Morgan Godfery: Who should bear the burden of inflation? Not the workers

Wednesday, 24 August 2022

Homes used to cost a lot less, but in previous decades home loan interest rates were much higher. Home loans rates are however on the rise as the Reserve Bank Te Pūtea Matua has been raising the official cash rate to fight inflation.

Morgan Godfery is a senior lecturer in the department of marketing at the University of Otago. He has a background in journalism and public policy, including as a parliamentary staffer with the Labour Party. He is a regular opinion contributor to Stuff.

OPINION: Who should bear the burden of inflation? In the year to June 2022, prices were up 7.3%. The costs of paying rent, constructing a new home, purchasing a tank of gas, and filling up the shopping trolley are rising dramatically.

The cost of construction alone is up 18%, and everyone knows how high the cost of gas went (over $3 a litre) and how high it could go (absent the Government’s cut to fuel excise, it’s conceivable that prices would breach $3 again).

For most New Zealanders, our households budgets and our habits adjust accordingly: we cut how far we travel to help keep our shopping trolleys full. We reduce the electricity we use over winter, opting for less heating to help manage the rising cost of rent.

New Zealand’s annual inflation of 7.2% isn’t ideal, but some countries are facing much higher figures.

That seems entirely appropriate. In the US and Europe, inflation is running above 7% as well, and ordinary people are making sacrifices to manage it. Yet, at the same time, making personal sacrifices as corporate New Zealand registers record profits seems galling.

Could another toilet paper shortage be on the horizon, as Kawerau firm Essity locks out its workers in a pay dispute? (File photo)

* Inflation: What two economists think the Government should do to tackle the high cost of living

* Workers have the most to lose from a wage-price spiral

Morgan Godfery: Luxon’s position is ‘’a strategic and tactical departure from the approach of his predecessors’’.

According to First Union’s Ed Miller, corporate profit jumped to $72 billion in the last year. That’s the highest profit level in New Zealand history. Wages, on the other hand, although up in the past year, continue to lag productivity growth. That continues a pattern set in the 1980s, where the labour share of income – that’s the share of national income going to working people – lags the share going to shareholders and the owners of capital.

In other words, people who make their money from owning things are doing better than people who make their money from work. In a parliamentary democracy, politics often revolves around striking the optimum balance between these two competing forces.

When a Labour government is in power, unions work their bargaining muscles, leaning on legislative and regulatory reform to help secure a better deal for workers. When a National government is in power, the opposite usually occurs, with bosses flexing on workers. Some commentators on the left and right obsess over “identity politics” and how it dominates political debate (well, at least in their imagination). But the chief struggle was, and is, between capital and labour.

That applies more clearly than ever in the inflation debate. In Kawerau, the Swedish hygiene company Essity, which manufactures New Zealand’s leading tissue and toilet paper brands, is locking out its workforce after bargaining broke down. Why? Because Essity refuses to meet the union’s pay claim.

According to union chief Tane Phillips, his 145 members are seeking an inflation adjustment. That is, a pay rise to meet the cost of inflation. No more. No less. This seems reasonable when Essity’s global parent recorded a $9b profit in 2021. Why should workers bear the burden of inflation when global profits are booming?

They shouldn’t. And it’s an injustice that Essity is locking out the 145 union members until they compromise on their pay claim. Reports already indicate that the lockout is reducing the supply of tissue and toilet paper. How much longer should the global company hold out on the workers in the poorest town in New Zealand?

The lockout reinforces how companies – and the Reserve Bank – are forcing workers to wear the cost of that 7.3% increase in inflation. Essity can obviously afford to pay its workers more. The question is whether it values its workforce over any theoretical returns to its shareholders.

Policy-makers are at fault as well. In an effort to control inflation, the Reserve Bank is turning to its best, rather blunt, tool: monetary policy. Interest rates are rising, placing enormous pressure on homeowners as the cost of borrowing increases, and on working people as the Reserve Bank attempts to “cool” the labour market and perhaps increase the level of unemployment.

But, as Ed Miller and others point out, there are alternative, better, ways to help control inflation, including higher taxes on high earners and corporate profit. And that is where the burden of inflation should fall. On those who can afford to bear it. High-income earners, including those earning over $180,000 (who Labour taxes and National wants to let off the hook), and those companies banking record profits.

Instead of forcing Essity’s workers to pay for the rising cost of inflation, we should ask Essity’s shareholders.