It is disappointing but not totally surprising that National is not making changes to Working for Families in its first term.
There are two aspects to Working for Families which I don’t like. They are:
- Families with six figure incomes get what is effectively a welfare benefit
- The overall tax and abatement rate for parents earning above $60,000 is around 89% (39% tax rate, 25% accom supplement abate and 25% WFF abate off memory)
Now the solution to no 1 would normally be to just abate WFF at a faster rate. But that then makes problem no 2 even worse. So the other solution to no 1 is to have it start abateing at a lower level or to reduce the level of payment for everyone.
Now if one pursues the latter possibilities, you want to do it in a way where tax cuts compensate so no one gets a take home income drop. This is not the time to be reducing anyone’s take home income.
I suspect it just got too difficult to try and design such a scheme in Opposition. I actually worked in the early 2000s with Lockwood Smith on some potential tax formulas which could take into account number of children, and hence deliver all assistance just through the tax system. The problem is many families pay negative income tax, so that wasn’t possible. Plus I am not sure IRD would have appreciated having a parabolic equation as part of the tax code
My hope is that if National is elected, they will get officials to look at a way to restructure Working for Families and the tax system, and then go into the 2011 election with that as a policy for which they seek a mandate. The deadweight costs of high income families paying tax which just gets delivered back to themselves as WFF welfare is quite considerable. If we want to grow the economy faster than Australia we do need to reduce this “churn”.Tags: National, tax cuts, WFF