Budget assumptions must work in perfect harmony

Unconcerned about both debt and inflation and, most importantly, with no coalition partners to constrain it, Labour has just released a budget that tells the nation exactly where a Labour Government wants to take the nation.

That priority would appear to be taking a serious whack at poverty.

The key change that might trigger other favourable outcomes is a set of hikes in welfare payments, ranging from $32 to $55 per week boosts in benefits. That will cost $3.3 billion and is projected to lift up to 33,000 children out of poverty.

It’s not an isolated move. Without ensuring a significant gap between benefit levels and job pay, higher benefits would erode the financial incentive to work. Hence the Government has also raised the minimum wage to $20 per hour and set forth a collective bargaining process that will put upward pressure on wages. 

With workers paid more, employers in theory will make greater efforts to recover that cost by improving worker productivity through skills training and technology investment.

Further – and of some special importance here in Hawke’s Bay – Labour seems determined to tighten the screws on numbers of overseas migrant workers and RSE employers are required to pay these workers the minimum ‘living wage’ of $22.10 per hour. Labour’s voiced concern has been that low pay to migrant workers has helped suppress other local wages, discouraging local job seekers.

So, the logic chain here connects the dots that should be connected – it includes more money to the poorest, pressure for higher wages on the lower rungs of the job ladders, pressure for improved productivity, fewer low-paid overseas workers (with the side benefit of less strain on housing supply) and economic prosperity lifting all. 

Economic and political Nirvana!

However, there’s a heap of ‘rational behaviour’ assumptions in all this that economists typically rely upon and politicians accept with fingers-crossed! Unfortunately, that’s rarely the way the real world works. Unintended consequences and stubborn individual behaviours (often actually more rational than the ones the economists wish for) crop up to confound the process.

Thus, the Labour budget strategy, based upon commendable values and aspirations, could just as readily backfire if beneficiaries still elect not to enter the workstream, businesses find other ways to minimise labour needs (or simply fold under the weight of added costs), and productivity investments and gains don’t materialise.

Good luck Labour!

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5 Comments

  1. Long gone the time of benefits being a temporary safety net, more a career hammock!!

  2. Let’s hope that landlords don’t become the biggest welfare beneficiaries by taking the benefits increase for rent.

  3. my gosh , hasn’t anyone heard of you work or NO benefit , . you do not have to like it ,you need to learn it . Believe it or not a good day hard graft if you are not a druggie , will feel soooo good .and you get paid !!

  4. cue another round of benefit-bashing. don’t look at the macro causes and change them, just pick the micro bad examples and whack everyone. yea, that’ll work. not.

  5. Professional politicians and unionists running the biggest business – without any business experience! Recipe for disaster as they increase the dole, then expect all the professional welfare recipients to jump at the opportunity to join the workforce? Bro – really?

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