WFF - changes at the top-end won't cut it

Because the PM has suggested making Working For Families less generous in an attempt to find the money needed to pay for the Christchurch recovery the Labour vote-buyer is once again in the news.

Earthquake or no earthquake many economists regard these sorts of family spending programmes as highly ineffective and inefficient. As a vehicle to reduce child poverty they often result in more workless homes. Yes, the In Work tax credit (one of four WFF tax credits) was intended to get more beneficiaries into the workforce but at the same time an evaluation showed more partnered mothers left the work force. ( And then the recession wiped out the increase in single parent employment too.) At the very low income end Family Tax Credits to benefit-dependent families tend to keep people on benefits because of the high marginal tax rates they produce and the incentive that higher benefit-packages bring.

When Labour widened the scope of eligibility for family assistance and re-named it WFF they virtually doubled the cost in the interim period. In 2005, as the opposition leader John Key called WFF "a giant welfare package". And at some point "communism by stealth". That is still true but in order to win the 2008 election he decided he could not risk undoing the scheme. There are over 400,000 families with dependent children - nearly four in five - receiving an average annual entitlement of between $6 and 7,000. Obviously, however the higher up the income scale we go, the lower the payments are. So cutting them back at the top end isn't going to save the government very much money. Not when they are talking about a $5 billion drop in tax revenue due to the loss of economic activity in Christchurch.

Other reasons why WFF is a bad business include the privilege/ penalty process. Childless individuals and couples resent having to pay for other people's choices. No wonder so many migrate. Some research shows that families with children actually accumulate more wealth over a lifetime though larger homes and more constrained life styles. So why is the taxpayer expected to add to that wealth?

Churning significant amounts of income involves dead-weight loss. It is inefficient. The bureaucracy wouldn't be needed if the money was left in someone's pocket in the first instance, rather than taking it and giving it back.

Some people believe that family assistance programmes increase fertility rates but any correlation is uneven across various countries. In fact groups like the Child Poverty Action Group claim NZ puts a shockingly small amount of GDP into family assistance yet we have one of the highest fertility rates in the developed world. Many European countries they admire - Sweden, Denmark and Norway for instance - all have lower rates than NZ.

In the final analysis WFF was a vote-buyer. With NZ's current somewhat dire situation National has to persuade people of the right course of action. What is needed is not necessarily what they want. People do understand this. Key has to convince then to vote using their heads and hearts, and not through their pockets. The programme Labour introduced in 2005 should go.

(The likes of Lianne Dalziel will protest that cuts to spending are the last thing Christchurch needs. So make a temporary exception for Christchurch. The precedent is already set with special spending packages and, last year, the DPB reforms were deferred for Christchurch beneficiaries.)