this post was submitted on 04 Feb 2024
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Well part of it may be because wages don’t keep up with inflation even when inflation is low.
And even if inflation is going down, prices are still rising. So unless we start deflating back to where wages were before the inflation rise started people aren’t really going to be like. Oh hey, my avocado toast only went up 25 cents this quarter instead of 50 cents
I've seen media articles that misunderstand this. Reducing inflation doesn't make things cheaper. The RBNZ has a target of 1-3% inflation per year, yes when inflation is too high they take action, but if inflation gets too low then they will also take action to change that and bring it back within the target range.
Wage growth has historically outperformed inflation. As per the RBNZ calculator, wages increased 132% since 2000, while the CPI (inflation) over that period was 83%.
I wonder though if most of the wage growth is in the top 20 % or so, meaning it’s going way up for those on the top and not so much for the lowest paid, regular kiwi lol
In terms of recent years, in my experience people who jump jobs have got decent pay rises. People on benefits have got decent increases, minimum wage has increased decently.
My hunch is that it all ends up gobbled up by mortgage debt. People who have higher incomes can borrow more money. People who can borrow more can offer more for the limited supply of housing, causing house prices to sky rocket. These people then find their higher incomes are gobbled up by mortgage payments, and if they took out the mortgage before rates shot up but still have a decent mortgage (like most young home owners), then the rates rises would hurt.
While inflation takes into account mortgages, it's only a minor portion by the time the calculations are done.
I don't think so? In the 2000s I used to get yearly increases of about 5% and inflation was 2%.
I was reading this not realizing it was a NZ community, and boy was I confused with your last two sentences. 🤣
Haha I actually intended to link to the RBNZ calculator, but must have forgotten.
I tried to find a US wage growth calculator (that would let me pick specific times to compare between) but wasn't able to find something. Inflation over that 2000-now period was pretty much the same as NZ, very slightly lower. Maybe there's another term used but I haven't been able to find US data on wage growth since 2000, though I'm sure that data will exist.
This.
This is why pensions are indexed to wage growth and not the CPI.
Now you mentioned it, what happened to the election promise to change this? Are pensioners getting a pay cut?
Pensioners will be fine. The Govt's election promise was to stop benefits from rising at the same rate as wages and pensions.
They announced it in Dec, it will come into effect on April 1.
So basically SLP etc won't get cut, it will just fall further and further behind.
(How they describe it in that article is disingenuous, because it's well-known that inflation for low income households is higher than the CPI, and that long-term wage inflation is higher than the CPI as well. Which is why doing this to pensions would have been political suicide).
I had thought it was National but it was actually an Act policy: https://policy.nz/2023/party-vote/policies/incomes-and-employment/subtopics/superannuation-and-savings
I'm guessing it didn't make it into the coalition agreement then.
I just had a thought (tangent to this conversation), why are the options for super affordability seen as "raise the age of entitlement" and "do nothing". Instead of "raise super entitlement age to 67", where is "income test super from age 65 until 67"?
I didn't realize ACT wanted to do that. It would never fly, it would effectively make the average elderly New Zealander worse off with pensions effectively worth about 9% less over just 1 term of government. National campaigned on only doing it to beneficiaries.
Re: the conversation about affording Super, I think part of the problem is New Zealand has this obsession with tax simplicity. Which is nice in some ways but that's how we ended up with such an unforgiving GST regime (which forms an unusually large component of govt revenue by OECD standards). Similarly, means testing is probably seen as too high in compliance costs.
The government has far more income data than they did 20 years ago. I'd guess those compliance costs would not be as high as they once were, and by growing the means-tested base you can scale up slowly and sort out any growing pains. Plus, think of the savings in superannuation!
Or I guess you could think outside the box and revert anti-smoking schemes so people die younger and so you have to pay less superannuation.
I think your plan (the first one ha ha not the smoking) is a good one, and totally achievable.
To afford it, MSD could switch their means testing assessments to once per tax year (instead of using two random overlapping 52 week periods per year which don't coincide with the tax year). That way they could use IRD data.
I can think of heaps of problems with that method, but nothing strong enough that I don't think a working group couldn't sort out answers to them.
Personally I just want to raise taxes, pay UBI that counteracts that raise, and get rid of WINZ (or more likely, a smaller, more specialised agency). Means testing super is kinda moving away from that goal.
But we probably need young people to vote if we want to stop old people making all the laws.
Wage inflation normally outpaces the CPI. The last few years have been an anomaly.