Tax-welfare churning is destroying people’s independence

A new report states that the welfare state needs to be reformed to give New Zealanders more control over their lives.

In a paper to be released Tuesday 27 March 2007, Reinventing New Zealand’s Welfare State, the Social Research Director at The Centre for Independent Studies, Peter Saunders, sets out an original plan for how people could opt out of the welfare state in return for tax deductions.

‘Many people pay high taxes only to get much or all of their money back in the form of government payments and services. At least half of all welfare state expenditure in New Zealand is ‘churned’ in this way.

‘Churning is inefficient, it creates work disincentives and it will generate unsustainable levels of government spending in the future. But the strongest reasons against it are sociological – it disempowers people, undermines social cohesion and politicises civil society.’

In the paper, Professor Saunders sets out a three-point plan to reduce tax-welfare churning while still ensuring that everyone is guaranteed a decent, basic level of provision:

(1) Reform of income tax so nobody pays tax until they have earned enough to cover their own basic subsistence needs. This could be done by introducing a tax-free earnings threshold equivalent to the minimum welfare income – about $11,500 for a single person and $19,000 for couples opting for joint taxation.

(2) Personal savings funds should eventually replace the unemployment benefit. The government should denationalise its Superannuation Fund and redistribute the money into personal accounts, giving every New Zealander an initial $3,000 deposit. From then on all workers should make annual contributions so they don’t have to rely on government assistance when their employment is temporarily interrupted by unemployment or sickness.

(3) People should be given the right to opt out of the government health and/or superannuation systems in return for tax reductions, which would be paid directly into their personal savings accounts.

Peter Saunders is Social Research Director of The Centre for Independent Studies and author of Australia’s Welfare Habit, and How to Kick It.

He is available for comment.

The paper A Welfare State For Those Who Want One, Opt-Outs For Those Who Don’t, will be available online from Tuesday 27t March 2007 at

http://www.cis.org.nz/IssueAnalysis/IA85/ia85.pdf

ENDS

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