never come up' with a specific proposal for tax reform.

The Government has argued around two points. Firstly it has been made clear that the budget is not a negotiable instrument. The Government has insisted that it must retain ultimate responsibility for what tax changes are introduced. Secondly it has suggested that the only income tax change that it is looking at are those that can be accommodated inside the budget deficit and that the changes are going to have to be small.

The scope is very limited in terms of the Government's own deficit position. A quick look at the figures suggests that for every 1 percent that the income tax take is reduced, there would be a rise of about 0.3 percent in aggregate after-tax personal incomes, which is equivalent to a wage increase of 0.4 percent. In terms of the scale of wage movements necessary to match inflation, a 'trade-off is really out of the question. There would be second round impacts, but leaving those aside, a deal which gave even 4 percent wage lift by tax cut would cost the State about $380 million. Any 'real' deal would have to be several times that magnitude. In practice it is not a realistic proposition.

These two arguments have meant that the FoL and CSU have had to insist that the Government define the level of deficit it is prepared to look at and the type of tax change it is prepared to implement, before the matter can be taken any further. On their part the Unions have requested the Government to be specific but have only-been given vague indications and an attempt to tie the unions to a wage path without the other side of the deal being specified, let alone it being enough to think about.

Ball in Government's Court

The Government's attitude has been a major stumbling block during the course of these talks. At no time has a firm figure been put before the meeting. A working party of all the interest groups taking part in the talks agreed that the matter had progressed as far as possible and that the initiative now rested with the Government. On this occasion as with all other occasions during the wage policy talks, there have been no firm proposals presented from the Government.

The PM has refused to be specific. In effect he wants the unions to reduce their wage settlement in response to what he, at his discretion, and without any prior defining, may do in the future. This can hardly be called a 'deal'. It is not surprising that the unions have 'baulked' at such onesided and tentative proposals - if indeed they can be called proposals at all!

On the face of it all the PM wants to do is to get agreement from the unions that they will look at take-home pay in reaching wage settlements and therefore take account of tax changes.

In fact, the FoL and the CSU have based their claims for cost of living related adjustments - whether these claims have been submitted to the Wage Hearing Tribunal, to the Court of Arbitration or directly to the Government itself - on after-tax incomes. Any tax changes would have been incorporated in the method used for assessing the amount of wage adjustment that has been required.

Photo of men holding hands

Political Point Scoring

Equally, indirect tax changes are reflected in changing consumer prices, and hence are allowed for in the method. Any attempt to get agreement for the FoL and CSU to take account of tax cuts would, therefore, do no more than require them to continue with the method of approach that they have adopted consistently during the last four years.

It is interesting to note that in the past it has been the Government and the Employers' Federation that have attempted to play down the value of disposable incomes in the determination of money wage rates.

One can only conclude that once again the unions are being strung along for the purposes of political point scoring, or that the Government is trying to use them as the scapegoats for its own inability to come to terms with the problem of tax reform and wage-policy reform.

Rebecca Hamid