average wage

Figures out today show salary and wage rates as measured by the labour cost index (LCI) rose 3.1 per cent in the year to the end of September.

At the same time the quarterly employment survey (QES) for the same period, also published by Statistics New Zealand (SNZ), showed the annual increase in total gross earnings exceeded the annual increase in total paid hours.  That resulted in a 3.9 per cent annual increase in average total hourly earnings, to $23.10, SNZ said.

The LCI showed salary and wage rates, including overtime, for the private sector rose 3.2 per cent in the year to the September quarter, while in the public sector they increased 3 per cent.

Steady growth in earnings was also evident in the QES, where seasonally adjusted total gross earnings increased 6.1 per cent for the September year.  Employment, as measured by full-time equivalent employees remained relatively unchanged for the September quarter but increased 2.5 per cent for the September year.

The LCI showed private sector wages and salaries, either including or excluding overtime, up 0.9 per cent in the September quarter from the previous three months.  In the public sector the quarterly rise was 1.3 per cent.

According to the QES , private sector average total hourly earnings rose 1.3 per cent from the previous quarter and 3.5 per cent over the year to $21.59.  A 0.1 per cent slip left the number of full-time equivalent employees around 1.4 million.  The QES results showed the continued growth in business demand for labour, SNZ said.  The 2.5 per cent increase in full-time equivalent employees for the year was mainly driven by the property and business services and construction industries.

An expected, seasonal downturn in manufacturing activities had reduced the industries' contribution to average total hourly earnings during the September quarter, SNZ said.  According to the LCI, the industry groups with the largest annual increases in salary and wage rates, including overtime, were mining, which rose 4.9 per cent, followed by finance and insurance up 4.8 per cent.  Other notable movements were 3.1 per cent rises in both education and wholesale trade.

ASB Bank economist Daniel Wills said today's figures suggested the labour market remained tight.  Those ongoing wage pressures were going to underpin medium term inflation, he said.  Goldman Sachs

JBWere economist Shamubeel Eaqub said the data presented a contrasting picture, with the LCI pretty strong, while the QES was coming off.  "It looks like cost pressures are still there but the earnings impact from this is waning on the household sector," he said.  "Also the activity side of things was pretty weak, with paid hours growing by only 0.2 per cent in the quarter, consistent with our view that GDP in the third quarter was pretty soft."

The LCI measures changes in salary and wage rates for a fixed quantity and quality of labour input, while the QES average earnings statistics reflect not only changes in pay rates, but also compositional and other changes in the paid workforce.

Workers on the average wage are at the centre of a political row after figures show thousands of dollars in pay rises have been whittled back to a few hundred by higher taxes and inflation.

A "Joanna Average" is at the centre of the tussle, with National's figures showing she is only $500 a year better off than seven years ago once inflation and higher taxes are taken into account - despite her earnings increasing from $33,968 a year to $44,123 a year. Her earnings mirror the average fulltime wage.

Labour does not dispute the figures, but has put forward its own calculations suggesting Ms Average is better off than National suggests - but only if she has children.  And it says National's figures simply underscore the importance of keeping inflation under control.  The row comes as National raises the stakes over tax cuts, with Australia looking to slash taxes by a further NZ$40 billion.

Prime Minister Helen Clark told Parliament yesterday that tax cuts would be addressed in next year's Budget. A rise in tax thresholds is among the likely options.

"Bracket creep" has pushed greater numbers of workers into higher tax brackets as pay packets have filled out.  Labour's Ms Average is a mother in a two-parent, single-income household with two children under 12. She works more than 30 hours a week and earns $41,000. 

National's Ms Average also works fulltime but doesn't have children.  Under its scenario, Ms Average earned $33,968 in 2000 and paid $6624 in tax. In 2007, she earned $44,124 and paid $9430 in tax.  National says that is a 42.4 per cent increase in tax paid, due to her pay rises pushing her into a higher tax bracket. Inflation accounted for the loss of $6842 more in spending power - leaving Ms Average $506 a year better off.

But Labour says its Ms Average fares better than that because she gets cheaper doctors' visits, interest-free student loans and cheaper early childhood education.  But the biggest factor is Working for Families, which means that, in effect, she pays no tax, Labour says.

A comprehensive study shows almost three-quarters of take-home pay is needed to service the mortgage on an average house.

In some areas, the average wage earner would have to spend all their pay on mortgage payments to afford the average house.

The most unaffordable region is Central Otago, which includes the resort boom towns of Queenstown and Wanaka. The average payment for the average house has ballooned to 105.2 per cent of the average salary from 91.1 per cent in December 2004.

There are only a handful of areas in New Zealand now where the percentage is around the prudent level of 40 per cent, including Southland on 38 per cent, although this is up from 29.3 per cent two years ago.

The percentage required in Auckland is now 92.8 per cent of average take-home pay, compared with 71.1 per cent just over two years ago.

Affordability in Wellington has deteriorated in line with the rest of the country - with 75 per cent of average income needed to finance an average home, even though wage growth has been stronger because of ballooning government spending in the capital.

In Canterbury, aspiring home owners are looking at paying 62.4 per cent of their average take-home pay.

Hawke's Bay home buyers would need to give up 64.6 per cent of take-home pay to service the mortgage on an average home, up from 56.5 per cent in December 2004.

Manawatu home buyers need to sacrifice 52.6 per cent of their pay.

The study, by interest.co.nz and going back to the start of the house-price boom in 2003, says 73.5 per cent of the average Kiwi's take-home pay is needed now to buy the average-priced house, up from 43.5 per cent four years ago.

The rule of thumb for most banks is that repayments should be below 40 per cent of take-home pay.

"It's not news that homes are unaffordable, but when we put together the data on house prices with mortgage repayments and average after-tax incomes we were amazed at the scale of the problem," interest.co.nz publisher David Chaston said.

Other housing affordability studies have published indexes showing a deterioration in recent years as house prices and interest rates rose, but this study translates prices, wages and interest rates into the proportion of take-home pay needed to buy the average house, which is the formula most home buyers use.

"It makes it more real, and you can understand just how big an issue it is," Mr Chaston said.

"Basically, unless you're already on the property ladder, the first rung is just too high now."

The average weekly take-home pay in Wellington has grown faster than any other centre in the past two years, rising from $643.19 to $736.90.

But the portion of income needed to finance a mortgage on the average Wellington house has also grown faster, rising to $548 a week from $377.85 two years ago.

This is because house price growth in Wellington has been faster than other major centres.

Mr Chaston said solutions would not be easy to find. "The genie is out of the bottle now and we've got a long-term structural affordability problem that will take decades to fix."

To bring the affordability percentage closer to 40 per cent would require a halving of house prices or a doubling of incomes.

"This has taken six years to come unstitched and it will take 20 years to stitch it back up again, and only if we work hard at it. It's a massive failure of public policy."

The only way to fix the problem was a big increase in the housing supply. One option would be for a massive state house building programme akin to those in the 1950s, where houses were built and then sold into the market.

"It requires the current Government to think outside the box and be unconstrained by their current ideology."

Welfare beneficiaries without children are now worse off in relation to the average worker than at any time in the past 26 years, and probably in the last 60 years.

Auckland University research shows that the net dole for a single adult without children has dropped from a recent peak of 45 per cent of the net average wage in 1986 to 28 per cent today.

The current rate is the lowest since the university data started in 1981, and economist Brian Easton said it seemed to be the lowest since the average wage was created in 1948.

His data, based on the benefit rate for couples, shows that the previous lowest rate for couples was 54 per cent of the net average wage in 1972. The single adult rate is 60 per cent of the adult rate, making it around 32 per cent of the net average wage in 1972, but the tax rate for single adults would have been different from the married rate.

Auckland University doctoral student Gerry Cotterell said benefit rates had continued to fall slightly further behind the net average wage in recent years because they were adjusted in line with consumer prices, not wages.

Since the Labour Government took office in the December quarter of 1999, the average wage has risen by 28.4 per cent while consumer prices rose by 20.1 per cent. A royal commission on social security recommended in 1972 that married benefits should be kept at 80 per cent of the net wages of building and engineering labourers, to ensure that beneficiaries could "participate in and belong to" the rest of society. Benefits were increased the next year in line with the commission's recommendations, but since then have always been adjusted in line with prices, not wages.

The single adult rate was also cut by $14 a week in the "mother of all Budgets" in 1991, and has never been restored. Instead, the gap between real net single benefits and the real net average wage has widened from $300 a week in 1991 to $400 a week today.

Mr Cotterell said beneficiaries could not feel a sense of "participation and belonging" with such a wide gap behind wages. Given economic improvements "surely there is an argument for restoring the rates that existed before 1991".