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Greens Benefit Policy – the Good the Bad and the Ugly

The Greens new “Mending the Safety Net” policy has lots of good news for the poorest members of our society. However, much of the package is the stale stuff we heard from Labour. It’s hardly “fresh thinking”, and could end up harming the very people they are trying to help. 

The Good - Removing Witch Hunt Welfare

The best element of the Greens package is the removal of witch-hunt welfare. The tangle of financial penalties and sanctions that have crept into our benefit regime only serves to stigmatise beneficiaries as well as punish people who are already in a difficult situation, leading to more poverty and more problems down the road. Of course administering and enforcing these conditions also requires employing an army of bureaucrats.

In particular we like the changes the Greens are making to Working for Families, removing the eligibility criteria for the In Work Tax Credit. This change will remove a whole bunch of complicated administration and will give families that need it an extra $72 a week.

Nice work Greens, we agree with this policy 100% which is why it is already part of our Thriving Families Package.

The Bad – Increased Poverty Trap

Increasing benefits will certainly help to reduce poverty, but the trouble with all targeted benefits is that they have to be taken off people as they earn more. These ‘abatements’ mean that for beneficiaries it often isn’t worth the bother of working (especially when you include stand down periods).

The Greens are trying to take the edge off this problem by increasing the amount people can earn without abatement to $200 per week (at the moment it is $80pw), and reducing the abatement to 30% for people out to $400 per week (at the moment it is 70%). After that point the abatement rises to the current level of 70%.

This is certainly more generous than the current benefit settings, but it still creates the same problems as we see now – at some point people lose their benefit and are no better off from working. By the time you add in the abatement rates of student loans, working for families and housing, people are often worse off from working more. This is the poverty trap and is the problem with all targeted benefit regimes.

The other side effect of the Greens policy is it creates a massive increase in number of the working population who could potentially qualify for a benefit. For example at the moment someone earning minimum wage ($15.75) and working 25 hours per week will no longer qualify for the unemployment benefit. Under the Greens policy this person would still be receiving $150 in benefits. In fact, under the Greens proposed system, someone working full time on the minimum wage (even if it were raised to $17.75 per hour) would still be eligible to receive some benefit. It would be interesting to know if the Greens have factored that into their costings.

There are ways to help people without all these problems – you make it universal. That is the approach behind our Thriving Families policy, which gives all parents with a child under 3, $200 per week. We will still need targeted benefits, but universal payments help the working poor as much as beneficiaries, without any risk of poverty traps.

The Ugly – Tax and Minimum Wage Changes

Of course there is nothing wrong with paying people more, nor with getting rich people to pay more tax. TOP agrees 100% with that goal. Unfortunately the solutions put forward by the Greens are based on old-fashioned ideas that may appeal to their voter base, but are far from the best way forward.

For starters, increasing the top tax rate will only exacerbate the existing tax loophole around housing. If you offer people the choice between paying no tax and paying a higher rate of tax, what do you think they will do? The Greens capital gains tax (excluding the family home) doesn’t deal with the loophole at the core of the housing issue – the tax-free status of imputed rental. So even if their capital gains tax were implemented we would expect to see more money heading for the tax-sheltered status of housing as a result of this income tax hike.

Besides, hiking income taxes won’t hit the really rich. We already know that 1/3 of our wealthiest citizens don’t pay the top rate of income tax; under the Greens tax policy you can expect that number to increase. We need to start taxing wealth – that is the way to make our tax system more progressive. That is what TOP is proposing with our Fair Tax Reform, but the Greens appear to be taking the easy road that will appeal to old-fashioned left-wingers. We don’t call that approach ‘progressive’.

Finally, their approach to hiking the minimum wage is very risky. While we all want higher wages, particularly for those at the bottom end, regulation isn’t the best way to achieve it. The risk is that businesses become even less willing to hire young people, so we end up with higher unemployment as we see in Europe. Remember New Zealand’s minimum wage is already very high (relative to the median wage) by developed country comparison. The Greens are doing nobody any favours by hiking it further, if the outcome is fewer jobs. We certainly need to deal with poverty, but we need a multi-pronged approach to do so – including reducing the cost of housing, curbing low skilled immigration and making our tax and welfare system fairer. 

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    • paul Blackham
      commented 2017-07-26 12:26:13 +1200
      Couldn’t agree more. Very happy with the concept and the probable result re housing affordability. I guess my point was to not underestimate the effect on the economy when those super wealthy choose to relocate. Their disposable wealth and its myriad knock-on effects are widely felt when they go off to greener pastures. That is not to say we shouldn’t make the system more fair and equitable, simply to highlight that we are not operating in a closed system where all participants must comply with our rules, they have the right to leave and will exercise it once we try to squeeze them.
    • Peter Carey
      commented 2017-07-26 10:09:32 +1200
      Well that’s fine, they can’t take their building or fixed assets with them. You tax the asset and don’t allow any offset of “losses” from elsewhere. If the asset is in NZ then its taxed here. The superwealthy live here because they either have a genuine interest in NZ or more likely, there’re looking for a bolthole. Buying assets is just a way of getting residency. Anyway, I thought that’s what’s TOP is promoting, weakening the property market will make more houses available for those who need them and not sitting vacant waiting for capital gain.
    • paul Blackham
      commented 2017-07-25 19:34:08 +1200
      This change from taxing income to taxing assets is long overdue but will hit substantial headwinds from those that have benefited the most from the rise in asset values over the last decades. I am not sure you will get any real traction until the ‘have-nots’ outweigh the ‘haves’, and although it is coming i don’t think that will be the case in this election cycle.

      My fear and related question is ‘How do you prevent those people that own the most assets from simply upping sticks and moving tax jurisdiction, as has happened overseas?’ As an example, when London tried to tighten the tax rules around property a couple of years ago, it simply resulted in the super wealthy moving to a more accommodating tax area and resulted in the rug being pulled from under the London property market.

      Finally, well done you for trying to cut through the BS of party politics and letting the facts do the talking
    • Peter Carey
      commented 2017-07-18 13:50:21 +1200
      I think you’ll find that TOP was born out of the frustration with the Greens, that they would work only with Labour or a similar left-leaning party. While many of TOP’s policies could be described as left-leaning its likely to be far more centrist than the Green Party membership would accept and who seem to want to reign in anything that looks remotely free enterprise and even rationally based. I suspect there is a disconnect with the Green’s leadership, portraying a more moderate face, and their membership who yearn for a green socialist utopia.
      At the end of he day I don’t think TOP is about left or right really, its about fairness and we do have that in common with the Greens. If we don’t lift those at the bottom, and pay for it with the excessive returns of the rich, who after all have been the real beneficiaries of neo-liberal economics, then we won’t give everyone an equitable chance to advance. However, if we stifle the economy by shutting down dairy farming, for instance, we won’t have the income to pay for it. Of course that shouldn’t come at the expense of the environment and its about sending farmers the right signals to change their behaviour (carrot and stick) not some unilateral regulatory approach.
    • Hazel Purre
      commented 2017-07-18 12:02:34 +1200
      Spot on Gareth. The Greens want the same outcome as those of us who support TOP. However, if policy setting doesn’t include rigorous analysis of the ramifications of the implementation of the policy it can do as much harm as good. Get together Greens and TOP so that your strengths combine and you compensate for each other’s weaknesses.
    • Martine Bouillir
      followed this page 2017-07-18 10:32:29 +1200
    • Oliver Krollmann
      followed this page 2017-07-17 20:11:39 +1200
    • Peter Carey
      commented 2017-07-17 17:01:38 +1200
      To balance the media attention Turei has received in light of her “lying” to WINZ in order to get more support as a solo parent why don’t TOP do an expose of the “black economy” tax evasion that is rife in business? Everybody knows that you can get many jobs done if you’re prepared to pay cash and if there’s one thing people hate its the idea that they’re doing the right thing while someone is getting away with tax evasion (and probably boasting about it). Would it be that hard to get a few “confessions”, I know of “conferences” in various exotic locales where its nothing but a scarcely disguised holiday and tax deductible. Should put a few self-righteous National supporters in their place!
    • Peter Jamieson
      followed this page 2017-07-17 16:52:20 +1200