Economist advocates a price-increase tax

Press, 7 September 1984, Page 26

Economist advocates a price-increase tax

Wellington Control or taxation of price increases is advocated by Professor Bryan Philpott, McCarthy professor of economics at Victoria University of Wellington, in a five-point set of policy proposals for an incomes and price policy. The policy paper he has produced suggests: • Formal machinery for income determination. • Annual maximum wage orders. • Constrained collective bargaining. • Establishment of industry unions. • Control or taxation of price increases. The formal machinery, he says, should involve participation by the principal parties including the trade unions and aim for achievement of consensus on wage increases in the context of all other macroeconomic policies in force or contemplated. Such formal machinery could come in the form of a new Stabilisation Commission or a rejuvenated Arbi-

tration Court. Annual wage increases should be the maximum permissible money wage increase aimed, at least, at maintaining, disposable income and, if possible, raising it in line with past productivity trends. The order should take into account changes in taxation, especially those designed as part of a tax-wage trade-off. Constrained collective bargaining would allow trade unions to bargain, if, they can, for higher wage increases than the wage order maximum, provided the higher sums are not passed on by firms in price increases greater than those justified by the wage order maximum and rises in import prices. Professor Philpott says that wage increases above the maximum laid down in the general wage order would, as a result of this method, have to be absorbed in higher productivity or higher export prices. They could also be justified because firms were .in a growth area or short of

lanour. Industry unions could perhaps be encouraged by the grant of subsidies to the Federation of Labour by the Government. The objective would be to facilitate constrained collective bargaining and to enhance the constructive role of trade unions and their executives in the economy. The controls on price increases should be aimed at restraining the rate of price increases beyond that justified by the general wage order, plus import prices, as well as dealing with firms in a privileged cost-plus situation provided by import control protection. “A possible’ alternative to price increase control would be the introduction of special differential taxation levied on firms for price increases beyond the normal,” Professor Philpott says. He emphasises that the aim of the latter move would not be to control the level of prices but to constrain the rate of increase.