THE PRESS SATURDAY, APRIL 23, 1983. Measuring the frostbite

Press, 23 April 1983, Page 16

THE PRESS SATURDAY, APRIL 23, 1983. Measuring the frostbite

When the Government, the employers, and the Federation of Labour resume their talks on wage-fixing procedures next week, they will have the advantage of knowing more exactly what effects the freeze on incomes and prices has had. A stumbling block to the talks has been discussion on what, if anything, should be done about a wage increase when the freeze ends. The Federation of Labour seeks a $2O a week wage rise across the board; the Government is prepared to offer a 2 per cent increase in wages. These proposals were put forward without an accurate measure of where the frost was heaviest. The Department of Statistics provided this information yesterday when it released figures on the movement of incomes.

Unlike the index of effective weekly wage rates issued on Wednesday — which measures only the movements in gross wages against movements in the consumers price index — the real disposable income index is a calculation of take-home pay against the consumer price index. As a result, the figures supplied yesterday show the effect of the tax adjustments made in last year’s Budget. They are a true indication of spending power. A reduction in the spending power of the country’s consumers and a corresponding reduction in the standard of living were implicit in the freeze as an essential part of the battle against inflation. New Zealand was living too high on the hog without the income to pay for it; high inflation and increasing unemployment were the beginnings of retribution.

The question now is: can the country afford to recompense all wage and salary earners for the belt-tightening that has taken place? The short answer is “no”; but the movement of real incomes since the freeze was imposed suggests that some adjustment should be made for lower paid workers. The burden of the freeze and the tax adjustments has not fallen evenly. Taken over all the country’s wage and salary earners, yesterday’s figures show that, in the first six months of the freeze, spending power actually increased by 2.1 per cent. Nevertheless, workers on the average weekly wage or below suffered a reduction in their spending power, in some instances as much as a drop of 4.2 per cent. For this group of workers some sort of adjustment would seem fair, yet the figures must put the lie to claims that a rise of $2O a week for everyone is necessary “just to put things square.” Even for the lowest-paid people,

part-time workers and people on very low rates, for whom the freeze has meant a reduction in spending power, a quarter of that sum could redress the balance.

The figures do not support a general, percentage increase. If any catch-up for increases in living costs during the freeze were to be considered, a flat figure would, in any event, be preferable to a percentage increase. A percentage increase would serve only to further distort disparities between high and low wage earners, whereas a flat figure would offer relief to those most in need of help without imposing impossible costs in increases at the top of the scale. Fiat rates of increase admittedly diminish margins for skill; the new tax scale, however, was devised in part to answer the loud demand for a better tax deal for middleincome earners. This consideration can fairly be neglected in the debate about an early response to the freeze and about what follows. Unpalatable though some may find it, the hard truth is that the country cannot afford a general pay increase which would inflate prices and bring most people back to Square One. Since the movement in real incomes shows that a catch-up increase for those earning more than the average wage is not warranted anyway, the issue should not arise. If the argument for an across-the-board increase is pursued, it must be rebutted vigorously. Most firms employing staff have no capacity to increase wages, whether by a wage order or otherwise, unless they are allowed compensating price increases. Firms that still have room to reduce staff would be encouraged to do so. The check that has been put on inflation would evaporate and unemployment would probably worsen. If special assistance is deemed necessary for particular groups of lower income taxpayers with dependent families, this could be achieved more equitably by adjustments to the personal income tax scale, or increased family assistance, or even the introduction of negative income tax. Higher prices and the loss of jobs would not resolve the problems of those on low incomes relative to other groups. All that would be achieved would be a return to inflationary expectations and the negation of all that has been achieved so far in reducing inflation. The figures on the movement of real incomes should lead the parties to the wagefixing talks to an accommodation that will rectify the anomalies without setting back the recovery of the economy.