I have a growing contempt for the average New Zealand voter, almost matching my contempt for New Zealand politicians. As people in many other ways – in their capacity as parents, teachers, lawyers, sportsmen, friends, they may be fine people, I don’t know. But in their capacity as political participants in our democracy, so many New Zealanders – including many fine Christian people who I know and like for other reasons – are greedy, envious, or stupid (and sometimes all three). This subject will be divided up over a couple of posts (or maybe even three). This first installment takes a look at the state we are in now.
Where are we now?
On the 8th of November New Zealanders will go to the polls to decide what our next government will look like. One thing is already obvious to us: we will either have a Government led by the Labour Party or by the National Party. In spite of the shrieking of some hopelessly uninformed left wing lackeys, we don’t have a “right wing” option in a major party. Both options are very nanny-statist and thoroughly interventionist. The current Labour government is a little more to the left than National. Wealth re-distribution is at an almost unbelievable level at present.
Take a family with one income earner. At current taxation levels, with an annual income of $40,000, that income earner will pay $7770.00 in PAYE (“pay as you earn”). This includes income tax plus 1.4% ACC (socialised accident compensation insurance). On the whole, that’s about 19.43%. If the earner works more hours or gets a more skilled job that pays more and the income is $70,000, the total PAYE is $18,090. That’s about 25.84%. It gets worse if you earn more than that. But it doesn’t end there. Let’s add this to the mix: This family has four children below the age of 12. This means that this family will qualify for state welfare for those children. Use the calculators at www.workingforfamilies.govt.nz to check the figures for yourselves. Let’s imagine that there are two families with one earner in each, one earning 40K and the other earning 70K. I’ll be taking into account the payments received from the “working for families” welfare scheme as well as the accommodation supplement each of these families will qualify for. I’ve arbitrarily hypothesised that these two different families live in the same city that I live in, and pay the same amount of rent that my family pays. Taking all of the above into account, here is the weekly combined income from all sources – after tax – for these two families.
Family 1, earning $40,000: Total after tax weekly income (including welfare payments) of $1018.27
This family will pay $7770 in PAYE and receive $19,916 in state welfare. No, that is not a typo. Nineteen thousand, nine hundred and sixteen dollars of untaxed welfare payments.
Family 2, earning $70,000: Total after tax weekly income of $1208.27
This family will pay $18,090 in PAYE and receive $10,920 in state welfare.
Take a few moments to take this in: Family 2 earns $576.92 more than family 1 each week. For their extra effort or skill, they end up just $190 better off each week. The level of wealth re-distribution to minimise the difference in income between these two families is staggering. And yet, each of these families is a recipient of a sizeable chunk of the re-distributed wealth of others. The first family effectively pays no tax at all and then receives a further cash bonus of $12,146. But even the higher earning family still receives well over half of the earner’s PAYE payments back. Who are the benefactors here? The benefactors are those without children who are trying to get by on $30,000 per year and not receiving a penny from working for families (but still qualifying for an accommodation supplement of about $60 per week). The other benefactors are those who receive none of these taxpayer funded handouts but who fund a huge proportion of them: those who contribute more tax because they earn more. Essentially, the financial landscape this creates is one where a family on a low to medium income with several children has little incentive to increase their salary/wages beyond around $36,000 (the level at which state handouts start to decrease). Even if they had a salary of $70,000, the difference in financial positions would not reflect this increase in earnings.
That’s what I’m talking about when I talk about statism and wealth redistribution. It’s not just rhetoric without substance. It’s a real system that demonstrably penalises the high achievers or those without children, and for everyone else it serves as the great equaliser, making it seem like nobody’s earning more than anyone else. When everyone gets ahead – nobody gets ahead, nor is there any incentive to do so. Not only that, but the effects of this huge wealth redistribution programme are far reaching, and it affects much more than your pay packet. The income of consumers has a major impact on a market economy. Take landlords for example. Landlords can only charge an amount that they know they can get. If people have more buying power, then landlords can (and do) charge more. The same goes for retail stores. If a huge proportion of market consumers are artificially pushed up into a higher income bracket by taking the wealth of higher earners and single people and redistributing it to families, we end up severely punishing those who are not the recipients of redistributed wealth, because we raise the prices of rent, food and other commodities, but we do not increase the income of single people, or couples without children. The government has taken money from some people and given it to others, creating a fake higher average income for the population as a whole and in the process made it much more difficult for those who lost this money in the process to compete for the same commodities.
The reason I say that New Zealanders currently have no political options that would get us out of this situation is that neither of the major political parties want to change it. The incumbent – Labour – are the ones who have entrenched this state of affairs, and John Key, the leader of the opposition and perhaps the next Prime Minister of New Zealand, is wooing voters, not by saying “let’s bring an end to this awful system,” but rather something more like “don’t panic, if you vote for us we won’t take any of these payments away. We’re a safe bet!” Support for the would-be next government is literally being paid for in cash handouts. The reality is, the opposition should be pointing out what an obvious mess the current system is and promising to change the system rather than merely tweak it, but they’re simply too afraid that if they do they will lose support. When their support comes from the pigs lined up at the trough, they don’t stand a chance of winning if they shoo the pigs away and tell them that no more buckets of slop will be served up.
More on this next time!
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Hello,
I am not going to read the shallow PAYE inspired twaddle about Income Tax.
It is obvious that he has not had to exercise his brain power rendering unto Caesar what is due since 1957 when PAYE was introduced.
As part of today’s second grade tax system he is a second rate citizen because he cannot be trusted to calculate and pay his Income Tax. He is a freebie with many free lunches as a taxation beneficiary without carrying the burden.
Somehow under MMP he has two votes but in reality because he pays no tax he is very lucky to have one.
Instead of bleating about his `tax?` he should consider the plight of low income provisional tax payers forced by double taxation to pay twice (GST & Income Tax) to the IRD.
Considering they get no holiday pay whereas PAYE employees do.
I rest my case for a sensible and a humane fair tax system.
I didn’t realise that family support amounted to so much. 20000 for a family already on 40000 is a lot of money! I also heard that it costs about $2.70 for every $1.00 they give out. A tax break would be cheaper but not leave the recipients feeling amorous toward the state.
Hi bethyada – the $20,000 isn’t just family support, it also includes the accommodation supplement. But even still, yes, it’s a lot! And you’re right, at very least part of that benefit could be given via a tax break and we’d have a much better (morally speaking) situation, and also one in which the earner is less attached to Big Brother’s (mother in this case) teat!