Australia to abolish baby bonus

As commented yesterday, there is no rational reason for Labour's new baby bribe policy. Interestingly it also flies in the face of what Labor in Australia were proposing before their defeat late last year. The abolition of the baby bonus. Why? Because they can't afford it.

In its 2013–14 Budget, the Labor Government has again looked to tighten access and levels of family assistance to find some significant savings. One of the standout measures is the abolition of the Baby Bonus. The Government proposes to replace the Baby Bonus with a smaller supplementary payment added to a families’ Family Tax Benefit Part A (FTB-A) entitlement. The measure is expected to save $1.1 billion over five years and will be implemented from 1 March 2014.[1]

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And the proposed changes have been kept by the Coalition government (albeit they are making PPL much more generous from July 1, 2015):

Changes to Baby Bonus from 1 March 2014

Baby Bonus will no longer be available for children who are born or adopted on or after 1 March 2014. You may be eligible for Parental Leave Pay or the Newborn Upfront Payment and Newborn Supplement paid with your Family Tax Benefit Part A payments.

This gives me a steer on what National will now do to counteract Cunliffe's plan.
And Bill English has already hinted at it. Agree to Sue Moroney's bill to extend Paid Parental Leave to 26 weeks.

Labour's new bribe

Child poverty is declining by every measure

The most commonly used measurement which counts children in households below 60 percent of the median household after-housing-costs income, has fallen from 37 percent in 2001 to 21 percent in 2012.

Yet Labour continues to claim that "more than ever families are struggling to make ends meet."

They manufacture a crisis in order to find a solution. That's the business of politicians. That's what keeps them in well-paid, prestigious, jobs.

Back in 2004 Steve Maharey described Working for Families as "...the biggest offensive on child poverty NZ has seen for decades." From 2005 the Family Tax Credit and In Work Tax Credits were steadily increased and inflation-proofed. When National came the policy was retained.

But now it's not enough? Not if you need to win an election.

A new scheme is devised with its own name, BEST START (just promising to increase WFF payments wouldn't have been as sexy). So it all smells like a bribe.

It worked in 2005 and Labour are hoping like hell it will work in 2014.

Half a billion of extra welfare spending. If they need an extra 200,000 votes that's $2,500 per vote.

RISKS

The main reason for child poverty is between a fifth and a quarter of babies born every year will be benefit-dependent by the end of the year. Effectively increasing the Sole Parent Support (ex DPB) by $3,000 a year isn't going to discourage that pattern of behaviour. This policy risks growing the number of benefit-dependent children which will achieve the very opposite of what Cunliffe claims to want.

Money for nothing always reduces work effort. At a time when we need more people working to support the ageing population this will reduce female labour force participation.

It will undermine the welfare reforms aimed at reducing long-term dependency by making benefits more attractive. Of course there is no guarantee the new work-testing will be retained if the government changes anyway.

It will cost employers as females stay away from work for longer. Employers have opposed extending PPL.

There is no guarantee the money will be spent on the children. There is already clear evidence that many low income parents budget well and manage as a consequence. They are officially defined as being in poverty but not in hardship. Others don't manage their money well. Providing more won't  change that behaviour.




Update: After an interview with Larry Williams (starts 2:52) NewstalkZB  reports my comment here.

Greens would raise benefits

The Greens want to raise benefits. No surprise but always worth noting when they spell it out.

From Metiria Turei's State of the Planet speech today:

Poorer kids have three times the rate of hospital admissions for preventable illnesses. They are one and a half times as likely to die in infancy, and have an up to 50 per cent chance of becoming a poor adult, when, inevitably, the poverty cycle begins again for their kids.
 Are you angry yet?
Turning away, not even engaging with inequality, as we saw the Prime Minsiter do last week, is a betrayal of those children.
The answer is, of course to eradicate poverty itself, by lifting the minimum wage, creating a smarter greener economy, ensuring that families live in affordable, warm, dry homes, and raising benefits. 

If I took anything from my Asian trip it was the new reality in China - now NZ's biggest trading partner. Low tax incentives are the rule for growth.

New Zealand cannot afford to increase taxation on individuals or companies. That is what implementation of the Green policies would require. As well, it's research-proven that when governments redistribute more wealth to low income families with children, the percentage of workless households increases.

Greens are la-la dreamers. I wasn't going to make comment but then thought better. Their idealism is naive but it's not harmless. It's dangerous. So this year it needs to be exposed as regularly as it appears.

In anticipation of Cunliffe's speech

Tomorrow David Cunliffe will bombard us with statistics about growing inequality.

That can be measured in various ways - household income, individual income or wealth.

The best source of data is the Household Income Survey.

Just to provide an alternate view I've pulled out some of the graphs that show a rosier picture than the one Cunliffe is going to paint.

The first compares the ratio of household incomes  between those in the 11-20th percentile (low) to those in the 71-80th percentile. Inequality fell between 2004 and 2010 and became volatile with the GFC.

Going on to look at individual incomes here's the gini coefficient for NZ over the same period.

Then we can compare NZ's trend to the rest of the OECD

The rest of the developed world is becoming more unequal whereas NZ is becoming less.

Another representation of NZ's lower inequality is shown in the next graph which depicts the share of income received by the top 1% 1920 - 2010

Back to NZ. Child poverty and population poverty rates have declined since 2001 by every measure.

Child poverty rates (%) on four measures

	AHC			BHC
	AHC ‘fixed line’ 60%	AHC ‘moving line’ 60%	AHC ‘moving line’ 50%	BHC ‘moving line’ 60%
1998	-	28	20	20
2001	37	30	21	24
2004	31	28	19	26
2007	22	22	16	20
2009	22	25	18	19
2010	22	26	16	20
2011	21	25	16	19
2012	21	25	17	18

(The formatting has blocked the report-highlighted column - the AHC 'fixed line' 60% measure - where the numbers fall from 37 in 2001 to 21 in 2012)

Population poverty rates (%) on four measures

	AHC			BHC
HES year	AHC ‘fixed line’ 60%	AHC ‘moving line’ 60%	AHC ‘moving line’ 50%	BHC ‘moving line’ 60%
2001	25	20	13	18
2004	22	20	14	21
2007	18	18	13	18
2009	15	18	13	18
2010	15	18	11	18
2011	16	19	13	17
2012	14	17	12	16

(The formatting has blocked the report-highlighted column - the AHC 'fixed line' 60% measure - where the numbers fall from 25 in 2001 to 14 in 2012)


Overall, if it is possible to generalise such a complex period of change with many factors contributing to income and wealth, a few stand out for me.

The one I rail against so much is the enormous growth of one parent families since the sixties. They are the poorest families and NZ has many of them.

Since the mid nineties real household incomes have grown across all percentiles but faster for those in the higher range. And they have grown faster than wages and salaries. The reason is many more parents - especially partnered parents whose labour force participation rates are higher - work today. But relationship breakdowns make parents poor.

Compared to the sixties - when inequality was lower - reliance on benefits is much, much higher. It was just a given that the welfare state would eventually drive up inequality. The least able would become more so as the disincentive to choose education, work and marriage grew. Yes, the large increase in inequality through the 80s and early nineties was mainly driven by a recession worse than the one just experienced. But even when employment improved dramatically during the 2000s, workless families with dependent children remained so.

That's the problem that needs solving. Getting society to structure itself in ways that are most conducive to building incomes and wealth. Strong families.

I suspect that whatever Cunliffe comes up with won't do the job.