Why the Government’s pay freeze won’t hold
Perhaps it’s because I’m getting old but the Budget decorations seem to go up earlier and earlier every year.
It feels like we’ve only just cleared away the hot cross buns and Anzac poppies.
Suddenly it’s “fiscal austerity this” and “Muldoonist interventionist that”.
Anyway, merry Budget season everyone.
In difficult times I suppose we need to celebrate these cultural events more than ever.
It’s certainly become a rolling festival of policy announcements and if people want to get into the Budget spirit early, good for them.
There’s usually just one decentsized policy announcement on the day, which dominates headlines.
Most of the rest is just fleshing out a series of earlier spending and policy announcements.
But the Budget still matters in terms of framing what a government stands for, in outlining its goals and its direction of travel for the year ahead.
Which is why the announcements in the weeks running up to the Budget are really all part of the fun.
Actually the big one last week wasn’t all that fun for a lot of people.
The Government announced it was freezing public sector pay for the next three years.
Ironically, in a week where
Finance Minister Grant Robertson was being accused of being a bigspending reincarnation of Rob Muldoon, he’s pulled a move straight from Ruth Richardson’s playbook.
Or is it really ironic? Maybe it’s every bit as foreseeable as rain on your wedding day . . . (apologies to Alanis Morrisette fans).
The consensus of the political pundits seems to be that this is a political misstep.
The Government appears to have overstepped the mark by catching teachers, nurses and police officers in the freeze.
But I seriously doubt these groups will see their pay frozen for three years.
The politics are too ugly and these people are just too deserving.
The Government still has choices on spending.
In his first pre-Budget speech on Tuesday, Robertson announced that he had shaken $960 million out of the back of the Covid Recovery Fund couch.
Then on Wednesday, the Crown accounts for the nine months to the end of March 2021 showed the Government’s operating balance (before gains and losses) was $5.2 billion better than forecast in the half-year accounts.
Tax revenue was $69.9b, $4b above forecast due to higher-thanexpected corporate and income tax and GST revenue.
Net core Crown debt was 33.3 per cent of GDP, $6.6b less than forecast.
That’s more than the 20 per cent figure we’d had a kind of bipartisan agreement on pre-Covid.
But it’s a long off the 50 per cent figure that many forecast in the darkest days last year.
Effectively, the Government still has billion of dollars that it could spend and still be on the debt track it projected back in December.
So its decisions are political. To freeze the pay of nurses right now seems very austere.
And austerity in the current economic orthodoxy is highly unfashionable to say the least.
Despite expectations that the economic rebound would grind to a halt in March, things are still humming along.
Unemployment has dropped to 4.7 per cent — close to levels we used consider full employment.
Businesses are reporting big problems with staff recruitment.
That’s where the loop-hole in the pay freeze comes in.
The announcement said pay rises can be made for workers earning between $60-$100,000 in exceptional circumstances if they arise around recruitment.
Well, these are exceptional times. The recruitment argument will be relatively easy to make in the coming years — particularly if the Government chooses to lean into it for political reasons.
That’s why I see this blanket freeze — as it applies to the $60-$100,000 category — as largely a symbolic gesture.
It is a blanket that will be picked apart incrementally in negotiations over coming years.
I’ve suggested to various pundits — with more political nous than me — that this might be part of an elaborately thought-out government strategy.
My suggestions have all been met with awkward silence and a polite “maybe”.
So I’m prepared to accept that it
might just be a political misstep.
But as much as the backlash to this announcement was swift and strong across the political spectrum, it was also highly predictable.
Which is what makes me think it was a strategic political choice rather than a fiscal imperative.
As mentioned earlier, one of the big criticisms for the Right lately has been that Robertson is some sort of spend-thrift Muldoonist.
Rightly or wrongly, he suddenly has critics across the political spectrum painting him as Ruth Richardson-style miser.
That’s not such a bad place for a centre-left finance minister to be as he prepares for an historic pandemic recovery Budget.
It’s the preferred parenting style of dads the world over — grumpy old tightwads, who will gladly accept hero status when they finally pull $20 out for their teenager’s trip to the mall.
In binary terms, I think it’s where Robertson prefers to be — even if the messaging has blown out into more negative territory than he might have hoped.
It undercuts the most obvious fiscal attack lines for National and ACT.
And even though there is still plenty to be said about the quality of the Government’s spending and how it is executing policy — these are more nuanced arguments.