The cost of just one promise

September 3rd, 2013 at 11:00 am by David Farrar

Tracy Watkins at Stuff reports:

Key said yesterday the “” promise was “unbelievable”, and a “back-of-the-envelope calculation” put its cost at $2.5 billion if rolled out to all low-paid workers, or $68 million a year if implemented just within the core public service.

Economists had also estimated it would cost 26,000 jobs, because of the extra cost to business.

And that’s just one policy!

Someone who earned $13.75 an hour working 40 hours a week with three children would pay $4000 a year in tax on an income of $29,000. But they would get about $23,000 a year back in accommodation supplement and Working for Families payments.

The living wage calculations by the Anglican Church are unsuitable for application across the board as a minimum wage. They are based on an employee having a certain number of children. Not all employees have children, in fact most don’t. A 17 year old cleaner doesn’t need $18.40 to live on. Hell many university graduates start on less than $18 an hour.

The Dominion Post is unimpressed with the three candidate’s mad rush to the far left:

Well that didn’t take long. Labour’s American-style primary contest is only days old, but already it is apparent that in terms of policy none of the three contenders for the leadership has any more to offer than the departing David Shearer.

Caucus favourite Grant Robertson’s big idea – one quickly signed up to by party champion David Cunliffe – is to introduce a living wage of $18.40 an hour for all government workers. Meanwhile, Shane Jones, the outsider in the contest, is threatening to pass laws to regulate how much supermarkets can charge for food.

Both ideas sound great. Who doesn’t want lowly paid workers to get greater reward for their efforts? Who wouldn’t welcome a reduction in food prices? The problem is that neither proposal is remotely deliverable.

Labour’s leadership candidates are employing the rhetoric of old-fashioned class warfare. Soak the rich to feed the poor. 

I don’t know why the three of them just don’t come out and say they are deporting all rich pricks, confiscating their wealth and declaring poverty to now be illegal!

Mr Robertson will say his proposal applies only to government workers and contractors, but limiting its application only creates inequities of another sort.

Why should a cleaner mopping out a privately owned building earn several dollars an hour less than a cleaner vacuuming a government building? Why should a worker in a privately owned rest home receive less government support than would otherwise be available, because the Labour Party has decided to advantage a subset of all workers.

Oh I can answer that one! So the unions will vote for them to become leader.

Mr Robertson and Mr Cunliffe may also point out that their proposal is to introduce a living wage “over time”. However, the caveat either renders the proposal meaningless or recklessly irresponsible. Meaningless, if by “over time” they mean the amount of time it would take the minimum wage to rise to that level under the present system. Recklessly irresponsible, if they are actually intent on establishing an elite class of privileged workers.

New Zealand is a global price taker, not a price setter. The country prospers when it is nimble and flexible. It suffers when it is rigid and flat-footed.

Governments can no more raise living standards by decreeing higher wages, than they can by telling supermarkets how much they can charge for a leg of lamb or a box of cornflakes.

If Messrs Robertson, Cunliffe and Jones are serious about running the country, they should advance serious policies.

Their decision to have a US style primary has meant they are captured by the unions and activists, and hence we now have a US style pork barrel competition.

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36 Responses to “The cost of just one promise”

  1. Graeme Edgeler (2,972 comments) says:

    Their decision to have a US style primary has meant they are captured by the unions and activists, and hence we now have a US style pork barrel competition.

    This is not a “US style primary”. It is a UK style leadership election.

    [DPF: Uk borrowed it from US]

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  2. flipper (4,332 comments) says:

    Meanwhile in Australia, the lucky country….. Roy Morgan reports this morning (remind me about NZ’s stats):

    ****
    170,000 jobs lost in August but unemployment steady at 10.1% as workforce shrinks by 186,000 to 12,377,000 ****

    Is this where Labour / and the Red melon Commissars wish to take us ?????

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  3. MT_Tinman (3,322 comments) says:

    I can’t figure out all this “living wage” type talk.

    Surely all they have to do to get the “union” vote is guarantee a large increase in wages for all union employees.

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  4. flipper (4,332 comments) says:

    GE…
    Please stay with electoral law. Your comment on this issue is gratuitous..

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  5. somewhatthoughtful (472 comments) says:

    Hidden due to low comment rating. Click here to see.

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  6. bhudson (4,741 comments) says:

    If Messrs Robertson, Cunliffe and Jones are serious about running the country, they should advance serious policies.

    Except right now they are just serious about running the Labour Party. Serious policies would be a major barrier to gaining that prize.

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  7. Kea (13,571 comments) says:

    Socialism does not work. That is not an ideological statement, it is simply an observation. If it actually did work I would support it. But the sad fact is it has bought nothing but a bleak grey despair where ever it has gone. I am not saying capitalism is perfect, but socialism is not the only alternative.

    The choices are not limited to the traditional capitalist/socialist divide. That is simply a limitation of imagination, not of choice. Labour need to put people ahead of their ideology. Something the left struggles to do. Outcomes are what matters, not ideas.

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  8. BeaB (2,164 comments) says:

    I still cannot understand why no woman stood.

    Why are we confronted with these three self-satisfied, self-important men with their sixth form debating skills?

    John Key must be smiling in his sleep at the thought of next years debates.

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  9. JeffW (327 comments) says:

    Somewhatdim, I guess you are aware that the funds received from the sale of shares in SOEs can be used by government, whether to pay down debt or for more wasteful spending (which I suspect you are in favour of). There is no net cost, apart from float fees, to government of selling SOE shares, merely a balance sheet change from one form of assets (shares in Mighty River, for example) to another (cash).

    The method of installment payment for shares is not unheard of and if I recall correctly was done when Sky City floated.

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  10. JeffW (327 comments) says:

    BeaB, regrettably it is not about the quality of the internal debate or policies, it is about the quality of the MSM and of the electorate, so the three stooges may well be on to a winner.

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  11. scrubone (3,097 comments) says:

    At this rate, this exercise may actually do more damage than Shearer did!

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  12. Graeme Edgeler (2,972 comments) says:

    Please stay with electoral law. Your comment on this issue is gratuitous..

    I wouldn’t have made the comment on someone else’s blog, but DPF knows better :-)

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  13. dime (10,215 comments) says:

    “Shit David, they’ve got you scared to be spinning this hard.” lol the classic line.

    im not sure how repeating loony policies is spin?

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  14. Psycho Milt (2,427 comments) says:

    Key said yesterday the “living wage” promise was “unbelievable”, and a “back-of-the-envelope calculation” put its cost at $2.5 billion if rolled out to all low-paid workers, or $68 million a year if implemented just within the core public service.

    Which means the actual cost would be somewhere between Cunliffe’s $25 mil and Key’s $68 mil. Not a big deal, in other words.

    I also liked Key’s citing of the popular right-wing reductio ad absurdum for minimum wage arguments: “If you can legislate at $18.40 a hour and have no implications, why not make it $30 an hour…”

    To fully savour the stupid, consider the opposite reductio ad absurdum: if lower minimum wages increase employment, why not make it $1 a day? Uh, duh-uh.

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  15. beautox (409 comments) says:

    Seems to me that the problem of the living wage is not just that the cleaners, etc, have their wages raised to $18 per hour. What happens to the head cleaner who say currently earns $17ph. They will not be happy with $18. They’d want the same sort of percentage increase that their underlings got. So their wage would have to rise to $22.25 ph. Then the supervisor earning $22ph is not happy…

    This effect goes up the whole structure of the company – bookkeepers object to being paid less than secretaries, middle managers object to being paid less than lower level managers.

    So you end up with an across-the-board pay increase of 30%. Unless you are one of the unprivileged workers.

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  16. Kimble (3,955 comments) says:

    If one candidate broke from the bunch and appealed to the centre they would win easily.

    As soon as the rest of the party saw how much that “maverick” appealed to the public, they would embrace the one chance they have for seeing power again this decade.

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  17. Kimble (3,955 comments) says:

    if lower minimum wages increase employment, why not make it $1 a day?

    Because nobody would work for $1 per day, so it would be a meaningless gesture.

    They would either stay on the benefit (you would love that) or there would be enough demand that they could bargain for more practically anywhere else.

    You might as well have said, “Why not reduce the minimum wage to -$50!!!>@1!!!”

    Its pathetic that the strongest case you can make against keeping the minimum wage where it is, is that it would be stupid to reduce it to zero.

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  18. Black with a Vengeance (1,868 comments) says:

    Sputter splutter fizz bang pop…there goes the foo foo valve ?

    Recent studies show Right wing nutjobs require constant foo foo valve upgrades compared to left leaning GC’s.

    DC is a GC !!!

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  19. wat dabney (3,849 comments) says:

    Milt,

    I also liked Key’s citing of the popular right-wing reductio ad absurdum for minimum wage arguments: “If you can legislate at $18.40 a hour and have no implications, why not make it $30 an hour…

    But you don’t explain why it’s a bad argument.

    It seems perfectly correct to me.

    Legislating a minimum wage significantly above market rates must lead to increased unemployment among unskilled workers.

    Why would anyone with a conscience ever propose such a dreadful assault on these people?

    (The answer, of course, is that it is good politics. These candidates will throw the poorest under the bus to achieve their personal ambitions.)

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  20. flipper (4,332 comments) says:

    GE…
    OK..I’ll buy that :)

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  21. Cato (1,095 comments) says:

    Appealing to your base in the primary and then moderating in the general is a recipe for success. Just ask President Romney.

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  22. edhunter (554 comments) says:

    Stuff have a poll running “Would a living wage promise encourage you to vote Labour?” over 18000 responses nearly 11000 say yes. ok probably not very scientific but a still a little scary.

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  23. JeffW (327 comments) says:

    Slightly off topic, but in response to some points above: I would reduce the minimum wage, indeed I would scrap it. I would also scrap the dole, and increase as appropriate the in-work tax benefit so that at least the same standard of living is possible as on the present dole. I believe we would find that crime fell, including child abuse, and some elements of society, or later generations thereof, start to realise that through hard work and application they can get ahead. This is what I would like to see from a centre-right government.

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  24. Psycho Milt (2,427 comments) says:

    Its pathetic that the strongest case you can make against keeping the minimum wage where it is, is that it would be stupid to reduce it to zero.

    So, my point that a reductio ad absurdum argument is stupid prompts you to point out that a reductio ad absurdum argument is stupid? Well, yes, it is. That’s the point.

    But you don’t explain why it’s a bad argument.

    I offered an analogy to demonstrate why it’s a bad argument. Here’s another one: suppose Cunliffe comes up with a policy of encouraging everyone to drink a glass of wine a day for improved health. Key scoffs that if one glass of wine were good for you, why not make it a dozen? Because that’s not how it works, dumbass. Pretending that actually is how it works is either studid or duplicitous – and Key’s not stupid.

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  25. Paulus (2,711 comments) says:

    Bring Back David Shearer.

    This triumvirate are becoming a bore, but at least Chief Wanker is more logical and has a sense of humour.

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  26. wat dabney (3,849 comments) says:

    Milt,

    On the one hand the left supports increased taxes on alcohol and cigarettes, on the reasonable grounds that a higher price means lower consumption. Yet when it comes to employment they try to argue that the same principle doesn’t apply.

    They are liars aiming to hurt the very people they claim to be helping, and all because it delivers them into power.

    Of course it all depends on the amount, and that’s the real debate: how many additional unskilled people will be unemployed at any give minimum wage rate.

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  27. Griff (8,419 comments) says:

    Someone who earned $13.75 an hour working 40 hours a week with three children would pay $4000 a year in tax on an income of $29,000. But they would get about $23,000 a year back in accommodation supplement and Working for Families payments.

    Single person or the childless are expected to pay for the lifestyle choice of those who breed.

    So the giant ponzi scam that is modern capitalism can continue exponential growth unabated.

    We should close our borders to immigrants and stop subsidizing population expansion if we want our relative living standard to improve.

    The present policy settings are instead diluting any gain among the majority of the population by increasing it with immigration resulting in the concentration of living standard increase among the top ten percent intent on gaining from an unsupportable ever exponentially expanding economy.

    The planet is not infinite.

    New Zealand is fortunate that we have one of the most renewable based electricity grids in the world.

    If our population continues to expand at an exponential rate we will run out of energy options a lot quicker.

    We still after decades of trying, are an agricultural based economy. We have only limited room for expansion of returns from agriculture We also have a tyranny of distance that is going to impact more on our export potential as our trade partners become more responsive to the need to limit carbon emissions.

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  28. Weihana (4,621 comments) says:

    JeffW (253) Says:
    September 3rd, 2013 at 12:50 pm

    Slightly off topic, but in response to some points above: I would reduce the minimum wage, indeed I would scrap it. I would also scrap the dole, and increase as appropriate the in-work tax benefit so that at least the same standard of living is possible as on the present dole. I believe we would find that crime fell, including child abuse, and some elements of society, or later generations thereof, start to realise that through hard work and application they can get ahead.

    You believe? But what does the evidence indicate?


    Not coincidentally, the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia, Canada, Ireland, New Zealand, the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark, Finland, Norway and Sweden, which have been governed by left-of-center social democratic parties for much or all of the post¿World War II era. They combine a healthy respect for market forces with a strong commitment to antipoverty programs. Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries.

    On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same in both groups, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.

    http://www.scientificamerican.com/article.cfm?id=the-social-welfare-state

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  29. Weihana (4,621 comments) says:

    wat dabney (2,931) Says:
    September 3rd, 2013 at 1:45 pm

    Milt,

    On the one hand the left supports increased taxes on alcohol and cigarettes, on the reasonable grounds that a higher price means lower consumption. Yet when it comes to employment they try to argue that the same principle doesn’t apply.

    Depends on the price elasticity of demand. Alcohol and cigarettes are generally viewed as non-essential. If you don’t have enough money, perhaps you shouldn’t be buying alcohol and cigarettes. On the other hand, if you own a shop, one way or the other, the floors have to mopped. The rubbish has to be taken out. etc.

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  30. kiwi in america (2,314 comments) says:

    Weihana
    You and Scientific American need to keep up. After decades of high taxes, schlerotic growth and minimal levels of new business formation in Sweden the Swedes have cut taxes, reigned in the welfare state and offered innovative voucher options in health and education. This has enabled Sweden to ride out the GFC better than almost any other nation, seen record new business formation and a return of entrepreneurial tax exiles, a large drop in debt per GDP and an even bigger drop in government sending as a percentage of GDP.

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  31. Weihana (4,621 comments) says:

    Griff (5,825) Says:
    September 3rd, 2013 at 2:07 pm

    We should close our borders to immigrants and stop subsidizing population expansion if we want our relative living standard to improve.

    Migrants contribute a lot to our economy. Tens of thousands of international students inject large sums into our economy. Retaining some of those people through the skilled migrant category also increases the skill base of our work force.

    The main problems with immigration in my view are:

    1. The Parent category
    2. Differentiating those skills which are beneficial to New Zealand.

    If our population continues to expand at an exponential rate we will run out of energy options a lot quicker.

    But what is that “rate”? Doubling every 50 years or so? Hardly a pressing issue right now and in any case if we’re considering such long term issues it would likely be an issue anyway at some point regardless of immigration.

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  32. Evadne (88 comments) says:

    Yes, Weihana, if you own a shop the floors need to be mopped, the rubbish has to be taken out, the shelves need to be stacked, the checkouts need to be operated. And all this needs to be paid for somehow.

    Turnover = the value of goods sold
    Expenses = staff wages + tax + insurance + premises mortgage/rent + building maintenance + wholesale cost of product

    Difference between the two = profit or loss

    If expenses exceed turnover, then the shop goes bankrupt.

    Increase your wage costs by 30% (which is the conservative estimate for the “living wage” initiative) and something has to give. Few businesses could take that hit to their profit margin (contrary to Labour supporters beliefs, few employers are greedy rich prick parasites living the life off luxury off the back of their workers) so they have to either raise their prices or cut expenses.

    Some businesses can raise prices (eg. supermarkets) – with such large scale increases across the board, this will lead to inflation.

    Others will cut costs. The simplest and most effective way to do this is reduce headcount. The rubbish is now taken out by the floor mopper. The shop owner stays on an extra few hours to stack the shelves themselves.

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  33. Griff (8,419 comments) says:

    Fifty years?

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  34. Weihana (4,621 comments) says:

    kiwi in america (2,015) Says:
    September 3rd, 2013 at 3:21 pm

    Weihana
    You and Scientific American need to keep up. After decades of high taxes, schlerotic growth and minimal levels of new business formation in Sweden the Swedes have cut taxes, reigned in the welfare state and offered innovative voucher options in health and education. This has enabled Sweden to ride out the GFC better than almost any other nation, seen record new business formation and a return of entrepreneurial tax exiles, a large drop in debt per GDP and an even bigger drop in government sending as a percentage of GDP.

    You miss the point. I do agree that one can go too far. As the Scientific American article acknowledged, the Nordic countries retained a “healthy respect for market forces”. The fact remains that government and welfare spending is still relatively high as well as the tax burden as a percentage of GDP. They are still a universal welfare state with high taxes. Thus, your observation that Sweden has instituted various reforms since the 90s doesn’t really address the point of the article.

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  35. Kimble (3,955 comments) says:

    So, my point that a reductio ad absurdum argument is stupid prompts you to point out that a reductio ad absurdum argument is stupid? Well, yes, it is. That’s the point.

    But you miss the important difference: Key is responding to people who are operating as if no trade-off exists.

    You are arguing against people who are saying that that is wrong because trade-offs DO exist, and that it isnt as simple as Labour is trying to make it sound.

    It’s clear you thought Key pointing out the stupid premise of Labour’s position was stupid simply because you could think of something just as stupid?

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  36. OneTrack (3,372 comments) says:

    “On the other hand, if you own a shop, one way or the other, the floors have to mopped. The rubbish has to be taken out. etc.”

    Or if the costs get too great, and the impositions from the new government too high (say compulsory unionism ) you might just say”fuck it”, close the factory and head for Australia or retire.

    Cunliffe is clever (sic) to talk about big companies when he is selling his ideology ( “big corporations blah blah..”) but we all know that New Zealand (do I “have” to call it Aotearoa yet”?) is a nation of small businesses. They aren’t going to be able to or want to deal with this bullshit. So, yes, you are going to see job losses, the only question is how many.

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