The events of last week in Victoria where the government is spending $600 million to $1bn to not build a vital road link isn’t just a colossal trashing of taxpayers’ money, but something much more.
It should be seen by anyone who wants to invest, develop or do business large or small in Victoria as a signal of the state’s unprecedented environment of risk. This is because the usual rule-book of commercial activity has been dumped and replaced with new rules in which business is exclusively reliant on political favour. It is a risk environment of third-world proportions.
It’s also a diversion to just consider that the Victorian Labor government cancelled the East West Link because they want to stop the Greens overrunning previously safe ALP inner-urban seats.
What needs to be understood is that there is no separation now between the Victorian construction union, the CFMEU and the new Labor Government. They are one and the same. What’s in place is a particular model about how business is and will be allowed to be conducted in Victoria.
Any development or construction activity conducted in Victoria will have to be a CFMEU-controlled job or the project will be commercially destroyed. This sounds extreme, but it’s an accurate description of the situation.
The reason behind this is the money loop that now exists between the CFMEU and the Victorian division of the Australian Labor Party.
The CFMEU pours millions of dollars into the Victorian ALP either directly or by funding and conducting highly sophisticated political campaigning. The CFMEU is a superb strategist and tactician. Its street-front, violent and bullyboy campaigns mask a highly developed degree of political intelligence.
What exists is that the ALP needs the CFMEU for money and political organisation and campaigning. The CFMEU needs the ALP to secure legislative, contractual and policing favours to enable the CFMEU to control and overprice development and construction. The money extraction the CFMEU leverages on construction activity feeds back into delivering the ALP electoral success. It’s a model that perfectly intertwines business and political power.
This is a new development. Since the Cain government in the 1980s, the Victorian ALP has had periods of gross incompetent (but also competent) behaviour. But the construction union, first as the BLF and now CFMEU, was kept at arm’s length by Labor governments, although with some difficulty. Under this current Labor government it seems there is no longer any separation.
The East West Link cancellation shows this. The cancellation happened because the CFMEU did not have contractual control of the job. The job had to be stopped at any cost to the taxpayer, seemingly to ensure the CFMEU controlled all current and future major construction in Victoria.
In signing the East West Link contract, the prior Coalition government had locked in specific conditions. Principal among these was the requirement to adhere to a ‘construction code’. Robert Gottliebsen and myself have recorded and commented on the development of this extensively in Business Spectator. The code identified industrial relations arrangements and activities that caused construction cost blowouts and banned those. The banning directly impacted the ability of the CFMEU to leverage higher costs onto projects.
Based on this, it’s reasonable to assume the cost of building the East West Link was calculated on the code cost-restrained process being in place. That is, the financial viability of the project was code-dependent. If the new Labor government were to allow the CFMEU to gain control of the East West Link, the costs would blow out, creating financial chaos on the job.
Further, if the CFMEU could not control the job, it would substantially reduce its power in construction across Victoria. Not controlling the largest construction job in Victoria would have been untenable to the CFMEU. The job had to be cancelled.
The cost escalations are well known and documented. My submission to the Productivity Commission inquiry into infrastructure summarised much of the evidence (see case study 2.2).
What’s clear is that construction union control of jobs adds between 25 to 34 per cent to the cost. This was documented during periods in which the CFMEU exercised control of sites, but without the level of political control it now exerts in Victoria. The level of cost blow-outs that may now occur can only be guessed.
The Victorian business environment and risk profile has worsened dramatically.
Ken Phillips is executive director of Independent Contractors Australia and author of Independence and the Death of Employment.