Menzies Research Centre at the Fair Work Bills Inquiry

Evidence from the Menzies Research Centre at the Fair Work bills inquiry:

Education and Employment Legislation Committee

Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2019

Mr James Mathias, Chief of Staff, Menzies Research Centre

CHAIR (Senator McGRATH): Welcome. I understand information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I invite you to make a short opening statement. At the conclusion of your remarks, I'll invite members of the committee to ask questions.

Mr Mathias: I thank the committee and senators for the opportunity to make a submission on the Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2019. My submission to this committee here today has, at its heart, one key element: that workers deserve better from their unions with respect to the more than $2 billion in health funds for redundancy, sick leave and other benefits for workers in other industries. It's a noble cause; however, unfortunately, the current arrangements have a flagrant disregard for accountability, with funds not required to meet even the most basic of reporting requirements.

Multiple case studies demonstrate that these arrangements, particularly revenue earned by unions as a consequence of conditions that they have negotiated in the context of enterprise bargaining, deserve further scrutiny. The practice of trade unions negotiating collective agreements from which unions also financially benefit poses a clear conflict of interest. It means that, in performing its role as a bargaining agent, a trade union is effectively caught between its own financial interests and carrying out its duty to negotiate in the best interests of workers. These arrangements are also an affront to the freedom of association of the workers covered by these enterprise agreements, having regard to the union movement's sizeable donations to the Australian Labor Party.

These case studies also highlight the need for significantly enhanced transparency and oversight of the financial interests of trade unions. The financial statements lodged with the ROC do not clearly identify which streams of union revenue are attributable to members, commercial interests, government grants, employers and enterprise agreements. Achieving greater transparency in the source of trade union revenue is a worthy objective in its own right.

The case for improved disclosure is sharpened by the ongoing debate about workplace relations reform. Given that several of the ACTU's proposals for workplace reform seek to increase its ability to monetise the workplace relations system, there is a clear public interest in identifying the proportion of the trade union movement's revenue that is attributable solely to its legally privileged status in the workplace relations system. These problems were recognised in volume 5 of the final report of the Royal Commission into Trade Union Governance and Corruption by Commissioner Dyson Heydon. He said: 'The income that flows to unions from the operation of these terms has several potential consequences. First, it may induce a union, and its officials and employees, to engage in coercive conduct to compel employers to contribute to a fund from which the union derives a benefit, or to agree to terms in an enterprise agreement requiring such contribution. Secondly, the income creates an actual or potential conflict of interest, and can lead to breaches of fiduciary duty by union officials. Thirdly, the predominance of clauses that benefit particular unions is likely to diminish competition. Coercive conduct taken by employee organisations to secure such clauses in enterprise agreements is akin to the types of conduct prohibited by the exclusive dealing provisions within the Competition and Consumer Act 2010.' The key message of this submission is that many assumptions which underpin public debate about the role of trade unions in workplace relations are false and misleading. Union decline is not a consequence of workplace relations policies hostile to trade unionism. The primary reasons unions have declined are the preferences of workers. Trade unions are increasingly irrelevant to Australia's contemporary skills and services based workforce.

Further, unions have leveraged their privileged status in workplace relations to monetise workers' representation. This has enabled unions to transition to a corporate business model, financially futureproofing themselves against further declines in membership. This is evidenced by the fact that union financial performance has almost no correlation with membership size. The Cole and Heydon royal commissions found that the funds I speak of have funnelled some millions of dollars back to the unions and employer groups through representations on their boards. There doesn't even need to be this level of formality to it. It has been found that a $30 million payment from one fund was transferred directly over to its sponsoring union and employer association.

Senators, as I'm sure you would expect from somebody like me representing a free-market think tank, the Menzies Research Centre, I am fond of the saying, 'A little competition never hurt anyone.' This is a cornerstone of this legislation. Workers armed with the full disclosures of how their entitlements money is being spent can themselves decide whether they like it and choose another fund accordingly. Currently there is no ability for them to even have the vaguest idea about where to find this information, because it's not disclosed as you would expect.

Finally, I will conclude by making a simple observation about good governance. Wouldn't you expect there to be proper processes for the approval and disclosure of payments? Wouldn't you demand that these funds are run by people of good character with at least one independent voting director? Further, surely you would expect that the money is held responsibly, invested transparently and managed by properly trained individuals? On all of these not onerous but simple expectations, members have been let down. I thank the committee.

Senator PATRICK: I'll just ask: you're clearly in favour of the bill?

Mr Mathias: That's fair enough to say.

Senator PATRICK: So, I'll challenge you to find the three worst parts of it. What would you get rid of if I made you get rid of three things?

Mr Mathias: I was considering this as you asked the previous witnesses. I think within the bill, just for context—

Senator PATRICK: Or you can start with the best three things, if you like—the things you like most about it. That was in your opening statement, but you didn't really order them.

Mr Mathias: I think within the context there needs to be an understanding, just to go to the parts of the bill, that some of these practices are already undertaken. There is no avenue, from my understanding, for this information to be properly published within the public domain. I'll go back to the three parts that I think are probably the best. In terms of corporate governance, there is the accountability in signing off and payments of invoices, and for that to be properly disclosed. Then there are financial statements to be lodged with the ROC. And the third thing I think is something that will be emerging to begin with—the competition values within the legislation.

Senator PATRICK: That's not a provision; that's an outcome.

Mr Mathias: That's true.

Senator PATRICK: Anyway, on the negative side—if I look at Protect's submission, they say that one of the things they don't like about the bill is:

Disclosure of individual transactions and details of individual director votes on training and welfare payments is unprecedented …

Are you aware of other places where such disclosure requirements might be necessary? For example, a company might not necessarily give that detail—or almost certainly wouldn't give that detail—to a shareholder.

Mr Mathias: That's right, but management is accountable to the board. I understand what you're saying. I take that note. But in a general sense the governance arrangements are currently lacking within that area.

Senator PATRICK: I understand that, but this is talking about maybe going too far. I get all the principles of transparency and I am supportive of those sorts of things, but they say this is unprecedented and therefore there is no other example of where you go to the detail of every single transaction and which director voted on which proposal.

Mr Mathias: I don't see that specifically as a bad thing or overly onerous. I think that can just be absorbed within the current responsibilities of management and the secretariat of the organisation.

Senator PATRICK: For example, should we make cabinet ministers reveal what their vote is around the cabinet table?

Mr Mathias: Cabinet is an entirely different—

Senator PATRICK: No, it's not—not as a taxpayer. If I'm a taxpayer and I want transparency as to what government is doing, they say that, if you breach that, it breaches—

Mr Mathias: I struggle to see how, say, Incolink would discuss matters of national security concern.

Senator PATRICK: No, I'm not talking about national security; I'm talking about votes in cabinet. The cabinet meets. The members may have differing opinions, but they come out in solidarity with the decision of cabinet. You don't get to know which cabinet member dissented on a view.

Mr Mathias: I think because of the nature of what we're talking about here—as Senator Sheldon said in the previous submission—you've got two different parts of the pendulum: you've got employer groups and union groups. As to the response that because they have a very robust conversations that's actually good governance, I certainly believe it to be something that's good if it's noted how they vote.

Senator PATRICK: Another thing Protect says they don't like about this bill is the potential for ministerial rules to be imposed at any time. Does a minister impose a rule upon companies and the way in which a company might act?

Mr Mathias: How is there a vehicle for the minister to impose that? I missed that in the bill.

Senator PATRICK: My understanding is that it's by way of legislative instrument.

Mr Mathias: Is it a disallowable instrument?

Senator PATRICK: Almost certainly. I don't know that level of detail, but—

Mr Mathias: As per instruments, it would be through the scrutiny of the parliament to decide whether they knock it off—

Senator PATRICK: You would be aware in the lower house it means that what the minister says goes, because that's the way the voting system works. In the Senate, in this parliament, it comes down to a couple of crossbenchers, who may be subject to pressure. I'm not saying I would be, but the government may choose to horse-trade on something.

Mr Mathias: Through the proper processes of parliament, instruments are disallowable instruments, and I believe that to be the right and proper course to do it, because I don't think that's uncommon within other—

Senator PATRICK: Is it common within the corporate sector?

Mr Mathias: No.

Senator PATRICK: Can you give me another sector where there are independent operations with money that is not taxpayers' money where a minister could intervene?

Mr Mathias: I'll take that on notice.

Senator PATRICK: The bill introduces a prohibition on distribution of surpluses of trusts to registered organisations, a prohibition that does not apply to any trust. I presume you'll say that this is a conflict—that you sign up in an EBA negotiated by union and somehow that translates to a donation to a union. Is that the problem you have?

Mr Mathias: I'd just simply say: follow the money. In the research that we've done, we've seen some millions of dollars from these organisations through to unions and then the money flow from the unions to the Labor Party. That was the link I was trying to—

Senator PATRICK: I don't think you guys made a submission on this bill.

Mr Mathias: No, we didn't, but our previous research, which—

Senator PATRICK: Can you ground that statement by—

Senator SHELDON: This is simply incorrect.

Senator PATRICK: Can you ground that statement by perhaps tabling the evidence?

Mr Mathias: Absolutely.

Senator PATRICK: I'd be quite interested in seeing the past problems, because obviously that's what the legislation seeks to remedy.

Mr Mathias: I would be only too happy to.

Senator DAVEY: This is directly relevant to that response. You say you've done research into union funds, and what you found is that money from WEFs goes to unions, and separately you've found that money from unions goes to political parties.

Mr Mathias: That's correct.

Senator DAVEY: Can you directly link the two, or is it just that there is no transparency, so you can't link them, so therefore you can't rule it out?

Mr Mathias: You can't link them, so you can't rule it out. That's correct.

Senator DAVEY: Is there also potentially a risk—and I asked the previous witnesses this as well—or a chance or even a perception that some of this WEF money that is being paid to unions could also then be used by unions to pay fines imposed on them by the courts?

Mr Mathias: That's correct.

Senator DAVEY: I have no further questions.

Senator PRATT: We don't have many questions. I just want to ask if you understand, in the context of where these funds have come from, that they've come out of a response to the phoenixing of construction companies in particular and the loss of workers' entitlements.

Mr Mathias: I do.

Senator PRATT: How do you view the legitimacy of these funds in terms of the work that they've done to protect workers' entitlements?

Mr Mathias: What I'll say to that is this: we're not actually debating the worth of the services provided. Rather, we're discussing a bill for the governance arrangements which they should be subjected to. So I'm not going to get into a statement that they do good work or they don't do good work. Generally I would agree with what you're saying: what they do with apprenticeships is very good.

Senator PRATT: What if arrangements, like restrictions on choice of fund and how EBA negotiations take place in terms of growing contributions to the funds, put the services that you say are good works, including the entitlements themselves, at risk?

Mr Mathias: If they're such good works, they should have no worry about competition. If they're doing such a good job, surely there would be more people lining up to contribute rather than to walk away. What I'm proposing here is simply to open the doors to an area that has been largely opaque for a very long time, so that people can choose, people can see and people can qualify where the money's going.

Senator PRATT: These contributions are made within EBAs, and the obligation to make these payments expires with those EBAs. On choice of fund and new negotiations, this is not like superannuation, where there's a legislated requirement for these entitlements to be locked away. Would you support compulsory contributions that are legislated for employers to make sure that superannuation, redundancy payments and sick leave are properly put away by an employer for when an employee needs them? Should we legislate for that?

Mr Mathias: From a philosophical point of view, I bring it back to what I think about compulsory student unionism on campus. I think: if the student unions were doing such a great job, why do they fear it being taken away? If they're doing a great job and all the students agree with what they're doing, surely they'd be lining up to give them more money hand over fist.

Senator PRATT: Why would employers fear a legislated requirement to pay into one of these funds?

Mr Mathias: That's the distinction: one of these funds. Currently that—

Senator PRATT: It might be a fund with or without choice, but we have not had one employer come and sit before us and say that these obligations to pay workers' entitlements and to save them in advance should be compulsory.

Mr Mathias: The issue here is how that determination is made through the EBA and then, onwards, that it directly benefits the unions involved. There is a conflict of interest here that runs larger than anybody has touched on.

Senator PATRICK: But you've not given a submission to the committee that would evidence that what you say is—

Mr Mathias: I will table the research.

Senator PATRICK: Thank you.

Mr Mathias: I have something in front of me that is one of the—

Senator PATRICK: Is one of them Protect?

Mr Mathias: That was the $30 million that I touched on, but I didn't name them.

Senator PATRICK: They are appearing next, so I would like to ask some questions of them.

Mr Mathias: A more localised submission to make is the Victorian branch of the ETU. I will give you a quick summary. As of 2016, the Victorian branch had grown its membership by just 343 since 2003. It had increased its annual revenue, however, by $6,394,000, or 71.2 per cent. A significant portion of its income growth is attributable to trust distributions, management fees, directors' fees and administration income received between 2003 and 2016. The management fees and other income sources set out in the table—which you'll soon have—relate to the arrangements connected to the ETU's role in enterprise bargaining. For example, Protect is a redundancy and income protection scheme for workers paid for by weekly contributions made by employers pursuant to enterprise agreements negotiated with the ETU. The royal commission into trade union corruption identified that, through a complex series of arrangements, the ETU was paid a management fee of 20 per cent of the cost of the coverage provided by Protect. In other words, the ETU derived commissions worth millions of dollars by negotiating pay agreements that require employers to purchase an insurance product in which the ETU held a direct interest.

Senator PATRICK: Does it mention the value? That's the $30 million you were referring to?

Mr Mathias: Not specifically; that $30 million was a transfer payment—and that didn't go directly to the ETU so much as to the other employer association as well.

Senator PATRICK: You understand that they are coming up next? They are entitled to rebut anything you say. You are under privilege.

Mr Mathias: I am absolutely happy for this research to stand on its own two legs.

Senator PATRICK: I'm just saying that, if you give it to the committee in two days time, Protect will have given evidence already.

Mr Mathias: Let me give you a breakdown. In 2014, the ETU made $2.87 million in management fees. They made $197,895 in directors' fees and some $4 million in administration income. In 2013, the ETU made $2.821 million in management fees, $229,770 in directors' fees and $4.125 million in administration fees. As recently as 2016, the ETU Victorian branch made $210,000 in directors' fees and $4.31 million in administration income.

Senator PRATT: What's wrong with that?

Mr Mathias: Some of those things flow through them directly negotiating an enterprise bargain which benefits Protect, which then comes back to them. In the same way, as I said, under a series of complex arrangements the ETU is paid a management fee of 20 per cent on the cost of coverage provided by Protect.

Senator PRATT: You say, yes, it benefits Protect. But Protect distributes on terms that it can't be used for political or industrial purposes. You are aware of that, aren't you?

Mr Mathias: How do you mean?

Senator PRATT: It can be used for welfare services within the union, but it can't be used for political or industrial purposes. The recent transfer of funds was under those conditions.

Mr Mathias: I take your point, but, because of the lack of an itemised income source within the ETU's financial statements, it makes it difficult to calculate the proportion of the distributions, management fees and similar payments attributable to the arrangements they have with organisations like Protect.

Senator PRATT: Protect will be able to answer that for us, as will the ETU. You would expect that they're able to uphold the terms of that transfer.

Senator O'SULLIVAN: Mr Mathias, in that situation, if there were a greater level of transparency and accountability, there'd be no doubt.

Mr Mathias: That's right. What is the issue with opening up the doors? If you're doing the right thing, you have nothing to worry about.

Senator SHELDON: You said in previous evidence today, on the other matter, that as a Liberal research arm you also have a series of donors that you notify the AEC about.

Mr Mathias: That's correct.

Senator SHELDON: I may have this wrong, but you said the majority of those donations were $1,000.

Mr Mathias: That is correct.

Senator SHELDON: Is that series of donors able to be made available to the committee?

Mr Mathias: No. There's no requirement—

Senator SHELDON: Is that transparent?

Mr Mathias: We'll bring in Brett Gale from the Chifley Research Centre and ask him to do the same. In fact, the Labor Party can do the same and the Liberal Party can do the same. Is that what you're advocating?

Senator PATRICK: I'm advocating for that.

Senator SHELDON: You're asserting—'

Senator O'SULLIVAN: It's a very important issue about transparency—

Mr Mathias: I don't think we're discussing the—

Senator SHELDON: Is Menzies research managing the funds that have—

Mr Mathias: It's not some hundreds of millions of dollars or tens of millions of dollars, Senator Sheldon. We're a $1 million per annum organisation with four FTEs.

Senator SHELDON: No—I'm just saying you gave evidence before to say that you're making that information available to the AEC, but you aren't making that information available to the AEC. That's the point I'm making.

Mr Mathias: I'll direct you to our returns which we do in compliance with the act every year.

Senator SHELDON: I just want to be clear: you were asserting before that you're giving information to the AEC regarding these $1,000 donations and you're now saying that you are not.

CHAIR: How is this relevant to the bill that's before the committee at the moment?

Senator SHELDON: I'm trying to ascertain the capacity for the Menzies Research Centre, on the answers they're giving regarding these matters and other matters.

Mr Mathias: Okay. It's almost like inflating your membership numbers by 20,000 to get 15 more delegates at a conference, Senator Sheldon. But we comply with the arrangements that we have with the AEC as an associated entity of the Liberal Party of Australia.

Senator SHELDON: I've heard enough from the Liberal Party research centre. Thanks.

CHAIR: I couldn't hear enough. I think it's brilliant.

Senator PATRICK: I, on the record, would like to see everyone's donations in real time.

CHAIR: Thank you, Senator Patrick—helpful as always. Mr Mathias, thank you for very much for coming along today.