Then Finance Minister Bill English with a freshly printed Budget speech in May 2016. He will be presenting his first as Prime Minister on May 25. Photo by Bernard Hickey.

The scale of the Government-funded pay increase for 55,000 lowly-paid aged care workers is breathtaking at first glance. The $2.058 billion pay increase over five years means an extra $100 a week for many full timers, with the most experienced receiving a 71 percent pay increase by 2022.

Over two percent of New Zealand’s workforce will get a double digit pay increase from July 1, with much more to come in the following four years. The Government could have dragged the case on for longer and squeezed the unions for a smaller deal, but agreed a massive increase instead.

It was no surprise that Health Minister Jonathan Coleman was cheered by unionists and the aged carer who sparked it all, Kristine Bartlett, when he joined their celebration late on Tuesday across from Parliament.

The pay equity deal with unions is certainly historic, but it’s not unprecedented for a National-led Government that has made a habit in recent years of jinking to the left with the help of extra funding for the lowest paid that is paid for by taxpayers at large.

The most recent examples were the surprise $25 a week benefit increase, touted as the first real increase since the 1970s, and the free doctor’s visits for children. Just quietly, the Government has also been increasing the minimum wage at a faster pace than inflation and in line with average wage growth. And Tuesday’s pay equity mega-deal won’t be the last jink to the left before the September 23 election.

The Government has already laid the groundwork for a ‘families package’ in this Budget that could include tax cuts for low to middle income workers, more tax rebates through Working For Families and more money for accommodation supplements – all aimed at lower income workers.

At first glance this deal seems to leave less room for all of these to be delivered at a scale larger than a block of cheese.

But a closer look shows there is still plenty of room for the Government to throw the kitchen sink at some big ticket items from the left of centre. The cost in the first year will be just $303 million (plus $31m from ACC) and Treasury has already included 90 percent of the settlement costs in its Budget forecast in December. It also says the TerraNova settlement will not be included in the Budget 2017 operating allowance, which was forecast in December at $1.5 billion.

A big chunk of the $2.058 billion is also not being funded by the taxpayer directly, which leaves a bit more room for some big ticket items in the Budget. About $422 million in extra costs will have to be absorbed by ACC over the next ten years, which may mean higher levies at a later date – although not until well after the election.

A significant part of the funding for the wage hikes for aged carers will come from wealthier carers themselves. The deal includes a six percent increase in fees or $66 a week for those in nursing homes who still have their own assets above the threshold for subsidies.

So not all the cost is being absorbed in the Government’s Budget, leaving plenty of room in a fast-growing economy for more to be announced on May 25.

Prime Minister Bill English agreed that it could reduce the Government’s flexibility a little, but he was careful not to rule out any of the things already slated for the families package.

“Of course it reduces the potential [for tax cuts, Working For Families and Accommodation Supplement changes] if you’ve got debt targets, but you take any Budget in the round,” English told his post-cabinet news conference where the TerraNova deal was announced.

 “We wouldn’t say there
was a trade-off between this and any other item of spending,” he said.

There is a strong economic tailwind behind the Government’s finances as it sails towards the election on September 23.

Treasury reported earlier this month that the Budget was in surplus to the tune of $1.4 billion for the eight months to the end of February, which was $912 million better than forecast in December because of higher tax receipts. That forecast in December was for the Budget surplus to rise to $6.7 billion by 2019/20.

The multi-billion dollar TerraNova pay equity deal will not be last jink to the left funded from a growing budget surplus. The question for May 25 will be how much is directed to those on lower incomes – both workers and beneficiaries – and how much goes to those on higher incomes.

Jinking to the left paid off for National in 2014 and helped wrong-foot the Opposition over the last two years in the polls. It has room to jink again next month, despite this big ticket item.

Leave a comment