Writing in today's NZ Herald, Susan St John succeeds in showing how complex and counter-productive the state's attempts to redistribute wealth have become. But because the writer believes in the notion of state responsibility for income equality she is merely hoping that the government can come up with a better design on the back of "an adequate and comprehensive review."
Perhaps, instead, it is time to examine the beliefs behind government-mandated redistribution - or put more crudely, robbing Peter to pay Paul.
There are two broad ways that wealth gets redistributed. Through taxation and transfers, or through work and shared profit. Over the past 40 years the trend has been towards the first method. State cash transfers have grown steadily. That growth has brought with it more and more complexity as more and more people want a piece of the pie. It is undeniable that whenever a new 'benefit' is introduced it isn't long before there are calls to extend it, either by generosity or by eligibility. A recent example is Paid Parental Leave. Not happy with the current status, lobbyists want 52 weeks instead of 14 and fathers to be paid as well. (Notice here that the prime lobbyist, the Families Commission, is also, after a fashion, a recipient of cash transfers.)
So why is it that government continues to increase the rate of transfer - from the frugal 19th century beginnings of welfare through to the recent Working For Families - yet inequality, according to St John, keeps growing? It is now apparently at an unacceptable level.
The problem lies in the method. When people work for their income there is a return to both employer and employee. The sum of wealth is added to. When people do not work but receive income from the state, the sum of wealth is diminished. This means there is a very obvious limit on how much the state can transfer.
Add to this the disincentive factor. It is reflected in the vast number of people now receiving some form of welfare. If the state is offering cash, the need and desire to work is reduced.
Which is how we have arrived at the current "mess", to use Ms St Johns description. But the only question being asked is, how can the state keep giving people money and keep them working? Trying to solve that conundrum has resulted in the very complicated interface between the cash transfer and taxation system.
Somehow NZ has to pull back from the current pathway and fiddling with the tax system isn't the answer. Taking money off people just to give it back (and more) is patently silly and inefficient. Paying people benefits from a very young age thus locking them into the cash transfer system for years is socially and economically counter-productive.
There are better ways to organise a society. Better economic brains than mine have put up ideas worth exploring. Flat tax, tax-free income thresholds, negative income tax, private social security provision, individualised social security accounts, etc.
But underlying all of these ideas is a philosophy of minimal government intervention. If simplicity and equity are paramount we need less taxation, less taxation machinery, less churning and less transfer - not more.
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