Taxation and wages

Press, Volume CXV, Issue 33804, 29 March 1975, Page 14

Taxation and wages

Political considerations are likely to be as important as economic factors in determining the Government’s incomes policy after the wage restraint regulations expire at the end of June. The statement this week by the secretary of the Federation of Labour (Mr Knox) need not be taken as his organisation’s last word on the subject; the federation as a whole has usually shown more good sense and restraint than its secretary. Mr Knox said tax concessions were “ not on ’ as an alternative to wage increases. The need for further restraints on incomes hardly needs to be stressed as long as the country’s ability to pay does not improve. It ought to be quite clear to the community by now 7 that a return to unfettered wage negotiations would be as politically and economically disastrous as the removal of all measures to restrain prices. In Mr Knox’s phrase, the removal of either set of restraints ought to be “ not on ”, at least in 1975. In deciding what is “on ”, the Government should not give undue precedence to the views of the federation and its members.

A return to direct wage bargaining would please the F.0.L.. would benefit the strongest unions (whose members are probably Labour Party supporters already), and would probably ensure that the party receives the funds it needs from the union movement for its election campaign. It would also cause further unemployment, and would accelerate price increases, and the draining of the country’s dwindling foreign reserves. It might also ensure that Labour lost the election in November and that it handed over to its successors a bitter and bankrupt country. As long as inflation continues at 10 per cent a year or more, Government restraints on incomes will also be unpopular.

The Government’s best course of action appears to be an increase in incomes achieved by cuts in income tax and, perhaps, company tax. This approach has the support of senior members of the Government as well as many interested groups in the community. The hostility expressed by Mr Knox should not deter the Cabinet from examining it carefully before the early Budget promised by the Minister of Finance. Counled with the removal of the compulsory 7 savings scheme on April 1, a modest reduction in income tax before the end of June could provide a significant increase in incomes at no further expense to emnlovers—and without risk of exacerbating unemployment. The Government should not underestimate the decree of understanding—and concern—in the community for the country’s economic plight. Now that a break has been made with automatic wage increases to match increases in the cost of living, most New Zealanders would probablv be content with modest tax relief, rather than demand a further wage increase which they know would be eroded by price increases and by further unemployment as firms were forced to shed staff in order to meet the wages of others. If some trade unions objected, thev could expect little public s’ mnathy. Members of strong unions are still doing the best of all grouns in the community'in avoiding the restraints on living standards which the country’s serious trading position has made necessary 7.