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Key comes out against wage increases

Written By: - Date published: 2:27 pm, July 16th, 2008 - 25 comments
Categories: john key, tax, wages, workers' rights - Tags:

This morning on Sunrise, John Key said “wage inflation” is a problem causing inflation and needs to be reduced. Wage inflation is a businessman’s way of saying pay increases. John Key opposes Kiwis getting the pay increases they need to cover the rising cost of living.

This fits with his statement that “we would love to see wages drop“. He wants businesses to be able to pay their workers less in real terms by letting inflation eat into wages and cover part of the workers’ loss by cutting their tax (which is why he only ever talks about raising ‘after-tax incomes‘).

We’ve said it before, tax cuts aren’t a substitute for wage increases: National can’t afford the large tax cuts it’s promising; even if it could do large one-off cuts, it can’t cut tax enough year on year to make up for a lack of pay increases; cutting the social wage to cover tax cuts would make most people worse off because they would have to buy things that were once free public services; and, if you borrow to cover cuts, debt rapidly blows out to astronomic levels. Moreover, the families most in need pay little tax. From October 1, a 2 child family earning less than $50K pays no income tax, thanks to Working for Families. A 1 child family will pay no tax below $42K. You can’t make up for lost pay rises with tax cuts for low income people, there’s simply not enough tax to cut.

Key also said Working for Families can boost incomes for low income families. Oh dear. The in-work payment doesn’t go to beneficiaries and the tax credits can’t raise your net income further once you’re paying no net tax.

While workers are feeling the brunt of inflation, Key says they shouldn’t get pay rises and offers a Clayton’s solution in tax cuts. Meanwhile, businesses get lower labour costs. Profits before people, it’s the National way.

25 comments on “Key comes out against wage increases”

  1. Tane 1

    What ever happened to closing the wage gap with Australia?

    Oh, that’s right, hit and run.

  2. Matthew Pilott 2

    Look Tane, a Power Crisis!

  3. higherstandard 3

    SP

    I’ve just watched this I can’t see where Key said wage inflation was a problem causing inflation and needs to be reduced. Most of the commentary is verbiage relating to government spending and pressure on the reserve back.

    Are you sure you haven’t taken up that apprenticeship at C/T you won on this site a couple of weeks back ?

  4. He says “wage inflation” is one of the problems, he also says tax cuts could dissuade people from asking for wage increases.

    C/T wouldn’t have me, I’m allergic to the taste of babies.

  5. “From October 1, a 2 child family earning less than $50K pays no income tax, thanks to Working for Families.”

    So given this family of 2 children is in effect earning $75k pre-tax why do they need a pay increase ?

    “The in-work payment doesn’t go to beneficiaries”: raising wages doesn’t increase benefits so your arguement is nonsense. In fact pushing up wages pushes up inflation eroding the buying power for beneficiaries.

  6. I noticed that westpac’s chief economist was saying the same thing in granny this morning. I figure he’s not had to think twice about filling his tank or whether he can afford a block of cheese either…

    http://www.nzherald.co.nz/category/story.cfm?c_id=280&objectid=10521799

    “higher wages and benefits – and more money in people’s pockets – would only buoy inflation.” – let the f*cker take a pay cut to minimum wage and we’ll see how he feels…

    Oh and by the way – Did Bryan’s monkey send that picture in?

  7. Steve: “C/T wouldn’t have me, I’m allergic to the taste of babies.” If you don’t want that apprenticeship, I’ll take it.

  8. Tane 8

    Bryan, they wouldn’t have you either. And it’s not because you’re allergic to the taste of babies.

  9. higherstandard 9

    So he didn’t actually say that wage inflation was a problem that needed to be reduced then nor did he say that workers shouldn’t get pay rises. …. I thought I had missed something ?

    It would certainly would have been odd if he had said either of those things.

    captcha baby repeller ??

  10. Key was asked if he supported extending the in-work payment to beneficiaries as per Sue Bradford’s suggestion – the presenter mangled the question and Key didn’t seem to get that the in-work benefit doesn’t apply to beneficiaries at present.

    And if a family income of $50K after net tax is enough for a family with two kids then why the constant moaning for tax cuts?

  11. Has bryan eaten his monkey???

  12. rave 12

    But youve got a problem. National still looks like its offering more than Labour. Its keeping WFF. Its tax cuts will come in on top of the October 1 tax cut. The talk about wage inflation and cuts in government spending don’t translate directly into the language of wage cuts or job cuts despite your best efforts. The thrust of personal tax cuts keeps coming right through the other flak and people won’t see the tax cuts trade off for wage increases until it hits them.
    Nobody here has yet bothered to tell me why Labour can’t steal Key’s tax cut thunder and find a silver lining in dumping GST on food and fuel. You can’t get a more personal tax cut than this, but some people will find it more personal than others – like keeping your kids fed as opposed to filling the SUV. I’d be interested to hear some arguments.

  13. rave. Three issues with that. a) where’s the money going to come from, you’re talking about opening up a hole in the Budget worth hundreds of millions. b) cutting GST actually delivers less to the consumer than an income tax cut – part of the reduction in GST is kept by the seller and part is passed on in lower prices (just as the consumer doesn’t face all the increased cost from GST) c) National’s tax cut thunder is stolen, they can’t deliver on the expectations they’ve created.

  14. I’d be happier if he also said he was not in favour of price inflation. If earners can’t increase the price of labour to cover costs, nor should vendors…or it makes no sense. Why discriminate against wage earners and favour vendors?

    That leads to “distortions”. 😉

    Like….fewer and fewer people have the money to buy stuff. At SOME point someone has to eat the “loss” that inflation represents……

  15. Quoth the Raven 15

    The talk about wage inflation and cuts in government spending don’t translate directly into the language of wage cuts or job cuts despite your best efforts.

    John Key’s words easily translate into wage cuts and job cuts e.g, “We would love to see wages drop” “we have no spare capaicty” in other words too many people are employed.

  16. Oliver 16

    Steve Pierson,

    You do realise that wage inflation is something that is measured relative to productivity?

  17. Draco TB 17

    In a free market wages aren’t determined by productivity anyway. They’re set the same way as all other prices – supply and demand. ATM supply is tight and demand is high. Such conditions will lead to high wages.

    I’m not surprised that a National leader has come out against the free market.

  18. higherstandard 18

    Draco

    Key has not come out against the free market – the title on this post is misleading.

    Key did not say that wage inflation needed to be reduced, nether did he say workers shouldn’t get pay rises.

  19. rave 19

    Steve not convincing.
    Nats will deliver tax cuts even if they have to borrow for it. Their whole spiel is nothing if they can’t. Spin doesnt cover that.
    If the Nats can rejig the system for mates welfare, why can’t good old democratic socialist Labour do it to get rid of a regressive tax that inflates with price inflation to cut wages?

  20. ants 20

    If Steve et al were actually correct on any of this, they would be millionaires like Key – but they’re not, so its pretty rich claiming to know how to run an economy better, especially when they are mostly public servants.

  21. rave. because Labour is more responsible?

    Look, I’m anti GST too, in fact I’ve advocated cutting it in other posts but going into operational deficit to fund taxes cuts is dangerous territory – pretty soon you’re dismantling public services to pay the bills because you can’t put up taxes again to cover the cost of government and you can’t keep borrowing forever.

    Cutting GST would have a one-off deflationary impact but you shouldn’t do it when you can’t afford to. Perhaps Labour could do what the Canadian govt has done, reducing it by 0.5% a year for five years to minimise the fiscal impact but it depends whether there are other spending priorities.

  22. Draco TB 22

    Mildly amusing piece from Bloomberg about capitalism committing suicide.

    “Granddad Benny, is it true that capitalism committed suicide?”

    Granddad looked up from the fire he was stoking with bundles of 2006 and 2007 vintage mortgage-backed bonds. “In a way, Joel, yes. In developed countries, people got too greedy, especially bankers, and everyone borrowed too much. In less developed countries, people racing to improve their living standards reawakened the slumbering inflation monster.”

    Joel put down the stick he was using to scratch the dirt. “Why did the Gigantic Global Bubble Burst of 2008 catch people unawares? Weren’t there any warning signs, Granddad?”

    Captcha: Tamed consequences. I don’t think they’re tamed, more likely to be just resting.

  23. rave 23

    Well if Labour is defeated it will only have itself to blame. Fiscal responsibility is a Rogernomic trick to keep taxes on business low. Labour has created a monster in the small business sector that is about to rise up and and swallow it. Workers will not stay loyal to a government that fiddles while the home burns. I hear tonight that the northern Cooks are getting a delivery of fuel for NZ60c a litre from Tahiti courtesy of Sarkosy. Lesson there?

  24. ants: Making money on speculation isn’t the same as being a competent economic manager. If anything, it’s the reverse: undermining good economic management for short term gain. One could easily argue that a speculator should NOT be allowed anywhere NEAR the “real” economy.

  25. Phil 25

    Steve, that’s just moronic, and shows a lack of understanding of how speculation actually works.

    In simple terms – it’s buying something that is priced lower than its real value and selling something that is priced at more than its real value.

    By engaging in these transactions, speculators do two things;
    1) bring liqiudity to the market – making sure that there are enough buyers and sellers for the market to trade effectively
    2) ensure the same product is worth the same price regardless of where you trade it.

    Take away these two things, and you get complete and total market failure.

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