Industrial Relations Commission New South Wales Medium Neutral Citation: Crown Employees (Police Officers - 2009) Award (No 2) [2012] NSWIRComm 104 Hearing dates: 15 and 29 June 2012; written submissions 15 and 22 August 2012 Decision date: 14 September 2012 Jurisdiction: Industrial Relations Commission Before: Walton J, Vice-President; Staff J; Tabbaa C Decision: 1. In all of the circumstances, we have decided to vary salaries and salary-related allowances in the award by amounts greater than the interim award. 2. That variation shall operate from the first full pay period after 1 July 2011 and provide for wage increases over three successive years: 3.5 per cent in the first year; 3.2 per cent in the second year; and 3.2 per cent in the third year. These variations are in substitution for, rather than in addition to, the adjustments provided by the interim award. 3. The award shall be varied so as to provide for a Forensic Service Group Expert Allowance in the amount of $15,000 which shall operate from the first full pay period on or after 29 March 2012 (which allowance shall operate in substitution, for the subject group, of any existing SDA). The form of that variation shall be in accordance with the terms of items 2A and 2 of amended Schedule A to the Commissioner's submission filed on 22 August 2012, save that it shall provide for the quantum of the allowance to be $15,000. 4. The award shall also be varied to provide for a Police Prosecutor's Pay Scale, which scale shall operate from the first full pay period after 29 March 2012 in accordance with items 3, 4, 5, 6, 7 and 8 of Schedule A to the submissions filed by the Association on 15 August 2012 (adjusted to reflect this decision with respect to the general claim). 5. The Crown Employees (Police Officers - 2011) Interim Award shall be rescinded. 6. The cross-application by the Commissioner is dismissed. 7. The Association is directed to file draft orders of variation to the award reflecting our decision within 14 days of the date of this decision. Those draft orders should be accompanied by a notation indicating the concurrence or otherwise by the Commissioner to the draft orders (reflecting the decision). 8. The proceedings shall be listed for the purposes of varying the award and giving directions as to Stage 2 of the proceedings at 9.30 am Tuesday 2 October 2012. Catchwords: AWARD - application for variation - exemption from Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 - two stages of proceedings - first part of Stage 1 resolved by earlier decision - findings in earlier decision that Arbitrated Case Principle satisfied re general claim and that case made out for two specialist groups: police prosecutors and Forensic Services Group Experts - general claim - residue of Stage 1 concerned first whether conclusions as to merit in first decision should result in variation in rates of pay for police officers over interim award - if affirmative then the quantification of any increase arises for consideration - question of remedies re general claim - economic and financial evidence - earlier expert evidence - fresh evidence re inflationary factors, fiscal outlook, cost of claims and salary adjustments for police officers after datum point - issues of principle regarding arbitration of general claim - balancing of factors - principles regarding s 10 of the Act - principles regarding s 146 of the Act - resolution of issues of principle regarding work value and productivity and efficiency sub-principles - work value sub-principle - after discounting for moderating factor work value case found modest or relatively weak - significance of prior agreements and salary adjustments - changes after datum point not purchased by prior agreements - productivity and efficiency sub-principle - relative contribution by police officers to achievement of crime rate reduction after datum point - case under productivity and efficiency sub-principle relatively strong and stronger than case under work value sub-principle - concurrent consideration of respective sub-principles - reassessment of relevant inflation rates - variation regarding second and third years of award - no variation for inflation assessment for first year but noted declining rate at end of period for first year - macroeconomic considerations - improvements in New South Wales economy - Australian economy stable - New South Wales' fiscal position and outlook - case for considerable restraint based fiscal problems - need to balance against strength of case and consideration of cost of living - three year award - form of award - variation - public interest considerations - balancing of economic and non-economic factors including moderating factors - Association established case for salary and salary-related allowance increases above interim award - award duration results in spread of costs - variation in salaries and salary-related allowance for each year of award (absorbing interim adjustments) - 3.5; 3.2 and 3.2 per cent for each year respectively - interim award to be rescinded - specialist claims - no contest regarding orders reflecting successful outcome of police prosecutors' claim - new classification structure re police prosecutors approved - issue regarding FSG experts as to whether new allowance would absorb previous SDA allowance - fixing of quantum of FSG experts' allowance left to Commission by Commissioner's contention - resolved to grant FSG experts' claim as sought subject to absorption of SDA allowance - cross-application dismissed - draft orders in 14 days - listing for directions re Stage 2 Legislation Cited: Industrial Relations Act 1996 Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 Police Act 1990 Cases Cited: Crown Employees Administrative and Clerical Officers (State) Award (No 2), Re (1993) 52 IR 243 Crown Employees (Police Officers - 2009) Award [2012] NSWIRComm 23 Crown Employees (Teachers) Award, Re [1964] AR 463 Crown Employees (Teachers and Related Employees - Technical and Further Education Teaching Service) Salaries and Conditions Award (unreported, Fisher P, Bauer and Hungerford JJ, 1619 of 1989, 7 August 1991) Crown Employees (Teachers in Schools and TAFE and Related Employees) Salaries and Conditions Award, Re [2004] NSWIRComm 114; (2004) 133 IR 254 Crown Employees (Teachers & Ors) [1991] NSWIRComm 14 Pastoral Industry (State) Award, Re [2010] NSWIRComm 27; (2000) 104 IR 168 Public Hospital Nurses (State) Award, Re (No 4) [2003] NSWIRComm 442; (2003) 131 IR 17 State Wage Case 2010 (No 2) [2011] NSWIRComm 29; (2011) 206 IR 218 Transport Workers' Union of Australia v Qantas Airways Limited [2012] FWA FB6612 Category: Principal judgment Parties: Police Association of New South Wales (Applicant IRC 325 of 2011/Respondent IRC 1284 of 2011) Commissioner of Police, NSW Police Force (Respondent IRC 325 of 2011/Applicant IRC 1284 of 2011) Representation: A A Hatcher SC with A Howell of counsel (Applicant/Cross-Respondent) S B Benson of counsel (Respondent/Cross-Applicant) Police Association of New South Wales (Applicant/Cross-Respondent) Crown Solicitor's Office (Respondent/Cross-Applicant) File Number(s): IRC 325 of 2011 IRC 1284 of 2011 DECISION 1By its decision published on 28 March 2012 in Crown Employees (Police Officers - 2009) Award [2012] NSWIRComm 23 ('Police Award (No 1)'), the Commission determined that the Police Association of NSW ('the Association') had, by reliance upon an agreed representative sample of Local Area Commands ('LACs') and specialist Commands, satisfied the requirements of the work value and productivity and efficiency sub-principles of the Arbitrated Case Principle (as stipulated in the State Wage Case 2010 (No 2) [2011] NSWIRComm 29; (2011) 206 IR 218) ('State Wage Case 2010 (No 2)') with respect to a general claim for increases in salaries and salary related allowances for police officers and, further, had satisfied the special case and work value sub-principles of the Arbitrated Case Principle with respect to specialist claims made for police prosecutors and experts within the Forensic Services Group ('FSG'). 2On 1 April 2012, the Association brought an application which contained three broad categories of claim as follows: (a)A claim for increased salaries and salary-related allowances for police officers generally by the amount of 5 per cent per annum over a 3 year period (the Association sought that movements in salaries would operate from 1 July 2011, 1 July 2012 and 1 July 2013 respectively) (Category 1); (b)A number of claims for increased remuneration in the form of allowances (and in one case an altered salary structure) for particular groups of officers (some of whom are already in receipt of such allowances, some of whom are not) (Category 2); and (c)A number of claims for variations in relation to conditions of employment, some that apply generally, and others that only apply to Commissioned police officers (Category 3). 3A counter application was brought by the Commissioner of Police ('the Commissioner'). This claim was described in Police Award (No 1) in the following terms (at [30]): The Commissioner sought the making of a new award with a two year duration commencing from 1 July 2011. The Commissioner sought, by the proposed award, the maintenance of a 2.5 per cent salary increase for each year of operation of the award, together with a 'no extra claims' provision. He opposed the claim for specialist officers outright. Other than the making of a new award, per se, and, as earlier mentioned, the making of an interim award for a 2.5 per cent safety adjustment, those elements of the counter-application were resisted by the Association (in particular, the Association pressed for the making of a three year award). 4The Full Bench's decision in Police Award (No 1) concerned only the first two categories of the Association's application (which were described in the proceedings and that decision as 'Stage 1'), and the counter application of the Commissioner. 5The Full Bench did not ultimately determine the general claim in that decision, but did resolve the claim for specialist groups. The Full Bench determined that it would vary the Crown Employees (Police Officers - 2009) Award ('the award') with respect to police prosecutors and experts within the FSG, but otherwise dismissed the specialists' claim. Further, it was determined that a new award would be made governing police officers in New South Wales (in conformity with the decision of the Commission) and that the operative date for any variation in rates of pay and allowances would, in the case of the general claim, operate on and from 1 July 2012. (Variations to the award, applicable to police prosecutors and FSG experts, were determined to operate on and from 28 March 2012.) 6It was also determined in Police Award (No 1) that, in accordance with the parties' prior agreement, a further stage of the proceedings would be required to determine what might be broadly described as questions of 'remedy', although, plainly, there remained, after the first decision, some merit issues. 7During the course of that further stage of the proceedings, the Association, in its written submissions, accurately described the matters which the Full Bench had left in abeyance after Police Award (No 1) as follows: (i)whether the conclusions as to merit should result in a variation in rates of pay of police officers over those fixed by the interim award, the Crown Employees (Police Officers - 2011) Interim Award (Interim Award); (ii)if so, the quantification of any increase in rates of pay (noting that issues relating to financial and cost consideration remained unresolved); (iii)what remedy ought be granted in light of the Association having successfully prosecuted its case in relation to police prosecutors and FSG experts (noting that there were, again, unresolved financial and costs considerations), but with the Full Bench having stated the conclusion that "the new award made in accordance with this decision shall fix a new classification structure for police prosecutors (the width of the definition of that classification remains to be addressed) with appropriate rates of pay and an allowance for expert FSG officers"; and (iv)The duration of the new award. 8The further proceedings before the Full Bench resulted in some refinements to, or resolution of, those matters. We will turn to those issues before attending to the residue of matters requiring adjudication in Stage 1 of these proceedings. These issues may be summarised as follows: (1)The Association's application with respect to police prosecutors sought the insertion of a new and discrete classification structure based upon the current detectives' salary structure. That claim appears in Schedule C to the Association's application. In his further oral submissions, Mr A A Hatcher SC, who appeared for the Association, submitted that the original form of the claim had omitted an 11.5 per cent all purpose loading which police prosecutors had historically received. In the result, the Association sought leave to amend the application in terms of an amended Schedule C (which was drafted upon the basis that the Association's general claim would be fully granted). Leave was given to amend the claim in terms of amended Schedule C (which became Exhibit 167 in the proceedings). Subsequently, the Association filed a written submission (15 August 2012) which attached a draft variation (in Schedule A) incorporating the terms of a new classification structure and salaries for police prosecutors in similar terms to amended Schedule C (again based upon the full grant of the general claim). Mr S B Benson of counsel, who appeared for the Commissioner in the further stage of these proceedings, submitted that the Commissioner did not wish to be heard with respect to the claim for police prosecutors. (2)In Police Award (No 1), the Full Bench concluded with respect to FSG experts (at [707]): The Association has made good a case for the establishment of an allowance (and, in one sense, a case for the establishment of a new classification or classification structure) for FSG experts. The actual qualifying terms for the allowance and issues of quantification must await the next stage of these proceedings. The claim with respect to FSG experts was expressed in the following terms in the Association's application: (e) Forensic Services Group Expert Witnesses: those officers who are qualified as an expert witness and able to give expert evidence shall be entitled to a new allowance in the amount of $15,000. In his submissions, Mr Hatcher contended that the claim was for a discreet allowance payable in addition to existing special duties allowances ('SDA'). At the further stage of these proceedings, the Commissioner, by his counsel, indicated that he did not wish to be heard in relation to the questions reserved by the Full Bench with respect to FSG experts. Nonetheless, in a further exchange of written submissions (after the completion of further oral submission and at the invitation of the Full Bench) additional submissions were made with respect to FSG experts. By its further written submission of 15 August 2012, the Association proposed a draft provision for the award described as "Forensic Services Group Expert Allowance". The clause was described as a "stand-alone" and was over and in addition to the SDA. It was observed that the Association had requested a "new allowance", as opposed to an "increase from the current level" and that this contention was, therefore, consistent with the language employed in the claim. In his written reply filed 22 August 2012, the Commissioner contended that FSG officers in receipt of an expert allowance should not additionally be paid the SDA and that the quantum of any expert allowance was a matter to be determined by the Commission. (3)The Full Bench dismissed the Association's claim with respect to the Tactical Operations Unit ('TOU'). It observed, in Police Award (No 1) at [740], that some consideration might be given to adjusting the grading of the TOU in the SDA from Level 3 to Level 4 by means of the internal review process normally undertaken by the Commissioner with respect to SDAs. The Full Bench observed that no claim of that kind was strictly before it, but suggested that a thorough internal review should be conducted as soon as possible. Thus, the Commission had limited its decision, in this respect, to a non-binding recommendation. Notwithstanding this conclusion, the Association contended that the Full Bench should issue a direction under the Industrial Relations Act 1996 ('the Act') of its own motion, requiring the review to occur within "a specified but short period" with a requirement for a report back to the Commission. This submission is, plainly, inconsistent with the conclusion reached by the Full Bench. No submission was made as to any fresh consideration arising that may support such a contention and, in our view, the submission of the Association merely seeks to traverse, inappropriately, in our view, the decision earlier given by the Commission. In this light, we did not call upon the Commissioner, in this respect, in reply. (4)A controversy arose during the course of the further proceedings as to whether the Commission should make a new award in resolution of Stage 1 of the proceedings. Notwithstanding its earlier acquiescence in the making of a new award, the Association contended that the Commission should rescind the interim award and make a variation to the award. In its further written submissions of 15 August 2012, the Association confirmed that it sought the variation of the award so as to provide a general adjustment in salaries, allowances, the provision for an FSG experts' allowance and a new prosecutors' pay scale. It sought the rescission of the interim award. It proposed draft orders accordingly. In his reply, the Commissioner submitted that he was "content to leave that matter for the determination of the Full Bench". (5)By Notice of Motion filed on 29 May 2012, the Commissioner sought leave to adduce updated economic evidence in the form of a fresh report by Mr Christopher Richardson (a partner, Macroeconomic Policy and Forecasting, Deloitte Access Economics, who was called as an expert witness in the earlier stage of the proceedings). That application, which essentially concerned the question of inflation forecasts about which the Full Bench had ruled in Police Award (No 1), was the subject of written submissions and a further discrete hearing before the Full Bench. The issue was ultimately resolved by the Commission granting leave to the Commissioner to withdraw the Notice of Motion, having regard to certain rulings made by the Commission as to the further evidence of Mr Peter Horn, Senior Director, Financial Strategy with the NSW Treasury, filed 28 May 2012 (his earlier affidavit was before the Commission in the first part of these proceedings). That further evidence of Mr Horn concerned financial and cost considerations which the Commission reserved for attention in Police Award (No 1), together with evidence as to the economic matters (inflation estimates) which were the subject of the Commission's rulings in Police Award (No 1). 9It is those outstanding matters, as refined in the manner we have described, that are the subject of adjudication in this decision. 10The last of those refined matters brings with it the need for the Commission to consider fresh evidence led in accordance with the directions made in Police Award (No 1) as well as evidence arising from our later interlocutory ruling. In a similar context, it is also necessary to consider economic or financial evidence adduced in the first part of these proceedings (which was not required to be considered in Police Award (No 1)). It will be convenient to undertake this review at the outset of our deliberations after, first, in the case of inflationary factors, revisiting our economic conclusions in Police Award (No 1). ECONOMIC AND FINANCIAL EVIDENCE Inflationary Factors 11In Police Award (No 1), the Full Bench made findings as to various forecasts for inflation based upon the expert evidence of two eminent economists, Mr Christopher Richardson (who was called by the Commissioner) and Dr Frank Gelber, Chief Economist and Director with BIS Shrapnel Pty Limited (who was called by the Association). 12That evidence was given initially in the form of individual reports but later updated by the preparation of a joint report and concurrent evidence. The evidence was given for the purposes of consideration of the Association's case that wage adjustments were required in order to maintain the purchasing power of wages in the light of evidence as to known and expected inflationary pressures. The experts agreed that the best measure for that purpose was the CPI index and, in particular, the headline Sydney CPI, year average, with the effect of the carbon tax excluded. Based on these considerations, the Full Bench reached conclusions as to CPI inflation in relation to time periods which were relevant to the general claim. 13For convenience, we set out the pertinent parts of Police Award (No 1) below: [550] Mr Hatcher correctly submitted that the following emerged from the evidence of the experts: The joint report prepared by Dr Gelber and Mr Richardson has almost entirely removed any controversy from the question of an appropriate economic adjustment assessed on the basis identified above. Relevantly, they agreed as to the following matters: (1) "If you want to measure the purchasing power of wages, the [ABS] cost-of-living index is better". (2)Although Mr Richardson did not attempt a forecast of changes to the cost of living for the 2011-12 and 2012-13 financial year, there was "not much difference in the CPI and cost-of-living forecast outcomes". That meant that, for the purpose of comparison of their respective forecasts, it was sufficient to use the CPI index. (3)The best measure of CPI for the forecasts was the headline Sydney CPI, year averaged, with the effect of the carbon tax excluded. (4)Their respective CPI projections for 2011-12 and 2012-13 were so close that the differences were inconsequential. [551] The Association also correctly summarised the data and/or expert opinion which derived from those conclusions, as follows: (1)For 2010-11, the actual figure for the ABS cost of living index (employee households) was 4.5%. (2)For 2011-2012, the CPI forecasts were 3.2% for Dr Gelber and 3.0 for Mr Richardson. (3)For 2012-13, the CPI forecasts were 3.1% for Dr Gelber and 3.2% for Mr Richardson. [552] The differences in the estimates for the 2011-2012 and 2012-2013 financial years are, as the parties (and experts) conceded, inconsequential. [553] There was a disagreement between the experts as to their CPI forecast for the 2013-2014 financial year: Dr Gelber's forecast was 3.6 per cent and Mr Richardson's forecast 2.7 per cent. The Association was correct to submit that this disagreement was largely founded upon the issue of "when the mining boom, signified by historically high commodity prices, would come to an end". We will return to that issue. [554] The Commissioner submitted that the evidence of the joint experts was to the effect that their forecasts were attendant with high margins of error in the light of global risks. The effect of these risks, it was submitted, was to put downward pressure on CPI inflation and, in the result, the Commission should take the most accurate projection for CPI inflation to be consistent with the mid point of the RBA's target range, namely 2.5 per cent, and its estimate of inflation, being two per cent at June 2012, 2.5 per cent at June 2013 and between 2.5 per cent and three per cent "into the third year". It was contended that the fact the RBA "will actively conspire to maintain that forecast by necessary intervention is a significant factor weighing in favour of the 2.5 per cent figure". It was also submitted that the latest RBA forecast came after the experts had filed their statements. [555] We do not think that the submissions of the Commissioner, in this respect, are sustainable. The experts were jointly cross-examined as to the extent to which risks in the global economy might affect their forecast. Each expert explained that the risk had been considered, but adhered to their forecasts. We consider that their explanations for that view and their forecasts, overall, were compelling, being amply supported by relevant economic theory, indices and data. In a global sense, Mr Richardson aptly put the common view of the experts by his statement "Chinese strength trumps European weakness". There is no proper basis, on the material before us, to reject that evidence. ... [559] Those conclusions result in a clear view that, for the purpose of the maintenance of the purchasing power of wages, the Commission should take into account an approximation of a three per cent CPI inflation rate for the second year of any award made. That finding does, however, leave a residue of issues which we will dispose of below. [560] First, the percentage adjustment used by the Association for the 2010-2011 financial year was based on the ABS cost of living index (employee households). The evidence of the experts ultimately resolved itself (albeit on pragmatic grounds) in favour of forecasts using the headline 'Sydney CPI, year average', with the effect of the carbon tax being excluded. When that index is employed, the appropriate figure for the 2010-2011 period is three per cent. That figure matches the 3.1 to 3.2 per cent range predicted by the economists. Bearing in mind these considerations, we shall have regard to a 3.1 per cent inflation rate for the first year of the award. [561] Secondly, and as we earlier noted, there was a disagreement about forecasts for the 2013-2014 period. The pivot of the experts' disagreement was their estimate as to when a decline may occur in commodity prices (this issue relates, of course, to assessments about a variety of economic variables). Both estimated that a decline would occur, but Dr Gelber contended that this would occur at a later time than that estimated by Mr Richardson. ... [565] There was insufficient, in the material before us, to make a definitive ruling on which of these estimates is preferred. We think the better approach is a conservative one for two reasons. First, the further in the future estimates are given, the less reliable they may become. This, of course, does not point in favour of either experts' view, but when one has regard to the fact that both experts agreed that there would be a reduction in commodity prices ultimately affecting the investment cycle (and inflation), and given the opinion of Mr Richardson about corrections by the RBA over a cycle (particularly over the third and fourth years), it would seem to us that the better view is in favour of the lower, and more conservative, of the disputed estimates. Secondly, we note that the RBA estimates discussed during the hearing of this matter point to a risk in a peak in commodity prices in the period corresponding with the operation of the last year of a three year award. [566] Noting that the RBA range for the third year of any award is 2.5 to three per cent, we will adopt Mr Richardson's CPI inflation estimate of 2.7 per cent for the 2013-2014 period. 14Mr Peter Horn gave evidence in the first stage of these proceedings which went to a variety of economic considerations including the New South Wales fiscal strategy and the economic outlook in New South Wales. As a result of his evidence not being adduced as expert evidence, he did not participate in the preparation of the joint report; nor did he give concurrent evidence in these proceedings. 15By an affidavit sworn on 28 May 2012, Mr Horn gave further evidence of an economic character. That evidence was produced by the Commissioner in conjunction with an application to call fresh evidence from Mr Richardson. As we have earlier noted, the application to call the fresh evidence of Mr Richardson was withdrawn, but the affidavit of Mr Horn was not. That evidence was admitted over the objections of the Association as to [18] to [21] thereof, although, in so ruling, the Full Bench indicated that it would hear from the parties as to what weight should be attached to [21]. 16The result of the admission of Mr Horn's evidence was that certain additional information concerning CPI forecasts was adduced before the Commission. That evidence was the subject of cross-examination and will ultimately need to be considered in the light of the expert opinion upon which, as we have noted, the Commission ruled in Police Award (No 1). 17Mr Horn's further evidence did not, however, extend to a more general assessment on the state of the New South Wales economy (an issue we will consider in the light of the earlier economic evidence of Mr Richardson and Dr Gelber, as well as recent Budget papers). 18The critical passages of Mr Horn's evidence as to CPI forecasts was contained within the following parts of his affidavit: [15] Since evidence was initially provided in this case, official forecasts of inflation for 2011-12 and 2012-13 by the Commonwealth Treasury, the Reserve Bank of Australia (RBA) and NSW Treasury have all been revised significantly lower, as can be seen in the following table. The lower forecasts reflect lesser quarterly increases than earlier expected and a weaker domestic economy than earlier expected. These forecasts are through the year forecasts (i.e. June quarter on June quarter), rather than year average forecasts. Table 3: Forecasts of inflation Notes 1.All measures have excluded 3/4 of a percentage point for the introduction of the carbon price 2.NSW Treasury - Sydney CPI 3.Commonwealth Treasury - All Capitals CPI 4.Reserve Bank of Australia - All Capitals CPI ... [17] The ABS released data on 24 April 2012 that showed, for both Sydney and the eight capital city average, that the CPI rose 0.1 per cent in the March 2012 quarter, to be 1.6 per cent higher than the than one year previous. [18] The downward movement in inflation expectations, as well as reduced inflationary pressures within the economy, has seen the RBA cut the official interest rate on three occasions since October 2011 by a total of 1.0 percentage point, with the most recent cut of 0.5 percentage points on 1 May 2012. [19] The RBA said in its Statement of Monetary Policy of 4 May 2012, that "the outlook for inflation has also been revised down. Underlying inflation (excluding the effect of the carbon price) is forecast to stay close to recent rates over the next one to two years". [20] The following table sets out recent results for the Sydney CPI and a scenario whereby the growth is 0.75 per cent per quarter from the June quarter 2012: Table 4: Measures of the Sydney Consumer Price Index [21] Even in the unlikely event that inflation pressures returned for the next 5 quarters to June 2013 and were to be 0.75 per cent increases per quarter, the year average CPI for 201112 would be 2.5 per cent and for 2012-13 it would also be 2.5 per cent. Were the outcomes to be in line with the RBA and Commonwealth Treasury's latest forecasts, the year average results would be 2.4 per cent in 2011-12 and 2.1 per cent in 2012-13. 19Mr Horn conceded that the figures contained Table 3 were based on "June on June" figures and not year average figures and that the Treasury estimates were based on the Sydney CPI. Further, the figures appearing against the Commonwealth Treasury and NSW Treasury for 2013-2014 were assumptions and not forecasts. The Fiscal Outlook for New South Wales 20Mr Horn gave evidence that, in the 2011-2012 Budget (released 6 September 2011), the NSW Government committed to a NSW fiscal strategy which was designed to restore "the State's capacity to ensure service delivery across the business cycle and lay foundations for state economic prosperity". He also gave evidence that the State had a AAA rating which was the highest rating agencies provide. He pointed to the importance of maintaining that rating and to observations made by the rating agencies which emphasised the need to avoid a weakening of the State's budgetary reforms: particularly in circumstances where it was anticipated that there may be pressures to improve services, including large capital expenditure programmes and revenue volatility. Mr Horn's evidence was that public sector pay outcomes were pivotal to the achievement of fiscal strategy. 21Mr Horn also gave evidence as to the 2011 NSW Financial Audit undertaken by Mr Michael Lambert, then Acting Secretary of Treasury, which referred to a marked deterioration in the State's financial position since approximately 2005. Mr Horn stated that the Audit had found: The history of deficits and only small budget surpluses mean that there has been insufficient funds for the expanding capital program which in turn must be funded by increasing debt resulting in a build-up of debt servicing costs. 22The report referred to the relationship between revenue and expenditure growth and the proportion of employee costs to general Government expenses (such costs were found to be growing at 6.7 per cent per year; a reflection of employment growth and salary drift). 23As to the trend in State finances, Mr Horn gave the following evidence: [33] The Financial Audit proposed that the overarching fiscal target is to achieve and then maintain, for the total state sector, the ratio of net debt and net superannuation liabilities at or below 100 per cent of total revenue... to be consistent with the retention by the State of its AAA credit rating, together with a suitable buffer to allow the absorption of economic cycles and economic or financial crisis without the need to adjust expenditure or tax rates. [34] When the Government came to formulate the 2011-12 Budget in September 2011, the budget outlook over the four years to 2014-15 had deteriorated by a cumulative $935 million since it had come to office in March 2011. This was mainly due to revised estimates for GST revenueas consumer caution intensified with flow on affects to property market conditions and consequently lower transfer duty receipts. Royalty revenues were also lower due to a combination of a higher than expected value of the Australian dollar and lower sales volumes of coal. The latter being affected by supply chain issues at Port Newcastle and reduced demand from Japan as a result of the tsunami. Payroll tax wasalso expected to be lower in 2011-12 due to lower than expected employment growth which had negative flow-on effects through forward estimates. 24Evidence was also given that, when the Government came to formulate the 2011-2012 Budget, the Budget outlook over the four years to 2014-2015 had deteriorated by a cumulative $935 million since it had come to office in March 2011. This was mainly due to revised estimates for GST revenue as consumer caution intensified with flow-on effects to property market conditions and, consequently, lower transfer duty receipts. 25The evidence also went to the strategies adopted to arrest the weakening financial position. The three pillars of that strategy were: expenditure discipline; structural economic reform and responsible infrastructure development. The objective of the 2011-2012 Budget was to turn around the Budget result by a total of $5.2 billion over four years to 2014-2015. The Government's Wages Policy was introduced in June 2011 and one of its principal objectives was the avoidance of further costs in wages of around $2 billion over the four years to 2014-2015. 26Mr Horn's evidence was that the 2011-2012 Half Yearly Review demonstrated that the Budget results were weaker than forecast at September 2011. Over the four years to 2014-2015, the Budget results, he stated, had deteriorated by $626 million, principally reflecting a reduction in GST revenue across all years. 27Those Half Yearly Budget outcomes were summarised in Table 5 of Mr Horn's affidavit, which appears below: Table 5: Budget Results 28Mr Horn accepted that these budget outcomes were adjusted for the 2012-2013 Budget, as follows: for the 2011-2012 period, a deficit of $337 million; for the 2012-2013 period, a deficit of $824 million; and, for the 2013-2014 period, a surplus of $289 million. (The 2012-2013 Budget Paper No 2 recorded that the underlying deficit produced a higher deficit for 2011-2012, but a lower outcome for 2012-2013.) 29Mr Horn's evidence was that New South Wales now faced significant, ongoing deficits and that wage increases above 2.5 per cent without realised productivity savings make that position "more untenable". 30Evidence was also given that the 2012-2013 Commonwealth Budget (released on 8 May 2012) revealed that the national GST pool had been revised significantly lower compared with estimates contained in the Commonwealth MYEFO or the results in the 2011-2012 half yearly review. 31Mr Horn gave estimates as to the additional cost of annual increases above the 2.5 per cent interim award, which were expressed in Table 1 to his affidavit appearing below: Table 1: Cost of annual salary increase 32The total cost of Stage 1 of the claim (if a 5 per cent across-the-board wage increase was awarded) was $611 million over three years. 33Mr Horn's evidence as to the fiscal impact of the claim was: The Government would have to choose from any or a combination of the following: cutting expenditure on existing government services, foregoing recurrent or capital expenditure directed at enhancing service delivery, increasing taxation revenue, and/or substantially increasing borrowings. Higher borrowing levels would increase the burden on future generations of NSW taxpayers as well as undermine the State's capacity to maintain service delivery in the face of cyclical reductions in revenue levels and/or growth rates. Borrowing to pay for recurrent costs, such as wages, is financially unsustainable. 34Mr Horn identified that the grant of an across-the-board 5 per cent increase in salaries and allowances would significantly widen the projected deficits for 2012-2013, 2013-2014 and 2014-2015 by a total of $439 million. 35In cross-examination, he conceded that the last two of those periods now had projected surpluses (as revealed in the 2012-2013 Budget Papers). 36He further accepted that this evidence was qualified to the extent that the impact of awarded salary adjustments was subject to the Government choosing to use a general provision for the purpose of meeting any such adjustment. Thus, he agreed that whether any additional wage increase over 2.5 per cent has an effect on future projected deficits or surpluses would depend on whether the provision was used. 37An appropriation by Treasury had been provided to the NSW Police Force for the wage increase arising from the interim award. The general provision was not, however, an appropriation. Nonetheless, whilst not published in the Budget, a number of risks were factored into the Budget equations. In this respect, the general provision dealt with overruns (or "unexpected expenses") including award wage adjustments, but was not limited to salary adjustments; it covered many exigencies. For example, the provision will be used for redundancy purposes. 38Mr Horn stated that the size of the provision had "shrunk" in recent years but still represented about 1 per cent of the total expenditure of the State. However, agency CEOs now have written into their contracts that they are required to meet budget requirements. Nor did the existence of the provision dictate the policy response of Government to wage increases above 2.5 per cent. An alternative approach to utilising the provision would be cutting expenditure on existing Government services and/or foregoing recurrent or capital expenditure directed to enhancing service delivery. 39The estimate of the cost for changes to police prosecutors' rates of pay was $2.6 million over three years and the allowance for FSG experts, $4.3 million over three years. The State of the New South Wales Economy 40Mr Horn conceded that the 2012-2013 Budget concluded that New South Wales growth would be lower than expected than in 2011-2012, but with a resumption of housing investment and strong mining and farming sectors, the broader economy is expected to see growth accelerate through 2012-2013 and return to slightly above trend in 2013-2014. 41In his expert evidence, Mr Richardson gave the following evidence regarding the "global and Australian economic backdrop": 3.Rather, Australia's outlook this financial year and next relies on China (and the prices it generates for what Australia sells the world) and on business capex (as the miners rush to get extra product to market by financing enormous investment projects in various far flung regions of the nation). 4.So far the news on both those latter fronts remains more than comforting. Indeed, the safest bet in Australian economic forecasting over the past decade has been that 'stronger for longer' out of China has trumped many other negatives. Hence although we remain quite nervous on the China front - there are no miracle economies - so far the news from the north continues to be good. And although Australian consumers are huddling in their foxholes, it is capex which is the key. 5.Therefore we aren't yet joining the rush to concern over the current outlook. That said, forecasters are dialling down estimates for advanced economy growth as data disappointments weigh on the outlook in the wake of a surge in commodity prices and Japan's damaging earthquake effects. Out of the six largest advanced economies in the world, only Germany is bigger today than it was three years ago. 6.The key question for global growth was always just how big a letdown the passing of stimulus spending would prove. While global growth is likely to moderate in 2011, the news is generally positive. That said, some very important concerns remain, including the continuing weight of debt and unemployment in the United States and Europe. 7.Solid growth in emerging economies such as China has underpinned the strength of industrial commodity prices, which has created the dominant theme for the Australian economy at present. Although emerging economies may see their growth ease slightly through the remainder of 2011 and into 2012, demand for raw materials is expected to be strongly supported over the medium term, providing an ongoing positive backdrop for Australian economic prospects. 8.The recovery in the United States has faltered, and a number of very important headwinds - including the stubbornly high rate of unemployment, the slow pace of housing construction, falling government spending and a tentative recovery in investment spending by businesses - point to ongoing weakness. Yet there are grounds for optimism too. The weak $US is helping exports (which have accounted for nearly half the US expansion since the recession ended in mid-2009), while business investment and housing construction are likely to improve simply because there is little scope for further deterioration. 9.The situation in Europe is particularly problematic. Negatives such as high sovereign debt and high commodity prices are proving to be notable constraints on growth. ... 11.China continues to lead emerging economy prospects. The twin process of industrialisation and urbanisation taking place there (and other emerging economies) is reinforcing. Indeed, rapid income growth and job opportunities are attracting Chinese workers into cities. In turn, that larger urban population is generating demand for housing, energy, shopping centres, schools, office blocks and transportation. All that construction requires raw materials, and the scale of China's urbanisation which is yet to come offers huge potential for economic growth. 12.That said, there are also risks associated with the pace of growth in China, with inflation on the rise and interest rates lifting as a result. However, attempts to date to tame inflation are modest, with the lift in rates somewhat gentle. So inflation is on the rise, and China is seeing great growth but with too little by way of policy measures to slow it. Accordingly, that poses risks to China's medium term outlook. It is likely inflation will prove stubborn, while property prices remain worryingly high in some cities. 13.The outlook for emerging economies more broadly is strong, with productivity growth associated with rapid industrialisation expected to support income growth over the medium term. 14.The chart below shows the expected rate of average annual economic growth across a range of countries over the next four years, with emerging economies clearly expected to outperform the developed world. As noted above, that outlook and the associated demand for raw materials underscores a positive economic backdrop for Australia. 15.Australia emerged relatively unscathed from the global downturn, and remains one of the strongest economies in the developed world. That was due to a number of factors, including: ·A large and early fiscal stimulus package; ·Sharp monetary policy response - 425 basis points in interest rate cuts over an eight month period; ·The relative health of this nation's banking sector; and, ·The support of emerging economy growth. 16.That last point was critical. China's economy slowed, but its own stimulus package was directed towards construction and investment, which helped to support Australia's resource export volumes and prices. ... 18.Yet there is a risk of reading too much into these flood and cyclone effects. Yes, the damage was notable, but it was also temporary. And the bounceback may also have taken longer than expected - in particular, pumping out Queensland's mines proved to be slow - but production is well underway once gain. 19.That is an important point to understand: Australia didn't take a hit to its economy because the world stopped being interested in buying from us. Rather than any lack of demand, what we suffered from was a supply side shortfall - an inability to get our output to market both within Australia and to the rest of the world. 20.In addition, there are wider problems in Australia's patchwork economy. Most notably, consumers remain cautious. They haven't had any lack of income growth, but they have been trying hard to save rather more strongly than they did in times past. 21.Another problem is the weakness projected in housing construction. The strong population growth of the last five years occurred across a time when we were building fewer new homes. The upshot is considerable pent up demand for housing, so earlier projections had seen stronger growth in the offing as demographic-driven demand pushed up housing construction. However, the earlier expectation of recovery in housing construction has now faltered under the combined weight of higher interest rates and the relative lack of interest coming from investors and new home buyers. ... 24.Accordingly, the growth outlook for Australia - seen in Chart 2 below - is largely a capex story. The economic forecasts accompanying the Federal Budget saw two-thirds of all the growth in Australia's economy in each of 2011-12 and 2012-13 as dependent on increased business investment spending. ... 26.Accordingly, and despite key caveats related to the risk of renewed recession in Europe and (less likely still) the US, the most likely outcome remains for overall Australian economic growth to recover from the recent hit due to floods and cyclones, boosted by strong business investment in particular. The chart below shows my expectation for the path of Australian output growth over the next five years. Chart SEQ Chart \* ARABIC 1: Australian real output growth 42In relation to the state of the New South Wales economy, Mr Richardson gave the following evidence by his Expert Report: 51.NSW's poor performance of the past decade owed much to a series of factors. Perhaps most notably, Australia's strongest ever resource boom shifted money and materials to Australia's north and west, while leaving the manufacturing States in the nation's south and east dealing with higher interest and exchange rates. 52.High interest rates are particularly bad news for Sydney, given that it has Australia's largest mortgages, while the strength of the $A similarly saddles the State's manufacturers with competitive challenges, as is also true for its tourism and international education sectors. 53.However, it is not just the resource boom which benefited other States more. Some problems hit NSW harder. A good example is the global financial crisis. That struck at Sydney's strength, given that the State capital is home to half of Australia's financial businesses. 54.At the same time the last decade was marked by long running droughts and the poorest ever recorded inflows to the Murray-Darling basin. Although farming is a relatively small part of NSW's overall economy, those difficulties meant that it was particularly hard hit by that combination. 55.However, many of the economic negatives faced by the State have faded, and NSW's performance has lifted over the past year. In the arm wrestle between negatives linked to 'high interest and exchange rates' and the positives linked to 'potential for turnaround', the latter have still been in the ascendancy. Job gains were especially good through 2010, though they have faltered in recent months. The earlier strength helped to drive the State's unemployment rate close to national levels for the first time in some time. It helps too that NSW has not been as affected by others as floods and cyclones, that its slowdown in population growth has been less notable than that seen in a number of other States, and that the past poor performance of housing construction in New South Wales looks like combining with record lows in residential vacancy rates to encourage new housing construction. 56.Hence even though the $A is very high and that interest rates could rise further yet, the State's short term outlook is solid enough - but shy of the gains expected in States such as Western Australia and Queensland. Accordingly, inflation in Sydney is expected to remain either close to or below that seen nationwide, with faster growing States and Territories experiencing higher rates of inflation and pushing up the Australian average. ... 108.Turning to the New South Wales economy, I agree that growth in New South Wales will likely be slower than that in the wider Australian economy in 2011-12 and 2012 13, as is noted in the BIS Shrapnel report (paragraph 36). 109.The chart below repeats Chart 3, extending the data to also include my forecasts of New South Wales output and population as a share of the matching Australian totals. The chart shows how the poor relative performance of the New South Wales economy over the past decade. Over the next few years New South Wales' share of the Australian economy is forecast to fall below 31% amid greater relative strength in the likes of Western Australia and Queensland. Chart SEQ Chart \* ARABIC 2: New South Wales as a share of Australia's economy and population Source: Australian Bureau of Statistics, Deloitte Access Economics. 2010-11 is an estimate. 110.Since 2000, the New South Wales economy has encountered domestic and external challenges, including managing the post-Olympic Games period, strong residential property cycles, the global commodity price boom and the recent global financial crisis. The challenges associated with elevated global commodity prices - such as the associated lift in exchange and interest rates - remain relevant today, and will continue to affect the New South Wales economy over the medium term. 111.In particular, the industry structure of New South Wales relative to resource-rich States such as Western Australia and Queensland, will be (and has been) a key factor holding back the New South Wales economy relative to these States over the medium term. Resource-rich States will continue to benefit from an expected lift in investment spending over that period, and will be the growth engine of the Australian economy. Indeed, as noted in the BIS Shrapnel report (at paragraph 21), "from 2011-12 mining and associated infrastructure investment will drive a further strong phase of private engineering construction activity." 43Mr Richardson also observed: 140.On the second matter (could wage growth be faster if it is accompanied by employee-related cost saving measures?), a brief digression on Bowley's Law may be appropriate. Bowley's Law notes the relative stability of the wage share in the economy over time. Consistent with Bowley's Law, a target for inflation of 2-3% over the course of the economy cycle therefore implies that labour costs will also need to increase by 2-3% over the course of the economic cycle (thereby maintaining labour share in the income of the wider economy). 141.This point is often missed in discussions of wage-setting, as there is rather more focus on wages as an income to employees than there is on wages as a cost to employers, but it is the latter which is the key driver of economic outcomes over the longer term. And the cost to business of labour is not simply and solely reflected in movements in wages, but in movements of wages relative to the productivity of workers. 44Dr Gelber's evidence also went to the state of the Australian and New South Wales economies. Some important aspects of that evidence were as follows: 1.The Australian economy slowed over 2010/11, due to a combination of caution in households and floods in the eastern states. GDP growth is forecast to rebound strongly to 4.0 per cent in 2011/12 and remain robust in 2012/13 (3.6 per cent), before easing to 2.6 per cent in 2013/14. Key drivers of growth will be healthy growth in exports, further increases in mining investment, a renewed upswing in dwelling construction and finally a broad-based strengthening in business investment, although these positives will be partially offset by slower growth in government recurrent spending and declines in public investment. Employment growth will remain solid over the next three years, underpinning growth in household incomes and consumer spending, although high interest rates predicted for 2013 will moderate consumer spending through 2013/14. 2.Growth in the New South Wales economy in 2010/11 is expected to outpace the national average in terms of output (gross state product - GSP), aggregate spending (state final demand - SFD) and employment growth. Prospects are favourable going forward, and although GSP, SFD and employment growth will lag the national average over 2011/12 and 2013/14 - but match the national average in 2012/13 - slower population growth in the state means per capita output and demand growth will actually be marginally higher than national GDP and domestic demand per capita growth. This, combined with strong growth in state final demand, suggests that demand and cost inflationary pressures in NSW will at least be equal to the national average. ... 11.Annual employment growth in New South Wales outpaced national employment growth over the second half of 2010 and in the first three months of 2011, with the state's Unemployment rate close to (or slightly below) the national average. Despite the recent setback in April, the New South Wales labour market is expected to tighten further over the next two years, with solid growth in the state expected to produce a similar decline in the unemployment rate as predicted nationally ie to fall below 4% in 2013. 12.This means that there will be increased competition for labour in NSW, especially for skilled labour. With respect to the proposed wage increase for Crown Award employees, the attraction and retention of employees will become more difficult in the absence of a sufficient wage rise, as the labour market is set to tighten further. Furthermore, this suggests that employers in the state- both in the public and private sectors - will need to at least match the national average in terms of wages growth, or risk losing labour to other industries or to other states. ... 30.Healthy signs have developed over the past year that the New South Wales economy is finally coming out of its economic malaise. This follows a decade in which New South Wales generally underperformed the Australian average, with gross state product (GSP) averaging 2.3 per cent per annum compared to the national average of 3.1 per cent in the ten years to 2009/10. Growth in state final demand (SFD - which represents aggregate spending in the state by households, business and government on consumption and investment) accelerated through calendar 2010, with a number of key indicators recording strong growth and outpacing the national equivalent. 31.Public investment in the state led the recovery through 2010, but the key driver was the healthy growth in dwellings investment. House prices lifted 14 per cent in 2009/10 and commencements rebounded out of the deep 2008/09 trough. The protracted downturn in the housing market and dwelling construction from 2004 to 2008/09 was a key negative factor contributing to the poor performance of the state economy over these five years. 32.Business investment also increased in 2010. Growth in private non-residential building was surprisingly positive, despite lingering financing problems from the global financial crisis (GFC), although much of the growth came from government stimulus to private schools via the 'Building the Education Revolution' program. Private engineering construction increased strongly through 2010, led by surging coal and minerals investment, accompanied by increased electricity and subdivision infrastructure spending. On the other hand, plant and equipment weakened sharply in the March quarter 2010 (following the cessation of government tax breaks for motor vehicles and other allowable equipment in December 2009), and remained subdued for the rest of the year. 33.Employment growth staged one of the strongest rebounds among the states in 2010- increasing 4.0 per cent through the year-after suffering relatively more during the post-GFC period in 2008/09. The strength of employment and rising wages underpinned the recovery in household spending, although rising interest rates hit the relatively more interest rate-sensitive households in New South Wales (because they carry larger mortgage debt) over the second half of last year. 34.The state's tradeables sector, in particular manufacturing, education and tourism, continued to suffer negative impacts from the high $A. Nevertheless, merchandise export growth increased strongly over 2010 as good rains boosted farm exports; as new mine, port and rail capacity boosted coal and mineral exports; and as machinery exports rebounded, despite the rising A$. 35.Overall, state final demand (SFD) increased 3.8 per cent in calendar 2010 (compared to 2009), despite growth faltering in the December quarter. For financial year 2010/11 SFD growth is expected to ease to 3.3 per cent, compared to 3.0 per cent for Australian domestic demand, while GSP is expected to increase by 3.3 per cent, compared to 2.6 per cent for national GDP. 36.The New South Wales economy is expected to build on the solid growth in 2010/11 and record moderate to strong growth over the next two years, although both GSP and SFD growth is projected to again lag national GDP and domestic demand growth. Economic growth in the state will be underpinned by a relatively buoyant construction sector and improved export volumes and revenues, although higher interest rates will subdue consumer spending. ... 38.Business investment is expected to strengthen further over the next two years, as the improved outlook for dwelling construction and further increases in coal and minerals investment precipitate a broader pick up in overall business investment. A new round of private infrastructure is expected to boost engineering construction, followed by industrial and commercial buildings. From 2011-12 increases in private sector investment will be partially offset by declines in public sector investment as the current round of projects (largely from the economic stimulus package) is completed and not replaced with a new round of projects. But with overall investment strengthening, this will lead to a pick up in demand for finance, property and business services. 39.With the Australian dollar expected at around or above the current levels of parity with the US dollar over the next three years, the negative impacts on the state's tradeables sectors will continue to weigh on the overall prospects for GSP. This includes the rural sector, which will suffer from falling revenues from next year when current high world prices (ie in US$ terms) for a number of agricultural commodities fall back as global supply responds to the current high prices. Falling farm revenues will have regional impacts. However, the key danger is that the prolonged period of the high A$ will lead to a 'hollowing out' of the manufacturing sector, lower levels of manufacturing investment and long term damage to the state's tourism and education services industries. 40.Employment growth is forecast to ease back after the 3.5 per cent growth estimated for 2010/11, growing at around 2 to 2.6 per cent per annum over the next three years. This will underpin further solid growth in household incomes and expenditure. However, over the medium term, higher interest rates and a lack of tax cuts-as the government looks to restore a budget surplus-will limit growth in household consumption. 41.Indeed, by 2013/14 a string of interest rate rises will begin to stunt growth. As mentioned, NSW is particularly sensitive to interest rate movements due to higher levels of mortgage debt. The strong economic growth forecast for 2011/12 and 2012/13 will see the RBA increase interest rates aggressively to curb inflation and avoid the economy overheating. This will lead to a weakening in output and employment growth in 2013/14. But the weakening in the economy is likely to be relatively brief. A subsequent easing in interest rates, a lower $A and strengthening in residential, public and business investment are projected to lead to buoyant economic conditions over the second half of the decade. 42.To summarise, New South Wales Gross State Product is forecast to grow at 3.7 per cent, 3.5 per cent and 2.5 per cent in 2011/12, 2012/13 and 2013/14 respectively, slightly slower than the Australian GDP forecast of 4.0, 3.6 and 2.6 per cent over the same three years. However, given that population growth in the state is projected to be around 0.4 to 0.6 per cent weaker than the national average, this means per capita GSP growth over the 2010/11 to 2013/14 period inclusive will actually be marginally higher than national GDP per capita growth. This, combined with strong growth in state final demand, suggests that demand and cost inflationary pressures in New South Wales will be at least equal to the national average. 45In their joint report, the experts expressed differing views as to the state of the Australian economy in 2013-2014. As discussed in Police Award (No 1), this was reflected in their different inflation estimates for that year. Dr Gelber's evidence was that the economy would "hit full capacity constraints" in that period. With labour shortages, inflationary pressures would become broadly based. Mr Richardson considered that there would be an easing of global commodity prices in 2013-2014, reducing the growth of national income. This would have a dampening effect on economic conditions and, hence, inflation. 46The Commission received in evidence Chapter 1, 'Budget Overview, Context and Strategy', of the Budget Statement contained in Budget Paper No 2 of the 2012-2013 New South Wales Budget. 47In the introduction to the Budget Statement, some general observations were made about the state of the New South Wales economy and, in particular, fiscal considerations, as follows (at p 1): In mid-2012, global economic uncertainty and the high Australian dollar continue to weigh down Australian financial markets and confidence, as well as activity in Australia's non-mining sectors. Consumer caution and changes in spending patterns have resulted in a structural and significant collapse in forecast GST revenue, entrenching the revenue downgrade that occurred in 2011-12. GST revenue comprises around a quarter of the State's total revenue. Growth in New South Wales will be lower than expected in 2011-12 but a resumption of housing investment, strong mining investment, a strong farm sector and the spread of benefits from the mining boom to the broader economy is expected to see growth accelerate through 2012-13 and return to slightly above trend in 2013-14. 48As to fiscal initiatives, the following was noted in the introduction (at p 2): Last year's Budget responded to that challenge with a series of savings initiatives which lowered forecast expense growth to levels not seen in the prior decade. For 2011-12, the Government expects to achieve expense growth approaching 2 percentage points below what was forecast in last year's Budget. But in response to the fall in expected GST revenue of $5.2 billion over the 2011-12 to 2014-15 period, the 2012-13 Budget locks in even lower expense growth, averaging just 3.3 per cent per annum over the four years to 2015-16. 49The fiscal strategy was identified as (at p 3): The 2012-13 Budget contains measures to restrain expense growth, returns the Budget to significant surplus and slows the growth in net debt, while reducing the infrastructure gap and introducing reforms to improve the State's economy. 50Further, it was noted (at p 4): The long-term objectives of last year's Budget were to return to a sufficiently large operating surplus to fund a significant part of capital expenditure, build a buffer against adversity and ensure a gradual decline in state debt and unfunded super in proportion to revenues. The strategy to accomplish this was built on the three pillars of expenditure discipline, structural economic reform, and responsible infrastructure planning. and The 2012-13 Budget tightens expense control further to restore the balance between revenue and expense growth. This will allow budget results to return to surplus, restrain growth in debt, and provide a more sustainable financing base to support the Government's priority infrastructure program. 51The Statement gives particulars about the planned expense management, noting (at p 5): Control over expenses is one of the keys to restraining debt and restoring fiscal sustainability, and the revenue downturn has accentuated the need for such discipline. Forecast expense growth in 2011-12 has been revised down to 5.3 per cent from the 7.1 per cent estimate in last year's Budget. 52The Budget Statement refers to the significance of employee related expenses and describes the introduction of a "Labour Expense Cap" to limit employee related and contractor expenses across the whole of Government. This is an additional initiative to the NSW Public Sector Wages Policy 2011 and directs attention to employee savings through staff reductions and other strategies such as improving the efficiency of staffing arrangements to better manage overtime and reviewing the current contracting levels, needs and arrangements. 53The Budget Statement deals with the "Fiscal Outlook". In broad terms, that outlook is described as follows (at p 8): As a result of these measures, the Budget remains on a trajectory to a strong surplus notwithstanding the revenue collapse and increased spending on important priorities. On a GFS basis the operating result shows a budget deficit of $824 million in 2012-13 returning to a surplus of $289 million in 2013-14 and increasing to $562 million in 2014-15 and $1,172 million in 2015-16. 54These results were described as "headline results". The Budget Statement identifies that there may be distortion resulting from certain economic steps taken by the Australian Government. When looked at in net terms, the following position was reached (at p 8): Netting out those transactions the underlying deficit in 2011-12 would be larger at $1,118 million (not $337 million) but the 2012-13 deficit would be smaller at $94 million (not $824 million) in 2012-13 (see Chart 1.4). 55These statements are reflected in the following chart (Chart 1.4) which appears in the Statement: Chart 1.4 Headline and Underlying Budget Result 56The Budget Statement also dealt with infrastructure spending, State owned capital spending, State funded infrastructure, the overall fiscal balance and the projected growth in commercial public enterprise capital spending. In relation to housing, the following observation was made (at p 12): Housing construction in New South Wales has slowed significantly over the last decade, particularly in comparison to similar states such as Victoria. The widening gap between demand and supply has driven up house prices, lowered affordability, reduced disposable income and repressed demand for non-housing goods and services. 57As to infrastructure spending, the Budget Statement provided the following information (at p 16): The State's infrastructure plan (described in Budget Paper No. 4) aims to provide and maintain the infrastructure that underpins state economic growth (such as transport and utilities) and essential services (such as schools and hospitals). Over the four years to 2015-16, infrastructure spending will total $61.8 billion, with 42 per cent in the general government sector and 58 per cent in the public trading enterprise sector. The program is funded predominantly from the State, with Commonwealth grants contributing only around 10 per cent of the total. If the Commonwealth maintains the existing 80:20 share of funding for the Pacific Highway, the total infrastructure program would be $64.1 billion or an increase of 2.8 per cent on the program announced in the 2011-12 Budget. 58The Budget Statement also dealt with the 'State-Funded General Government Infrastructure Program including Public Transport'. 59The overview provided for the Budget was expressed in the following terms (at p 1): A Budget deficit of $824 million is expected in 2012-13 in the context of a renewed global economic slowdown, weaker consumer and business confidence and a significant structural deterioration in GST revenue. A return to significant operating surpluses over coming years is forecast on the basis of a strengthening economy and even greater discipline on expense management. This will enable a continued emphasis on rebuilding infrastructure without unsustainable debt growth. The Budget contains measures to restore economic growth by stimulating the housing construction sector and boosting State-funded infrastructure in the general government and public transport sectors. The Government has confirmed its fiscal strategy to focus on maintaining the State's current triple-A credit rating and has formalised it in the Fiscal Responsibility Bill 2012 currently before Parliament. Structural reform will continue within government to improve public sector capability and productivity through the implementation of the interim Commission of Audit findings. Improved performance of state owned corporations is being targeted while tighter capital expenditure management will help to keep the cost of living down. Submissions Submissions of the Association 60In summary, the Association made the following submissions in support of its application (insofar as the application remained on foot after Police Award (No 1) and in opposition to the cross-application brought by the Commissioner): The Claim (1)The Full Bench should award the claimed general increase in salary and salary related allowances of 5 per cent per annum, being an annual increase of 2 per cent per year over the basic 3 per cent per year justified by economic factors. It was contended, in this respect, that the claim was "quite modest". Merits of the Claim General Considerations (2)The Commission should determine an aggregate salaries outcome on the basis of the extent of the Association's success in running "a cumulative, multi-factor case" under the Arbitrated Case Principle and the Commission's findings on the economic considerations. (3)Care needs to be taken to avoid any double-counting of overlapping factors, and the moderating factors identified by the Full Bench in Police Award (No 1) need to be taken into account. (The Association accepted that the Full Bench had considered matters arising under the work value sub-principle and the productivity and efficiency sub-principles as discrete matters which involved "some degree of overlap".) (4)The task for the Full Bench in determining the quantum of a general wage increase for police officers, in light of its earlier findings on merit, is the same as that described in Re Public Hospitals Nurses (State) Award (No 4) (2003) 131 IR 17 at [20]: ... An assessment is then to be made as to how that change should be expressed in money terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in the work. (5)It would be an error to adopt the Commissioner's approach of assessing the appropriate outcome for the present application by reference to the Association's claim and not the Commission's own assessment based upon its findings under the Arbitrated Case Principle. The Commission will apply the terms of s 10 of the Act and, in doing so, have regard to moderating considerations. However, the starting point for any such assessment is not the Association's claim of 5 per cent per annum over 3 years, although the parameters of the claim will restrain the ultimate award that the Commission may make. Work Value Sub-Principle (6)Proactive policing was undoubtedly the most significant work value issue considered by the Full Bench and appeared to have been entirely, or almost entirely, successful. In this connection, whilst the Full Bench accepted proactive policing was a developing concept in the lead up to the datum point, it also accepted that, despite those early embryonic and evolutionary developments, the State Plan created a "fresh imperative for NSW Police", being the "substantial reduction in crime rate and anti-social behaviour", resulting in "significant further initiatives" that "involved the better utilisation of police officers in LACs to maximize levels of proactivity, and, thereby, meeting the targets set". The Full Bench also accepted that the post 2006 changes "broadened the focus of the NSW Police Force" with the result that the "critical mass of people in LACs ... work more effectively in the attainment of proactive objectives". (7)In the result, the Full Bench accepted the Association's submission that, despite the fact there had been elements of modern day proactive policing methodologies in the pre-datum point period, its evolutionary development as a concept was altered by TITUS and accelerated by the State Plan, such that there had been "real, additional and substantial change in the nature and extent of the operation of the system accommodated through the measures" adopted in the post-datum point period. (8)The Full Bench rejected the Commissioner's contention as to proactive policing. Proactive policing added not only to the volume of work and its intensification but required police officers to adapt their work to meet performance standards required by the NSW Police Force so as to make the performance of this work an embedded or integrated part of the work of the critical mass of police. It also enhanced the skills and duties carried out by police officers and made them more accountable. The work value changes found by the Full Bench to have occurred with respect to proactive policing must, therefore, be regarded as of considerable significance. (9)The Full Bench found that its work value case with respect to 'Equipment, Information Systems and Technology' added little to the overall assessment of work value with the exception of the introduction of TASERS. (10)Changes to Legislation, Policy and Procedure were not found to have significantly impacted on the work of police officers, save with respect to training (a consideration which added moderately to the Association's work value case). Moderating Factors : Work Value (11)The Full Bench identified a number of moderating factors with respect to the Association's overall work value case. However, any moderating effect of a relative absence of proactive policing in the State Crime Command ('SCC'), Professional Standards Command ('PSC') and some country LACs would be small, having regard to the concentration of police officer numbers in all other LACs which have experienced the changes driven by proactive policing. (12)The largest of the non-LAC groups in the representative sample, the SCC, was found to have undergone changes in the nature of officers' work that warranted an adjustment on the basis of work value considerations, albeit of a lesser magnitude to that identified in respect to LAC-based officers; whereas the second largest of the non-LAC groups, the Marine Area Command ('MAC'), was found to have work value changes that were equivalent to or exceeded those reflected in LACs. Productivity and Efficiency Sub-Principle (13)The Association submitted the Full Bench accepted that the objective of the Police Force for the purpose of the sub-principle was the prevention or driving down of crime, that there was a significant reduction in crime after the datum point, and that this achievement of the objective over the relevant period "was obtained by the intensification of the work of police officers through the virtually universal and wholesale adoption of proactive policy in LACs". Police officers made a substantial contribution to the changes to police productivity and efficiency by assisting in the attainment of the State Plan targets and contributing to the reduction in crime. Changes in Equipment, Information Systems and Technology also added to improvements in productivity. Moderating Factors : Productivity and Efficiency (14)The Association was, therefore, almost wholly successful in its productivity case. Any moderating factors in relation to this aspect of the case were found to be far less significant. Whilst work intensification "may have contributed to a work value change of the requisite kind by a narrower margin", as a factor considered under the productivity and efficiency sub-principle it "does not suffer the same limitations". The improvement in the crime rate was attained by the work of frontline police officers and specialist units which assisted them. Overlapping Factors and Avoidance of Double Counting : Cumulative Assessment (15)Having regard to the substantial degree of overlap between the findings concerning work value and productivity and efficiency, and having regard to the need to avoid double counting, the Association accepted that, to a significant degree, the quantification of the work value and productivity findings should be undertaken in a concurrent rather than cumulative way. (16)This would ensure that the proactivity issues are not counted twice, but it would also mean that the moderating factors applicable to the work value case would largely be negated by the lesser effect of those factors on the productivity case. It was submitted that to do otherwise would unfairly advantage the Commissioner who would have the benefit of a concurrent consideration together with "the added advantage of the full value of the moderating factor with respect to [the work value sub-principle]". Economic Considerations The Maintenance of Real Wages Principles (17)The conclusions reached by the Commission as to the CPI represent the minimum required to maintain the real purchasing power of wages. These figures should operate as the starting point for the quantification of an appropriate adjustment in wages. It was contended "to put it another way, they should be the ground upon which adjustments to wages reflecting changes in work value and productivity are built". Work value and productivity are concepts entirely discrete from the maintenance of real wages, and need to be assessed and quantified separately. (18)If wage adjustments based on economic and non-economic factors are quantified concurrently, this would result in police officers being denied the full salaries value of work and productivity changes which they have achieved, or suffer a real reduction in their salaries as adjusted for work value and productivity or both. This would be inconsistent with the requirements of s 10 of the Act. (19)This contention would not result in a mathematical outcome but would be an appropriate approach, in principle, to ensure that the amount awarded gave appropriate weighting to the factors associated with the purchasing power of wages and factors arising from the work value and productivity and efficiency sub-principles. It was accepted that there was an absence of authority for this approach but the case was unusual because the Commission had delivered its decision in two stages or parts. Assessment of Inflationary Impacts (20)In its written submissions, the Association contended that: having regard to the objective of maintaining the real purchasing power of wages , the Full Bench found that it should do so on the basis of a CPI figure of 3.1% in the first year of a new award, 3% in the second year and 2.7% in the third year. (21)In light of the further evidence of Mr Horn on inflation forecasts, it was contended that the assessment by the Full Bench of inflationary impacts of the first year would not be affected because the Commission had regard to two yearly periods, the earliest of which was not related to the additional material produced by Mr Horn (i.e. the 2010-2011 period). The Commission should adopt the cost of living data of 4.5 per cent for the earlier period: Police Award (No 1) at [551]. (22)As to the second year period (see Police Award (No 1) at [559] and, also, see [551]), the further evidence of Mr Horn should not necessarily lead to a reduction of the Commission's conclusion as to an appropriate CPI forecast (of 3 per cent), as Mr Horn's analysis was based upon data which did not use "comparable figures". That material uses "June on June" figures, not a year average figure. The NSW Treasury and the Reserve Bank of Australia ('RBA') estimates used "all capital cities" and "not Sydney CPI" data. The Association conceded, however, that, for the second year of the award, there is now updated, and actual data as to forecasts, and, as such, the Commission would need to have regard to that evidence. There was only one quarter figure remaining for that year. Mr Horn's evidence was that it is likely the outcome will be 2.5 per cent based on a yearly average figure. (23)As to the third year (2013-2014), there was no basis for departing from the Commission's forecast conclusion of 2.7 per cent based on the further evidence of Mr Horn. The Commission had already adopted a conservative estimate. Further, the 2012-2013 year estimates still rely upon forecasts. In that respect, there is no proper basis to displace the evidence of the experts called in the proceedings with predictions by the RBA or the Treasury. Also, Mr Horn's evidence as to the third year does not consist of a forecast at all. He merely provides assumptions. For that period, the Commonwealth Treasury forecast is at 2.5 per cent and the RBA, 2 to 3 per cent. There is no basis to displace the Commission's finding of 2.7 per cent. (24)It was further noted that Dr Gelber and Mr Richardson had both projected higher growth in inflation for the economy than the NSW Treasury and the RBA. (25)In the final analysis, economic considerations alone would require increases in excess of the 2.5 per cent increase awarded in the interim award and so much was conceded by the Commissioner in the first part of these proceedings. Financial and Cost Implications Principles (26)There was an absence of any clear proposition from the Commissioner as to what the Commission would do with the financial evidence in the light of the Association having established the merits of its case. There is an absence of reference to the Wage Fixing Principles or how the Commission would deal with quantification in the light of those financial circumstances: Re Crown Employees (Teachers in Schools and TAFE and Related Employees) Salaries and Conditions Award [2004] NSWIRComm 114 at [471]. There was an absence of a linkage to economic considerations and what that might amount to in the public interest. The earlier evidence of Dr Gelber predicted that the economy was, in fact, strengthening over the proposed three year life of the award. (27)Financial considerations will be given weight and will act as a moderating factor but only at the end of the Commission's assessment process - after it has otherwise identified what is the appropriate outcome having regard to economic factors and the application of the work value and productivity and efficiency factors. Financial Outlook (28)It was accepted that Mr Horn's evidence was that the grant of the general claim, in full, would be $51 million for the 2011-2012 period; $101 million for the 2012-2013 and $155 million for the 2013-2014 period. (29)There was no basis, however, upon which the Commission could find that "any amount it would award up to the maximum of the Association's claim would necessarily have an effect on the projected budget outcomes". This is because there is a central Treasury provision which had the capacity to 'cover' award wage outcomes of the kind sought in this case. That provision is in the order of $700 million. Mr Horn recognised this in a qualification to his evidence as to the cost of the claim. (30)To the extent that the NSW Government's Wages Policy is taken into account, then the Commission should also have regard to the employee related cost savings which have been obtained as a result of the passage of Pt 9B of the Police Act 1990 ('the Police Act'), including a specific provision in s 199E, which caps the cost of the Death and Disability Scheme. These provisions also indicate why the Government's Wages Policy should not be taken into account because the provisions of that legislation create a legislative impediment to the Commission taking into account those cost savings as it may otherwise do under the Wages Policy. State of the Economy (31)There was an absence of evidence as to how the changes to the projected Budget outcomes or adjustments in rates of pay would affect the general NSW economy. The 2012 NSW Budget would indicate that there is a reasonably positive outlook for the NSW economy: one that is not affected by the grant of the claim in this matter. (32)The economy has not been as strong as had been forecast 12 months ago, but, it was contended, that said nothing about the state of the economy's growth over the next year. Wages Policy (33)Whilst the Full Bench accepted that the Government's Wages Policy would be taken into account as "part of the mix" (Police Award (No 1) at [568]), "it is difficult to see what relevance the Wages Policy could now have upon the quantification of the general salaries increases". The Government's Wages Policy should be given little weight because, first, the policy was not applied to the present proceedings by the Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 ('the Regulation'); secondly, the policy makes no allowance for increases based on work value which the Commission has found to be justified; and, thirdly, the policy gives no account to productivity and efficiency improvements, insofar as those changes are not directly connected with employee related cost savings. Police Prosecutors (34)Written submissions were advanced as to the claim regarding police prosecutors, including the definitional scope of any award provision covering that occupational group. Those submissions do not require further consideration in the light of the concession by the Commissioner as to the form and quantification of this aspect of the claim. FSG Experts (35)The position of FSG experts is similarly affected by a concession by the Commissioner. The issue of the scope of the provision concerning FSG experts was reserved at the conclusion of the hearing as to remedy. The Association sought the following terms in its written submissions: The "qualifying terms" for the allowance ought, therefore, be the following: (a) The officer must be attached to the FSG (it ought be lost if the officer transfers out of the FSG); and (b) The officer must have achieved the relevant qualification/certification through the AFFSAB (or by the NSW Police Force) as an "expert" in the relevant discipline. The description should necessarily be generic to accommodate the ever developing field of forensic science, so that if the Australian Field Services Accreditation Board ('AFFSAB') is to recognise new disciplines within the forensic sciences, they will be able to avail themselves of the benefits of the award. It was also submitted that "it is unnecessary to require the completion of the relevant Diploma as a pre-condition to the benefit under the Award, as it [is] a necessary pre-requisite to accreditation by AFFSAB and internally within the NSWPF". In its further written submission of 15 August 2012, the Association submitted that the knowledge, skills and, in particular, responsibilities of FSG experts develops over time and "is in addition to that which secures an officer the more general specific duties allowances". It was submitted that it was, therefore, appropriate that the new allowance operate in addition to the SDA. The Association also submitted: Forensic Services Group expert witnesses were differentiated within the claim (the remaining unsuccessful FSG claims being dealt with in paragraph 5(vi)(d). The Applicant requested a "new allowance" as opposed to an "increase from current level" (the language of paragraph 5(vi)(d)), which can be read as, and was intended to be, a new allowance in addition to the Special Duties Allowance already paid. We note the Respondent has not sought to be heard in relation to the form of the FSG clause (or for that matter, the form of the Prosecutors pay scale), despite having been repeatedly given the opportunity to do so. Duration of the Award (36)The Association's claim is not constrained to 5 per cent in each year if the award made operates for less than three years. Further, there is little evidence to justify a two year award. The issue was not, in fact, strenuously pressed by the Commissioner. A three year award provides the Commission a better capacity to spread the outcomes over a longer time period. (37)The Association submitted that a three year award operating from 1 July 2011 was broadly consistent with police awards historically (the exception being the 2009 award that had a 2 year duration because of the incapacity of the parties to identify cost offsets which would justify third year pay increases under the then applicable State Government Wages Policy). (38)It was also submitted that "the Full Bench's specific finding as to the CPI forecast to be used in the third year of the Award's duration (2013-2014) removes any suggested uncertainty from the debate as to duration". Further it was submitted as to duration "an award of longer duration gives the Full Bench greater flexibility with respect to any staging-in of increases which might be required arising from its consideration of financial and budgetary consideration". Form of the Award (39)As to the form of the award, the Association submitted, in its further written submissions, as follows: 6.In the Applicant's respectful submission, it would not be appropriate to make a wholly new Award at this point in the proceedings. If a new Award were to be made it would inevitably have a nominal duration (as required by s 16) that extends to the resolution of Stage 2 of the proceedings and as such would inevitably attract s 17(3)(c). The Applicant's capacity to seek variations would as a matter of law be required to demonstrate that it was not "contrary to the public interest" to make the variations sought, and moreover that there was "a substantial reason to do so". The Applicant ought not be prejudiced in its capacity to pursue the full scope of the Application (which we note was filed as an application to vary the 2009 Award under s 17(3)(d)), filed now well beyond 12 months ago (filed on 1 April 2011), because of the way in which the proceedings have been dealt with in a procedural sense. 7.A further interim award is not, in the Association's respectful submission, an appropriate vehicle to grant relief in the event adjustments are to be made to salary and salary related allowances (dating back to 1 July 2011), over and above the 2.5% provided for by the 2011 Interim Award. Section 16(4) provides an Interim Award "applies only for the period (not exceeding 12 months) specified in it". Even on the Commissioner's case, adjustments would be required (assuming the Commission were to grant an adjustment to salary and salary related allowances over and above the 2.5% provided for by the 2011 Interim Award) over a two year period, dating back to 1 July 2011. 8.There is, in the Applicant's respectful submission, no reason to adopt a course other than that sought by the Association, and every reason to adopt it. Section 17(4) provides adequate power to make the variations without any potential to complicate the further hearing of the matter, without there being any potential to prejudice either side in the ultimate outcome of the proceedings, or by adversely affecting the creation of an entirely new Award at the substantive conclusion of the proceedings (as contemplated by the Full Bench in its decision of 28 March 2012). Submissions of the Commissioner 61In summary, the Commissioner made the following submissions in reply (and in support of his cross-application): The Claim (1)The Commissioner opposed the claim outright. Merits of the Claim General Considerations (2)The assessment of remedy will require a revisiting of the strength of the Association's case under the two sub-principles of the Arbitrated Case Principle found to be made out by the Full Bench. (3)Any increase in salaries and salary related allowances under the general claim based upon work value and productivity and efficiency considerations should be "moderated down" from the amounts claimed by the Police Association in its application in accordance with the findings of the Full Bench in that regard. 'Moderation' means moderation of the Association's claim, and "not some abstract starting point". (4)It is also necessary to have regard to the background of the general claim so as to avoid double counting in the assessment process. This requires an appreciation of the relevant history of salary increases under the award (and its predecessors) from the period when proactive policing was in an embryonic state, in or around 1996. (5)It is relevant to consider that there has been a real increase in wages after the datum point and just what has been purchased as a result of that increase. The practical problem is delineating just what part of the changes after the datum point are "fresh". It was contended that real increases in wages since the datum point had "purchased" significant productivity and efficiency improvements, particularly in circumstances where the productivity and efficiency changes were accepted by the Association as being evolutionary in nature. (6)There were expansive salary increases in real terms since 1996 for police officers. The evidence revealed that between September 1997 and the June quarter 2011 those salaries increased, in real terms, by 23.4 per cent. Those increases were equivalent to an average of 1.5 per cent per annum. Further, since the datum point, the annual average increase in police wages has substantially exceeded the Sydney CPI year average increase. In nominal terms, the rates in police awards have been adjusted by 4 per cent each year, between 1 July 2005 and 30 June 2011. (Those increases having been further supplemented by a 2.5 per cent interim award increase.) (7)The various Memoranda of Understanding reached between the parties over time were referred to in Police Award (No 1) are of relevance for a number of reasons. First, reforms impacting upon work of police deriving from recommendations of the Royal Commission into the NSW Police Force in 1996 were not available to be taken into account in the proceedings. Secondly, the genesis of the system of police proactivity and significant steps in its implementation occurred prior to the datum point. Thirdly, those changes in work value and productivity arising from workplace reform prior to 1 July 2005 are not available to be taken into account. Fourthly, the Wage Fixing Principles dictate that only changes after the datum point may be taken into account so as to avoid double counting. Fifthly, particular attention needs to be focussed upon the avoidance of reward based upon general notions such as integration or embedding after 1 July 2006 and, sixthly, care needs to be taken to identify what changes did actually occur after the datum point so as to ensure that only the changes which genuinely fell within the meaning of the principles are taken into account. This will also avoid a contravention of the prior agreements. (8)It must be accepted that under the 2009 Memorandum of Understanding ('the 2009 MOU'), the increase in salaries agreed for the period 1 July 2009 to 30 June 2011 did not include any compensation or trade-off in relation to work value increases or changes in work post 1 July 2005. However, the objectives set out in cl 2 of the 2009 MOU made clear that the terms of the agreement (which were ultimately reflected in an award) were to promote productivity and efficiency in the NSW Police Force. (9)These factors are relevant to the issue of double counting and the weight to be given to various matters considered by the Commission in assessing whether to grant a salary increase. Work Value Sub-Principle (10)Having determined that changes in the work of police officers satisfied the work value sub-principle, that sub-principle requires an assessment then to be made as to how the change is to be measured in monetary terms. That is the current issue. Such an assessment will normally be based on a consideration of previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work from the datum point. (11)The sub-principle was never intended to result in a generalised, across-the-board wage increase. Such a conclusion would be unusual, given the very tight guidelines contained within it. Where new or changed work justifying a higher rate is performed only from time to time, or where that work is performed only by some of the persons covered by the classification, then the work value sub-principle would require the compensation be by way of a special allowance (although no such claim is presently before the Commission). Further, such an allowance would be payable only when the new or changed work is performed by particular employees, not by means of an increase in the rate as a whole. Here there was a differential uptake of proactive policing techniques after 2005 in and between LACs, especially when a comparison is drawn between city and country LACs. Further, there was an absence of proactive policing changes in specialist Commands within the representative sample. (12)These considerations make particularly important the concession by the Association that the work value change was evolutionary in nature after the datum point. (13)After acknowledging that the Commission had found that the Association had satisfied the requirements of the Arbitrated Case Principle in relation to its general claim based on work value considerations and, in particular, changes in proactivity (changes in Technology and Information Systems doing little to enhance the findings in relation to work value), the Commission also alluded to the particular findings relating to moderating factors in that respect. (14)In the weighing process, the Full Bench ought to give weight to a number of important moderating factors. First, the Full Bench's findings as to the mix of reactive and proactive policing provides that there should be averaging (there was a differential uptake of proactive policing technique after 2005 within LACs and the nature of the work performed in the SCC and PSC groups was reactive rather than proactive). Secondly, the changes have less weight or should result in discounting because of the extent of the emergence of proactive policing prior to 2005 and prior agreements had already compensated for those changes in work requirements. Thirdly, any reliance on COMPASS as a management tool must be diminished in relation to work value changes after the datum point given its regulatory relationship to other systems commenced prior to that date. Productivity and Efficiency Sub-Principle (15)The Commissioner acknowledged that "[T]he Full Bench found that there was a significant increase in proactive interventions and that a system of proactive policing occurring after 2006 was a productivity and efficiency measure that met the objective of the NSW Police Force and was an activity intended to reduce crime". The conclusions reached by the Full Bench in relation to the work value claim applied "all the more to the productivity and efficiency claim". (16)The moderating factors found to diminish the work value claim "were either not so constrained or relatively weaker" when the requirements of the productivity and efficiency sub-principle were considered. (17)However, considerable discounting was still found to be appropriate, and should be taken into account in the weighing process, in recognition that police proactivity, as the relevant measure, had not been uniformly experienced throughout the LAC's operating within the NSW Police Force. (18)The Full Bench finding that it was immaterial whether or not proactive policing was the sole cause of the obtainment of the requisite objective was limited in its application to the threshold question as to whether the principle had been met, per se. (19)This limitation does not, however, arise at the stage of assessing monetary outcomes. The weight to be given to the contribution by the further refinement and adoption of proactive policing measures after the datum point must depend upon the extent of that contribution to the achievement of the designated target. To find otherwise would be counterintuitive. Accordingly, other factors that were identified by the Commissioner as contributing to the achievement and reduction of crime after the datum point would also be taken into account when assessing what "money reward", if any, would flow from the new productivity and efficiency measures. (20)It is particularly relevant, in this respect, to have regard to the fact that the contribution made by police officers also related to a growth in their actual numbers between 2005 and 2011. Overlapping Factors and Avoidance of Double Counting : Cumulative Assessment (21)Double counting and duplication of the findings of the Commission in relation to work value and productivity and efficiency, particularly in relation to proactivity, should not occur. Accordingly, the Commissioner agreed with that part of the Association's submission in which it was contended that the assessment of productivity and work value should be undertaken concurrently. However, the Commissioner submitted that, contrary to the Association's contentions, to the extent that the Commission's ultimate conclusion was underpinned by, or justified on, the work value sub-principle, it would be an error to not to take into account all moderating factors. Economic Considerations The Maintenance of Real Wages (22)The evidence of economic experts which the Full Bench had regard to in Police Award (No 1) must be treated with some caution given the updated evidence provided by Mr Horn. That evidence should be 'tempered' to the extent that it has been affected by an unexpected slowdown in the economy. (23)Since evidence was initially provided in this case, official forecasts of CPI inflation for 2011-2012 and 2012-2013 have all been revised. The lower forecasts reflect lower quarterly CPI increases and a weaker domestic economy than earlier expected. The difference between that data and the economic forecasts of the experts is not inconsequential. (24)The Australian Bureau of Statistics ('ABS') released data on 24 April 2012 that showed, for both Sydney and the eight capital city average, that the CPI rose 0.1 per cent in the March 2012 quarter to be 1.6 per cent higher than the one year previous. (25)The evidence of Mr Horn demonstrated that the actual CPI movements, as measured by CPI "through the year" (June quarter on June quarter), indicated a trend down in the 2011 quarter and the March 2012 quarter (the latest figures published by the ABS). Those statistics indicated that for the March quarter 2012, on a "through the year" basis, only a 1.6 per cent increase in CPI had occurred. Official forecasts of inflation for both 2011-2012 and 2012-2013 by the Commonwealth Treasury, the RBA and the NSW Treasury were all revised downwards. The forecast given in May 2012 by the Commonwealth Treasury for the 2011-2012 period had fallen from the previous forecast of 2.4 per cent to 1.2 per cent. Similarly, the forecast of the RBA had "fallen between its forecast in November 2011 down to 2.1 per cent for the 2011-2012 year". It was accepted, however, that the figures for the March quarter 2012 were actual figures. (26)Mr Horn's evidence was that, even assuming inflation pressures returned for the next five quarters to June 2013 "and were to be 0.75 per cent increases per quarter, the year average CPI for 2011-12 would be 2.5 per cent and for 2012-13 it would be 2.5 per cent". (27)However, Mr Benson conceded that the evidence provided by Mr Horn (and the new data accompanying his affidavit) did not warrant any change to the Commission's findings as to inflation for the first year of the award. The concern went to the second and third years. There was, in particular, a question of confidence in relation to third year estimates. Financial and Cost Implications Principles (28)It would be an error to adopt the approach proposed by the Association to "unpack" the considerations relevant to economic and non-economic matters. The Commission should have regard to "all factors that are relevant to the assessment of the past, and then to take a global assessment of what is a fair and reasonable wage to be determined in the circumstances". That is the traditional and correct approach. (29)Reference to economic factors and, in particular, the cost of living is but one element in the determination of appropriate remedies. These considerations are not to be treated as a separate and discrete issue in the nature of a wage indexation process. Financial Outlook (30)The Commissioner put a detailed submission as to the financial evidence in the following terms: 20. In this regard the updated financial evidence in the affidavit of Mr Horn should be considered including the weakening state budgetary performance and the 2011 Treasury Financial Audit which found a marked deterioration in the State's financial position requiring corrective action - Horn affidavit [28]. In this regard over the last 10 years expense growth has continued to exceed revenue growth placing pressure on the state's financial position - Horn affidavit [29]. When the 2011-2012 budget was formulated the budget outlook over the four years to 2014-15 had deteriorated significantly - Horn affidavit [36]. The 2012-13 Commonwealth Budget released on 8 May 2012 revealed that New South Wales will lose GST revenue which is expected to be $3 billion over the four years to 2014-15 in addition to the $1.7 billion reduction as at the Half-Yearly Review - Horn affidavit [48]. 21.Employee costs which make up around 49 per cent of general government expenses have been growing at 6.7 per cent a year - Horn affidavit [31]. There are insufficient funds for expanding capital programs which are funded by increasing debt resulting in debt servicing costs - Horn affidavit [32]. As part of the government's attempts to arrest the weakening financial position the Government Wages Policy will contribute towards attaining a sustainable fiscal position - Horn affidavit at [37], [39],[42] and [43]. 22.In the event the Association's claim of 5% for three years for salaries and salary related allowances was granted the estimated increased cost to the State would be $603 million over three years - Horn affidavit [7]. The cost for police prosecutors and FSG experts would be estimated as $6.9 million over three years. 23.The impact upon the budget of awarding the claim of 5%, as costed above a 2.5% increase, would significantly widen the projected deficits for 2012-13, 2013-14 and 2014-15. This would impose a permanent impact upon the state's finances - Horn affidavit [52]. (31)The evidence of Mr Horn was that the size of the budget deficit had risen significantly in the 2011-2012 year (from the previous Review) from $185 million in 2011-2012 to a deficit of $337 million and likewise for the 2012-2013 year the forecast deficit increased from a deficit of $312 million to a deficit of $824 million. (32)To the extent there has been a turn around in the forecast for 2013-2014, that offset would be contingent on the implementation of a number of policy initiatives. (33)The cost of the 5 per cent claim was in the order of $600 million. State of the Economy (34)When considering the quantum of any increase in relation to the general claim the Commission must take into account the public interest and have regard to the state of the economy of New South Wales and the likely effect of any decision in this regard on the economy. (35)The Commission should have regard to all of the economic evidence in assessing the claim, including the evidence of a weakening domestic economy and decreasing rates of inflation. Wages Policy (36)It was submitted that "in considering the public interest, and the objects of the Act, that policy ought to be given considerable weight by way of mitigating any increase". The policy was also relevant to the State's overall fiscal position and the projected budget position (which had deteriorated). The policy restricts increases in remuneration and conditions of employment to 2.5 per cent per annum unless fully offset by achieved employee related cost savings. The claim, as made by the Association, is inconsistent with the economic measures taken by the Government in response to the economic position in which New South Wales finds itself. (37)The Commission's jurisdiction and discretion is not directly confined by the declared policy. Sections 10 and 146 of the Act continue to apply in the normal way. It is, nonetheless, appropriate to have regard to the Wages Policy. Police Prosecutors (38)As earlier noted, the Commissioner did not wish to be heard in relation to police prosecutors,. FSG Experts (39)After referring to [703] of Police Award (No 1), the Commissioner put the following submission in relation to the claim for an FSG Experts' Allowance: 5.The Police Association's proposed draft clause for the Forensic Services Group expert allowance overlooks this finding of the Full Bench. Indeed, contrary to that finding, the Police Association's proposed draft seeks to leave the FSG experts within the SDA regime and have the new allowance as an extra "add on" entitlement. 6.To properly give effect to the findings of the Full Bench, the Respondent submits it is necessary to amend Clause 41A of the Police Association's draft clause by deleting the words "...and Clause 41 Special Duties Allowance of this Award". 7.Clause 41 ought also be amended to insert a new sub-clause as follows: "41.4. Any Non-Commissioned Officer who is paid the Forensic Services Group Expert Allowance pursuant to clause 41A shall not be entitled to any Special Duties Allowance." 8.The Full Bench ought determine the amount of the new allowance to properly and fairly recognise the value of the work of this expert group in accordance with its earlier decision. 9.The second amendment to the Police Association's draft addresses another point. In its decision of 28 March 2012 the Full Bench did not make any finding as to the actual quantum of any amount appropriate to recognise the additional work value of FSG expert witnesses nor did it find that the full claim as sought by the Police Association had been made out. 10.Accordingly, the Respondent has deleted the figure of $15,000 which was inserted by the Police Association in the proposed Clause 41A.1 as this is an amount to be determined by the Full Bench. (40)The Commissioner also provided a schedule of any variation made by the Commission in the form of an amended schedule to Schedule A of the Association's submissions filed 15 August 2012. Duration of the Award (41)As to duration, a shorter period of two years should be accepted given the uncertainty surrounding the assessment of inflation in the third year. Form of the Award (42)As to the form of the award, the Commissioner submitted that he was "content to leave that matter for determination by the Full Bench". Cross-Application (43)There remained outstanding from the cross-application an issue as to whether any new award should be confined to the maintenance of a 2.5 per cent salary increase for each year of the operation of the award, and whether such award should have a duration of two years. CONSIDERATION The General Claim Issues and Principles 62The questions reserved for attention in relation to the general claim in Police Award (No 1) were whether the conclusions as to merit reached in that decision should result in a variation to the rates of pay of police officers over those fixed in the interim award and, if so, by what amount. (The counterpoint is the cross-application brought by the Commissioner to which we will later turn.) 63However, the parties' contentions in this second part of Stage 1 of the proceedings reveal those questions to be deceptively simple. In truth, two interrelated questions arise. 64The first question is essentially coextensive with the merit questions in Police Award (No 1). When close attention is paid to the relevant moderating and discounting factors and the avoidance of double counting, is the strength of the case brought by the Association (when matched against the counter application) such as to constitute a proper basis for the grant of an across-the-board increase in rates of pay and salary-related allowances over the sums fixed by the interim award? (Such an assessment, in fact, requires a consideration as to whether the case brought by the Association warrants the grant of a total sum equivalent to or greater than the interim award.) 65The second issue was that eloquently posed by the Full Bench in Re Crown Employees Administrative and Clerical Officers (State) Award (No 2) (1993) 52 IR 243 at 358 ('Crown Employees (1993)') (albeit in relation to an earlier, but relevantly similar statutory context) by the following observation: We emphasise the imperative contained in object (f) stating the balance which the Commission must seek to achieve in performing its functions between the interests of the parties immediately concerned and the interests of the community as a whole - the public interest. It may be observed that that task was a familiar one to the former Industrial Commission of New South Wales, as disclosed in its decisions under the Industrial Arbitration Act 1940, but the Act on its commencement from 31 March 1992 explicitly imposed the requirement for this Commission in exercising its jurisdiction to apply that section. We similarly propose to consider the matters before us in accordance with the clearly stated aims and purposes of the legislation. 66That question concerns, then, what is the proper balancing between the interests of the parties (and particularly a party having made out a case on the merits) and the public interest? 67Those two questions are broadly reflective of the requirements of ss 10 and 146(2) of the Act and the first of the four primary "aims" underpinning the Wage Fixing Principles in State Wage Case 2010 (No 2) (see Appendix A, Preamble, para 1.2.1). In any event, those questions must be resolved in accordance with those provisions. 68The requirement under s 10 of the Act for the Commission to make awards setting fair and reasonable employment for employees has been variously described as "a binding requirement or obligation": Re Pastoral Industry (State) Award [2010] NSWIRComm 27; (2000) 104 IR 168 at [16]; and "a statutory or paramount requirement": Re Crown Employees (Teachers in Schools and TAFE and Related Employees) Salaries and Conditions Award, Re [2004] NSWIRComm 114; (2004) 133 IR 254 at [432] ('Crown Employees (2004)'). That obligation must be exercised in the present matter in the context of existing award conditions which are sought to be altered in contested proceedings: Pastoral Industry Award at [16]. 69In considering the general claim and the counter application, the Commission is also bound by s 146(2) to take into account the public interest in the exercise of its functions. It is required, for that purpose, to have regard, under sub-s 2(a), to the objects of the Act. Those objects, which appear in s 3 of the Act, emphasise a broad range of matters. In the present context, we consider that the following objects are apposite: 3 Objects The objects of this Act are as follows: (a) to provide a framework for the conduct of industrial relations that is fair and just, (b) to promote efficiency and productivity in the economy of the State, ... (e) to facilitate appropriate regulation of employment through awards, enterprise agreements and other industrial instruments, ... (h) to encourage and facilitate co-operative workplace reform and equitable, innovative and productive workplace relations. 70When taking into account the public interest, the Commission must also, for that purpose, have regard to "the state of the economy of New South Wales and the likely effect of its decisions on that economy". Whilst that requirement (which is found under s 146(2)(b) of the Act) might not always operate in favour of restraint, the long history of jurisprudence in this Commission and its predecessors would indicate that the provision more often operates as the limitation or restraint in the award making function (particularly in relation to wage fixing) and, in that respect, may, to some extent, be seen as a juxtaposition of the provisions of s 10 of the Act. 71There is a long line of cases in this Commission considering the reconciliation of those provisions. We consider that the observations of the Full Bench in Re Public Hospital Nurses (State) Award (No 4) [2003] NSWIRComm 442; (2003) 131 IR 17 at [233] ('Public Hospital Nurses (No 4)') amply set out the relevant principles: As the HAC contended, the Commission is required, pursuant to s 146(2) of the Act, to take into account the public interest in the exercise of its functions and, for that purpose, must have regard, inter alia, to the state of the economy of New South Wales and the likely effects of its decisions on that economy. Hence, even though wage increases may be justifiable under the work value principle, if to grant them were to have an adverse impact on the economy, a case may exist for restraint. The onus of demonstrating the need for restraint would fall on those opposing the increase because unless it can be convincingly demonstrated that real harm will be done to the economy by the granting of any increase, the employees concerned are entitled to receive remuneration commensurate with the value of their work. 72It follows from this authority that the submission of the Commissioner to the effect that the Commission should have regard to all factors relevant to the determination of the general claim including economic and, more specifically, fiscal considerations and then make a global assessment of what is a fair and reasonable wage to be determined in the circumstances, should be accepted. In this context, the state of the economy, including fiscal considerations (see Crown Employees (2004) at [471]) will be taken into account in the overall assessment but will not be determinative of the Commission's decision: Crown Employees (2004) at [432]. 73The quantification of any salary or wage adjustment warranted, in accordance with the aforementioned statutory requirements and applicable principle, should not be undertaken by means of a "mathematical exercise" and will include a "value judgment" in order to determine appropriate increases in all the circumstances: Crown Employees (1993) at 340 and Crown Employees (Teachers & Ors) [1991] NSWIRComm 14 at 69. The assessment of an appropriate wage adjustment involves, in those circumstances, a matter of "broad judgment based on a range of relevant circumstances": Transport Workers' Union of Australia v Qantas Airways Limited [2012] FWAFB6612 at [94]. 74We have elaborated on these principles, in part, to state the basis upon which we reject the contention advanced by the Association that, in determining the outcome of its application, the Commission should first determine, ahead of other considerations, what outcome is required in order to maintain the real purchasing power of wages. We agree with the Commissioner that it would be an error to "unpack", in that fashion, the considerations relevant to economic and non-economic matters and that 'cost of living' considerations are but one element in the determination of the applications. Similarly, we reject the Association's contention that financial considerations should be given weight as a moderating factor, but only at the end of the Commission's assessment process after it has otherwise identified what is the appropriate outcome having regard to economic factors and the application of the work value and productivity and efficiency sub-principles. 75The Association's insistence on this approach resonates with contentions it advanced in the first stage of these proceedings, namely, that the general claim could, at least in part, be sustained on economic grounds alone. That contention was rejected: Police Award (No 1) at [540]. The Commission found that the factor was only relevant to be considered in assessing the quantitative outcome of a claim which was successful and then only after having regard to broader economic considerations in determining any adjustment to an award. The Commission found (at [543]): Before turning to the issue at hand, it is necessary to introduce a note of caution. Economic factors of this kind are merely one element in the determination of appropriate remedies, that is, if the Association satisfies the requisite Wage Fixing Principles. The resolution of the appropriate method of determining how real wages might be maintained cannot be determinative of any wage outcomes if the applicant has otherwise made out a case under the requisite principles. 76Furthermore, the approach proffered by the Association would elevate cost of living considerations in the deliberative process in a manner completely inconsistent with the broad approach contemplated by the combinations of ss 10 and 146(2) in a fashion resembling, as the Commissioner put it, wage indexation or a State Wage Case proceeding. In essence, the Association's contentions would erect a degree of inflexibility of approach which, as it sought in the first part of these proceedings, would segment the adjudicative process (and place an undue emphasis or inappropriate weight on cost of living factors). We consider that the approach proffered by the Association would elevate in importance cost of living considerations or the purchasing power of wages in a manner inconsistent with both the form and spirit of the Arbitrated Case Principle. 77Similar issues arise in relation to the Association's approach to financial considerations. The assessment of such factors should form part of a balancing of all relevant considerations, and not as part of a discreet assessment at the end of the adjudicatory process as to the quantum of increase warranted by the satisfaction of the Arbitrated Case Principle (or s 10 of the Act). In a broader sense, the approach sought by the Association would restrain the exercise of the discretion by the Commission in a way which is both inconsistent with the statutory scheme and the line of authority to which we have referred above. 78Before leaving this question, we propose to refer to an earlier authority which illustrates (albeit in a different statutory context) the considerations which may be appropriately borne in mind in the type of adjudicative process we will undertake in this matter. In Re Crown Employees (Teachers) Award [1964] AR 463 at 482-483, the Commission in Court Session (per Cook, McKeon and Beattie JJ) stated: Our views on the arguments relating to economic considerations are these. We said in the Scientific Officers Case - One factor which will be included in the relevant material in each wage-fixing case will relate to time: the award is to be expressed to be binding for a set term, and that fact must count. (1962 A.R. at p. 278) This means that the award-making tribunal must attempt to fix rates which will be just and reasonable rates at the time when the award commences to operate and which, unless unforeseeable happenings occur, will continue to be just and reasonable during the set term of operation. The Australian economy is a growing one and year by year for many years the standard of living has been rising. Wage levels have constantly risen and there is no reason to believe that they will cease to do so. If the Commission is making an award for a term of three years is it not right for it to bear in mind that the employees whose wages or salaries are being fixed are members of a community in which, according to the evidence of history, living standards are rising? It is our view that, unless there is some material before it to show that the course of history is likely to be changed during the succeeding three years, it should bear that fact in mind. The influence which consideration of such a factor would have on the level of rates to be awarded is quite imponderable. Every fixation involves the exercise of judgment in the light of all relevant factors. All that can be said is that it would have some influence. It has in fact had some influence in our thinking in the present case. 79With these general considerations in mind, we propose to firstly turn our attention to the strength of the Association's case under the Arbitrated Case Principle. That will require a sequential consideration of the cases brought under the work value and productivity and efficiency sub-principles before turning to some more general considerations, particularly those raised by the Commissioner. 80The parties addressed these questions by, understandably, seeking to quote or paraphrase elements of Police Award (No 1) (although it must be said those references were occasionally selective in nature). We do not propose, however, to repeat the extensive reasoning as to the merits of the application and counter application under the Arbitrated Case Principle in Police Award (No 1). It will be sufficient to refer to some salient aspects which are sufficient to deal with the competing contentions of the parties in this respect. Work Value Sub-Principle 81The consideration by the Commission under the work value and productivity and efficiency sub-principles concerned an agreed representative sample of police officers (see Police Award (No 1) at [57]). The LAC-based component of that case was described as follows, at [92]: The Association contended that the work value, inter alia, of LAC-based police had significantly increased since the datum point as a result of major changes in policing philosophy and practice, information systems, technology and equipment, legislation and other policies and procedures. The foremost consideration in that respect was, on the Association's case, proactive policing. 82For the purposes of undertaking that review, the Full Bench stratified the LAC-based assessment into three components: changes in proactive policing; changes associated with equipment, Information Systems and Technology; and changes associated with legislation, policy and procedures. 83The latter consideration offered nothing to support the application of the sub-principle. Changes in technology and information systems were found to add little to the Association's work value case, although it was acknowledged that the introduction of TASERS did add "in a cumulative sense, to the degree or level of work value change found, although the change is only sufficient to warrant a small addition". It follows that the Commission's conclusion that the work value sub-principle had been satisfied, so far as LAC-based police were concerned, laid squarely in the area of proactive policing. The overall conclusion in that respect was expressed in the following terms (at [442]): For the reasons we have given, we have come to a view that the Association has established a basis for its general claim under the work value sub-principle with respect to changes in proactivity. However, this factor must be given reduced weight, having regard to the extent of the emergence of proactive policing prior to 2005 (so that only those factors which are new are taken into account) and discounted because of prior agreements compensating for those factors and other mitigating considerations we have discussed above. 84That conclusion was reached after detailed consideration of the history and application of police proactivity in the NSW Police Force and its predecessors (see Police Award (No 1) [92] to [442]. The conclusions reached in relation to the work value case of the Association are found at [397] to [442] of the decision). 85Without derogating from those findings, some salient aspects of the decision regarding the work value sub-principle might be identified for present purposes: (1)The conclusions were reached upon the express recognition that aspects of police proactivity had been introduced before the datum point but that a further tranche of changes occurred in policing after 2006. It was found that central to that change (after the datum point) was a reformation of the application of proactive policing to achieve the targeted reduction in crime. (2)The Full Bench found some merit in the contention advanced by the Commissioner that changes in police proactivity brought about by the State Plan merely eliminated gaps in the establishment or application of that system as it existed at or before 2005. However, it was concluded that the changes introduced after 2006 were "not merely achieved by ensuring that proactive policing was being performed in areas where it was absent or where there was some significant difficulty" but had "the effect of generally intensifying the application of proactivity throughout LACs (with the exception of some LACs in western New South Wales)". It was found that this change had the consequence of significantly affecting LACs and General Duties police officers engaged in them and this was so, even in cases where LACs had introduced proactive systems to various degrees prior to the State Plan. The intensification went "across the board and augmented and amplified existing arrangements". Police proactivity, it was found, became "embedded as part of the ordinary custom and practice of police officers" and, ultimately, it became an inherent part of the operating systems of LACs in a way only envisaged at the time of the introduction of TITUS. (3)The work of police officers was intensified. They discharged significantly greater amounts of proactive policing. The system became entrenched so as to meet the specific targets. Police officers contributed to the attainment of those targets. (4)There was a rejection of the contentions of the Commissioner seeking to depreciate the significance of these conclusions based on mere changes to what the Commissioner described as the 'Reactive/Proactive Mix' (at [408]). The Commission found that (at [412]): Whilst there was a significant redistribution of frontline police officers at the beginning of the reform period, we do not consider that, in the period after 2001, the reduction in reactive duties can be considered substantial. One of the two 'planks', in this respect, relied upon by the Commissioner was described thus: The first was that the various reforms introduced by the Commissioner from the flattening of organisation structures through the PAL and the advent of SOCOs ('Scene of Crime Officers') had the intended profound effect of reducing reactive workloads. When combined with the decrease in the crime rate, it was submitted that it would be inevitable that police would undertake more proactive policing. The Full Bench concluded, in this respect, (at [412]): It was not of sufficient magnitude to permit the Commissioner to sustain the first part of his contention under this heading. Furthermore, the Commission concluded (at [414] and [415]): [414] There is no dispute that the performance of proactive duties by police has significantly aided the prevention of crime, a central function of police officers. This has occurred whilst the number of reactive duties has remained relatively stable. [415] However, it is not confined to that consideration. This is because the redistribution of work also changed the 'basket' of skills held by police officers, as proactive duties formed an additional and routine set of skills and responsibilities. Our observation is that some proactive duties may be relatively straightforward, but often involve officers in the exercise of new and additional judgments and responsibilities in addition to reactive work. (5)The Commission was concerned to exclude from consideration under the sub-principle matters which would not normally resonate under that principle, such as work volume and intensification factors alone. It concluded that those factors principally related to the productivity and efficiency sub-principle. (6)However, it was found that, on balance, a work value case had been made out because the changes in the work of police officers not only resulted in work amplification but also the adaptation of their work to meet those performance demands. At [425] of the decision, the following conclusion was reached: In short, the adoption of police proactivity, as part of the customary and ordinary work and practice of police officers, involved the final and ultimate shift in the operation, culture and focus of LACs, vis à vis proactive policing. That change was, in a substantial part, as a result of the work of police officers. The work intensification was achieved by an adjustment to work method, albeit that the shift in their approaches would have been experienced differently across LACs, depending upon the state of the development of proactivity as at 2006. (7)To that conclusion may be added the finding of the Full Bench that police officers, after 2006, had greater accountability. (8)Nonetheless, those findings were qualified. The first such qualification was found in the following extract from Police Award (No 1) (at [426]): These changes cannot be considered to be profound, as is sometimes associated with significant work value cases, as, to some extent, they involved a more attenuated adjustment in the nature of the police officers' duties (when stripped of adjustments to volume and discounting ... (This was one of the mitigating factors implicit in our general conclusion in Police Award (No 1) set out in [83] above.) (9)The second factor found to diminish the strength of the Association's work value case (again found in that general conclusion) was that some elements of police proactivity had been introduced prior to 2005 and, by dint of prior agreements, were already the subject of compensation. That limitation needs to be understood in the context of the whole of the reasoning in Police Award (No 1) regarding moderating factors. The conclusions we have summarised in (1) to (7) above were clearly and consciously made in the light of the emergence of police productivity prior to the datum point. (In this respect, we refer to our conclusions as to the pre-2005 period in [358] to [363] of Police Award (No 1).) Furthermore, whilst careful attention needs to be paid to the avoidance of double counting of compensation already afforded for changes in police proactivity prior to the datum point, the Full Bench emphasised that "equal attention and care needs to be given to the examination of what changes did occur after the datum point so as to ensure that the changes which genuinely fell within the meaning of the principles (and which do not controvert prior agreements) are properly taken into account". The conclusions as to work value reached by the Full Bench were predicated upon the application of these very principles (and the Commission's consideration of prior agreements). (See the discussion in [109] to [131] and, in particular, the observations at [129] to [131].) (10)A further mitigating factor concerned the reach of the changes in police proactivity in LACs. It was concluded that not all LACs (or parts of LACs) fully undertook proactive policing or achieved decreases in crime statistics and that some specialist Commands were either wholly reactive or, in so far as they were engaged in police proactivity, had little in common with the work undertaken by General Duties police officers. However, the scope of these exceptions was found to be relatively small. The Full Bench found that the work intensification process after 2006 generally affected police officers, and that the exceptions concerned a relatively small number of LACs who had not successfully implemented proactive policing (particularly those found in country regions) and some specialist Commands. (11)As to the specialist Commands, the Commission found that two of the specialist Commands (SCC and PSC) featured in the representative sample were primarily reactive in nature and either experienced changes in work value less than those encountered by General Duties police officers or no relevant changes in work value. The exception was the third specialist Command examined, MAC. This Command sustained the work value case of the Association in terms equivalent to or greater than General Duties police officers in LACs and involved, in the discharge of part of its functions, police proactivity. 86The overall conclusion regarding the work value sub-principle, in the light of these assessments, was in the following terms (at [496]): We find that the Association established a case under the work value sub-principle having regard to the changes in the work requirements of General Duties police officers in LACs and some features of the specialist Commands appearing in the sample, particularly the MAC. However, we have identified a number of mitigating or moderating factors which will have the effect of discounting any salary increase which may be afforded police officers in this respect (or warranting the application of averaging principles). These factors include our aforementioned assessment of the nature and quality of proactive policing changes, particularly when offset against changes which had already occurred prior to 2005, other mitigating factors associated with the reach of those changes within the LACs after that date and discounts arising from our assessment of the SCC and PSC in the specialist groups found in the representative sample. 87There remains a residue of the parties' submissions in this round of the proceedings which were not squarely addressed by those considerations. We resolve those issues below: 1.It is evident from the findings above that the Association cannot sustain its contention that it had been entirely or almost entirely successful in prosecuting its case for work value change based on police proactivity. Nor was the Association entirely correct in submitting that the changes which occurred in proactive policing after 2006 represented a "real, additional and substantial change to the nature and extent of the system" of proactive policing. 2.The Commissioner was correct to submit that the Association's concession that changes in police proactivity was evolutionary in nature is significant, as it draws attention to the fact that some components of proactive policing may not be counted in the present considerations as they arose before the datum point. (The submission also reflects, to some extent, the nature and degree of work value change.) We accept, in this respect, the Commissioner's submission that the changes in work value must be given less weight because of the emergence of police proactivity prior to 2005 (and agreements which compensated the changes prior to that time). However, the Full Bench expressly rejected the Commissioner's contention that proactive policing was introduced "to the maximum extent possible by the datum point". The findings of the Full Bench make clear that the evolutionary process, after 2006, saw a reasonably significant shift and not merely one of emphasis. There was a change sufficient to register under the applicable sub-principle. 3.The Commissioner's contention that the Full Bench's findings as to the mix of reactive and proactive policing provided there should be averaging is correct, so long as it is confined to the general conclusions reached by the Full Bench as to moderating factors and not to the Commissioner's submission as to the reactive/proactive mix, per se. 4.We accept the Commissioner's submission that any reliance on COMPASS as a management tool must be diminished in relation to work value changes after the datum point, given its regulatory relationship to other systems commenced prior to that date. The Commission concluded that COMPASS had an hereditary relationship with the Operation and Crime Review ('OCR') and Enterprise Data Warehouse ('EDW') systems and the key performance indicators that formed part of the reform of the NSW Police Force (then Service) well prior to 2005. However, that acceptance needs to be significantly qualified. The Full Bench found that COMPASS was deliberately introduced to the NSW Police Force in 2008 in order to meet the obligation imposed upon that organisation by the State Plan. One consequence of COMPASS was to facilitate, in order to give effect to the State Plan, a universally implemented, proactive policing system in LACs. It was also concluded that part of that system did have an impact on police officers albeit of a more indirect nature. COMPASS proved to be a more sophisticated and targeted accountability system than earlier systems and permitted the more effective management of police officers. (It also made police officers engaged in daily tasking and deployments more accountable.) 5.The matters we have thus far discussed indirectly deal with the various matters raised by Mr Benson concerning the Memoranda of Understanding which applied before the datum point. It is clear that the findings of the Commission favourable to the Association's work value case are concerned only with those matters which arose after the datum point and that careful attention has been given to the avoidance of any double counting or duplication of factors already compensated. Hence, particular attention was paid to excise those aspects of the introduction of police proactivity and other changes which occurred before the datum point. Contrary to the submission of the Commissioner, attention has not been focussed upon general notions such as "integration" or "embedding" after 1 July 2006, but to the very particular matters, most of which are repeated above. 88The culmination of these considerations must result in the conclusion that, whilst the Association has satisfied the strictures of the work value sub-principle, its case in this respect is quite modest. The ultimate quantification of this aspect of the Association's case must await the consideration of other factors, including considerations arising under the productivity and efficiency sub-principle. However, some observations may be made at this point. 89The task of determining the appropriate quantification of a wage increase under the work value sub-principle is, as submitted by the Association, that described by the Full Bench in Public Hospital Nurses (No 4) at [20]: ... An assessment is then to be made as to how that change should be measured in money terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work. 90Whilst we agree with the Commissioner that, generally speaking, the work value sub-principle, and predecessor principles, have not resulted in across-the-board wage increases (due to the nature of the requirements of the sub-principle), that approach is not without significant exceptions. Thus, in Public Hospital Nurses (No 4), the Full Bench explained that the decision of the Full Bench in Crown Employees (Teachers and Related Employees - Technical and Further Education Teaching Service) Salaries and Conditions Award (unreported, Fisher P, Bauer and Hungerford JJ, 1619 of 1989, 7 August 1991 at 44) was not intended to exclude entirely generalised, across-the-board wage increases under the work value principle. The Full Bench, in Public Hospital Nurses (No 4), made the following observation, with which we agree: We consider that the important point to be drawn from The TAFE Case is that if an applicant seeks wage increases for all classifications under an award the applicant carries the onus of demonstrating work value change in respect of each classification. It is not sufficient to contend, for example, that there have been changes in technology over the relevant period that have impacted on the work value of employees generally. It must be demonstrated how that impact has led to a significant net addition to the work requirements of each award classification in respect of which the increase is sought. 91The application of those principles, in our view, would not preclude the satisfaction of the work value sub-principle in this matter resulting in a generalised, across-the-board wage increase. The changes to police proactivity found by the Full Bench in Police Award (No 1) do relate to all General Duties police officers as a classification group. There is a small exception which is based almost entirely upon a geographic distinction. It is true that some specialist Commands in the representative sample did not experience proactive policing (only one Command experienced none) but, again, numerically this would represent a relatively small component of the NSW Police Force. We consider that the approach most consistent with the application of the work value sub-principle, and the findings that we have made in this matter in that respect, is to apply the principle of averaging so as to reduce, commensurate with the extent of the gaps or limitations in the reach of police proactivity change after 2006, the overall remedy that might otherwise be available as the result of the satisfaction of the sub-principle. 92The Commissioner also submitted that police officers covered by the award had experienced real increases in wages since the datum point which, in effect, "purchased" a significant amount of productivity and efficiency (and work value) improvements relied upon by the Association. It was contended that this fact should impact upon the assessment of quantum (and presumably whether any increase greater than 2.5 per cent should be awarded in satisfaction of the general claim). 93The evidence of Mr Horn revealed that between the years ending June 2005 and June 2011, the year average wage increase for police officers exceeded the year average increase in the Sydney CPI. That comparison (set out in Table 2 to Mr Horn's evidence) showed that the wages of police officers, when compared in that way, substantially exceeded the Sydney CPI year average increase. In nominal terms, the rates of pay in police awards were adjusted by about 4 per cent each year between 1 July 2005 and 30 June 2011, although as would be evident from Police Award (No 1), the last actual increase in the salaries and salary-related allowances for police officers, other wage increases under the interim award , occurred from the first full pay period on or after 1 July 2010 (there was a 4 per cent increase to salaries at that time). 94We accept that these wage adjustments must be relevant to the consideration of quantum as they fall after the datum point and within the period where changes were found to have occurred which satisfied the work value sub-principle (and, as we will soon address, the productivity and efficiency sub-principle). However, that does not permit a conclusion that the Commissioner had "purchased", as Mr Benson put it, productivity and efficiency improvements (or, for that matter, work value improvements) during the period since the datum point. (We understand this submission to mean that the wage increases had been provided upon the concession that all work value or productivity claims during the period of the operation of the agreement had been extinguished or traded-off.) 95The starting point for the discussion of this issue should be the 2005 Memorandum of Understanding ('the 2005 MOU') discussed in Police Award (No 1). The Full Bench reached the following conclusion in relation to that instrument (at [129]): In contrast, we consider that the Commissioner's submission that the 2005 MOU (or predecessor agreements) "bought out all potential work value and productivity claims in relation to all police" is far too wide a proposition. What was bought out, in our view, were those changes in work value or productivity and efficiency arising from workplace reform prior to 1 July 2005. (We acknowledge that Mr Kenzie conceded the correctness of this approach in his final submissions.) 96Mr Remfrey, the Secretary of the Association, gave evidence that the 2005 MOU was the foundation of wages and conditions for the period of four years up to 1 July 2009 (over two consent awards). It follows from the aforementioned conclusion as to the operation of that instrument, that it offered no direct basis for the contention by the Commissioner that the salary adjustment under the agreement had purchased changes of the relevant kind (in the sense we outlined above) after 1 July 2005. 97The next agreement in sequence (which chronologically brings this discussion to the current application) was the 2009 MOU (that instrument operated for the period 1 July 2009 to 30 June 2011, expressed an agreement for the last pay adjustment we have referred to on 1 July 2010 of 4 per cent and was referred to in the No Extra Claims' provision (cl 2.1.2) of the award). 98The Commissioner conceded, correctly in our view, that the 2009 MOU did not include any compensation or trade-off in relation to work value increases or changes in work post 1 July 2005. Rather, the Commissioner relied upon cl 2.2 of the agreement to submit that the agreement would have an impact upon the Association's case for productivity and efficiency. That objective is expressed in the following terms: To promote efficiency and productivity in the NSW Police Force and across Government agencies with whom police interact in the delivery of policing services. 99We consider the Commissioner's contention, in this respect, is somewhat tenuous. The objective in cl 2.2 of the agreement is expressed very broadly and stands in stark contrast to earlier Memoranda of Understanding relied upon by the Commissioner (prior to the datum point) which dealt expressly with areas of exclusion. The provisions of cl 2.2 contain only a statement of "objectives" or goals. In any event, it is not expressed in terms suggesting an intention to purchase actual changes in productivity and efficiency in the relevant period. Rather, it seems to us, the provision conveyed a general intention, that is, to broadly encourage the parties to "promote" productivity and efficiency improvements. In other words, the purpose of the objective was to encourage or facilitate the future consideration and development of productivity and efficiency improvements, and not to constitute the outcome of a transaction resulting in the extinguishment of claims based on what had or might be done. 100Two further considerations arise from this discussion. First, in the absence of an expressly stated concession or trade-off as to the matters we are here required to consider under the Arbitrated Case Principle, the MOUs merely constitute an agreement to increase wages for largely undisclosed reasons. As we have noted, that fact (and those wage adjustments) must bear upon our assessment of quantum, as they concern the terms of the relevant award and, in particular, wage fixation thereunder. There is no proper basis, however, to infer that the wage adjustments under the award since 2005 constituted payment for the changes we have considered under the Arbitrated Case Principle in this matter. Experience indicates that consent arrangements of this kind may arise for multifarious reasons. Indeed, the history of arrangements between the parties (involving, as they did, express terms extinguishing certain classes of claims in return for wage improvements) may indicate a contrary inference should be drawn (although it is unnecessary for us to rule upon that matter). What may be accepted, however, is that successfully negotiated agreements of the kind struck in 2009 will normally create an environment in which employees fully co-operate in bringing about productive change as envisaged by the objectives here under consideration. 101Secondly, our consideration of the appropriate monetary compensation in consequence of the Association making out its application not only required an assessment of historical change (for the purposes of the requisite sub-principles), but an assessment, in futuro, given that the grant of a remedy will involve the establishment of wages for police officers over the life of the award. 102Our overall conclusion, then, is that the case brought by the Association under the work value sub-principle was sufficient to warrant an increase in salaries and salary-related allowances under the award which, even without taking into account other moderating factors deriving from the Commissioner's economic and financial submissions, could only result in a quite moderate adjustment to wages and allowances. Productivity and Efficiency Sub-Principle 103The case mounted by the Association under the productivity and efficiency sub-principle brings with it some different considerations. Those factors are stated succinctly in the following passage of the Full Bench decision in Police Award (No 1) (at [514]): The conclusions we have reached as to the Association's work value case must apply a fortiori to the contentions mounted by the Association under the productivity and efficiency sub-principle. The factors which were found to have diminished the Association's work value case are, by and large, either not so constrained or relatively weaker when considered in the light of the requirements of the productivity and efficiency sub-principle. The work intensification of police officers may have contributed to a work value change of the requisite kind by a narrower margin, but that factor does not suffer the same limitations under the productivity and efficiency sub-principle. 104The encapsulation of the overall conclusions of the Full Bench in Police Award (No 1), in that respect, provided by the Association in its written submissions (see [60(13)] of this decision) adequately describes, for present purposes, the conclusions there reached (otherwise set out fully at [514] to [534] in Police Award (No 1)). 105However, it is useful to extract one aspect of the reasoning in Police Award (No 1) to cast light on the balance of the parties' contentions, in this respect. That is to be found at [523] of the decision, as follows: We have already dealt with this issue in our findings under the work value principle. Changes to police proactivity after the datum point were driven by management and performance schemes and other technological devices. However, as we have found, the ultimate objective, in that respect, was obtained by the intensification of the work of police officers through the virtually universal and wholesale adoption of proactive policy in LACs. Changes to culture and focus resulted in the absorption into LACs of that system (the final fulfilment of the TITUS plan). Whatever the relative proportions of contribution was between the various strategies adopted in the NSW Police Force, there can be no doubt, in our view, based on our analysis under the work value principle, that police officers made a substantial contribution to the changes to police productivity, thereby assisting in the attainment of the State Plan targets and contributing to the reductions in crime. This is not a case which requires a resolution of the contention that, in order for employees to attract the productivity and efficiency sub-principle, they must have themselves experienced a change in their work of such a kind as to have produced productivity and efficiency improvements. That is because the evidence makes it abundantly clear that their work changed in such a manner. Regardless of any qualitative impact, work intensification constituted, in this context, greater productivity and efficiency, particularly having regard to the relative growth in police numbers which, as we have noted, was outstripped by the growth in police proactivity. 106We consider that the Association is entitled to claim, as it did in its contentions, that it had a substantial measure of success in prosecuting its application under this principle. There were, however, moderating factors which we are required to take into account, albeit, as we have noted, they have less poignancy than similar factors found in relation to the work value sub-principle. 107One of those moderating factors is that police proactivity was not experienced throughout the LACs operating within the NSW Police Force. However, this discount was found in Police Award (No 1) to be less in relation to this sub-principle than the work value sub-principle as specialist areas did contribute directly to productivity and efficiency gains (see [533]). 108Three further considerations arise, however, from the Commissioner's contentions as to moderating factors. First, the Commissioner contended that it was important to distinguish between those changes which had occurred prior to the datum point (which had been the subject of compensation by prior agreements) and those which emerged later. We have already dealt, in part, with these contentions in our consideration of the work value sub-principle. However, we also consider that the appropriate resolution of the Commissioner's contention is, in fact, contained in the decision in Police Officers Award (No 1) (at [520] and [521]) as follows: 520We should also observe that it is unnecessary to establish under the sub-principle that there occurred a change in the nature of police proactivity from pre-2005 schemes to reach a conclusion that the sub-principle is satisfied, in this respect. The principal focus is upon the attainment of the objective within the post-datum period so that, provided the measure has that result, the sub-principle will be met by an applicant. It must be borne in mind that the objective in this case is the reduction of crime so that what was required to be established and, in our view, was established, was that the reduction in crime occurred over and above the reduction in crime that was experienced during the first reform period between the late 1990s and 2005 and that it was substantially attributable to proactive policing. 521This observation is only made for the general purpose of aiding the understanding of the operation of the sub-principle. In this case, the sub-principle is satisfied, in any event, because we have found actual change in proactive policing contributed to crime reductions after 2005. (We also note, in this respect, that the earlier extract from Police Award (No 1) (see [105] of this decision) also bears upon this question.) 109In the final analysis, the only factors we will have regard to under this principle are the actual changes in police proactivity or procedures contributing to crime reduction after 2005. We note that the achievements of the NSW Police Force, in this respect, were substantial. 110Secondly, after closer analysis of the submission advanced by Mr Benson, it is tolerably clear, as we have recorded in our summary of the Commissioner's submissions, that he further contended that a discount should also arise because the achievement of productivity and efficiency gains after 2005 was partially the result of other factors laying outside the contribution of police officers themselves (see [61(18) and (19)]). 111This submission relates to the conclusion reached by the Full Bench in Police Award (No 1) (at [519]) as follows: There was a significant reduction in crime after the datum point. There was not, as the Commissioner submitted, a flattening out of the reduction of crime rates. More significantly, the evidence discloses that there was a significant reduction in crime after the implementation of the State Plan which substantially, although not exhaustively, satisfied the objectives laid down in that Plan. It is also clear from the evidence that the use of proactive policing schemes was causally related to that reduction in crime. It is immaterial under the sub-principle whether or not proactive policing was the sole cause as the sub-principle only requires that measure substantially contributed to that end. It follows that the other factors which may have contributed to the crime reduction referred to by the Commissioner do not warrant a conclusion that the sub-principle has not been satisfied, provided that a sufficient contribution was made through the proactivity vehicle. We have no doubt, on the evidence before us, that factor made a substantial contribution to the attainment of the objective as contemplated by the sub-principle. 112We consider that the Commissioner is correct to submit that that aspect of the decision was primarily devoted to a threshold question (corresponding to the submissions made by the Commissioner as recorded in Police Award (No 1) (at [500] to [509])). However, it must be borne in mind that the aforementioned finding by the Full Bench also formed part of the conclusion that, in satisfaction of the productivity and efficiency sub-principle, the Association had established a case that police officers had made a substantial contribution to the attainment of the objective contemplated by the sub-principle. In other words, the Commission found that the requisite reduction in crime, over and above the reduction in crime that was experienced during the first reform period between the late 1990's and 2005, was substantially attributable to changes to proactive policing and other technological changes, both of which derived directly from the work of police officers in LACs (and the support given by specialist Commands). 113The existence of other factors which may have contributed to productivity and efficiency improvements over the relevant period does not diminish that conclusion but, rather, concerns the issue of apportionment for the purpose of assessing monetary compensation. In this respect, we broadly accept the Commissioner's submission, but what follows from that conclusion is a finding that, for assessment purposes, police officers contributed substantially, but not wholly, to the productivity and efficiency improvements appropriate to be taken into account under the productivity and efficiency sub-principle. 114Further, this conclusion needs to be treated with some care in the light of other aspects of the decision reached in Police Award (No 1) bearing upon this issue. The particular contributory factors identified by the Commissioner (as recorded in [505] of that decision) were found by the Commission to have not affected, in any significant way, the conclusion that police proactivity was a substantial contributor to crime reduction as part of the State Plan strategy (at [528]). In fact, the evidence called by the Commissioner as to those matters did not seek to attribute any particular weighting to them, vis á vis the reduction of crime. This may be contrasted with clear evidence as to the contribution to that reduction made by changes to police proactivity. The contrast is sharply borne out by the observations made by the Commissioner as to the contribution of police officers to crime reduction in the relevant period (extracted in [525] to [527] of Police Award (No 1)). 115Furthermore, we do not consider the Commissioner's earlier contentions as to the increase in police numbers, the mix of proactive/reactive duties or similar shifts in crime rates in other States of Australia to significantly impact upon our conclusion as to the relative contribution of changes in police proactivity and technology to crime reduction after 2005 (see Police Award (No 1) at [408] to [416], [523] and [530]). 116Thirdly, we do consider that the Commissioner's submissions as to increases in police salaries since 2005 should be taken into account in any quantitative assessment under the productivity and efficiency principle but that factor will be subject to the same qualifications we found with respect to the work value sub-principle. 117Finally, when turning to quantification, per se, under the productivity and efficiency sub-principle we would propose no different approach to that which we have adopted in relation to the work value sub-principle by reference to Public Hospital Nurses (No 4) at [20]. 118Bearing in mind these considerations, we are of the view that, on balance, the Association has established a relatively strong merit case under the productivity and efficiency sub-principle, the quantification of which will be moderately discounted in consequence of the mitigating factors we have described above. Concurrent Consideration of the Sub-Principle 119The foregoing discussion of factors weighing upon the assessment of monetary compensation under the work value and productivity and efficiency sub-principles will clearly illustrate that there is an overlap in the factors taken into account in each such case. It is essential that there be an avoidance of double counting or duplication of findings in such an assessment, particularly in relation to police proactivity. We, therefore, accept the submissions of the parties that our assessment of both merit and quantum under the productivity and efficiency and work value sub-principles should be undertaken concurrently. We do not accept, in this respect, the submission of the Association that this would require effectively ignoring the moderating factors associated with the work value sub-principle. The concurrent consideration would involve, as the Commissioner submitted, taking into account all manner of moderating factors both with respect to the work value and productivity and efficiency sub-principles in reaching an overall conclusion. Inflation Rate (Excluding the Impact of the Carbon Tax) 120The next issue for consideration in relation to quantification is the Association's economic submissions as to the retention of the purchasing power of wages. 121Given the conclusion that we shall reach later in this decision that the ultimate award made in this matter will operate for a period of three years, and, further, given that any additional salary adjustments (over the interim award) arising from the general claim will operate from 1 July 2011, then, having regard to the approach adopted in Police Award (No 1) at [545], the Commission will have regard to, for the first year of the award, the inflation rates operating in the period 1 July 2010 to 1 July 2012 and, for the balance of the period of operation of the award, to inflation forecasts corresponding to each successive actual year of the operation of the award; namely, in the second year, the financial year 2012-2013 and for the third year, the financial year 2013-2014. 122Upon the basis of the expert evidence in the proceedings, the Commission concluded in Police Award (No 1) that it would have regard to forecasts for inflation: 3.1 per cent for the first year of the award; 3 per cent for the second year and a CPI inflation estimate of 2.7 per cent for the third year. 123The question which arises in this second part of Stage 1 of the proceedings is whether those conclusions should be modified having regard to the further evidence of Mr Horn. 124Before answering that question it is important to note that these proceedings traversed a period in which there has been some volatility in the global economy and movement in the domestic economy. Whilst we are mindful of those developments, we are ultimately constrained by the evidence before us. 125We consider that the further evidence of Mr Horn, when assessed in the light of other economic evidence before us, establishes that there has been a revision downwards of forecasts for inflation (and more recent actual data has confirmed that trend). The CPI data for the March quarter 2012 indicated that headline CPI had grown less than expected: Sydney CPI 'Through the Year' data showed a 1.6 per cent movement for the March quarter 2012. (It should also be noted that the Commonwealth Treasury gave a forecast for "All Capitals" CPI for May 2012 at 1.25 per cent.) When seen in the light of some weakening of the domestic economy, as discussed below, and the heightened risks arising from the global outlook, particularly in relation to Europe, we consider that there is some warrant in reconsidering our conclusions as to the inflation rate in the second and third years of the award (the first year of the award brings in different considerations of an historical character which we will discuss below). 126We consider that, when adjusting the earlier expert economic evidence for current forecasts, inflation estimates for the 2012-2013 period should be revised downwards. On one view, the rate for this period may be slightly less than 2.5 per cent, but, on balance, we consider the adoption of the mid point of the RBA target range to be a prudent and conservative estimate upon the evidence before us. 127The material in Mr Horn's evidence concerning the 2013-2014 period is less conclusive. The Commission had adopted a quite conservative view about the inflation rate for that period in the original decision and adopted an estimate of 2.7 per cent. The further evidence before us suggests the better estimate now to be 2.5 per cent (although, as for the 2012-2013 period, some allowance needs to be made for the prospect that the rate may ultimately be slightly less than that figure). 128The rate applicable for the first year of the award is affected by the earlier finding of the Full Bench that it would have regard to the whole of the period from the last salary adjustment in 1 July 2010 through to the end of the financial year to 2011. When reviewed on that basis, and noting the Sydney CPI "Year Average" data produced by Mr Horn for the June 2010 to March 2012 period, we consider that Mr Benson's concession that there was no warrant for any change to the Commission's findings as to inflation for that period is an appropriate one. We shall adopt that approach, although noting that the Sydney CPI "Through the Year" data for the March quarter 2012 showed a declining inflation rate by the end of the 2011-2012 financial year. 129We would make one final observation as to these matters before turning to the broader economic and financial considerations which have affected these conclusions and which will also be relevant to our final conclusions as to growth. As we have observed, there remains a substantial amount of volatility in the global economy. Australia must necessarily be affected to some extent by that volatility and the risks occasioned by it. Estimates of inflation will be affected by that volatility and we have, therefore, approached them with considerable caution in reaching our decision. In the end result, those estimates merely form part of the mix of factors appropriate to the assessment of quantum. Macroeconomic Considerations 130We shall now direct our attention to the broader economic climate before turning to fiscal considerations in New South Wales. 131By global comparisons, Australia emerged, as Mr Richardson described it "relatively unscathed from the global downturn, and remains one of the strongest economies in the developed world". 132As Dr Gelber pointed out, the Australian economy slowed over 2010-2011 due to a lowering of confidence levels and the floods in eastern Australia. He predicted growth would "rebound" in 2011-2012 and remain "robust" in 2012-2013 before easing in 2013-2014. He predicted the key drivers to be "healthy growth in exports, further increases in mining investment, a renewed upswing in dwelling construction and ... a broad-based strengthening in business investment". He identified that these gains may be offset by slower growth in Government recurrent spending, declines in public investment and a possible rise in interest rates in 2013. 133Mr Richardson opined that growth in Australia was "largely a capex story", and identified risks to Australia's growth. The magnitude of the risk would be dependant upon the strength of the Chinese economy, the state of the precarious economic circumstances in Europe and the continuance of the enormous investment projects throughout Australia. 134As earlier summarised, the experts, in their joint reports, had differing views as to the economic outlook for 2013-2014 (Mr Richardson having the more pessimistic view). 135We also note that Mr Horn referred to a weakening domestic economy in his affidavit filed in May 2012. 136When reviewed in its totality, this evidence sits comfortably with current indicators. The Australian economy slowed over 2010-2011 but grew in the 2011-2012 period. It is predicted to somewhat weaken in the 2012-2013 period (the overall growth for 2012 being better than modest). There remains risks with the Australian economy, principally associated with a slow down in the global economy in 2011-2012 (arising from the Eurozone) and some decline in major resource investment (although a good deal of investment remains committed). Both headline and underlying inflation reduced over the 2011-2012 period, more particularly in the final quarter of that financial year. Inflation growth is declining, with estimates over the 2012-2013 and 2013-2014 period, as we have observed, hovering around the mid point of the RBA target range in 2012-2013. 137Turning to the New South Wales economy, it is appropriate to observe, at the outset, that the New South Wales economy continues to represent a substantial proportion of the national economy, although not experiencing the same record growth from mining investment as Queensland and Western Australia. 138The Budget Statement accompanying the 2012-2013 New South Wales Budget indicated that growth in New South Wales will be lower than expected in 2011-2012 but is expected to accelerate through 2012-2013 and reach a position above trend in 2013-2014. 139This broadly conforms with the expert evidence in these proceedings. Mr Richardson referred to the poor performance of New South Wales over the last decade due to a series of factors; most particularly the shift in resources to the "north" and "west" and the consequences of the resource boom on the State's manufacturing base (given high exchange rates). However, he concluded that many of the "negatives" had faded and performance had lifted over the 2010-2011 period. The State's short term outlook was said to be "solid", although growth would remain less than the wider Australian economy for the 2011-2012 and 2012-2013 periods. The challenges of exchange rates remained a problem for the State and the growth of resource rich States was said to hold back New South Wales in the medium term. 140Dr Gelber referred to the New South Wales economy coming out of an economic malaise. State Financial Demand ('SFD') accelerated through the 2010 calendar year, particularly with growth in public investment, dwellings and business investment. He predicted SFD growth of 3.3 per cent in 2010-2011, below the calendar year growth of 3.8 per cent in 2010. Moderate to strong growth was expected for 2011-2012 and 2012-2013 "although both Gross State Product and SFD growth is projected to lag national GDP and domestic growth". Dr Gelber predicted Gross State Product ('GSP'), SFD and employment growth in New South Wales would be below the national average in 2011-2012 and 2013-2014, but will match the national average in 2012-2013. 141The upshot of this review is that economic circumstances in New South Wales should be treated as considerably improved over the previous decade but, at least for the first year of any award (now the past year), relatively constrained. The economy is predicted to be stronger over the 2012/2013 and 2013/2014 periods. There are a number of positive indicators for the economy in that period including a return to a stronger fiscal position (to which we shall now turn). The New South Wales Fiscal Position 142We have earlier summarised the Commissioner's submissions as to the fiscal outlook for New South Wales (at [61](30)-(33)). We consider that those submissions represent a fair summary of Mr Horn's evidence and may, for that reason, be accepted. 143New South Wales has experienced a significant decline in revenue, most particularly at the hands of a decline in GST revenue. Over an extended period expenditure has outstripped revenue growth, as depicted in the financial ratio of net debt plus unfunded superannuation liabilities as a percentage of total State revenue over time (see Chart 2 appearing in the earlier summary of Mr Horn's evidence). 144Fiscal strategies are being employed to arrest that decline. Thus, the 2011-2012 Budget result had an estimated deficit of $337 million compared with the previous years' Budget deficit forecast of $718 million (notwithstanding $936 million lost in GST revenue since the beginning of 2011). A substantial Budget deficit is predicted for 2012-2013 ($824 million) (the underlying deficit was higher in 2011-2012 but lower for 2012-2013), but a surplus of $289 million is estimated for 2013-2014 (and a surplus is also predicted for 2014-2015). 145Any grant of a wage adjustment (over the interim award) will have the potential to impact upon these fiscal projections (from 2012 onwards), depending upon the use by the NSW Government of the general provision referred to by Mr Horn in his evidence (or the adoption of one of the other ameliorating steps also referred to in his evidence). The impact will plainly depend upon the size of any wage adjustment (the scale of the cost impact was revealed in Table 1 to Mr Horn's affidavit which is set out in our summary of his evidence). 146The Government's Wages Policy constituted part of the strategy to redress this financial position. In this respect, it is both symptomatic of the problem and demonstrative of the strategies employed by the Government to address it, namely, curving expenditure in the face of declining revenue. 147In that respect, the Wages Policy and the State's fiscal position and outlook must be taken into account as part of the considerations arising under s 146(2) of the Act although, as a matter of principle, in the manner we discussed at the outset of these considerations. These factors will be particularly significant in relation to the general claim (because of its magnitude) but will ultimately be relevant to all aspects of the remainder of the claims in this stage of the proceedings. Weighing of Economic and Financial Factors 148Notwithstanding the actual and projected gains in the New South Wales economy and the stability of the Australian economy, we consider that the Commissioner has established a case for considerable restraint in the consideration of the Association's application based upon the fiscal outlook for New South Wales. In short, we consider that the Commissioner has demonstrated that this course must be taken in the public interest. However, when analysed in accordance with the principles earlier discussed, that factor must be balanced with the merits of the case established by the Association under the Arbitrated Case Principle and other relevant factors (such as those related to inflation). Ultimately, our conclusion must conform with the requirements of s 10 of the Act. Specialist Claims 149The determination of these claims is predicated upon the same considerations arising under s 146(2) as we have described in relation to the general claim. 150There was no contest as to the claim for police prosecutors or the form of the award variation proposed in that respect. As a matter of merit, and balancing the economic considerations we have alluded to above, we consider that the proper exercise of discretion under s 10 of the Act should be to grant that claim. We will do so in terms of items 3, 4, 5, 6, 7 and 8 (each concerning police prosecutors) of Schedule A to the Association's further written submissions filed on 15 August 2012, adjusted, to the extent necessary, to reflect our decision in relation to the general claim. 151Two further issues emerged from the further written submissions of the parties concerning an allowance for FSG experts. The first such issue was a direct one and concerned whether a non-commissioned police officer who was paid the experts' allowance should or should not also be entitled to the SDA for FSG officers. The second issue was more indirect. The Association contended that there should be a full grant of its claim for an expert allowance because of the absence of any contrary contention from the Commissioner in his closing submission. In his further written submission, the Commissioner sought to delete the figure of $15,000 (the Association's original claim, as expressed in the Schedule provided in its further written submissions) and, in lieu thereof, inserted the provision "in a sum to be determined by the Full Bench". No other merit submission was made. 152The first issue can be shortly resolved. The Commissioner was correct to point out that, in Police Award (No 1) (at [703]), the Full Bench determined to grant the expert allowance and to remove that group from the present SDA regime. That decision reflected the view of the Full Bench that the new allowance should fully compensate FSG experts for all aspects of their duties and work environment. The payment of the expert allowance and the SDA allowance involves a significant degree of overlap. This is, however, a factor we will have regard to in fixing the quantum of the expert allowance itself. 153As to the quantum of the expert allowance, we have had regard to our findings as to the merit of such a claim, the removal of this class of FSG operative from the SDA regime and the absence of any submissions from the Commissioner as to quantum, in reaching the conclusion that the Association's claim in this respect should be granted in full, save as to the Association's proposition that FSG experts should also receive the SDA. We would, in this respect, therefore, propose to grant the FSG experts' claim in terms of items 2 and 2A of amended Schedule A to the Commissioner's further written submissions filed on 22 August 2012, excepting that the amount of the allowance shall be inserted as $15,000 and the words in brackets "in a sum to be determined by the Full Bench" deleted. Duration of the Award 154We propose to grant the Association's claim that the award ultimately made in the disposition of these proceedings should operate for a three year period commencing 1 July 2011. We consider there is little evidence to justify a two year award and that contentions as to the uncertainty of economic circumstances in the third year of the award are not sufficient to warrant the rejection of the Association's claim. There may be greater uncertainty associated with that timeframe because it involves longer term forecasts, but the Commission has sufficient evidence before it to resolve the claim in relation to that period. Furthermore, we agree with the Association's contention that the three year award provides the Commission with a better capacity to spread the outcomes over a longer period and that a duration of that character is more consistent with the recent history of awards governing police officers in this State. Form of the Award 155In the light of the further submissions received from the Commissioner, we propose to accept the Association's submission that the award should be varied pursuant to s 17(3)(d) of the Act so as to provide a general salary adjustment to salaries and salary-related allowances for three years operating from 1 July 2011; a Forensic Service Group's Expert Allowance (in the form we have described above) and a Prosecutor's Pay Scale (in the form determined above). We consider that the Crown Employees (Police Officers - 2011) Interim Award should be rescinded. A new award shall be made in due course after the completion of the Stage 2 proceedings. 156We should also note that we consider this approach is the most consistent with the parties' prior agreements in this matter as to the discharge of Stages 1 and 2 claims, and that it is not contrary to the public interest to do so (indeed, we consider the public interest will be well served by adopting a form of an award which best reflects the legislative exemption for this class of employee and the prior agreements of the parties for the conduct of these proceedings). Conclusion as to Claim and Cross-Claim 157This decision represents the culmination of the first stage of complex and vigorously contested proceedings which concerned a claim for an across-the-board wage increase for police officers in New South Wales (and, after the decision in Police Award (No 1), the establishment of a new classification structure and allowance for, respectively, police prosecutors and FSG experts). 158The context in which we give our verdict, in that respect, is unusual. By agreement between the parties to the matters before us (an application by the Association and a cross-application by the Commissioner), police officers, whose employment is regulated under the award, have been in receipt, during the course of these proceedings, of a 2.5 per cent increase fixed under an interim award (which commenced on 1 July 2011 and continues until the making of any substituted award or variation in these matters). Further, and notwithstanding that variation to the terms of the award, the proceedings themselves subsist in consequence of an exemption from the Government's Wages Policy by virtue of reg 10 of the Regulation. The Government's Wages Policy does not apply to the claims made by the Association on behalf of police officers, in the matters before us, in the way that policy (and associated legislation or the Regulation) applies to all other public sector employees. 159The resolution of the proceedings, so described, requires the Commission to reach a balance, as contemplated by the Act, between the interests of the parties and, in particular, the successful prosecution by the Association of its application on behalf of its members in the NSW Police Force, and the interests of the community - the public interest - reflected largely, but not exclusively, in the need for restraint, having regard to the fiscal outlook for New South Wales. 160The culmination of our assessment of the Association's case under the Arbitrated Case Principle promulgated by the State Wage Case 2010 (No 2) is that the Association has established, after allowing for moderating or discounting factors, a relatively weak case under the work value sub-principle and a much stronger case under the productivity and efficiency sub-principle. 161When due allowance is made for the averaging of outcomes (due, for example, to the differential uptake within the NSW Police Force of the changes which underpinned our conclusions under the respective sub-principles), and the other discounting or moderating factors (including allowance being made for the fact that police officers were not the sole contributor to the reduction in crime rates taken into account under the productivity and efficiency sub-principle), there is no doubt, in our minds, that the nature and extent of changes in the work of police officers since the datum point, as reflected in our concurrent assessment of factors relevant to the work value and productivity and efficiency sub-principles, does prima facie justify the grant of wage increases greater than those provided under the interim award. 162The countervailing consideration is the adverse fiscal outlook for New South Wales brought to account by the Commissioner (see [142] to [148] above). That factor dictates the need for restraint in the fixing of wages in the public interest, even in circumstances where overall improvements are projected for the New South Wales economy and, in particular, budget surpluses are predicted for 2013-2014 and 2014-2015. 163After also taking into account increases in the rates of pay of police officers in New South Wales after the datum point, we do not consider, on balance, the countervailing factors we have mentioned (and the discounting and moderating factors relevant to the Association's case) warrant a conclusion that salaries and salary-related allowances for those officers should be constrained to levels fixed by the interim award. 164In our view, the variation of salaries and salary-related allowances for police officers in that manner is fair and reasonable. The ultimate quantum of such an adjustment must, however, be cognisant of the financial difficulties facing this State. In this way, the Commission will exercise its statutory functions by quantifying salary increases resulting from the successful application brought by the Association, with circumspection and restraint. 165We will also have regard, in fixing rates, to inflationary factors commencing from the date of the last variation in the award. We have earlier adopted inflation estimates which will, for the second and third years of the award, be lower than those found in Police Award (No 1) (see [120] to [129] above). (We note that, based on expert opinion, the Commissioner conceded, in the first part of these proceedings, that "it would be clearly open to the Commission to award a minimum of three per cent", subject to factors arising under s 146 of the Act.) 166The award will operate for a period of three years so that the salary adjustments may be spread over that period to disperse the cost impact. (We note that the amounts we intend to award over that period will obviate the need for us to rule upon the Association's contention that any wage adjustment must not be confined to the amount claimed.) 167In all of the circumstances, we have decided to vary salaries and salary-related allowances in the award by amounts greater than the interim award, which shall be rescinded. 168The variation shall operate from the first full pay period after 1 July 2011 and provide for wage increases over three successive years: 3.5 per cent in the first year; 3.2 per cent in the second year; and 3.2 per cent in the third year. These variations are in substitution for, rather than in addition to, the adjustments provided by the interim award. 169The award shall be varied so as to provide for a Forensic Service Group Expert Allowance in the amount of $15,000 which shall operate from the first full pay period on or after 29 March 2012 (which allowance shall operate in substitution, for the subject group, of any existing SDA). The form of that variation shall be in accordance with the terms of items 2A and 2 of amended Schedule A to the Commissioner's submission filed on 22 August 2012, save that it shall provide, as stated above, for the quantum of the allowance to be $15,000. 170The award will also be varied to provide for a Police Prosecutor's Pay Scale, in terms of our decision, which scale shall operate from the first full pay period after 29 March 2012 in accordance with items 3, 4, 5, 6, 7 and 8 of Schedule A to the submissions filed by the Association on 15 August 2012 (adjusted, to the extent necessary, to reflect our decision in relation to the general claim). 171Those outcomes are, in our view, consistent with the requirements of s 10 of the Act. 172As we have noted, the Crown Employees (Police Officers - 2011) Interim Award shall be rescinded. 173Having regard to these conclusions and our foregoing reasons, the cross-application by the Commissioner is dismissed. 174We direct that the Association file draft orders of variation to the award reflecting our decision within 14 days of the date of this decision. Those draft orders should be accompanied by a notation indicating the concurrence or otherwise by the Commissioner to the draft orders (reflecting, that is, our decision). 175The proceedings shall be listed for the purposes of varying the award and giving directions as to Stage 2 of the proceedings at 9.30 am Tuesday 2 October 2012. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 September 2012