John Key MP
National Party Finance Spokesman

21 August 2006

Cullen fails to show restraint with public sector wages

Finance Minister Michael Cullen should explain why he expects the private sector to show restraint over wage hikes when he fails to show such restraint with public sector wage rises, says National Party Finance spokesman John Key.

The latest Labour Cost Index showed the public sector recorded its biggest rise in 15 years in the year to June, at 4.2%. This compares with a 3% rise for the private sector.

"This shows Dr Cullen has failed to restrain the public sector. Instead, he has been busy feeding wage inflation with rises of up to 20% for prison guards and big hikes on the way for other departments like TPK," says Mr Key.

"Yet Dr Cullen has been joining Reserve Bank Governor Alan Bollard in saying that people can't or shouldn't expect wage rises to compensate for inflation, which is now running at an uncomfortable level.

"Dr Cullen said at the beginning of the year that he was going to take a strong line with state sector CEOs about wages, but this has obviously not happened.

"The Reserve Bank has now been outside its 1-3% inflation target for 18 months.

"There's a big risk of inflation becoming imbedded in the system. A key component of that is ongoing wage increases, something Dr Cullen says he's been keen to dampen down in the private sector but has failed miserably to address in the public sector.

"Left unchecked, this will without doubt mean New Zealanders will face either higher interest rates for a longer period of time, or potentially further interest rate hikes.

"Labour's love affair with the public sector is continuing unchecked. Labour has added 10,000 more people to the core public sector- that's bureaucrats, not teachers, nurses or police officers - since 1999.

"With its large wage increases in the public sector, Labour is now adding more petrol to the inflationary fire.

"The thing that keeps Dr Bollard awake at night is the thought of rampant wage inflation.

"Dr Cullen is doing nothing to give Dr Bollard a restful night's sleep."

ENDS

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