John Key has tidied up the confusion he caused yesterday and says that the quakes will cost the government $5 billion in rebuilding and $5 billion in lost revenue over the next 4 years. Big bikkies but easily covered by an emergency levy and canning the white elephant motorways. So, why are the Nats obsessed with tinkering with Working for Families?
As Zet pointed out yesterday, National has long made a song and dance about high income families getting WfF but before the 2008 election, they gave up on the policy because they learned that only 1,000 families with incomes above $100,000 get WfF and they only get $1,000 a year each on average. Such a small problem, if one concedes it’s a problem, is not worth the government and Parliament’s effort and the side-effects of trying to fix.
Apparently, thanks to inflation, there are now more families on more than $100,000 getting WfF but the total bill is still a meager $6 million. The Government spends more than that on BMWs without battering an eyelid, so why are the Nats rabbiting on about reforming WfF again?
David Farrar gives us an insight.
First, he concedes that taking WfF away from high income families without also taking it off low and middle income families is not easy. Then, he writes:
At present, familes (in work) receive WFF up to the following income bands:
- 1 child – $75,317
- 2 children – $91,227
- 3 children – $107,137
- 4 children – $126,947
- 5 children – $146,757
- 6 children – $166,567
It’s important to note that, at these incomes, families get no WfF, and they get only $4 a week for every $1,000 their income is below these marks. – eg. a 3 child family on $100,000 (2 adults in full time work on the average wage) gets only $28 a week.
“What I would consider is increasing the abatement rate from 20% to 25% just for those earning over $70,000 a year. You see National dropped the top tax rate from 39% to 33% (something Labour vows to reverse)for those earning over $70k year so the EMTR would still be slightly lower than it was under the last Government if they are a sole income family.
Now one could say is there any point in reducing the top tax rate by 6% and increasing the WFF abatement rate by 5%. Well yes there is. It is better to have a lower tax rate and not pay a relatively wealthy family welfare, then have higher tax rates and higher welfare payments. Tax churn is inefficent and wasteful.
So what would an extra 5% abatement do for WFF maximum incomes? They would be:
- 1 child – $75,317 to $74K
- 2 children – $91,227 to $87K
- 3 children – $107,137 to $99K
- 4 children – $126,947 to $115K
- 5 children – $146,757 to $131K
- 6 children – $166,567 to $147K”
First thing – these aren’t exactly dramatic reductions eh? I mean, if you’re fretting that a 5 child family on $125K a year can get $8 a week in WfF, are you going to stop fretting when only a 5 child family on $113K can get it?
Now, Farrar’s increased abatement rate kicks in at $70,000. What’s the median income for families with dependent kids? $70,000. So this isn’t ‘rich’ when you’re talking about a household – it’s 1 parent on the average wage, the other in the minimum wage. And it puts these parents’ effective marginal tax rates up above what they were when National was elected (from 41% to 42.5%). Farrar tries to confuse the issue by conflating individual and household incomes.
But let’s follow through the logic of Farrar’s numbers. How much money would actually be saved?
As a rough estimate, fuck all. A 3 kid family on $99,000 was getting $32 a week and is now getting nothing – annual saving, $1,500. A 1 child family on $74,000 goes from getting $4 a week to getting nothing, $200 a year. Those are the maximum savings for those family sizes, if the family earns either more or less, the savings from changing the abatement rate would be smaller.
We don’t have exact numbers on how many families would be affected but you can see it’s pretty small beer – how many 1 child families earn between $70,000 and $75,000 and would get, at most, $200 a year shaved off their WfF? How many 3 child families earn between $70,000 and $107,000 and would lose up to $1,500? How many larger families are there anyway, and how many of those fall in the necessary income bands?
This is no great money saver and it comes at the cost of putting up effective tax on middle income Kiwis who have already seen their wages stagnate while GST and petrol prices eat up their meager tax cuts and more.
The solution to filling the hole in the government’s books isn’t fiddling around with WfF, generating a lot of small but hurtful income cuts for middle income families. The solution is to ask high income earners to give back the massive tax cuts they have received from National cutting the top tax rate from 39% to 33% and to stop wasting money on motorways that were already uneconomical even before this latest oil shock.
What can we conclude by National’s obsession with shaving WfF and their refusal to look at an emergency levy other than that they want to keep the massive tax cuts they have given themselves while playing scrooge on working families?