Smith Lockwood: Social Security (Working for Families) Amendment Bill Taxation (Working for Families) Bill — Third Readings 
Smith Lockwood: Social Security (Working for Families) Amendment Bill Taxation (Working for Families) Bill — Third Readings 
[Volume:617;Page:13534] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 About the only thing I agree with that the honourable member said is that this measure will set New Zealand on a path—but a path towards more and more welfarism. We know from history that that is not good for New Zealand. 
We have seen in this last 18 to 20 hours a very shoddy legislative process. This is important legislation. It deals with very complex matters and it is a disgrace that this Labour Government did not see fit to send this legislation to a select committee. There was absolutely no need to ram this through Parliament under urgency. Nothing happens for months with this legislation. Some of it does not happen for years. There was no need to ram this through Parliament under urgency. It is bad legislative process with legislation as complex as this. 
Some might ask why this legislation is so complex when it is just handing out a bit more welfare to hard-working families. The reason it is complex is that it deals with the interaction between people on benefits who are trying to leave those benefits doing more hours of work; the tax credits they receive as they do that and the interaction of the abatement of the benefits as they do more hours of work; the abatement of the various tax credits they receive—and they can receive three different lots of tax credits under this legislation; and how that interacts with the progressive old-style progressive income tax system. That produces an extraordinarily complex set of interactions—such that at present we have real genuine poverty traps in New Zealand which no one can support and like. 
We have a situation right now of for example a married couple where one is working and they are on the unemployment benefit. They receive family support and are trying to get off the unemployment benefit. The person working is a low-skilled $10-an-hour worker. That family at present after they have worked 8 hours a week at $10 an hour earns a certain amount of money. Under current arrangements if they were to try to earn a dollar more they would not succeed in that. If they worked not 8 hours but 20 hours a week they would not get another dollar. If they worked 30 hours a week at $10 an hour they would not get another dollar. At 40 hours a week that family is still in the poverty trap. They would not get another dollar. Only after they had worked 49 hours a week would that family get another dollar. That is not my research; that is the work of a researcher at Victoria University Patrick Nolan. That is a serious poverty trap because there is a low-skilled family on a benefit trying to get off the benefit—trapped! This legislation purports to try to do something about that. The issue is that we do not know whether it has or it has not because a select committee has not had the chance to examine this complex legislation. 
Let me share with members another reason why some of this legislation is so complex. This legislation retains what is known as the family tax credit. That tax credit guarantees a certain level of family income after tax. This legislation eventually will raise that after-tax income by a couple of thousand dollars a year. But that family tax credit currently abates at 100 percent so as that family earns one more dollar they lose a dollar of their family tax credit. That does not change with this legislation. I ask Dr Cullen: “Does that change?” because that is another poverty trap. How could anyone support something that taxes a person at 100 percent? Yet that is what happens with the family tax credit that this legislation perpetuates. No one explained—not Dr Cullen not Mr Maharey no one—whether the family tax credit abatement in this legislation removes that poverty trap. Earn another dollar—be taxed another dollar! That is outrageous. The Government members sit there saying this is wonderful legislation. They should let the select committee examine whether it has dealt with those poverty traps. It is shameful—I do not believe one member sitting on the Government benches could explain how the in-work payment arrangements in clause 39 work. I would not mind betting that most of those members opposite could not even do the maths involved in working out whether people are still caught in the poverty trap. 
Jill Pettis 
: Like this member can? 
Dr the Hon LOCKWOOD SMITH 
: Could the member repeat that? 
Jill Pettis 
: Like this member can? 
Dr the Hon LOCKWOOD SMITH 
: It might just surprise the member that I do know how to work it out. I have done a lot of work on it. That is how I can tell that member exactly what the current abatement regimes are and why in fact people do face those poverty traps. In this legislation the poverty traps have been moved further out. The explanatory note of the Future Directions (Working for Families) Bill states: “effective marginal tax rates (EMTRs) will be improved for low income working families with total income between $20000 to $27500 a year”. That will not be done immediately but when the abatement-free threshold changes for the family support tax credit. I would not mind betting that half the members opposite do not even know why that is the case. The problem is as the explanatory note goes on to state: “However EMTRs will be higher for some middle and higher income families not previously eligible for assistance:”. 
All the Government has done is shifted the high poverty trap hurdles—the high effective marginal tax rates—just a bit further up the income tax scale. It has not solved the poverty trap problem. Labour members sit there and say what wonderful legislation it is. Why did they not let a select committee look at it to see whether those serious poverty traps were properly solved and whether the abatement regimes as all these tax credits interact produce rational effective marginal tax rates? But no the Government did not want that to happen. Do members know why the Government did not want that to happen? The Government was frightened that once there was decent scrutiny of the legislation the weakness and ineptness of it would be plain for all to see. This is a con job. 
What has happened under this Government is that the average working person in New Zealand has been taxed more and more. That is what the OECD analysis shows. We have the second highest increase in the OECD in the tax that is taken off the average working person since the Government has been in office. Then it says with this legislation: “Aren’t we wonderful? You can come along cap in hand to us and ask for some of it back. And if you do what we want we’ll give some of it back to you after a while. But if you dare to send your child to a private early childhood institution oh no we won’t give it back if you do that. You’ve got to send your child to an institution we like—in other words a community one or a kindergarten.” 
That is an outrageous manipulation of people using their own money. [ 
Interruption 
] The average worker that this bill addresses earned that money—not that member. She earned none of it. The average working person earned this money. That member has taken it off them and is coming to them and saying: “We’ll give some of it back to you.” It is a con job in order to bribe people with their own money. It is cynical because it is not given back to them until after the next election. The people of New Zealand will see it for the cynical election bribe it is. It is poorly thought out and shows no innovation about how to solve the poverty trap problems. It shows an arrogant Government that thinks the public is stupid enough to be bribed with its own money but the public is not.