Don't work, and get more money

01:00, Nov 08 2011

One thing Labour should be praised for is their willingness to come up with new policy, different from that of the last Labour government. They have produced plenty of new policies (as well as the normal recycled ones).

The new policies have been a mixture of good and bad (in the author's opinion). Raising the age of eligibility of superannuation is a good thing, as would be a capital gains tax (if it were not riddled with exemptions).

Up until yesterday I would have said the worst of their new policies was the return to 1970s-style national industry agreements, which would have the government impose terms and conditions on every single employer in an industry.

But yesterday Labour announced that every beneficiary with dependent children would become eligible for the in-work tax credit, and get an extra $60 a week.

This policy has been pushed by the Greens and Sue Bradford for many years. And Helen Clark and Michael Cullen always said no: they said that the in-work tax credit was for parents who were, well, "in work".

The reason for the distinction was twofold. One reason was to have an incentive for beneficiaries to move from welfare into work. The in-work tax credit made it easier to do so, as gaining it would compensate for an effective high marginal tax rate as benefits abate.

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The other reason was a recognition that parents who work have greater costs, such as travel to and from work, plus clothing costs.

This is the second policy from Labour to promise more money for beneficiaries. Their tax policy is also going to give everyone on a benefit an extra $10 a week. This is again a departure from the last Labour government. All previous governments that have introduced tax cuts have not had them apply to benefits. The reason for this is that the level of a benefit is calculated on an after-tax basis. Hence when Michael Cullen cut the bottom tax rate in 2008, it did not affect the level of benefits (except superannuation).

However, Labour's tax policy says that their tax changes will give beneficiaries an extra $10 a week, even though they do not in fact pay any tax.

Now this policy will give a beneficiary with a child another $60 a week on top of that. So that is an extra $70 a week, for not being in work and not paying taxes. I would not have thought that at a time when we have record deficits and the path back to surplus is dependent on Europe not melting down, borrowing more money for this policy is not a great move.

Do you think the in-work tax credit should remain for working parents only, or should it be extended to parents not in work, as Labour proposes?

David Farrar is a centre-right blogger affiliated to the National Party. His disclosure statement is here.

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