Concern over minimum wage hikes

Scott Mason
Scott Mason
An orchard owner in Central Otago is rallying against minimum wage increases, arguing reducing the income tax of a portion of low-wage earners would help them more and do less harm to small businesses.

But a tax expert says it makes more sense to give low-wage earners more social support than to ‘‘tinker’’ with the tax system.

Workers on the minimum wage will get a boost in April, the rate rising from $17.70 to $18.90.

The increase is a step towards the Government’s goal of a $20 minimum wage by 2021.

The business owner said she did not want to be named out of concern people might react angrily to her view the minimum wage should not be increased.

‘‘I’m all for people getting more money in their pocket.

‘‘The Government needs to look at how they can ensure lower-paid people get more in their wage packet, without damaging especially smaller companies.

‘‘What is the point of more money in a pay packet if the result of that is that it is going to cost jobs, and it gets swallowed up by higher prices for the basics, like fuel and electricity and rents and groceries?’’

She said she had a better idea of how to get more money to low-wage earners.

‘‘If they’re going to up wages all the time why don’t they bring the PAYE [rate] down?

‘‘Lower-paid people can have an immediate solid increase in their take-home packet.’’

Her orchard hired between 100 and 200 people during the picking season and when the minimum wage went up it had a domino effect, raising all wages.

‘‘As soon as the minimum wage goes up all our permanent people get the same pay rise because they want to have the difference between the basic rate and what they get.’’

She also predicted it would lead to small and medium-size business owners choosing not to employ people and instead to do the work themselves, sometimes with no or very low pay.

Tax specialist and managing partner at Findex in Dunedin Scott Mason said he had a lot of sympathy for business owners struggling with the increasing cost of wages.

He agreed with the orchard owner the increase in minimum wages could lead to employers not hiring new staff.

‘‘They’ll defer taking an employee on for a longer period of time. Which then has a counterintuitive impact on the economy, accepting of course we’ve got pretty full employment at the moment.

But reducing the income tax low-wage earners paid was ‘‘tinkering with our overall tax settings’’.

‘‘The reality is those on minimum wage — when you take into account their tax rate and their social benefits — aren’t generally net taxpayers anyway.

‘‘We’re basically using the tax system, the people who are net taxpayers, to subsidise [low-wage earners] further.

‘‘It may or may not be right — it’s just a much wider debate is the point I’m making.’’

He said it would be a better idea to increase social welfare to help those more in need.

‘‘If you were going to use the tax system to do it, you’d be better off tinkering with the likes of Working for Families or those sorts of things rather than changing tax rates.

‘‘If you change the tax rate then it affects all taxpayers.’’


So essentially what this business owner wants is a subsidy to run his business.
If a full time employee can't live off their wage, including paying taxes, then their employer isn't paying them enough. It's that simple.
If that employer then thinks the tax payer should pick up the additional cost of living, then they're asking for corporate welfare.
Whether or not there should be assistance for small businesses is another question, but at least have the humility to call it what it is!
Personally, I would respond with a resounding "No" but let's at least clarify the question we're discussing.






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