Business NZ boss expects civil service strife

Relevant offers

Politics

Fay aims shot at OIO over Crafar ACC levies may climb again Global economy may hit Budget Fay group would meet Chinese undertakings Trevor Mallard: I'm no ticket scalper Govt says asset sales will cut debt Greens: Crafar approval politically motivated Banks named as new ACT leader China 'will see Crafar ruling as racist' Govt may sell smaller slice of SOEs

Business boss Phil O'Reilly is predicting 2010 will be a year of industrial strife and an "ugly" budget that will bump up the GST rate.

O'Reilly, the chief executive of Business NZ, said he expected "fireworks" from public sector unions as the government tightened the screws on spending, and Finance Minister Bill English has said total government spending cannot increase more than $1.1 billion in the May budget, a difficult task considering that public hospitals alone have been soaking up an extra $700 million a year in recent budgets. English has warned public servants such as teachers and nurses not to expect pay increases that are "out of line with realistic expectations".

More than 50,000 primary and secondary teachers will negotiate a new pay deal with the government when their current agreement expires at the end of June.

"I think we will see quite a few sparks fly," O'Reilly said. "Government departments are being told how much they can spend so you're going to see an ugly budget from the perspective of government spending and that will impact people like the state sector unions, the teacher unions and so on. I wouldn't be at all surprised if some of that was turned into industrial action."

NZ Council of Trade Unions president Helen Kelly said O'Reilly was being "hysterical" but warned that public sector workers would not tolerate zero pay increases or cuts in services.

"We are ready for that kind of a year but we hope commonsense will prevail.

"It doesn't have to be a nasty budget. I think the government has set out to create a misconception, in our view, that there is over-spending in the bureaucracy, but the figures they are using are misleading.

"Whether there is industrial tension or not will depend on what is in that budget."

Kelly said although some senior public servants were very well paid, the majority were not and many, especially clerical workers and support staff in health and justice, were paid little more than the minimum wage.

O'Reilly hoped the government would be bold when it came to tax reform but without causing "mayhem". The government will announce plans to reform the tax system in the new year after considering the findings of its Tax Working Group. O'Reilly believed the government had earned considerable public trust after a year in office, but largely because it had not done anything too radical.

He said the budget and economic reforms in 2010 must be seen in the context of a weak world recovery and the challenge of unemployment, which is expected to continue rising until the middle of next year.

O'Reilly expected the government to announce an incremental plan to reduce the top income tax rate, but he also said the government may well increase GST.

"I pick they'll increase the GST a bit, they'll do something for the lower paid, and they'll get on a pathway to get the top rate of personal tax down.

"And they might have to do something with the company rate if the Australians do."

The union movement, by contrast, is opposed to any increase in GST, claiming it is regressive and hits the lowest paid the hardest. It supported an increase in the top income tax rate and the introduction of tax on property investments.

"Why not?" Kelly said. " Our top tax rate is low. It's a fairer way of widening the tax take."

Economic matters aside, Professor Michael Belgrave, of Massey University's School of Social and Cultural Studies, said the government next year must deal with important social issues, such as the seabed and foreshore and local government and welfare reform, as one.

"The challenge for the National government and its allies will be to develop a coherent approach that combines these initiatives rather than allowing each area of policy reform to resolve itself independently of the others."

- © Fairfax NZ News