Labour’s wage reduction policy

October 27th, 2011 at 4:12 pm by David Farrar

The other part of Labour’s policy is to make compulsory and lift the employer contribution from 3% to 7%. This is dumb for two reasons.

First of all it removes all flexibility and choice for employees. They may wish to pay their mortgage off rather than pay into KiwiSaver. National’s policy opts then in, but allows them to opt out. will remove any choice from the employee. They may wish to save to start their own business, but knows best and will force them into a default KiwiSaver fund – one which incidentally has the fund fees chew up close to 50% of the income in the first few years.

The decision to lift the employer contribution to 7% flies in the face of their campaign for higher wages, and helping struggling families. Most Labour MPs have never been in business, but let me explain how things work. Employers factor in the total cost of labour when they make hiring and pricing decisions. For example in my business I don’t just work out my labour cost as someone’s hourly rate. I add on 8% for holiday pay, 2% for ACC levy, 2% for KiwiSaver costs. So if someone is on $25 an hour the cost to the employer is really $28.10. One might factor in public holidays and sick leave also.

Now if you lift the employer contribution to 7%, it will mean that pay rises in future will be smaller, because otherwise the total cost of labour gets inflationary. Anyone who thinks this won’t happen, is not an employer I suggest. So what Labour’s policy will mean is that over the next few years employees will earn up to 4% less than otherwise would be the case. No, not every employee, but on average. So this is in fact a policy to reduce wages.

The other impact of their policy will be on jobs. You put up the cost of labour, and there are less jobs. Well in this dimension anyway.

UPDATE: Labour admit their policy will lower wages:

We recognise that the 0.5 per cent annual increase in the employer contribution could be taken into account as part of wage negotiations.

So Labour are officially campaigning for lower wages.

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41 Responses to “Labour’s wage reduction policy”

  1. Falafulu Fisi (2,176 comments) says:

    The other part of Labour’s policy is to make KiwiSaver compulsory and lift the employer contribution from 3% to 7%. This is dumb for two reasons.

    Who’s money is it anyway that Labour is dictating to the unwilling citizens who don’t want to participate? Is it Trevor Mallard’s? Is it Phil Goff’s? Is it Clare Curan’s? If the asnwer is no to all, then who the fuck are these clowns who think they have the rights to dictate to citizens of what they should do with their own money (property – intangible financial assets). Who gives them the fuckn right to do that? Umm! I think that Pete George knows better. The money earnt by citizens is not theirs really, because if it is theirs, then there should be no one decreeing to them that they should join Kiwisaver via coercion (compulsory) by the state.

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  2. s.russell (1,486 comments) says:

    Typical Labour: make someone else pay for it. In this case those evil entities that employ people.

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  3. smttc (638 comments) says:

    Stick = compulsion. Carrot = employer 7% contribution.

    Stuff the bosses and win the votes of the masses at the same time. Oh wait. No extra money from the employer?

    Like I said before on another thread, these clowns think they are being clever. But they aren’t. More dumb policy from Labour.

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  4. Nichlemn (63 comments) says:

    So what Labour’s policy will mean is that over the next few years employees will earn up to 4% less than otherwise would be the case.

    I hope this means you understand that the incidence of this change isn’t going to fall entirely on employees. Both claims that taxes and costs “stay where they were targeted” or ” all get passed on” are inaccurate. Instead, the elasticities (responsive to price changes) determine this.

    Incidentally, if you’re claiming they do all get passed on, then your other claim that it will reduce the supply of jobs is inconsistent. If an increase in the cost of labour is all passed down to employees, then it hasn’t increased for employers at all.

    [DPF: I agree with you. That is why I said up to. It will result in somewhat lower wages and somewhat fewer jobs but not the full extent for both]

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  5. Eisenhower (134 comments) says:

    I seem to recall Luigi’s referendum in 1997 where 91.8% of voters rejected compulsory retirement savings, yet Labour now thinks its a vote winner?

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  6. somewhatthoughtful (437 comments) says:

    Fucking labour radicals and their never before tested policies. Communists the lot of them, I mean this stuff is straight out of australia, oh, I mean Stalin’s USSR.

    Oh I mean what? Labour are wanting to privatise superannuation, and you guys have a problem with that. Christ, I’ve never seen people so willing to give up all their principles just because someone they didn’t like came up with the idea.

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  7. ross (1,454 comments) says:

    I just saw Goff on Close Up. John Key and Bill English wouldn’t front. Gutless?

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  8. toad (3,654 comments) says:

    Yeah, you have a point DPF. We should go back to the previous law which prevented employer Kiwisaver contributions being taken into account in employment negotiations – the Green position.

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  9. Pauleastbay (5,030 comments) says:

    Ross
    John Key and Bill English wouldn’t front…………………

    They would the ones running the country mate, Phil has a lot of time on his hands at the moment and a lot more after 26 November.

    Piss poor troll anyway Ross you are being really sad lately

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  10. Jimbob (639 comments) says:

    Goff was just on close up describing his new policy. He described John Key as narcissistic.
    He also said we owe more than we own. How dumb is this prick?

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  11. RF (1,131 comments) says:

    Ross.

    Nah. Waste of time fronting with Goof who will not be here after the Election. I can see the Greens taking over Labours second place in the house.

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  12. Grendel (875 comments) says:

    nice to see the greens admitting they are just a bunch of interfering hacks.

    what business is it of the states how i negotiate wages with my employees or employers?

    how dare you commies think you can somehow ban me from taking kiwisaver (or any other benefit) into account when negotiating. its a retarded attempt at price fixing. if you are on 50K, plus kiwisaver then your total salary package is at least 51K (once you add in ACC, holiday pay etc). if i can only afford to employ you at 50K then i need to pay you only 49K in wages and the rest in kiwisaver.

    running a small business should be mandatory for anyone who thinks they want to be in parliament. its clear from labours and the greens that they have no idea how money is made and what running a business is actually like.

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  13. SPC (4,670 comments) says:

    Is this post written by David Farrar as a person voting National this election and in support of others doing so or by David Farrar the person who supports replacing tax paid Super with compulsory Super – and compulsory individual contribution super funded by employees and employers – that have an impact on after contribution disposable income and wage levels.

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  14. bhudson (4,720 comments) says:

    ross,

    “I just saw Goff on Close Up. John Key and Bill English wouldn’t front. Gutless?”

    John Key made it quite clear that he will only enter into a televised debate with the leader of a MAJOR party. It is entirely consistent that he didn’t appear…

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  15. Psycho Milt (1,979 comments) says:

    You’d think National’s spokespeople wouldn’t be keen on raising the matter of wage reduction, given the drop in real wages they’ve overseen. I guess the big question for voters is whether Labour would reduce wages more than or less than National – difficult to predict, but my money would be on “less than.”

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  16. reid (15,585 comments) says:

    Labour are officially campaigning for lower wages.

    Which would make a brilliant attack billboard, if only the innocent little Nats had the capacity to conceive, design and implement such things.

    If the roles were reversed, right now Mallard would be beavering away with his minions designing it ready for insertion at all the major traffic choke points in time for tomorrow’s rush hour.

    But no.

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  17. alwyn (359 comments) says:

    Ross at 7.15pm
    You must have been watching a different Close Up than I was
    The bearded gnome took great delight in saying that they REFUSED to have Bill English appear for the National party.
    He rabbited something about only having equivalent people and that TV1 would alow John Key or no-one.
    I notice they wouldn’t exend that to putting on Russell Norman, or Don Brash or Winston Peters etc etc.
    They are surely the equivalent of a minor party leady like Phil Goff aren’t they?

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  18. RF (1,131 comments) says:

    I am noticing that left wing trolls are spreading their filth on right wing blogs. This is a waste of space but in contrast to the paranoia displayed by their left wing blog moderators who would not tolerate this type of posting on their pathetic sites

    What are they going to do after the 26th November. Anyone got a spare cliff !!!!

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  19. Keith Ng (22 comments) says:

    Yes David. Instead of getting wage increases, they’ll get money deposited into a KiwiSaver account with their name on it. It’s the same amount of money.

    That’s the point of compulsory saving schemes.

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  20. burt (7,091 comments) says:

    Keith Ng

    For sure, but with the same amount of cash in their pay packet next year they can just borrow a bit more to pay the bills that keep going up each year. Brilliant Labour policy, make them borrow more today so they can have a brighter retirement cashing in their KiwiSaver to pay of their credit cards.

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  21. side show bob (3,660 comments) says:

    Have these feckless fucks ever had a policy that doesn’t intrude into our lives or conspire to take more of our wealth? Commie scum.

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  22. bhudson (4,720 comments) says:

    Yes Keith. So instead of getting money now that they can use for things like paying off their mortgage, property maintenance, vehicle maintenance, additional education tuition, extra curricular activities for their children and so on, they will instead have their wage increases taken from them and locked up by nanny Labour.

    In short, instead of being able to improve their standard of living in the now, they will finally be allowed to have their own money in 30 or 40 years time. That’s a fat lot of good for them while they are working and facing far larger expenditure raising their family.

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  23. burt (7,091 comments) says:

    ssb

    No. If we have our own cash in our hands to start with then we don’t vote for more welfare.

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  24. Nick K (918 comments) says:

    So what do all the National Party acolytes on this blog think of National’s announcement today of more free visits to doctors for under 6′s?

    Typical Labour policy that.

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  25. burt (7,091 comments) says:

    bhudson

    Also the growth in their KiwiSaver is almost certainly going to be less than the cost of the borrowing they will need to do to keep the bills paid. But Labour know this – nothing makes a socialist feel better about being in govt than having the state rich and the people poor.

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  26. bhudson (4,720 comments) says:

    Furthermore Keith, as Labour are good Keynesians, they embrace some extra inflation for the good of reduced unemployment. So while inflation continues to canter along, their worker constituents will have their wage increases diverted off to long term savings instead of being available to keep them abreast, or ahead of, inflation. Labour will have to do more than remove GST from fruit and veges to keep their core voters from sliding backwards

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  27. burt (7,091 comments) says:

    Nick K

    Isn’t that ‘vote for me’ Winston policy ?

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  28. bhudson (4,720 comments) says:

    burt,

    I think it is very easy indeed to promise over $9bn worth of spending [additional borrowing] when you know you’re not actually going to have to do it…

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  29. Nick K (918 comments) says:

    Aw Burt, it’s *only* $7million.

    But that’s a further $7million we will all owe the government

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  30. burt (7,091 comments) says:

    bhudson

    You clearly don’t have faith that Labour can spend more and borrow less…. Look all they need is a secret mini budget after the election and all the economic woes will be gone… that’s what they told us in 2008 and they must be planning that again because apparently National are borrowing way too much already so there is no way Labour would borrow $9b more than what they already bag National for.

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  31. bhudson (4,720 comments) says:

    burt,

    I have complete faith that Labour can borrow more than any of us can afford.

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  32. BeaB (1,958 comments) says:

    Did Goff ever sell his Wellington property as he promised he would?

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  33. reid (15,585 comments) says:

    It says a lot for Liarbore that in this election, when focusing hard out on policy to the exclusion of popularity which I love, still manages nevertheless to miss the obvious fact that you can’t simply just whack 7% KiwiSaver contributions onto an employer, if you are a serious player in the NZ hard-reality political arena. Which Labour claims it is in (and that is the last time I’m EVER using Liarbore’s proper spelling, cause it’s over. They’re idiots, period.) (Unless I’m on RedAlert.)

    If Liarbore was ever going to shaft Key, it’s in his home territory, and they already have their working class base with the Capital Gains policy, so they need business-friendly as well, to expand their dem. That would shaft Key since he either competes or dies.

    But instead, in their first major economic salvo of this critical campaign, when they deal an extremely strong hand – policy, policy and nothing but – they also irrevocably switch off Key’s base as well. When they could have kept it open.

    Fuck don’t know about anyone else, but personally I’m real sick of the only Opposition in town being Liarbore. They just let Key get away with it. And Key needs to grow some real serious economic balls, real quick.

    But point is: elementary, irrevocable, probably fatal strategic blunder by Liarbore at the very beginning of the campaign.

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  34. reid (15,585 comments) says:

    Isn’t that a shame.

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  35. KH (686 comments) says:

    I don’t support Labour.
    And I am an employer. Like DPF, I guess, it’s a service industry where the majority of costs are wages.
    But I do support a serious rise in Kiwisaver contributions.
    Don’t matter if it is employer money or employees. Whatever way it’s done, in the long run it will impact both.
    Yes it will be a reduction in disposible incomes etc
    But in the end somebody will pay for the living costs of the elderly. It’s going to come out of somewhere
    And currently it’s tax. So it pushes our tax up right now.
    Kiwi up — means tax down. In the long run.

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  36. s.russell (1,486 comments) says:

    KH,
    How about increasing employer contributions and matching the increase with reduced income tax. Can’t be done now – there’s no money in the kitty – but in 5 years time it could be done, and it would substitute for cash that would otherwise end up spent on the ever-swelling state sector. Win-win.

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  37. SPC (4,670 comments) says:

    Those concerned about the impact on families struggling on low disposable incomes will be happy to here that the policy is part of a package that includes an increase in the minimum wage to $15 an hour – this places upward wage level pressure in the jobs that are rated in the employment market as at a premium to this level. And of course any Kiwi Saver funds can be withdrawn for a home deposit.

    And yes the fact that families find it difficult to cope let alone save in their high cost years is why we have WFF.

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  38. TM (78 comments) says:

    At least Labour are putting some long term policies in place, even if there are a number of holes. National continue to stick their head in the sand over key long term issues. With the popularity they have they can afford to make some hard calls for the good of the country. There seems to be too much concern about upsetting the “man of the people” appeal of JK.

    I want National to govern the country after this election (who else is there?), but until they grow some balls and at least have some policy in this area, I don’t want to see them get a majority of seats and I will vote accordingly.

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  39. Rich Prick (1,323 comments) says:

    Given that the average Maori male dies at 70, Labour wants to keep them in work (which face it, is more likely for most to be manual labour) they may not be capable of through to age 67. That’s a form of genocide really. Wouldn’t it be nicer for the “worker’s Party” to be kinder on the workers? Or is Labour really actually the death-star to its constituency? I hate to think what this policy will mean for ACC.

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  40. KH (686 comments) says:

    …..to S Russel at 10.56 yes. pretty much what I think.
    …..to DPF. I guess what I want to say about your post is that it is one sided party sniping. Not useful. My view on Labour is the old stopped clock analogy. It’s going to be right twice a day anyway. I don’t support Labour but occasionally through no brain of it’s own, it might be right.
    National Super does need to go. It might take decades to wind it down as Kiwisaver (compulsory for all and about 15%) comes into progressively into force. As an employer myself I realise it will cost me. And it will cost the employees. Yes immediate consumption will be affected.
    As for the 65 age thing. The age will be irrelevant as we abandon National Super. Perhaps the only thing that might remain is an absolutely bottom of the heap, welfare safety net. Hopefully little used. And it doesn’t matter then about the age. Might be universal for all ages.

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  41. burt (7,091 comments) says:

    KH

    So for 2 nano seconds a day you will happily have the setting wrong for the other 23.9999999 hours. You must be a Labour supporter.

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