Labour’s family package counterpunch

It was tit for tat, as Labour unleashed its version of National’s family income package that would scrap the Government’s lauded tax cuts. Shane Cowlishaw looks at how Labour's package compares, and whether it will be enough to drag the party out of the doldrums

Party leaders will publicly declare that they pay no attention to polls, but they, along with those around them, certainly do. The most recent have not been kind to Labour. RNZ’s “poll of polls” – an average of the last four polls in June – had it dropping to just 26.5 percent while National remained steady at 45.9 percent. On Monday night, the One News Colmar Brunton poll suggested a similar level, 27 percent, while boosting National to 47 percent. Leader Andrew Little also recorded his lowest ever rating as preferred Prime Minister, slipping three points to five points and fourth behind Bill English, Winston Peters and Jacinda Ardern.

Labour will be hoping some of the policies it will reveal leading up to the election will give it traction. When the Government announced at the Budget that its centrepiece would be a family package that would boost both Working For Families (WFF) and the Accommodation Supplement, it was a direct advance into the left’s territory.

Labour opposed the package, dubbing it the “dollar bill Budget”. But they were blindsided after their partners the Greens supported the changes in Parliament, citing any increase in the family tax credit as beneficial to families. NZ First also supported the move.

After the dust settled Labour realised it was important to strike back with a strong family package of their own and after the books were opened at the Budget they have been working away on the finer details. The result was released on Tuesday and the flagship policy appeals directly to the party’s heartland. It revolves around reversing the Government’s tax bracket tweaks and diverting the money into WFF and families with newborns, where Labour argues the money is better used.

Working For Families upgrade

The Government’s announcement lifted the family tax credit component of WFF, but Labour will go even further. The tax credit base rate would be raised to $5878 instead of $5303, while the abatement threshold – the level where welfare payments begin to fall - for WFF would be increased to $42,700.

Under the Government’s policy this was set to be reduced to $35,000. The changes will mean an estimated 30,000 extra families will become eligible for the scheme and it will cost $370m on top of the increase already announced at the Budget.

“The overwhelming message I get from New Zealanders in all walks of life is that things need to change, there needs to be new priorities and this is about making clear what our priorities are,” Little said.

“I think there might be some controversy to it but that’s what you get, and this is about making a clear distinction between the two parties and signalling where we’re going," he said.

Labour will keep the Government’s planned rise to the abatement rate from 22.5 to 25 percent, the rate at which welfare payments fall as income rises.

It will also adopt the announced lift to the Accommodation Supplement, expected to cost $380m a year, and reinstate the Independent Earner Tax Credit.

Finance Minister Steven Joyce was dismissive of the move, describing the introduction of a range of subsidies in place of the tax threshold changes as confusing.

While some low-income earners may be better off under Labour’s plan, the majority of New Zealanders would not be.

“I think what they are saying is a whole lot of people aren’t getting anything and I think Kiwis will look on that pretty cynically, particularly when they’re trying to sell it as a family package when it’s a package that takes away $2.5b, it’s a bit of a sleight of hand.”

Baby boost for all, Independent Tax Credit back

At the last election Labour tried to woo young families with the promise of a payment for parents of newborn babies. This time they are doing the same, but sweetening the deal.

All parents will receive $60 a week for each child in their first year, once paid parental leave had ended.

For those families earning less than $79,000 a year the payments would continue until the child turned three and begin to abate at a rate of 20.8c/$1 above the threshold.
The expected cost of the policy is $303m for 2018/19 and is in addition to Labour’s plan to extend paid parental leave to 26 weeks.

It will be a policy that not only appeals to affected families, but voters upset at the Government’s refusal to significantly increase paid parental leave.

Warm families

New Zealand homes are cold, damp, and compare badly to other OECD countries. This makes them difficult, and expensive, to heat and Labour wants to help families keep warm.
The introduction of a winter energy payment for superannuitants and people on a main benefit would see couples and families receive $700 and single people $450. It would cost $374m and payments would be spread out in instalments from May to September.

Introducing the payment for pensioners also makes up for the $681 annually a couple were to receive from the Government’s changes to the tax thresholds. There will be no caveat for the money to be spent on heating.

If Labour is elected it would be a fair assumption that the energy companies would be rubbing their hands at the prospect of the extra cash.

So, is the payment simple a subsidy for electricity companies and could it lead to a rise in electricity prices? Little does not think so and is confident recipients would use the money to keep themselves warm.

People were struggling with high power bills and while he did not support investigating electricity pricing he did not believe the policy would raise prices even further.

“If there is a sudden hike in power bills next winter as a result of implementing this policy then the generating companies as well as the power lines companies could effectively be taken to the Commerce Commission as that’s effectively cartel behaviour," Little said.

How will it all be paid for?

If you’re not on a benefit, a pensioner, or have no children, then you will no longer be receiving a boost to your wallet.

In the Budget the Government announced it would lift the lowest two tax brackets, with the $14,000 threshold moving to $22,000 and the $48,000 threshold increasing to $52,000.
This would mean anyone earning more than $22,000 will pay just under $11 less tax a week, and those earning more than $52,000 will pay just over $20 less. Labour will leave the thresholds at current levels, arguing high income earners are not in need of the cash.

“National showed their priorities with tax changes that deliver $400m to the top 10 percent of income earners, more than the bottom 60 percent get. Bill English and I don’t need a $1000 tax cut; not when it means that money isn’t available to restore the social functions of our country," Little said.

Labour has calculated that by not moving the thresholds it can save about $1.5b. With its family’s package estimated to cost $890m in 2018/19, an estimated $2b in savings over four years will be created that can be funnelled into other public services and infrastructure.

But Joyce said the Government was already spending $4.5b on public services over the next four years and believed the balance was about right.

If Labour wanted to put a policy that would remove a significant amount of money out of the pockets of the majority of New Zealanders in front of the public, then good luck to them, Joyce warned.

“You can’t take two-and-a-half billion dollars out of a package and make everyone better off," he said.

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