Editorial: Living wage could miss its family target

Auckland Mayor Len Brown. Photo / Richard Robinson

Mayor Len Brown's pursuit of a policy that would see the Auckland Council pay the "living wage" to its staff has drawn a variety of objections. Some critics worry that the $3.75 million that will be needed to pay an $18.40 hourly minimum will lead to reduced council services. Others say its adoption should be left to central government.

Councillor Cameron Brewer, for his part, contended that the mayor was jumping the gun if he did not know the exact impact on council services or trimming $100,000-plus council salaries. Political expediency was, he said, being placed before good process.

Whatever the merit of such objections - and they do not detract from the essential principle of a living wage - these critics missed the most compelling reason for caution. This was contained in a Treasury report released earlier this month. It criticised the concept, saying it was "not well targeted at the intended demographic of low-income families". For most families on wage rates below the living wage level, the Government would pocket the lion's share of the increase in wages through tax and the abatement of means-tested income support.

The Treasury calculated that for a family of two parents and two children, where one partner worked 40 hours a week for $16 an hour and the other 20 hours for the minimum wage of $13.75, and where they paid $380 weekly to rent a three-bedroom house, the living wage would lift their take-home pay by $63 a week, or just over $1 an hour. But it would leave the Government $126 a week better off through the tax and transfer system. In contrast, a single adult working 40 hours a week on the minimum wage would be $75 a week better off. The living wage would, essentially, be a bonus wage for singles.

That is not, of course, the scenario desired by the unions, churches and Pacific, women's and community groups that support the living wage campaign. Their focus in seeking to secure the income necessary to provide "the basic necessities of life" is, unequivocally, workers and their families. Indeed, a report by the Family Centre Social Policy Research Unit detailing how the $18.40 was arrived at refers to the likes of parents being able to pay for children's school trips.

The Treasury, therefore, has a point. If the living wage was introduced now, the settings of Working for Families and the like would seriously diminish its benefit. But that does not mean it should be discounted as an authoritative measure of the minimum required for a reasonable standard of living. The shortcoming identified by the Treasury is not insurmountable. Parliament could fix it by amending the abatement thresholds and rates for various types of income support, and the consequent zone of high effective marginal tax rates. As the Herald's economics editor Brian Fallow has noted, this would remedy a status quo that provides a subsidy from taxpayers to employers.

There is no argument that this country needs to lift its incomes overall to match those of Australia if possible. The flight of New Zealanders across the Tasman may have lost some of its impetus because of the headwinds afflicting the Australian economy. But it will regather momentum if circumstances change and nothing has been done in the meantime to make potential emigrants pause. The living wage, as currently envisaged, clearly has deficiencies. But as a measure that is voluntary for employers and could provide the impetus to a decent standard of living for many people, it has potential. Better targeting to support low-income families would reward the perseverance of its supporters.