Guest Post: Why do beneficiaries but not taxpayers get inflation adjustments?

Louis Holbrooke at NZTU writes:

Within the first weeks of becoming leader of the Labour Party, Jacinda Ardern made the call not to defend Metiria Turei’s self-confessed cheating of the welfare system. It was the right move. Workers rightly resent the idea that beneficiaries game the system while others work long shifts, pay secondary tax, and contribute to society with the aim of getting ahead or giving their children a better life.
So it was shameful when in Budget 2019 the Government announced a linking of benefits to average wages. Now, beneficiaries will get payment increases in line with the wage rises that others earned and sacrificed for.
Benefits have already been annually adjusted for inflation: that’s enough to keep up with increases in the cost of living. But last week’s change means beneficiaries will now share the cream of economic growth, automatically, every year – without having to get off the couch.
Treasury estimates the change will cost working taxpayers $320 million in the first four years (that’s $143 per worker), with costs climbing every year after that.
The Government could justify the cost to taxpayers by comparing benefits to superannuation, which has been indexed to wages since 1977, but experts acknowledge that’s increasingly unaffordable and will eventually need reform.
If the Government was consistent with indexation, it would turn its attention to tax brackets. If the top tax bracket was indexed for wages since it was set at $70,000 in 2011, it would now be set at $87,755. Likewise, instead of paying 30 cents on the dollar in tax from $48,000 a year, the second-highest rate would not kick in until $60,000.
In other words, average income earners would be in for significant tax relief.
If that seems too generous, bear in mind that it’s the same principle that now applies to both superannuation and the benefits system. Unfortunately for the taxpayers who fund these programmes, the Government cries poverty when it comes to taxes, refusing to even go so far as to adjust brackets for inflation.
This means that every year, a portion of our income is pushed by inflation into higher tax brackets, meaning we’re taxed harder even though we’re no richer. As a result, in just two or three years the average wage earner will be paying tax in the top 33 percent tax rate – meaning the Government snatches a third of any pay rise or overtime.
Grant Robertson could have used the room in his Wellbeing Budget to treat taxpayers fairly, like superannuants and beneficiaries. Instead, by ignoring the pain of inflation on taxpayers, and boosting benefits, he’s doubling-down on the unfairness of the wealth transfer system.
Labour is now giving its working base a clear message: we’ll keep increasing the penalty for your hard work, and endlessly boost the reward for unemployment. This does not bode well for wellbeing.