The NZ Initiative's Eric Crampton is pleased the Labour Party has clarified its tax policy and now wants more detail on the party's plans for labour relations

By Eric Crampton*

Well, now we know what is likely to happen with taxes under a Labour government. National’s promised inflation-indexing of the lower income bracket tax thresholds will be gone, we will likely have some kind of water tax, but big changes like capital gains taxes are off the table until after a report from a Tax Working Group and the 2020 election.

It’s good to have some certainty about big policy changes. It is harder for voters to make informed choices when parties are coy about their intentions.

But there is one other big potential change in Labour’s policy manifesto that we do not know very much about, and that could matter a lot.

Labour proposes what could be very substantial shifts in labour relations. Its policy manifesto is light on the details, punting them to a different post-election working group of stakeholders. But the big picture is generally set.

Currently, every company sets its own employment deal with its workers, within the confines of labour laws that apply to everyone. Conditions vary firm-to-firm and reflect the circumstances particular to each company. In one place, flexible working environments might be very easy to accommodate and so workers would have easy work-from-home options. Another company in the same industry might have a much harder time doing that, but might make it easier for workers to vary their shift times. And still others might have very little flexibility but higher pay as compensation.

One size rarely fits all, and so a baseline minimum combined with general flexibility makes a lot of sense.

Labour proposes industry-level Fair Pay agreements that could change all that, within their first year in office. What would this mean? Here is everything we know about it, from Labour’s manifesto:

“In conjunction with all relevant stakeholders, develop and introduce a legislative system of industry and sector collective bargaining that allows unions and employers, with the assistance of the Employment Relations Authority, to create Fair Pay Agreements that set minimum conditions, such as wages, allowances, weekend and night rates, hours of work and leave arrangements for workers across an industry based on the employment standards that apply in that industry.”

But what does it mean? How broad are the proposed industry and sector groups? Consider restaurants. Fast food places will differ considerably from fine dining establishments. Some restaurants are open all day; others only for lunch and dinner; still others only open at 5pm and stay open until very late. Hours of work, provisions for weekend and night rates, and leave arrangements will vary considerably across all of those, even though they are all restaurants.

And what happens in workplaces where both workers and the company want something other than the industry-level government-approved Fair Pay Agreement? Would there be opt-out provisions? How difficult would it be to opt-out?

Earlier this year, Australia’s Centre for Independent Studies published a review of the problems inherent in Australia’s system of National Awards.

There, a statutory agency sets out national pay rates for working conditions for 122 occupations. Each of these working conditions agreements is called an Award. Just looking down the list we find an award for the Book Industry, one for Architects, one for the Asphalt Industry, one for Car Parking, one for the Cemetery Industry, one for Mannequins and Models, one for the Mining Industry, one for the Real Estate Industry, one for Quarrying, one for the Timber Industry, and many more.

And pay rates for baristas on Sundays became a matter of national political importance rather than something left for each café to sort out on its own.

If you aren’t sure which award applies, a helpful website might point the way. But it is far from comprehensive.

The CIS reports on one illustrative case in Melbourne. A small design firm was not sure which award to provide its workers because none of the prescribed categories matched what the firm’s workers were doing. So they asked, repeatedly for guidance. They received none, but months later received a $700,000 notice for back pay from the Fair Work Ombudsman – which was later withdrawn after costly litigation.

If the workers and the employer were both happy with the salary that the company had offered, why should the Fair Work Ombudsman, or the Employment Relations Authority, step in to say otherwise?

The CIS report also notes a recent Fair Work penalty decision that granted hospitality workers 25% higher pay on Sundays, but not for hospitality workers in fast food. At the same time, the awards provide too little allowance for regional differences. It is bizarre that the Australian government thinks it has such a crystal ball into the proper functioning of markets that it can and should draw these distinctions. Central planning for wages is bound to result in arbitrary distinctions and perverse outcomes.

Right now, Auckland schools cannot hire teachers because nationally set wages do not adequately recognise the massive difference in the cost of living in Auckland as compared to elsewhere. Now imagine extending that kind of problem to every industry coming under National Awards. No system of nation-wide industry-level bargaining can ever keep up with changes in the economy.

H.L. Mencken warned that democracy is the theory that the people know what they want, and deserve to get it good and hard. I’m not sure that Labour has provided the detail necessary for voters to come to any reasonable assessment of what might yet be in store. And so I hope that they might be shown some mercy.

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*Eric Crampton is the chief economist at The New Zealand Initiative, which provides interest.co.nz with a fortnightly column.