Labour’s two levels of minimum wage

July 2, 2014

BusinessNZ is not impressed by Labour’s intention to create two levels of minimum wage if it implemented its immigration policy:

The policy released on the weekend says low-paid migrants push wages down for New Zealanders, and a Labour government would make it compulsory for businesses to pay migrant workers at least the living wage, after accommodation deductions.

BusinessNZ Chief Executive Phil O’Reilly says having a minimum wage for New Zealanders and a higher minimum wage for migrant workers makes no sense.

“Whether it is called a living wage or any other name, it would basically be a higher minimum wage for migrant workers.

“The policy appears to be based on advice from a Lower Hutt church agency that promotes an arbitrary wage level without bearing accountability for that advice.

“This is hardly the way to make public policy.

“New Zealand’s skills shortage is a complex problem. It requires the education system to be delivering more needed skilled people. It requires students to be making more realistic study and career choices. In the absence of these, many employers are forced to seek migrant workers.

“Labour’s policy proposal to require higher rates of pay for migrant workers than New Zealand workers does not address our skills shortage problem and would create problems of its own.

The idea would create problems for workers and employers.

Local workers on one wage would rightly feel hard done by doing exactly the same work as immigrants but knowing they were paid less.

Problems employers already have getting enough staff willing and able to work would be exacerbated if immigrants were priced out of the market.

BusinessNZ sees other problems with Labour’s policy:

Labour’s new immigration policy would mean Immigration New Zealand would be given the power to make employers train New Zealanders before getting the nod to employ workers from overseas.

BusinessNZ says the policy released by Labour this weekend appears to convey employers are to blame for skills shortages in New Zealand.

BusinessNZ Chief Executive Phil O’Reilly says Labour’s policy is “wrongheaded.”

“What Labour’s doing is a bit worrisome because what they’re saying is they are going to be much tougher on employers.

“They’re saying you’ve got to skill up your workforce before you come knocking on the immigration door.”

He says the government needs to work with businesses to help solve the skill shortage.

“You can’t just train them all up in a week. Sometimes, no matter how much good work government does with employers and the likes in terms of training for some of those skills, they go overseas too.

“This is always going to be an issue, with the gap between the skills a business needs at any given time and what the skills system in New Zealand can deliver them.” . . .

Sometimes businesses can afford to take on someone and train them, sometimes they need someone already skilled.

Locals are usually the preferred option as it is because there’s usually extra administration involved in hiring immigrants.

But sometimes an immigrant will be more suited to the job than a local and employers don’t need more hurdles to jump before they can fill a vacancy.

New Zealand needs productive businesses to contribute to economic growth.

Their ability to do that will be compromised by Labour’s policy which is a thinly disguised attempt to limit immigration and looks like its been written by unions.


More tax, higher costs, fewer jobs

June 2, 2014

The Green Party plans to impose a carbon tax on us:

. . . Co-leader Russel Norman wants to scrap the current carbon pricing system – the Emissions Trading Scheme.

In its place would be a tax of $25 per tonne of carbon on industry polluters. . .

Critics of the tax claim the tax is a burden on households, who pay higher electricity and fuel costs.

However, the Greens say their levy would be offset by a ”climate tax cut” on the first $2000 of income. 

”We can reduce our emissions without hurting household budgets,” he said. ”Households will be on average $319 better off every year under the Green party policy.” . .

Imposing a tax with one hand and giving a tax with another won’t make anyone better off because the tax will lead to other cost increases on fuel, power and food which will passed on, in part or full, to consumers.

Agriculture – which is currently exempt from the ETS – would pay a reduced rate of $12.50 per tonne. This works out as an 12.5 per cent hit on farmers’ income. This includes 2 per cent on the working expenses of the average farm. A Berl Economics report, released with the policy, said dairying will be ”adversely affected.”

Dairying won’t just be adversely affected by the carbon tax, it will be hit by other Green policies too.

But it adds: ”However, at the currently projected pay-out for milk solids, even dairy farms in the lowest decile would remain well above break even in the face of an emissions levy.”

What happens when the payout drops to its long-term average which is well below the $7 forecast for the coming season?

What about the environmental impact of less efficient farmers in other countries increasing production because our produce is more expensive which makes it easier to compete with us?

And what about the poor people who will face higher prices for dairy products, power and fuel?

Other gas-emitting industries – such as electricity and road fuels – are less likely to be affected because they would be able to ”pass-on any production cost increases to households.” . . .

That will be the households whose earners will be getting a tax cut, the benefit of which will be less than the cost increases from the extra tax.

BusinessNZ Chief Executive Phil O’Reilly said the levy may threaten jobs. 

“Our approach should be unlocking business solutions rather taxing business more,” he said. 

As a “small open trading economy” New Zealand should participate in international emissions trading schemes.

Federated Farmers president Bruce Wills said the tax will make dairy farmers “less competitive” in international markets. . .

Less competitive means lower returns which means less export income which means less economic growth which means we’ll be less able to fund the first world education, health and other services we need.

However green they want to paint it, this is a red policy which will add costs, put downwards pressure on wages and threaten jobs.

Bernard Hickey told last week’s  Alliance Group Pure South conference that the election will be close.

He then went on to list the policies that farmers could expect to adversely affect them under a Labour/Green coalition with whichever other left-wing parties they’d need to govern.

They included: capital gains tax, compulsory KiwiSaver and water restrictions and charges.

Those are three very good reasons to vote National and the Green carbon tax is another.

And Steven Joyce points out some inconvenient truths:

 

 

 


Labour no longer champion of poor

April 30, 2014

Labour once claimed to be the champion of the poor.

The monetary policy announced by its Finance spokesman David Parker yesterday is further proof that it has strayed far from that because it would hit the  poor hardest.

Labour’s plan to use New Zealanders’ retirement savings as a monetary policy tool would hit low and middle-income New Zealanders hardest, and not achieve what Labour thinks it would, Finance Minister Bill English says.

“This idea mixes up people’s own retirement savings – which require certainty over a long period – with the Government’s monetary policy, which the Reserve Bank reviews and can change every six weeks. The two are completely different and should stay that way.

“Labour’s approach will force people to save at least 9 per cent of their wages, plus more when the Government decides to up the contribution rate. This cut in take-home pay would hit hardest those low and middle-income families who are unable to save much, or who are focusing on paying their mortgages.

“Our current monetary policy settings are considered world-best practice. In the last few years we’ve come through a domestic recession and a global financial crisis and now have sustained economic growth, increasing wages and jobs and interest rates are just coming off 50-year lows.

“Labour’s ‘tool’ is a confusing solution looking for a problem. This is wishful thinking and there is no evidence it would actually work. Even if it did it would  require Kiwi families to accept a higher cost of living and higher compulsory savings at the same time, which would be a double squeeze on them.

“Labour has a recent history of over-spending in government. It should commit to spending less itself, rather than forcing householders to do the hard work for it.

“Low and middle-income earners would be paying the price for Labour’s lack of discipline,” Mr English says.

Compulsory savings isn’t going to appeal to people who have little or no spare money to save.

Compulsory savings with a variable rate which means you could be forced to save even more of the money you don’t have to spare will have even less appeal.

The idea behind the proposal is to give the Reserve bank and alternative tool to interest rates for fighting inflation.

No-one with borrowed money welcomes interest rate rises but at least most people have some control over how much they borrow and how quickly they repay it.

When interest rates go up they could choose to reduce their debt.

With compulsory savings they would have no choice about how much they pay, and no choice about reducing the amount they had to pay.

Increases in compulsory savings rate will hit everyone but interest rate rises affect  a relatively small number of people directly: *

Only  26% of single families and 55% of couples have mortgages.

Then there’s the impact on wages.

Labour’s compulsory scheme would require greater contributions from employers over time.

When working out what they can afford to pay staff it’s the total cost not where the money goes that matters so a greater contribution to KiwiSaver accounts will leave employers with less for wage increases.

Rob Hosking explains why Labour’s big tool won’t work:

. . . The  entire policy rests on the assumption a lower interest rate will also lead to a lower exchange rate. This is by no means a given. . .

The second issue is more political.

Forcing people to save more is not a costless move for them. Someone on an average income who suddenly has another chunk of their cashflow taken out of their weekly income is going to feel the pinch. . .

Forcing people to give up something is going to be fraught with political difficulty.

When it to implementation you can expect a wave of applications for exemptions, and this can be expected to lead to an administrative catscradle  and a political tangle. . .

BusinessNZ  chief executive Phil Oreilly has concerns about the workability of the policy:

. . . The proposed policy would ‘mix the targets’, he said. Instead of a sole focus on inflation, the Reserve Bank would also have to focus on achieving a positive balance of payments, stable economic growth and stable employment. This raises the risk of not achieving some or all targets.

“New Zealand’s external balance is a result of a number of factors, including over-consumption, over-regulation and inefficient government spending. It’s hard to see how the Reserve Bank can be particularly influential in changing these.”

Mr O’Reilly said there was potential for uncertainty and confusion from having different levers over interest rates and KiwiSaver rates.

“While the Reserve Bank would apparently retain control over its existing interest rate lever, it would probably need to go to the Government for the power to use the KiwiSaver savings lever each time it sought to do so. This would not only slow down the Reserve Bank’s decision-making ability, but would undoubtedly introduce politics into the decision making process. All of this would potentially add a great deal of political uncertainty to New Zealand’s macroeconomic settings.

 “New Zealand’s current Reserve Bank system is scrupulously apolitical. That is why other countries have followed our lead in monetary policy.

“Labour’s policy brings the risk of a future government politicising what has until now been an apolitical process.

“Can you imagine a future Government agreeing to a Reserve Bank recommendation to raise KiwiSaver rates three months before an election? “ Mr O’Reilly asked.

He said restricting immigration numbers as a way to reduce house prices could have negative consequences, potentially leading to wage inflation and constraints on firms unable to gain the skills they need.

“The policy announced today makes little mention of the key role played by other government policies in reducing house prices and making our economy more competitive. We note for example the recent Productivity Commission report on housing affordability which pointed to the key role played by land supply constriction in increasing house prices. ”

There would also be more uncertainty about incomes as a result of the proposed policy, he said.

“Income earners would be uncertain as to whether or not their KiwiSaver or their mortgage rates might rise, or both. This would have impact on private sector wage setting. . . “

So the policy won’t necessarily achieve it’s aim which is to reduce the exchange rate.

It would threaten the political neutrality of the Reserve Bank.

It would also leave people with less money to spend and it would leave them with no certainty over how much they would have.

Even the best budgeters are used to unexpected expenses but in the normal course of events we can all expect certainty over income.

With Labour’s proposed Variable Savings Rates, we won’t have any certainty.

It would be like being subject to possible changes in tax rates every six weeks and it’s the poorer people whom Labour used to champion who will be hurt most by that.

* Hat tip Lindsay Mitchell

 


Why stop at $15?

February 25, 2014

Labour Minister Simon Bridges announced the minimum wage will increase from $13.75 an hour to $14.25.

 . . The Starting-Out and training minimum wages will increase from $11 an hour to $11.40 an hour, which is 80 per cent of the adult minimum wage.

“Setting these wage rates represents a careful balance between protecting low paid workers and ensuring jobs are not lost,” says Mr Bridges.

“The increase announced today balances the needs of both businesses and workers and will have minimal impact on the wider labour market and inflationary pressures.

“This increase will keep the minimum wage at around 50 per cent of the average hourly rate, which is the highest rate in the OECD.

“The Government is firmly focussed on growing the economy and boosting incomes. Through our Business Growth Agenda we are creating opportunities to help grow more jobs in New Zealand, for New Zealanders.” . . .

That nearly half those surveyed think that’s not enough goes to show most people don’t understand the issues.

The only sustainable way to increase wages is by economic growth.

Without an increase in productivity and profit, an increase in wage rates will result in a decrease in job numbers.

The Green Party doesn’t understand that.

The Greens would have immediately raised the minimum wage to $15 an hour, Green Party Co-leader Metiria Turei said today. . .

Why stop there?

“Around 125,000 kids live in families where the adults earn less than the living wage. It is in the government’s hands to end poverty for working families and improve the lives of those kids. . .

Those families get Welfare for Families through which those with two children pay no net tax until they earn $50,000. Any increase in their pay will reduce their welfare. That’s less money from public coffers but they’ll be no better off and could be worse off if jobs are lost.

That living wage is an arbitrary figure and last week’s increase in it was based on different methodology from the original figure:

The ‘new’ living wage has shifted the goalposts and appears to be more about politics than public policy, says BusinessNZ.

Last year the living wage campaign said $18.40 should be the living wage, calculated on the basis of the living costs of a family of four.

The promoters now say the living wage for this year should be updated to the higher rate of $18.80.

“But the report shifts the goalposts,” BusinessNZ Chief Executive Phil O’Reilly said.

“The increase from $18.40 to $18.80 is not based on the same methodology as last year.

“Using the same methodology, for the same family of four, would show the new living wage should really be $22.89.

“If last year’s formula said $18.40 was needed for a living wage, and the same calculations now show $22.89 is required, why isn’t the campaign seeking $22.89 an hour?” Mr O’Reilly asked.

“Either the original calculations were flawed, or the campaign is just picking numbers out of thin air.”

Mr O’Reilly said decision makers could not have confidence that the living wage figures were soundly based.

“This switch in the figures used is important for taxpayers and ratepayers who are being asked to pay for the campaign. Wellington ratepayers are now funding the living wage policy for council employees and taxpayers would be funding it for all government employees under Labour Party policy.

“There can be no confidence in a living wage proposal set on an arbitrarily changing basis.”

The whole concept of a living wage which decrees everyone should be paid enough to support a family of four, regardless of what the work they do is worth, is flawed.

For the record, all our staff are paid more than the minimum wage.

That’s a decision we make in negotiation with them taking into account their skills and experience, what they’re required to do, the value of all of that and what the business can afford.


LabGreen power plan would be worse

February 11, 2014

The LabourGreen power plan would be worse for consumers than the current system.

The electricity market in New Zealand is extremely competitive, with consumers able to switch retailers to gain lower prices, and more consumers using metering and home energy management systems to save more. But the electricity proposals of the Labour and Greens parties would be less able than the current market to meet consumer needs.

These are among the key findings of an analysis of the electricity market commissioned by BusinessNZ and undertaken by Sapere Research Group.

BusinessNZ Chief Executive Phil O’Reilly says it is valuable to get rigorous analysis on a sector that is complex and sometimes poorly understood.

“The electricity market was established in 1996 and has operated under changing rules since then. The research makes it clear that under the current 2010 rules, the electricity market is developing towards a highly competitive, well-functioning market.

“The electricity market’s greatest problem has been a lack of transparency around prices. Energy companies have not explained price changes clearly enough, and this has led to doubts about whether prices have been unnecessarily high in the past. BusinessNZ is recommending that energy companies ensure that the reasons for future price changes are meticulously itemised. We also recommend investigating whether we should have rules for information disclosure around price setting.

“The Sapere research also notes that a segment of the market may be experiencing energy hardship in having to spend too great a proportion of their income on house heating. BusinessNZ recommends investigating options for policies within the market and the social welfare system to help alleviate this,” Mr O’Reilly said.

Sapere found the electricity market is achieving positive outcomes against five key criteria:
1. Secure supply of electricity
2. Efficient operation and market transactions
3. Efficient investment in assets
4. Social requirements
5. Environmental requirements

Sapere also analysed NZ Power proposals (Labour and Greens policies) against the same criteria. Sapere concluded that these policies would be less able than the current market to meet the five criteria, and would not resolve transparency or energy hardship problems. . .

The Labour Green power plan would make the electricity supply less secure, lead to less efficiency in operation and market transactions, less efficiency in investment, poorer social requirements and poorer environmental requirements.

Rather than fixing any problems, real or perceived, it would exacerbate them and the people who would be most disadvantaged by the added costs and poorer efficiency would be those least able to afford them.

That isn’t unusual when ideology comes before practical considerations.

Key findings of the report are:

• Outcomes under all of the public policy goals are for the most part positive but there are some areas where more effort should be applied
• Security of supply has improved under the market, and investment in generation, transmission, and distribution assets is keeping ahead of demand without government subsidy or direction
• Retail electricity price increases have not been transparent enough
• There appears to be insufficient action to address energy hardship experienced by some consumers who live in houses that are too cold and damp
• The NZ Power proposal would be less able than the current market to deliver against the five goals, and would not resolve transparency or energy hardship problems

BusinessNZ recommendations:
• Retain current electricity market framework as superior to the alternatives across a range of desirable policy objectives

• Aggressively pursue net-benefit positive improvements to the efficiency of the current market arrangements by improving price transparency:
i. Investigate rules for information disclosure around price setting
ii. Fast-track Electricity Authority and MBIE workstreams on price transparency

• Confirm the nature and size of the issue of energy hardship, acknowledging that efforts by the electricity market will benefit those affected only marginally

• Implement options to aid those experiencing energy hardship, in a systematic, whole of-government way (including the appointment of a lead agency), such as:
i. Requiring landlords who receive state money to make their houses available for social housing to submit their houses to a ‘warrant of fitness’
ii. Replacing the poorly targeted Low Fixed User Charge with a better initiative
iii. Reviewing initiatives in health and welfare that can help address energy hardship

The full report is here.


WTO delivers

December 8, 2013

The World Trade Organisation has delivered:

The World Trade Organisation (WTO) has agreed on its first-ever global deal aimed at boosting commerce. Analysts say it could add $1 trillion to the global economy.

The agreement – reached in Bali after marathon negotiations between trade ministers from 159 nations – simplifies trade procedures and also makes it easier for the poorest countries to sell their goods by reducing export barriers and allowing such nations more scope to use subsidies to safeguard food supplies.

It is seen as an important step for the WTO, which has struggled to make new trade agreements since being founded in 1995, the BBC’s economics correspondent reports.

“For the first time in our history, the WTO has truly delivered,” says WTO chief Roberto Azevedo. “This time the entire membership came together. We have put the ‘world’ back in World Trade Organisation.”. . .

The core of the deal is trade facilitation:

. . . This is about reducing the costs and delays involved in international trade. It is often described as “cutting red tape”.

Some analysts suggest the benefits could be large. An influential Washington think tank has put the potential gains to the world economy at close to $1tn and 20m million jobs.

It also estimates the cost of administrative barrier as double the cost of tariffs.

The rich countries have agreed to help the poorer WTO members with implementing this agreement.

Another important aspect of the Bali package is about enabling poor countries to sell their goods more easily. This part is about tariffs, and also quota limits on imports.

Rich countries and the more advanced developing countries have agreed to cut tariffs on products from the poorest nations.

The head of New Zealand’s International Business Forum says a new global trade deal agreed by the World Trade Organisation (WTO) will mean cheaper and faster exports.

International Business Forum executive director Stephen Jacobi says exporters’ goods will be fast-tracked through international customs as the facilitation part of the deal cuts down on red tape for traders.

“The main benefit of this agreement is that it will become easier and faster and cheaper to move goods around supply chains, to export our goods around the world, and indeed to import our goods from other countries.”

Business New Zealand chief executive Phil O’Reilly says the WTO deal will boost the confidence of trade ministers meeting in Singapore to try to reach agreement on the proposed Trans-Pacific Partnership trade deal.

The deal marks the WTO’s first global trade agreement since it was created in 1995 and follows years of failed attempts to secure the required unanimous approval from all its members. . . .

British Prime Minister David Cameron says the deal could be worth more than £1 billion a year to British businesses and £70 billion globally.

“. . . By slashing barriers to trade, this deal will also provide a lifeline to the world’s poorest people. Helping developing countries to grow is not only the right thing to do, but it also increases potential markets for us all. So this really is win-win and the World Trade Organisation is to be commended for this historic deal.”

Trade restrictions mean people get less for what they produce and pay more for what they consume and this hurts poorer people and poorer countries hardest.

Freer trade is fairer trade and poorer people and countries have the most to gain from it.


Boardrooms back Bill

July 25, 2013

Finance Minister Bill English has won well-deserved praise in the Herald’s annual Mood of the Boardroom  CEO’s survey.

Finance Minister Bill English has emerged as the hidden “star” of the Key Government pole-vaulting boss John Key for the second year in a row to emerge as the highest rated Cabinet Minister by leading chief executives.

“Bill English has really been an exceptional Minister of Finance,” said BusinessNZ CEO Phil O’Reilly. “He has been sober, boring and sensible but the macro settings have been just right. He deserves more credit for that.”

English’s “Southland determination” to get the country’s books back into order and “dour, no-nonsense personality” are cited by chief executives as making him the perfect foil for a populist prime minister. “He can just get on with the business,” said a financial markets chief.

The Herald’s 2013 Mood of the Boardroom CEOs Survey, in association with BusinessNZ, found widespread support for English’s management of the economy. . .

This matters.

Businesses which have confidence in the government and the direction in which it is taking the country are more likely to make the investments which boost economic growth and crate jobs.

The Finance Minister’s ability to deliver on his aim to post a Budget surplus in 2014/2015 has been buoyed by growing taxation returns off the back of stronger corporate profits; the proceeds of the partial privatisation programme and a determination to keep government spending under control.

In his post-Budget speech to the Trans Tasman Business Circle John Key spelt out how he would like New Zealanders to remember his government. Key said if the Government can achieve a step change in New Zealand, “in years to come they will say ‘I think that it held its nerve and fundamentally guided us through the global financial crisis and the Christchurch earthquakes and it set the country up to grow during a period of dramatic change in Asia’ and that is going to be a far bigger gift.

“New Zealanders will have jobs and families will have independence.”

That is a legacy every government should aspire to leave.

Seventy-two per cent of chief executives responding to the CEOs survey agreed that the Key-led Government has achieved that positive legacy; 9 per cent said No and 19 per cent were unsure. . .

“Most New Zealanders will not realise until much later what a great job Messrs Key, English and others have done steering New Zealand through the challenges of the last few years,” added First NZ Capital’s Scott St John.

“The way they have protected NZ households by maintaining fiscal discipline and keeping interest rates low has been very important.

“Amazing that we have come through the Global Financial Crisis with a short recession, low unemployment, Government debt at under 30 per cent, credit ratings OK and earthquakes,” added a wholesale trade CEO. “Overall it is impressive stuff. . .

It needs at least one more term to bed in the progress and achieve more.


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