Tuesday, 12 February 2013

Working for Families, or WTF?

I am a parent. I have benefited financially from Working for Families Tax Credits (WFF for short), and I cannot really fault a government for trying to support parents financially in raising children. But I am, quite literally, about to bite the hand that feeds me. Certain things about both the WFF system, and the underlying thinking behind it, I have never been able to agree with, and on balance I think the whole system should be done away with.

WFF was introduced back in 2005. In budget 2011 the WFF was projected to cost $2.7 billion.  This is roughly 9% of the total social security budget (pensions, DPB etc.), but more importantly 11% of the total "individuals" tax revenue (PAYE, non-corporate taxes, and excluding GST revenue) generated.

So 11% of your individual tax payments are redistributed via WFF. To put this is context, the WFF spend is higher than the entire Government Transport and Communications budget. WFF spend is equivalent to 75% of the Law and Order budget. It is more than 20% of the Education budget. It is 13 (yes thirteen) times the entire budget of the Department of Conservation.

By any means this is a lot of money, and for the life of me I cannot fathom the logic for this programme to even exist. My objections are as follows.

WFF is for parents supporting parents with children up to the age of 18. Ergo, if you don't have children, or your children are over 18, your taxes are directly subsidising people who have children. But having children is a lifestyle choice, some of us choose to have children, some of us don't. Why should you, who perhaps chose not to have children, subsidise me, who choses to have them? If my lifetime passion is butterfly collecting, should your taxes subsidise that as well? WFF makes you financially responsible for my personal lifestyle choices. This is blatantly unfair and unjust.

WFF is incredibly complicated. It is divided into 4 categories; Family Tax Credit (FTC), In-work Tax Credit (IWTC), Minimum Family Tax Credit (MFTC), and Parental tax Credit (PTC). It is administered in part by WINZ and in part by IRD.

How much does it cost to administer? Answer: No-one knows!

The In-work Tax Credit (IWTC) is specifically meant to create a strong financial incentive for the unemployed to seek employment. But it doesn't. It only creates an incentive for the unemployed with children to seem employment. All those unemployed, childless ones, receive no such financial incentive to take on minimum wage jobs (jobs that are often unsuitable for parents due to the hours of work required or the transient nature of the work, such as in horticulture or agriculture).

WFF is paid to the principal caregiver. This is defined as "The principal child carer is the eligible parent or the person responsible for the day to day care of the children." All well and good. But what of non-custodial parents paying child support? Child support is calculated by IRD on the basis of the non-custodial parent's income. No matter how much child support you may pay, the child support receiver still gathers all of the WFF benefit, while the non-custodial, child support paying parent receives nothing. Again, this is manifestly unfair. If the non-custodial parent is making financial contributions to the welfare of the children, surely that parent should also be eligible to some of the benefit from any government largess?

In the year to June 2012, the median income from those receiving salaries or wages was $41912.00 per year. On that you would pay $6354.60 in income tax.  Of that, 11% or $698.94 goes to WFTC payments.

So what could we do with that WFF money?

If we got rid of WFF, we could reduce the 17.5% income tax bracket to 15%. The income tax for earnings between $14,001 and $48,000 could be reduced by 2.5%. This would have an immediate and beneficial impact on all full time wage earners in NZ.

We could employ over 38,000 people as police, teachers or nurses on a salary of $70,000 per year. By way of comparison, there are currently less than 8,500 sworn police officers in NZ. There were 51,000 teachers employed at state schools in 2011. There are 47,000 nurses currently practicing in NZ. How about we double the number of police, and increase the number of teachers by 20%? That would leave us about $1.3 billion to, oh I don't know, maybe pay doctors and nurses a decent salary so they don't have to leave the country to pay back their student loans?

Isn't that what we should be doing, rather you than subsidising my lifestyle choice?