P.M. gives warning on wages

Press, 8 November 1984, Page 1

P.M. gives warning on wages

MICHAEL HANNAH

in Wellington

A warning that low-in-come earners, who will benefit from the Budget this evening, can expect little extra in the following wage round was given yesterday by the Prime Minister, Mr Lange. He appealed to manufacturers attending their annual convention in Wellington not to allow a wage round to give a “double benefit” on top of social payments in the Budget. He urged restraint on employers and trade unions, saying it was not the place of a wage round to solve income-distribution problems. Asked later for his reaction to union plans to put in claims for wage rises of between 10 and 20 per cent, Mr Lange told “The Press” that these unions would clearly have their expectations amended by the Budget. He then said, “to formulate a percentage, across the board, without knowing the specific incomes policy in the Budget is ludicrous.” Mr Lange’s comments strengthened indications that the Government will present its Budget tax relief and welfare payments as offering a minimum income standard, or “social wage,” above which wage rises can be negotiated on the basis of special circumstances, such as increased productivity. Mr Lange told the manufacturers that the attempt

to meet social goals through the wage system was to impose an impossible burden on it. “It is not the desire of this Government to allow a wage round that will have the effect of a double benefit,” he said. “Employers and employees have a responsibility to exercise a judgment that takes into account their own interests and the interests of the country.” Speeches by several Cabinet Ministers to the manufacturers’ convention also urged restraint on prices after the Budget. Manufacturers were told by the Minister of Finance, Mr Douglas, that companies could afford to absorb many cost increases, including higher charges on Government services likely in the Budget. The Minister of Trade and Industry, Mr Caygill also indicated that substantial tax reform would be, staggered over several years, and not introduced immediately in the Budget this evening. He promised that the Budget would provide a “timetable” for substantial tax reform. Long-term, but not immediate, relief on interest rates was also promised by Mr Douglas. As well as help to lower-income families, Ministers promised Budget policies “boring in their predictability.”-

The convention provided an example of the rapport which the Government has claimed it has won with non-traditional supporters, such as the manufacturers. This was tested yesterday, though, when manufacturers quizzed Ministers on the Government’s pricing policy, and warned tham that price rises could be expected for several reasons.

These included the devaluation, revenue restructuring, higher interest rates, higher Government charges, a wage rise, and the earning rate of companies, needed to fund further investment. The warning drew a

strong reaction from Mr Douglas, who conceded that devaluation had to be allowed to flow through into domestic prices so that relative prices were established. However, he was concerned that companies prejudged cost rises, and anticipated them in setting their prices. “This would be an absolute mistake,” he said. He advised companies to spread their overheads by expanding production into a wide range of goods, and by increased efficiency. He then said that company returns had to be taken into account. “Companies have not been doing too badly to date, and companies will be fe to absorb some of these t increases,” he said.

Mr Caygill said later that manufacturers should show restraint in setting prices, and consider the effect their actions could have on the demands of other sectors, particularly wage earners. Mr Douglas told manufacturers not to confuse price rises after the Budget with familiar inflationary pressures. He indicated that the Government would rely on a mixture of a tight hold on money and credit growth, absorption of cost increases by companies, and a threat of greater competition, to prevent inflation rising again after the Budget. Defining inflation as “an ongoing increase in prices,” Mr Douglas pledged the Government would not allow this to happeru He also promisegsubstan-

tial steps to reducing the fiscal deficit in the Budget, though the deficit could not be eliminated in the next six months. Nevertheless, he predicted that interest rates would come down without resorting to regulation, though he later referred to the Government’s “willingness to live with relatively high interest rates while we get the Budget deficit dawn.” Mr Lange also told the convention that New Zealand must balance some present discomfort with real economic growth in the future. Some vested interests would be dislodged, and some subsidies and tax exemptions would end in the Budget, he said. He called for an end to the “timid gradualism” of economic management.