National Blog of New Zealand

The imposition of an average 10-15% holiday surcharge began with the passing of the Holidays Act 2003. ‘The Act’ entitled workers to time and a half and a day in lieu, meaning payroll costs are increased some 150% where merchants choose to open on a public holiday. A worker previously on minimum wage at $12 now effectively earns $30 for working on a public holiday.

Cafes started the trend, and given hospitality’s high labour component most businesses in the industry soon followed.

Judge Thoburn’s ruling in Commerce Commission v Air New Zealand (2005) concluded that not including operating expenses in the ‘headline’ price, “seems wrong in principle and unfair to the consumer, because it could open the door to self serving and indulgent practices”. I wholeheartedly agree with this assessment, and on point here His Honour notes, “an increase in wages by a general wage order of the Government could be separated out”

His Honour suggested that where “headline” advertised prices do not include internal expense, as was the case with Air NZ’s fuel surcharges then its likely to be considered a false price, having regard to how a business must work out its basic pricing structure. Seperating out the cost of wages is, “in principle [unfair] in the marketplace of fair trading practice”, it cannot be remedied by the drawing attention to additional information.

While the average NZ shopper isn’t going to be misled where a sign informing them of a surchage is clearly displayed, employing a surcharge to cover what is clearly an operating expense seems offensive. The test to consider is whether the charge is an integral essential and non-negotiable part of what is required in the operation of the business. A business makes a choice whether to operate on a public holiday, and meeting payroll on this day, as on any other, is quite clearly an internal cost of the business - should they wish to remain open they should spread their overhead costs as they do for all other fixed costs through the year.

As the Holidays Act 2003 does not call for the collection of an additional charge it cannot be invoked by merchants claiming a, “government surchage tax” regardless of their view. This is simply untrue and in breach of the Fair Trading Act 1986.

The extra business transacted on a public holiday should go some way towards meeting the increased costs if they do choose to trade.

Yes it is possible we will see more doors shut these coming public holidays, perhaps those businesses who choose to eschew the surcharge may do a roaring trade as consumers become wary of where every penny is spent.

As it stands employees can bring a ‘personal grievance’ where they are unjustifiably dismissed, that is, dismissed outside of how a fair and reasonable employer as objectively assessed would act. This means that a reason for dismissal should be given as well as proper procedures followed, it’s a bit of a legal minefield for small business.

Dr Wayne Mapp’s Employment (Probation) Bill 2008 being passed under urgency proposes to abolish this protection where both employer and employee agree to do so. As we all know employment negotiations don’t always play out on an even pitch therefore it’s likely the probation period will become standard boilerplate given to employees from now on. Especially for unskilled labour who often benefit the most from union assistance (for which dismissal for association will no longer constitute a personal grievance in the probation period) as opposed to those capable of negotiating their own contracts.

To dispel some of the misinformation floating around, there will be no constant firing and rehiring of employees as the Bill will only allow one probabtion period per employer-employee relationship. Although in my opinion the hire-fire scenario would be unlikely given the negative impact this would have upon the employment relationship dynamic and the economic cost of the resultant high staff turnover. It is also only applicable to businesses which employ less than 20 staff, those likely to recognise the importance of good staff and to be most hurt by a less than suitable employee bringing a grievance. The Bill will remove access to employment mediation services, however employees can still avail themselves of the Human Rights Act 1993 if they feel they have been unfairly discriminated against.

I find little weight in the argument that this Bill needed to be passed under urgency, perhaps it’s only real function is to herald a change in the process of government. It may have already been assessed under the previous government but this does not mean any adjustments should be exempt from review. I for one can’t see the large impetus for passing this under urgency, it’s painted as a Bill to help employees by allowing employers to take a ‘risk-free’ chance on them, and by the same token assist employers by letting them vett potential employees for a lengthy period - what’s the big hurry?

No industry where it takes three months to assess employee suitability springs to mind, and therefore this seems to be an overly lengthy time period.  Job stability is a socially important goal allowing people to plan into the future, three months is but a pinprick in eternity but reducing the time period to one month (the usual maximum pay period) seems to strike a better balance.

Small business is an important part of our economy and does often run on very slim margins, so protections need to be afforded to those who choose to run such businesses - but only insofar as they do not erode the rights workers have fought tooth and nail for.

The real issue I take with this Bill is that it means employers can act in an unfair and unreasonable fashion, or at the very least not be required to act in a fair and reasonable one. Yet for many small businesses doing so and showing they have done so can be a tricky process that is perhaps slated against them from the beginning, let’s trial it - if it’s abused and the subject of well founded complaints then lets revert back. Given what I predict will be the minimal impact of this legislation it comes across as just a bit of tinkering, unless you like slippery slope argument.

“Neither a borrower nor a lender be” was the advice given by Lord Polonius at Act I, Scene III of Shakespeares Hamlet. It is said that Polonius, the mouthpiece of this advice, was created by Shakespeare so as to mock those dispensing such homespun wisdom. With this in mind I’m going to profer a little advice of my own, never ignore the central tenets of risk and return.

Looking to the origins of the global credit crisis it boils down to a bunch of less than ideal NINJA-esque loans being made, securitized, that is packaged up and sold onto other institutions. Believing that property prices which backed the loans would continue in an upward spiral as they had done for the last 50 years lenders provided these ‘subprime’ loans, borrowers took them up on their cheap credit and investment banks bought all the cashflows. Credit ratings agencies with conflicts of interest gave the securitized mortgages higher ratings than their risk profile warranted. Some institutions such as AIG insured the banks to remove the risk involved in purchasing the securitzed loans effectively linking the entire banking sector with credit default swaps. The constant theme through all of this is that risk is inadequately assessed, and returns set too low accordingly.

As we know when the US sneezes the world catches a cold. Problem is the US hasn’t just got a cold this time, it’s got yellow fever. The US NBER announced officially that the US is in recession and on cue both US domestic and world markets took a steep dive, with the DJI down 7.7%, S&P500 down 8.93% and the Nasdaq faring even worse. The NZX was down 1.17% for the day.

Figures show that 1.2 million US jobs have been lost so far, China’s factory output is falling, NZ housing construction is down, NZ house prices are estimated at 30% above long term trendlines (Barfoot & Thompson annoucing a 56% drop in house sales), all of this is making investors cautious about acquiring anything, let alone consuming and we’re now all just parking cash in ‘risk free’ government bonds or government insured deposits.

Interestingly as NZ banks come to refinance their offshore borrowing NZ’s AA sovereign credit rating may take a hit. The new wholesale bank deposit scheme creates a large contingent liability on the governments books, and the risk that banks are unable to refinance their debt due to the credit crunch may mean lenders demand higher returns from the NZ government. And this is how the system should’ve worked in the first place.

When return no longer bears upon risk and vice-versa the system falls apart.

Whether tax cuts are going to help spur the economy back into life all depends upon where the money put back into taxpayers pockets will flow. Proponents of supply-side economics would argue that tax cuts will create supply which in turn creates demand, this school of thought has been labelled “ill-fated” and perhaps “silly” by chair professor Alan Blinder in the Economics Department of Princeton University; and seen as deserved of ridicule by many other notable economists. Supply-siders argue that tax cuts for the rich promote investment, which in turn promotes growth. This “trickle down” effect or Reagonomic approach remains of questionable merit. Keynesians will argue that while tax cuts may be advantageous in stimulating demand they submit to the contrary of supply-siders that broad policy is the way to go which seems thankfully to be the track we’re headed down.

Luckily Mr Key has assured us that he will continue with the $1.75bn dollar increase in expenditure planned by the Labour government. Meaning that tax cuts aren’t simply going to be absorbed by heightened costs of access to ‘public’ services. The net result must however be that the Government incurs more debt on behalf of New Zealanders. This policy of reducing Crown revenues and increasing public debt is a definite gamble that the economy will rebound to prevent a budgetary crisis down the track. Incurring debt now without an increase in economic growth will leave future generations saddled with the interest of our current ambition.

With inflation already running at 5.1%, and our only real monetary tool being interest rates we need to be hoping that the fall in global prices trickles on down into NZ; which appears to be the general consensus among economists when lag is factored in. Expansionary fiscal policy must seemingly be predicated on this basis.

The Public Finance Act 1989 specifies per s 26G(b) that once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenue is a key principle of responsible fiscal management. Of course the government can derogate from this principle temporarily for given reasons, and those reasons in my mind must be based upon prudent economic principle stemming from fact not rhetoric.

The Government is firstly there for the betterment of all New Zealanders, and one way of doing this is to provide an open and transparent operating environment for capitalism to be conducted by smoothing the business cycle.  Whether tax cuts are the best way to do this will remain unclear until the numbers can be crunched in hindsight. Whatever the case we must hope that John Key remembers the higher the risk the higher the required return, and for good reason. Interest is the market price of credit.