The decision by the New Zealand government to raise minimum wage to $20, though made as a Prime Minister Jacinda Ardern’s election promise, will on the long run serve the economy.
The addition expenses incurred by the wage hike would be generated through taxing the rich. Taxing the rich and passing some of their excessive wealth onto the lowest segments of the economy, in the long run, would help not only to increase the aggregate demand, but also contribute to industrial peace, socio-economic stability and much-needed political stability.
The wage increase will directly made a considerable impact up to 175,000 of the nation’s lowest earning workers. An ordinary Kiwis working a 40-hour week on minimum wage will pocket an extra $44 a week and those who earn more than NZ$180,000 will be taxed 39 per cent.
As expected, taxing of the highest earners will generate an extra NZ$550m in revenue.
Election promise
Jacinda Ardern has fulfilled her election promises by raising New Zealand’s minimum wage to $20 an hour and increasing tax on the nation’s richest to 39 per cent.
The changes came into effect on Thursday and will impact up to 175,000 of the nation’s lowest earning workers. According to the NZ government, those working a 40-hour week on minimum wage will earn an extra NZ$44 per week.
Council of Trade Unions President Richard Wagstaff stated “It’s important Ms Ardern’s election vow of a $20 minimum wage has finally become a reality.
Over 170,000 Kiwis will have a pay rise, and for those who were on the previous minimum wage of $18.90, working a 40 hour week, they will have an increase of $44 a week (before tax),’
‘We know that thousands of working people do not earn enough to provide for a comfortable life for them and their whanau [extended family]. They are the working poor; struggling to meet the costs of basics like food and housing.
‘Covid showed us all just how crucial many jobs are to the functioning of our society, jobs in health, cleaning, on our border or supermarkets. Many of these crucial roles are poorly paid.’
The wage increase will also affect New Zealanders, who earn more than NZ$180,000 a year, accounting for around two per cent of the population.
The tax increase to 39 per cent will generate an extra NZ$550m in revenue in 2021. Premier Ardern said that it represents ‘real and long overdue improvements to the support we provide our most vulnerable’.
‘There is still much more to do, including building more homes, improving our health system, investing in education, training and job opportunities,’
After winning the election late last year, Mr Ardern vowed to not take New Zealanders’ support for granted. ‘And I can promise you we will be a party that governs for every New Zealander,’ she said in October.
Income categories in NZ
According to Stats NZ data, to be in the top 1 per cent on an individual level in New Zealand, one needs to have assets of $3.89 million and to be in the top 5 per cent, one needs to clear $1.4m.
On a household level, person gets to 1 per cent with aggregated assets of $7.8 million and a top 5 per cent household needs $2.83m.
According to researcher Jess Berentson-Shaw, of think-tank The Workshop, a wealth tax would need to be set based on relative measures; “If a person has wealth at an amount that only 5 per cent of other people in New Zealand held and that group as a whole held say 35 per cent to 40 per cent of the total wealth in New Zealand statistics, it would be a sensible to say they are rich, and you could say this is what we consider rich based on relative wealth in New Zealand and see how it went.
“You would adjust it based on data over the years and public acceptability as well.
“Basically wealth – and poverty – is generally better conceptualised in a country like New Zealand as relative, so it makes sense to start a wealth tax in the context of that relative data.”
Significantly, Premier has realised the fact that the country’s overall development does not reflect on the life standards and quality of life that the richest of the population enjoy, but the men and women on the streets. Furthermore, such moves would ensure industrial peace, long-term socio-economic stability and thereby, contribute to the overall growth in the GDP and to substantially increase in the country’s productivity.
