ACT NZ – To the simple minded all things are simple
The true believers will nod in agreement. Government’s spending is too high and taxes are too high. Cut the first even more than the second and we will be speedily on the way to the Nirvana of a return to surpluses and fiscal rectitude, despite COVID. All that is needed an incentive for the poor to work while social insurance is the answer to middle income unemployment.
“This election and Covid-19 present New Zealanders with an opportunity to change their future and create a fair, modern employment insurance scheme,” says ACT’s Employment Spokesperson, and third-ranked candidate, Nicole McKee”.
Some bits of ACT’s reasoning are fair enough when they say
“Short-term job loss is likely to become a feature of modern life as work becomes more fragmented and people move in and out of jobs more frequently. “Our welfare system is due for a serious overhaul. It imposes a one-size-fits-all solution that works for no-one. It fails people trapped in long-term dependency… It fails to address the realities of a modern economy.”
But ACT’s propositions are to further reduce the welfare safety net, and their “fair, modern employment insurance scheme” is a chimera designed to deceive. There is no gender analysis, no moral hazard analysis, and no distributional analysis. It sits inside their dry as dust economic policy of tax cuts and spending cuts and balanced budgets reminiscent of Ruth Richardson on steroids.
Rather inconsistently Act proposes “Income tax rates remain unchanged” and “ 0.55 percent of the tax paid would be allocated to a ring-fenced employment insurance fund.” This fund would insure 55% of previous earnings up to gross earnings of $109,000. Lucky the few who can point to a consistent income for two and half years because only they can enjoy a full 26 weeks insurance support.
“On the loss of employment, a taxpayer can claim 55 percent of their average weekly earnings over the previous 52 (or fewer) weeks. The maximum yearly payable amount is $60,000. Insurance can only be claimed for one week for each five weeks the person has worked, up to a maximum of 26 weeks per claim. Someone who has worked continuously for only one year could claim up to ten weeks’ employment insurance.”
According to ACT the ‘worthy’ working middle class must at all costs maintain their superiority- as they have “paid high taxes for years” When they lose work “they get little back in benefits” and what a huge calamity it would be for them to drop to the existing unemployment benefit and face “the stigma associated with welfare created by long-term beneficiaries who have made it a lifestyle choice.” That phrase “a lifestyle choice” reveals the heart of ACT.
Oh the faux outrage now that the middle class discover how miserable the welfare system actually is. How could they possibly be treated as if they were just a ‘welfare beneficiary’? How appealing it might look that ACT can come to the rescue. How predictable all this is to a weary welfare sector unable to make any progress on the fundamental issues of welfare reform with the Labour coalition government.
Let’s go back to that average wage earner on $69,000 paying $13, 720 in tax. Do they currently really “pay generously into a scheme that does not support them adequately if they unexpectedly lose their job”? In an ACT fantasy world all taxes are theft from hard-done by workers so it costless to reallocate or ‘ ring fence’ some of the existing tax as if that tax is not needed for health, education, security and the myriad of other things the state provides.
A mother recently returned to work or someone who has recovered from illness or accident on redundancy will use up their employment insurance entitlement, if they have any, very quickly. Doubtless, they and others whose insurance runs out will be so, so grateful to ACT when they discover that
“ they can move to Jobseeker Support and Electronic Income Management would apply. (Under Electronic Income Management, a benefit is issued on an electronic card and restrictions on alcohol, gambling, and tobacco expenditure apply.)”
Wait a minute isn’t ACT the right-wing libertarian party? Are they seriously considering monitoring freedoms of the displaced they pretend to defend?
Th social insurance scheme is supposed to be fair “because people get paid out in proportion to what they pay in, rather than a flat benefit rate regardless of their outgoings or previous tax contributions.” But that tax money has already been spent. To make this operational it can apply only for future contributions and is hardly the answer to the immediate COVID crisis
“Our scheme would also be fiscally-neutral, paying for itself with automatically adjusted premiums and savings on benefits.
Hang on a minute- what are these savings on benefits? If we didn’t have the COVID recession we still would not have a stash of unspent tax revenue. Just who are the “many independent economists” that were consulted and have been used by ACT to imply endorsement?
Make no mistake this is pure ACT policy. Any apparent generosity to middle income workers will be paid for with fiscal austerity. Reading the background document we find benefits will be slashed. The COVID increase of $25 per week, the winder energy payment, Best Start and KiwiSaver subsidies will all go as will benefit changes in Families Package and the WFF increases. With other moves SAVINGS of $7.6 billion are expected by 2024.
Be afraid be very afraid.
Not being an Act fanboy, this is the usual neo-liberal cookie cutter approach to economics. As always it ignores published research which shows that reductions in government expenditure where that expenditure is efficiently providing social services, reduces the overall size of the economy by a factor of around 2:1. In other words for each dollar the government spends we get two dollars back. This is in the form of decreased negative outcomes, greater social mobility, higher levels of engagement in society and yes, increased revenue for government. The Act approach simply initiates a race to the botton in wages and living conditions, surprisingly enough very similar to what we have witnessed over the past thirty years
One symptom of this is the need for Working for Families. We only started to need it because we dismantled our economy and exported all of the good quality value added jobs that ‘ordinary’ people could use to provide a firm basis for themselves and their families. In this respect I do agree with Act. WFF is an employer subsidy that encourages low wages and we need to wean ourselves off it. Effectively it allows someone to run a business which is not viable unless the government stumps up part of the payroll to ensure an employee can survive on what they are paid. It is corporate welfare, it is bludging. Combine that with accomodation supplement, that artificially inflates the cost of renting a home and we are firmly bedding in a high cost low wage economy. We used to have one of the most successful economies on earth with good living standards and a low cost of living. By following polices that Act continues to mandate, we have destroyed all of that in less than two generations.
Hopefully this time Labour can start to have the conversation about fixing this with the electorate.
Yes it is like reliving the 1991 budget- contractionary policy in the midst of a deep recession. No reputable economist would argue that balanced budget approach today. New Zealand has never recovered from the cuts to welfare in 1991 and has paid a huge price in poverty and insecurity.
But I disagree that WFF is an employer subsidy. All developed countries have payments for children. Some like Australia are much more generous than NZ. WFF recognises the social value of parenting well. We dont argue NZ Super is an employer subsidy and that employers should pay a wage high enough for them to save for their own retirement. Taxes are raised to take care of the young and the old through WFF and NZS- we need and should support both
Susan:
> But I disagree that WFF is an employer subsidy
IF it was paid for everybody, not just those in paid work, it wouldn’t be. That used to be called the Family Benefit and I’d totally support a return to it. But Alan it quite right about the WFF policy. As designed by the Clark government, it is a subsidy to employers.
Alan:
> Combine that with accomodation supplement, that artificially inflates the cost of renting a home
I’m not so sure about this though. A minimum wage worker with a 30 hour/week job gets about $400 a week. That’s about twice the base benefit, even after all the recent increases. If they both spend half their weekly income on rent (and this isn’t unusual), and the beneficiary gets the maximum accommodation supplement (this *is* unusual), it might only just top up the beneficiary’s ability to pay to the same level as that minimum wage worker.
That said, there is a problem that landlords can just take any raises in benefit levels by increasing rents, as the landlords of student flats did, by exactly the amount student allowance was raised. The only solution to that it to make providing housing for beneficiaries the responsibility of Housing NZ, at the same fixes percentage of income their tenants pay, and make them rent from landlords to make up for any shortfall in public housing. That way Housing NZ has to negotiate rent rates with landlords, not individual beneficiaries.
“IF it was paid for everybody, not just those in paid work, it wouldn’t be. That used to be called the Family Benefit and I’d totally support a return to it. But Alan it quite right about the WFF policy. As designed by the Clark government, it is a subsidy to employers.”
Danyl
With respect how much do you know about the WFF progamme and its history? The main tax credit the Family tax Credit FTC IS PAID TO FOR ALL low income children regardless of work status of parents. This is nearly 80% of the 2.77 billion WFF package.The other bit – the in work tax credit- round 20% is not paid to the poorest children because there is discrimination built into its design. CPAG spent 10 years in the courts battling this with a partial victory- you can see the history on the website.
There is no justification for this treatment that makes sense. CanI take it that if as CPAG and now the Greens suggest that IWTC is simply incoporoated in the FTC (assisting in a very cost effetive way with povetrty goals) you would no longer see it as a work subsidy?
I agree that we do need WFF at present. That is the problem. Employers simply factor in the availability of it when determining levels of pay. The fact that two partners working full time require a top up from the government would be unbelievable thirty years ago. Family benefit was not an equivalent to WFF and was in some ways better. Income has not kept pace with the cost of living. Unless we make a change work is going to become even more precarious and poorly paid. If we do manage to raise living standards it would be great if WFF was no longer needed.
Accomodation supplement is another policy to fix a structural problem, this time with the housing market. State housing used to put a floor on the rental pricing at the bottom end of the market and this tended to keep rents down. The move to market rentals and demand outstripping supply means that rentals are disconnected from wages and salaries. By filling the gap between what people can afford and the market rate, accomodation supplement allows land lords to keep rents higher than they would be. Like WFF, accomodation supplement is now needed by people to survive. I think a much bigger intervention that has been entertained so far, is required to fix this problem.
Always good to learn more about actual policy detail, many thanks SSJ. This sounds utterly backward to me.
The Nasty Natz would agree no doubt with all this bene-bashing. With National in such a mess and their voters maybe looking further right at ACT there won’t be too much damage, just more wasted votes. So ACT won’t get the opportunity to enable these spiteful policies.
The point here is that ACT are exploiting the simple minded who want their simple solutions of lower tax less welfare less debt. I dont think Seymour is simple minded– clever and ambitious and able to read the mood of the centre right may be better descriptors.
I think we should be very afraid as what has happened to National will see droves of disillusioned Nat supporters flocking to ACT. They have been already. After today’s resignation An ACT/National coalition is a possibility. The policies of ACT must be taken seriously
Agreed Susan but I just can’t get serious about a guy dancing around in lycra twerking. I’m sorry, I just can’t!
I don’t think that an insurance-based welfare policy is necessarily bad; it’s ACT’s stinginess that makes it problematic. In Denmark, twelve months of contributions get you 80% of your former salary for up to two years, rather than 50% for six months as ACT proposed. Furthermore, the fact that you contribute from your wages with inputs from the government and your employer creates the notion that you have a right to support. This would destroy the beneficiary-bashing that dominates New Zealand politics. Labour or the Greens could possibly rework this policy for a more secure, stigma-free form of income support.
1.DISTRIBUTION OF THE CENTER RIGHT VOTE 2020
Hopefully the move from National to act will be a zero sum game and simply a redistribution of the right vote rather than an increase in the center-right vote . With the multitude of center right conservative parties currently emerging it could well split the right vote further , giving many wasted votes on parties that poll 1 to 4%. Act will benefit from picking up the gun lobby but National may be in real trouble overall which will counter Acts gain.
Last 2017 election TOP undermined the Greens vote considerably but with TOP not firing in 2020 and without its previous Gareth Morgan 5m budget , the greens should have an easier run back with little left wing factionalism this time around which is potentially good news .
2. WELFARE REFORM
There is some middle ground on the health insurance . I read recently that the Spanish welfare model first component has a preunemployment insurance contribution of $ 1 Employee, $1Employer ,$1 Govt .
Upon termination of employment the unemployed person receives around 80% of their previous wage for between 6 months and a year before resorting to a standard benefit similar to NZ.
Often if you have been in stable employment for 5 or 10 yrs ,going from $ 2000 pw income to $200 is a devastating shock with regard to your normal life, family ,friends and relationships and this seems to give reasonable time to adjust , preserve normal family life, meet financial committments and feel confident to get more work.
This in no way excuses Labour from a proper revision of the current system . I read the 240 page Welfare Working Group Report , with its 40 + recommendations , of which virtually none were adopted . This was a total fail in my opinion and deeply disappointing from a so called progressive Labour govt which has only supplied window dressing to date.We need a whole new polemic , which I similarly did not find in the Working Group Report .
So many part time /contract/casual gig economy workers are in a systematic poverty trap , only being able to keep around an extra $60 pw on top of a benefit irrespective of the hours or days worked .As automation increases so will this sector of the work force .There is no new vision for the unemployed or crucially , the underemployed .This emphatically needs to be factored into any new welfare model .This has not been adjusted for 20 yrs,not even for inflation which has meant essentially a pay cut for welfare people every year. Even on an adjustment for inflation the retention /abatement rate should be around $150 + pw rate .Labour has failed these people badly .They have signaled workers will be able to keep an extra $5 pw which is a complete piss take .If NZF has been the handbrake for Labour and the Greens Lets hope they are well and truly behind the 5% mark in Septembers poll of polls .
Many thanks Susan for expanding the scope of the discussion, there have been many intelligent and well researched contributions on the Daily Blog today.
Scratch a libertarian and you will find an authoritarian.
Making social welfare an insurance scheme is what you would do if you planned to sell it off so that the bludging shareholders can make an even bigger profit from doing nothing at all.
Agreed. That’s what i wrote when I first saw it.
Accumulate privatise then strip out.
Bomber:
> Make no mistake this is pure ACT policy. Any apparent generosity to middle income workers will be paid for with fiscal austerity.
It was also Labour policy under the Clark government. Working for Families for the middle class, frozen benefit rates for the unemployed, unwell, disabled, or fulltime students. It’s just bog standard neoliberalism. The policy distance between ACT and the Labour of today (especially if it ends up in government with the Greens post-election) is a sign of just how much progress we’ve made against the neoliberal hivemind, frustratingly slow as it may be.