Details announced for nine day fortnights

John Key has announced details of the nine day fortnight plan to help struggling businesses:

  • Available to 1,600 businesses with more than 100 employees. Those businesses employ 580,000 people.
  • Available from March 27, 2009 through until December 31, 2010 – but only for up to a six month period within these dates.
  • Government’s contribution of five hours at $12.50 will be paid direct to employers to give to the workers it has negotiated a voluntary agreement with to reduce work hours to a nine-day fortnight.
  • Will be available to up to 10 employees for each averted redundancy.
  • Will apply to employees who have been full-time for the two months preceding going into the scheme.
  • Is anticipated to be picked up by between 20,000 and 25,000 workers, making the approximate cost $16 million to $20 million.

I am glad it is targeted and temporary. To some degree this is the Government paying in a bit of money, to allow employers, unions and workers to negotiate some reductions in hours to prevent redundancies. This is a useful reminder of how important flexibility in the labour market is.

If someone earns $30,000 a year and they drop down to nine days a fortnight, then their gross wages will drop from $1,151 to $1,036 a fortnight.  That is a drop of $115 a fortnight. The Government’s subsidy will give them back $63 a fortnight leaving them with a gross income drop of $52 a fortnight. So at $30,000 the Government picks up 54% of your day off, and you pick up 46% and you are guaranteed not to be made redundant.

$52 a fortnight is still a reasonable drop in income. But hey it is less than what the ACC levies were looking to rise under Labour!

What will be interesting is the impact of Working for Families. One of the problems of WFF is the abatement rates for it plus the accomodation supplement means that effective marginal tax rates get close to 90%. So certain families could have the main incoem earner go from $50,000 to $70,000 yet only have net income increase by $1,200 or so (figures off memory). Not that is a very bad thing, but for once it may work in favour of some families – if your income drops by going into a nine day fortnight, then the abatement rates will work in negative and may keep you at close to your old net income.

The Government should get IRD and WINZ to do a online calculator tool where people can work out what happens to their net income if they go onto a nine day fortnight.

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