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Muriel's Column: Budget Sweetener For Welfare Trap

Muriel's Column 13th May
Budget Sweetener For Welfare Trap
Weekly Column by Dr Muriel Newman

This week, The Column examines the welfare allocation in the upcoming Budget, and looks at how Labour is pouring more money into the benefit honey pot.

The Government’s forthcoming Budget looks set to be a bumper-spending spree. With Labour’s fortunes flagging in the polls, the $7 billion surplus will be used to shore up voter support in a massive redistribution of wealth.

When Finance Minister Dr Michael Cullen was asked whether – given that the surplus is far larger than expected – he would consider tax cuts in order to return some of the money to those who earned it, he categorically ruled that option out. Instead, he explained that Labour's preferred strategy was to support a high tax regime, coupled with a generous system of State benefits.

But this response should not come as a surprise. The battle between Labour on one side of the political divide, and ACT on the other, has always been over power and control: Labour wants the Government to be all-powerful so it can pick and choose its winners and losers. ACT, on the other hand, wants an effective – but limited system of government – which rewards working families with high living standards and empowers them to get ahead.

To achieve such a goal, we need lower taxes, like we had in the 1950s and ’60s, when New Zealand had one of the developed world’s highest living standards. In those days, even poor families – like my own – could get ahead. Sure, Mum and Dad had to hold down three or four jobs but, between them, they earned enough money to raise their family, buy a house and, eventually, even a car.

The difference was that, back then, families with children effectively paid no tax. Today, however, such families with children – particularly single income families – are struggling to get by. In a recent well-publicised case, a one-income family earning $55,000 a year found it almost impossible to make ends meet. After taking into account high taxes and the 10.5 percent decrease in spending power that has occurred while Labour has been in office – as a result of stealth taxes, regulatory costs and other user charges – by the time they paid their mortgage, vehicle costs and groceries, there was little left over for other expenses, let alone their student loans.

Last month, Treasury released a paper, which calculated that the cost of cutting taxes to move to an 18 per cent flat tax rate would be $4.7 billion. Treasury added that, in its calculation, it had not considered the dynamic effects of dropping taxes – including job growth, reduced welfare costs, an increase in the tax base, savings from lower compliance charges, or revenues from other base broadening changes. All of these would reduce the cost even further. With the $7 billion surplus in the kitty, the Government could announce an 18 cent low flat tax rate in the Budget and still have money to spare!

It's just not fair that Labour can get away with over-taxing New Zealand workers, leaving them struggling, in order to generate massive surpluses with which to buy voter support in this pre-election Budget. One such group will be beneficiaries. Yet, if the existing financial incentives in the benefit system are examined, welfare can already be seen to be very enticing.

Take the case of a couple who find that they are pregnant and have to make the choice of whether or not to marry – if we fast forward to after the baby is born, the options for the couple are stacked: if they marry, with the mother staying at home to look after the baby and the new father in a job earning $12.50 an hour, after taxes are removed, family support and the child tax credit added, the couple's annual net income would be $23,254.

In comparison, if they decide not to marry, with the young woman going onto the Domestic Purposes Benefit and doing what an increasing number of solo mothers are choosing to do today – refusing to name the father of her child, so that he can live in the same home as a boarder – after tax, their combined income, made up of the DPB and family support, along with his $12.50 an hour job, would be $34,636 a year. This means that a young couple with a baby who choose to use and abuse the benefit system (but with little, if any, chance of being caught these days) will be 49 percent better off than if they married.

Knowing this, is it any wonder that low skilled and poorly educated young people, with little prospect of gaining well-paid jobs, find the benefit system so attractive? By encouraging young women into sole parent lifestyles, and denying young men the responsibility of their traditional roles as husbands, parents and breadwinners, we are effectively depriving generations of children of the stability and security that marriage would bring.

The problem for New Zealand as a whole is that, if this Government continues to increase benefit incomes – as it has signalled it intends to do – then this problem will grow. Fewer couples will marry, more young men will become transients, and more children will grow up disadvantaged like the young boy described in the following message: “Then there’s the Maori mother next door to me here. Twenty years old, two kids, different dads, now living with yet another – her cousin, in case anyone is asking. No doubt she’ll be trying for a pay rise as we speak. But you’ve heard all that before.

What’s new is that she and her partner can't see the point in sending the six-year-old to school. School didn’t do her any good, so she assumes the same for her son. And the little boy is lovely, spirited, bright – but why am I going on? Why do I have more concern for the little boy than his mum does? What hope is there?

This has to be dealt with. How can the Mahareys of the world live with themselves?”

How indeed, I ask.

Have you cast your vote for the ACT leadership primary? If you believe in the need for welfare reform, and would like to support my campaign, please visit my website at http://www.newman.co.nz.


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