Investment in Australia is at risk thanks to our high wage costs and additional expenses such as superannuation and payroll tax.
According to an international study by accounting firm UHY Haines Norton, two of Australia’s major energy and resources competitors – USA and Canada – have substantially lower employment costs than Australia.
Costs in social security and other ‘taxes’ for Australian business with employees in the US$75,000 gross wage bracket are around 10% higher than their developed world competitors. On average, Australian businesses par around 17.5% on top of an employee’s gross wage, compared to 8.2% and 7% for the US and Canada respectively.
For a worker on a $300,000 salary, businesses pay another $52,500 on top of that in taxes and other expenses.
UHY Haines Norton, Australia and New Zealand chairman, David Tomasi suggested that the data highlights wider implications for the energy and resources sector.
“Higher wage costs demand higher productivity or an economy starts to lag in competitiveness and we are well aware of the importance of the energy and resource sector to Australia,” Mr Tomasi said. He added, “The US and Canada have a clear advantage over us in terms of employment costs.”
We’ve already seen the effect of high costs with today’s announcement by Woodside Petroleum (WPL.AX) that it would not proceed with its onshore LNG processing plant at in Western Australia, because it wasn’t commercially viable. Several other LNG developments in Australia have seen their costs blowout, and there are several media reports that Australian oil and gas workers are the highest paid in the world.
Earlier this week, BHP Billiton (BHP.AX) terminated a contract with construction contractor Leighton Holdings (LEI.AX), in favour of a cheaper contractor, while Holden is laying off 500 workers because it is unable to compete against cheaper imports from China, Korea, Japan and other countries.
The Foolish bottom line
As the report notes, if wages and employee costs rise, we also need an equivalent rise in productivity, otherwise Australia becomes uncompetitive. That could see more and more companies taking their projects overseas and investing in ‘cheaper’ economies, which has dramatic consequences for our economy.
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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP, Leighton and Woodside.