5 August2015
Mr Roger Arwas
Executive Director
Small Business Victoria
Department of Economic Development, Jobs, Transport and Resources,
MELBOURNE, 3001
Via email:
Dear Mr Arwas,
Re: Public holiday – Regulatory Impact Statement
The City of Greater Dandenongwishes to express our concern about the public holiday proposed for Grand Final Eve in Victoria.
This initiative will reduce economic activity and generate a lost day of production where employees receive an extra paid day off work. This would be a significant cost for our businesses at a time when they are facing considerable operational challenges.
In our view, the costs of lost production on the new public holiday exceed the potential benefits and we request that you consider the information below in your process to permanently instate Grand Final Friday as a public holiday.
About the City of Greater Dandenong
The City of Greater Dandenong (CGD), situated in Melbourne’s south east, is home to over 146,000 residents and covers an area of just under 130 square kilometres. Its central activities district is Melbourne's second largest retail and commercial centre, including over 7000 businesses. It is also the most ethnically diverse area in Victoria, with residents from 151 nations, half of whom were born overseas. Key industries include metal manufacturing and food processing and distribution, beverage and logistics.
CGD has an output that is estimated at $28.4billion, of which manufacturing comprises $16.6billion (or 55%). In a metropolitan Melbourne context, manufacturing represents 26% of total output and at 55%, CGD manufacturing makes a significant contribution to the local and regional economies.
In terms of employment, there are approximately 76,000 jobs in CGD and this includes 22,800 (or 30%) of all local jobs. At a metropolitan Melbourne level manufacturing represents 11% of total jobs compared with 30% of total jobs in CGD and so is a significant net provider of local regional jobs. Total CGD resident employment is approximately 54,000 and 12,400 (or 23%) of these employed residents work in manufacturing.
The total value added by the Greater Dandenong economy is estimated at $10.232 billion, which is 4.23% of value added in Greater Melbourne.
Economic impact of the proposed new public holiday
Public holidays generate a range of impacts on Greater Dandenong and the wider regional economy including increased wages for employees, increased labour costs for employers and reduced economic activity. This brief impact assessment focuses on quantifying the cost to businesses and workers resulting from an additional public holiday during a week.
Reduced economic activity
There is a loss of economic activity or output for employers who choose not to operate on a public holiday. Those employers operate for fewer days in the year than they would otherwise and this leads to reduced gross regional product for the municipality such as production, income and economic activity.
Economic impact for Greater Dandenong
The economic cost (or lost production) from the new public holiday is estimated to be approximately $22.86m annually in Greater Dandenong. Most of this reduction is evident in Manufacturing and Wholesale trade, which amounts to almost $12m. Professional services are estimated to decrease annual production by $7.6m and Construction industry is estimated to produce $1.3m less per year.
Regional modelling shows that through flow on effects this loss in production is estimated to further reduce the demand for goods and services by $20.57m in Greater Dandenong.
Increased labour costs for employers
Employers who continue to operate on a public holiday are subject to increased labour costs, which are broadly equivalent to increased wages received by employees, with penalty rates often providing an additional 50 per cent to 150 per cent loading beyond the rate that would otherwise be applied on those days. This impact tends to be concentrated in those industries that operate across the entire week, such as retail, hospitality, accommodation and essential emergency and community services.
Distributional impact (wage payments)
A new public holiday during the week is also estimated to result in increased annual wage payments of around $4.6m to people who work on public holidays. The proposed public holidays would provide an estimated additional 33,000 days off work across the municipality and businesses will still pay wages and salaries of $20m. These costs are reflective of a recent survey of local manufacturing businesses
Affected workers
Some employers are expected to lower the employment on the day relative to a normal working dayand some employers may be able to pass on a portion of the cost of penalty rates to customers through surcharges. Employers will actively seek to manage their costs by rostering fewer staff relative to a normal trading day, substituting paid staff with owner or family input or may choose to only undertake core activities requiring lower employee input.
Smaller businesses may choose to close on any additional public holidays as it is likely to be harder for smaller businesses to absorb the cost of additional wages than it is for larger businesses. For workers employed on casual arrangements, this equates to a lost earnings opportunity and lower income.
Given that unemployment in Greater Dandenong has been consistently higher than in metro Melbourne as a whole, lower income as a result of lost earning opportunity is expected to impact residents to a higher degree relative to metro Melbourne. In March 2015, the Greater Dandenong unemployment rate was 12% compared to Greater Melbourne of 6.8%.
Regional context
Greater Dandenong businesses are part of an integrated supply chain that supports not only businesses within the municipality but also businesses and industry sectors across metropolitan Melbourne and interstate.
Regional modelling estimates show that production reduced in theMelbourne South East area resulting from an additional public holiday is estimated at $78.11m. Increased wage payments are estimated at $32m in addition to 258,500 days off on a public holiday, which is estimated toresult in a flow-on effect of $146m lost production.
Summary
Impact summary / Greater Dandenong / Melbourne South EastProduction loss / $22.86m / $78.11m
Wage transfer / $4.6m / $32.3m
Number of additional days off / 33,000 / 258,500
Flow on effects loss / $20.57m / $146m
Methodology
Economic net impact and wage transfers
Economic net impact resulting from reduced economic activity and wage transfers of additional public holiday are estimated using PricewaterhouseCoopers Australia (PwC) model as outlined in Regulatory Impact Statement on proposed new public holidays in Victoria report (2015). Impacts considered in relation to an additional public holiday:
•foregone production and casual employment (taking into consideration that some employers remain open on the day and some are able to ‘smooth’ production across other days of the year to make up for the additional public holiday)
•increased wage costs due to public holiday penalty rates
•some employers are expected to lower the level of employment on the day relative to a normal trading day
PwC model is adjusted so that Regional Economic Modelling and Planning System (REMPLAN) data estimates for Greater Dandenong and Melbourne South East can be applied. The impactis calculated using REMPLAN estimates of annual value added, wages and salaries.
Economic flow on effects
REMPLAN is used to estimate economic flow-on effects of an additional public holiday. It estimates industrial and consumption flow on effects and multipliers for Greater Dandenong. The model estimates the demand for intermediate goods and services as well as consumer spending resulting from multiple rounds of flow-on effects.
Difficulties currently faced by manufacturing businesses
In our region, and across the country, manufacturing is under enormous pressure. Those businesses that remain are operating in a global market where change is rapid and ongoing. Competing for business against overseas competitors is a significant challenge.
Some businesses have been able to overcome these barriers and run very successfully. But the majority are small to medium sized businesses (SMEs) that are operating on the borderline or who have a very small profit margin. These businesses will be negatively impacted by introduction of a Grand Final Friday public holiday.
Costs to business of Grand Final Friday statewide
A recent study conducted by PwC on behalf of the Department of Economic Development, Jobs, Transport and Resources found that the lost production cost of the new public holiday due to reduced economic activity will be between $717 million and $898 million annually, offering an estimated additional 1.5 million days off work across Victoria each year.
This study also found that SMEs are much more likely to be negatively impacted by additional public holidays. This is because wages form a greater proportion of their overall operating costs and so it is harder for them to absorb additional wage expenditure. It also follows that businesses which choose to close rather than pay penalty rates lose a full day’s production, which will have a cumulative effect on our local and state economies.
Importantly, this study produced evidence that the estimated costs of the new public holiday significantly outweigh the benefits.
Comparison with other states
At present, Victoria operates with more public holidays than any other Australian state. This already puts our companies at a disadvantage, making our state a more expensive place to do business. An additional public holiday will only exacerbate this situation.
Other business views
To gauge the reaction to the proposed public holiday, South East Melbourne Manufacturing Alliance (SEMMA) conducted an online survey, with the following results.
Grand Final Friday
On the introduction of a public holiday on Grand Final Friday:
•81% of respondents will not operate on Grand Final Friday
•of the 81% not operating on Grand Final Friday, 89% anticipated lost production
•of the 89% who anticipated lost production, 36% will make up for lost production, 64% will not
•lost production will be made up by:
•6.7% working weekends instead
•73% overtime on other days
•20% other: cut something out, work weekends and overtime or make up for lost productivity during quiet times
•value of lost production to 43 businesses: approx. $1.5 million
•cost of addition wages to 43 businesses: approx. $300,000
•total lost productivity from 43 businesses: approx. $1.8 million.
It is our belief that many other business organisations share our views on this matter and have submitted their cases to you.
Our hope is that you will seriously consider the issues raised in these submissions during the process that government undertakes to permanently instate Grand Final Friday as a public holiday.
While we understand the benefits that an increased leisure day may give employees, we believe these benefits are far outweighed by the significant disadvantage that our local manufacturers will experience if the Grand Final Friday public holiday goes ahead.
Yours sincerely
Paul Kearsley
Group Manager
Greater Dandenong Business