Friday, May 20, 2011

Budget forces employers to pay more for employees’ savings, while the unemployed lose out

If I have read correctly, Treasury has predicted a 4 per cent wage growth for about six years. In order for that to happen people need to be working and to have wage rises. To have wage rises employers need to pay employees more money. To spend more money on wages, employers have to spend less on other things or to grow.

Despite Treasury being wrong about many things in the past, it could be right, this time. Perhaps wage rises will be funded by cuts to budgets less the increase in KiwiSaver contributions employers are forced to make. Contributions which will now be taxed to give the Government a cut, meaning you have to pay more in your KiwiSaver account, but get proportionally less back.

How can that possibly happen, you ask? Surely you have to have more money to pay higher wages. Perhaps it won’t happen. Perhaps wages won’t grow. Perhaps public money will go into MPs’ superannuation increases to compensate them for losing the $10 a week KiwiSaver employer subsidy the rest of us also miss out on?

Perhaps it is better to give the rich tax cuts so that people like the Westpac Chief Executive can continue to get a tax cut to pay for 500 low paid workers who lose their weekly $10 government contribution to KiwiSaver. That’s the “zero” part of budgeting.

The other part is the real thing: it doesn't jut provide for zero spending it reduces spending by $1.2bn over the next four years. . How do we know? It's in the budget - it contains $4bn spending over the next four years, but identifies savings of $5.2b.

How's that predicted 4 per cent wage growth looking now?

What will happen if a prospective employee starts work. They`ll be offered the opportunity of Kiwi Saver if they don’t have one. They`ll start on a low income and as a result will get more Working for families payments than they otherwise would – but these payments will not compensate for the lower salary that employers offer as they have to put more into their new employee’s Kiwi Saver account.

If employers can’t afford to keep their staff on they`ll be made redundant and the worker will pay less tax but have increased WFF payments with his tax-payer funded benefit, if he has kids. If that former worker wants to go to university to retrain to do a couple of papers, he`ll not only forgo extra employer KiwiSaver contributions, he’ll also have to take a bank loan to fund his studies other than tuition costs, which he can get a loan and pay back later.

Perhaps this budget means the rich - who have had tax cuts - are better off - and the moderately poor, who didn’t get much tax relief and are about to lose some WFF payments are not much worse off – but the poor are permanently poor, can’t afford KiwiSaver, can’t afford to study, and have increasing costs for food and bills.

Their biggest source of income, if they have a few kids and manage to get a part time job for $180 - could be their working for families payments if they don’t want to study on a student allowance.




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