Finance Minister English to keep lid on public sector wages

Wednesday 21st January 2015

Finance Minister Bill English has warned public sector employees will face "restrained" wage increases as he tries to get the government books back in the black while contending with lower than expected inflation.

Government data today showed consumer prices fell 0.2 percent in the December quarter as plunging oil prices made petrol cheaper, in-season fruit and vegetables came to market, and consumer electronics were discounted at a higher rate. The annual pace of inflation slowed to 0.8 percent, just below the Reserve Bank's target band of between 1 percent and 3 percent.

The low inflationary environment that's gripping the world means New Zealand's economy can grow at a faster pace without the central bank needing to jam on the breaks with higher interest rates, and limits the need for employers to raise wages for their staff to maintain their standard of living. However, that also eats into the government's tax take, as a lower value of consumer spending erodes goods and services taxes while slower wage hikes damp income taxation.

"Wages are expected to continue to outpace inflation, but if inflation remains low the dollar value of future wage increases may be smaller than previously expected," English said in a statement. "This is particularly true in the public sector. Lower inflation means the government will have to work even harder to control its spending to get its books back in surplus, so public sector wages will remain restrained."

Last month, the Treasury pushed out its forecast return to fiscal surplus until the 2016 financial year as persistently low interest rates erode revenue from resident withholding tax, household consumption lags estimates, weighing on goods and services taxes, tepid wage growth keeps a lid on personal income tax, and a slump in global dairy prices eats into corporate taxation.

State Services Commission figures show an estimated 230,000 people were employed by the State as at June 30, 2014, of which some 45,280 full-time equivalents make up the core public service. Total Crown expenditure on personnel rose 2.8 percent to $20.48 billion in the year ended June 30, 2014, and core Crown personnel expenditure increased 3.2 percent to $6.23 billion in the year.

Private sector wages have been catching up with their public sector counterparts in recent years, with the labour cost index showing private sector wages and salaries up 8.4 percent between March 2010 and June 2014, compared to a 6.2 percent rise in the public sector over the same period.

The New Zealand Public Service Association, which represents about 58,000 workers across central and local government and in health boards and community groups, will be renegotiating collective agreements covering about 20,000 of its members this year, the biggest being in the district health board sector where multi-party agreements are in place. It's currently in talks with the Inland Revenue Department and will be negotiating with parts of the Department of Corrections.

Those collective agreements will be negotiated under legislation passed last year that overhauled the rules governing collective negotiations to remove the requirement that all non-union members are employed under a collective agreement in their first 30 days, let firms opt out of multi-employer agreements, remove the duty for good faith to require a concluded agreement, and allow partial pay reductions for partial strike action.

The public sector is much more heavily unionised than the private sector, with about 58 percent of state employees covered by collective agreements compared to the 9 percent of private sector staff.

In a 2012 Cabinet paper by former Labour Minister Kate Wilkinson, those changes were seen as enabling public sector employees to more effectively respond to protracted bargaining, and that "more efficient bargaining in the state sector will reduce costs for the government" with multi-party bargaining in particular able to be drawn out and become more costly.

BusinessDesk.co.nz

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