When the Working for Families regime was first introduced by the Labour Government, it was heralded as a landmark initiative to address the poverty levels of New Zealanders, guarantee a minimum standard of living, and incentivise people to be in the wo
When the Working for Families regime was first introduced by the Labour Government, it was heralded as a landmark initiative to address the poverty levels of New Zealanders, guarantee a minimum standard of living, and incentivise people to be in the workforce.
The Labour Government of the day has to be commended for it political ingenuity for the design of the scheme, which have been proven through only minor tinkering by the National Government in its budget released today.
Firstly, the Government maintains a firm control in the redistribution of wealth from the haves to the have-nots. Interestingly, at the time most people regarded that the scheme was introduced so those at the upper end of entitlement didn’t really seem to be the have-nots, a view still expressed today. A side benefit is the positive view of the Government by those who receive an ongoing hand out.
Secondly, the decision to have an entitlement calculation tagged to tax return filing and an interim payment regime, creates a bureaucracy to administer and significant job creation within the Inland Revenue.
Thirdly, the scheme is almost impossible to unwind, without a direct compensation in another form. Given the significant reliance a large number of New Zealanders place on the scheme, the economic environment would need to be sufficiently positive to provide a trade-off of equal proportions, generally through tax rate reductions. Those economic conditions are not easy to come by.
The Government has made minor changes in this budget to the Working For Families regime to address the relentless growth in the cost of the scheme to the Government.
Working For Families is being amended at the “wealthy” end of the scheme. There is a modest reduction in the abatement threshold from $36,827 to $35,000, and an increase in rate of abatement from 25% to 20%. There is also a temporary halt in the inflation indexation for payments relating to children aged 16 and over until they align with those for children aged 13 to 15. All these changes will be drip fed at the time of the next four CPI inflation adjustments, which are expected biannually.
This is simply tinkering around the edges, but the fundamental cost of the scheme remains.
It is the design aspects of the scheme that continue to remain of real concern.
The design requires a high degree of administration and bureaucracy. In terms of tax system integrity, it creates complexity, a lack of understanding, and inequality ─ all of which are poor design characteristics in a system where the Government has a stated intention to simplify and cut red tape.
The potential for interim payments made being in excess of entitlement for the end of year wash-up, may leave the recipient with a debt due to the Inland Revenue ─ a real and unwelcome outcome. As a result a number of people choose not to receive regular payments, but instead get a lump sum at the end of the year.
This questions the credibility of the scheme intended to make day to day life easier, rather than a creating a windfall gain or artificial savings scheme.
The scheme is to be commended for focussing on those in the work force providing an incentive to work.
However, its key design fault rests with the social implications of creating reliance on the state, moving away from self-reliance and personal responsibility. Importantly, in these times of higher unemployment, a person can be out of work through no fault of their own, and suffer the additional financial loss of access to Working For Families.
If the family has come to rely on those payments, then through no fault of their own they are significantly impacted.
The Government has shown through its very modest changes that Working For Families has become embedded in the New Zealand psyche, and significant change without direct compensating offset would be political suicide. The good and the bad that is Working For families is here to stay.
