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Striking down middle class welfare


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The Meganomics blog at The Australian has on a post on why Kevin Rudd should strike at middle class aid.

In a reversal of the situation we have here in NZ, Howard and Costello introduced a number of measures which were effectively benefits for the middle classes, much like Clark/Cullen with Working for Families, Kiwisaver,20 hours playschool etc.

As the blog author, George Megalogenis, notes:-

IT’S easy for politicians to attack the greed of the wealthy. But only the suicidal would question the avarice of the electorate.

Further he suggests that whilst tackling the big end of town, Rudd could:-

View the project as a double role reversal for the Government. On the one hand, Rudd could talk down executive bonuses and talk up corporate philanthropy. On the other, he could reshape the budget to reduce the dependency of the gainfully employed on middle-class welfare.

He then suggests:-

A downturn is obviously not the time to start taking money off people. But a weaker economy does provide Rudd with the flexibility for trade-offs.

It will all turn on what Labor wants from its review of the tax and spending system. Ministers agree privately that John Howard left behind a time bomb in which welfare travelled too far up the income ladder. Defusing it is not easy, because handouts can’t be replaced with tax cuts without creating losers.

Perhaps Rudd could look at the problem another way by setting the goal for an ideal system five or 10 years from now, and then working backwards. In the first two years, when the economy is on the mat, he could give people cash supplements in the name of propping up consumer demand.

But while that money pours into people’s pockets, the tax and welfare system is incrementally cleaned up.

The risk being:-

The key is the labour market. Labor has to gamble that its reforms would generate more jobs – and people would be willing to take them – which would keep the budget in surplus.

It was the principle on which the GST was sold. Why can’t Labor apply it to removing middle-class welfare?

Maybe this is another play Key/English might wish to take a look at.

We cannot go on with the insane handouts of welfare benefits to the middle class, nor with cash subsidies to Kiwisaver, which are likely to mean the government has to borrow to put money into people’s savings plans. An insane proposition, especially as Kiwisaver arguably does not increase the overall savings pool, but merely diverts resources from one place to another.

Now is the time to begin to wean people away from the handouts.

One Comment
  1. 07/10/2008 21:31

    The expense and inefficiency of taxing people and then giving them some of it back in welfare defies logic.


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