Sea change as economy recovers

VERNON SMALL
Last updated 05:00 30/01/2014

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OPINION: Back in the dim distant past, just before Christmas, all the Government's talk was of responsibly managing the economy and maintaining tight fiscal constraints.

But just four short weeks ago the calendar ticked over to 2014, a.k.a. election year, and the language has, in Helen Clark’s immortal mantra, "moved on".

Now Finance Minister Bill English is mulling spreading the benefits of the recovery. Overtly he expects this to come through higher wages paid by businesses. 

But you would have to be comatose on an isolated beach not to have noticed the sea change in the approaches by both the Government and Labour as the economy recovers, though both are still talking up their commitments to Budget surpluses.

After five years of austerity-lite, including a series of zero budgets, spending is no longer a dirty fiscal word.

From the Government’s point of view, the imperative is to avoid being labelled as the party of "no", stuck chanting from the song sheet of ideology of restraint when the growth forecasts, Budget numbers and confidence surveys are all looking up.

It also needs to reassure struggling low and middle income household that the impending rise in mortgage rates will be offset by improving incomes and some help from the Government through public services 

Lolly scramble it isn’t, but the rhetoric is definitely sweeter.

It started by dropping its rejection of an increase in paid parental leave, the money has started flowing for education, via the $150m a year "super-teachers" package, and English is signalling more cash for the most vulnerable children.

National may have restricted itself to about $1b of new spending in this year’s Budget, but it has started to splash the cash early from future Budget provisions and may well have even more to promise before the likely September or October election. 

Ditto Labour, with its "best start" baby package not due to jump out of its harness until well into its hoped-for first term.

Just as National has been forced to nuance its message, de-tuning restraint and talking up a little spending to spread the jam from the recovery, Labour leader David Cunliffe has needed to tread warily too.

For his part he has to be careful to keep faith with the Left wingers and unionists who put him into office without alienating those closer to the centre of politics and of the income bands. (Oh, and a fair few conservatives in his own caucus.)

Its baby bonus and "Best Start" inched down the centre line between those two conflicting demands.

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For years now Labour has been divided over whether – and how – to give extra assistance for beneficiaries. 

Former finance minister Michael Cullen initially fired both rhetorical barrels at National’s decision to restrict what came to be the in-work tax credit (IWTC) to working families. But he and the party came around to the argument that there needed to be a greater income gap between benefits and work, if only to recognise the extra costs of going to work.

Social policy pressure groups have continued to argue, though, that beneficiaries need the IWTC to help bring up their kids.

Labour eventually bowed, and in 2011 promised to extend the payment to beneficiaries, drawing widespread flak and causing deep concerns within the party.

The solution in its latest package was to dump the extension of the IWTC to beneficiaries, and instead give those with a new born a $60 bonus – no coincidence the same amount as the IWTC – where household incomes are under $150,000.

It sounds as near to universal as damn it, and that has seen Labour slammed for "middle class welfare". But that criticism falls for the smokescreen Labour has puffed out around what is at heart its old policy in drag; a disguised pay rise for beneficiaries with kids, though it gives more to the lower paid too.

Just look at the numbers.

The $150,000 cap applies only in the first year, and many in work will miss out on half of that because they will not be able to "double dip" by getting the bonus and the much more generous paid parental leave, worth up to $488 a week for six months under Labour. 

In year two and three of a child’s life the cap will drop severely. Those on up to $50,000 – so beneficiaries and the low paid – continue to get the full $60 a week but it is sharply abated above $50,000 that and is wiped out completely at income of $77,000.

That structure creates a huge gap between what the ‘‘better off’’’ earning more than $77,000 get – maybe $60 a week for six months or $1560 in total – and the $9360 beneficiaries and those at the bottom of the income ladder can pocket over three years. That is a far more targeted $270m policy than it appears at first blush. 

- © Fairfax NZ News

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