Finance Minister Grant Robertson is denying claims the Government’s decision to freeze most public servants’ pay for the next three years reflects an austere or contractionary approach to managing the economy.
Robertson and Minister for the Public Service Chris Hipkins on Wednesday announced the freeze would apply to all public servants who earn more than $60,000 a year. Some exceptions might be made for people who earn between $60,000 and $100,000.
Asked by interest.co.nz why he was advancing an economically “contractionary” policy at a time the common view is that fiscal stimulus is required, Robertson said he didn’t “accept that”.
Asked by Green Party MP Jan Logie why he was “happy to grow the economy through astronomical levels of housing debt but not through higher wages for our teachers, our nurses, and our core public servants?” Robertson said, “I reject the premise of the question”.
He argued the policy would reduce inequality, because pay increases would be confined to the 25% of those in the public sector who earn less than $60,000 a year.
Robertson stressed the May 20 Budget would be a “recovery budget”.
“It’s one where we will invest in the future of New Zealand. But we also have an obligation to make sure that we begin to reduce the debt we’ve taken on,” he said.
“We will not be cutting departmental funding. That is austerity.”
Robertson recognised the economy is performing better than expected.
For example, the financial statements for the nine months to March 31 show core Crown tax revenue coming in 6% (or $4.0 billion) higher than forecast in December.
Treasury reported a deficit of $4.3 billion - a significant improvement from the $9.4 billion deficit forecast in December.
Meanwhile net core Crown debt as a percentage of GDP came in at 33.3%. This percentage is expected to increase.
As interest.co.nz reported earlier in the week, the Government is borrowing at a faster rate than it’s spending. As at March, it had $42 billion of cash sitting in its Crown Settlement Account with the Reserve Bank.
Yet Robertson said: "We still are going to be having large-scale debt increases and deficits for years to come. So, we’ve got to be careful with our finances.”
Interest.co.nz has been unable to ascertain from Robertson’s office, The Treasury and the Public Service Commission how much the pay freeze is expected to save.
Public Service Commissioner Peter Hughes said: “We can’t calculate savings because we can’t predict the outcome of future bargaining settlements.
“But each 1% increase in the total Crown wage bill (excluding SOEs) increases costs cumulatively by $250 million per annum, with the largest sectors being health ($80 million) and education ($54 million).
“We don’t expect to see zero growth in salaries across public service. Pay restraint is about managing total growth. I would expect that the overall average pay for public servants will continue to lift.”
Coming back to Logie, she asked Robertson: “Has he considered the risk that public servants might start moving around agencies, becoming contractors, or leaving the country to try to get a pay rise to keep up with the rising cost of living, and that that might undermine the Government's work programme?”
Robertson responded by noting there have been significant pay increases across the public sector.
Indeed, the Public Service Commission said the average base salary in the public service increased by 3.9% in 2020.
National also opposed the freeze.
Its spokesperson for Public Service Mark Mitchell said: “If Labour wants to reduce costs it only has to look at itself.
“Salaries for Wellington bureaucrats have increased by $1.3 billion in just three years of a Labour Government. That’s $300 million more than they increased under National over almost a decade.
“Labour bringing in a salary freeze now is like closing the barn door after the horse has bolted.”
ACT didn’t oppose the freeze, but like National, blamed the Government for allowing the public sector to become “bloated”.
“What we need now is an assurance from Labour that it won’t hire expensive consultants to avoid a head count of full-time staff,” ACT leader David Seymour said.