All around the world, governments, economists, and even neoliberal bastions like the World Bank are urging a change in the direction of economic policy away from the mistakes of a decade ago – all except here in New Zealand, where the government appears determined to repeat them. Branko Marcetic examines the Government’s pay freeze for public sector workers.
Observing events in the rest of the world, the state of things in Aotearoa can sometimes feel like they’re happening in an alternate universe. And that’s not just because for more than a year, New Zealand’s been living almost as if the pandemic never happened, healthy and free of the anxiety and restrictions people overseas are still forced to endure.
But in fact, New Zealand is exceptional for a different reason. All over the world right now, economic opinion is turning against the austerity and debt fears that reigned supreme for the past decade, as governments, economists, and musty, conservative institutions all acknowledge the need to invest now to shore up a post-Covid economy.
Danish Prime Minister Mette Frederiksen — a young, female social democrat who has drawn numerous comparisons to our own prime minister —called austerity an “old-fashioned way of thinking” and promised a program of robust public spending. In the UK, an influential Thatcherite think-tank has similarly renounced the austerity it used to cheer, and instead urged Tory Prime Minister Boris Johnson to hold to his inconsistent vow not to worry about historically high government debt. Even in the United States, President Joe Biden, a lifelong fiscal conservative, has put his traditional fear of budget deficits to the side and embarked on a program of trillions of dollars of spending.
All of this has happened at the explicit urging of some of the world’s most conservative economic institutions.
“First you worry about fighting the war, then you figure out how to pay for it,” said Carmen Reinhart, the World Bank’s chief economist, one of the leading crusaders for austerity a decade ago.
“Fiscal authorities can actively support demand through cash transfers to support consumption and large-scale investment in medical facilities, digital infrastructure and environment protection,” wrote the International Monetary Fund’s chief economist, warning that there is a “consensus that fiscal stimulation was withdrawn too quickly right after the financial crisis” last time.
Several high-ranking figures from the OECD are now calling the spending cuts and debt paydowns their organisation pushed governments to do after the 2008 global financial crisis a terrible error. “The first lesson is to make sure governments are not tightening in the one to two years following the trough of GDP,” says its chief economist, pointing to the “mistake” made through 2010-11. “Austerity is not the answer today, both because of the bad experiences from the last crisis and because today we are in a zero-interest rate environment,” says its deputy secretary general.
So as the rest of the world rethinks the policy mistakes of the last decade and urges a bold change in direction, what is our nominally social democratic government up to? Doubling down on those very same mistakes, it seems.
The government’s three-year pay freeze for public sector workers announced on Tuesday is rightly being assailed across the board as a betrayal of the frontline workers who have worked themselves to the bone and risked their own health to keep New Zealand moving through a tough year. Worse, it was prefaced with a statement from Finance Minister Grant Robertson thanking “the public service for their contribution during Covid-19” and acknowledging “the efforts of our frontline staff” and their “dedication and public service” through the crisis. It would be hard to engineer a bigger slap in the face to frontline workers if you tried.
Needless to say, the move is only going to put a further squeeze on working New Zealanders already grappling with sky-high living costs that are getting worse, from fruit and vegetables to, especially, housing, which has been experiencing runaway inflation compared to incomes. As Paul Kelland points out, you can freeze incomes, but living costs are going to keep going up, effectively turning this pay freeze into a pay cut. It not only threatens to push overseas already strained nurses and teachers that our country has struggled to retain— the very same workers who struck just three years ago over, among other things, inadequate pay — but also to prod the most experienced and therefore highest paid public sector workers potentially into the private sector.
Unfortunately, by now we’ve come to expect that these concerns aren’t at the top of this government’s priorities. From refusing to lift benefits to blaming low-wage workers for its own missteps on the pandemic, this government has consistently exhibited an antipathy to what in theory should be its core voter base.
But with this latest pivot to austerity, Labour isn’t just defying its most loyal constituents — it’s rejecting the pragmatic advice of much of the global power establishment it aspires to emulate.
As Robertson explained on Tuesday, it’s the fear of government debt that’s driving all this. In other words, the government is embarking on the very economic strategy — an early pivot to austerity that puts debt concerns over human ones — that foreign governments, economists and conservative institutions like the World Bank and IMF right now are overwhelmingly rejecting as a proven failure. We don’t know exactly what ideas Jacinda Ardern and Frederiksen shared in their well-publicized phone call last year, but it probably wasn’t that.
If the government really feels the debt is such a pressing issue, it’s not as if it didn’t have alternatives. A booming housing market and growing wealth inequality might’ve been a prime opportunity to replenish government coffers by asking investors and the 1,904 Kiwis who are worth more than $30 million to pay their fair share. This would do much more for narrowing the economic inequality that Robertson claims this attempt to pit public sector workers against each other is about.
But Labour has already ruled out putting in place capital gains or wealth taxes (which have already been used to great effect in countries like Argentina and Bolivia for this purpose), seem cool on introducing an inheritance tax, and have dismissed raising the tax rate for trusts, one of New Zealand’s most popular vehicles for tax avoidance. This, despite breezily raising taxes on ordinary New Zealanders yet again in the middle of the pandemic last year in the form of higher petrol, alcohol and road user charges. Consistent with how they’ve governed so far, Ardern and Robertson are happy to demand workers sacrifice for the greater good — but asking the rich to do the same is a red line they simply won’t cross.
As one more kick in the teeth, just a day after the pay freeze announcement, the government announced that its books were $5.2 billion better than expected, raising the question of why the pay freeze is necessary at all. What’s more, as Treasury itself admitted late last year, this state of affairs is in no small part because government support kept consumer spending up over 2020, funnelling more tax revenue back into its coffers, and suggesting that there’s less tension between public investment and keeping the government’s books in order than Robertson would have us believe. But instead, his government’s strategy is to effectively stifle consumer spending for the next three years from public sector workers.
After last year’s stunning election result, there was fevered speculation about just how Labour would spend its unprecedented political capital in a second term. We appear to have now found out: it will reject the advice of most mainstream economic opinion, protect the existing arrangement of wealth and power in the country, and pick a fight with the country’s largest union. Now the question is whether public sector workers will take it, or rebel like they did three years ago. Debt or no debt, someone is going to have to pay.
Branko Marcetic is co-host of the podcast 1 of 200 and a staff writer for Jacobin magazine
This article can be republished under a Creative Commons CC BY-ND 4.0 license. Attributions should include a link to the Democracy Project.
Melissa Lee – as may be discerned from the screenshot above – has not been demoted for doing something seriously wrong as Minister of ... 
Stupid policy no one likes this except ACT and National supporters.
The well paid professional class ( with degrees) and managerial elite in the public service doesnt really represent the overall public.
Doesnt cover the largest portion who are clerical and support workers and in call centres.
Are you one of this professional class, by chance ?
The fear of debt has not disappeared but the fear of collapse is greater and so can kicking remains the order of the day
Well Pat they have kicked some cans quite hard lol.
The can is full and the foot is bare
I am very interested in the figure you quote for New Zealanders worth thirty million or more. Where did you get this from, please?
Francis, try clicking on the "1,904 Kiwis" link (to The Wealth Report 2021; see P81) in Marcetic's recent post (on the Democracy Project site) about the NZ Government’s pay freeze for public sector workers.
This Government is not embarking on austerity, it has been and still is spending up large, AFAIK, so that’s a red herring. I should add that much of the Government’s largesse so far has gone to middle-NZ and the big end of town.
It cannot be austerity if the 25% pf the PS is still in line for pay rises. It is called prioritisation. This means Government can focus on the lowest wages while keeping the overall PS wage bill under control and possibly spend money elsewhere where/when it is needed more.
https://www.beehive.govt.nz/release/government-sets-pay-and-workforce-expectations-public-sector
There’s no blanket stop on pay rises for PS earning between $60k and $100k and under exceptional circumstances, they can still receive a truly deserved pay rise.
I think this move will keep the pressure on the lower wages in the private sector too, as it should be. The lowest earners in our society need all the support they can get.
There seems to be quite a lot of hysteria around this move, some from surprising corners.
The government appears to be confused…..the PS pay freeze is sending the signal that wages must be constrained…and yet there is only two ways to improve housing affordability…increased wages (above the rate of property inflation) or a fall in property prices…a fall in property prices has been ruled out….go figure.
Sure, but I’d think that many PS on < $60k would be renting in Wellington and elsewhere and there is a lot of pain in the rental market; tenants done’ have the same and as many options as home owners. It does appear that there’s some cohesion between the various Government announcements lately … It is too early to say this but ‘strike me down with a feather’ is starting to form in my mind.
On the contrary..it appears the various ministers dont speak to each other…the policies conflict.
Hard to believe when only a few of Ministers have their fingerprints all over it, one in particular. And so close to Budget-2021.
Considering only a few Ministers appear to be active that would be the expectation and only adds to the perplexity……the budget will have to be a squaring of the circle exercise to solve that.
Somehow I doubt that will be the case.
A housing plateau is beginning. They usually last 5 years, so fix your mortgage if you have one.
lol…ponzi's dont plateau
I think this move will keep the pressure on the lower wages in the private sector too, as it should be. The lowest earners in our society need all the support they can get.
I feel this is ambiguous. You mean I suppose, that employers will feel pressure to increase pay to the lowest earners in both public and private sector? And as the economy improves that would be expected to happen.
I feel that some in the House don't have similar personal lives to others., and not because of the demands of the job to be away in Wellington for periods. If childless, in a same-sex relationship, it just takes them further away from the everyday citizen when they are already caught up in the toils of politics and the beltway. If they are conservative-minded then they often come with ready-made prejudices against strugglers and solo and single parents who are just outside their understanding. I think that low-income people get patronised or demonised, rather than attitudes falling between those views.
Sorry guys – not sympathetic. It is not austerity to refuse to give people who are already earning well more money, and instead give money to those at the lower end who 1) will spend it, 2) need it! Moreover this policy helps to reduce the huge and increasing disparity between those at the bottom and the top of the workforce (let alone those on benefits.) $60,000 a years is a !@#$ a lot of money for many people in this country. Lets put the money into those at the bottom of the state pay scale – often the people who work hardest! Go Labour!
[error in user name corrected]
If that is their policy goal then they should do so as policy with the tax system not by mere command over those they hold power.
This is Labour acting as the worst kind of commercial employer.
Go Labour! Pit the workers against each other in a zero-sum game! Ignore the incredible accumulations of wealth at the top! Houses earn more than most workers, so don't fucken tax them whatever you do!!
A "Labour" government?!? Bullshit. It's a "landed gentry" government.
Part of the reason this timid majority MMP Govt. gets away with this crap is because millions of New Zealanders are in effect the “children of Roger’n’Ruth”, their monetarist legacy is as natural as the falling rain to so many.
The ascendency of individualism over collectivism, precarious employment, finder provider splits, contracting out, all put pressure on people to be compliant. In other words New Zealanders are used to sucking it up as housing goes out of control and 50% of us own just 2% of the wealth.
Yes Rosaline @6 It may also avoid redundancies.
PSA newsletter to its members.
Tēnā koutou katoa
Last week the government announced pay restrictions for many workers in the public, state and DHB sectors.
This was a surprise to the union, and a slap in the face of members who have worked so hard to keep Aotearoa New Zealand running during lockdown and help with the rebuild.
This decision by the government cannot go unchallenged.
WHAT YOU CAN DO
You along with your friends, family and whānau can show how much you value public workers by:
NEXT STEPS
We've already had a massive response from members and we'll be strongly raising your concerns this week at meetings with the Prime Minister and the Ministers for the Public Service, Workplace Relations, and Finance.
We will be back in touch very soon about the outcomes of the meetings and our next steps. We may need to escalate this further, and we should be prepared to show our widely supported opposition to this poor decision.
SPEAKING OUT
The meetings with Ministers come after we spoke out publicly against the pay restrictions last week and sent a letter to the Minister for the Public Service, Hon Chris Hipkins, along with a copy of several thousand comments from our members.
The letter asked that he:
WHY ARE WE DOING THIS?
We've taken this stand because this decision by the government has huge implications for all members, wherever they work, and out in the wider economy. It will continue the under-investment in public services and the people who work in them.
It is also an attempt to restrict our right to bargain fair pay and conditions for members before we even get to the bargaining table.
As we continue to advocate for our members, you can take heart from the huge out-pouring of support for public workers in the past week. The coverage in the news and social media has been unprecedented. This shows how much your work is valued.
Kia kaha
PSA National Secretaries
Kerry Davies and Erin Polaczuk
6380049 – 7357446