Pay Off Time For The Unions

23 July 2004

Speech to the Employers and Manufacturers Association (Northern) deals with recent and proposed changes to employment law

Mr Chairman, ladies and gentlemen

I want to talk today mainly about recent and proposed changes to employment law.  

At the beginning of this year, I talked about the five big issues which would be the focus of my attention between my becoming leader of the National Party in October last year and the election next year. 

One of these big five was the gap which has emerged in recent decades between the standard of living in New Zealand and the standard of living in Australia, a gap which has been sucking some 25,000 New Zealanders out of our country, net, every year since this Government came to power in 1999.

There are many aspects to this relative decline in our living standards.
I highlighted one aspect in a speech on roading, to the Auckland Chamber of Commerce in May.  That speech indicated National’s strong commitment to resolving the problems of roading congestion in Auckland, and indeed in other parts of New Zealand, and in particular to getting the Auckland Corridor Network completed within 10 years of National becoming government.  There is no prospect of our closing the gap between living standards in New Zealand and those in Australia unless the problems of inadequate transport infrastructure are effectively dealt with.

Similarly, there is no chance of closing that gap unless we have employment law which creates the best environment within which to increase productivity, and that is the main focus of my comments today.

But first let me make some general comments about the economic situation.

In my view, the Government is interpreting the current strength of the economy as giving it latitude to implement legislation that, while clearly bad for growth and bad for workers’ incomes, will be politically convenient in delivering gains for its friends and supporters in the unions.

We have recently enjoyed several years of solid economic growth in New Zealand.  But it is crucially important that we understand why we have enjoyed that growth.

In part, the good growth has been the result of the economic reforms of the late eighties and early nineties, the policies which the Labour Government have been trying desperately to brand as “failed”. 

But every economic commentator worth his salt – and certainly the Government’s own economic advisers in the Treasury, and the most recent report on the New Zealand economy by the OECD – recognises that it was those policies which have been the main reason for our improved growth performance over the last decade.   When talking to overseas fund managers, Dr Cullen usually admits this himself.

In addition, the Government came to office at the end of 1999 at a time when the economy was growing at almost 5% per annum and when the exchange rate, which had started falling in 1997, was falling towards its lowest level in history in late 2000, providing a huge boost to provincial New Zealand – indeed to all export industries.

And then, just as the exchange rate was stabilising and beginning to appreciate, the world witnessed the tragic events of September 11, 2001.   What had been a net outflow of long-term migrants from the country of some 10,000 people a year in the 12 months to both June 2000 and 2001 turned into a net inflow of 33,000 in the year to June 2002, and of 43,000 in the year to June 2003.  And so a domestic building boom followed the strong growth in export industries.

And on top of this, central banks around the world dropped interest rates to levels never before seen, sparking a worldwide boom in property prices, with New Zealand included.

So none of the reasons for recent strong growth – the reforms of the eighties and early nineties, the falling exchange rate from 1997 to 2001, the huge swing from net emigration to net immigration, and the exceptionally low world interest rates – had anything to do with policies adopted by this Government.

Labour was fortunate to form a government when the economy was in good shape, and was fortunate to inherit solid fiscal surpluses.  The favourable environment provided a huge surge in government revenues, allowing the fiscal surplus to grow in spite of strong growth in public spending.

Unfortunately, much of the benefit of this growth has been wasted.  The Government has taken too much tax from hard-working New Zealanders; too much of government spending has been pointless, and some of it simply scandalous.  You simply could not make up stories that would top what has actually happened – the hip-hop tours, the half million dollar portaloo art exhibit, the tremendous waste involved in second rate educational programmes, and so forth.

We could be doing very much better, and New Zealand households would be much better off if Government stopped wasting their money. 

We could be a much safer community if we invested in better law enforcement.  We are much too defeatist about crime.  Crime is enormously costly to our communities.  It can be substantially reduced.

We are too willing to accept the tragic educational failure of about a quarter of the children coming through our schools.

We have put up with outrageous race-related political correctness regarding the Treaty, and have sprinkled the undefined expression “the principles of the Treaty” throughout our legislation, and left it to the Courts to sort out what it all means – to our cost.

We allow the Resource Management Act to slow down development, and increase the cost of getting vital business investment in place, the sort of business investment that will lift all incomes in New Zealand.

We over-tax hard-working New Zealanders, making family life a struggle, while the punitive lift in the top personal tax rate has accelerated the flow of talented high income people out of the country.

The Labour Government is, in short, keeping New Zealanders poorer than they should be.

But of course it could be worse.

We could start going backwards, we could start unwinding the reforms of the past fifteen years, the very reforms that have helped New Zealand prosper in recent times.

And unfortunately that is precisely what this Government is intending to do.

They tried just that in their first-term attempt at labour market re-regulation, but were to a large extent blocked.  Now they are having another go.

As you know, major changes to the Employment Relations Act are currently being pushed through Parliament by Labour.  These changes are substantial.  They will put the union movement, previously simply favoured by the 2000 Employment Relations Act, firmly in control of New Zealand’s industrial relations landscape.

Make no mistake; this is Labour’s big pay-off to the unions.  All the other changes they have enacted, from the amendments to the Health and Safety in Employment Act to the Employment Relations Act itself, are trivial compared to the impact that this piece of legislation will have if passed in its present form.  The Bill is designed solely to increase union membership and dominance in the workplace environment. 

The effects of the amendments will be dire.  The way employers and workers have dealt with each other for the past 13 years will change markedly.

The rights of workers will be undermined.

The rights of employers will be undermined.

The only winners will be Labour’s funders and election foot soldiers, the unions.

Labour has started by destroying the freedom workers previously enjoyed to choose whether or not they join a union.  The new “good faith” requirement contained in the Bill means that an employer who passes on the same pay and conditions to non-union workers can be prosecuted.  And the fine for the employer could be up to $10,000.

This is a blatant attempt to introduce compulsory unionism.  It is an infringement on the right of freedom of association.  By forcing employers to offer inferior pay and conditions to staff on individual contracts, Labour is effectively forcing workers to join unions and sign up to collective contracts.

Most workers will join a union if they are financially punished for not doing so.

Any argument that this legislation is about protecting the rights of workers is destroyed by this part of the Bill.  The only group that profits from forcing employers to pay non-unionised employees less than unionised employees is the unions.

This Bill is about protecting and growing the power of unions.  It is not about protecting the rights of workers.

However, it is not only non-union workers who are punished by this legislation.  The rights, and indeed the livelihoods, of thousands of New Zealand business people will be diminished, if not swept away completely.

The Bill contains a new set of rules that must be followed in the event a business is “restructured”.  The definition of “restructured” includes the situation where a part, or all, of an employer’s business is sold.  These clauses have massive ramifications for small businesses.

The Bill requires that all employees have, in their employment contract, an “employee protection provision”, which must include the process to be followed at the time of a restructuring.

The Bill also contains a clause allowing employees to simply choose not to transfer to the new employer.  The decision not to transfer would trigger the employee protection provision, and allow employees to collect any entitlements they are eligible for.

This has two major effects in the event of a sale of a small business.

For many people in New Zealand, the return on the sale of their small business is what they rely on for their retirement.  That return on their years of investment will now be eaten away by the redundancy demands of their employees.  On the other side of the transaction, the person buying the business could face the prospect of having to take over a business without the staff necessary to run it.

The Bill creates a new group of employees, called “vulnerable workers”.  These “vulnerable workers” cannot be laid off; the new owner of a business, or a business owner who takes over an existing contract, must continue to employ these workers on their existing terms and conditions, or provide them with agreed redundancy.  The list of “vulnerable workers” currently includes only groups like cleaners.  However, this list can be extended by Ministers at any time; you can expect unions to lobby constantly to have their members included.

The changes contained in the Bill make it almost impossible for employers to resist collective agreements, and difficult to avoid Multi Employer Collective Agreements, or MECAs.

The Bill requires employers to attend a meeting to discuss a MECA; and the unions will be able to use new “good faith” provisions in the Bill to keep employers at the bargaining table until they get the result they desire.  The days of industry-wide employment awards once again confront us, with unions controlling the wages for whole sections of the New Zealand economy.

The resulting agreements could be dire for New Zealand businesses, especially the smaller ones.

The pay and conditions that large companies can sustain may be crippling for small companies in the same industry, or for companies operating in more remote parts of the country.  This could result in small businesses disappearing from competitive industries where MECAs make the pay and conditions for employees impossible to meet, and would disadvantage smaller communities.

A new and disturbing aspect of the legislation is the ability for an employer found in breach of the “good faith” provisions of the law to be prosecuted.  As I said earlier, a number of new breaches of “good faith” are contained in the Bill, such as simply paying a non-union employee the same as those covered by the collective agreement, and refusing to buckle to union demands for MECAs.  Under this punitive new approach to good faith, those acts could cost a company up to $10,000 a time.

The Bill allows workers to meet with their union reps at any time without having their pay docked.  This allows militant groups to disrupt company operations whenever they wish without the company being able to recover its losses.  Union officials can enter a workplace at any time, call a union meeting, and stop company operations – all at the expense of the unfortunate employer.

New Zealand has experienced union-dominated workplace relations before.  The 1970s, where Labour appears to have found most of its ideas for the new legislation, was a period of prolonged industrial warfare and steady decline for the New Zealand economy.  Between 1970 and 1979, New Zealand lost over 2.9 million working days to industrial action.  There were 3,839 complete strikes, an appalling figure when you consider that there were only 3652 days in the decade.

This legislation undoes 20 years of progress in industrial relations in New Zealand.  It is, as National’s Industrial Relations Spokesman Roger Sowry stated recently, Labour’s great leap backwards. 

The protests from the business community have been loud and clear throughout the Select Committee hearings on the legislation.  I commend you for your strong submissions, and actions such as those of the Employer Action Forum and the clear message you sent to the Select Committee on the impact this legislation will have on workers and business owners throughout New Zealand.  Unfortunately, the concerns raised by the business community appear to have fallen on deaf ears, and Labour is determined to force the law through.

National believes these pro-union laws will be damaging to growth, damaging to employment, damaging to employees. 

It is naïve to talk, as Labour Ministers do constantly, about the importance of productivity in the economy and then go to extraordinary lengths to create legislation that is certain to stifle productivity growth.

It is naïve to talk, as Labour Ministers do constantly, about how the high exchange rate is putting pressure on New Zealand exporters and then introduce legislation which can only serve to undermine the competitiveness of New Zealand exporters.

National will not let unions regain the stranglehold they once held over the New Zealand economy.

National will oppose these changes through every stage of the parliamentary process.  A National Government led by me will repeal the law once we are in office.

Recently, at Select Committee hearings on the Employment Relations Law Reform Bill in Auckland, one business person stated: “Get rid of both the Bill and the Government that brings it in as soon as possible”.

The National Party intends to do just that.

National will also fix the shambolic Holidays Act Labour has foisted on New Zealand workers and employers.  Business simply wanted the law simplified; instead, Labour took the opportunity to buy votes while sucking money out of the pockets of employers and workers alike.

The introduction of four weeks’ leave is a massive cost to New Zealand employers and workers.  The total cost will be around $700 million per annum, with at least $350 million of that coming out of workers’ pockets in the form of lower wage increases.   There is simply no way in the wide world that a week’s production can be taken out of the economy and wages remain unaffected by that action: wages will be lower than they would have been because of the Holidays Act, and it is important that your staff understand that point.

The Government was warned of this by both the Department of Labour and the Treasury.  Labour deliberately avoided the advice of officials on this issue.  Treasury was only asked to provide advice on the legislation on the Friday before Cabinet met to decide on the four weeks’ leave.

The increase in annual leave is of course only one small part of the Act.  Labour has changed the law so that there is now no requirement for employees to produce evidence of illness in order to use accumulated sick leave, until after they have been absent for three consecutive days.  This makes it impossible to deal with absenteeism effectively and has apparently produced a large surge in “sickness” on Mondays and Fridays.

Yet again Labour took the opportunity to massively increase penalties on business for non-compliance.  Breaching the Holidays Act will now cost you $10,000. 

If, of course, you can work out what a breach is.  Recently, it became clear that the pay rate that applied to an employee who calls in sick on a public holiday was not clear.  This is a situation typical of Labour’s industrial relations legislation; it is drafted so poorly its meaning is not at all clear.  Interpretation is left to the courts, which are then roundly criticised for decisions that do not reflect the intention of the legislation’s drafters.

And what was the Government’s reaction once it became clear the legislation was flawed?  Labour Minister Paul Swain demanded business prove the loop-hole was being exploited.  Rather than simply correct the law, Labour demanded business jump through hoops first.

The clause in the Holidays Act that most New Zealanders have probably noticed is the increase in entitlements for public holidays.  All employers must now pay time-and-a-half, and give a day-in-lieu, to workers who work on public holidays.  This has resulted in much publicised extra charges for diners and drinkers on public holidays, to some restaurants closing on public holidays, and to a loss of jobs as a consequence.

The effect, however, has been much wider.

District Health Boards have been severely squeezed by the increased cost of the Holidays Act.  The true total cost is not yet quantified, but it could easily be between $20 million and $30 million a year.  The police have also felt the impact of this legislation; the annual cost of paying time and half on police wages, plus a day-in-lieu, has been estimated at between $4 million and $5 million a year.

Unfortunately, essential services like hospitals and the police do not have the luxury of simply closing their doors to cut the costs on a public holiday.  Their costs will ultimately be borne elsewhere, through cuts in services.

None of this was necessary.  Business only wanted clarification of an outdated and confusing law.  If we are being generous, we could assume that the new law was passed with the best of intentions, rather than as a sop to Labour’s union friends.  If that is the case, then it is misconceived.  It is based on the fantasy that government can simply dial up an income for people, that government can somehow give more holidays to people without that cost affecting anybody, or perhaps with the cost confined to a small group of class enemies. 

This fallacy is based on a public sector, glide-time mentality, typical of a group of ministers who have spent their entire working lives in the public sector.  But in the modern economy, business is a seven-day-a-week affair, and most businesses are open for more than eight hours a day.

This law was a mistake.  And it is shambolic.

National is committed to cleaning up the mess, and to creating a Holidays Act that is easy to understand, has legislative certainty, and is fair to all.

This is the only way in which a party committed to the well-being of all New Zealanders – a party appropriately named the National Party – can properly behave.

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Copyright © 2020 Don Brash.