Editorial: Pay pressure could make, break Govt objectives

Prime Minister Jacinda Ardern and her ministers at the Beehive, Parliament. Photo / Mark Mitchell

Editorial

Holidays are designed for a rest from thoughts of work but they are also good for thinking about tasks ahead with less pressure and more time to ponder where we are and what needs to be done. Business leaders will find themselves doing this during the break and so will chief executives of public services, including the Government. Especially the Government.

The coalition is contemplating its second year. The Prime Minister, Finance Minister and others will be aware that this is the year the Government needs to start moving on many of the issues it put out for independent studies and reviews during its first year. It is well poised to do so. The economy remains in good health, generating the Budget surpluses that allow some new projects to be financed. It is vitally important that they be worthwhile, practical projects capable of enhancing the nation's wellbeing, not simply additional ongoing expenditure that will make little difference to the services we receive.

Jacinda Ardern, Winston Peters and their teams will also be aware the coalition's political capital is in good shape. They have shown they can work together and the Labour Party has risen to a more respectable level in opinion polls than it had in the election result. If it is not yet ahead of National it is close enough not to matter. And its partners are still polling well enough to give the coalition majority support.

This year it needs to use that political capital to take some courageous decisions for the national good. It governs New Zealand at an enviable stage of development. The economy has had five years of solid growth since recovering, sooner than most countries, from the last global crisis. Previous governments have proven that an open, competitive economy can generate full employment as well as good living standards and, with sound monetary and fiscal management, public debt can be brought down to a level that provides room for social support through a recession.

Labour wants to make the benefits of this economy more equally shared. It has set about raising the statutory minimum wage in annual leaps that, so far, employers seem to be absorbing without reducing staff.

It is giving more money to beneficiaries with children to lift them out of "poverty" as measured by household income.

It also wants to bring home ownership back within reach of average income earners.

The previous government let house prices skyrocket for too long before it and the Reserve Bank took action to dampen them. Prices have been more stable since 2016 and this Government probably does not want them to fall. But that could happen as a result of its planned changes to the taxation and regulation of rental investment.

Once property investors can no longer deduct losses from other income and face a selective capital gains tax, if that is what the Cullen working group recommends next month, either rents will rise drastically or the houses will be sold, probably both. Rising rents and falling house values would test the mettle of any government.

This one is already facing determined demands for pay increases in the public sector where average pay is higher than in the private sector. Nothing would squander the surplus more quickly. If the Government can stand up to that pressure, it may be able to take some big steps this year to spread the fruit of a strong economy more equally.