Inflation Crisis: This is Class War

Living standards are being driven down by cost of living increases, sub-inflation pay rates and declining public services, notably health services. All this is being done in the name of tackling Aotearoa’s inflation crisis. At no point in this period of high inflation since the second half of 2021 can it said that pay has caused inflation. All the way through pay has lagged behind the increasing cost of living, yet bourgeois commentators speak of the “wage-price spiral” as if pay is the problem. In reality the inflation crisis is being used by the employer class to create the conditions for making profits at the expense of lower standards of living for workers. This is a class war that so far has put the working class on the defensive. War is being waged against it, rather than by it.

The principal instrument of the employer class in this war is the Labour government. It is implementing neoliberal economic dogma in favour of Aotearoa capitalism. There are three interrelated strands to the Labour attack on the working class.

The first is to raise interest rates. The purpose is to engineer a contraction in the economy by increasing the costs of home loans (and indirectly rents) and business loans to generally reduce spending power.  A key aim, made explicit by the Reserve Bank, is to raise the level of unemployment, which would overcome some degree of current competition for labour. Although the Reserve Bank base rate has been raised eleven time in successive meetings of its Monetary Policy Committee, its objectives are only just beginning to be met and only slightly. The economy contracted by 0.6 percent in the December 2002 quarter – the most recent statistic. Unemployment went up by 0.1 percent in the same quarter to 3.4 percent, still low and not high enough for the enemy’s liking.

“Hold up”, I imagine readers saying, “Why are you blaming the government for the actions of the Reserve Bank?” My answer is this. The bank is state-owned and until 1990 directly controlled by the government. The government sets the bank’s remit, and the Minister of Finance, currently Grant Robertson, appoints the members of the bank’s Monetary Policy Committee. Just as the Fourth Labour Government legislated for making the bank semi-independent, the current government could bring it back to direct control if it so wished. The government is fully responsible for the actions of the Reserve Bank.

While on the subject of the Monetary Policy Committee, it is noteworthy that one of its members is Peter Harris, who was a long-time union high official. He has participated in the committee’s consensus decisions and has never rebelled against the right-wing economic dogma – an absolute disgrace, but not unexpected.

The second strand of government policy is to hold down pay rises below the inflation rate. It is succeeding. In the year to the end of 2022 wages rose by 4.1 percent, while inflation was 7.2 percent. The government’s direct role in bearing down on pay is shown in the breakdown between the public and private sectors. Private sector pay rises averaged 4.3 percent; public sector rises were only 3.6 percent. And this is despite much higher rates of unionisation in the public sector, an uncomfortable fact for the public sector unions to face.

The third strand of Labour’s neoliberal policy is to hold back public spending. The services that we need from central and local government have been described as the social wage. Our social wage is under attack as services, such as health and education, become more and more rundown.

There has been muted public sector union resistance in the form of one-day strike actions, but there are problems of strategy. One is that three-year agreements in a period of high inflation are risky. For example, the primary school teachers’ union NZEI is considering a three year deal from 1 July 2022 to 30 June 2025 worth 11 to 14 percent over the period, and not fully backdated. This is putting faith in inflation subsiding relatively soon if the offer is to keep up with the cost of living. Suppose high inflation persists. For a mathematical example, to keep up with an inflation rate of 6 percent each year for three years pay would have to rise by 19.1 percent.

Part of the problem we have on our side is that the trade union bureaucracies are as thick as thieves with the Labour Party, whose politics they share. Consequently, we are not seeing the leadership for real fights over pay that the situation demands. The collaboration between the bureaucratic levels of the public sector unions and the Labour government is most clearly illustrated by the Public Service Pay Adjustment idea. The government has offered the PSA and other unions a PSPA that could potentially apply to many groups of workers whose collective agreements expired in 2022 or will expire in 2023. The PSA supports the offer saying: “The unions involved in the PSPA negotiations represent 250,000 union members. By joining with the NZCTU and other unions we unite our efforts to secure a decent pay rise for all.” The union also says “The process of the offer being put to members in each of these agencies is underway.  It has already been offered and ratified by members in some agencies.” Note that the PSA says decent pay rise, not inflation-proof.

The value of the two-year term, two-stage, part flat-rate, part percentage offer varies according to where a person sits on the pay scale and when the outgoing agreement expired or will expire. For 2022 expiries the first stage of the new rates do not commence until 1 December 2022.  For a person on the median salary the PSA says the deal is worth an increase of about 7 percent. But that is over two years plus any length of time between expiry and the start of the new agreement. The pay increase for the second year of the agreement is only 3 percent or $2,000, whichever the greater; in reality that will be 3 percent. Given that inflation was 7.2 percent in 2022 alone this offer will amount to a pay cut for most workers and may not even keep up with inflation for the lowest paid who benefit most from the flat-rate element. This is a piss-poor PSPA.

The conservative, bureaucratic forces in the unions can be countered by organising rank-and-file networks of union activists that are able to articulate the needs of ordinary members. This is the task facing socialist unionists today.