Wasted opportunities

October 12, 2009

The nine years from 1999 to 2008 were ones of wasted opportunities.

Successive Labour led governments squandered the surpluses, concentrated on redistribution rather than growth, created huge liabilities for future generations (ACC, KiwiRail . . . ) and turned middle and upper income families into beneficiaries.

In doing so they lost sight of their aim to return New Zealand to the top half of the OECD.

The New York Times’ Economix blog has a post asking: What Happened to Argentina?

A century ago, there were only seven countries in the world that were more prosperous than Argentina (Belgium, Switzerland, Britain and four former English colonies including the United States), according to Angus Maddison’s historic incomes database.

 New Zealand was one of those former British colonies and we too have lost ground since then.

This week’s Idealog newsletter  points out that every country to the left of New Zealand on this graph was poorer than us in 1909, all the ones above us are wealthier than we are now.



This is why we’re so disappointed that the previous government failed to see through its stated aim to return New Zealand to the top half of the OECD, and why we’d like to see John Key’s government commit itself to achieving the task. This isn’t about wanting more toys, overseas holidays or dining out more often; it’s about being able to afford the education, health care, infrastructure and quality of life that we want for ourselves and our loved ones. We must reverse this slide.

This point was also made by Don Brash in a speech entitled New Zealand’s Economic Outlook: Can We Ever Catch Australia?

Far from raising New Zealand into the top half of the OECD, we actually sank back a rung or two over the nine years that Labour was in office.
This is extremely serious.  If we continue to languish in the bottom third of OECD countries – even worse if we continue to slide backwards – the things which have made New Zealand a pleasant place to live and work will gradually disappear.  We won’t be able to afford the healthcare which those in richer countries take for granted, nor the standard of education which richer countries take for granted.   Income distribution will become progressively less egalitarian – as we’re forced to pay our most skill
ed people some approximation of the lifestyle-adjusted incomes they can earn abroad – with all the social implications of that.   

Economic growth isn’t about wealth for wealth’s sake.

It’s about earning the money to afford the first world services and infrastructure we need.

Afford doesn’t mean borrowing to saddle future generations with debt. It means earning what we we need by increasing economic growth.

The difficulties we face in doing that are many.

Labour not only wasted the opportunities provided by surpluses when they were in power, they increased public spending to a level which isn’t sustainable. That is now adding to our debt and holding back the recovery.

Thanks to them benefits are no longer regarded as temporary assistance for people in need as most ought to be, they’ve become “entitlements” to which people feel they have a right regardless of whether or not they need them. Working/welfare for families, interest free student loans and paid parental leave are all examples of that.

Another of the barriers to growth is illustrated by the hysterical reaction to the suggestion by Gerry Brownlee that the government does a stock take of mineral resources under public land. Anyone would think he was suggesting clear-felling every tree and turning every national park into an open cast mine.

All he’s doing is sensibly suggesting that we ought to know what we’ve got. Once we do can we make intelligent decisions on what, if anything, we do with it.

Every centimetre of every part of the DOC estate is not pristine wilderness. Some of it  is weed and pest infested wasteland  – the weeds and pests on which threaten native species. Some might well be more attractive if it was mined and replanted than if it is left untouched.

We’ve had nine years of going backwards. We can’t afford to waste opportunities now and among the opportunities available is the mineral wealth which lies beneath the ground.

If it is possible to use some of that, without damaging the environment, we should do so to help foster the economic growth which will enable us to fund the first world services we need but can no longer afford.

Who pays how much tax?

October 7, 2008

 Who pays how much tax:

Individual taxable income ($) Number of people Tax paid
  (000) % ($m) %
Zero 237 7% 0 0%
1 – 10,000 440 14% 263 1%
10,000 – 20,000 851 26% 2,199 8%
20,000 – 30,000 381 12% 1,746 7%
30,000 – 40,000 352 11% 2,401 9%
40,000 – 50,000 318 10% 3,071 12%
50,000 – 60,000 197 6% 2,549 10%
60,000 – 70,000 148 5% 2,432 9%
70,000 – 80,000 100 3% 2,018 8%
80,000 – 90,000 50 2% 1,212 5%
90,000 – 100,000 35 1% 977 4%
100,000 – 150,000 78 2% 2,953 11%
150,000+ 45 1% 4,108 16%
All 3,232 100% 25,929 100%
Individual taxable income ($) Number of people Tax paid   (000) % ($m) %

This table is sobering reading. It shows we are a very low income country and that 53% of the tax take comes from just 14% of people. The table below shows family assistance for working families:

Family annual income Number of children under 13
before tax ($) One Two Three Four
30,000 142 199 256 328
40,000 118 175 232 304
50,000 84 141 198 270
60,000 43 100 157 229
70,000 3 60 117 189
80,000 0 25 82 154
90,000 0 0 42 114
100,000 0 0 2 74
110,000 0 0 0 39
Family Tax Credit cut-off point 56,000 71,000 84,500 99,500
In-Work Tax Credit cut-off point 71,000 86,000 101,000 119,000
1 – 10,000 440 14% 263 1% 20,000 – 30,000 381 12% 1,746 7%

Doesn’t it seem more than a little stupid to take 39c in tax on earnings over $60,000 then give it back as a benefit?

It’s not just about the money

August 12, 2008

She became the primary caregiver of her two school-age children after her marriage collapsed.

She was skilled but the job she was trained to do had irregular hours and required being on-call so it wasn’t possible to juggle it with child care.

She’d worked part-time but her benefit was rebated and she ended up with about the same amount of money as she’d got when she wasn’t working so she gave up the job.

She was studying 20 hours a week, though not in a course which would lead to paid employment. She also did a lot of voluntary community work.

She said that because part-time work didn’t pay enough to justify the effort and she was contributing her volunatary labour she didn’t feel any need to move from a benefit.

She didn’t understand that benefits ought to provide for those who can’t help themselves, not subsidise study and voluntary work for those who can.

Rebating benefits when people start earning can be a disincentive to seeking paid work, but the alternative would enable people subsidising their benefits with part-time jobs to earn more than those working fulltime. 

Most people on Domestic Purposes Benefits are not on it for long so critics of Naitonal’s policy to require solo parents to seek part time work or undertake training are right it will only apply to a small minority of beneficiaries who may be only a little or no better off financially for doing it.

But getting back to work, even if it is part time, is not just about the money earned. It’s about the skills gained and becoming more employable for fulltime work when circumstances allow it; it’s about not spending taxpayers money on those who can help themselves; it’s about gaining work ethics and providing role models for children to break the cycle of inter-generational welfare dependency.

It’s also about fairness for other workers, especially those on low incomes. Welfare for Families has helped those with childen under 18; but it’s done nothing for people who don’t have dependent children and whose fulltime work pays only a little more than a benefit.

And it’s about national productivity. Money earned through work is much better for the economy than money churned through the tax system and paid out in benefits.

WFF ends at 18, costs don’t

July 28, 2008

One of the problems with Welfare for Families is the deterrent to earning more because of the high marginal tax rate on increased earnings. This means that most of each extra dollar earned is cancelled out by a reduction in the WFF payment.

Another problem is that the welfare payment finishes when a child turns 18, but as anyone with a student in the family will tell you, the costs of parenting don’t stop on your offsprings’ 18th birthdays.

It’s very easy to adjust to an increased income, it’s much more difficult to become accustomed to a decrease, especially when the demands on the family purse are growing.

I’m not sure what the solution to this problem is – but I am sure that it’s not extending WFF to dependent offspring beyond the age of 18

More bad policy that’s good politics

July 28, 2008

Colin Espiner sums up why National had to swallow the dead rat of Welfare for Families:

Has Key had an ideological change of heart? Unlikely. I suspect his deputy Bill English and National’s Treasury secondee have been wrestling with the numbers and concluded that it’s just too hard to unpick the scheme and replace it with tax cuts that favour the upper end of the income scale without chucking out the whole model and starting again.

And this wasn’t an option, given the current state of household budgets and rising costs. Going into an election campaign promising to take money off people, even if it was being replaced with a tax cut, was never going to be a good look. Key has decided, once again, that it’s better to swallow the short-term embarrassment of another me-too National policy than suffer a hit in the polls.

Yes, it’s opportunistic, pragmatic, realpolitik. It may make the purer bluebloods within National gnash their teeth and shake their heads. After all, isn’t WFF exactly the kind of anti-aspirational, low productivity handout that the party has always railed against?

Yes, but just like interest free student loans, bad policy is sometimes good politics and too many people are getting money from WFF to risk the electoral backlash from ditching it.

Dunne throwing stones in the glasshouse

July 28, 2008

Checkpoint reports that Rodney Hide and Peter Dunne say National won’t be able to afford substantial tax cuts if it leads the next government.

Their comments come in the wake of National’s decision to leave Welfare for Families unchanged.

Act has always advocated lower government spending so Hide is standing on firm ground when he criticises National. But Dunne leads the party which created the great tax-wasting Families Commission so he’s throwing stones while forgetting he’s living in a glasshouse.

Welfare for Families to stay

July 27, 2008

National will not change Welfare for Families if it’s in government.

John Key said the decision was made to give some certainty to those receiving assistance.

“A large number of New Zealand families get Working for Families.  National understands this. I know it is particularly tough out there for families with kids. These are families with mums and dads who are working long hours, trying to get by on a modest wage in the absence of tax cuts under this Labour Government. We don’t want to make life more difficult for them.

“While National has long been concerned about how far up the income scale Working for Families stretches, a careful analysis of possible changes at the higher income levels showed that it was not worthwhile making them.

“I have long held concerns, in addition, about high effective marginal tax rates acting as a disincentive to people under WFF, but we are confident that this issue will be addressed by our tax package.

“As I have always said, I am interested in what works.  National acknowledges that Working for Families payments are an important part of the income of many families.

“Despite concerns we hold about the system, I consider that offering people certainty is much more important in these tough economic times.”

I don’t like the idea of middle and upper income people receiving welfare but philosophical purity doesn’t win elections. And the comment about high marginal tax rates being addressed by National’s tax package gives me some hope because families keeping more of what they earn won’t need extra by way of a benefit.

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