The pay freeze debate: ‘Crisis’ meetings, the Prime Minister steps in as Govt and unions in showdown

As journalists headed to a government announcement on pay in the public sector, they walked past Cahill standing at the Beehive reception

Cahill was heading in for his regular meeting with Police Minister Poto Williams before going to Police National Headquarters for negotiations on the police pay round.

As he arrived at headquarters, so did the news alerts on his phone: headlines of a three-year wage freeze for many public-sector workers.

What Cahill had not known was that while he was meeting with Williams, Public Service Minister Chris Hipkins and Finance Minister Grant Robertson were announcing that public-sector bosses had been told not to give pay rises to those on more than $100,000 for the next three years, and only in certain circumstances to those on more than $60,000.

It provoked a strong, swift and blunt reaction from public-sector unions.

The Police Association was not the only one concerned. The nurses were in negotiations, the doctors’ and dentists’ negotiations are coming up later this year, and teachers’ negotiations are due in the middle of next year.

The Public Service Association and the Council of Trade Unions said they were given almost no notice of the move.

They argued the edict undermined the usual principle of “good-faith bargaining” by pre-determining what state-sector bosses could agree to – and that freezing pay scales amounted to a pay cut because it did not take account of the increase in the cost of living.

The Government was almost as surprised by the reaction as the unions were by the announcement.

Some in the Government have now questioned whether it was a mistake to make a big deal out of the release of the guidance by holding a press conference on it. The issuing of the”expectations” is a fairly routine government exercise, usually done simply by issuing the documents.

But the actual mistake was in bungling the sales job.

The reason for the three-year period of pay restraint was set out by Robertson, who said the Government was mindful of the debt taken on over Covid-19 and now had to make “choices” about where to spend what money it had. In Labour’s case, that was to focus pay increases on the low-income workers, and keep the overall pay bill down to ensure jobs were not lost.

Robertson may have thought this was perfectly reasonable: It was the exact same reason former Finance Minister Bill English gave when he issued similar advice, restricting pay increases and public-servant numbers after the Global Financial Crisis.

English and then Prime Minister John Key made a convincing argument – the Government was tightening its own belt to lead by example and for the sake of the wider economy. Its main focus was also on the bureaucracy, rather than front line workers.

If the public servants weren’t happy then, the public accepted the need for it.

But the Labour Government’s move met with a very different response.

Part of that was simply because it was a Labour Government, not National. Imposing pay restraint on anyone but the very wealthy is always going to be a harder sell for Labour than National.

Labour opposed National’s cap on the public service – and gave nurses and teachers healthy pay increases in its first term, making a song and dance about the need for a “catch up” after what it called the “nine years of neglect”.

Hipkins says expectations were higher under a Labour Government, and that had been seen in the industrial action over the past three years, including teachers’ and nurses’ strikes.

“We’ve seen disgruntlement with offers under our Government that, had they been made under a National Government, would have been gratefully received. So, yes, I do think the workforce’s expectations from a Labour Government is generally higher and that’s a challenge for us.”

It is little wonder news of a three-year period of minimal or zero increases took those workers by surprise.

The ministers then spent the next week in damage control, trying to argue it was not a pay freeze with limited success.

Unions were unimpressed with the defence put up by Prime Minister Jacinda Ardern and ministers that many would still get a pay increase by virtue of moving up through the pay scales in collective contracts.

The PSA’s Erin Polaczuk pointed out that applied to very few workforces – nurses, police and teachers. Others such as Defence, Transport, Health and Foreign Affairs were not on such agreements. The only nudge she got was Ardern saying she would be open to using the step-based contracts in more workforces.

The “freeze” landed as nurses were about to start a ballot on whether to strike over their stalled pay negotiations: in April, the Nurses Organisation had described a cost of living increase offer (less than two per cent for many) as “an April Fool’s joke” and was pushing for 17 per cent.

The Government continues to insist it is not a freeze, and that it was misinterpreted from the start.

It is hard not to read the Public Service Pay Guidance as anything other than an attempt at a freeze on most of those earning more than $60,000.

That was drawn up by the Public Service Commission in response to the Government’s directions to focus pay increases on lower-income earners but otherwise exercise restraint.

It set out the three salary bands in question: lifting the pay for those on less than $60,000, “adjusting” pay for those on $60,000-$100,000 but only in some circumstances, and “holding” pay for those on more than $100,000.

For the middle group “the default position is that there are to be no increases to bands for lower to middle earners” unless it was required because of recruitment problems or limited options for pay increases by moving up through salary bands.

For those on more than $100,000, the default position was “no increases to bands and no pay adjustments”.

Cabinet had discussed and signed off on the Government’s directions, and had “noted” the Public Service Pay Guidance. The Weekend Herald was told there was very little debate about it, or concern raised in Cabinet.

Was the so-called thaw actually a thaw, or just a bit of spin?

By Monday, Prime Minister Jacinda Ardern was involved when she was asked about it on her morning media rounds.

On Tuesday morning, Ardern met with Polaczuk. It was one of their regular quarterly meetings – but had been delayed by a few weeks because of other events. It was now urgent.

After that meeting, Ardern fronted to media with Hipkins and Robertson. She continued to insist the freeze had been misinterpreted, while also trying to convince people of the need to show some restraint in pay.

Ardern said the zero increase position was simply the “starting point” in the Government’s bargaining approach.

“We will not stop the work we’re doing on pay equity, it doesn’t affect our existing agreements, and of course we do have to go through a good-faith process with the unions.

“This is our guidance, this is our starting point, our perspective on what we need to do, and now we come together with employee representatives.”

Hipkins was also deployed to meet with other key union leaders.

The explanations and assurances given in those talks calmed things down a bit – but not altogether.

CTU head Richard Wagstaff emerged from his meeting with Hipkins and said “we’ve got a wage freeze off the table.”

He said they had agreed that cost-of-living increases could be discussed for all workers on collective negotiations “regardless of salary”.

The second concession was that the pay guidance would be reviewed after a year, rather than the next scheduled revision in 2023.

After the meeting, Wagstaff reported “we’ve got what we want”.

But who has “won” here?

Hipkins says he has no intention of changing the wording of the Government’s expectations document, or the Public Service Commission’s directive to bosses, which followed it.

He said some of the things in the Government’s expectations document were things the unions had been wanting for some time.

“In terms of the pay guidance, the substance of the pay guidance is absolutely right. I think the way we communicated it when it was announced could have definitely been better.

There is no wage freeze. But the guidance itself is still sound.”

That means the “default” positions remain the same – government departments start from a position of no increase for those on more than $100,000, and no or limited increases for those on more than $60,000. Public-service bosses remain under instruction to keep their overall wage bill as low as possible – and to ensure those on less than $60,000 get more in monetary terms than those on higher salaries.

Hipkins sees what happened in those talks as “clarifications” rather than concessions.

Only the agreement to review the guidelines at the end of next year rather than wait until 2023 was a concession – and that was a matter of six months difference.

He continues to insist that the cost of living negotiations were what the Government had intended all along in its guidance.

Hipkins admitted the issue got away on the Government in the days after the announcement, and the communication of what the guidelines meant could have been handled better.

“I think that’s true. Over the weekend I think it fed on itself. I think the message got lost along the way and I hope that now peoplehave started to hear what we are trying to achieve.”

However, he said some of the commentary around it was simply untrue – including the suggestion the likes of early-childhood teachers would be hit. The guidance specifically excluded pay equity negotiations– and on Thursday Hipkins outlined a $170 million deal for early-childhood teachers to bring their pay closer to kindergarten teachers.

He accepts it may have come across as the Government trying to save money. “What I would emphasise instead, were I to go back and re-announce this, is that there is always going to be a limited amount for pay increases. It’s even more limited in the post-Covid 19 environment, and therefore we want to target it at those who need it the most.”

But he denied blind-siding the unions, saying the Government had been talking about the need for pay restraint for a year and it should not have been a surprise.

“We’ve been talking about the need for restraint since the Covid-19 response began. I think perhaps they have not been hearing that. But we have certainly been saying it.”
Asked why the Prime Minister had had to step in, despite saying the same things the ministers had said all along, Hipkins grins: “People just weren’t hearing what we were trying to achieve and I think she has helped clarify that. Sometimes hearing it from the Prime Minister helps.”

The Government was genuinely concerned that increases usually negotiated in collective agreements were only increasing the gap between the bottom and the top.

A 2 per cent increase gave a lot more to somebody on $90,000 than $45,000.

Hipkins said if he could turn back time and announce it all over again, he would have put more emphasis on the need to tilt the playing field toward lower-income workers.

“The fact that the settlements over the past three years have actually increasedthe gap between high-income earners and low-income earners, and we want to really try to lean into that over the next three years to make sure things turn the other way.”

Hipkins won’t specify which settlements he was referring to, but one of the negotiations that prompted the Government to try to shift things around was the last teachers’ agreement in 2019.

The original offer from the Government would have given more to the teachers at the bottom of the rung. But the majority of teachers voting on the deal were at the top end of the salary brackets.

The first offer was rejected – and the end agreement gave more in monetary terms to the teachers already in the higher brackets, as well as creating an extra “step” with a salary of $90,000 at the top.

About half of all teachers are estimated to now be on the $90,000 bracket.

In simple terms, what the Government wanted this time around was for pay rises to be restricted to cost-of-living increases – and for those to be agreed in dollar amounts rather than percentage amounts.

That was aimed at ensuring those on low salaries got at least the same amount in their pockets as those on higher salaries.

It may have looked as if the Government lost the war over the “pay freeze” for public workers, but look again.

Yes, it upset its core base – the unions, the teachers, the nurses.

But there is also a hint of a bare-knuckle approach to pay negotiations.

One of the chief goals of setting out the new criteria – and doing it so loudly – was to try to crush the expectations of pay rises in the public sector.

What the Government is quietly hoping is that the “pay freeze” issue will mean groups such as the nurses re-adjust their expectations and consider a cost of living increase as a win rather than a joke.

The nurses’ decision on Friday to strike over their “cost of living” offer shows the Government is being a tad optimistic.

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