Cuts to Sunday penalty rates for low-paid workers could blow a $650 million hole in the federal government's budget bottom line.
That's the most conservative estimate of Richard Denniss, chief economist at the Australia Institute think tank, who says the cuts will lead to lost personal income tax revenue and higher welfare costs for the government.
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Turnbull admits support for rate cut
After weeks of equivocation, the prime minister admitted that he does support the penalty rate cut handed down by the Fair Work Commission, adding that he'll find it hard to work with incoming ACTU boss Sally McManus.
The potential impact of the cut on pay-as-you-earn tax revenue and welfare payments was not assessed by the Fair Work Commission, and the government has released no modelling to show the likely impact on the budget.
"This omission is surprising given the government's stated focus on budget repair and the effort it has put into legislative efforts to secure reductions in welfare payments and other savings," Dr Denniss says in a report.
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The Turnbull government now estimates 300,000 to 450,000 people who work in retail, hospitality, fast food and the pharmacy sector will be hit by the decision. Unions put the figure at close to 700,000.
While not offering a precise estimate on the budgetary impacts, Dr Dennis says they are "significant and negative" and "are significantly larger than some of the government's recent savings measures".
If 285,000 people lost an average of $2744 a year and were all in the 21 per cent tax bracket, the reduction in income tax revenue would be $164.2 million a year – or $656.8 million over the next four years.
If 460,000 people lost an average of $2744 a year and half were in the 21 per cent tax bracket and half were in the 34.5 per cent tax bracket, then the reduction in income tax would be $350.2 million a year – $1.4 billion over the forward estimates.
Dr Denniss says cutting the wages of low-paid workers would also lead to a significant increase in welfare spending.
He finds that if 20 per cent of those affected by the penalty rate cuts were in receipt of welfare payments then the increase in welfare spending would be between $78.2 million and $126.2 million a year.
State government payroll tax revenue could also decline, as could GST revenue from declining consumer spending, he says. Some factors might partially offset the loss in tax revenue associated with a wage cut, such as increased employment or higher profits.
The Turnbull government has effectively backed the commission's decision, guaranteeing Labor and the union movement will prosecute a ferocious industrial relations campaign between now and the next election.
The commission has recommended cuts in the retail sector, for full-time and part-time workers, which would see their Sunday penalty rates cut from 200 per cent to 150 per cent, while casuals would go from 200 per cent to 175 per cent.
Hospitality employees would face a cut in Sunday pay from 175 per cent to 150 per cent, fast-food workers would see their Sunday rates go from 150 per cent to 125 per cent for full-time and part-time staff, and casuals would go from 200 per cent to 175 per cent.
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