Working for Families

Phil O’Reilly of Business NZ has an excellent column on Working for Families, reminding us that the welfare payments result in high effective marginal tax rates. The effect of this is that a family with three kids on $35,000 a year has a 5% pay increase, they only end up with a 1.8% increase in the hand. In some cases with accommodation supplements the effective marginal tax rate is 90% so one could get a $10,000 pay increase and only keep $1,000 of it.

The net effect of this is a reduced incentive for productivity gains. And without productivity gains, we will continue to fall behind Australia.