Splits and divisions on minimum wage

Written By: - Date published: 3:53 pm, February 2nd, 2009 - 28 comments
Categories: national/act government, wages, workers' rights - Tags:

So Cabinet has deferred its decision on the minimum with John Key simply promising “it won’t be very far away at all”. Now that’s just shoddy.

In tough economic times we need strong government leadership. Now is the time for certainty and action, it’s not the time to dither and umm and ahh. But we shouldn’t be surprised at the dithering. There are two opposing forces in Cabinet battling it out on the minimum wage.

First, John Key, ever the populist will be trying to do whatever it takes to stop National from slipping into the unpopularity it enjoyed for almost two decades. Key will be wanting to push the minimum wage higher to avoid boxing National into the unpopular mould of neo-liberal madness.

Second, Bill English, who has been telling the public for the past month that its simply not time to increase wages, will be pushing fiscal conservatism. Bill will be arguing National has to be a responsible government (by his definition of responsible) and keep the minimum wage right where it is, or at the very least keep the movement very low.

So who will win? With the decision deferred there can’t be any doubt that Cabinet is split. We’ll have to wait, but the results will be telling. Lets see who the real power behind the new government is.

28 comments on “Splits and divisions on minimum wage”

  1. TightyRighty 1

    Clever Eddie, a good piece of insightful commentary into what might be happening in Cabinet as we write.

  2. gingercrush 2

    How has National been unpopular for two decades?

    Agreed that defering/delaying its decision is stupid.

  3. Jimbo 4

    Eddie – you yourself acknowledge the “tough economic times”.

    Enlighten us: how will raising the minimum wage at this point help NZ navigate the recession?

    “Strong government leadership” would acknowledge very clearly that now is not this time.

  4. gingercrush 5

    Because people in the most trouble who are employed are likely to be those on lower wages. Any movement upwards in the minimum wage means those employees aren’t hurt by increasing costs. Look at the price of petrol later, its going back up meaning many of those workers will find it more difficult to afford petrol. The problem is, small businesses may struggle in paying the worker. But it will help New Zealand ultimately, because it lessens the impact of workers going backwards as no movement in the minimum wages means less purchasing power.

    Personally, I would be quite happy for the minimum wage to increase to 16 dollars within two-three years as long as there are cuts in business tax which I think should go down to 25%.

  5. irnswn 6

    Unpopular for 2 decades – are there some election results i am overlooking, because since 1988 national was teh top polling party in 1990 (landslide), 1993, 1996, and 2008. Hardly unpopular or is a party only popular when it acheives 99% plus of the popular vote…

  6. sweeetdisorder 7

    Ginger

    Lets say the min wage goes up to $16 an hour? Lets say you employ 5 people. The conditions you describe have just assigned one person to unemployment. What is better, 5 people employed at lower wages, or 4 employed with a bit more money and the 5th on unemployment?

    Increasing the min wage now more than ever is a stupid thing to do. Unemployment is rising, low paid workers are not a scarce resource. Better for many reasons to be in a job than not.

  7. gingercrush 8

    Well not if businesses receive a tax cut themselves. 30% is in my opinion too high and 25% would be much better and would lessen the impact of higher minimum wage costs.

  8. Draco T Bastard 9

    Unpopular for 2 decades – are there some election results i am overlooking, because since 1988 national was teh top polling party in 1990 (landslide), 1993, 1996, and 2008.

    “National won the 1990 election with 47.8 percent…”
    “…National retained power with a mere 35.1% of the votes…” (1993)
    “…:National 33.8% of the party vote…” (1996)
    Chapter 9, Prosperity for All?, Brian S. Roper

    They started losing popularity in 1990 after the election when they continued doing what Labour had been doing ie, implementing the neo-liberal reforms that very few people wanted. The thing about it is that National, even with their 12% lead over Labour, weren’t voted in in 1990 – Labour was voted out.

    So, yeah, they’ve been unpopular for 2 decades.

  9. mike 10

    “unpopularity it enjoyed for almost two decades”

    Good one ed, maybe in the pinko hand wringing fraternity but not by the majority of mainstream NZers who are finally celebrating the start of a long centre right reign.

  10. Jimbo 11

    Ginger – don’t disagree with your sentiments regarding helping those in need, but raising the minimum wage by 10-20% at this point is not the cure.

    People who have a job on the minimum wage are not the most needy at the moment. The most needy are people who do not have a job at all and business that will go under (leading to more jobless) unless costs fall and/or sales and productivity increase.

    Your suggested policy helps a small group of people (those employed on the min wage) and HURTS the larger and more needy group described above.

    I look at this way:

    1. From a government perspective – keeping someone in a job on the minimum wage is better than moving that person onto the benefit for a number of reasons including (a) government doesn’t have to “pay” the person the benefit, (b) the person is involved in society in a productive way which may mean greater self-esteem etc than if unemployed, (c) the person may be paying tax.

    2. From a business perspective – raising the minimum wage across ALL your employees might significantly raise costs at a time when businesses can least afford it. If businesses are already making employees redundant, how does this policy “slow the flood”. Answer – It doesn’t. It speeds it up.

    3. If you want to encourage growth again, you need to get businesses taking on “marginal employees”. Imagine a small business saying “can we afford an extra packer, machinist, cleaner?” Raising the cost of that extra employee will not help during a recession.

  11. Felix 12

    You guys crack me up.

    A month ago the best way to help our poorest workers was to take all their rights away for 90 days.

    Now, apparently, they’re even better off if we pay them less too (in real terms).

    I can’t wait to hear the next solution – slashing their tyres, perhaps?

  12. bobo 13

    Was watching Key on Cambell live tonight he looked a bit lost when asked what exact public infrastructure projects ideas he might fast track, kept trying to bring up tax cuts and ignored the rail network expansion idea with “lets not be too hasty”. Feels likes its still October last year when watching him.

  13. gingercrush 14

    Yes but we’re not talking 10-20%. A 50 cent increase in the minimum wage, from $12.00 to $12.50 is a mere 5%. You an justify whether that is increase is too much or what not. But I don’t think its such a crippling number that numerous people will lose their jobs. There is a danger that if minimum wage earners get an increase, then other workers too will want an increase. But one could also say, that would have a positive effect because it increases purchasing power.

    My suggested policy is another matter.Its a pipe dream that will never happen. 1. A National nor a Labour party would increase the minimum wage to such a degree. 2. Neither party would be likely to target business tax amounts and decrease by 5%. Reason being the National party is more fixated on personal tax cuts and Labour doesn’t favour tax cuts. So really my suggested policy is moot because it would never happen. 3. Its likely to have major inflation implications that could actually hurt the economy. 4. Increasing wages to such a degree without real improvements in productivity could be damaging.

    Its also interesting that you have completely ignored the fact, my suggested policy takes into account increased cost by businesses. Thus why there would be a tax deduction from 30% to 25%. But the whole point is moot anyway.

  14. burt 15

    If the first $10,000 of earnings were tax free that would make a massive difference to the take home pay of minimum wage earners and probably allow us to remove all the middle class welfare that has helped stagnate our economy.

    Too simple I guess, there is no picking of winners and losers which is something socialists cannot help themselves from doing. For Labour it was only ever about identifying the demographics that were not voting for them and bribing them to give two ticks to Labour.

  15. stunningly weak performance from Key on Campbell Live tonight:

    http://www.3news.co.nz/John-Key-responds-to-your-suggestions-on-jumpstarting-the-economy/tabid/367/articleID/89437/cat/84/Default.aspx

    he’s looking tired already! is he starting to find it all a bit hard?

  16. Tom P 17

    “Good one ed, maybe in the pinko hand wringing fraternity but not by the majority of mainstream NZers who are finally celebrating the start of a long centre right reign.”

    So we’re back to the old Don Brashism “mainstream NZers.” Mike what to f… is a “mainstream NZer” or is it the 55 per cent that didn’t vote for your beloved National Party. Wake up and smell the coffee and keep your exclusive terms to yourself or at least have the decency to explain what you mean by mainstream. Or is it a case of “I’m not actually sure what mainstream is or I’m too afraid to say!”

  17. burt 18

    TomP

    I thought mike was exercising restraint by not directly saying “We won, you lost – eat that”.

  18. Jimbo 19

    Felix – any attempt to address the point some of us made? It’s not an all-out assualt on helping people, it’s simply a logical and reasoned argument why raising the minimum wage is not the best way to go about it.

    Unless you are personally going to pay the costs assoiciated with raising the minimum wage in NZ, it’s perfectly legitimate to ponder for a bit on what the consequences might be.

    In this particular case, the theory is that raising the minimum wage might mean (1) some people on the minimum wage will be made redundant, and (2) some possible new jobs will not come about at all.

    In the middle of a recession, it’s worth weighing up which is the lesser of two evils.

    It’s pretty tiresome at times. If you gave up the “I’m a leftie so I’m right. You’re a rightie so you eat babies” mindset, and if you were prepared to at least acknowledge there are people who sincerely want the best for this country but disagree on how to achieve it, you might just learn something.

  19. Jimbo 20

    Ginger –

    Didn’t ignore you tax cut idea, just suspect it would be a gigantic loss of revenue for the Govt at this point and is not that clear how it ties in with the extra min wage costs a business might face.

    For example, struggling businesses not making much profit at all would probably not be helped much. Booming law firms filled with no-one working on the min wage, would probably profit greatly from the tax cut…!

  20. Draco T Bastard 21

    In this particular case, the theory is that raising the minimum wage might mean (1) some people on the minimum wage will be made redundant, and (2) some possible new jobs will not come about at all.
    In the middle of a recession, it’s worth weighing up which is the lesser of two evils.

    How about this if the minimum wage isn’t increased:
    (1) Some people on minimum wage can no longer afford to buy as much as they did before, decreasing demand forces businesses to cut people making even more people redundant (2) some businesses, planned for the strong economy, will see the weakened state and not come about at all.

    Both are possible outcomes. Cutting wages, which is what would be happening if the minimum wage isn’t increased, will slow down the economy.
    Of course – some businesses are already actively cutting wages seemingly wanting to force a deeper recession.
     

  21. Leftie 22

    NO to keeping the minimum wage as is…A political party campaigning on closing the wage gap with Australia MUST raise the minimum wage. A future prime minister stating on national tv that he will put the minimum wage up MUST do so. National Party credibility at stake here. NO to a rerun of the 1990s.

  22. BeShakey 23

    “If the first $10,000 of earnings were tax free that would make a massive difference to the take home pay of minimum wage earners and probably allow us to remove all the middle class welfare that has helped stagnate our economy. ”

    Your following tirade against Labour was a bit unfair, given they looked at this in detail then ruled it out. I suspect because: it would make it quite easy for a lot of very rich people with decent accountants to avoid a lot of tax (something the NZ system is good at avoiding, unlike others like the US); it would provide tax cuts to everyone, rather than focussing on those who need the money the most (and I’m one of the people that would have got more from $10k tax free rather than Labours actual cuts, so don’t give me any rubbish about how this is just jealousy or hatred of the rich); and (I think but could be wrong) it was expensive and the costs were very volatile.

  23. Felix 24

    Jimbo: If you gave up the “I’m a leftie so I’m right. You’re a rightie so you eat babies’ mindset, and if you were prepared to at least acknowledge there are people who sincerely want the best for this country but disagree on how to achieve it, you might just learn something.

    If these were new arguments you’d have more of a point, but we’ve been down the neoliberal economic road before as a nation and it’s frankly nonsense to suggest it will be any better this time.

    You’re essentially arguing the case for making all the same mistakes again and you wonder why I don’t take your points seriously.

    Also I don’t think I’ve accused anyone of eating babies, just of stripping workplace rights and cutting the spending power of the poorest workers.

  24. burt 25

    BeShakey

    Rich people with good accountants will only be stopped from distorting the tax system if rates are completely flat and there is no difference between taxation rates for separate entities such as individual tax, company tax, trustee income, beneficiary income etc. Progressive taxation is what provides the distortion opportunity from income splitting. As NZ has one of the lowest thresholds in the developed world when it comes to top tax rates – don’t fool yourself that the NZ tax system is good at avoiding distortions.

    Gareth Morgan – The Review and Flat Tax: No courage of conviction

    The most pleasing graph in the Tax Review’s recent report is the one that demonstrates the total futility of having a progressive personal income scale. We all know the lengths people go to in order to avoid paying more income tax – sheltering in Trusts and companies, splitting income with non-earning family members, moving into the black economy. We know that in aggregate that’s a hell of a dead weight weighing down on the economy as these folk and their accountants expend a lot of time and energy to avoid the grab of the taxman.

    But what’s not perhaps so well known is that successive governments with their staunch efforts to protect a progressive income scale have been defending a regime that achieves negligible redistribution. It is little more than a populist programme of futility.

  25. Draco T Bastard 26

    Rich people with good accountants will only be stopped from distorting the tax system if rates are completely flat and there is no difference between taxation rates for separate entities such as individual tax, company tax, trustee income, beneficiary income etc.

    You’re deluding yourself Burt. People will still try and make sure that they’re paying as little tax as possible. The rich will still have the advantage because they can afford accountants and lawyers.

  26. fraser 27

    DTB

    yeah – how often does an accountant hear the line – ” nah, stop there, im only paying as much tax as anyone else”

  27. Jimbo 28

    Felix –

    Your characterisation of any policy that disagrees with raising minimum wage right now as “stripping workers rights”, and your refusal to even acknowlegde that some wellmeaning social policies may have negative side-effects (which should also be considered) is tiresome.

    It’s total rubbish to dismiss this sort of discussion as being “neoliberal” or the “same mistakes” we’ve previously made. This country HAS a minimum wage and no sensible commentator is asking for it to be abandoned. You on the other hand seem to believe that raising the minimum wage is a costless exercise (or if it has a cost, some rich business owner will bear it).

    Listen carefully – raising the minimum wage could lead to further unemployed. The people who would be made unemployed are the people who can least affort it (already minimum wage). The centre-Left is crying out for advocates to give up on beating the drum and come up with some insightful and meaningful ideas that at least acknowledge the importance of industry.

    (Funnily enough, your new article today about the estimates of the job losses that will result AGREES with the point that’s being made…! You’ve decided to quote the stats because you like the fact the estimates of job losses are low. Answer the question though – do you concede that the model is correct? Raising the min wage by too much leads to job losses???)

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