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From The Australian 8 November 2004
(Available on ICA Website with the approval of Robert Gottliebsen)
Big organisations outsourcing IT and other service activities to small contractors in South Australia should seriously consider switching to contractors in other states if the South Australian Parliament approves amazing legislation.
And Victoria has devised a way to make it more costly for small enterprises to employ people. Both actions are a result of union pressures that periodically make the Australian Labor Party do silly things.
Mark Latham got caught the same way and John Howard was smart enough to respond by promising to insulate small enterprises from union attack. That played an important role in his historic Senate majority.
The South Australian attack on its small enterprises uses two major canons.
The first is to attack the widespread use of sub-contracting.
A major computer or telecommunications company might sign base contracts to perform certain work. Those base contractors then go to other groups on a sub-contract basis and, in turn, those sub-contractors may further sub-contract some of their work.
If the South Australian act passes and something goes wrong at the lower levels of the sub-contracting chain then, in South Australia, the interstate or overseas computer or telecommunications company that issued the prime contract can be held responsible.
This legislation seeks to change the way business in sectors like IT operate---not only in Australia but around the world. It will fail.
It is true that NSW and Victoria introduced similar legislation but both confined its application to textile, clothing and footwear industries. They were successful in closing down most of the TCF contracting. And if South Australians extend the TCF rules into IT, they will achieve the same result.
South Australia's second canon is to give their courts the power to declare a company or trust "an employee".
This mind-blowing power will cause chaos in a wide range of small-enterprise areas. The Independent Contractors of Australia organisation is, of course, trying to fight the South Australian attack on its small business community by alleging the state is in breach of International Labour Organisation requirements and common law.
The ICA also claims the state is taking actions that will hit hard its housing, construction, renovation, IT, home-based business, accounting and many other areas.
But the South Australian Government has a much bigger agenda.
In Victoria, and most other states, a small enterprise with a labour bill of about $500,000 (in some states, it's about $1million) is exempt from payroll tax.
Both Victoria and NSW currently have sensible legislation meaning that when a small enterprise uses labour through a labour hire organisation the $500,000 limit still applies. But the Victorians think they can raise $200 million by applying the $500,000 limit to the labour hire firm not the individual enterprise.
Their secret agenda is to make the small enterprises employ people direct so they are more liable to union pressure---although John Howard's legislation will help.
NSW Premier Bob Carr is too smart to make that mistake. He has seen that in the states that tried that stunt the staff in the major labour hire firms began starting their own businesses to establish myriad small labour hire companies to take advantage of the payroll tax limit.
For example, Tasmania has the highest number of labour hire firms per head of any state. Naturally, the Government's revenue suffers, labour conditions are harder to control and the cash economy booms. But the unions feel good.
Victoria will learn the lesson the hard way. These situations underline the problem facing all Labor governments.
Their union supporters want to turn the clock back to the time when everyone worked for a big employer under a highly restrictive award. These days, those who work under contract represent an enormous part of the workforce.
Howard recognised that the game had changed and was rewarded with enormous powers to alter the IR landscape.
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