Workers to pay for Holidays Act election bribe

Every worker will pay for Labour's decision to press ahead with its election bribe of an extra week's annual leave, says National Party Leader Don Brash.

Cabinet papers gained under the Official Information Act confirm National's earlier fears that not only will Labour's Holidays Act cost the country millions, it will ultimately be employees that foot the bill.

"The papers estimate an extra week's annual leave will cost nearly $800 million.

"Treasury and the Department of Labour predict the cost will initially be split 50:50 between employers and workers. But in the long-run employers will transfer most of the cost to workers through lower wage increases.

"That means one week's extra holiday will cost the average worker about $500 per year.

"Most workers would probably prefer the money instead.

"It's also ironic that the extra week's holiday will hurt low income earners the most, when Labour says it's working hard to improve their lot.

"The new Act will effectively cancel out the Government's low income family assistance package flagged for next year.

"With legislation like this planned, it's little wonder the Government had to ditch its election goal of getting us back into the top half of OECD. Unless the Government changes tack, increasing the growth rate will be a near impossible uphill battle," says Dr Brash.

Information from Cabinet Papers on the Holidays Act

“While the initial cost of the extra week of leave falls on employers, over a period of a few years we expect that employers will offset these costs by passing them on to employees through lower wage increases”

“The immediate cost of labour will increase by 2%”

“There will be distributional impacts through salary responses – it is possible that any effects will be unevenly distributed and felt most heavily by vulnerable workers”

“These costs will fall more heavily on smaller employers where a larger proportion of workers currently receive three weeks annual leave”

“Workers who currently receive four weeks’ paid annual holidays may see their additional weeks holiday as “reward” for service…we would expect a majority of these workers to seek to re-establish their relativity”

Costs: (these are estimated as ‘maximum’ costs and also assume 75% all workers with 4 weeks increase their leave to 5 weeks)

Private Sector: $708 million Public Sector: $163 million Total: $778 million

The Department of Labour also estimates a 10% improvement in productivity as employers seek to work more efficiently as a result of the increase in leave entitlements (although they acknowledge evidence of improved productivity due to increasing leave is scarce). This reduces the total cost to $700 million.

In terms of who bears the burden – in the short-run the Department of Labour assumes a 50:50 split between employers and employees – meaning the direct cost to employers is $350 million. Employees are expected to bear more of this cost over time through lower wage increases.

“An increase in annual leave entitlement may lead to a decrease in labour supply which is likely to have an adverse impact on growth.” The long-run output loss is estimated at 0.2% of GDP.

64% of private sector workers currently have annual leave of 3 weeks; 32%, 4 weeks; and 4%, 5+ weeks.

“The proposed policy is likely to have an inflationary impact as higher costs of production feed through into prices and this may also feed through to a higher interest rate”

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