ACTU’s attack on contractors will have huge ramifications: Gottliebsen

If you are going to build a house or a low-rise apartment block, do it now. Reserve Bank governor Glenn Stevens should also be alert to the possibility that interest rates may need to rise substantially in a year or so. In addition, more than one million Australians now find their businesses in jeopardy.

I reach these conclusions after reading the commentary by ACTU Secretary Jeff Lawrence, which shows that the Gillard Government is going to be under the most enormous pressure to dismantle small independent contracting.

First, I really welcome Lawrence’s contribution to the debate because we now have confirmed that this is much more than a campaign by building unions. It is going to be driven by the ACTU.

Lawrence says the sham contracting he is targeting is prevalent in the construction industry, where the unions will be targeting up to 168,000 independent (he describes them as “sham”) operators. Figures are hard to define, but a recent Monash Roy Morgan survey, which was helped by Australian Tax Office data, said there were one million sole traders and small independent contractors in Australia of which 41% were in the construction industry. So in construction there are 400,000 businesses on the line, not just those 168,000.

The majority in independent contractors are in the professional area (architects, engineers, etc) and that’s where most of those who provide services to construction operate their businesses. When it comes to tradespeople, such as plumbers, electricians and carpenters, the vast majority work in home building because in commercial construction and high-rise buildings, apart from isolated small instances, only large contractors are used and they are not who the unions are targeting.

Lawrence is right in stating that contractors have no job security – it’s the nature of contracting – and he could have added that there are few formal shift allowances unless the contractor writes it into his or her tender. But the vast majority of contractors are not “sham”.

Two weeks I ago I had long discussions with a number of contractors who have become large and now operate in commercial construction but were formerly in home building as small groups.

They explained that the labour flexibility in home building, which arises through the use of contractors, has slashed the costs of a house when compared to a high-rise building. They estimate that if independent contracting is blocked in home building then home building costs will rise by between 25 and 40%.

I can’t prove that figure, but rest assured the house cost rise will be substantial if the ACTU has its way. And if you read between the lines in Lawrence’s commentary you can see that we are dealing with enormous numbers.

Enter Glenn Stevens. It’s not just home building that is based on independent contracting. Huge sectors of the IT industry and other professional services are also based on independent contracting using exactly the same systems as home building. The proposed attack is therefore directed at the one million people in independent contracting. It will send inflation much higher because so many of Australia’s industries are based on it. The extra costs Laurence wants to impose will simply be added to the final price unless Stevens slows down the economy.

What is it that the Lawrence wants the Government to do? The CFMEU has set out at least three actions, which were described by Ken Phillips. Lawrence in his commentary attacked Phillips but did not suggest the three-stage description of the CFMEU plan was wrong.

The first step in the attack is to redefine a “sham contract” under the Fair Work Act. The current law holds that a builder must have “intent to deceive” for his independent contracting arrangement to be declared a “sham”. The CFMEU want to remove ‘intent’. That will enable the unions to put extreme pressure on builders to declare their independent contractor’s shams, which will devastate those contractors.

The CFMEU also wants businesses to report every transaction they have with a self-employed person and impose additional tax withholding obligations on those transactions. Just imagine what that means – it would create chaos.

As well, the union wants to impose an 80/20 rule as the key test, where if contractors earn more than 80% of their income from one client they can be denied business tax treatment. This recommendation is based on an amazing Board of Taxation report that was so bad that the ALP distanced itself from it. But now it’s back on the agenda.

Thirdly, the CFMEU wants to ban the subletting of contract work and effectively shut down contractor and employee labour hire. They want Fair Work Australia to enforce the superannuation guarantee levy, rather than the Tax Office, which oversees it now.

These three steps, if implemented, would wipe out the majority of Australia’s one million contractors. They are truly draconian and are not just an attack on so called “sham” contractors but rather on all small independent contractors.

Have no doubt, if the Government embraces these moves then it will be very dangerous for a builder to hire a small plumber or electrician on contract. The same applies to IT workers, architects, engineers and other professionals.

Everyone will be forced to put on staff and all will be worse off – the contractor, the group who hires the contractor and the consumer. The Greens will control the Senate after July 1 and will vote for tthese actions so Julia Gillard and the cabinet can virtually do what they like.

But they should be very clear that the actions proposed by the CFMEU and endorsed by the ACTU are a full frontal attack on all small contractors. Very few will survive if the CFMEU/ACTU plan is implemented.

This article first appeared on Business Spectator.