Prime Minister Bill English and Health Minister Jonathan Coleman have jointly announced the Government will contribute 91 percent of the $2.048 billion needed to fund pay increases of between 15 to 49 percent for health care workers over the next five years. ACC will contribute the remaining $192 million in the deal agreed with unions to settle the TerraNova pay equity claim, which could see ACC levies increase as a result. A third of aged care residents (those who are unsubsidised and pay for their own care) will see their fees rise around six percent.
English and Coleman made the announcement after Cabinet agreed on the deal to increase the pay of 55,000 health care workers with unions on behalf of aged care worker Kristine Bartlett. She worked as a care worker for TerraNova Homes and Care in Lower Hutt and took a case to the Employment Court in 2012 arguing under the Equal Pay Act of 1972 that the largely female workforce was being paid less than what it would be if the workforce was made up of similarly-skilled men.
The Government decided in June 2015 to negotiate a Government-wide deal for aged care workers with E Tu after an Appeals Court upheld a lower court ruling in Bartlett's favour.
The deal applies to 55,000 workers (29,300 full time equivalents) in aged and disability residential care homes across the country. Coleman said the deal, which he expected to legislate for in coming months, would increase the wages of 20,000 workers who were currently on the minimum wage of $15.75/ hour by 21 percent to $19/hour from July 1. The Government said some workers with more than 12 years experience would see their wages rise from $15.75/hour to $27/hour over the next five years.
Coleman said the $2.048 billion settlement would be made up of $1.856 billion from the Health Budget and $192 million from ACC over five years. The cost in the first year would be $303 million from the Health Budget and $31 million for ACC. He said the settlement would create extra costs for ACC over 10 years of $424 million, which would be factored into ACC levies from 2019/20 onwards. Levies for 2017/18 and 2018/19 have already been set.
English told a news conference the scale of the Government's contribution was only possible because of the health of the Government's budget position. He was cagey on what it might mean for the rest of the Government's plans for Budget 2017 due on May 25. The Government has foreshadowed a family package in the Budget that could include tax cuts and changes to Working for Families and Accommodation Supplements.
"Of course it reduces the potential [for tax cuts and other spending] if you've got debt targets, but if you take the Budget in the round, we wouldn't say that there's a trade-off between this and any other particular items of spending," he said.
The briefing notes say that 90 percent of the settlement costs were included in the Government's half yearly fiscal update forecasts, with the balance included in the May 25 Budget forecasts. They also said the TerraNova settlement would not be included in the Budget 2017 Operating Allowance.
Coleman said the Government would progress both the TerraNova settlement legislation and the separate Equal Pay Amendment Bill before the election.
Winners and losers
The 55,000 health care workers subject to the settlement will receive an extra $2.048 billion in pay over the next five years, with some of the more experienced workers now on the minimum wage of $15.75/hour having their wages increased by 71 percent to $27/hour within five years. The Government will pay private aged care and disability care providers extra to ensure they can fund the pay increases, which will be mandated by law.
ACC levy payers may see their levies increased from 2019/20 onwards to pay for the extra $424 million in ACC costs seen over the next 10 years. Coleman cautioned that levies may not necessarily increase, given ACC has cut ACC levies in recent years due to strong investment returns and cost reductions elsewhere.
The deal is not being backdated and the legislation that will be pushed through in the coming months will extinguish all other pay equity claims for those covered by this settlement.
Other predominantly female sectors of the Government, such as teachers and nurses, may not see such a big increase in pay. English said other employees with other pay equity claims would face a high threshold for any future deals under the Equal Pay Amendment Bill that has yet to be tabled. The deal does not cover behavioural support services, caregiver support, child development services, environmental support, funded family care and mental health services workers. MSD and the Ministry for Vulnerable Children have agreed to start talks with unions and providers on the basis that vocational and disability workers would be covered by terms consistent with the TerraNova deal.
The 11,000 people in aged care who personally pay for the service because they have more assets than the assets threshold will have to pay around $66/week or six percent extra because of the deal. There are around 22,000 in aged care who are fully funded by the state because their declared assets are below the threshold.