Working for Families and the workforce

The Herald reports:

Labour’s $1.5 billion Working for Families package has driven a net 1200 parents out of the paid workforce – achieving the opposite of its aim to “make work pay”.

An evaluation by Inland Revenue and Social Development Ministry researchers has found the $60 a week in-work tax credit lured 8100 sole parents into paid work.

And that is good. The Greens and some of the left have opposed the in-work tax credit, but I think it is a good thing that does encourage people to move from benefits into work. To give fair praise to Labour they even defended a human rights law suit against it.

But 9300 second-earners in two-parent families dropped out of work because higher tax credits let them stay home with the children.

This one is more difficult. It is good for the economy to have both parents working and earning, but it can be better for the family to have one parent not working. There is no universal right or wrong position – each family has to make up their own minds. What is most important is that at least one parent is working.

But Labour social development shadow minister Annette King said yesterday the contrasting results were “two good outcomes”.

“It enabled people [sole parents] on the benefit to go out and earn more and to reconnect with the workforce because it was worth their while,” she said. “And if people [in couples] who were doing part-time work are now able to stay home with their families, that’s a win too, because we have two groups that have different needs.”

Annette has a point here. But the money to pay WFF comes from those who are out working, and if you reduce the pool of those working, then a smaller number of workers are funding a larger number of non workers.

The most efficient tax and welfare system is one with the least churn. Taxing people more than you need, just so you can give some of it back to them as welfare is quite wasteful.

Ideally I want a system where people pay little or no tax until they are earning enough to pay for their own direct costs of living. But once they are earning enough to pay for themselves, they should receive little welfare – I don’t want people earning $100,000 receiving taxpayer handouts from those earning just $45,000.

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