A way to go in the IR debate

As the federal government’s new industrial relations laws come into force it will be interesting to see if they have any impact on the waning influence of the union movement.

The drop-off in union membership has been pronounced over the past decade or so, with 22.4 per cent of Australia’s 8.5 million-strong workforce considered members at August last year, according to the Australian Bureau of Statistics.

This is down from more than 40 per cent in 1990 when the workforce stood at 6.5 million.

So, as the working population has jumped by two million people, union membership has dropped from almost 2.6 million to 1.9 million.

In Western Australia, those figures show a similar decline from a lower base, with union membership dropping from 35.4 per cent of 617,700 workers to 18.7 per cent of 850,600 employees in August last year.

On the face of it, these statistics are, perhaps, to be expected. As employment has risen, employees have less need for unions.

That is the simple assumption that employment growth reflects better economic times and creates a marketplace where employees feel more confident of securing their own job security and conditions.

However, during that period there has been at least one sustained economic downturn, while national union membership has declined year in year out without fail.

It has been a different picture in WA.

Three times since 1990, union membership has risen slightly. While the downward trend is clearly there, 1991, 2003 and 2005 are exceptions.

We can’t necessarily extrapolate a drop in union membership for the 12 months ending August this year, especially when my initial question about the new federal laws is taken into consideration.

But this time next year, when the August 2006 figures are made public, we will start to learn if the IR laws have had any apparent effect on union membership.

Nationally, it will be interesting to see if they coincide with any halt in at least 16 years of decline, while in WA I will be watching to see if union membership can actually increase again.

Many in business will hope, of course, that these possibilities don’t come true or, if they do, that the changes are minimal rather than marked.

With the union movement on the ropes, many believe it may have been better to let the decline continue naturally rather than stir up a hornets’ nest that could reinvigorate the collective form of worker representation.

Others, of course, think that it has only been the waning influence of unions that has allowed the opportunity to introduce such laws.

Housing sector’s distorting effect

While economies run in cycles and NSW was bound to have a downturn after a long binge of growth, there is one important factor that is being highlighted in Sydney – housing affordability.

According to the Housing Industry Association, the high cost of housing in the nation’s unofficial capital is undermining the state’s economy.

Certainly even in Perth housing affordability is becoming an issue, and Western Australia’s property prices are light years from those in NSW.

I can’t help wondering when the issue of investment property ownership, especially that of negative gearing of residential property, is going to come up in response to this problem.

I believe in free markets and the right of any investor to allocate their capital how they want, even to make losses today in the hope of future gains.

The problem is that property is not a free market. It is distorted by the fact that there is no capital gains tax to be paid on the sale of your family home.

This has all sorts of impacts; the biggest one being that property becomes an even more disproportionate as weighting in investors’ portfolios.

While I am not an economist, I do wonder at the impact of zero capital gains combined with the negative gearing aspects of investment property.

Are these two tax treatments, either combined or in isolation, behind the rapid escalation of property prices? Are those whose income already affords them a head start on reducing their mortgage being encouraged to look at a second (or more) property in competition with those who have yet to purchase a home or gain a foothold in the capital gains tax free property?

I know this subject is controversial and sensitive, but any market distortion needs to be looked at, especially if the original aim of the policy no longer exists or, potentially in this case, the effect is being reversed.