Teachers are demanding a 15 to 16 percent pay rise over the next one to two years. The government is staunchly resisting. If it relents on the teachers’ pay claims it is likely to unleash a tsunami of public sector pay claims. They can little afford to do so.

Teachers and other public servants have had almost a decade of meagre pay increases under a National-led government. The current government is the unfortunate recipient of this pent up frustration. The much vaunted government budget surpluses were largely won at the expense of public servants and the quality of public services.

While inflation has appeared benign over the past decade (up 16 percent) the reality is that the cost of essentials such as accommodation (up 80 percent), rates, insurance and electricity have far exceeded wage increases over this period. Inflation has been kept low by falls in the prices of non-essentials such as electronics and entertainment. It has become much harder for the average Kiwi to pay the basic bills. Teachers, nurses, police and many other Kiwis have an uneasy feeling they have been going backwards, particularly if they prefer indoor living.

But there is a much larger theme underpinning public sector wage demands and this government’s staunch response. It exposes a fundamental fault line in our economy. A shared delusion about our economic reality. We just aren’t doing particularly well, despite what we have been told.

I have great sympathy for the pay demands of teachers and other public servants. Yet their intransigence in their pay demands could expose the myth of the “rockstar New Zealand economy”. This  delusion is based on the myth of our apparent prosperity. This has been largely based on rising debt levels, mass immigration  and housing inflation. The statistics relating to household debt levels in New Zealand highlight the extent of this collective delusion. We have used borrowed money to bid up our own house prices thinking we are getting richer as a nation in the process. This has been happily facilitated by politicians of all persuasions.

If the current government relents to the demands of teachers and other public servants, our economic success story could easily be exposed as a well-crafted fable. A very astute exercise in political marketing. The question we should be asking is “if we are doing so well, where are the new industries with heaps of well paying jobs?”  The answer is they don’t exist. Our economic growth over the past decade has largely been the result of an illusionary trifecta of mass immigration, ultra-low interest rates  and housing inflation.

There are no major new high paying growth industries. Success stories such as Xero and A2 milk are well hyped minor players in the scheme of our wider economy. Tourism is generally a low income industry. There has been no surges in worker productivity or average pay rates.

Headline GDP did grow at around 2 or 3 percent per year for a number of years. But that was because mass immigration meant there were more people living here and spending and generating  more output and incomes. Mass immigration also pumped house prices creating a feel good wealth effect for home owners. But on average we were little better off in our real incomes.  Mass immigration is a steroid to headline economic growth. Steroids aren’t a long-term success story.

If this government relents and provides teachers and other public servants with double digit pay increases the likely outcomes will be a budget deficit and increased inflation.

The scenario from there will be higher domestic interest rates as the Reserve Bank raises interest rates to quell inflationary pressures. Higher interest rates will serve to further decrease housing inflation and wider demand in the economy. The economy will stall.

The public sector was the whipping boy for the previous government. The pent up frustration this created  is now being unleashed on a supposedly sympathetic administration. The current government is likely aware that catering to public sector pay demands could quickly unravel the New Zealand economic fable of the past decade. They are on a hiding to nothing. We are definitely living in interesting times.

Peter Lyons teaches at Saint Peter’s College in Epsom and has written several Economics texts.

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2 COMMENTS

  1. Absolutely correct. During my 50 years as a teacher-educator we demanded and justified lay rises based on work load and relativity. That margin has been decreasing and teacher educators cannot use that strategy now. Teachers will not be able to demand pay rises any longer, unless they take up the reins of 21C education, looking at the need to change from a subject based secondary education that applies a balance between subject based learning and assessment, a more diverse view of literacy and numeracy that includes media, health, financial, and environmental literacies, together with development of capabilities and competencies that are assessed and reported, and aspects of innovation , creativity and team sharing effort. This will require commitment to extensive PLD to enhance the academic and professional competencies of teachers educators. Then, teachers will have a strength of argument to expect better rewards

  2. Some blame also needs to be laid at the feet of the union (NZEI) for taking their one-eyed eye off the ball. Here’s my personal reasoning. For all the time National was in government all of NZEI’s efforts are put into fighting government policy and little on renumeration. Yes, we should be challenging things we disagree with, but had NZEI fought as strongly for smaller incremental increases each negotiation round no matter which government is in power, then we would not be in this predicament.

    You see, whether part of the union or on an individual employment agreement, the renumeration is still locked in to the same collective agreement amount for all teachers. We pay the union our annual fees and they have actually stunted renumeration increases. Now we are in a position of asking for what ideally makes up for the lost ground but realistically can never happen, as this opinion piece suggests.

    Now we spend all our energy on pay negotiations and no time on challenging educational policy – but that doesn’t matter because Labour can do no wrong. Our union has, for a while now, been serving its leaders’ own political ambitions rather than serving ‘one for all’. Thanks for your mis-management NZEI.

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