Opinion & Commentary
Our beneficiary nation
Am I the only one who feels uncomfortable at the latest Working for Families ad on TV, where the middle class family (complete with iPods and cellphones) are exhorted to claim their entitlement?
New Zealand was the first country in the world to introduce the welfare state, with the noble goal of supporting those who can’t support themselves. But now, even families earning up to $100,000 a year are eligible for state handouts. Michael Joseph Savage must be turning in his grave at this latest example of how far the welfare state has spun out of control.
From April 1 st this year over 348,000 families will be eligible for some kind of benefit under the Working for Families package. In effect, three quarters of all New Zealand families will become beneficiaries with the Government deciding what their level of income will be.
Bizarrely, even people defined as ‘rich’ by the Government (i.e. earning over $60,000 a year) are forced to pay the top tax rate but at the same time are deemed ‘poor’ enough to require a Family Assistance benefit.
At a time when other countries around the world are trying to move people off welfare, New Zealand alone is deliberately trying to pull more people onto it.
The problem is that nothing is for free – families have to pay taxes in order to pay for all these benefits. Much of the money is just being recycled (or ‘churned’) straight back to the people who paid the tax. In effect, the Government is giving with one hand and taking with the other.
There are a whole bunch of reasons why this is a bad idea. For a start, the administrative cost of collecting and recycling all this money is huge. The IRD now has over 4700 staff with annual expenses of $475 million - in fact, New Zealand’s ‘tax army’ of IRD staff, accountants and tax lawyers is four times the size of our military army.
And it certainly is a complicated scheme. There is now a maze of formulas for working out the levels of Family Support, Child Tax Credit, Family Tax Credit, In-Work Payment, Parental Tax Credit, and various other schemes. The television advertising campaign alone is costing taxpayers $21 million.
You can’t help but thinking – wouldn’t it just be easier to collect less tax, and leave the money in the pockets of workers?
Perhaps the most important argument for letting people keep more of their own money is personal empowerment. When people earn their own money and use it to provide for themselves and their family, there is a sense of autonomy, self-worth, self-respect and personal responsibility.
Instead, eligible families now have to go cap in hand to the Government and navigate a series of bureaucratic hurdles just to get some of their own money back.
How has it ended up this way, with the welfare state so pervasive? Why is the Government churning so much of our own money?
A big reason is that spending money can be politically rewarding. Governments can raise taxes from the entire population and then concentrate the spending on certain targeted voter groups.
The Government therefore has perverse incentives to make more and more families dependent on the state – even high income earners.
This constant recycling of money is a big reason why New Zealand is a massively overtaxed country.
The Government seem determined to try and find new ways of spending our money, rather than just letting us decide for ourselves.
Phil Rennie is a Policy Analyst with the New Zealand Policy Unit of The Centre for Independent Studies, a public policy think-tank.
