The increase in the minimum wage costs jobs:
Confirmation that the Government’s unbalanced minimum wage rise could cost 17,000 jobs and lump taxpayers with a $125 million bill is an alarm bell for small businesses, National’s Workplace Relations and Safety spokesperson Todd McClay says.
MBIE’s recently-released Minimum Wage Review 2019 reveals the Labour-led Government’s proposed change to $18.90 per hour on April 1 will cost the economy 6500 jobs and increase Government expenses by $62m a year, as well as drive up inflation.
Moving to a $20 an hour minimum wage by 2021, which the Government is proposing, could cost the economy 17,000 jobs and increase expenses by $125m a year.
“The minimum wage changes will see small businesses struggle more at a time when the Government should be supporting them, not working against them,” Mr McClay says.
“The Government is making it harder for small businesses to employ people, harder for them to invest in training and development, and harder for them to get ahead.
“These projections could prove to be much larger if our economy continues to slow and the labour market weakens, as it has already under the Labour-led Government.
“Everyone wants high wages for workers, which is why National increased the minimum wage every year in Government. But we believe the minimum wage should go up in a balanced way that doesn’t go too far, too fast.
Employers expect modest increases in the minimum wage but this government’s fast-tracking bigger increases is too much too quickly, at too high a cost.
“Hard-working Kiwis are already doing it tough because of the Labour-led Government’s poor policies, which are driving up the price of petrol, rent and other living costs.
“The best way to put more money in workers’ pockets is to let them keep more of what they earn. What good is raising the minimum wage if workers are being taxed to the eyeballs?”
Would tax cuts be better than increasing the minimum wage?
An orchard owner in Central Otago is rallying against minimum wage increases, arguing reducing the income tax of a portion of low-wage earners would help them more and do less harm to small businesses.
But a tax expert says it makes more sense to give low-wage earners more social support than to ‘‘tinker’’ with the tax system. . .
The business owner said she did not want to be named out of concern people might react angrily to her view the minimum wage should not be increased.
‘‘I’m all for people getting more money in their pocket.
‘‘The Government needs to look at how they can ensure lower-paid people get more in their wage packet, without damaging especially smaller companies.
‘‘What is the point of more money in a pay packet if the result of that is that it is going to cost jobs, and it gets swallowed up by higher prices for the basics, like fuel and electricity and rents and groceries?’’
Wage rises are a cost to business . If they’re not at least matched by a gain in profit businesses have to increase prices to compensate. That feeds into the economy and soon eats into any increase in pay. If people are paid more but have to pay more for goods and services they’re no better off, and if there are fewer jobs those who lose, or can’t get, a job are worse off.
She said she had a better idea of how to get more money to low-wage earners.
‘‘If they’re going to up wages all the time why don’t they bring the PAYE [rate] down?
‘‘Lower-paid people can have an immediate solid increase in their take-home packet.’’
If you follow the principle of less tax on things we want to encourage and more on things we don’t, tax cuts on wages is good. The trouble is most lower to middle income people pay little or no net tax.
Tax specialist and managing partner at Findex in Dunedin Scott Mason said he had a lot of sympathy for business owners struggling with the increasing cost of wages.
He agreed with the orchard owner the increase in minimum wages could lead to employers not hiring new staff.
‘‘They’ll defer taking an employee on for a longer period of time. Which then has a counterintuitive impact on the economy, accepting of course we’ve got pretty full employment at the moment.
But reducing the income tax low-wage earners paid was ‘‘tinkering with our overall tax settings’’.
‘‘The reality is those on minimum wage — when you take into account their tax rate and their social benefits — aren’t generally net taxpayers anyway.
‘‘We’re basically using the tax system, the people who are net taxpayers, to subsidise [low-wage earners] further.
‘‘It may or may not be right — it’s just a much wider debate is the point I’m making.’’
He said it would be a better idea to increase social welfare to help those more in need.
‘‘If you were going to use the tax system to do it, you’d be better off tinkering with the likes of Working for Families or those sorts of things rather than changing tax rates.
‘‘If you change the tax rate then it affects all taxpayers.’’
If you increase WFF it affects all taxpayers too because that’s who pays for it.
What we need is increased productivity and profits and a reduction in business taxes could help that.
That in turn could lead to sustainable growth in the economy which would, in time, lead to sustainable increases in wages.
That would be much better than wage increases by government decree which have nothing to do with the value of the work employees do, nothing to do with a businesses ability to pay that additional cost and a lot to do with job losses.