Mind the gap

In an ideal world we wouldn’t need wage subsidies to ensure people in full time work earn more than those on benefits.

But the world isn’t ideal and paying a top-up to low waged people is better than letting them languish on the dole.

The Child Poverty Action Group thinks this discriminates against the children of beneficiaries. They took the issue to court and lost.

. . . The Court of Appeal found that the off-benefit rule, on its face, subjected beneficiaries to different treatment that amounted to a material disadvantage but the rule ultimately did not breach the Bill of Rights.

“This is because the in-work tax credit deliberately created an earnings gap between people on a benefit and people who are working. The objective was to incentivise people into work and improve incomes for families with children,” the Court of Appeal judges said in their decision released today.

“CPAG accepted this objective was important enough to justify limiting the right to freedom from discrimination but argued that the off-benefit rule was disproportionate to the objectives to be achieved.”

The Court of Appeal said the discriminatory impact of the off-benefit rule was not out of proportion to the goal of incentivising people into work and “the evidence established that it only impairs the right to be free from discrimination to the minimum extent necessary to achieve the objective”. . .

Children of beneficiaries are, generally, worse off than those in families where at least one parent works.

Being worse off isn’t just financial, those in families dependent on benefits tend to have poorer health, achieve less at school and a more likely to be victims of or commit crimes than those on the same income when it comes from work.

Benefits have a place in helping those who are unable to support themselves. A few of those will always be dependent but most, given the right help, will be able to help themselves.

If there was no gap between the income of those in work on those on benefits the welfare trap would deepen.

TV3’s documentary Mind The Gap focussed on the issue of the gap between rich and poor.

That gap won’t be bridged by disincentivising work which is why the financial gap between those in work and on welfare must be maintained.


19 Responses to Mind the gap

  1. Viv K says:

    In the documentary ‘Mind the gap’, only the solo mum was on a benefit, all the other struggling families were working. There has been an increase in productivity in NZ, but the workers who have helped make that happen have not shared in the benefits. There was a graph that showed that had the average wage kept pace with the productivity increase generated by the workers, it would be $31 not $23. That is the gap that matters.


  2. homepaddock says:

    Low wages are a problem.

    There should be relativity between wages and productivity but it shouldn’t be absolute.

    Sometimes people work harder but produce less (eg in farming during droughts, floods and snow) and paying them less wouldn’t be acceptable.

    Sometimes people produce more but the price of what they produce falls which means the business isn’t able to pay them more.


  3. TraceyS says:

    The gap between those rates when tax is taken off and Working for Families Tax Credits* are added on is reduced from $8 per hour to just $1.37 per hour (based on one child, single earner family).

    I agree with Ele that WFF was an election bribe by Labour, and one with not much thought of the consequences. At the time I could not believe how generous and how universal it was (covers 75% of families). People are opportunists. If the government takes over responsibility for adjusting wages then employers will let them. If the government offers people benefits they don’t need they will take them. The trick, I think is focusing opportunism on the right things and this should not be state dependency.

    Virtually no-one thinks of the pain involved when these things come to an end following a prolonged dependency. I can only assume that Helen Clark knew it would be someone else’s problem. Metiria Turei recognises this in respect of the Accommodation supplement “…you simply cannot just take it away. It’s been so embedded in our economic system that it has become a real issue (http://www.interest.co.nz/property/57062/accommodation-supplement-landlord-subsidy-punching-big-hole-govt-books-due-unaffordab).

    You know, Viv, one thing I really agreed with in “Mind the Gap” was the criticism leveled at short-term thinking.

    The Accommodation Supplement was National’s policy (http://www.fulbright.org.nz/wp-content/uploads/2011/12/axford1999_liebschutz.pdf) to counter benefit cuts and a move away from state housing. In all fairness it could probably be cashed up and added to benefits to remove the “landlord subsidy” effect. That would probably also bring rents down and let a little air out of the housing bubble. But it would be a bold move.

    Likewise, WFF should be cashed up and redistributed as tax rate reductions. But these have to be across the board or there is no incentive to earn more. Like it or not, we need ambitious people who earn lots and are prepared to do good with their money. These people provide the jobs for the others.


  4. homepaddock says:

    More than one employer has told me that staff have turned down wage increases or extra work because what they’d gain would be cancelled out by WFF losses.


  5. TraceyS says:

    It’s the same disincentive as when a person on a benefit is offered part-time work.

    We must have really liked that effect, because we’ve now spread it around to almost everyone with families. We’re lying in our own beds.

    Viv, Robert and Dave will soon be lying the the bed of the scheme’s creators, if they get their way that is. Good luck people!


  6. Viv K says:

    ‘We need ambitious people who earn lots and are prepared to good with their money’. That is the ‘trickle down’ theory and it doesn’t work. Sure, we need ambitious people, but the ‘prepared to do good with their money’ bit is where it falls down. Many people just line their own pockets, as the increasing sales of luxury cars demonstrates. The majority of shareholders in listed companies are in it for personal gain. That is why the tax cuts National introduced need to be reversed, a capital gains tax (other than on the family home) and a financial transaction tax (as described on the Mind the Gap programme) need to be introduced. Tax evasion must be more heavily clamped down on too. The neo-liberal policies of both Labour and National have led to this country being very unequal compared to 30 years ago. David Cunliffe understands it and can explain it better than me. All going well, he will lead the 2014 Labour Green government and more NZers will get a fair go.


  7. Dave Kennedy says:

    We have 270,000 children how are living in substandard conditions for 1st world country. We have a housing shortage of 70,000 homes. We have a minimum wage that is $5 an hour less than a living wage and yet around 25% of our workers have to survive on it. The government is topping up the incomes of low waged workers and refusing to give WFF families to beneficiaries to keep a difference between working people and those who are not. We now have a large demographic called the working poor and beneficiaries, many of whom genuinely deserve support but have to live in relative poverty.

    A large number of our lowest wage workers are women and many are single mothers. Many again are employed under a sexist pay regime where if the job is female dominated it earns far less than what a man would earn in a job that has similar skill requirements. Our cleaners, rest home workers, home support workers and carers, early childhood workers, teacher aids all earn incomes barely above the minimum wage. The work they do is essential to our society but John Key has suggested that in the current economic climate paying female dominate jobs the same as men is a luxury.

    To me it is essential.


  8. Gravedodger says:

    Gee Viv you have a realy good grasp of economics.


  9. Dave Kennedy says:

    I think if people take the time to listen to this speech from Russel Norman it becomes clear that he is no communist and would make an excellent Minister of finance. Those here who do not support a capital gains tax need to listen on and hear the last part of the speech which explains how economics should be regarded in a holistic way and wow this could be done. http://inthehouse.co.nz/node/19440


  10. Dave Kennedy says:

    Oops, ‘how’ this could be done.


  11. Viv K says:

    I liked the ‘wow this could be done’.


  12. Viv K says:

    I’m better at it than you are at sarcasm Gravedodger.


  13. TraceyS says:

    Dave, there is nothing in that speech that you wouldn’t expect to hear in a 100-level finance or economics paper.

    Am I expected to find it ground-breaking? Really Dave!

    Russel Norman’s speech sounds like baby-talk.


  14. Dave Kennedy says:

    Tracey, t’s sad that you feel the need to dismiss Russel’s speech as “baby-talk” when it clearly isn’t. It is a pity that you can’t actually engage with the ideas presented. What did you have difficulty with?

    Russel was actually supporting National’s legislation but explaining how the approach could be taken further. The Government’s current focus is just “balancing the books” and yet it is selling off assets and diminishing our social and environmental capital in doing so. If this is the only focus the cost to the country in the future will be huge when we have to deal with the economic consequences of poverty and a degraded environment.

    This is big ideas stuff that shapes an economic approach that goes beyond what is currently done. When Bill English was questioned earlier this year by Gareth Hughes about the Government’s long term planning with regards to energy, English replied that there was none, market forces will deliver. The naivety of this answer was incredible and shows why this Government are not safe stewards of our economy, why we are seeing such incredible income inequities and why we are seeing so little movement towards a more sustainable economy (our current account deficit is one of the worst in the OECD).



  15. TraceyS says:

    Maybe I was expecting too much.


  16. Viv K says:

    Tracey’s comprehension skills desert her when it comes to the Greens Dave, as shown last week when she said ‘I will have to move’ and ‘why should the Green Party tell me where I should live’ in response to the Greens statement that they would ‘Develop legislation to encourage farm ownership to be held by the farm resident operator’. It makes it very difficult to have a rational debate.


  17. TraceyS says:

    LOL Viv, there is no problem with my comprehension. I was being provocative. It worked (on both occasions)!


  18. Dave Kennedy says:

    “I was being provocative”

    Tracey, I understand the idea of being a “devil’s advocate” because that enables deeper discussion and actually having an alternative argument, but to be provocative in such a simplistic and condescending way serves what purpose?

    What I find a little sad is that personal attacks, put downs and sarcasm seem to get high ratings. If this is one of the more polite and rational National Party supporting blogs I can see the 2014 election becoming particularly nasty.


  19. Viv K says:

    Good point Dave. I visit and comment on Ele’s blog because it is usually polite and rational and you can debate ideas without getting foul language and abuse. Tracey, totally wild, illogical responses, or calling something baby talk, isn’t provocative. I really hope you don’t behave like that on the community board.


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