Paying to rebuild – cuts vs levy

by frog

John Key’s Government is now openly talking about cuts to Working for Families to pay for the cost of earthquake rebuilding.

As Russel pointed out yesterday, we think a small, temporary earthquake levy would be a much better and fairer way of funding the rebuilding. Depending on how you set it, it would raise between $230m and $1b per year for rebuilding.

By contrast, cutting from ‘high income’ brackets of WFF would raise very little.

As Bill English himself pointed out in 2008 (hat-tip to The Standard for digging that one out), cutting WFF completely for families with an income of more than $100,000 back them would have saved just $1.1m per year. It would take thousands of years to pay off the cost of rebuilding at that rate.

We asked the Parliamentary library for figures showing how much WFF costs at different income levels. Even cutting support from families earning over $80,000 would hardly produce any savings – just $70m per year, nothing like the billions needed for earthquake recovery.

Clearly, to get any meaningful savings from WFF you’d have to cut from significantly lower income brackets.

A temporary earthquake levy of the kind proposed by the Greens could raise up to $1b per year. To save that much from WFF would require cutting support completely from families earning over $40,000. That’s clearly unacceptable, even to this Government. It would affect more than 160,000 families around the country, and cost them up to $180 per week.

Since that option is so unpalatable, it’s more likely that the Government would either change the abatement rates or lower the payments.

Neither option is particularly appealing. Changing the abatement rates so that people earning over a certain amount receive less from WFF could actually create the perverse incentive for them not to seek more or higher paying work, which is the exact opposite of what this Government is purportedly trying to achieve with its work-focussed welfare changes.

Lowering the payment rates across the board would affect people in every income bracket, and make it harder for many low- and middle-income families to make ends meet.

And neither would save significant amounts for earthquake recovery! David Farrar models some possible changes to WFF over at Kiwiblog today, which he thinks National should campaign on at the election. Funnily enough, he says nothing about how much this would save for earthquake rebuilding – because it would be very little.

By contrast, a temporary levy at the highest level we’ve modelled would cost an individual earning more than $50,000 just 58 cents per week and raise over a billion dollars a year.

I know what I think sounds more fair!

frog says