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Why universalism is a mistake

Spending millions of dollars in subsidies to families that simply don’t need them does nothing to improve the wellbeing of our most deprived, writes Joe Ascroft

In a recent column, Peter McKenzie correctly identifies that this Government is moving towards universalism. Instead of targeting deprivation, social spending is increasingly available for everyone, regardless of their income.

This change in approach happened as soon as the current Government took office.

In December, the Government made a subtle, but expensive change to one of its headline policies. The Winter Energy Payment policy initiative, which makes a series of payments to those on benefits or superannuation was changed to be ‘opt-out’ rather than ‘opt-in’.

The ‘fees-free’ policy for tertiary education hands out thousands of dollars to anyone seeking higher education for the first time, not just those who struggle to pay. Students from wealthy backgrounds studying medicine or finance will be receiving thousands of dollars more in subsidies starting this year funded, in bulk, by those less able to afford it. These additional subsidies will cost taxpayers $2.8 billion over four years.

The Government’s Best Start scheme will pay new parents $60 a week for a year after they have a child, irrespective of their household income. That’s over $3000 a year to every family that chooses to have children, even if the parents are high-powered lawyers or doctors.

While it’s true that expanding the scope of the welfare state politically entrenches it, that doesn’t provide a justification for universalism itself, it just makes it more difficult to remove.

Spending millions of dollars in subsidies to families that simply don’t need them does nothing to improve the wellbeing of struggling families and the most deprived communities.

McKenzie is correct to point out that those who benefit from universalism will viciously defend these policies, an effect he describes as ‘Middle-Class Inclusion’. While it’s true that expanding the scope of the welfare state politically entrenches it, that doesn’t provide a justification for universalism itself, it just makes it more difficult to remove.

The cost of universalism is higher taxes and a substantially larger state.

Administering programmes that cover the vast majority of the country requires a small army of public servants. Implementing policies – particularly when they interact with the tax system – isn’t as easy as flicking a switch. People have to be trained and hired to operate them. Introducing new policies and expanding existing ones increases the administrative churn of the state and imposes new costs on taxpayers.

Advocates of universalism argue that the accompanying high taxes don’t matter, because taxpayers simply get their higher tax obligations back in the form of increased social spending.

This is woefully incorrect: it misses how the burden of taxation shapes behavior and the economy.

Higher income taxes reduce the amount workers earn on every hour worked, which makes retraining, working longer hours, or upskilling less attractive. Higher business taxation makes expansion less desirable, because projects and investment become less profitable.

Effectively, adopting universalism requires a high-tax environment, which dampens investment and economic growth. Lower rates of growth and investment cuts the future incomes of all New Zealanders. That might be acceptable if universalism cured social ills, but a very large number of families and individuals simply do not need the additional social spending.

Eliminating deprivation is difficult, but possible. It is substantially easier when the Government targets the specific families and communities that need help, while encouraging the strong economic growth that will be required to lift incomes and wellbeing. Universalism achieves neither of those two goals.

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