3.4 Move to Smaller Construction Firms

The trend towards a larger number of smaller firms in the construction industry has also contributed to a reduction in apprenticeships available to young people.

As larger firms contract out more and more project components to specialist firms and as individual contractors proliferate the number of firms continues to climb while their average size continues to drop.

The two major reasons for this trend are a desire by companies to reduce risk and costs and the ability for individuals to pay a lower rate of tax by ceasing to be an employee and setting up an individual contractor.

Table 6: Firm-Size Distribution of Employment 1988/89 and 1996/97
	Employment <5	Employment 5-19	>20	Total
1988/89
Employment x Establishment size.'000	168	97	130	395
Employment x Establishment size. Percent	42.6	24.5	32.9	100
No. of Establishments	83,742	12,061	2,255	98,059
Establishments x Employment size. Percent	85.4	12.3	2.3	100
1996/97
Employment x Establishment size. '000	332.0	85.9	66	484.1
Employment x Establishment size. Percent	68.6	17.7	13.6	100
No. of Establishments	182,000	11,100	1,200	194,300
Establishments x Employment size. Percent	93.6	5.7	.6	100
source Employment Studies Centre, August 1999, p74.

In order to arrest this trend the CFMEU has lobbied the Commonwealth Government to close the loophole that allows workers to be improperly classified as independent contractors (either at the instigation of the individual or on the direction of their employer) and thereby gain access to lower tax rates than properly classified employees doing similar work. In June 1999 the CFMEU argued in a submission to the Ralph Review of Business Taxation that this loophole should be closed. The Review recommended:

“That where a company, trust or partnership (the ‘interposed entity’) is, or is to be, interposed between a person or entity requiring services (the ‘service requirer’) and the individual who performs or is responsible for performing the services (the ‘service provider’), payments received by the interposed entity in respect of the services be treated for income tax purposed as the income of the service provider where:

(i) the interposed entity receives 80 per cent or more of its receipts in respect of personal services, either directly or indirectly, from one service requirer, or associate of that service requirer, during the year of income; or

(ii) the services are provided to the service requirer in an employee-like manner as determined by a range of specific criteria; or

(iii) the interposed entity is unable to obtain from the Commissioner of Taxation a decision that the 80 per cent/one service requirer test in paragraph (i) should not apply.” (A Tax System Redesigned, Review of Business Taxation, July 1999, p 286)

Arresting the trend to smaller firm sizes by dealing with one of the greatest causes, tax avoidance, will assist in creating more apprenticeships. An industry that is based on a model of permanent in-house employment is much more likely to generate apprenticeships than an industry that is fragmented to such an extent that very few businesses can afford to invest in skill development.

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	Contact the National Office, Construction Division at: Level 12, 276 Pitt Street, Sydney, NSW 2000 Ph: 02 8524 5800 Fax: 02 8524 5801 Email: queries@fed.cfmeu.asn.au Postal address: PO Box Q235, Queen Victoria Building Post Office, Sydney NSW 1230.