The following op-ed appeared in the Herald Sun on Friday 25 March:

Having chosen to make the beautiful city of Melbourne my home, as many immigrants have and will continue to do, I reflect on the incredible lifestyle that Victoria offers. With well-kept park lands, abundant sporting facilities, a range of entertainment complexes, destinations like Bendigo and Ballarat on the doorstep as well as quality education and health services – I feel very lucky indeed. So, it is with great concern that I contemplate what might happen to the future of Victoria, if industry EBA negotiations deliver unsustainable wage increases for our construction industry.

With Infrastructure Australia identifying the potential costs to our economy of the lack of key infrastructure amenities, I consider the impact that increasing delays will have upon our way of living. How happy will we be sitting in traffic or on crowded trains to and from work every single day? Despite reports about future public infrastructure investment such as road and rail upgrades, this level of investment may still not be capable of keeping up with the population explosion currently underway. With 100,000 people set to settle in Victoria every year, we need to build houses, roads, hospitals and schools to accommodate the nearly 2,000 people arriving every week.

That’s why, when faced with limited government infrastructure budgets, we cannot afford excessive wage increases in our construction industry. Deloitte Access Economics research highlights industry EBA wage rises over the past eight years have increased the costs of delivering government infrastructure. When we add in the impact of wage rises continuing at 5%, we stand to spend $806 million over the next four years – representing a missed opportunity to build 10 schools and 3 hospitals. And if those wage increases rise higher to 6% then the cost totals $875 million. And, taxpayers will foot the bill.

It is not just public-sector spending that is hindered by unsustainable industry EBA wage increases – it is the impact on private-sector investment into hotels, shops, supermarkets and restaurants as well. The Deloitte Access Economics research highlights that after years of excessive industry EBA wage increases, further 5% wage increases will also increase the costs of building department stores by around $88 per square metre.  This means that the Crown Casino Entertainment Centre, which pulls in tourists and locals alike for dining and entertainment, would have cost upwards of $44.8 million more to build.

The business sector cannot simply absorb excessive EBA wage increases without corresponding productivity offsets. Deloitte Access Economics has highlighted that for the largest Victorian non-residential construction firms in 2014-15, profit margins fell to 0.4% and return on assets was just 1%. With low-risk bank returns around 2.4% and government bonds returns 2.5%, this means building and construction is, by comparison, a very risky business indeed.

Additionally, productivity growth in the Victorian construction industry has generally lagged behind productivity growth elsewhere in the Victorian economy. This means that real labour costs faced by employers in the Victorian construction industry have been rising. The question must be asked: when will wage costs become so high that construction investment is diverted into other states and activities?

In construction, EBA employees, by the way, are already doing very well. In 2014, entry-level industry EBA labourers were earning around $144,000 per annum and industry EBA carpenters around $155,000 per annum – more than defence force members, police officers and school teachers. It is time to decide whether continuing the historical pattern of EBA wage increases – on top of already high salaries – is good for our economy, community and state.

We are at a crossroads in the history of our sector. We can choose to make decisions to facilitate continuing investment in the built environment that we cherish or continue down the path of unsustainable industry EBA wage increases. This issue affects us all. A sustainable outcome is needed – that is a win for all stakeholders including workers, employers, unions and the community – so we can continue to enjoy the remarkable quality of life we have in Victoria.

–Radley de Silva, CEO, Master Builders Association of Victoria