Wednesday, February 27, 2013

$13.75 an hour? Schweet!

The Minister of Labour, Simon Bridges, has announced an increase in the minimum wage from the current $13.50 an hour to $13.75 and hour, effective from 1 April.

Mr Bridges' press release is a bit of a gem: 'the increase seeks to strike a careful balance between protecting (protecting! no less) low wage workers and ensuring jobs are not lost.' Ensuring jobs are not lost? Has the man been living under a rock? Mr Power's press release goes on: 'The government is firmly focussed on growing the economy and boosting incomes.' Which is an odd thing to say in light of reports this week that the gap in wages between Australia and New Zealand (you know, the gap National was going to close) has grown from $60 per week to $180 per week since 2008. And no, we don't buy the global recession excuse. National's economic mismanagement runs far deeper than that. 

One can only imagine that the working poor will no longer need the support of foodbanks, but are racing to trade up their Nissans to Porsche 911s and perusing adverts for McMansions in Karaka as we speak.

Or maybe not. A quick nosey at the IRD's tax calculator suggests this generosity on the part of a government committed to alleviating financial hardship may not have cleaners living high on the hog after all.

Take a minimum wage worker working 40 hours per week with two small children. Suppose also for simplicity our worker's partner stays at home to care for the child/ren. We'll also ignore student loan repayments and Kiwisaver contributions. Gross wages will increase from $540 to $550 per week. According to IRD, net income therefore increase from $455.17 to $463.25. Fortunately, that great employer subsidy Working for Families comes to the rescue. WFF tax credits of $641 remain the same. Net gain? $8.08. Wow. This looks kind of generous until you realise that the taxpayer is subsidising cheap employers, and rent on a two-bedroom flat in Auckland is about $400.

For single people there is only the increase of about $8 as they don't qualify for WFF.

And how does this increase in the minimum wage intersect with the government's drive to move sole parents into work at any cost? At the moment sole parents are required to seek work of at least 15 hours per week when their youngest child turns 5. Looking at the IRD's website again (bearing in mind eligibility for WFF depends on work of 20 hours per week):

Hours worked Per hour PAYE etc Nett Less benefit abatement Net gain from working
15 13.50 24.70 177.80 23.34 154.46
15 13.75 25.16 181.09 24.33 156.76



Net gain from increased  minimum wage$2.30



Oops. That's $2.30 for 15 hours work, an increase of 15c an hour. In other words, the families with the lowest incomes stand to gain the least. So much for boosting incomes. In a civilised society this would be a cause for public outrage. Time to support the living wage campaign (it's a campaign that's older than you might think).