Creeping Communism

Here is John Key's article in the far right Free Radical magazine John Key wrote when entering Parliament.The article is from page 27 of the August-September 2004 issue of the Free Radical magazine. Hat Tip Pacific Empire

Creeping Communism

John Key, MP

Social engineering, the most blatant New Zealand has witnessed for 30 years, is deeply embedded in Budget 2004. The core lies in the programme labelled ‘working for families’.

Michael Cullen stated the primary objective of the Budget was to “make work pay”; closer inspection reveals this is not the case. Cullen’s Budget means Kiwi battlers will be forced to give the Government about 30 cents of every extra dollar earned over $38,000.

Here’s one example: a single income family earning $38,000 per year, with two young children, living in an average suburb in one of New Zealand’s main cities. The Budget means that by 2007 this family will take home $42,860 - more, after tax, than their gross earned income. Contrast them with their neighbours, also with two children but earning 60,000 - after 2007 they’ll take home $45,236. Cullen’s social engineering means their annual income is only $2,376 better than their lower-income neighbours, less than $50 per week.

For families with three children the 9O% tax rate can apply over an even wider income range - with the gap between families earning $8,000 and $70,000 around $2,856.

Steve Maharey has stated my examples are extreme; he’s wrong. A family in one of our main cities, earning between $38,000 and $70,000, with two or three kids, is about as average as you can get.

If the Minister wants to find the bizarre, then factor in a student loan, children over 12 years old, or that those earning under $41,000 are entitled to a community services card. Then you’ll find the family earning around $38,000 has a higher income than those earning $60,000-$70,000. Now that’s really bizarre.

“So what?” was Maharey’s response.

Well, it’s obvious to me that if peoples’ incomes are much the same regardless of their earnings, there’ll be a significant impact on their behaviour.

Take someone earning $45,000 working overtime every Satutday to earn another $10,000 gross per year. The choice is between the additional income and precious family time. After the Budget, doing the overtime will net only $1,000.

Why would anyone bother?

Or consider the family where one partner earns $50,000 and the second chips in $10,000 from a part time job. Before the Budget that part time job bought home over $7,500. In 2007 it’ll bring home less than $3,000. Suddenly the additional costs of work and the hassle factor don’t seem worthwhile.

The impact of Cullen’s 2004 Budget is that working harder, longer, embarking on further education or retraining all become highly marginal activities for a large number of Kiwi working families. Hardly an incentive to work harder!

Prime Minister Clark’s protestations that people do act irrationally, so this punitive tax regime won’t impact on behavour, are farcical. Before the Budget this was precisely the dilemma faced by beneficiaries attempting to move from welfare to work. After the initial $80 per week they lost 90 cents in every dollar of benefit. So they didn’t bother, unless they could find reasonably well paid full time work.

The Budget stopped this ludicrous situation for beneficiaries, only to push the same problem out into middle New Zealand.

It’s derisory to say no one will notice.

So how could this have occurred? After all, Steve Maharey and Michael Cullen have been working on this for years, ably assisted by hundreds of officials from Treasury and Social Development.

Part of the answer is ideology; however, the real answer lies with the Orewa effect. After National’s resurgence this year, the Budget’s emphasis shifted from modest income redistribution to blatant vote buying. Labour was so desperate to deliver a significant figure to families of modest income that it threw out all the relatives. Yes, they’ve showered them with dollars, and the greater the government largesse, the narrower the gap in net income as people move up the income scale.

For a Labour Government under pressure, politics won over economics.

Getting rid of those behavioural changes in future years will prove very difficult - remember how hard it was for farmers, when their subsidies were removed?

Cullen’s bequest is social engineering. A one size fits all pay packet for a huge number of Kiwi families leaving the employer wondering where the work force went.

Labour are, of course, sitting back basking in the mistaken self-conviction of their generosity; ignoring the reality - four out of five households get nothing from this budget.

And let’s look at that reality. For the next 12 months the programme will cost around $221 million while the Government will receive $1.5 billion extra in taxes from bracket creep (people moving into higher tax bands) and the 17 tax changes this Government has introduced since 1999.

Deciphering the alleged generosity of this budget for middle-income working families has yet to be determined. Cullen declared only a third would go to non-working families, shortly after Budget day this figure moved to 40 percent. What is the correct figure?

Treasury is yet to reply. But I was surprised by the answer to a recent Parliamentary question I asked - by 2007 when the programme is fully rolled out, it is anticipated some 266,000 families will receive an accommodation supplement with nearly 260,000 of them on a benefit. That’s 98 per cent of the government’s largesse going to beneficiaries. So much for helping the working families!

New Zealand is a country founded on hard work and determination, the legendary Kiwi initiative. They all came to this new land - Maori, European, Asian - determined to put their hands to the grindstone, not into the pocket of the Government.

The prosperity of our young and remote nation lies on the bed rock of our forefathers’ beliefs, not that of a Labour government desperate to stay in office at any price.

At the post-Budget celebration, some in the Labour Caucus cried with joy. Come 2007 when this Budget is implemented, they won’t be the ones weeping; the Kiwi battlers - and their employers - will need a box of tissues too, not to mention the four out of five Kiwi households who got nothing out of this social experiment. Nothing that is, except the bill.