Penalty rates cut linked to stalled consumer spending.

The Australian, December 12, 2017

Reductions in Sunday and public holiday penalty rates have been linked to the lowest increase in consumer spending since the global financial crisis.

New analysis by the McKell Institute finds “some correlation” between the reduction in consumer spending in the September quarter and the penalty rate cuts that began to be implemented from July 1.

The 0.1 per cent rise in consumer spending in the September quarter was the lowest increase since the global financial crisis. Consumer spending in the June quarter grew by 0.8 per cent.

Penalty rate cuts for workers in the retail, hospitality, fast-food and pharmacy sectors will be phased in from July until 2020.

“While strong business investment is evident, there is clear evidence that household consumption is weakening,’’ the discussion paper by the institute says.

“Evident in the data is a correlation between the reduction in take-home pay for workers experiencing reduced penalty rates and a dampened consumption.

“Most evident is a reduction in consumer spending in Quarter 3, 2017 – the first quarter since penalty rate reductions have been in place, suggesting the reduction in take-home pay for workers has reduced their capacity to spend.”

Employers have long argued that penalty rate cuts will generate employment growth but the report says there is no evidence of a major surge in employment in the affected industries.

In the accommodation and food services industry, there was a drop in the total number of employed people between May and August this year.

While the period only covers the first month the penalty rate changes came into effect, the report says the available data demonstrates no direct causation between the cuts and an increase in employment in the accommodation and food services sector.

The indicators and data provided illustrate the impact that the cuts in penalty rates have had on the Australian economy,’’ the institute says.

While Q3 2017 saw penalty rates only marginally reduced, the evidence suggests some correlation between the reduction in take home pay for this significant portion of the labour market and a reduction in overall consumer spending.

“While investment remains strong, the poor consumer spending result in Quarter 3 is of concern, and should be considered in further deliberations regarding the reduction of the take home pay of Australian workers.’

Opposition workplace relations spokesman Brendan O’Connor said Malcolm Turnbull should retract his claim that cuts to penalty rates will create “hundreds of thousands of jobs”.

“The only impact reducing penalty rates will have is a pay cut for some of the lowest paid,’’ he said. “Families already struggling with cost of living pressures. How out of touch can he get?”

But NSW Business Chamber chief executive Stephen Cartwright said the findings were ‘nothing more than a deliberate distortion of the truth’.

‘‘In fact, my immediate thought was that someone at the McKell Institute had over indulged at their Christmas party to come up with this nonsense,’’ he said.

“The facts are that on the same day that the modest reduction in penalty rates came into being, award workers were actually granted a 3.3% pay rise by the Fair Work Commission which resulted in no loss of take home pay, so the basic premise of these findings are completely flawed.

“Consumers may well have changed their buying habits, but many retailers are reporting strong pre-Christmas sales and I would expect that this will continue in the New Year.

“No conclusions on the impact of the penalty rates decisions – either positive or negative – should be reached until after July 1 2018 when some of the changes have had time to come into effect.”