Sunday penalty rates

Penalty rate cuts could backfire on business
Analysis
By business reporter Michael Janda

Updated Thu at 3:26pm
Barista warms milk at industrial coffee machine
Photo: Permanent staff in cafes and restaurants will see their Sunday penalties cut to 150 per cent. (unsplash.com)
Related Story: Penalty rates to be reduced for hospitality, retail workers
Related Story: Wage growth remains at record lows
Related Story: High debts, house prices mean no more rate cuts likely: Reserve Bank
Map: Australia

Let’s start by calling a spade a spade. Sunday penalty rates have been cut by the Fair Work Commission. Not “equalised” or “brought in line” with Saturday rates. Cut.

Business, big and small, has been seeking this cut for years, saying Sunday penalties are a legacy of a bygone era where families went to church — one that’s costing them a tidy sum.

They also argue it’s a legacy that’s been costing jobs, with many employers choosing not to open on Sundays, or to maintain just a skeleton staff (although ask yourself, just how many retailers, restaurants, cafes and bars are actually shut on Sunday?).

But the cuts to Sunday penalty rates could become a textbook example of unintended consequences, where a move supposed to increase employment instead hurts the economy and increases business failures and job losses.

Why? Because the hundreds of thousands of retail and hospitality workers affected by this decision are also customers.

What do you think happens when you cut someone’s pay packet by as much as 25 per cent for their Sunday shifts?
Penalties cuts: for and against

What are the arguments for and against to cut Sunday penalty rates for some hospitality, retail and fast-food workers?

(For a typical permanent retail worker on the award who always works Sunday shifts this will cut their annual pay by about $3,500).

They either have to work more, or they have to cut their spending to match their new, lower wage.

Given that unemployment is stubbornly high at 5.7 per cent, and underemployment is near record levels, it seems unlikely they’ll actually be able to get more work to make up the lost pay — and, remember, these staff already work Sundays, so it’s not like they’ll benefit from any increase in jobs on that day.
Sunday staff the customers who keep the economy ticking

So, we will have hundreds of thousands of people who are thousands of dollars worse off every year and need to cut back their spending to make ends meet.

Where do they cut?

Perhaps they don’t go out to a cafe for brunch, or to the pub for a drink after work.

Maybe they’ll eat at home instead of buying a restaurant or takeaway meal.
Wage cuts at the top

Many chief executives who lobbied for penalty rate cuts don’t apply the same logic to themselves, writes Andrew Robertson.

They may not upgrade their phone this year because the old one still works, or they’ll pass on that new dress because they just can’t afford it now.

In short, the staff that businesses are saving money from are also the consumers that keep the whole economy ticking over.

And these workers, like almost everyone else in Australia, are already struggling with the lowest wages growth on records that go back to the late 1990s.

Just yesterday, the nation’s chief financial policymaker, Reserve Bank governor Philip Lowe, warned that low wages growth combined with record household debt was a combustible situation.

“At some point in the future, households, having decided that they have borrowed too much, might cut back consumption sharply,” he said.

“It is one of the key uncertainties around our central scenario for the Australian economy.

“It is difficult to quantify this risk but it is one that is difficult to ignore.”

In its decision to slash Sunday rates, and therefore the take-home pay of many of Australia’s lowest-income workers, the Fair Work Commission has ignored this risk.

If Fair Work and business groups were serious about “equalising” Saturday and Sunday rates, rather than chopping wages, today’s decision would have been to cut Sunday rates and lift Saturday rates to match them in the middle.

This ignorance may well come back to bite, as lower wages mean more debt defaults for the banks, lower income tax receipts for the Government, less spending at shops and food outlets, and a general slowdown in the economy.

When you engage in a race to the bottom, sometimes you manage to get there.