The salary negotiations roll and go. The front subject reached the target with a frame of 5.2 per cent and all the other areas now use that result as a yardstick for their negotiations. The parties seem satisfied so far with both the achieved increase in purchasing power for the employees, and a cost increase that is within the businesses’ tolerance. So far so good. But Norges Bank is the wild card in the purchasing power game for a great many of us.
If we are to believe those who trade interest rates in the market, the expectation now is that there will be no interest rate cut until December at the earliest, perhaps not until 2025. Prices are still rising too much and the Norwegian krone is weakening. For those with high mortgages, interest rate cuts will soon mean much more to the private economy than a wage increase will.
Example: If you have an income of NOK 600,000, a salary increase of one percent means NOK 6,000 more in your pocket. If you have two million in mortgages at the same time, an equally large interest rate reduction, one per cent, will mean as much as NOK 20,000 more in your pocket. Both amounts are before tax/deduction.
There are many things that affect the interest rate and the exchange rate. And the two influence each other. One effect many economists fear is the so-called “wage and price spiral”. That increased wages should lead to increased prices which lead to demands for increased wages etc. LO believes that today’s inflation is imported from abroad and that Norwegian wages do not have a price-driving effect. It is also difficult to defend that working people should take responsibility and pay the price to reduce interest rates on behalf of everyone, especially when stock market prices are breaking all records.
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Here is an input for the parties in next year’s wage settlement that could perhaps contribute to bringing down interest rates without the fear of a wage and price spiral becoming part of the discussion. Set up the lowest contribution rate for pension.
Today, the lowest rate for a contributory pension is two percent of salary. This means that if you earn NOK 600,000, your employer deposits NOK 12,000 into your future pension. Let’s say we increased the minimum rate to four percent in the salary settlement next year. It would have several results:
First, it is hugely redistributive. About. a quarter of the employees have the lowest deposit rate. These are largely the same people who have the lowest wages. It makes a big difference for our friend with a salary of NOK 600,000 if NOK 24,000 is deposited into the pension account each year instead of NOK 12,000.
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Secondly, the companies’ cost will come today just as with wage increases, while the increase in purchasing power will come as people retire. In other words, it will not affect today’s price growth and thus also not contribute to keeping interest rates high.
Thirdly, doubling the minimum rate to four percent is already a policy adopted by the LO congress. That is the best starting point for coming to an agreement on actually demanding it.
Pensions are deferred wages and also part of our common civilisation. It ensures old age and allows ordinary people to retain dignity and independence after they can no longer work. Securing a proper pension for people on regular wages is always right. If it can also help bring the interest rate down faster, it is a substantial bonus for working people who are currently struggling with the combination of high interest rates and high prices.
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