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IR duplication hinders competitive federalism

By Alex Philipatos - posted Wednesday, 2 May 2012

Before the Council of Australian Governments (COAG) meeting, Queensland Premier Campbell Newman argued that states ought to compete with each other for business and workers by lowering taxes and reducing regulation. State governments are being 'held ransom to Commonwealth promises', he said, favouring competition between states over cooperation.

Federal Shadow Treasurer Joe Hockey echoed Newman's sentiment: 'When we have competition, it means the best deal for consumers'.

So can competition between states (or competitive federalism) benefit industrial relations matters? Should state governments craft their own respective laws to attract labour and capital, or are there advantages in having a national system?


Competition creates pressure on state governments to cut taxes and reduce red tape. If barriers to interstate migration are minimal, businesses and workers can easily switch states if their current government is taxing too heavily, not providing necessary public infrastructure, or over-regulating their affairs. The more effective the competition, the greater the pressure on government to stay small and govern effectively.

In terms of labour laws, the argument for competitive federalism proceeds like this: Let's say you own a business and labour laws differ across state boundaries. Victoria has a Fair Work framework, Work Choices exists in NSW, and centralised wage fixing (pre-1990s) prevails in Queensland.

Businesses will vote with their feet towards the system they prefer. If you want increased management prerogative and worker flexibility, you may choose to relocate to NSW, which has fewer restrictions on management functions. Or you may move your business closer to where workforce skills match your business needs.

Workers too will gravitate to locations with more opportunity, higher wages, and generous protections. They may prefer the safety net in Victoria, the flexibility of NSW, or the certainty of wage-fixing in Queensland.

Therefore, business and worker interests will align where labour laws benefit both parties. The ideal state system will attract both workers and businesses. Other states can then copy successful legislation to get the same benefits. Having a 'one size fits all' national law prevents this sort of experimentation. It also magnifies legislative mistakes because errors are nationwide rather than state-wide.

In reality, however, things are more complicated. Australia's system of awards creates layers of federal and state regulations. Different rules and awards apply depending on whether the business falls under state or federal jurisdiction, and whether the employee is employed in the public or private sector.


This needless complexity and duplication is confusing and costly for business. A company may have to comply with many awards, sometimes in both state and federal jurisdictions. With that level of complexity, it is understandable that businesses prefer a simple set of national laws.

In addition, the advantages of labour law competition are ineffective for some key industries. Workers looking to work in the financial sector will look first to where the work is, for example, Sydney, Australia's financial capital. Mining companies (and their employees) have no choice but to locate themselves near Australia's mineral deposits. The tourism industry requires businesses to locate near Australia's international attractions, not where labour laws are favourable.

Then there are a host of other considerations – permit and licence restrictions, environmental protections, building regulations, taxes, etc. The sum of these considerations exerts far more influence over where businesses and workers locate than differences in labour laws.

But this does not negate the argument. Many companies in the service sector, which represents the largest portion of Australia's economy, are not geographically pinned. They can take their business where they like or operate in more than one state, as they often do. Their decisions about where to operate may be influenced by labour laws or OH&S regulations.

Premier Newman's sentiment is on the money. State competition on labour laws can help uncover the most effective framework. But to achieve any benefit, the complexity of the award system and duplication of state and federal labour laws need to be remedied. Industrial relations matters should be left to the states.

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About the Author

Alex Philipatos is policy analyst at the Centre for Independent Studies.

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