Is WFF corporate welfare? Would a UBI solve it?

Working For Families has long been referred to as ‘corporate welfare’. This month payments were increased, further entrenching it as a means of supporting lower paid workers with children (and also quite well paid workers with children).

I don’t think ‘corporate welfare’ is an accurate description. Corporations are generally seen as large companies, often international companies, but WFF takes wage paying pressure off many small businesses, perhaps more so than for larger companies.

Bryce Edwards is in the Working for Families is corporate welfare club.

As of last week, the Government is pouring $370 million more this year into Working for Families (WFF), further entrenching a system which has many critics across the political spectrum.

On the political right, the criticism has always been that the scheme is creating a nation of welfare beneficiaries. After all, it’s regarded as extraordinary that families earning around $100,000 qualify for WFF payments. However, these are effectively tax credits for people with children (which is very common among the OECD nations).

It is even more problematic at the lower income end, where full-time workers not only will often pay no tax, but effectively receive additional tax credits – welfare by any other name. So, state income assistance is being given to those that are fully engaged in the workforce – which, by historical standards, seems contradictory.

The criticism from the left has often been that the very existence of WFF indicates that many working families are not able to support themselves without quite large taxpayer assistance.

It isn’t necessarily the case that working families couldn’t support themselves. Things were economically tough for many families. That’s nothing new, lower paid workers have struggled financially for centuries. WFF has made it easier for them, but has also virtually entrenched them in a system of uneven government assistance that favours them over workers who don’t support children.

The accusation is that employers of low-paid workers are effectively being subsidised by WFF.

This has parallels with other modern welfare initiatives – such as the accommodation supplement, which is a subsidy paid by the state to private landlords of those tenants on low incomes. The left blames such payments for contributing to the rapid increases in rentals, because it effectively allows landlords to increase rents for low-income tenants beyond what they can actually pay.

WFF and accommodation supplements can certainly distort markets.

Alternatives to Working for Families

What’s the alternative to welfare that subsidises the corporates? Ideally, wages simply need to increase, so that workers have enough to live on. To some extent, the new Government is pursuing this objective with its commitment to increase the minimum wage for those at the bottom – with it going up by $4.25 by 2021.

“Ideally, wages simply need to increase” – that may sound like a good ideal but it is far from simple. Artificially forcing up labour costs can force up prices, leaving those who don’t qualify for increasing assistance like WFF worse off and more financially disadvantaged.

And if small business employers who are forced to increase wages don’t qualify for Government handouts they will find things tougher – to the extent that some will reduce the number of employees through scaling down or moving more towards automation.

Of course, this will cost the Government itself, as it will have to lift the wages of many of its own employees receiving the minimum wage. Yet overall, the increase in the minimum wage is going to lead to a saving for the Government, as the wage increases will result in a reduction in tax credit payments made through WFF – because, generally, the more an individual earns, the less they receive in WFF payments.

Only partially offset. This should have been factored into the amount of increase and the costings.

All these years later, it’s become much clearer as to who benefits from the scheme. John Key famously called it “communism by stealth” when he was Leader of the Opposition, and then adopted the policy for himself. But in 2018, perhaps it can finally be more credibly labelled as “corporate welfare by stealth”.

Calling it ‘corporate welfare’ makes it sound like a subsidy for rich big business owners, promoting a ‘them versus us’ division, but it probably affects smaller and less well off employers more.

If costs for corporations get too high they can just down scale, or they can afford to automate, or they move production off shore, or they just shut up in New Zealand and move their business to lower waged countries.

Small business owners have their livelihoods at stake, especially if the don’t qualify for family subsidies.

Nonetheless, we clearly need to a have a debate about whether a family whose income is derived from wages and salary should be able to pay its own way without other tax payers subsidising them.

That is an ideal that we keep moving further away from as worker benefits keep increasing.

This was debated on Reddit – Bryce Edwards: Working for Families is corporate welfare – a subsidy scheme for employers who can’t, or won’t, pay adequate wages – where a solution was proposed.

“Yep both working for families and the accommodation supplement are corporate and landlord welfare. The only problem is how do you replace it without fucking everything up?”

“The only way to replace it is if employers paid them better. If they did that, we wouldn’t be in this situation. The only way forward is for the government to make sure they get the money but tax business owners accordingly.”

Higher taxes for business owners is far from simple, and will probably impact most on small and medium business owners – and their employees.

The reason they exist (were implemented in the first place) is because of a wealth inequality gap. People on the lower end of that gap were getting pushed in to shittier and shittier conditions by people at the higher end of the gap (not in a malicious way, but just the nature of economics.). And so subsidies for those people in need were introduced.

I agree with the article that they amount to corporate welfare but we can’t get rid of them until we tackle overall wealth inequality. Tackling that would be a mix of things I think; capital gains tax or other disincentive for amassing property.

My own personal pie-in-the-sky law would be regarding the pay difference between the lowest and highest paid individual in a company, maybe a max of 10-15 times the lowest yearly wages for the CEO or something.

Artificial rules on high end remuneration may be liked in theory as a rich prick limitation, but I don’t think that is a practical solution.

A Universal Basic Income is often suggestedf, as it is here.

Remove all current welfare programs and replace them with a decent UBI ?

  • Those who don’t want to work don’t have to (or look for it), but would likely need to live in the provinces due to housing costs.

  • No need for a bunch of welfare requirements, therefore no need for a welfare department or ministry.

Remove GST (and possibly income tax?) and replace with a non-refundable universal transaction tax, implemented through the EFTPOS / banking system.

  • Removing the refund system should make highly processed goods more expensive; basic products (think fruit and vegetables) should be cheaper due to less processing.

  • Effectively produces a tax on (all) house sales / purchases.

  • Captures companies (Apple, Facebook, Google, etc) off-shoring income as avoidance, by taxing both the product sale and the subsequent off-shoring transaction.

  • Taxes consumption rather than production.

  • Possibly less administrative than GST.

That’s a bunch of ideas that would be quite a radical change if implemented, but there are no costs, nor any consideration of flow on effects.

‘Those who don’t want to work don’t have to (or look for it)’ is one of the more contentious suggestions. I and I suspect many others would live to have the choice of a reasonable ‘income’ – level of Government welfare – for no work. It risks hugely increasing the cost of welfare, and severely impacting on overall production.

The size of a UBI would have to be at least as much as National Super so older people weren’t disadvantaged, and at least as much as current non-worker and worker subsidies and welfare. It would have to top everyone up to the best paid beneficiaries, and this sounds very costly.

For example, WFF is already very expensive now. If a UBI was going to be universal then people who don’t support children would have to be paid as much as those who support children – greatly widening and boosting welfare.

Or, if this was avoided by having children also qualify for a UBI, this would also greatly increase the cost to the Government (that is, to taxpayers if there are any left).

While in theory a UBI sounds very fair I think it would be far too costly, both in the expense of it to Government and as a disincentive to work and production.

The more the Government hands out money the harder it gets to change the system without a revolutionary overhaul that would be either result in many people being worse off, or it would be be unsustainably expensive. Or both.

We have an increasingly complex and expensive welfare system, which get’s increasingly difficult to fix.

And there is no sign of any interest in making major changes. The current Labour led government is having a tax review but that is so limited – there are many things it can’t change – that it is likely to little more than tinker a bit more.

We look like being stuck with WFF and accommodation supplements and National Super and other forms of widespread welfare.