1. AARON GILMORE (National) to the Minister of Finance: How is the Government’s budget affected by State sector pay settlements?

Hon BILL ENGLISH (Minister of Finance) : The Government now faces 10 years of deficits, including the largest structural deficits the country has seen for decades. Both the Government and the public sector owe it to those people who are dependent on public services to achieve the Government’s aim of providing smarter, better public services with limited funding. State sector pay settlements, therefore, need to take account of fiscal constraint and of the need to develop better ways of working, so we can meet public expectations of service, without rapid growth in expenditure.

Aaron Gilmore: Has the Minister received any reports on recent pay rises in the State sector?

Hon BILL ENGLISH: The Government has stated a number of times that it would honour those agreements that were entered into in pay rounds before the change of Government. I have seen reports that, for instance, senior doctors received a 4.25 percent pay increase on 29 June. Alongside their automatic moves up the scale, this amounts to a total pay rise of $11,000 a year for senior doctors. Nurses received a 4 percent increase in March, alongside automatic progressions. Under his or her contract, the average nurse is receiving a pay increase of around $6,000 a year. In the current climate, most New Zealanders are receiving little or nothing extra. No one should take those pay increases as an indication of settlements in the near future. They are legally binding agreements that the Government will stick to, but we have made it clear that that kind of pay rise is no longer sustainable.

Aaron Gilmore: Has the Minister received any reports on pay movements in the private sector?

Hon BILL ENGLISH: It is a little more difficult to get detailed information on private sector pay increases, but there are a number of reports on organisations that have, for instance, frozen their wages, such as Sealord’s, ASB, the New Zealand Rugby Union, and several media organisations. Many New Zealanders see State sector workers as having relatively secure jobs, and would be concerned if the representatives of State sector workers were out of touch with what was going on in the wider community and the private sector.

David Garrett: Has the Government considered performance-based pay, with financial penalties for chief executives such as Mr Barry Matthews, as planned in the contracts for privately managed prisons; if not, why not?

Hon BILL ENGLISH: The Government will consider any arrangement that will enable us to provide smarter, better public services with limited new funding. The State sector has been used to having compound increases of around 8 percent a year. In the Budget, the Government signalled that next year there will be only a $1.1 billion increase in the operating allowance. We have given the whole public sector 12 months’ notice that it needs to be looking at a much wider range of tools to be able to secure productivity gains and to meet public expectations, without large and reckless spending increases.

Grant Robertson: Does the Minister accept that imposing a pay freeze will actually make it harder to provide the smarter, better public services that he wants, because it will be harder to retain and recruit skilled staff in areas of essential need where there is international demand, such as that for nurses and social workers?

Hon BILL ENGLISH: The member is showing how completely out of touch the Labour Party is with the real world. The fact is that turnover rates in the public sector have dropped to historical lows, and it is going to be necessary to ensure that any pay increases are met with productivity gains. Productivity in the public sector over the last 7 or 8 years has been appalling. That will have to change, because if it does not change we will not be able to offer the range of services that the public deserve.

Grant Robertson: Can the Minister confirm that he is signalling to primary and secondary teachers, and to nurses, that they can expect no pay increases when their collective contracts expire in 2010; if so, what does he expect will be the result of that signal?

Hon BILL ENGLISH: Nurses and teachers would be regarded by the public as having among the most secure jobs in the economy right now. We are signalling very clearly that there will be restrained funding, and those professional groups, whose dedication we admire and whose services we need, have the opportunity to think about better ways of working. But the days of going to Ministers and getting large increases at the expense of the taxpayer, without any productivity gains, are over.