Fran O'Sullivan: Baby bonus clear tilt at ballot box

Labour leader tapping into public's desire for some irrational exuberance with plans for payments to parents

David Cunliffe's policy will cover most kids less than one year old.
David Cunliffe's policy will cover most kids less than one year old.

David Cunliffe's "baby bonus" is a nifty Trojan horse that will do more for Labour's chances than the usual politically inspired and euphemistically labelled "kissing babies" exercise.

Dishing out election bribes is not new.

All parties at the 2014 election will have new policies that have to be funded.

And while the Prime Minister beat the drum of prudence yesterday - saying that National's new spending in the 2014 Budget would be limited to $1 billion and paying down external debt would be a priority - there comes a point where a population gets a bit tired of prudence and votes in a new government to indulge their suppressed desires for a period of irrational exuberance.

Cunliffe has neatly played to that psychological need in the same way that former Labour Finance Minister Michael Cullen allowed politics to triumph over his principles at the 2005 election by agreeing to his party's bribes to expand Working for Families and make student loans interest free.

Playing to the "what's in it for me" question works whether it is tax cuts for the better-heeled or shifting the interest burden from student debtors on to the taxpayer.

National's campaign overlord Steven Joyce slammed the Labour package as a plan "to start bribing people with massive extra spending".

"It's like the GFC never happened: Labour's last big spending splurges between 2005 and 2008 increased the deficit, dramatically increased interest costs, and put the economy into premature recession."

But let's face it, National also slammed Labour's 2005 measures as "bribes" and simply left them in place because it did not have the courage to remove them when it came into government.

It is political self-interest at its most naked.

Cunliffe has dressed up the $3120 annual top-up for parents of newborns (over their first year of life) as a necessary step to alleviate poverty.

It's really nothing of the sort.

Far too many middle-class families earning up to $150,000 a year will benefit from this new entitlement for it to be easily dressed up as mere welfarism by either Labour or its opponents.

Labour's fact sheet says the Best Start Payment provides "desperately needed support to the estimated 50,000 children under three who are currently living in poverty".

The fact sheet also reveals the package provides plenty of support for the many more who are not living in poverty, with $60 a week for a baby's first year, and up to $60 a week between the child's first and third birthdays (targeted at modest and middle income families).

The upshot is the first year payment will go to around 59,000 households, covering almost 95 per cent of children under one year of age. The one and two-year-old payment will go to around 63,000 families, covering 56 per cent of all one and two-year-olds.

At least 200,000 parents will be up for additional cash under this scheme which is a sizeable voting segment.

That's why Labour's new policy may well work for it at the voting box - even though the party is also pledging major personal income tax hikes to hit the "wealthy".

It's tempting to believe that the $150,000 top limit for the "universal" baby payment might also be the threshold for Labour's intended tax hike.

But Cunliffe is preferring to string out the bribes first ahead of showing how a Labour-led government would pay for them.

If he was playing true to the child poverty meme he would have devoted the entire grossed-up bonus to poor and disadvantaged parents ($281 million annually at its forecast peak in 2019/20) and left the middle-class and higher paid families to fend on their own. Or devised an appropriately means-tested policy to be delivered through the expansion of current welfare payments or tax credit payments.

But that doesn't have the voter appeal of Monday's policy announcement.

Cunliffe is a smart player.

What the Labour leader unveiled during his State of the Nation speech is not too distant from the "baby bonus" policy that the former Australian Liberal Government also held out as an election enticement in 2001.

Back then it was a right-of-centre Liberal Government that was saying the baby bonus would ease the financial burden on those starting families and entice Australians to have bigger families.

When the Australian Labor Government signalled the scheme would be axed (it is scheduled to end on March 1, 2014) the then current Australian baby bonus provided A$5000 for the first child and A$3000 for each subsequent baby. It was available to stay-at-home mothers in families with up to A$150,000 income.

But it had become unaffordable from a fiscal standpoint.

It will be replaced with a Family Tax Benefit of A$2000 for the birth or adoption of a first child or each child in multiple births, and A$1000 for second or subsequent children. Couples earning more than A$101,000 will not be eligible for a payment for their first baby; the threshold for a second baby will be A$112,000.

Other measures are included in the Labour package on Monday - increasing early childhood education subsidies, more paid parental leave and free antenatal checks. The full package is estimated to cost an extra $528 million a year by 2017-18.

There are no strings attached.

Says Cunliffe: "They know their needs better than us."

Sure they do, and this package will buy votes irrespective of fiscal prudence.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

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