By Susan St John –
Critics continue to view the Working for Families package through a distorted and incorrect lens, writes Susan St John
In one of the 2019 stories picked out for Newsroom’s Best of the Year, Beware corporate welfare in disguise, the writer Thomas Coughlan introduced me to a strange new word, “Speenhamland”. This refers to an 18th-Century system “to alleviate rural poverty by topping up the wages of the poor with money from landowners in the local parish.”
Speenhamland, apparently, was a “hopeless failure” because it allowed “landowners and industrialists to pay below-subsistence wages to their staff, safe in the knowledge that the parish would top up their income”. Drawing a long bow, Coughlan suggests our family poverty alleviation tools are equally flawed, and Working for Families (WFF) is just “corporate welfare in disguise”.
I suggest another strange word, ‘Shibboleth’, from the 17th Century, may be fitting. Derived from the Hebrew word for an ear of corn, it was used as a test of nationality by its difficult pronunciation. Today it has come to mean a saying used by adherents of a party, sect, or belief, usually regarded by others as empty of real meaning, outmoded or irrelevant.
The shibboleth that WFF is nothing more than corporate welfare is widespread and pernicious, see for example, Matthew Hooton’s extreme view WFF is “communism by stealth”, Eric Crampton’s Working for Families is an employer subsidy, and Bryce Edward’s “ WFF is a subsidy to “employers who can’t, or won’t, pay adequate wages. Even Jane Clifton echoes the shibboleth: “The policy may have proved more of a top-up for employers than a safety net for families”
More recently, Simon Wilson says in his otherwise excellent piece on our Broken Country, rather than trying to build a high-wage economy, Helen Clark’s Labour Government introduced Working for Families, which pays a top-up to the working poor. Chris Trotter alone among the commentators provides a balance in his “Working For Families: Keeping The Wheels Of Capitalism Turning”
This shibboleth must be exposed for the empty myth it is if we are ever going to eliminate child poverty.
Tax credits for children were not the invention of Helen Clark or Michael Cullen to take the pressure off business. They built on and expanded the existing arrangements of weekly Family Support and Child Tax Credit payments to do what every other developed nation does- provide income support to those bringing up children.
Wage earners are not paid a different wage rate based on their family circumstances. The point of WFF payments is not to “help [all] people on low incomes make ends meet”. They are paid only to the caregivers of children, usually women. To imply that the support of children is the responsibility of corporate New Zealand and that WFF “lets businesses off the hook too easily” may come as a great surprise to most employers. If wages had to be high enough to support a stay-at-home parent and several children, all low income wages would have to be dramatically higher and unrealistically over-compensate those without children.
To take the argument further – if wages are too low that people can’t save for their own retirement, then New Zealand Superannuation must also be corporate welfare. Employers should therefore pay wages high enough to let everyone provide for their own pension. The education and health system also subsidise low income families, so wages should be higher again to prevent this handout to corporates.
This reeks of antediluvian Malthusian-like economics, where it is believed, if there are no handouts, employers will have to pay wages that cover basic sustenance, including the costs of reproduction to ensure low wage workers do not die out. The modern world rejected such thinking.
We have two major redistributive programmes in New Zealand, one for the young and other for the old, not because business exploits labour, but because we need to share the costs as a society of taking care of those at both ends of the age spectrum. Enormous benefits accrue to society when all families including those without full time work can do a good job of raising the next generation.
For the old, New Zealand Superannuation is barely questioned. It provides for nearly 800,000 superannuitants in a spectacularly expensive way, regardless of income or wealth (at a cost of $15.5 billion per annum and growing rapidly with wage increases).
In contrast, the much maligned WFF provides, in a stunningly parsimonious way, covering only low and middle income children ($3 billion per annum, and falling in real terms from a failure to index properly). WFF is especially miserable for those children in families who are too poor to qualify for the full suite of child-related tax credits.
Yes, you read that last sentence right. It is not just the well-off families who are excluded (by the abatement of WFF that starts when household income reaches $42,700), but the least well-off families are denied significant part of these child poverty alleviation measures. Each year they miss out on half a billion dollars of the “In Work Tax Credit” for their children because they don’t meet the paid work-based criteria.
Indeed, it is because of this fatal flaw in design that commentators think WFF is all to do with paid work and miss its primary purpose which is to alleviate the poverty of children. The Clark government shrewdly used the misleading name Working for Families when ‘Family Tax Credits’ or ‘Family Tax Benefits’, as in Australia, would have been more appropriate.
To say that Working for Families tax credits are “a necessary evil rather than a benevolent good; a quick fix for a problem that governments are too scared to solve” leaves poor children without acknowledgement of their inherent value as citizens and without hope for improved investment in their future as emerging adults in an aging society.
*Republished from Newsroom with permission
Susan St John is Honorary Associate Professor of Economics at the University of Auckland Business School, a Research Associate with the Public Policy Institute, and Director of the Retirement Policy and Research Centre.