So the Kiwi Party had its first meeting today and announced a couple of policies:

1) People should be able to direct $100 of their income tax to a charity of their choice each year.
2) To lift the adult minimum wage to $15 an hour.

The first policy is ok, although it would be much nicer if that was just a tax cut thank you very much. The second policy is the one I want to look at today…

This isn’t your normal minimum wage increase. The Kiwi Party are planning to give a 100% tax rebate to employers to cover the difference, so that it won’t cost them anything.

Now let’s leave aside the whole point about how it does actually cost businesses, even if not directly through higher taxes, and just look at the cost. Or maybe we won’t – The Kiwi Party haven’t included any costings in their press release, in their policy announcement or on their website. Infact, I would be inclined to believe that they haven’t even though through the policy properly. You see, subsidising a higher minimum wage is expensive, nevermind an almost $4 increase. But this doesn’t just affect those who currently earn $11.25/hour, it also will affect all those earning between the current minimum wage and $15/hour.

Now, let’s imagine you’re an employer and you like to hire good, professional, hard working staff, and as such, you reward them with a $14 or $15 an hour wage already. What is the first thing you do when this policy is implemented? Reduce their wages to $11.25 and then claim the $3.75 subsidy from the government. Further down the track, there is now NO incentive to increase the employee’s wages, because if the business increases their contribution to $13, the government reduces theirs to $2, and the employee ends up with the same salary. There is also the possibility to reduce the wages of employees earning over $15/hour and make up the difference with benefits like company cars etc.

Finally, a quick look at the statistics. Statistics New Zealand tells us that the median hourly wage is $17. So The Kiwi Party’s big policy announcement is to have the government pay 25% of almost half of New Zealand’s wages. And then take about 25% or more back off them in taxes. Sound familiar?