Chester Borrows: Making cents of the wage rise

THE minimum wage went up last week and the cries went up from both sides of the spectrum.

I immediately got an email from a friend who employs about 40 people in Whanganui. His question was: "Don't you guys know how much this costs?"

Well, I got the calculator out and went to work: 40 staff x 40 hours x 50 cents is $800 per week or $41,600 annually. We need to remember that it is not just those on the minimum wage who get an extra 50 cents per hour because most employers maintain the margin among employees by increasing everyone by the same amount.

So my friend is hacked off that his Government keeps putting his costs up $40,000-plus per year.

At the same time, the hue and cry went up from those supporting the low-waged saying: "This is nothing. The 'living wage' is now more than $20 per hour, ya mean bunch of crooks!"

Fifty cents per hour is an extra $20 per week, some people spend that much on coffee every day, so it is helpful to get some context.

Current inflation is about 0.1 per cent, the lowest in 25 years. Wage growth was 2.4 per cent last year and minimum wages rose 3.4 per cent. Interest rates are the lowest in 50 years with some banks offering mortgage rates of less than 4 per cent.

The Consumers Price Index is increasing at less than 1 per cent but was more than 5 per cent year-on-year before National came to office in 2008.

We have 5.3 per cent unemployment with one of the highest worker participation rates in the world.

People argue the gap between the richest and poorest is growing, and that may be true and it may happen in all lower tax, growing economies. I remember the days of paying 66 per cent tax and these days are better than those days by a long way.

We have the smallest gap between the minimum wage and the average wage in the world. Under this government, the minimum wage has gone up 25 per cent and inflation has gone up just 11 per cent.

So that's the dollars and sense (yes, I meant to spell it that way). The question then is: "So what do we get for that as a country?"

Well, we have the best child immunisation rates, the highest early children participation rates ever. The first increases in benefits in 25 years and we have just legislated for the insulation of another 60,000 houses which will take our tally to 500,000 houses insulated in seven years.

It means that there is more confidence in Whanganui and South Taranaki to do stuff that creates jobs.

The signing of the Trans-Pacific Partnership will open those opportunities to expand productivity and jobs, and low interest rates encourage investment because people can borrow money more cheaply.

If a couple saves $50,000 for a first home, they can borrow $200,000 from the bank. Their interest rates at 10 per cent (as they were in 2008) saw the couple paying $200 per week more than today. This means $200 a week in goes their pockets.

Ten years ago, the economy was so hard on people that they left New Zealand at a rate of 35,000 per year to live overseas. Now we have more people coming to live here than those who leave. Housing, feeding, transporting, entertaining, and schooling those returning Kiwis and new immigrants means we have a bigger domestic economy, which means jobs, jobs, jobs. We have three million tourists from overseas each year - and again that means jobs, jobs, jobs.

So someone on minimum wage getting an extra 50 cents may not feel that much better off, but the increase is higher than cost increases.

The employer must pay out more and there are increases in health, safety and other compliances, but the employer fewer costs in transporting goods to market and interest rates.

There is a theory that if everybody is equally dissatisfied, the policy must be right. I may not always agree with that view, but sometimes it stacks up.

-Chester Borrows is the MP for Whanganui.