Here is Bill English in the cocktail tapes talking about Working for Families:
“the reality is if we had been the government, with the surpluses they had, we would have done something similar, like Working for Families… there’s a set of inevitable problems, it’s like physics… If you give people cash [that abates as income rises], they’re going to have high marginal tax rates [or people on high incomes are going to get payments]. That’s it. You can’t get around it. Don thought he could. So did John actually… so the raw choice is, fix the money by taking the money off them… the punters are keen to keep it… The last thing we want is to spend to the whole election with families of four on TV saying ‘Mr Key took our money off us’. So later on we’ll have to have a bit of a sort out”
English was right: you can’t avoid high marginal tax rates if you’re going to give a decent tax break to low and middle income families without well-off families also getting something. It’s simple maths.
The problem is, those high marginal tax rates have encouraged some wealthy families to hide their income in investment properties, companies, and trusts so they can keep on getting WFF and avoid going into the top tax bracket at the same time. It’s a classic rich man’s rort.
Working for Families isn’t the problem. The problem is that mechanisms like trusts can be used to abuse the system. If National really wants to stop some well-off people rorting the rest of us, they should target those mechanisms. As far as I can see, the only reason people use family trusts is to avoid tax (and shove the burden on the rest of us). Clamp down on that. Change the rules so investment properties and trusts can’t be used simply to minimise taxable income.
Unfortunately, National’s tax review group thinks the solution is to get rid of Working For Families altogether and make the top tax rate 23%. That’s throwing the baby out with the bathwater. Hundreds of thousands of low income families depend on the WFF payments they receive. They would get nothing from cuts to the tax rates over $48,000. A family of four with an income of $50,000 would lose $150 a week. Meanwhile, wealthy people (including the people who are rorting the current system) would get enormous tax cuts – $115 a week for an income of $100,000.
When English has his “sort out”, I hope he will think of all those “families of four” and not take their money away to give to the rich. Instead, he needs to have the guts to stop tools like trusts being used by some wealthy people to rip-off everyone else.