The numerous problems that need to be addressed
Part 1 of a 3 part series

People go into business for a variety of reasons, whether it be simply to make a profit or because they have a passion for a product or service. But in the Australian modern world, business owners always appear to draw the short end of the stick, so let’s discuss profit, taxes, governments dipping their hands in your pockets, and the union movement to see if we can’t make any sense of the insane world in which we live.

It’s insane if you’re a business owner, or perhaps even a corporation trying to make a profit, but at the same time make a difference to the lives of those with whom you interact – we’re talking staff, customers, suppliers and any other stakeholder you can think of.

In a business, there are revenues and costs. That’s it. One would hope that revenue is greater than cost so you make some money out of it, what we call profit. From that profit, the government has always stuck its hand out and taken some of that from you, so one would hope by the time all the leaches have had a go at you, there is still something left for you who, after all, is taking all the risks.

Some of the things that impact on profit may not show up in a profit and loss statement, which is why numerous business owners ask their accountants, “If I made all this profit, why is it not in my bank?”

There are things in the balance sheet that impact on profit, but they don’t show up in your profit and loss statement. We’ve discussed these things before, but there’s still an expense that has to be paid by the business.

Oh, the horrors of commercial rent
So many businesses rent the premises they’re in, and many of them pay their sometimes quite exorbitant rents regardless of what the economy is doing. The rent doesn’t usually go down when the market goes down, but rather seems to ratchet up, and then if the market goes back down, the rent stays the same because that’s the way clauses are written in leases. The result is that the additional rent has to be found from somewhere, and that’s usually found by eating into profits.

Now in your part of the world it might be different, but in my part of the world that’s how it works.

The other thing that happens, of course, is that landlords pass all their costs on to their tenants. For example, if you’re paying half a million dollars a year in rent, you would most likely be paying somewhere in the order of $100,000 to $150,000 in additional costs for the building you’re using – those costs would cover rates, taxes, council and water rates, as well as all those other rates charged by the utilities and by governments on all levels (federal, local and state), and you then get those charges dropped on top of your rent account. That additional money has to come from somewhere, and take a guess where it comes from? That’s right, your profit.

Wages and awards dictated by government? Surely not!
Now, let’s look at wages, employment and how those costs are impacted. In some situations, people get paid a set hourly rate, which is fine, but in most cases those hourly rates are dictated to you by the government or some pseudo-government agency. In Australia, it’s called the Fair Work Commission, but really it’s just a pseudo-government agency that’s designed to keep politicians happy and keep the left wing members of the Labor Party cheerful while still allowing the unions to have a significant impact on how much profit you make running your business. We know that in Australia at least the workforce is not overly unionised at this stage, but still the Fair Work Commission is a division of the Labor Party, and that’s just unkind. I shouldn’t say it, but it is, so you get my drift, right? I do recall it was set up by the Labor Party, so we can assume it has some leaning that way, but again they’re not facts, it’s just a view.

We then have awards, which impact whether you pay your staff things like maternity leave, bereavement, public holidays, and sick days. These leave days you are required to pay, as a business owner, means your working week isn’t five days anymore, but three and a half or four! It’s all been designed by the government over the years, and it’s nuts because if you want to work, then you get paid, but if you don’t want to work and then suddenly don’t, why expect someone else to foot the bill? If the government wants people to have all the public holidays off and be paid for them, then it should be of the view that the government foot the bill. Let’s see how far that idea gets before someone takes out a contract on me!

One of the smartest taxes I have ever heard of is payroll tax (I’m being sarcastic here). And now, some of you folks from different parts of the world will be wondering what on Earth I am talking about.

If you employ people and reach above a set amount of annual payroll, the government taxes you. How smart are these guys?! Let’s penalise a company for employing people, that’s just true genius!

In different jurisdictions around the world there will be different tiers of government, but in the end, they all form a similar clique. I’m just stating the obvious here, but let’s reiterate one thing – local government takes care of small areas, state government looks after a larger area, and then the federal government takes care of the largest portion of citizenship.

Each one of those arms of government has their hand in your pocket too, because they need to generate money, so they continue to pay their chief executives exorbitant sums of money to sit around and manage a teapot. That’s pretty much what most of them, in my personal opinion, are worth. I’m sorry to say that, but I find there are a very many of them who sadly are lacking for any role in private enterprise.

In fact, in some cases they’ve been gaoled for theft, fraud and all sorts of other things – and these are the people who are supposed to be in charge of other people’s money! In other words, the taxpayers’ hard earned dollar.

Unions are rort with dishonest leaders
Now, let’s look at the union movement. There are executives who also have been gaoled for stealing money – union money. That’s other people’s money, folks. That’s the unions members’ money that has been stolen, so that they (the criminals) can have a nice lifestyle and, ‘To hell with the members’. Some have been gaoled for that, so respect for the union executives by their members is zero.

They, the executives, just think that it’s their own private purse, and you’ll find, interestingly, that when you actually look at a lot of people who are in these positions of power, they’ve never worked for themselves a day in their life. They’ve always lived off the public purse, so they’ve always been paid by government – or at least a division of government, but in this particular case, a union.

You then have a situation where the union prices labour to such a point that the labour gets too expensive and an employer just can’t afford it anymore, and then the lay-offs begin. But then, wait for it, the union jumps up and down and cries, ‘We need to be paid redundancies because you can’t afford to employ us anymore, you need to pay us to leave.’ If you’re in certain places of the world listening to this, you’ll be thinking to yourself, ‘This is absolutely insane, I can’t afford to employ you, but yet I have to pay you to go away? That’s crazy!’. And you’re right, it is crazy, but the thing is, that you then have to pay these redundancies, which have to come from somewhere. So where do they come from? The profit margin of course! But in some cases, there is no profit margin.

What eventually happens is that the company goes broke, and it can’t pay its redundancies, so then guess what? The government steps in and pays the redundancies on behalf of the bankrupt company and they use – you guessed it – taxpayers’ money.

So taxpayers’ money gets paid to the unionists, or rather the employees, and look, let’s not be too harsh about it, some of them aren’t unionists and they’ve just been caught in a terrible situation. That’s another thing that gets me on a hobby horse – most people who are running a business really need to understand how to run a business. So many of them don’t, which is why they get into trouble. They just don’t understand their cost base. Anyway, I digress. The fact of the matter is, there are some people in the union movement who continually price labour to the point where it gets too expensive.

Machines do the work for the people now
The mining industry is the perfect case in point when it comes to high labour costs. It employs an incredible amount of people, yet has an horrendous labour base – it’s huge. The mining industry operates on an international scale, so it has to sell its products to those markets, or it has nothing to sell. In Australia, we just simply can’t consume all that we produce in mining, so it needs to be sold overseas. It’s the same for numerous other countries in the world, and remember that to compete on a global scale, you need a competitive cost base. The unionists price themselves incredibly high, which then makes the mining companies decide, ‘You know what? We don’t need truck drivers. We don’t need people to drive frontend loaders and diggers. We don’t need people to drive trains. We can get robots and computers to do all that for us.’ And guess what? They sack everyone, and actually do it!

The mining companies still need to have their maintenance people on site, because the machines will always need fuelling and constant maintenance, but they’re not drivers. No, the drivers of those machines are all unemployed, and those machines are now controlled from a central control room in a capital city, thousands of miles away, all done through the Internet.

All that action has done is sack a whole lot of people, a whole lot of qualified, exceptional people. It’s saved the mining company a lot of money, plus they don’t have to have five flights a day going to their mine sites getting workers in and out from capital cities. They don’t have to feed them anymore, which means no need to have a camp with a big kitchen and staff – because that’s all gone too. Now admittedly, there are still some employees, but the figure is nowhere near as big as it used to be.

Thinking about the cost of installing the computer system and the software, yes it probably cost millions of dollars, but that’s got a payback life of six to 12 months. As a mining company, the cost benefit analysis is one where it’s a no brainer. You’d have to do it, and they did.

And there you have it – another cost base they’ve saved because the unions priced labour too high, and the mining companies found a cheaper way to get their result. For the life of me, I can’t think why the union movement didn’t see that one coming, because that would be as plain as the nose on your face.