A Guaranteed Minimum Income for New Zealand? The Treasury costings

The Treasury modelled a Guaranteed Minimum income (GMI) at the request of the Welfare Working Group in 2010. A GMI paying $300 per week – the mean benefit income among those on benefits – would cost $44.5 billion (model 1) or $52.6 billion if we extended it to super annuitants as a replacement for NZ Superannuation or old age pension (model 2). The former could be covered by a flat personal income tax rate of 45.4%; the latter, 48.6%.

Full fiscal neutrality would require tax rates of 50.6% and 54.4% – the lower tax rates would be just enough to cover the transfers, but income tax revenues are currently also used to fund more than just transfers.

If we recognize that most parents are beneficiaries via Working for Families and compensate them for their loss with a $86 per child per week payment (model 3), we get a $57.1 billion fiscal cost and a personal tax rate of 50% (or 55.7% for fiscal neutrality).

Treasury noted that many beneficiaries (including the disabled, carers and sole parents) currently receive more than $300 per week and would be made financially worse off under a GMI scheme.

Treasury also warned about potential adverse labour supply responses to the necessary higher personal income tax rates. The large gap between company and personal tax rates would increase IRD’s enforcement costs.

In 1987, Finance Minister Roger Douglas announced a Guaranteed Minimum Family Income Scheme to accompany a new 22% flat income tax. The idea did not go ahead.

Richard Nixon also proposed a guaranteed minimum family income plan in 1969 to replace the Aid to Families with Dependent Children (AIDC) scheme at the behest of future Senator Daniel Patrick Moynihan. This was based on the negative income tax proposals of Milton Friedman and George Stigler. Nixon’s plan passed the House but not the Senate after 3 years of infighting.

The final outcome was the earned income tax credit (EITC) in 1975 that was expanded significantly in the 1990s to become the largest single federal income transfer programme. One attraction of the EITC is that because its benefits rise positively with earnings up to the phase-out point, so it can have a positive rather than negative effect on work incentives for workers on a low wage.

Australia has the most targeted welfare state

Single motherhood compared internationally

via The “decline” of marriage isn’t a problem – Vox.

The impact of US 1996 welfare reforms on single mothers’ employment

via Chart Book: TANF at 18 — Center on Budget and Policy Priorities.

Who has the smallest Anglo-Saxon welfare state of them all?

I have reanalysed data published by the Peterson Institute on the true levels of social expenditure across the industrialised countries for the Anglo-Saxon countries.

Figure 1: gross public social expenditures in OECD countries, 2011

image

Source: POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies.

When you just look at gross public social expenditure, New Zealand is in the middle of the pack with the United Kingdom having the largest spending. There are not particularly large differences across social spending in the Anglo-Saxon welfare states.

Figure 2:  Gross public social expenditure and the effects of taxation in OECD countries, 2011

image

Source: POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies.

There is not much change when you include the effects of taxation on consumption by benefit recipients.

Figure 3: Net after-tax public and private social expenditure in OECD countries, 2011

image

Source: POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies.

When private mandatory social spending is included, such as employer sponsored health cover, there is considerable change with United States leaping to the front and New Zealand dropping to the bottom. The USA has the largest and most expensive is health sector in the world so they are leaping of the front, either because healthcare is expensive in United States or people in the United States are not constrained by government rationing to spend less than they would prefer on their own healthcare. Let’s leave that war of ideas for another day.

Figure 4: Net after-tax total social expenditures in OECD countries, 2011

image

Source: POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies.

On the face of it, New Zealand has the smallest Anglo-Saxon welfare state while the United States has the largest. A more accurate measure of the relative sizes of these Anglo-Saxon welfare states would require the wisdom of Solomon in measuring waste and underfunding in the respective systems and more trust than you should have in services sector in purchasing power parity adjustments.

For those that are interested, the OECD-wide gross social spending and net after-tax total social spending are reproduced below in figures 5 and 6.

Figure 5: Net after-tax total social expenditures in OECD countries, 2011

image

Source: POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies.

The Figure 5 data on the OECD wide welfare state sizes shows that when you add private spending, including social spending mandated by law, the US has the second largest OECD social safety net as Kirkegaard said in his  Peterson Institute paper:

Taking the full effects of tax systems and social spending from both private and public sources into account, the United States is seen to be devoting more resources toward social purposes than is generally acknowledged. In fact, only the French spend more than Americans, while the alleged welfare-addicted Scandinavians and Europeans spend less on average.

Figure 6: Gross public social expenditures in OECD countries, 2011

image

Source: POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies.

Via The US welfare state and safety net are bigger than you think. But who are they helping? – AEI | Pethokoukis Blog » AEIdeas and POLICY BRIEF 15-4: The True Levels of Government and Social Expenditures in Advanced Economies

The rising educational attainment of the poor

A tale of two parents

https://www.facebook.com/AEIonline/photos/pb.44951363957.-2207520000.1427601542./10152802565713958/?type=3&src=https%3A%2F%2Ffbcdn-sphotos-h-a.akamaihd.net%2Fhphotos-ak-xap1%2Fv%2Ft1.0-9%2F1233384_10152802565713958_2404241805278738697_n.jpg%3Foh%3Df31ae7bab92c59c8d042e6ee5f4a780b%26oe%3D55A0B785%26__gda__%3D1433835964_1fbe9a275145246f6fd8ac18b0e3177a&size=600%2C952&fbid=10152802565713958

Did poverty increase after the 1996 US Federal welfare reforms?

Poverty-fig3a

via The Top 3 Things You Need to Know About the 2013 Poverty and Income Data | Center for American Progress.

Far Left Mana Movement admits it’s really cheap to feed the kids

 Joe Trinder, the Mana News editor, today blogged about the great expense of feeding the kids for ordinary families. In the course of doing so, he showed how extremely cheap it was for parents to make their children breakfast. The Far Left has inadvertently capitulated on school breakfast programmes been outside the reach of ordinary families.


I completely agree with Joe. A 1 kg box of Weet-Bix costs $7 and a 2 L bottle of milk costs $5.55. I buy the cheaper brands of Weet-Bix than this myself.

1 kg box of Weet-Bix will last maybe two weeks. 2 L of milk will last not much less than that if you pour the milk on Weet-Bix to the extent I do. Two weeks breakfast will cost much less than one dollar per breakfast as argued by Eugene Rush in her letter to the editor a few months ago.

If a family can’t find $.55 to make their children breakfast, they need targeted specific intervention from Work and Income New Zealand to see what additional financial assistance they need, including budget advice, and from the child protection agency, Child, Youth and Families.

  • Providing a hungry child with breakfast at school through a Feed the Kids Bill is parliamentary grandstanding that doesn’t strike at the root of the problem.
  • These hungry children are not provided with breakfast either at the weekend or during the school holidays. They are abandoned by the process set up under the Feed the Kids Bill championed by the hard left.
  • Worst of all, what about the parents? No good parent would have breakfast while their child goes hungry.

No provision is made by the hard left in its Feed the Kids Bill to feed the parents of these hungry children who also go hungry every morning. There is no other charitable explanation as to why their children were not given breakfast. No one in the house can afford breakfast both during school days, at the weekend and in school holidays.

As shown from the screenshot above, the Otago University’s annual Food Cost Survey suggests that to meet basic needs, a family must spend $44 per week for a five-year-old and $34 per week for a four-year-old in Wellington, which is where I live. That is, it costs about five or six dollars per day per child to feed them. A liberal diet for a small child for a day costs not much more than a cup of coffee at a cafe where I’m going shortly. The real issue is the income of parents.

The best solution to poverty is to move people into a job. Simon Chapple is quite clear in his book in the middle of last year with Jonathan Boston that a sole parent in full-time work, and a two parent family with one earner with one full-time and one part-time worker, even at low wages, will earn enough to lift their children above most poverty thresholds.

Sustained full-time employment of sole parents and the fulltime and part-time employment of two parents, even at low wages, are sufficient to pull the majority of children above most poverty lines, given the various existing tax credits and family supports.

The best available analysis, the most credible analysis, the most independent analysis in New Zealand or anywhere else in the world that having a job and marrying the father of your child is the secret to escaping poverty is recently by the Living Wage movement in New Zealand.

According to the calculations of the Living Wage movement, earning only $18.80 per hour with a second earner working only 20 hours per week affords their two children, including a teenager, Sky TV, pets, international travel, video games and 10 hours childcare. This analysis of the Living Wage movement shows that finishing school so your job pays something reasonable and marrying the father of your child affords a comfortable family life.

The reversing gender gap

wives contribution to family earning

worklife conflict in couples

prime age female labour force participation

HT: The U.S. Economy According to the White House in 10 Charts – Real Time Economics – WSJ.

Single parenthood in the USA by ethnicity

ednext_XV_2_mclanahan_fig02-small

via Was Moynihan Right? What happens to the children of unmarried mothers : Education Next.

Children in single-parent families have lower achievement on average than those in two-parent families

ednext_XV_2_woessmann_fig02-small

via An International Look at the Single-Parent Family: Family structure matters more for U.S. students : Education Next.

NZ is in the middle of the pack in reducing poverty rates through redistribution

The figure shows pre-transfer and post-transfer poverty rates among OECD countries (mostly the advanced economies).  The former (pre-transfer) are the market-driven poverty rates, before the tax and transfer systems kick in.

Source: OECD, *Poverty thresholds: 50% of median income.

HT: International Poverty Comparisons: What Do They Tell Us about Causes? | Jared Bernstein | On the Economy.

An International Look at the Single-Parent Family–where is New Zealand?

ednext_XV_2_woessmann_fig01-small

via An International Look at the Single-Parent Family: Family structure matters more for U.S. students : Education Next.

Educational disadvantage and single parenthood

ednext_XV_2_mclanahan_fig03-small

via Was Moynihan Right? What happens to the children of unmarried mothers : Education Next.

Previous Older Entries Next Newer Entries

Bassett, Brash & Hide

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Truth on the Market

Scholarly commentary on law, economics, and more

The Undercover Historian

Beatrice Cherrier's blog

Matua Kahurangi

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Temple of Sociology

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Velvet Glove, Iron Fist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Why Evolution Is True

Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.

Down to Earth Kiwi

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

NoTricksZone

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Homepaddock

A rural perspective with a blue tint by Ele Ludemann

Kiwiblog

DPF's Kiwiblog - Fomenting Happy Mischief since 2003

The Dangerous Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Watts Up With That?

The world's most viewed site on global warming and climate change

The Logical Place

Tim Harding's writings on rationality, informal logic and skepticism

Doc's Books

A window into Doc Freiberger's library

The Risk-Monger

Let's examine hard decisions!

Uneasy Money

Commentary on monetary policy in the spirit of R. G. Hawtrey

Barrie Saunders

Thoughts on public policy and the media

Liberty Scott

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Point of Order

Politics and the economy

James Bowden's Blog

A blog (primarily) on Canadian and Commonwealth political history and institutions

Science Matters

Reading between the lines, and underneath the hype.

Peter Winsley

Economics, and such stuff as dreams are made on

A Venerable Puzzle

"The British constitution has always been puzzling, and always will be." --Queen Elizabeth II

The Antiplanner

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Bet On It

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

History of Sorts

WORLD WAR II, MUSIC, HISTORY, HOLOCAUST

Roger Pielke Jr.

Undisciplined scholar, recovering academic

Offsetting Behaviour

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

JONATHAN TURLEY

Res ipsa loquitur - The thing itself speaks

Conversable Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The Victorian Commons

Researching the House of Commons, 1832-1868

The History of Parliament

Articles and research from the History of Parliament Trust

Books & Boots

Reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

Sex, Drugs and Economics

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

European Royal History

Exploring the Monarchs of Europe

Tallbloke's Talkshop

Cutting edge science you can dice with

Marginal REVOLUTION

Small Steps Toward A Much Better World

NOT A LOT OF PEOPLE KNOW THAT

“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.

STOP THESE THINGS

The truth about the great wind power fraud - we're not here to debate the wind industry, we're here to destroy it.

Lindsay Mitchell

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Alt-M

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

croaking cassandra

Economics, public policy, monetary policy, financial regulation, with a New Zealand perspective

The Grumpy Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

International Liberty

Restraining Government in America and Around the World