Editorial: Cost of living payment a blunt but effective tool

National Party finance spokeswoman Nicola Willis says problems have occurred because it was a policy 'made on the fly'. Photo / Alex Burton

Editorial

EDITORIAL

Any number of cliches could be slung around about the Government's $816 million cost of living payment, which has drawn much commentary this week. We'll settle on: damned if it did and damned if it didn't.

The cost of living payment was set up via the Inland Revenue Department (IRD) to help with the rising costs of inflation. The total is $350, split into three monthly payments starting on Monday.

The IRD was instructed to make the payment to anyone whose net income was $70,000 or less from April 2021 until March this year; aged 18 or over; a New Zealand tax resident and in the country; and not in prison.

For most people, the three payments of $116, plus change, would be on August 1, September 1, and October 3.

As with any "handout", criticisms followed, but one of the most prominent has been around the "present in New Zealand" criteria, as several people overseas expressed "embarrassment" at being notified they would receive the payment.

National Party deputy leader Nicola Willis said people overseas receiving the funds showed the Government was "cavalier" with taxpayer money. As an alternative, National favoured tax cuts to put more cash in hard-hit pockets as only those who had earned it in the first place would get the relief.

Adjusted tax brackets would be more targeted but are more long-term and the country would then keep on covering the cost. As Prime Minister Jacinda Ardern also pointed out to TVNZ, Treasury advised a limited and targeted payment would lessen the chance of contributing to more inflation.

These payments are not unique. Australia has delivered a one-off $250 ($277.87) payment, targeted at beneficiaries and those on lower incomes, and the UK £326 ($632.87). Canada has opted for a "workers' benefit" of about $1200 each through their 2021 tax return.

One of the difficulties for New Zealand is the lack of resources to administer new initiatives. When the scheme was mooted to IRD in May, officials warned rolling the payment out would have "critical operational impacts" and would "compromise" its "already stretched workforce".

An opt-in scheme would have taken too long and almost certainly have not reached those who needed it the most.

The only practical solution to ease the real pressure on households was a broad and largely unvetted package. Inevitably, to reach those who need it the most, some who did not need it at all would also benefit.

As it is, the first instalment went to 1.3 million, about 800,000 fewer than the Government had estimated; but IRD expects the number who meet the criteria to increase over the next two payments as more tax returns are finalised.

Anyone "embarrassed" or "outraged" by the over-reach of the scheme might return the payment or forward it to a charity - and update their records with IRD.

As a former Inland Revenue deputy commissioner has pointed out, there were problems with all alternative approaches and the scheme, despite its flaws, was the most immediate.

Something had to be done, and doing nothing would have been worse.