$2b pay equity package for aged care workers confirmed

UPDATED: Aged care costs may climb, no specific trade-off in tax cuts, English says.

The government will implement a historic pay equity pay deal for aged and residential care workers worth $2.05 billion of extra pay for some 55,000 people – close to 2% of the total New Zealand workforce.

Prime Minister Bill English and Health Minister Jonathan Coleman announced the deal, which will bring some 20,000 workers on the minimum wage of $15.75 an hour to a wage of $19 an hour.

That represented a 21% increase worth $106 per week before tax, and $5511 per year.

Across the board, aged and residential care workers would receive increases of between 15-49% as the package is implemented from July 1, depending on their skill levels.

The deal "will deliver a significant pay boost to some of the country's most dedicated, hard-working and yet lowest-paid workers," said Mr English, who expected there may be other groups who could argue for pay equity.

However, the criteria for achieving an increase under the new framework would require claimants to pass over high hurdles.

Mr Coleman warned ACC levies may increase over the next decade to help pay for the settlement although they are already set for the current financial year.

It could also allow increased cost for means-tested residents of aged care facilities.

Aged care costs may climb

Mr Coleman says there may need to be an increase in costs for some people in aged care facilities but that would be determined through the annual aged residential care contract negotiations between district health boards and providers.

“The reality of it is you can’t have such a massive wage rise across such a huge group of workers without there being some uplift in costs right across the board,” he says.

Mr English says it was the government’s strong books and the growing economy that made it possible for such a deal to be made.

“We’re able to afford this settlement and if things weren’t going so well, you simply wouldn’t be able to entertain it.”

Asked if the $2 billion package would reduce the chances of tax cuts, Mr English says this is not about a “trade-off between this or any other item of spending.”

He says it’s up to the private sector if it wants to follow the government and increase staff wages.

He says a set of principles for pay equity, which the government has been working on with businesses and unions, will soon be turned into law and the public can expect a draft bill to be published “before too long.”

Regarding whether today's "large commitment" would be included within the new spending allowance the government has set aside for the 2017 government budget or would be treated separately, about 90% of the settlement costs were included in the government's recent half-yearly forecast, and the balance will be included in the Budget 2017 fiscal forecasts. The Terra Nova settlement will not be included in the Budget 2017 operating allowance.

Two years in the making

The agreement follows the so-called Terra Nova legal action taken by the E Tu union on behalf of aged care worker Kristine Bartlett, challenging pay rates in her sector on a claim that they were influenced by the fact that most of its workforce are women.

After the Court of Appeal continued to find in Bartlett's favour, the government stepped in two years ago to start a negotiated settlement process rather than risk leaving it to the Supreme Court to rule a final determination.

Separately, a tripartite group representing the government, employers and trade unions has been nutting out principles to apply to pay equity claims.

While the full $500 million annual impact of the pay equity package won't be felt in the government's books until five years' time, it is expected to have ripple effects beyond the public sector jobs affected.

Bank of New Zealand economists said they expected a "non-negligible" impact on inflationary pressures from the third quarter of the current year.

"There is also the potential for similar pay-equity claims to be brought by other government-related sectors, where pay rates are argued to be low simply because they are dominated by females," BNZ said.

Kiwibank economist Zoe Wallis said the settlement looked likely to add about 0.6%age points over the next five years.

"This would mean that all else equal, overall wage inflation could increase from 1.6% year on year to 1.7% year on year due solely to the changes," Ms Wallis said. "So while it sounds like a big increase (and it is for those people impacted by the changes) the overall effect on headline wage inflation will be much less, and actually is relatively muted."


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