11. SUE BRADFORD (Green) Link to this
to the Minister of Finance
What advice, if any, has he had as to whether last week’s Budget will increase or decrease the income gap between beneficiaries and waged workers?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I thank the member for her question and note both the Green Party and the Māori Party holding the Government to account for the Budget, unlike the National Party. I received advice that the general overall measure of inequality is not worsened by the Budget measures on taxation. If we take the case of a single person on the equivalent invalids benefit, grossed up to the equivalent tax levels at present, that person will pay $12 a week less in tax on 1 October. Obviously, that does not flow through to a person actually on the invalids benefit. However, a person on the invalids benefit is guaranteed annual indexation to cover increases in the cost of living; a person on a low income is not, and often does not receive that in New Zealand in modern times. It should also be noted that, of course, beneficiaries with children receive the indexation of the family tax credits, and the reduction in the bottom rate and the big increase in the threshold means that many single beneficiaries will be able to earn more at a lower tax rate than was previously the case, particularly those on unemployment and sickness benefits.
Is it not true, however, that at a time of very rapidly rising food, fuel, and housing costs, and despite a recent Ministry of Social Development report that shows beneficiaries are actually worse off now than they were after National’s 1991 benefit cuts, the Minister delivered a Budget that is actually guaranteed to make the gap between beneficiaries overall and wage workers grow?
Hon Dr MICHAEL CULLEN Link to this
I do not think that follows necessarily, because, as I say, beneficiaries are guaranteed compensation for those price rises. That does not always apply to those people who are on low earned incomes. The fact that there is a gap, of course, is part of the incentive for people to move off benefits if they are able to do so. There are pressure points for some beneficiary families, and the Government is looking at ways of effectively addressing those pressure points.
Su’a William SioHas the Minister received any advice of the effect on inequality of scrapping the cuts for low and modest income earners and steps 2 and 3 of his tax-cut package in order to give bigger tax cuts to the highest income earners?
Hon Dr MICHAEL CULLEN Link to this
Yes, indeed. The package in the Budget leads to the standard measures of inequality, which are the Gini coefficient and, occasionally, something that is called the 80:20 test—that is, the comparison of the 80th percentile versus the 20th percentile—not being affected negatively by the tax package. Any change to that package, by, for example, as Mr Key seems to be hinting, taking away the further moves at the bottom-end and transferring those to the top-end, will clearly worsen inequality.
Why does the Minister think that tinkering around the edges of the benefit system, as he suggested on the weekend, will be enough to deal with deepening poverty and the gap between wage workers and beneficiaries, when the annual 1 April CPI increase is so small that it does not even touch on the depth of the need out there, and when the system has lost the discretion it used to have through the special benefit, which allowed Work and Income to top up people enough so that they could survive from one week to another, but that is all gone?
Hon Dr MICHAEL CULLEN Link to this
If prices are increasing significantly, then the increase on 1 April is not small. The increase on 1 April is exactly the measured increase in the consumer price index, and therefore compensates as best as any average can, because individual circumstances vary, for those price movements. The member refers to the study, but, of course, the study ignores the fact that the real incomes have risen for those in employment and, therefore, if benefits increase by only the cost of living, then the gap widens. The Labour Party clearly stands for labour; that is why we are called the Labour Party.
Does the Minister accept Treasury’s projections that unemployment numbers will drop significantly over the coming year, despite the recent job losses and rising oil and food prices, or have those figures been used just in order to claim that we can afford $10.6 billion in tax cuts?
Hon Dr MICHAEL CULLEN Link to this
I do not generate the Treasury forecasts in any shape or form; they are generated independently on Treasury’s own best estimate of what happens. Ministers of Finance do not create their own numbers in that regard. That is one of the big differences between being a Minister of Finance and being an Opposition spokesperson on finance.