David Farrar: Should beneficiaries get the in-work tax credit?

1:45 PM Thursday Aug 16, 2012

Today's ballot for three more members' bill saw a bill by Green MP Catherine Delahunty drawn. Generally bills from opposition parties pose political problems for the Government, but in this case the bill may result is a significant headache for the Labour Party.

Delahunty's bill is called Income Tax (Universalisation of In-work Tax Credit) Amendment
Bill, and the title pretty much describes what it does.

Many New Zealand families receive income support from the taxpayer through Working for Families. A component of that package is the in-work tax credit or IWTC. This is worth $60 a week to low and middle income families with one to three children. However, as it name implies, it is only available to parents who are actually in work.

To qualify for the IWTC, parents have to normally work at least 30 hours a week, or for sole parents at least 20 hours a week. The 30 hours a week for parents is not for each, but combined. So one parent working 30 hours a week qualifies as would both parents working 15 hours a week.

However if the parent or parents are not in paid work at all, or work very few hours normally, then they do not qualify for the IWTC. So beneficiaries and students who get a student allowance do not qualify.

The Green Party have campaigned against the IWTC only applying to working parents since it was introduced. The then Labour Government defended it on the grounds that working parents have additional expenses, and that you want a significant gap between welfare and work. Activists challenged the legality of the IWTC in court, but the Labour Government won that court case.

However in 2011, Labour adopted a different policy. Annette King announced that Labour's policy would now be to give all beneficiary parents an extra $60 a week by making them eligible for the in-work tax credit.

Labour is now led by David Shearer. Shearer, and the Labour caucus, will need to decide how to vote on Catherine Delahunty's bill when it gets its first reading in September. This could be a difficult decision for Labour.

My observation of the 2011 campaign is that Labour's pledge to make taxpayers pay more tax, so that beneficiary parents can get an extra $60 a week was deeply unpopular. I recall online comments on newspaper websites that were almost all critical of the policy - including from many people who said they didn't like National.

If Labour vote for Catherine Delahunty's bill, it will give National a very significant weapon to use at the 2014 election. They will portray it as making it more attractive for people to remain on welfare, rather than enter the workforce.

The alternative is for Labour to vote against the Delahunty bill. That may be better for them in the long-term, but will pose short-term challenges for them. Firstly they will be criticised for doing a u-turn, and having their third policy in two years on this issue. They will have been against the policy, before they were for the policy, before they were against the policy again.

However u-turns are part of political life. John Key has done more than his fair share.

The bigger issue for the Labour caucus may be the disconnect with their activists. David Shearer was criticised by many Labour activists for his speech where he highlighted a sickness beneficiary who was able enough to paint his roof. They saw it as beneficiary bashing (I disagree, and think it was a valid issue for Shearer to talk about). It is thought that even some of his own caucus told him in caucus this week that they did not like that aspect of his speech.

If Labour do a u-turn on their 2011 policy, and vote against the Delahunty bill, this could set off another round of internal squabbling and accusations from activists that they are not representing "Labour values".

So while it is normally the Government that fears what may emerge from the members' ballot, this week it is Labour that will be cursing the luck of the draw.