Taxes and Poverty in New Zealand

The impact of the tax and benefit systems on low-income New Zealanders

David Liebschutz, an Associate Director of the Centre for the Study of the States at the Rockerfeller Institute of Government, Albany, New York was placed at the Treasury Department's Regulatory and Tax Policy Branch, looking at Taxes and Poverty in New Zealand. "My project, 'Taxes and Poverty in New Zealand,' presented a summary of the major issues surrounding the interface between tax and social welfare systems in New Zealand, particularly as they affect those in transition from dependence on the social welfare system to independence from it. Placed at the Treasury Department's Regulatory and Tax Policy Branch, I engaged in discussions with senior government officials at the Treasury, Department of Labour, Department of Social Welfare, Department of Prime Minister and Cabinet, and the Ministry of Women's Affairs. My recommendations for developing new initiatives, which included conducting evaluations of current programs, improving work incentives, and simplifying benefit programs, were well received. I also made a number of presentations to the faculty and students at New Zealand's five major universities, and to members of Parliament, advocacy groups, the faith community, labor unions, the media, and the general public. After returning to the United States, I presented my project and its recommendations to colleagues at the Center for the Study of States and will make a similar presentation to the faculty at Rockefeller College of Public Affairs and Policy. The Axford Fellowship is a fabulous opportunity to explore policy issues in a foreign country in a way that one cannot in one's own country. The ability to take risks and try new things were the highlights of my experience."

Abstract

This report was done under the sponsorship of the Ian Axford (New Zealand) Fellowships in Public Policy. It presents a summary of the major issues surrounding the interface between the tax and social welfare systems in New Zealand, particularly as they affect those in transition from dependence on the social welfare system to independence from it.

The paper first looks at how the systems evolved to their current state and what their basic structure is. It then explores the views of various players within the tax and benefit systems and proposes an analytic framework from which to judge future programmatic initiatives.

Finally, it proposes that in order to increase the level of the debate and the dialogue in this area, there should be some new initiatives tried such as increased programme evaluation, enhanced work incentives and simplified benefit programmes.

The opinions laid out in this report reflect my own subjective view of the current New Zealand situation and do not reflect the opinions of my colleagues at the New Zealand Treasury, the New Zealand-United States Educational Foundation, or the sponsors of this fellowship.

Table of contents

Abstract

Chapter 1 - Introduction

Chapter 2 - Tax-Benefit Interface

Ancient History
Modern New Zealand History
Table 1 - Income Distribution, 1996

Chapter 3 - Goals and Structure of the Tax and Welfare Systems

Social Assistance Through the Tax System
Table 2 - Family Assistance Measures Delivered through the Tax System
Table 3 - Annual and Weekly Rates of Family Assistance Tax Credits
Social Assistance Through the Social Welfare System
Table 4 - Benefits Provided by the Social Welfare System
Effective Marginal Tax Rates and Replacement Rates
Table 5 - Estimate of EMTRs for New Zealand
Table 6 - Number of Families by Type and EMTR
Table 7 -Replacement Rate for Sole Parents

Chapter 4 - The Players in the Tax-Benefit System - Their Views and Their Priorities

Introduction
Table 8 - Major Players in the Tax-Benefit Interface
Parliament
Government Agencies
Interest Groups
Business
Social Service Agencies
Labour Unions
Academia
Press
Public
Conclusion

Chapter 5 - The Analytic Framework

Programmatic Criteria
Design Criteria
The Parental Tax Credit
Table 9 - Family Assistance Thresholds
Conclusion

Chapter 6 - Other Factors to Consider

Introduction
Welfare to Work Issues
The New Zealand Labour Market

Chapter 7 - Where to from here?

Introduction
Evaluate, Evaluate, Evaluate!
Sit Down and Discuss
Possible Policy Alternatives
Increase the Financial Incentives to Work?
Test Whether More Generous Financial and Non-Financial Assistance Works?
Institute Time Limits for Certain Benefits?
Simplify Benefit Programmes to Make Trade-Offs More Transparent?

Bibliography

Articles, Books and Government Documents
Interviews, Meetings & Presentations
Notes

Taxes and Poverty in New Zealand:

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