NZ POLITICS DAILY: Labour's baby bonus less generous than it appears

David Cunliffe has flown the red flag for battling economic inequality with his election year opening speech and ‘Best Start’ policy announcement. In an election year in which social policy, incomes and inequality are going to be at the forefront, he’s made it very plain that if you care about reducing poverty and inequality, he’s after your vote. But is it more complicated than that? Does Labour have a monopoly on helping the poor? To what extent would its latest package really address inequality? Is the ‘baby bonus’ too generous, or not generous enough? How well designed are the policies? And what exactly would their consequences be? Those are some of the big questions being discussed at the moment.

Labour less generous than it appears
Leading the media debate on the ins and outs of Labour’s new package is TV3’s Patrick Gower – watch his 3-minute item (and see his article) Parliament battles over babies.

He has also just published a blogpost, titled Labour dishonest on 'baby bonus'. The gist of his complaint is that Labour has omitted to tell the public that the ‘baby bonus’ will not be quite as generous as David Cunliffe has been making it out, as those receiving Paid Parental Leave won’t be eligible for it. On the other hand, Gower explains that the effective income threshold that prevents the wealthy receiving the welfare payments is much higher than has been understood. Gower accuses Labour of being ‘deliberately misleading and dishonest’.

John Armstrong also argues that Labour’s Best Start is less generous than it might appear, saying it ‘flatters to deceive’. He says that Labour clearly want voters who are concerned with inequality to believe that this policy heralds a return to ‘traditional Labour Party thinking’. According to Armstrong, ‘It appears at first glance to be a generous package which will have those on Labour's left doing cartwheels. It would seem to leave the Greens looking comparatively conservative’. But the reality is this: ‘‘The number of qualifying families tails off sharply between the child's first and third birthday, thereby raising further questions about the targeting. Questions will also be asked as to why if the policy is so essential, it would not be implemented in full until 2018. In short, the policy is not all that it might seem’ – see: Labour package could be victim of its own generosity. In another column, Armstrong says that it ‘pays to read the fine print’, as the policy seems more designed to make a ‘splash’ than actually target those in poverty – see: Fishhooks in the fine print for baby producers expecting a windfall.

The NBR’s Matthew Hooton calls the policy ‘regressive’ and argues that parents most need support – not in the first year of a baby’s life – but in the following years, which is why ‘previous governments providing similar family support have targeted it to children from age two through to sixteen or eighteen’ – see: Cunliffe’s $9360 baby bribe will increase child poverty (paywalled).

Chris Trotter is also ‘underwhelmed’ by the new policy, as he is with recent policy announcements by all three main parties. In terms of dealing with inequality, he says that Labour’s policy, like the rest of them, doesn’t really deal with the cause. None of the supposed ‘solutions’ are up to dealing with the severity of a situation in which ‘living dead capitalism’ is ‘no longer capable of addressing contemporary human obligations’ – see: No Speeches On The State Of The Capitalist System.

Children's Commissioner Russell Wills makes a similar point today, although gives Labour, the Greens, and National much more praise for their policies – see his opinion piece Children deserve more. Wills says, ‘What no party has said yet is that they will have a comprehensive plan to reduce child poverty and its effects. The plan should include legislation holding the next and future governments accountable for targeted reductions in child poverty’.

Gordon Campbell also favours Labour’s new policy, but once again stresses how mild it is and how Cunliffe lacks any real plan for dealing with inequality. He says Cunliffe’s speech was ‘devoid of the merest detail about how Labour proposes to create an economy that will not generate more of it – came perilously close to sounding like opportunism. Very soon, Cunliffe is going to have to put up or shut up about the alternative economy he has in mind’ – see: On David Cunliffe’s State of the Nation speech.

Interestingly, Campbell also details how the Best Start policy is actually being implemented and advocated elsewhere by rightwing economists and politicians. But of course, the new policy isn’t entirely new to New Zealand, and today Brian Rudman has a very good column detailing the reaction to when it was proposed back at the 1975 election – see: Oh baby, it must be election year.

Labour’s Rob Salmond bristles at any suggestion that Labour is being overly generous. To make his point about just how low the $60 payment is, he has cleverly put an ad on Trade Me to outsource caring for his kids for that low amount – he explains this in his blogpost, $60 a week says you want to care for my baby.

Other elements of Labour’s package - for example increased early childhood funding - are also incredibly cheap according to the No Right Turn blog – see: A good start. He says, ‘What's surprising is how cheap this is - a mere $60 million a year. At that price, you really have to wonder why they didn't just go all the way and make the entire system free. The extension of paid parental leave isn't a surprise, and it looks like it may happen anyway. The ante-natal classes and healthcare stuff is pocket change. Welcome, worth doing, and will make a difference. But not a huge policy’.

Universal or targeted?
The Best Start policy is semi-universal – it is not entirely a targeted at low-income earners, nor is it available to the most wealthy. The threshold of $150,000 appears to have been designed by Labour in order to make it appeal to the maximum number of voters (who might be eligible for it) but at the same time avoid criticism that the policy also gives money to millionaires. As Tracy Watkins says, ‘By extending the baby bonus out to low and middle income earners up to a generous $150,000-a-year, Labour is banking on it being politically far more palatable’ – see: Political pay-back promises piling up.

As a result, Labour is copping stick for the policy not being universal enough, and for it not being targeted enough. For instance, on No Right Turn the argument is made that full universalism would be preferable: ‘The high threshold is already coming under attack from National and its proxies, and it seems to have given them the worst of both worlds: all the bad PR of universality with none of the benefits. And its probably questionable whether the cost of administering that threshold (which apparently excludes less than 5% of parents) is worth the ~$9 million a year it would save’

No Right Turn blog – see: A good start.

Similarly, Children's Commissioner Russell Wills says ‘There are strong reasons for a child payment to be made universal; the payment gets to everyone because you don't have to apply, administration costs are low and most parents of newborns are at the lowest earning point in their lives, so the payment makes a significant difference to most. This is why we have a universal superannuation payment’ – see: Children deserve more.

On the political right there is an appetite for stronger targeting, even if that means higher payments for those in poverty. For example, Fran O'Sullivan criticises David Cunliffe for extending the payment to middle income earners: ‘If he was playing true to the child poverty meme he would have devoted the entire grossed-up bonus to poor and disadvantaged parents ($281 million annually at its forecast peak in 2019/20) and left the middle-class and higher paid families to fend on their own. Or devised an appropriately means-tested policy to be delivered through the expansion of current welfare payments or tax credit payments’ – see: Baby bonus clear tilt at ballot box.

On this topic, Keith Ng ‏(@keith_ng) has tweeted, ‘Making it universal would've cost an extra $10m/yr. Or they could've targeted bottom 50% and saved $90m/yr’. For more interesting tweets about Best Start and it’s announcement, see my blogpost, Top tweets about David Cunliffe’s state of the nation speech.

And for an alternative view on how targeting could work, see Pete George’s blogpost Better targeting the baby bonus.

Perverse and not-so-perverse outcomes
Will it work? And what else will the policy achieve? For the best discussion on so-called perverse incentives the Best Start policy might produce, see Simon Collins and Adam Bennett’s Labour's baby bonus may produce less work, more babies: economists. And for more detail on this, see Eric Crampton’s blogpost, Moar kids.

For a more controversial argument about the perverse consequences of the policy, see Matthew Hooton’s Cunliffe’s $9360 baby bribe will increase child poverty (paywalled). He says that the policy will increase poverty and then make families worse off when the money is suddenly withdrawn upon the children turning three: ‘For the most disadvantaged or dysfunctional families, $9360 over three years, on top of other benefits or Working for Families, is far more likely to modify behaviour. Mr Cunliffe’s policy seems likely to increase family size in the very communities that can least afford it – but he plans to cut the extra assistance on each child’s third birthday’.

For more examples of what employers think about the policy and its consequences – including from female bosses – see Dave Burgess, Cecile Meier and Marta Steeman’s 'Middle-class welfare' cops flak.

‘Show us the money!’
Much of the debate about Labour’s new policies has been focused on how a Labour government would pay for the increased spending. The response from Labour has generally been 1) from increased taxation on the wealthy, and 2) through the abandonment of previous Labour taxation policies. The NBR’s Rob Hosking has challenged this last explanation, saying ‘The trouble is that $1.5 billion did not exist anywhere except in Labour’s 2011 election manifesto. It is certainly not in the government’s coffers and Mr Cunliffe really does have to say where it going to come from’ – see: Election 2014: achievement vs welfare (paywalled). See also, Stacey Kirk and Vernon Small’s Labour coy over tax hikes.

But is Labour being unfairly targeted about the costings? Danyl Mclauchlan thinks so: ‘The gallery are scurrying around demanding to know how Labour will fund its new policies. Fair enough, but can anyone find me a single line from a news-story questioning where National’s $400 million for super-teachers was coming from? This is a routine double-standard in our politics. National get to announce stuff and the money appears by magic, left-wing parties have to account for every dollar’ – see: Calvinball redux.

The Greens – also big on inequality
All political parties are falling over themselves to appeal to egalitarianism at the moment. The Greens probably have the strongest challenge to Labour’s attempt to be ‘the party that will tackle inequality’. In fact the Greens have suggested that their main focus for this election will be on economic inequality rather than the environment. And as Matthew Hooton points out in his column, Greens confuse cause with cure (paywalled), this year Metiria Turei made her recent ‘state of the planet’ speech without using the words “global warming”, “temperature”, “sea-levels”, “peak oil” and “extreme weather”.

The Greens’ announcement on school hubs has generally been well received. Today Russell Wills, the Children's Commissioner, provides further information on how such schemes are already working – see: Children deserve more. Although, because the policy is highly targeted (only being proposed for decile 1-4 schools), today’s Southland Times editorial bluntly says ‘Sucks to be decile 5, then’ – see: And a child policy shall lead them.

With Labour and the Greens putting inequality firmly on the policy agenda, there will be much more debate about definitions and measures of poverty and inequality – see Adam Bennett’s Disputed statistics on income inequality.

And for a real-life example of the politics of babies and work-life, see Green MP Holly Walker’s blogpost, Mum in the House.

Facebook ban and reaction
Labour’s other controversial policy of the moment is its orientation towards transnational technology companies that are supposedly not paying enough tax in New Zealand. For the latest, it’s well worth watching Tova O’Brien’s 2-minute TV3 item, Labour threatens Facebook ban over tax issue. Not surprisingly, the possibility of a Labour government banning Facebook from New Zealand computers has not gone down well – with the strongest reaction being from National’s David Farrar – see: Labour jumps the shark. Aside from making the point that Labour’s stance might also bring the availability of ‘Google, Apple and Amazon’ into the banned area – as well as some media outlets – Farrar criticises the general approach of threatening companies with bans if they don’t pay more tax.

On the left, No Right Turn also says it’s Not a credible solution. Also, see Pete George’s David Clark attacked from all sides on Facebook farce. But Labour’s blogging spindoctor, Rob Salmond, gets into quite a spin trying to deal with the fallout in his post, Facebook’s NZ future.

Finally, for pushback on some of the criticisms Labour has been receiving, see Greg Presland’s blogpost on The Standard, Gower plays a shocker, and Scott Yorke’s entertaining – but also serious – blogposts A policy in tatters and The State of the Nation: an interview with David Cunliffe.

Today’s links

Labour’s ‘baby bonus’

Brian Rudman (Herald): Oh baby, it must be election year

The Press: More to come in election year

Efeso Collins (Daily Blog): Alleviating poverty key to raising student achievement

Chris Trotter (Bowalley Road): No Speeches On The State Of The Capitalist System

John Armstrong (Herald): Fishhooks in the fine print for baby producers expecting a windfall

Peter Wilson and Dan Satherley (TV3): Best Start policy will save money – Ardern

Matthew Hooton (NBR): Cunliffe’s $9360 baby bribe will increase child poverty (paywalled)

John Lewis (ODT): Questions over Labour policy

Simon Wong (TV3): Labour: Parents won't be able to rort 'baby bonus'

Corazon Miller and Julie Moffett (Newstalk ZB): Children first policies a double edged sword