Economic Debate - Still A Troubling Trans Tasman Wage Gap
September 2nd, 2010
Two years ago, Bill English brandished data showing a widening of the gap in after-tax income between Aust and NZ since Labour had taken power in 1999. The gap in average after-tax wages had reached 34% by 2007. The disparity began about 1984, widened substantially between 1991 and 1999 (during National’s term in office) but widened further in subsequent years. Average Aust after-tax income in NZ dollars in 2007 was $46,000; here it was $34,000. In Parliament the other day English expressed his surprise real after-tax average earnings in NZ had increased 8.7% since September 2008 - a significant improvement on the 3% total growth over the previous nine years. He attributed this to two rounds of income tax cuts and lower inflation.
Pick Your Numbers. Those data were based on average weekly ordinary time earnings (per FTE) from Statistics NZ’s Quarterly Employment Survey, the official series used to calculate the wage floor for NZ Superannuation. He dined out on the numbers for a day or two, explaining how they had been adjusted (not by the official statisticians) to give what he said was a true picture of changes in our spending power. Across-the-board personal income tax cuts on 1 October would further increase after-tax earnings: the average household will be about $25 a week better off, and the average wage earner about $15 a week better off, even after the increase in GST. But English conceded it would not be easy to maintain this kind of progress, - further increases in after-tax income must come from enhanced productivity, better export performance and a rebalancing of resources into the private sector.
Other Measures More Real. Labour MPs were slow to challenge the figures. Their immediate counter was to remind us about the Key Govt cutting contributions to the Superannuation Fund, cutting KiwiSaver, axing the R&D tax credit, axing the $700m Fast Forward innovation fund - and so on. A post on the Red Alert blog, however, explained weaknesses in using FTEs and came up with different measures. Counting all workers and all hours and using real tax rates, the increase was 0.5%, and when total wages were divided by the working age population, wages grew just 0.5% (all of it taking place in the last quarter of 2008). No matter. However we work the numbers, we have a helluva long way to go to close the trans-Tasman gap.




Duncan Cotterill