Angus Taylor (Hume, Liberal Party) Share this | Hansard source

I rise today to speak on the Fair Entitlements Guarantee Amendment Bill 2014. I am pleased to do so because this bill is critical for the sustainability of an important program in a budget environment where every dollar must be targeted for maximum impact after the spendathon of the previous government. Under the Fair Entitlements Guarantee, the FEG scheme, the government covers unpaid entitlements to eligible employees who lose their jobs due to liquidation or insolvency of their employer. We should note that the predecessor scheme—the General Employee Entitlements and Redundancy Scheme or GEERS—was established by the Howard government in 2001. I know many members of this government in this parliament are proud of having established that incredibly important program that we continue to support today.

These are intended to be safety net schemes of last resort covering some entitlements. That is how they were established and that is how they continue. Neither scheme was designed to cover all entitlements, despite what we heard from the member for Gorton. As it currently stands, FEG provides assistance for up to 13 weeks of unpaid wages, annual leave, long service leave, payment in lieu of notice to a maximum of five weeks and redundancy pay to a maximum of four weeks per full year of service. So there are caps in place and there will continue to be caps in place because this program must be sustainable given its importance.

The rationale for the scheme is very clear. We know that secured lenders and even large unsecured lenders have the resources and ability to make informed decisions when they take on credit risks. They are able to better manage those risks by diversifying and even avoiding the risks in the first place and they are able to absorb the risks if they come out the wrong way. In the case of employees the situation is much more difficult. They do not have the resources and skills to assess risks. It is much more difficult to manage those risks, even if they can assess them in the first place, and losses to most employees are more dire—often they will lose all of their income over an extended period of time. So for this reason we put the scheme in place. We continue to support the FEG scheme, but we need to make changes to ensure that it continues to operate.

In my electorate of Hume this program has been critical in recent times. The steel manufacturer National Engineering based in Young went into voluntary administration on 28 October last year, leaving some 38 employees without a job. Subsequently, the company moved into liquidation on 3 December in the same year. For a while it looked as though employees would not get their entitlements before Christmas, and it was a stressful time for staff and their families, but with excellent support from the office of the Minister for Employment and liaison between the Department of Employment and the insolvency practitioner over the period of administration we succeeded. More than $550,000 was approved under the FEG for unpaid wages, annual leave, long service leave, payment in lieu of notice and redundancy pay. Payments were received by Christmas for the employees who lodged claims. It is absolutely critical for my electorate and many others that this program be sustainable.

The bill in front of the House will give effect to the 2014-15 budget measure to protect the financial sustainability of the scheme. Instead of allowing a maximum of four weeks per full year of service, it will restore the previous cap on redundancy pay entitlements to 16 weeks of pay, which applied prior to 2012 and worked extremely well and extremely effectively for the 11 years it had already been in place under the previous Howard government and the Rudd and Gillard governments. The measure will save almost $80 million over the forward estimates by capping the redundancy payments. The FEG Amendment Bill impacts on the redundancy pay entitlement only. All other entitlements are absolutely untouched. It is important to note—and I will talk about this a little more later—capping the entitlement to 16 weeks will bring the redundancy entitlement in line with the National Employment Standards contained in the Fair Work Act and the rules that existed under GEERS prior to 2012, as I said a moment ago.

The bill also makes a series of technical amendments. The technical amendments are not controversial and can be considered housekeeping. I noticed that the member for Gorton did not raise any of these amendments in his speech. They are being introduced at the suggestion of the Department of Employment in order to clarify the operation of the act. They include establishing a funding source in the legislation for certain legal costs associated with the AAT appeals against FEG decisions; clarifying that the death of a person does not prevent the person being eligible for an advance—of course, the member for Gorton did not mention this one, which is of great benefit to employees in difficult situations—enabling the next of kin or the state to pursue a claim; clarifying that when a debt owed by claimant to his or her employee is greater than the entitlement, it can be offset against any of the claimants other employment entitlements under the scheme; and removing the eligibility requirement that a person who has owed debts prior to the insolvency event happening to their employer must have taken reasonable steps to be paid those debts. But, importantly, the legislation only allows the secretary to reduce a person's entitlement by the amount of any debts that he or she did not take reasonable steps to be paid. At the moment, if they do not take those steps, then in fact they lose all of their entitlements. So all of these are important amendments largely in favour of the employee or former employee.

Let me just spend a moment on why it is so important that we pass this bill. Of course, at the top of the list is the need for fiscal sustainability across all our programs, something that those on the other side of the House seem to still be in denial about, to still ignore in their claim that every bit of spending should remain. There are two critical but distinct parts of the government's focus on fiscal sustainability. Firstly, of course, is getting the budget back to surplus over the forward estimates, made more challenging by the serious economic headwinds we face—a falloff in the terms of trade and mining investment, falling company tax revenues, and the end of the consumption boom driving GST revenues, none of which those opposite seem to take into account in their thinking about how they would spend money if they were in government and how they spent money when they were in government.

Secondly, but as importantly, we need to ensure that we have a long-term sustainability in our budget. The Parliamentary Budget Office tells us that under the last government spending was rising at 3.8 per cent a year and yet we can expect revenue to only rise at something like three per cent. You do not have to be the world's greatest mathematician to work out that this is a serious problem. This is a fiscal cliff and we are going over it and if we do not deal with it one of two things must happen. One we have a massive tax hike—massive. Right now we have tax at about 23 per cent of GDP. If we were to allow this to continue, a simple two line spreadsheet will tell you that within a short period of time federal tax will have to rise to 30 per cent of GDP. Go tell that to your employees, your constituents, your taxpayers. Those on the other side of the House seemed to have no regard for the future taxpayers of this country.

Of course, one of the great disappointments about the way the PBO works at the moment is that it does not demand the opposition put its estimates, put its spending promises beyond the forward estimates, out for scrutiny. That is something that desperately needs to be changed. The spending promises of the last Labor government—and no doubt the opposition, as we move before the next election—beyond the forward estimates are not subject to scrutiny and absolutely should be, because we need to make it absolutely crystal clear which side of the parliament is ensuring that future taxpayers do not have to wear the profligate spending of those on the side of the House.

To keep the FEG scheme viable, it is clear that we need to make changes. It has grown absolutely dramatically, with demand increasing from 8,626 claimants being paid $73 million in 2006-07, a very sustainable number, to 16,019 claimants being paid $262 million, almost 3½ times what it was six years earlier, in 2012-13. This increase is absolutely unsustainable. It is exactly the sort of increase we see from those opposite in so many of the programs that they oversaw, and in this case they enshrined in legislation. From a budgetary point of view the current four weeks redundancy paid for each year is no longer sustainable and setting the entitlements to 16 weeks in total is fiscally responsible.

It is important to note that, as I mentioned earlier, capping the redundancy payment will bring the FEG in line with Labor's National Employment Standards and the Fair Work Act of 2009. The current redundancy benefit under FEG provides for four weeks' pay for every year of service. We know that that is well above the standard set in the National Employment Standards outlined in the Fair Work Act. In fact, Labor has told us that the National Employment Standards in that act got the balance right and sets a community standard. Yet they are not prepared to support it in this legislation. The hypocrisy we see continually from those opposite is awe inspiring, it is extraordinary. It is not good enough and that is why we are proposing this change, remembering that this is a scheme of last resort that should only cover redundancies that are in line with the community standard. It should be noted that the scheme already has a cap on maximum wages of $127,000 per annum. So there are caps everywhere already in this scheme. That reflects the intent of the scheme that more generous remuneration above community standards should not be covered by a safety net scheme.

We have heard many in the community supporting this cap. The AiG said:

The 16 week cap mirrors the entitlement to redundancy under the National Employment Standards and hence reflects community standards ...

The Master Builders Association submitted similar things to the Senate inquiry on the issue and said that the general redundancy standard put in place by Labor was out of step with the general community standard and suggested that the proposed cap be brought in line with the community standard. Both the Ai Group and ACCI said that a publicly funded safety net scheme is necessary to protect workers as employers went bankrupt but they both stressed that it should offer an appropriate level of protection. It is also important to note this bill only impacts a small proportion of claimants. It turns out that historically, over the three-year period, there were 41,393 claimants on this scheme and this change will only affect 2,446, or six per cent. The vast majority of claimants would be totally unaffected and those claimants who are affected will only be affected in a relatively small way, in the vast majority of cases.

As I said earlier, the bill only affects the redundancy entitlement and all other entitlements are unchanged. It is important also to note the bill removes a moral hazard—the sort of moral hazard those opposite seem to like. The thing as it stands creates a moral hazard whereby unions, company directors, CEOs or business owners can inflate redundancy entitlements when companies are in trouble and the taxpayer will pick up the tab when the company goes broke. It is not the sort of moral hazard the Australian people would find acceptable. The Ai Group discussed this fact and said there are major moral hazards present in the current legislative provisions, because there is little protection against employers being coerced by unions into implementing extremely generous redundancy packages in the lead up to insolvency, leaving taxpayers picking up the tab. We had similar comments from ACCI, which said:

What I am saying is that the potential arises in the dynamic it introduces into negotiations. It is one thing for two parties to sit down and negotiate terms and conditions, but if they know at the back of their minds that ultimately the government will pick up this entitlement our proposition is that that will impact on the bargaining dynamic.

The sustainability of well-directed and high-quality government programs is the focus of this government and should be the focus of future governments of Australia. This bill is intended to do exactly that. This is an important program and losing it, and others like it, because of unsustainable growth in spending is totally unacceptable. I commend this bill to the House.

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