Bruce Logan: Budget handouts eventually do more harm than good

COMMENT

One of the Government's roles as part of the social contract is to support those institutions that contribute to society, of which the family is primary.

It is good, therefore, to see the Government wants to support families. Indeed, it is in its own interests to do so.

Unfortunately, while its heart is in the right place, its philosophy and means of delivery are flawed. While it appears the Budget will improve the lot of middle New Zealanders, ultimately it will disempower the individual citizen and increase state control of our lives.

The greater part of this year's Budget is devoted to a major package to provide extra financial help for families with children - an extra $3 billion to be phased in over the next three years. Although delivered by the Finance Minister, it reputedly is the fruits of several years' work by Social Development Minister Steve Maharey.

Just as a Christmas pet is forever, so are the expectations of people once they have been handed a new social entitlement. We might be able to afford huge increases in benefits during the phase-in period, but will we be able to continue affording them in five years, or 10?

If there should be a downturn in the economy, what happens then?

The Government that is forced to wield the knife in that case is going to be the target of a gigantic hate campaign, as happened to the National Party when Ruth Richardson cut benefits in the 1990s.

The Government has no money of its own. It can only give what it has taken from someone else. So serious questions need to be asked about whether it is morally just for governments to rack up big surpluses year after year, just as it needs to be questioned whether governments should go into debt year after year.

Too few people are questioning whether widespread redistribution of other people's money really works in the long term. Does it ultimately in fact improve the lot of the average person? What does it do to the nation as a whole?

In the 1950s one income-earner was able to support a family. Today few families are supported by one income alone. Government spending and the level of taxation to support that spending have risen as a proportion of the economy.

In 1955 Government spending was about 20 per cent of the economy. It is now about 30 per cent. On a broader basis, used by the OECD to make international comparisons, Government outlays today total about 40 per cent of gross domestic product.

Certainly the Budget gives 300,000 households more money to spend (an average of $66 a week over the next three years), but it does so at a great cost.

The contribution to economic growth will be minimal, and it will further entrench the culture of entitlement and dependency on the state.

What New Zealand really needs is a simplification of its welfare and tax systems, and a Government mindset that allows citizens to keep more of what they earn, rather than giving some of their taxation back to them in welfare.

We need to reduce the number of people getting handouts, not increase it.

For example, a family on $55,000 a year would be better off paying less tax than getting their own money back from the state in the form of a welfare cheque.

Sure, we cannot move from a dependency mindset to a low-taxation, high-productivity culture overnight. But we will not move at all if we continue to be blind to the flaw at the centre of the Budget.

The Government continues to misunderstand the role the self-sustaining family has in society and the contribution it makes to the economy.

It completely misunderstands civil society and the family as the main mediating institution.

That misunderstanding is obvious because the Government insists on treating all sexual relationships as equivalent. It completely fails to support marriage and family as the main sustainer of social welfare.

A huge opportunity has been missed. Tax policy could be aligned with growth objectives by lowering personal and company tax rates. This had been advocated by the Treasury, which estimated that all tax rates could be reduced to 18 per cent for an annual cost of $4.7 billion, much less than the annual surplus, which will create more unsustainable dependency at the expense of long-term growth.

We need to remember that the Government has nothing to give anybody except what it first takes from somebody, and a government that's big enough to give you everything you want is big enough to take away everything you've got.

* Bruce Logan is director of the Maxim Institute, a social research and policy think-tank.