Welfare more complex—M.P.

Press, 18 June 1986, Page 29

Welfare more complex—M.P.

Tax changes taking effect from October 1 would bring about the most significant redistribution of income since 1938, said the Opposition spokesman on social welfare, Mr Venn Young. Mr Young was referring to the Income Tax Amendment Bill (No. 7), which was passed last month, and the Goods and Services Act, both of which come into force on October 1. The No. 7 Tax Bill neither reduced total tax nor simplified the social welfare system, said Mr Young. The social welfare system would become more complex. “Firstly, income tested benefits are to be increased, then taxed by the amount of the increase. Then they are raised a further 5 per cent to take account of a 10 per cent GST. “To obtain the alleged advantages from a taxable benefit system returns of income must be submitted by beneficiaries,” said Mr Young. Mr Young said that the Social Welfare Department, already overworked, would have a monumental task in issuing IRl2s and IR5s, calculating beneficiaries’ additional income and making adjustments for subsequent tax recoveries. "Second, 'family care’ will change to ‘family support’ on October 1 and administration transferred to the Inland Revenue Department. "To distribute welfare support through the system by way of tax credit is not possible. There is,

however, a cost; 400 permanent employees who have been added to Social Welfare staff for family care will be retained, and Inland Revenue increased by 600 to run the scheme. Familes with incomes as high as $40,000 a year would take part in "family support,” which would involve 300,000 people with a weekly tax crediit of $36 for the first child and $l6 for siblings, shared equally between income earner and spouse. The scheme would cost the taxpayer more than $4OO million a year, said Mr Young. “Each pay period there will be over 400,000 direct credit transfers or tax credits. How two-income families, the self-em-ployed or seasonal workers are to be dealt with is still unclear,” said Mr Young. Self-employed taxpayers could benefit only twice a year although they would pay 10 per cent GST on all purchases from October 1. For most families, “family support” would abate at 18c in the dollar when total family income reached $14,000 a year, at which level income earners were already paying 30c a dollar tax. These families would then have marginal tax rates of 48c in the dollar, said Mr Young. He predicted that the black economy would increase. People would be dissuaded from declaring casual earnings, especially where almost half the earnings would go to the Government. The GST was a tax on basic consumption and

would therefore be to the disadvantage of those whose incomes were totally committed to family or other weekly living costs. For these families the claimed 5 per cent increase in costs from GST would be more like 8 or 9 per cent, said Mr Young. The guaranteed minimum family income represented a State intrusion into the normal wage-fixing procedures. Successive Governments had drafted industrial law on the basis that a fair day’s work deserved a fair day’s pay, with what was fair to be determined by conciliation and arbitration. “The guaranteed minimum family income for a parent who is employed for 30 hours a week can result in large payments by the taxpayer towards what should be the normal obligations of an employer. “For some workers the weekly supplement will be $BO or $9O. There is no incentive for people to work more than the required number of hours to qualify for the Government’s guarantee and the employer has no incentive to pay more.

"There is a Statecreated benefit trap in which an extra dollar earned will mean a dollar lost,” said Mr Young. “The guaranteed minimum family income is specifically not to apply to the, self-employed. The Government knows that many families in the lowest 20 per cent of income are self-employed. Many more now are farmers, some of whom are work-

ing 70 to 80 hours a week for nil income. "On the current rules there is no guaranteed income for a farmer with children, even though there is a guaranteed minimum annual income of $15,288 for an employee with three children who works a minimum of 30 hours a week,” said Mr Young. The tax and benefit changes would guarantee no inflation adjustments

fer either tax or family support to take account of continuing inflation, and it would be easy for Labour to increase the GST to 20 per cent, said Mr Young. A National Government would review the whole scheme “with the aim of examining its needs and in particular writing policies in the area of family assistance that are simple to understand and fair to all,” said Mr Young.