June 26, 2013  |  General Business

Employment: Government Performance

I move: 

That this house condemns the Napthine government for failing to stop the loss of Victorian services sector jobs, and for failing to follow the Victorian Labor opposition’s lead in implementing initiatives to prevent the large-scale offshoring of Victorian services sector jobs, and notes that –

(1) according to the latest ABS data (6291.0.55.003), services sector jobs such as ‘information, media and telecommunications’ and ‘retail trade’ were at the top of the list of sectors with the biggest job losses across various sectors, behind ‘manufacturing’ and ‘agriculture, forestry and fishing’, in the 12-month period to the May quarter 2013 compared to the May quarter 2012; 

(2) other services sector jobs including ‘electricity, gas, water and waste services’, ‘professional, scientific and technical services’, ‘other services’, ‘education and training services’ and ‘accommodation and food services’ were also near the top of the list and, in total, 9 out of 16 services sectors experienced job losses in the May quarter 2013 compared to the May quarter 2012;

(3) the results for the 12 months ending May quarter 2013 indicate that job losses are occurring in the delivery of essential services and in important drivers of the Victorian economy including in professional, scientific and technical services; education; ICT sectors; retail and wholesale trade; and accommodation and food services; 

(4) overall, Victoria’s services sector has been underperforming, as measured by Ai Group’s Australian Performance of Services Index (PSI), which has remained below the neutral 50-point level for the past 18 months, indicating that services activity has been contracting throughout the period;

(5) Victoria’s PSI is also below the national average based on the Ai Group pre-2013-14 budget submission to the Victorian government;

(6) the National Institute of Economic and Industry Research (NIEIR) report published in 2012 estimates that an expected 700 000 to 1 million services sector jobs will be moved off shore in the next three decades. 

Unfortunately scarcely a day goes by these days in Victoria without an iconic Victorian business announcing either jobs cuts or a major review of its Victorian operations. Ford, Toyota, Alcoa, Bosch, ANZ, Heinz, Shell, Telstra and Target are some of these large and reputable corporations. I have said in this place on many occasions that jobs are a high priority for the Victorian Labor opposition. We believe that a job provides dignity, a sense of purpose, the means to make a productive contribution to the community and income to support a family.

I have spoken at length in this place about the predicament of the manufacturing sector and jobs in the manufacturing sector under the coalition government. I have been critical of how the Napthine and Baillieu governments have sat back and allowed our manufacturing sector to take a pounding. They have claimed that state governments are powerless to support the manufacturing sector in the milieu of a high national currency — that is, the high dollar — and depressed demand in the global economy. In response to that my thesis has been that whilst state governments do not control the macroeconomic levers of our national economy, they nevertheless have policy instruments at their disposal to cushion the impact on our manufacturers of the high Australian dollar and the lack of demand in the global economy. 

Supporting my thesis is the fact that employment in the New South Wales manufacturing sector, operating under the same macroeconomic conditions and in the same global economic conditions, has gone up whilst employment in the Victorian manufacturing sector has taken a beating. Total employment in the New South Wales manufacturing sector increased by 7.3 per cent, or 19 900 positions, over the 12-month period ending in May 2013. In the same period total employment in the Victorian manufacturing sector fell by 5.9 per cent, or 18 200 positions. These statistics demonstrate that the energetic and proactive New South Wales government is delivering for the people of New South Wales and for the New South Wales manufacturing sector while the Victorian government has effectively given up hope and has cut our manufacturing sector loose.

Unfortunately we are seeing the same pattern emerging in the largest sector of our economy, the services sector, and I will give a comparison between the New South Wales and Victorian services sectors later in my contribution. 

However, regarding the Victorian services sector, I note that, just as in manufacturing, adverse economic conditions such as the high Australian dollar combined with government inertia are leading to mass job losses in the Victorian services sector through businesses losing confidence in the state and deciding to reduce their Victorian workforces or to send Victorian jobs offshore.

Before I talk to the issue of job losses in the services sector in greater detail, I would like to give the house an overview of the services sector. I know the categorisation of services confuses a lot of people. Despite the services sector dominating Victoria’s economic activity in terms of employment and output, the sector historically has not been the subject of extensive study in comparison to other sectors of the economy.

The Victorian services sector employs over three-quarters of the total Victorian workforce and generates over three-quarters of our state’s output. 

It also makes a significant contribution to exports. I believe there is a lot of potential to improve the exporting of our services, but nevertheless the sector still makes a significant contribution. In terms of innovation, I think a lot of people in this place and in society would be surprised to know that the services sector does innovate as well. It does not engage in as much research and development as, say, the manufacturing sector, but still the services sector innovates.

The figures speak for themselves. The Victorian services sector is clearly the biggest sector in our economy; therefore there must be a better understanding of its characteristics to ensure that the Victorian government — and this applies to governments throughout Australia — develops appropriate policy settings to maximise the potential of the sector and to tackle the significant challenges facing the sector in the years to come. 

I hope the coalition government listens and acts on this issue, because at the moment it shows no inclination or sign of even pretending to understand the challenges facing the biggest sector of our economy.

Defining the services sector is a very daunting task because it is so expansive and so diverse, and consequently there is no one agreed definition of the sector. Perhaps the most frequently used definition of the services sector is that it is: 

… a collection of ‘residual’ industries — namely, all industries excluding agriculture, mining and manufacturing.

Understandably this definition has its critics. The Productivity Commission made the following observation about the term ‘residual industries’: 

… this does not tell us anything about what services are. 
Indeed, this description may have contributed to some of the negative perceptions about the value of services.

It also refers to this quote: 

… the term ‘residual’ has another more misleading implication — that of size. A ‘residual’ is usually thought of as that little bit which is left over. Nothing could be further from the truth in the case of the service sector.

Indeed the Productivity Commission has a point because, as I said previously, the sector is by far our largest contributor to state total employment and output, and the term ‘residual’ is misleading because it implies something which is small.

The Australian Bureau of Statistics (ABS) tracks and groups services sectors under the Australian and New Zealand Standard Industrial Classification 2006, or to use its acronym, ANZSIC. There are 16 industries classified as ‘services sector’ under ANZSIC. It is an important part of the discussion to understand which sectors we are dealing with when we talk about the services sector.

With the indulgence of the house I will now list those sectors: electricity, gas, water and waste services; construction; wholesale trade; retail trade; accommodation and food services; transport, postal and warehousing; information, media and telecommunications; financial and insurance services; rental, hiring and real estate services; professional, scientific and technical services; administrative and support services; public administration and safety; education and training services; health care and social assistance; arts and recreation services; and another category called ‘other services’. This list demonstrates the diversity in the services sector classification. Understanding that diversity is critical to any discussion of the service sector.

I now turn to the government’s performance in the services sector. I am afraid that, just like in the manufacturing sector, the record of the Baillieu and Napthine governments has been very poor indeed. 

In the last two years jobs growth in the services sector has fallen to less than a third of the level experienced in the last two years of the Labor government. According to the latest ABS data, source 6291.0.55.033, services sector jobs in areas such as information, media and telecommunications, and retail trade topped the list of job losses, which means that they not only topped the list of job losses for the services sector but for other sectors in the economy as well. Manufacturing and its sub-industries are included in that classification as well as agriculture, forestry and fishing and their respective sub-industries. The data is for the 12-month period to the May 2013 quarter, compared to the May 2012 quarter. 

Other services sector jobs topping the list in terms of job losses include those in the categories of electricity, gas, water and waste services; in the professional, scientific and technical services; in the category of other services; in the education and training services; and in accommodation and food services. That is one group. When the other various sectors of the economy are taken into consideration, which include manufacturing, agriculture and forestry and fishing, which are ranked at the top of the list in terms of job losses, the second or third largest group in terms of job losses is the services sector.

In total, 9 out of 16 services sectors experienced job losses in the May quarter 2013 compared to the May quarter 2012. 

The loss of jobs in professional, scientific and technical services, education and training services, retail trades, and accommodation and food services in the 12 months to the May quarter 2013 when compared to the May quarter 2012 is particularly concerning because it reverses the growth which occurred in the same sectors in the 12-month periods that ended in February 2013 and November 2012.

The results for the 12 months ending with the May quarter 2013 indicate that job losses are occurring in the delivery of essential services and in important drivers of the Victorian economy, including professional, scientific and technology services, education, ICT, retail and wholesale trade, and accommodation and food services. These are all very important industries for the growth of the Victorian economy. They are the drivers of growth in Victorian industry. Sadly, in the 12 months ending with the May quarter these services sectors have taken a pounding. 

Overall Victoria’s services sectors have been underperforming, as measured by Ai Group’s Australian performance of services index (PSI). The index has remained below the neutral 50-point level for the past 18 months. I have been banging on about manufacturing and about the PMI (performance of manufacturing index) all this time, and the PSI is a comparable index for the services sector. The PMI has remained below the 50-point level since this government came to office, and that is also the trend with the PSI. Victoria’s PSI has been below the national average, and I base those comments on Ai Group’s pre-2013-14 budget submission to the Victorian government. The Australian PSI fell again in May to 40.6 from 44.1 in April, which is the lowest result for almost a year.

Just like the manufacturing sector, our services sector is underperforming when compared to that of New South Wales. 

Since the Victorian coalition government assumed office in November 2010, New South Wales has created 40 500 more jobs in the services sector than Victoria, which is a very similar story to manufacturing. Since the coalition government assumed office here, New South Wales has created 33 500 jobs in the retail trade sector while Victoria has lost 20 800 jobs. Since the Victorian coalition government assumed office in November 2010, New South Wales has created 2000 positions in the information, media and telecommunications services sector while Victoria has lost 2000 jobs in that sector — New South Wales is up 2000 jobs; we are down 2000 jobs. Since the Victorian government assumed office, New South Wales has created 21 900 jobs in the very important financial and insurance services sector while Victoria has lost 2000 jobs. In this critical sector, which has rivals in major capital cities around the world, New South Wales has created 21 900 jobs and Victoria has lost 2000 jobs.

The figures speak for themselves. We have the same macro-economic conditions at play and we have the same global conditions at play. New South Wales and Victoria are operating under identical economic settings. The difference is that while New South Wales has a proactive and energetic government which finds ways to cushion the various sectors of the economy, the Victorian government is essentially asleep at the wheel. It has lost interest and has given up hope. 

No doubt the job losses in New South Wales and Victoria are largely outside the control of state governments, but this government’s lack of energy and drive has done little to inspire confidence in the companies that have been weighing up their options. Companies have been sitting back. They saw the leadership transition from the former Premier, Mr Baillieu, because the Liberal Party admitted that Mr Baillieu was doing nothing. The business community said, ‘Here we go, there is a transition to a new leader’, and there was a flurry of activity. The business community sat back and waited for the budget, but the government did not deliver. The new Premier, Dr Napthine, did not deliver, and it is no coincidence that both Ford Australia and Target Australia took the drastic action they did straight after the budget, because they had waited for the budget and they were disappointed.

The business community’s expectations were great, but it was left high and dry. 

As I have just identified, the government’s biggest problem is that it has lost the confidence of the business community. I am afraid that the business community is voting with its feet. Our manufacturing sector is voting with its feet and going to New South Wales. There is hope for our services sector. The insurance and finance sectors are probably losing a large part of their operations to New South Wales, but let us hope this government wakes up before we lose most of our services sector as well. While the Napthine government is dithering, the New South Wales government is muscling in on traditional Victorian industries. While the Napthine government is causing this state to stagnate, New South Wales is flourishing at Victoria’s expense.

One way of addressing the Victorian business community’s confidence in the government is for the coalition to get out there and formulate a jobs and growth plan, as the opposition has done. 

The opposition has been calling on the government to formulate a jobs and growth plan, because it saw the jobs crisis coming from a long way off. The opposition saw what would happen with a high Australian dollar. It knew what was going to happen to the manufacturing sector, and it knew the service sector was also going to take a pounding. But the coalition government decided not to act. When the coalition government did not come through with a jobs and investment plan the opposition put politics aside and decided to come up with a jobs plan and a growth and investment plan. The opposition has offered some suggestions to the government, but the government still will not take them up. I am afraid there are dire consequences for working Victorians. Thousands of Victorian jobs have been lost from both the services sector and the manufacturing sector.

The offshoring of Australian and Victorian jobs is probably the single biggest issue facing the services sector and possibly the entire economy. 

The National Institute of Economic and Industry Research (NIEIR) has produced a couple of reports. One of the reports, released in May 2008, was entitled Off-shore and Off Work — The Future of Australian Service Industries in a Global Economy — A Call to Action. The other report, which was released in September 2012, had the same title but was subtitled ‘An update’. In 2008 NIEIR released a report on offshoring. It made certain predictions about offshoring in that report, and then another report was released in September 2012 which checked its predictions. The second report provides some alarming statistics regarding the offshoring of Australian services sector jobs. I encourage the minister and the government to read this report. Once they read it, I am certain they will wake from their slumber. If the report is accurate, we are about to be buffeted by an enormous loss of services industries to both low-cost and high-cost destinations. The NIEIR report predicts that 700 000 to 1 million jobs will be offshored in the next three decades. 

It is worth identifying the occupations which are experiencing high rates of offshoring, because most people not familiar with this trend will be amazed to learn that the jobs of Australian and Victorian services sector workers do not just go to low-cost countries like India and the Philippines. Those jobs also go to advanced economics such as the US, UK and the Netherlands. Importantly, most of those jobs, unlike in the manufacturing sector, require high skills or intermediate skills. In the manufacturing sector companies are going offshore to take advantage of cheap labour and low costs. I am not necessarily saying they exploit labour, although there is certainly that element as well, but the labour costs are coupled with low skills. However, in the services sector we are seeing offshoring to places where the jobs require a significant amount of skill.

The NIEIR report advises that the following classifications are at greatest risk: one, general clerks; two, specialist clerks; three, accountants; four, bank workers and credit and loan officers; five, software and applications programmers; six, call centre and telemarketers; seven, contract program and project administrators; eight, ICT technicians; and nine, keyboard operators. All those classifications have the potential for a range of functions to be undertaken remotely, and unfortunately for the Australian and the Victorian services sectors, they have been increasingly undertaken overseas or offshore. 

In the finance and insurance sector the proportion of jobs at risk is almost twice the rate of the services industry as a whole. In that sector 24 per cent, or 97 000 jobs, are at risk of being offshored. This is followed by the professional, scientific and technical services and the information, media and telecommunications services sectors with 20 per cent of those jobs being at risk of being offshored. Finance workers, software programmers, call centre workers, project administrators, information and communications technology workers, financial planners, media workers and illustrators are among other occupations at risk of having jobs sent offshore in the next two decades. The NIEIR report estimates that 20 000 jobs a year in the areas of clerical work, accounting, banking and technical support alone will be moving overseas if this trend continues.

One must ask, ‘How did we get to a point where we have been losing and are expected to continue to lose so many of our jobs overseas, and what are the drivers of offshoring in the services sector of our economy?’. The answer is a combination of the advances in technology and the evolution and acceptance of outsourcing. We know that in the 1990s Victoria essentially became the new public management capital of the world — we became a big economic and financial experiment under Premier Jeff Kennett and new public management practices involving outsourcing were big. Outsourcing to companies within your own economy is one thing, but this is entirely different. This is outsourcing Victorian jobs overseas. While the outsourcing trend started in the 1990s, the jobs continued to stay in the Victorian economy, but outsourcing overseas, or offshoring as it is known, is a very big danger to the Victorian services economy.

Another factor has been the strong Australian dollar — although that is pegged back well below parity at the moment — the portability of jobs and increased international competition because of the availability of skills abroad. I will now turn to the issue of skilled jobs moving overseas and the effects of that on our economy. Since most of the jobs being offshored in the services sector are high and intermediate-skill jobs, the services sector and the overall workforce will effectively be de-skilled if the trend predictions of the NIEIR report are realised. With the mining boom coming to an end and agriculture and manufacturing not doing well — the manufacturing and services sectors are bleeding jobs — there are danger signs for the health of our economy and for the future standard of living for Victorians and Australians. Whilst the Victorian government sits idly by, other countries have been quick to capitalize on the internationalisation of the global services economy by actively pursuing opportunities to develop globally focused service economies. 

Unfortunately, we can see this tsunami of job losses coming our way in the Victorian services sector, but the Victorian government does not have a strategy or a plan to deal with offshoring and the internationalisation of the services sector. Unless we urgently stem the tide of services sector jobs, skills and competencies being lost to overseas businesses it will be too late, because once we lose these skills and competencies our domestic economy will entrench and institutionalise offshoring, the corollary of which will be increased inequality in income distribution and the very real prospect of a reduced standard of living, especially if other sectors of the economy do not compensate for those lost jobs. Knowing the manufacturing sector as I do, I cannot see employment in manufacturing increasing very much unless this government gets creative. Maybe it could go to the New South Wales state government for advice, because that state’s manufacturing sector is improving — it is continuing to expand and more workers are being put on. 

I now turn to the government’s role in offshoring as a purchaser. According to the NIEIR report, at 11.7 per cent, public administration and safety services are ranked the third highest in relation to the proportion of jobs at risk of being offshored. Previously I mentioned the three categorisations of services. One group coming in at 24 per cent is the finance and insurance sector. Other sectors with a high proportion of jobs at risk of offshoring include information, media and telecommunication, with 20 per cent of total employment in that sector, and 11.7 per cent of public administration and safety jobs. Obviously public administration refers to government activity. The NIEIR report states: 

… while it is less likely that government would offshore services directly, it would be quite possible that outsourced services could be offshored. This points to a two-stage process discussed in NIEIR’s original report where first the service is outsourced and then the outsourced service provider substitutes local employment with offshore employment.

As the biggest purchaser of services in our economy, the state government has an important role to play in ensuring that these services are sourced locally wherever possible. It is important that the state government lead by example and be a model purchaser of both goods and services not only by purchasing through local suppliers but also, as the NIEIR report makes clear, by ensuring that successful tenderers for state government work use local small and medium enterprises (SMEs) in their supply chains. 

The transparency of the supply chain for companies winning state government work is very important, and that is why the opposition has released a services policy, which I encourage the government to adopt.

Amongst other things, the policy establishes a services and financial sector procurement register of suppliers from which the Victorian government will source its services and financial sector purchases. The register will be located within the Victorian Government Purchasing Board (VGPB), which currently oversees such state purchasing contracts in a range of areas, including legal services, IT, vehicles, advertising and communications.

As a model purchaser it is important for government procurement to ensure that the principle of value for money is not interpreted simply as the least-cost alternative. This is a problem for both the manufacturing and services sectors. 

Value for money should not be interpreted as simply the least-cost alternative, because the least-cost alternative approach seldom provides the best value for money as the goods and services produced at lower cost may lack the quality, standards and fit-for-purpose requirements of purchasers, thus potentially offering a substandard service or product and in many cases costing more in the medium to long term. That is why in our policy the opposition commits to ensuring that government procurement decisions are based on value for money. Our policy is that we will be strict on the interpretation of value for money and insist that it is not about finding the least-cost alternative.

As a model purchaser the government has a responsibility to lead by example and to ensure that its purchases, including the supply chain, are not produced unethically. This means that government should not be associated with any goods and services purchases produced from the labour of exploited workers. 

The tenderers for contracts from Victorian entities would be required to comply with our policy on all applicable collective agreements, employment legislation and awards, including proper occupational health and safety standards, superannuation and workers compensation obligations, through the life of the contract.

Mr Barber — So they have to obey the law.

Mr SOMYUREK – Exactly, Mr Barber; they do in fact have to obey the law. This is very important. It might seem strange, but they do indeed have to obey the law.

In my travels one of the biggest issues I find from the feedback I receive from people in the manufacturing and services industries is that there is not a level playing field when some companies are based offshore. 

Local SMEs have to comply with the law, as Mr Barber says, but some goods are manufactured overseas and have not had to meet the same vigorous regulation they would if those manufacturers were based in Australia, so the playing field is not always level when our manufacturers and service industries are competing with offshore production.

In order for this policy to be effective strict reporting requirements need to be in place, and that is why Labor’s policy is to strengthen reporting requirements to ensure that an ethical procurement policy is also complied with. The opposition commits to ensuring that any company supplying services to the state government, including any subcontractor or third party in the supply chain, would comply with this policy. Labor is committed to ensuring that successful tenderers for government contracts provide regular updates to the VGPB, and that the VGPB will be given responsibility to investigate complaints of non-compliance. Potentially this policy has a lot of teeth. 

Our services policy also targets call centre jobs by requiring businesses that tender for call centre contracts from Victorian government entities, including all in-budget agencies, statutory authorities and government-owned corporations, to comply with and demonstrate their commitment to the Victorian government call centre code at the pre-qualification stage of the tendering process. Finally on our services policy, our policy document makes a commitment to establish a tripartite services sector round table modelled on the very successful commonwealth Services Leaders Group to assist in the development of a plan and targets for this, the largest sector of our economy but a sector that is faced with enormous challenges over the next couple of decades due in particular to offshoring, as reported by NIEIR.

In conclusion, I reiterate that our services sector is the largest sector of our economy but strangely also one of the least studied sectors. The NIEIR report demonstrates that the sector will be rocked by significant challenges in the following two decades as a result of the internationalisation of the services sector and the expected large-scale offshoring of the Australian and Victorian services sector. Unless we as a state and a nation begin to plan for the challenges that await us, we will continue to lose a significant portion of our largest sector overseas and the resulting deskilling of our workforce will have an enormous impact on our living standards. I urge the Napthine government to implement the policies that we as an opposition have formulated. 

Most importantly, I urge the government to formulate a strategy for the Victorian services sector in order to be in a position to navigate through the problems on the horizon.