Response to the Regulatory Impact Statement on Two Proposed New Public Holidays in Victoria

Regulatory Impact Statement

1) Response to the Regulatory Impact Statement on two proposed new public holidays in Victoria

2) AUGUST 2015

1 3) Restaurant & Catering Australia

Restaurant & Catering Australia (R&CA) is the national industry association representing the interests of 35,000 restaurants, cafes and catering businesses across Australia. R&CA delivers tangible outcomes to small businesses within the hospitality industry by influencing the policy decisions and regulations that impact the sector’s operating environment.

R&CA is committed to ensuring the industry is recognised as one of excellence, professionalism, profitability and sustainability. This includes advocating the broader social and economic contribution of the sector to industry and government stakeholders, as well as highlighting the value of the restaurant experience to the public.

2 4) Table of contents

Executive summary 4

The café, restaurant & catering industry 5

Economic contribution 5

Small business is big business 5

Employment growth in the tourism and hospitality sector 5

Implications for the Victorian economy 6

At a glance: the contribution of the café, restaurant & catering sector in Victoria 7

The impact of additional public holidays in Victoria 8

Disproportionate burden borne by hospitality sector 8

Business closures 8

Reduced tourism expenditure 9

Alternative public holiday options 10

Conclusion 11

3 5) Executive summary

Restaurants, cafes and catering businesses are an important part of Victoria’s economic and social fabric. The café, restaurant and catering sector generates $5.4 billion in turnover to the state economy annually. It is the single largest employer across all tourism-related sectors of the visitor economy, employing 112,600 Victorians across 11,090 businesses. These businesses are small businesses, with 94.3 per cent employing 19 people or less.

Restaurant & Catering Australia (R&CA) is the national industry association representing the interests of 35,000 restaurants, cafes and catering businesses across Australia. As the leading industry representative of 11,090 hospitality businesses across the state, R&CA opposes the introduction of two additional public holidays on Easter Sunday and Grand Final Eve. Simply put, the economic benefit generated by the two additional public holidays does not exceed the significant $900 million economic loss resulting from both public holidays.

The creation of two additional public holidays has significant ramifications for the hospitality sector and in turn Victorian jobs and productivity. Service businesses such as restaurants bear a disproportionate cost burden on public holidays due to their labour intensity and customer service focus. As identified by PricewaterhouseCoopers (PwC), employers that operate on public holidays are subject to increased labour costs, with the impact concentrated in those industries that operate outside ‘standard’ business hours.

R&CA’s 2015 Industry Benchmarking Survey found wages and staff on-costs can represent up to 42.1 per cent of a business’s expenses. The additional penalties attracted on public holidays often makes trading unviable with many businesses forced to close on these days. In addition, R&CA research indicates business owners are more likely to reduce staff hours on these days, limiting employment opportunities and subsequent tourism benefits that could have resulted should these businesses have remained open.

R&CA does not support the gazettal of Easter Sunday and Grand Final Eve as public holidays as currently proposed. Rather, recognising the Government’s election commitment to the two additional public holidays, R&CA advocates that the public holiday status of Easter Saturday be transferred to Easter Sunday, with Grand Final Eve declared a Local Event Day only. This is in line with alternative proposals suggested by PwC, allowing the Victorian Government to achieve its objectives while limiting the negative impact on hospitality businesses.

4 6) The café, restaurant & catering industry Economic contribution

The restaurant, café and catering sector forms a critical component of the visitor economy. The visitor economy is defined as the direct and indirect value generated from the provision of tourism-related goods and services1. The visitor economy contributed $20.6 billion to Gross State Product in 2013-14. The sector contributes $5.4 billion in earnings to the state economy annually, $865 million of which was attributed directly to tourism Gross Value Add (GVA)2. Total tourism consumption on café, restaurant and takeaway meals totaled $4.0 billion in 2013-14, representing 22.4 per cent of total tourism spend3. Small business is big business

At June 2014, there were 11,090 café, restaurant and catering businesses in Victoria, 94.3 per cent of which were characterised as self-employed, micro or small businesses4. The café, restaurant and catering sector represents by far the most tourism-related business across the visitor economy5. As indicated in the PwC report, small businesses are likely to be negatively impacted by additional public holidays as wage costs form a greater proportion of their overall operating costs, meaning penalty rates amplify the costs of opening on these days6. Employment growth in the tourism and hospitality sector

Research conducted by R&CA indicates the café, restaurant and catering subsector employs 112,090 people across Victoria7. Service Skills Australia’s Tourism, Travel and Hospitality Environmental Scan 2015 highlighted the largest contributor to employment in Australia is the Cafes, Restaurants and Takeaway Food Services sector, accounting for two thirds (67.1 per cent) of industry employment. Over the five years to August 2013, almost all employment growth in the tourism industry had been concentrated in this sector (up by 69,400 or 15.1 per cent)8.

Department of Employment projections further highlight that the five year employment growth rate to November 2019 for the café, restaurant and takeaway food services sector equals 16.9 per cent or an additional 93,600 jobs9. This is significantly higher than November 2018 projection less than a year old that indicated the sector would require an additional 43,700 workers, an increase of 8.5 per cent10 (See Figure 1).

1 The Travel & Tourism Competitiveness Report 2009 World Economic Forum 2 Tourism Research Australia (TRA), Appendix: State Tourism Satellite Account 2013-14, Table 6; ABS (2015) 8501.0 Retail Trade Australia – May 2015 3 Tourism Research Australia (TRA), Tourism State Satellite Account 2013-14, Table 8 4 Australian Bureau of Statistics (2014) 8165.0 Count of Australian Businesses, including Entries and Exits, Jun 2010 to Jun 2014 5 Tourism and Transport Forum (2013) National Tourism Business Count & Employment Atlas 6 PricewaterhouseCoopers (2015) Regulatory Impact Statement on proposed new public holidays in Victoria, July 2015 7 Bugseye Consulting (2015) Employment & Business Count Analysis of the Café, Restaurant & Catering Sector July 2015 8 Service Skills Australia (2015) Environmental Scan 2015: Tourism, Travel & Hospitality, p.37 9 Department of Employment (2015) Employment Projections 10 DEEWR (2012) Employment Outlook to 2017, p.3-4

5 Figure 1: Top 20 industry sectors ranked by projected growth to November 2018 (‘000s)

Source: Department of Employment, 2013, Employment Outlook to 2017

Implications for the Victorian economy

As a sector dominated by small businesses making the largest contribution to tourism employment, the implications of additional public holidays on this sector cannot be underestimated, particularly in terms of capturing additional tourism spend and contributing to state employment.

6 7 7) The impact of additional public holidays in Victoria Disproportionate burden borne by hospitality sector

Tourism Research Australia’s Tourism Businesses in Australia report indicates that tourism is a labour- intensive industry, driven by higher labour costs. The report demonstrates that as an industry, with a high share of micro and small businesses, the Gross Value Added (GVA) per employee is low. The average GVA for an employee in a tourism business is approximately $65,000, much lower than the average of $119,000 for all industries11.

Hospitality operators will bear a disproportionate burden of higher labour costs resulting from the two additional public holidays proposed in Victoria. The PwC report appropriately identified that Victorian employers would bear close to the full burden of reduced economic activity associated with the proposed policy, with small businesses more likely to be negatively impacted as wage costs form a greater proportion of overall operating costs12. R&CA’s 2015 Industry Benchmarking Survey supports this observation, revealing that staff wages and on-costs (including payroll tax and superannuation) can represent up to 42.1 per cent of business expenses13. The PwC report identifies that the penalty rates on public holidays amplify the cost of operating on these days, increasing the likelihood of small businesses choosing to close on these days14. Business closures

The PwC report identified that the increase in labour costs due to paying additional penalty rates on these days would result in some businesses choosing to close in order to avoid making a financial loss. The significance of this ramification cannot be understated, particularly in light of the Government’s objective of boosting employment and capturing additional tourism spend as a result of the additional public holidays.

The PwC report estimated 273,000 casual employees will not work across the two public holidays due to fewer employers operating on these days. Further, between 65,800 and 80,400 fewer casual employees will be rostered to work across the two public holidays as employers seek to manage their costs15.

Research commissioned by R&CA supports this finding, with 42.0 per cent of businesses indicating they would reduce staff should their labour costs continue to rise16. Further, R&CA’s 2014 Industry Benchmarking Report found 71.0 per cent of businesses had reduced staff hours, and 69.5 per cent of business owners now worked weekends as a result of weekend and Public Holiday penalty rates being enforced through the Restaurant Industry Award. A further 39.7 per cent of businesses indicated that they close on Public Holidays, with 38.2 per cent of respondents indicating they reduced trading hours on these days17.

R&CA would also refute the suggestion that some employers who choose to operate on these days may simply pass on a portion of the costs of penalties to customers in the form of surcharges. In a tougher economic climate with consumer apprehension to discretionary spend, industry notes considerable consumer distain towards surcharges applied to cover the cost of operating on these days. Reduced tourism expenditure

R&CA notes one of the guiding principles for establishing two additional public holidays in Victoria is to increase opportunities for Victorians to enjoy coordinated leisure time, with further benefit derived from increased tourism expenditure across metropolitan and regional Victoria.

11 Tourism Research Australia (2013) Tourism Businesses in Australia, June 2010 to June 2012, p1 12 PricewaterhouseCoopers (2015) Regulatory Impact Statement on proposed new public holidays in Victoria, July 2015, p 25 13 R&CA (2014) Industry Benchmarking Report, Financial Results 2012-13 14 Ibid 11 15 PricewaterhouseCoopers (2015) Regulatory Impact Statement on proposed new public holidays in Victoria, July 2015, p 25 16 Jetty Research (2015) The effect of penalty rates on staffing, opening hours and profitability in Australian restaurants and cafes 17 Restaurant & Catering Australia (2014) Industry Benchmarking Report, 2012-13 Financial Year Results 8 Research commissioned by R&CA indicates that ‘eating out at a café or restaurant’ is the most popular out of home leisure activity for Australian consumers on weekends18. This is further supported by the International & National Visitors Survey which indicates domestic and international visitors spend a significant proportion of trip expenditure on eating out at a café or restaurant.

However, the reality of gazetting two additional public holidays is that café and restaurant businesses are likely to close on these days. This is particularly true for the Easter long weekend where businesses are faced with the prospect of four consecutive days of additional penalties as a result of public holiday status of these days. So whilst the intention of the two public holidays is to encourage greater expenditure in the tourism industry, the reality is the opportunity is lost as hospitality businesses will simply not be open to capture the additional spend resulting from Victorians partaking in leisure activities on these days.

18 I-View Australia (2015) Omnibus Survey 9 8) The need for penalty rate reform

The PwC report correctly identifies that while awards and penalty rates apply to most industries in Australia, the impact of penalty rates is greatest in those industries where the days and hours of work are not considered ‘standard’, meaning industries where weekend, evening and night work are common19. The hospitality industry is no exception to this rule.

R&CA notes the report indicates the impact of wage transfers as a result of the additional public holidays is not necessarily attributable to the holiday itself but rather to the differences between public holiday penalty rates and the otherwise prevailing rate of pay on the day. While R&CA acknowledges penalty rates are prescribed by federal Modern Awards, state decisions to declare public holidays have significant ramifications given the industrial relations system that governs conditions of employment.

Penalty rates on public holidays under the Hospitality Industry (General) Award and Fast Food Industry Award are 275 per cent for casual employees. The financial impact means that less people are employed on a public holiday. Research commissioned by R&CA found that businesses would employ an additional 3.15 people per business should reform occur to penalty rates20.

In addition, when asked what they would do if penalty rates were reformed, 52.0 per cent of operators indicated they would employ additional staff, with a further 41.0 per cent indicated they would open for longer hours. Meanwhile, 54.0 per cent of businesses that currently do not trade said they were likely to do so if penalty rates were reformed21. Alternative public holiday options

Based on the analysis conducted by PwC, and supporting research provided by R&CA, it is evident the creation of two additional public holidays is likely to have a negative impact on the hospitality sector and in turn Victorian jobs, tourism activity and productivity in the state.

R&CA would encourage the Victorian Government to consider:

a) Removing Easter Saturday as a public holiday in Victoria. This would bring the state in line with Tasmania and Western Australia that do not gazette Easter Saturday as a public holiday; and

b) Declaring Grand Final Eve a Local Event Day only.

This would allow Government to achieve its objective of encouraging Victorians to enjoy coordinated leisure time, while minimsing the impact of increased labour costs resulting from higher penalties on these days.

19 PricewaterhouseCoopers (2015) Regulatory Impact Statement on proposed new public holidays in Victoria, July 2015, p 42 20 Jetty Research (2015) The effect of penalty rates on staffing, opening hours and profitability in Australian restaurants and cafes 21 Ibid 20 10 9) Conclusion

R&CA welcomes the opportunity to provide comment to the Regulatory Impact Statement on proposed new public holidays in Victoria. The PwC report clearly indicates the cost of establishing Easter Sunday and Grand Final Eve as public holidays well exceeds the economic and tourism-related benefits expected to be derived from these two public holidays. The hospitality sector is likely to experience the greatest negative impact as higher wage costs driven by penalty rates form a greater proportion of their overall operating costs.

In addition, small hospitality operators are likely to reduce staff or close altogether in order to avoid financial loss on these days. The decision to progress the further gazettal of public holidays in Victoria will be bad for small business, employment and tourism activity in the state.

As the industry representative of the largest employing sector in the tourism industry, R&CA encourages Government to reconsider the gazettal of the two additional holidays and investigate alternatives, including the removal of Easter Saturday as a gazetted public holiday, and declaring Grand Final Eve a Local Event Day only.