Tax to Widen the Gap

We all know that the tax system is changing. That those on higher incomes will have a bit more money after income tax cuts. They are also meant to be better off even with the rise in GST. On the other end of the scale, benefits are due to go up by 2% when GST rises by 2.5%. However, rent is also likely to increase for many people given the changes in tax for landlords. If someone lives in a Housing New Zealand (HNZ) house, they pay ¼ of their income, so (on a benefit) this will presumably rise by 2% too.

Two simple examples: a single person on a benefit
1st one in HNZ accommodation

Current Rates:
194.12 Income: SB for over 25
48.50 HNZ rent
50.00 food
25.00 power
15.00 phone
15.00 Doctor
40.00 Clothes, Etc
193.50 (leaving 50c)

New Rates:
198.04
49.50
51.10
25.55
15.35
15.35
40.90
197.75 (leaving 25c – so worse off)

Second Example in market rent with $65 Accommodation Supplement (maximum for single person on Sickness Benefit in Area 3 (eg Christchurch)

Current Rates
Benefit $259
Rent $150
Food $50
Power $25
Phone $15
Dr etc $19
New Rates
Benefit $263
Rent $150 *
Food $51.10
Power $25.55
Phone $15.35
Doctor $19.42
New rates leaves an extra $1.58, but (*) a $2 rise in rent (given tax on owners of rental accommodation have changed as well) means they will be no better off and a bigger rise in rent, eg $5/week means they will be worse off.

This is not a system where we are supporting the poor and ill in our society. This is the Government making changes to widen the gap between the rich and poor.

What the Government should be paying for is a decent health service, education and ensuring the poor are being cared for by a supportive society. Not tax cuts for the rich.

Welfare Reform

BAS supports Child Poverty Action Group (CPAG) when they state that coercing people on the DPB into low paying part time work will not help the children. CPAG goes on to say that single parents working 15 hours/week are worse off than those who manage to work 20 hours/week. We would also like to add, that a two parent family could work 15 hours/week each and receive working for families tax credits (whereas a single person has to work 20 hours).

Example (I have shown her paying 2% Kiwisaver as this is deducted unless you deliberately take a holiday from it):

Woman on DPB w 2 children (aged 6 & 9).
To calculate abatement on Benefit: the first $100 has no abatement, then 30c/$1 for $80 then $70/$1 thereafter. She would also receive Family Support and Accommodation Supplement ($120 max for Area 2 for a 3 person family).
Working 15 hours x $13/hour = 195 gross tax 44.26 KS (2%) 3.90 net = 146.84
DPB 278.04 net
minus 34.50 abatement =243.54
FS 86.29 + 59.98 = 146.27
AS 120 (max)
Total 656.65

I have supposed her rent is $300/week, pretty average for a small 3 bedroom house in Christchurch. If she is not working, she receives $597.02/week (with $52.71 TAS, based on $300/w rent). This leaves her $59.63/week better off from 15 hours/week work!! (under $4/h profit). This is not including work related costs like bus/petrol, parking, clothes, food and childcare (minus oscar subsidy) in school hols. There is also the issue of using up sick pay with children’s illnesses (more likely for families living in poor quality accommodation or less than adequate heating).

If she is working 20h/w on a benefit (assuming no student loan to repay)
Work gross = 260 tax = 59.02 KS = 5.20 net = 195.78
DPB 278.04 – 80 = 198.04
FS 146.27
AS 120
Work 195.78
Income 660.09

This only gives her an extra $4/week for 5 hours. However, if the 20 hours/week is regular she can go off DPB and onto WFF (also M tax rate rather than secondary):

Woman works 20 hours/w at $13/h =260.00 gross
Tax 36.92 KS 5.20 net 217.88
AS 120.00
FTC 146
Iwtc 60
Mftc 139
Total IR payments 345.00
Total 682.88

This is still only $26/w more, than 15 hours on a benefit.

So what are her costs?
Rent $300
Groceries (3) $160 according to University of Otago FCS *
Phone&intnt $30
Power $35
School $5
Clothes (3) $15 incl uniforms
Travel $60 school and/or work
Etc $10 incl doctors
Total $615

Remember $597 was the total of benefits received with no working. This budget does not include any before/after school childcare costs or other work costs like work clothes, food, parking etc.

* http://nutrition.otago.ac.nz/consultancy/foodcostsurvey Basci food costs for this family in Christchurch $58 + $52 + $34 + $16/week for non food items.

ACC Model for Working on Welfare

Whilst this sounds like a good idea, like all Government initiatives it will depend on how it is run. Supplying funding to help people recover from illnesses or addictions sounds like a good idea. The best way for this to work of course is to offer this assistance for those ready to take it. How things are often run by work and income is insisting people on benefits take assistance offered and sanction benefits if they don’t. This does not encourage people to help themselves, but gives them the message that they there is something wrong with them. This seems to go against what Paula Bennett claims she is trying to do, which is concentrating on what people can do rather than what they can’t do.

There is nothing wrong with people with mental illnesses being on the Invalids Benefit. That is often the appropriate benefit for them and does not mean the state has given up on them! What would help them is trying to change society’s attitudes to these issues and people. This does not seem to be the focus of the current Government given the language used to talk about beneficiaries.

What Work and Income could (and should) be modelling from ACC is the independent review system. What Work and Income currently have is a system that is run by Work and Income – the people who made the decision being challenged.

Welfare Working Group & the Insurance Model

What the Group is suggesting here is moving away from the intention of the Welfare System. I think we all want to be part of a society that cares for and supports the poor so they can be operating members in the community, not belittling or marginalising them. This is what BAS advocates for. These people should have access to adequate support structures; we need to recognise how difficult it is to be on a benefit. Most of these people are single parents (very hard work), ill or out of work through no fault of their own. We need to ensure that the backstop of benefits remains there for everyone who needs it, at a level that means beneficiaries can afford all their essential needs

If we as a society neglect the impoverished & excluded then there will be problems down the line: social problems and economic problems. It will cost society if people are sent to jail for crimes that could have been avoided by adequate funding for the poor: if we do not support people economically there will be more crime.

Childcare facilities, nutritional food and a working hospital system are some of the investments needed for these people.

At BAS, we give information, advice, support and advocacy to people on benefits and low incomes. We help people with their problems with Work and Income. However, we wish to be more than just an ambulance service: we want to get to the top of the cliff and address issues before people fall down!

ends

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