Government in New Zealand keeps expanding. The main driver has been the inexorable increase in spending on the welfare state.

New Zealanders are much richer than when the welfare state was founded. People’s incomes should therefore be sufficient for them to buy many of the services earlier generations could not afford. This means reliance on government assistance should be declining, but it is escalating.

The main explanation why welfare state expenditure is still growing is tax-welfare ‘churning’. Many people pay high taxes only to get much or all of their money back in the form of government payments and services. At least half of all welfare state expenditure in New Zealand is churned in this way.

There are good economic reasons for reducing tax-welfare churning—it is inefficient, it creates work disincentives and it will generate unsustainable levels of government spending in the future. But the strongest reasons are sociological—it disempowers people, undermines social cohesion and politicises civil society.

$5.50