Smith Lockwood: Future Directions (Working for Families) Bill — Second Reading Instruction to Committee In Committee Procedure 
Smith Lockwood: Future Directions (Working for Families) Bill — Second Reading Instruction to Committee In Committee Procedure 
[Volume:617;Page:13508] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I would like to bring the Minister in the chair the Hon Dr Michael Cullen to the clauses in Part 2 of this bill because they are very important. Part 2 purports to address the poverty traps that currently exist in our family tax credit family support tax credit and child tax credit arrangements. I would like the Minister in the chair to answer some questions. Obviously under clause 30 the family tax credit remains. The family tax credit will be raised so that the net income of a family receiving the family tax credit will go up to from memory about $17000. From memory it is currently about $15080. My question is this: does the abatement rate remain dollar for dollar? If it does does that mean the effective marginal taxation rates through certain income ranges in this system remain at over 100 percent by the time the accident compensation payment is included—probably 101.2 percent? If that does remain the case the Minister has not dealt with that poverty trap. That is my first question—although the family tax credit is retained in this legislation and will be increased eventually does the 100 percent abatement rate remain? If it does there is a poverty trap in the system. 
Next I would like to focus on the interaction between the benefit system and family support. Clearly under clause 38 the abatement system for family support is being changed so that family support will no longer abate while the benefit is abating. That is a plus. National would support that because it means the effective marginal taxation rate faced by people in the $20000 to $27000 income range—well over 80 percent—will now come down to a much lower effective marginal taxation rate of no more than 70 percent. It seems there is to be no change to the abatement rate of the domestic purposes benefit which remains at 70 percent. But at least we do not have the family support tax credit abating at 18 percent on top of that making a combined effective marginal taxation rate of well over 80 percent. Although that change has been made page 22 of the explanatory note states: “However EMTRs will be higher for some middle and higher income families not previously eligible for assistance:”. If this legislation had gone to a select committee the committee would have had the chance to examine the crucial issue in all this which is the effective marginal taxation rates throughout the low to middle income earning bracket. 
If we are to pass this legislation today I believe the Minister in the chair should tell this Committee what the effective marginal taxation rates now will be. What will they be? What does this legislation mean? How high will effective marginal taxation rates go? We know of the Waihi family with four children that is on $55000. One of that family’s problems was that as it was in the $35000 to $55000 income range it faced an effective marginal taxation rate of 63 percent all the way through that income range. This legislation will change that to some extent. But the Minister in the chair should tell us what will happen to that family’s effective marginal taxation rate as its income goes a bit higher. If we are to believe what page 22 of the explanatory note tells us the effective marginal taxation rates at the higher end of the middle income bracket will go higher. They will be way higher than 39 percent; there is no question about that. We know the problem with the interaction between the benefits family tax credit family support tax credit and child tax credit. It is the poverty traps caused by the interaction of all those tax credits—the effective marginal taxation rates they generate. Government members do not have a damn clue what this legislation is doing to those effective marginal taxation rates. Darren Hughes could not calculate the effective marginal taxation rate that these changes will make; he would not have a hope of doing it. I believe that Parliament should know about this issue because those are the crucial incentives that face people through that income range. What is this legislation doing to the effective marginal taxation rates? 
The final point I would like to make is that the in-work payment provided for in clause 39 is a bit of a con. The Government talks about a $60 in-work payment. Do Government members know it is a bit of a con? Do the United Future people who think this in-work payment is all wonderful know it is a bit of a con? For a family with three children the only extra bit is $15 a week because it replaces the child tax credit. For a family with three children the child tax credit already pays $45 a week so the in-work payment is a con. It has not been honestly expressed at all.