Biggest beneficiary of Council living wages is central Government

Cr Chris Milne writes on FB:

At the last meeting before the election the Wellington Regional Council has resolved to pay a “Living Wage”. Question: would you donate to a charity to assist the lower paid if you were told that 72% of your donation would be gobbled up in overheads? What if you were told that the government was applying a 72% tax on your donation? Here’s how it works. To pay a living wage you must gather funds via rates. Rates include GST, which gets paid to the government. Then the recipient of the wage pays PAYE, ACC and has their income support reduced due to the higher income (called “benefit abatement” in tax jargon).

Worked example:
$100 in rates rates
GST content: $13.04

Payment to Living Wage recipient therefore $86.96 from the $100 charged to ratepayers.

The recipient then has to pay PAYE, ACC and also suffers an abatement of their other income support (eg Working for Families).

Assumed 50%* abatement of $86.96 is $43.48.
PAYE and ACC of 18%* is $15.65

So, from the $100 taken in rates, the split is:

Central Govt: $13.04 + $43.48 + 15.65 = $72.20 = 72.2%
Living Wage recipient: $27.80 = 27.8%

So from the $100 charged to ratepayers to fund the Living Wage, $72.20 goes to Central Government.

So ratepayers are the loser.

A living wage is a very bad way to try and help families because it treats all families the same – the 16 year old first time employee living at home and the 50 year old parent of three paying a mortgage.

The best way to help families is through a targeted welfare system which takes into account their income, their number of children, their accommodation costs.