Grant Robertson and Chris Hipkins announced:
Last year the Public Service Commissioner issued guidance to Public Service agencies asking them to have nil or minimal pay increases for public servants until June 2021.
“Today the Public Service Commissioner is updating that guidance to make clear that pay restraint will need to continue to be exercised across the Public Service for the next three years,” Minister for the Public Service Chris Hipkins said.
“The updated guidance will continue to mean no pay increases for those earning over $100,000 and senior leaders within the public service. Any increases will be targeted to lower-paid public servants, largely those earning below $60,000, who account for about 25% of the public sector.
A three year wage freeze for public sector employees is very bold from a Labour Government. If National announced this, the unions would already be calling for a month long general strike.
“This is about prioritising spending. The policy will also help protect jobs by taking financial pressure off the public wage bill.
Despite the belief of some on the left, there is no unlimited pool for spending. There are trade offs. For example you can either give all nurses a 10% pay rise or you can hire 10% more nurses which results in more patients being seen and treated. Or you can give MBIE staff a 10% pay rise or give Pharmac 5% more funding.
Pay should increase to recruit and retain capable staff. If pay rates are too low, then you will get vacancies which will lead to pay rates going up. But are public sector salaries too low?
Public sector employees get paid much better than private sector. The average FT income in the public sector is $83,700 compared to $65,600 in the public sector.
The gap has been growing also. Since 2017 average public sector pay has gone up 11.2% and private sector 9.8%. ACT have calculated the number of bureaucrats earning over $100,000 has increased by 43% since 2018.
So huge kudos to Robertson and Hipkins for their fiscal conservatism. This move could almost qualify them for honorary membership of the Taxpayers' Union!
It is surprising that they have done this. It is rare that the only union praising them is the Taxpayers' Union.
I suspect they are worried by two things. The first is to be able to show an eventual path back to surplus and repaying debt. The second is inflationary pressures, which this decision will help subdue.
Some on the left are calling this austerity. That is unfair. They are not cutting government spending. Far from it. They are still increasing spending massively each year and borrowing tens of billions. It's just they have decided that they would rather spend the money elsewhere.
Now while I am fully supportive of their fiscal rectitude in this area, I will concede the tool they have used is a blunt one. Freezing all salaries over $60,000 is rather Muldoonish. It also may be somewhat ineffectual as it may just lead too more job swapping, consultants etc. A better way of achieving fiscal rectitude would be freezing the overall staffing (and consultants) budget for each agency and leave it to each CEO how they manage within that. Some might freeze salaries. Others might reduce staff numbers and give remaining staff an increase etc. One size fits all solutions are rarely the best option.
But once again kudos to Robbo and Chippie for doing what not even a National government would dare to do, telling public sector unions there will be no pay increases (for staff over $60,000) for three years.