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The Brash Report - No. 29, 5 May 2004

An update from the National Party Leader
No. 29, 5 May 2004
The Holidays Act

At a time when most of the focus of political attention is on the extraordinary mess which the Government has created with its seabed and foreshore policy - with a belated ministerial sacking, a by-election, a hikoi, and all the rest - it is worth remembering that this is only one of a whole host of silly and damaging things this Government has done.

New Zealand has had the good fortune to have had moderately strong economic growth in recent years. That growth has occurred in spite of the Labour Government. It is a consequence - as the Treasury confirmed in a recent report - of the painful economic reforms of the 1980s and 1990s, together with international economic conditions that have favoured New Zealand, as we attracted both people and capital in the clearly more dangerous world following September 2001. We have also had economic conditions which have favoured exports, with a low exchange rate from 1998 (well before Labour came to office) through early 2002, while very low world interest rates have boosted property markets in New Zealand and worldwide. None of this has anything to do with anything useful that this Government has done.

But unfortunately these economic conditions have emboldened the Government to make changes to employment law which will have a significantly negative influence on business conditions, on jobs, and on the incomes which workers will be able to earn.

The Holidays Act 2003 stands as a graphic example of this. Usually the negative outcomes from bad legislation takes years to be felt. This time the downside was immediate.

The new Holidays Act came into force on April 1 - and it was no April Fools' Day joke.

The Act means that employers must pay staff a minimum of time-and-a-half for work on a public holiday, as well as offering a day in lieu. In other words, the rate is double time-and-a-half.

There are other aspects of the Act which will be costly, but let's just focus on this aspect for a moment.

What were the consequences of this change?

According to the Restaurant Association, about 30% of restaurants and cafes which normally would have opened on Good Friday or Easter Monday stayed closed. Approximately another 20% intended to stay open, but operate with fewer staff. Virtually all of those that did open introduced surcharges to cover their costs, generally at around the 15% mark.

Thus, the immediate effect of the legislation was a substantial reduction in employment over that weekend. The Government has eliminated the Easter weekend jobs of thousands of employees, while artificially increasing the pay of some.

It represents a step back to the days when New Zealand was closed at the weekend.

But it doesn?t just stop with the tourist industry. Many fruit-growers in Central Otago also said that they would shut down their outlets over Easter, and cherry growers are particularly worried about the Christmas period when cherries must be picked. Exporters cannot just put a surcharge on sales - they are price takers in international markets.

The chairman of a South Island meat company told me that, before the Holidays Act came into force, his company paid most workers who were obliged to work on a statutory holiday $408 for the day. The effect of the new Act has been to increase that cost to $658 per day and, because the company works in an industry where working on statutory holidays is often essential, the extra cost of that single change in the Holidays Act amounts to about $600,000 annually. The company can?t pass that cost on to foreign housewives, so eventually must pass it back to its farmer suppliers.

The consequences of all this are only gradually emerging.

Our financially struggling health boards are now figuring out the costs to them - after all, hospitals cannot close for business for a day or two, or even an hour or two. Nor can all the support service industries, those who for instance do cleaning for the disabled, the sick and the elderly.

There are plenty of other aspects of the Holidays Act that will boost costs to business, and thus reduce job opportunities and reduce incomes. Sick leave provisions become more costly, penalties for breaches of the law are increased, and the introduction of four weeks annual leave starting from 2007 will mean that wage rates will be less than they otherwise would have been.

And the Employment Relations Law Reform Bill, now before a Select Committee, will, if passed in anything like its present form, do vastly more damage to the prospects for the New Zealand economy and, by so doing, hurt employment and reduce the incomes that workers can earn. As with the Holidays Act, a few will benefit but most workers will be harmed - and many of them will not even realise it, as they will simply find it harder to find a job and will get lower wage increases than otherwise. This Government will certainly not admit to their part in that outcome.

None of this is necessary. If we assume that the Holidays Act and the Employment Relations Law Reform Bill are being put in place with the best of intentions, rather than as the sop to Labour's union friends that they appear to be, then they are totally misconceived. They are based on the fantasy that government can simply dial up an income for people. The reality is that governments can at best create an environment in which businesses create well-paying jobs. This Government is destroying that environment with almost every new piece of legislation.

These two pieces of legislation are based on a public sector, glide time mentality, typical of a group of ministers who have spent their entire working lives in the public sector.

But in the modern economy business is a seven-day-a-week affair, and most businesses operate for more than eight hours a day.

This Government is putting in place labour laws appropriate to the 1950s public sector, not to a modern economy at the beginning of the 21st century.

Don Brash


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