Tuesday, June 13, 2006

WFF rip-off

National MP John Key says self-employed earners are forming trusts that hide their true income in order to qualify for Working for Families payments.

Go back a step. People have already done this to minimise their child support payments, which are based on how much they earn, as opposed to what the child needs. Whether government threatens to punish or reward, many people will react in ways that others don't think are kosher. The best way to deal with it is get rid of the incentives to.

The Working for Families scheme is going to be the mother of unintended consequences.

1 comment:

Anonymous said...

WINZ classifies liquidating an asset as **income**, even when the IRD doesn't (of course!). We sold a major asset but allowed the purchaser to pay it off over 22 months. As a result, even we were eating our capital for two years, WINZ considered it income and said we were too rich for assistance, even though our IRD tax return came in at $11k income for the year. Ok, so I was stupid and should have had them pay the money into a trust. Foolish me. Point is: honest people are being punished already, so devices like trusts are needed to keep the Government Wolf at arms length. If that means some people take it to the point where they are deliberately hiding real income (the sort the IRD would also miss if it went looking for it), then I can see how that would upset other honest people. Still. Whatever is legal is legal, and you can't complain about it. You're right - getting rid of WFF and providing tax cuts would solve a whole raft of these problems. One thing I always liked about Roger Douglass... he knew about this sort of unintended distortion, so kept GST at one level for everything, yes, even bread and milk. Bless that man. If only we could have an equally pragmatic finance minister provide simplifying reforms cutting red tape and compliance costs across the board.