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The Column: Labour’s Back To The Future Budget

The Column: Labour’s Back To The Future Budget

Weekly Column by Dr Muriel Newman

This week the Column looks at the negative effect that Labour's welfare Budget will have on working families.

Last week’s welfare Budget made me ashamed to be a New Zealander. To see the government sacrifice the country’s future progress, in a blatant attempt to buy votes, was a disgrace. But, worse, Labour’s aim of turning the majority of families with children into beneficiaries is contemptible. This Budget signalled the biggest redistribution of wealth – taking money from those who earned it, to give to those who didn’t – since 1972, and essentially marks the beginning of Labour’s campaign for a third term in government.

Its clear intention is to use the surplus to buy votes at the next election. If that were not the case, then why on Earth would Labour have promised to give cash benefits to struggling beneficiary families next year and struggling working families the year after, rather than now? But, using the surplus as a bribe could, in fact, be a massive miscalculation. Labour’s promise, of increased income support to families with children earning as much as $80,000 a year, was a sufficient incentive – so the Government thought – to swing voters its way. But, as we all know, the promise of a dollar in the future is less than the promise of a dollar today – especially when made by a Minister in an unpopular MMP government facing an election! When expressed in economic terms, the discount rate on pre-election MMP Budget promises is very high indeed, and explains why most people would prefer tax cuts now rather than promises of Government handouts in the future.

Early polling has indicated that the public is relatively unimpressed by this election bribe Budget. But Labour is planning a major counter-offensive in the form of a massive $21 million taxpayer-funded Budget promotion campaign. This is reputed to be the single largest advertising spend ever undertaken by a government and, since it will be intertwined with Labour Party advertising, claims have been made that it represents a totally inappropriate use of public funds.

More and more New Zealanders are coming to the conclusion that tax cuts are a better way of helping struggling families than Government handouts. In fact, a recent poll showed 66 percent were in favour of tax cuts, while only 22 percent wanted to see Government handouts. Letting people keep more of what they earn also ties good public policy incentives – the harder you work, the more you earn and the faster you get ahead – to positive outcomes for families, communities and the nation as a whole. Reducing our high tax rate, and curtailing this Government’s dodgy spending programme, would bring far greater benefits to New Zealand families than all the handouts in the world. If taxes were flattened to 18 cents in the dollar – which Treasury says is completely affordable within the surplus that we currently have – just imagine the resulting economic boom! It would kick-start the economy, improve job opportunities and drive up our living standards.

Instead, Labour’s Budget – described by political commentator Colin James as “a milestone in the Labour-led journey back towards the social democratic world we left behind in 1984” – will lead us back into a future where working families will have to struggle with marginal tax rates that prevent them from getting ahead.

Taking a worst case scenario, if a family with children – receiving the accommodation supplement, family support and the new in-work credit, as well as paying off a student loan and child support – moved above its income threshold, it could lose 33 cents in every dollar in tax, 30 cents in the abatement of family support and the in-work credit, 25 cents in the abatement of the accommodation supplement, and it would pay a 1.2 cent ACC employees levy. It would also lose 10 percent in student loan repayments, and 18 percent in child support – effectively leaving them $17 worse off for every additional $100 dollars they earn!

Labour’s changes have shifted what used to be a high marginal tax rate on anyone leaving a benefit and moving into a job further up the income scale. Now, middle income families earning $40,000-$50,000 a year will lose almost 90 cents in every extra dollar they gain. That means that this Budget will force workers who are offered a bonus, promotion or who secure a better-paid job, to think twice before accepting it, because it could make them worse off. In effect, Labour’s financial assistance measures could prevent significant numbers of families from getting ahead, by locking them into low-wage jobs with high levels of Government support, in an economy that is increasingly stagnating under a high tax, high spend regime.

In my mind, this development is dangerous. Progressive nations do not create incentives to hold people back. Yet, with this Budget, Labour will effectively turn 150,000 working families into beneficiaries – unless the Government is defeated before these changes are introduced!

I would like to take this opportunity to express my grateful thanks to Column subscribers for their overwhelming support in regards to my candidacy in ACT’s leadership primary – and to further remind people that only those who become members before 5pm tomorrow are eligible to vote (see www.newman.co.nz for details) with voting closing at 5pm on Friday June 11.

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