Written By:
Tane - Date published:
10:15 am, February 5th, 2008 - 64 comments
Categories: tax, workers' rights -
Tags: tax, workers' rights
News that 28,000 New Zealanders left for Australia last year has Business NZ, the Chamber of Commerce and the National Party predictably calling for tax cuts as the solution to New Zealand’s wage gap with Australia.
Of course, they know very well that tax cuts are not the answer. Workers in Australia currently earn 30% more than workers in New Zealand, which means unless John and his business mates are willing to reduce taxes by 30 cents in the dollar they’re not going to close the gap. And as keen as they might secretly be on such a plan, it’s clearly not a plausible option.
Because the real issue, as always, is wages, and it’s the elephant in the room that National and its allied business lobby groups would rather ignore. New Zealand’s low wage economy can be traced directly back to the Employment Contracts Act of 1991, which was deliberately designed to reduce the ability of workers to bargain for better wages through their unions.
Since then New Zealanders’ pay packets have fallen behind Australia, our productivity has failed to keep up and even Labour’s Employment Relations Act has done little to repair the damage. As few as one in five New Zealanders now belong to a union, pass-on is rife, and enterprise bargaining is heavily favoured by legislation.
If we want to raise New Zealanders’ living standards to Australian levels then we need to seriously lift wages and restore industry-wide collective bargaining, and that’s something National knows it has a shameful record on.
It’s no wonder they’d rather talk about tax cuts.
The server will be getting hardware changes this evening starting at 10pm NZDT.
The site will be off line for some hours.
Is there any social ill that National doesn’t think can be solved by tax cuts?
Forget tax cuts this country is a case study in madness.
[lprent – junk warning – this is probably dad4justice under yet another alias. It is in his usual IP range and with the usual comment type.]
I’ve had a lot of my family go to Australia but I’ve never once heard any of them talk about tax cuts as a reason for leaving. Every single one has said something along the lines of “Working here I get $12 an hour but in over in Aussie I’ll get $18.50”. It’s wages every time. How National continues to get away with limiting the argument to tax cuts I don’t know.
Yeah probably Wayne, the ones that are cured by privatisation 😉
Now what’s the y-axis indicating on the graph? My guess would be hundreds of dollars (i.e. so it starts at $20,000, and finishes at $50,000), but it’s not all that apparent.
Sorry Matt, should have made it clearer. It’s hundreds of dollars per week – was explained better in its original context:
http://www.thestandard.org.nz/?p=527
Sorry to be pedantic, but the title of the graph is still a little misleading. It’s labeled a graph of “Median Wage Growth”. It’s actually a graph of the Median Wage (in $/week) that, when you look at it, shows growth. A map of growth itself would have the rate of change on the y-axis, not the median wage itself.
Australians not only get paid more – they are taxed less. Then, to add insult to injury on NZ Labour’s performance, the Australian Family Tax Benefit (FTB) is more generous than Working for Families (WFF). That must certainly be embarrasing for Dr. Cullen.
Of course, unlike WFF, the Aussie FTB isn’t given to a huge portion of the population. After all, it makes no sense to tax families and then give them their money back because a) it’s inefficient and b) it opens up that money to politican manipulation (by any politician, Left or Right).
Seriously, how could anyone who believes in freedom and fairness vote for NZ Labour?
The Aussie’s have good wages, low taxes, and look after low-income families.
NZ Labour just seeks control.
Well said, EWS.
In summary;
Nationals answer is the ‘carrot’ of tax cuts, and Labours is the ‘stick’ of legislation…
Conclusion;
I think it’s time we all got a new mule.
Australians not only get paid more – they are taxed less.
Well, that depends which tax bracket you’re looking at, and it also excludes state taxes etc as well as WFF tax credits. It’d be interesting to see a proper comparison of the average NZ and Australian family, taking into account all extra taxes and tax credits. I imagine it would be quite difficult, which is probably why people tend to resort to slogans instead.
unlike WFF, the Aussie FTB isn’t given to a huge portion of the population
So that kind of undermines your argument. WFF is a broad but targeted tax credit that goes to a large number of working families. It’s not my preferred mechanism but it seems to work.
The Aussie’s have good wages
They do. But you still haven’t addressed how National will raise wages to Australian levels. The point of this post was simple – tax cuts aren’t the answer, wage increases are. So when is National going to address wages? Or are they going to continue to avoid the issue in the hope that no one notices?
“Australians not only get paid more – they are taxed less. ”
Given the problems that various people have identified with making these comparisons (federal taxes, taxes on buying property etc) it might be an idea to offer some evidence in support of this. Or is it simply another case of ‘if I say it often enough maybe someone will think its true’?
I totally agree. The real difference between us and Australia is the wage and salary levels. I would like to think I am doing my bit to push up wages in NZ, I am an employer and we have increased our salaries this year by between 6% and 10%. In New Zealand we should be aiming for a high value and high wage economy and I don’t see that happening with National in charge.
Rocket Boy,
As I’m sure you’ll agree, wage increases aren’t anything without the matched productivity increase. Out of curiosity, have you – as an employer – seen that from your workers?
And Tane, I agree with your argument: Key is talking up tax cuts at every available opportunity, but isn’t tackling the real issue of wage growth.
Well said EWS.
It’s all well and good to talk about collective bargaining increasing salary and wages, but this extra cash for the plebs like you and I isn’t just conjoured up out of thin air – it has to come from somewhere else.
If we’re going to suck it up from business profits, that means there is less to be rolled back into capital-investment and, hence, improved productivity down the track.
By the way; contrary to the popular belief of thestandard, not all buiness profit gets used by greedy slave-masters to buy another BMW – another case of “if you say it enough it becomes true”?
Another aspect of this is the argument that “increased wages improve productivity”
I accept that there is a correlation, but yet again we cannot assume causality in the direction that you’re all implying. I contend that the causality is the other way around – that is; “more productive workers are rewarded today for being more productive yesterday”, not; “the reward you get today encourages you to be more productive tomorrow”.
Shameless plug; StatsNZ’s “IBULDD” database is provisionally showing some really fascinating stuff in this space – watch out for more from people like the RBNZ, MOTU, and other researchers over the next couple of years)
I have a friend, a mining engineer working in the Northern Territory, and every year he raids NZ and the UK looking for geology and earth science graduates, electricians, diesel mechanics, fitters, welders, mobile drill rig operators, heavy machine operators, truck drivers and pretty much anyone with good references prepared to start at the bottom of the ladder as rig hands and labourers.Last year in NZ he recruited 16 graduates and 60 or so assorted trades people and well over 100 graduates and tradesmen from the UK. All well and good during boom times but if or when the bubble bursts I think you’ll see things going the other way. The Australian housing industry is the other big attraction but when it slows things are going to get very
uncomfortable for an awful lot of Kiwis who bet the house on the move across the Tasman.
As for EWSs assertion that Australians are better paid and have lower taxation levels, I accept that wages are higher but so are the costs of living and because he’s not telling the whole story, state taxes, capital gains, death duties, medicare, stamp duties, vehicle registration and compulsory super I’m calling bullshit on the lower taxes mantra
“All well and good during boom times but if or when the bubble bursts I think you’ll see things going the other way. The Australian housing industry is the other big attraction but when it slows things are going to get very uncomfortable for an awful lot of Kiwis who bet the house on the move across the Tasman.”
What, you mean kind of like how we had a mini-exodus of tradespeople prior to the Sydney Olympics, when the Aussies were building like mad?
How many of them came ‘home’? Sweet… F… A…
Our business leaders are generally very poor comparative to overseas countries. They are basically an unimaginative managerial elite dedicated to a tribal new right ideology that allows them to masquerade as capitalists in lieu of any actual risk taking or real entrepreneurial spirit. The primary focus of our managerial class is the efficient running of a branch office economy dedicated to the generation of maximum profits for their (usually offshore) shareholders. This class demands tax cuts not for reasons of entrepreneurial advantage but rather as a simple wage subsidy from the government. In short, they expect the government (that is, you and me via reduced public services) to make up for their unwillingness to lift wages, they’re under investment in training and technology (hence the low productivity) and a blinkered short-termism in planning.
Of course, given the neo-colonial role and the globalised loyalties of most of our business class they always bitterly oppose any measures that would raise wages and productivity. The irony of their blathering about tax cuts and the need to be competitive would be comical if it wasn’t so tragic.
There is an old saying – “there is not such thing as good or bad soldiers, just good or bad generals”. I would paraphrase that for our business leaders – “There is no such thing as a good or bad workforce, just good or bad managers”.
Seamonkey: Yes we have been working hard to increase productivity and are about 20% ahead of where we were last year. I agree that productivity and reward go hand in hand and that is where business should be putting its efforts.
And most righties go round telling us that it’s not a zero sum game…
Not that there’s a lot of investment in NZ into the productive sectors anyway – most of it seems to go into housing which is why we need foreign investment to keep the economy going. Foreign investment just sucks the profits out of the economy and keeps it stagnant because there’s very little left to reinvest.
Productivity has increased as shown by the increase in business profits but wages have not risen at the same rate. This would, according to you, prove that being more productive isn’t actually being rewarded in NZ. This may be why people are leaving.
Correlations a wonderful thing isn’t it.
Tane,
“WFF is a broad but targeted tax credit that goes to a large number of working families.”
Whilst not really wanting to go off on a tangent on WFF, I think it’s important to highlight something. I once heard WFF described and “spending money to make our economy less productive”. I’ve heard dozens of stories in my personal circles (so I can only assume this is repeated all over NZ) of people chosing to refuse offers of pay increases and job promotions because they’ll lose their WFF benefit.
This has a terrible impact in an individual’s career and the fortunes of their dependents, and a terrible impact on the economy as a whole. One example was of an analyst who refused to be promoted to a manager (a significant opportunity to develope an important skill set) and another of a person who was asked if they wanted to be promoted to a position where he would be teaching apprentice welders. So, in the later case multiple working Kiwis are disadvantaged.
(I mean it’s nuts – on one hand you have the govt talking about a knowledge economy and the govt funding on the job education to make us more skilled – and then on the other hand the govt throws a billion into WFF which discourages on the job skills improvement – this is the Party of the workers – if it wasn’t so worrying it’d be funny.)
There is also the fact that people don’t work longer hours. Now, you can complain that in a modern economy people should be able to enjoy a 40 hour week. However, some NZers want to get ahead (in fact you’ll find that most wealthy people are those in business who do at least 60 hour weeks) but WFF prevents them from doing so.
Money is being spent to make NZ less productive. In a terrible irony, WFF hurts Kiwi workers – the very people Labour claims to be the campions of.
Then of course there’s the fact that WFF was largely and election bribe anyway. But I think the points I raised above are more concerning.
Oh, and regarding the so-called “extra” taxes Australia pays – not once have I seen any analysis of how big they are and what they add to the Aussie tax burden.
Do you have the numbers? If so please share them with the class.
It’s a silly one-liner that Dr. Cullen uses (and I suspect that you’re just repeating) because he’s knows that no one will actually go and do the analysis. And even if you did it wouldn’t be applicable and it’s probably not that much anyway. For example, stamp taxes are a red-herring as they’re generally on property sales which most Aussies would only do a handful of times in their lives.
Taxes are lower in Australia. Everyone from the OECD to the RBA, to the RBNZ, to Boy’s Brigade knows they are lower – the numbers are there – you can’t just ignore them.
Why should National or any government for that matter be tasked with the job of lifting wages? It’s got nothing to do with a government. It’s a private matter between the employer and employee. I just signed a new employment contract and at 3.5% unemployment could virtually name my price. I didn’t ask Helen Clark or John Key what to do!
What governments can do is set an economic framework that allows for productivity increases that will allow wage growth. It is dangerous to talk about wage growth in isolation, it goes hand in hand with productivity increases.
It’s all well and good to talk about collective bargaining increasing salary and wages, but this extra cash for the plebs like you and I isn’t just conjoured up out of thin air – it has to come from somewhere else.
If we’re going to suck it up from business profits, that means there is less to be rolled back into capital-investment and, hence, improved productivity down the track.
Increasing wages can have the reverse effect. Often an increase in wages results in an increase in productivity as firms recognise the need for capital investment in order to make the most of their labour. Cheap labour is often an incentive to avoid capital investment (and investment in training/upskilling etc).
And there’s plenty of profit available to do this. Last year alone the NZX increased it’s value by 22% and there’s are more than one Australian shipping billion dollar plus profits out of NZ.
there’s are
Should read “there’s”
it’s value doesn’t need an apostrophe either. You’re slipping ‘sod…
Nice to know the lawyer market is so buoyant Gooner.
Tane,
1. Apart from its lack of units on the vertical axis, your graph doesn’t indicate whether it’s measuring income before tax or after tax. Given that you’re saying taxes have had no effect over the years shown, don’t you think that’s somewhat important? Don’t you think you should also show on the same graph the rise in tax levels over the years shown? Or would that confound the point you’re trying to make?
2. Given that you’re using the graph to indicate the difference between NZ and Australian wages, perhaps you’d care to track Australian take-home pay against NZ on the same graph, and then perhaps you’ll see why NZers have been heading to the ticket office in their droves.
3. Quite incredibly, you seem to imagine that there is no connection between tax levels and wage levels. Quite apart from the obvious connection between take-home pay and gross pay (a relationship your graph carefully skates over) you appear entirely unaware of the all too obvious connection between productivity — which is what grows wages — and taxes.
Excessive taxes and regulations tend to strangle productivity and wage rises that come from greater productivity. Minimal taxes and regulations tend to the opposite effect.
It would be ignorant to ignore that all too obvious point, don’t you think, and also to ignore the other all too obvious fact: that Australia has been the fortunate beneficiary of lower taxes on productivity than NZ, and as a consequence they enjoy higher wages than we do in this small authoritarian backwater.A s Paul Walker points out, the ratio of NZ tax to GDP has been increasing over the last 30 year: “In 1975 New Zealand’s ratio was 28.5%, in 2005 it was 37.8%. … What is more worrying is that the gap between New Zealand and Australia in terms of this ratio is increasing. In 1975 New Zealanders paid a bit less than 3% more of GDP in tax than Australians, while by 2005 the gap had risen to about 7%. Not a good look.”
Not a good look either to ignore all this in the hope you can distract attention by some graphic sleight of hand.
Tane
That graph again…. Is this the third time it’s been trotted out on this blog to make an attempt to prove Labour good – National bad”. The other thing your “logic” misses is that salaries and wages have been higher in Aussie for about 30 years, not just since National were required to rescue the economy from the train wreck Labour got it into during the late 80’s.
Peter Cresswell makes some very valid points, will you address them?
Another interesting thing about this graph is it shows how much Labour have shafted students in NZ. In 1992 the student allowance was set under the failed policies of the past at $150/Week. According to your graph that was probably about $50/week below the median wage. Now in 2008 it must be close to $350/week below the median wage.
The OECD disagrees with your statement that Australia pays less tax.
http://www.oecd.org/vgn/images/portal/cit_731/52/32/36366632TaxingWages_Chart_1_1.jpg
http://www.oecd.org/vgn/images/portal/cit_731/51/55/36366659TaxingWages_Chart_1_2.jpg
This is supposedly correct but NZ, which pays less tax and is easier to do business in, seems to be the exception to the rule.
burt, what actual policies do you think have caused the divergence between us and Aus?
Remembering back to the eighties and early nineties I recall articles in the economist saying that NZ had gone about the reforms a little rashly but had done so very purely. That is to say that we applied the economic theories better than places like say, Australia. We privatised more, we deregulated more, we leveled playing fields with atom bombs as it were. We floated and desubsidised, detariffed and let a thousand foodbanks bloom. They predicted this would serve us very well.
Unfortunatly we had a share market crash like everyone else, but it hit us a lot harder for some reason. Our market was sometimes described as a wildwest, though looking back it was more of a turkey shoot. Kiwis lost faith in the stock market and it has taken untill very recently for that faith to start creeping back. Somehow Australia who took a more measured and pragmatic approach has fared much better.
Talk to me burt. Particularly, talk to me abnout labour law and how Australia has differed in their approach over the last 20 yrs.
I’ve been collating dad4justice’s various accounts and IP addresses.
His persistent trolling with little content is starting to annoy me (and by the looks of it – everyone else).
So I’ve put a temporary moderation block on factors that identify him. This will remain in effect while I find or code a better solution, or he starts writing in a better style and with more sense.
Unfortunately this will lead to some other comments going into moderation. I will clear them as fast as they get notified.
I thank you for your patience over the next few days.
Lynn
Pascal’s bookie
One of the most noticeable differences between Aussie and NZ is attitude. In Aussie not everybody is equal. They are not all the same, participated is what is expected and achieved is a bonus, like we are in NZ.
Aussies still test their primary school children, something that is now optional in NZ. Aussie kids sports teams are still coached to win. Wealthy people are not denigrated as rich pricks and success is not sinful. Aussie rich pricks are taxed higher than rich pricks here and Aussie battlers are taxed less than Kiwi battlers. Go figure that Labour call themselves left wing!
Aussies still reward success and don’t praise failure.
I can talk at length about the differences between NZ and Aussie in the late 80’s. I was working there when Hawk was crying on TV about his fling and when Howard came to power. It was an interesting comparison between NZ then and Aussie and it still is interesting today. It’s not all about tax, it’s about opportunity and attitude as well.
Burt – why did you move to Australia? Why did you come back? Genuine enquiry (I’m not trolling here). I’m just interested if the decision was a purely economic one?
burt, thanks. What about policy?
Funny thing is I’ve spent a bit of time in Aus myself, and I study their media a lot in my work environment over here (I work for a transnational so I am in daily contact with many ockers as well) and the same complaints about political correctness are raised over there. Usually they compare themselves to the States in ways that we compare ourselves to them.
Do you think that what you consider to be Australia’s more left wing policies have contributed to their sucess? (I guess that was what my questions really were getting at). If not, why not? And if so, then why do you often criticise Labour for being more left wing than National?
The stuff about attitude seems like handwaving to me, unless you believe that economic policy does not matter. And if it does not matter, why oppose or support differrent policies?
Thanks again for the non troll response.
rOb
The decision to move was certainly a financial/economic one. The pay for the same role was substantially better and in the late 80’s the cost of living was very similar. Rents were comparable (10% more in Aussie at that time), public transport was much cheaper and oh so modern!. The decision to come back was inevitable family reasons in NZ.
Tax rebates for private education and private health care (both of which are available in Aussie – neither in NZ) are a significant policy difference between NZ & Aussie tax wise. The 0% income tax threshold in Aussie ($10K?) must also be a big draw card to minimum wage workers. It’s not just high earning National voter scum leaving the country for ‘take home pay’ reasons.
Pascal’s bookie
It’s flipping obvious that Aussies more progressive taxation system is what allows them to have such low taxation at the bottom end of the income scale and provide more livable welfare.
However it’s not just taxation rates, it’s thresholds and it’s also fairness of the taxation that is important. Few people would argue that earning circa $200K makes you a high earner in Aussie. Many many people would argue that earning $60K in NZ makes you a rich prick. Australia (a little bit like Norway) have actively managed their taxation rates. In NZ rates and thresholds have been static and targeted benefits have been the order of the day while the govt gets richer and people get poorer.
Interesting Burt. Pay is at the top of your list, and taxes way down the bottom. Your individual case certainly supports the point of the original post, that if we are concerned about the numbers leaving for Australia, it is higher NZ wages that we need.
And family reasons always bring us home. Thank goodness there is room in life for motivations that are not economic. ‘Night.
Thanks again burt.
I’m a bit confused about a few points, given other things you’ve written. But I’m tired. So there you go 🙂
I agree with you completely that thresholds should be indexed and taxation more progressive. I think National are worse on this issue.
I agree that people on 60k are not rich pricks. Some of them are poor pricks, some are comfortable pricks and most are not pricks at all.
I don’t agree that ‘Many many people would argue that earning $60K in NZ makes you a rich prick.’ I think that’s a straw man. Cullen was talking about Key, and Cullen is but one man in any case.
I think that when the govt runs a surplus ‘the people’ don’t necessarily get poorer. In fact, (leaving election year bribes from all sides to the side for a moment*), I fear that we may end up very glad that Cullen has been such a scrooge, given global economic trends.
*Aussie pollies are worse than ours at this as well IMHO. (do they have a Fiscal Responsibility Act?)
g’night
The pingbacks on here are getting interesting. For instance this debate over at The visible hand in economics – Migrant outflows to Australia, etc.
I had to engage my brain at a rather higher level than I usually do around here. Apart from anything else I had to leave a bookmark so I can find it again when I’m not quite so tired
captcha: scored repro
??
Ancient Greek i followed you link and now my brain is fucked
I blame you
captcha data antithesis
AG – bro that link’s just bullshit. Let’s talk about something serious. Like whether Insolent Prick fucks pigs or like how our democracy’s under threat. Burt? Are you out there Burty-boy?
Robinsod Some bastard is using your handle
What the fuck??? Where? I’ll rip ’em a new one…
Careful Robinsod, I think that the education is showing.
I must say it is more fun cutting loose occassionally.
Has anyone seen Michele recently…..
Care to comment on this allegation?:
http://www.kiwiblog.co.nz/2008/02/labour_promises_years_and_years_of_tax_cuts.html#comment-405209
[lprent – sure.
It means that some pathetic person didn’t read the post and probably doesn’t understand how wordpress and google operate.
The post argued that the higher wage level in aussie were more important than the differences in tax rates in aussie.
Either title would have expressed that. Tane obviously changed his mind after he pressed Publish, and changed the working title. Google scanned in the intervening period.
Since google is scanning this site almost continuously (measured in minutes between sweeps), it is hardly surprising that it might have a copy pre-update.
So would you like me to comment on my opinion of someone who finds this important?
Lynn]
Iprent/Lynn,
Do you enjoy drinking? Can I advocate that you do more of it? Your every comment bristles with an angry energy that cannot make you pleasant to live with.
I am uncertain of the chronolgy, but the following events occurred:
1. Post made under heading “Tax cuts not the answer”
2. Labour announces tax cuts
3. Heading changed
Surely you can see why that is of interest.
[lprent – I was answering the question that was implied in the link. How is it possible to change the title]
Hi Billy, as Lynn rightly suspected I changed the title immediately after pressing publish as I realised the second title – “Tax cuts and the wage gap” – was a better reflection of what I was saying in the post. If you read the post again you’ll see I said explicity said that “tax cuts are not the answer”.
It’s amazing what absurd and desperate lengths some people will go to to try and attack this blog.
What about my other point? Lynn/Iprent has turned into the angry little man of the Standard. Every thread you read lately, there he is, shouting at us in his angry black text, all defensive about the slightest thing. He sounds like a humourless bore.
[lprent – yes. I run the backend of the site – why would I need a sense of humour to do that? Just at present I’m looking at trolling.]
Billy that’s a question for Lynn, not me, but if you’d had to put up with the kind of personal attacks he has over the last few weeks I suspect you’d be a little annoyed too.
Oh Billy quick! I noticed at the visible hand they changed a title after I pointed out a spelling mistake. Goddamn lackeys. Go geddim tiger!
Yeah, ‘sod. Let’s pretend it’s about changing the title, rather thatn how and why the title was changed. Fuck me, I only asked the question. I am unprepared to die in a ditchover it. As it happened, Tane’s answer is a damn good one: the article says tax cuts are bad. I’m fine with that, so there’s no need for all the advanced ‘soddiness.
And as for Lynn/Iprent. I fear he’s taking himself too seriously. That last little ominous “just at present I’m looking at trolling” thing was creepily officious. He doesn’t get an invite to my fantasy bloggers’ dinner party. Despite his last hurtful comment, ‘sod does. He’s seated next to IP: I think there’d be a whole opposites attract thing happening.
[lprent – thats ok, I’ll pass. I’m known as being anti-social. For instance, as far as I’m aware I’ve only ever met one editor on this site, and that was over 6 months ago]
“For instance, as far as I’m aware I’ve only ever met one editor on this site, and that was over 6 months ago”
Fascinating.
He’s seated next to IP.
Oh yes please! Will there be steak?
I thought pork.
It’s ok to think it Billy.
Billy, Every sysadmin I’ve ever known has been somewhat grumpy (in their professional context). It’s something to do with dealing with lusers all day…