Grasping at government
As a nation, we like to think of ourselves as honest and pretty self-sufficient, and we certainly used to believe in helping those less fortunate than ourselves. But a paternalistic government congenitally opposed to reducing taxes and awash with revenue is producing polices that persuade many to latch very firmly on to the government teat wherever it is available. For a growing proportion of people, milking the system is the only way they see of getting back the excess taxes they have been paying.
The irony is that the combination of government generosity and high taxes is encouraging a mean and grasping streak in our society.
Let’s start with the student loan debacle. The government, scared that it might lose power, produced a scheme that eliminated interest on outstanding student debt for everyone, rather than only those from low-income families. At a time when the government was desperate to encourage Kiwis to save (we’ll come to that shortly) here they were offering not low, but no-cost debt.
At one level the response was reassuring — smart students who didn’t really need a loan quickly worked out the financial advantages of having one. At another level, though, the inducement to take out a loan for those whose parents were willing to invest in their tertiary education created amoral dilemma. Should they and their family help themselves to something they didn’t really need? No. But what the hell — it was the only way they were going to get some of their taxes back.
KiwiSaver is another classic case — the only way you’ll get your taxes back is to milk the KiwiSaver scheme for all it’s worth. So we have people coming up to their 65th birthday opening a KiwiSaver account so that they can collect the $1,000 kick-start grant and the $1,080 per year (member tax credit and fee subsidy) for five years, all the while drawing New Zealand Superannuation. Now this might be morally palatable if it were confined to those on lower incomes reliant solely on superannuation. But it’s more likely to be people who already have other income to supplement their super and therefore can afford to make the contributions needed to maximise the benefits offered by the government. This is double dipping at its best, or worst.
The real moral pothole in KiwiSaver, though, is the fact that it’s an expensive scheme which appeals mostly to those who need it least — higher income people who already do a reasonable amount of saving. These people will shift some of their savings to KiwiSaver accounts simply to pick up what’s on offer from the government, which is again a grabbing back of the taxes they resent having to pay. It’s difficult to see how those on low incomes will be able to divert around 5% of their weekly spending to a KiwiSaver account so that they can get some of the largesse being offered.
But the real rort is the student loan/KiwiSaver combo. Takeout a student loan and direct payments to a KiwiSaver account rather than a bank account — the returns are impressive given the government’s (taxpayer) generosity. A sticking point is that you can’t withdraw money from your Kiwisaver account to get rid of your student loan. But if you’ve been running your KiwiSaver account for five years you’ll be entitled to make a withdrawal to purchase your first home, and you may even be eligible for a first-home subsidy of up to $5,000. Remember this rort is most likely to be fully exploited by those least in need of the financial assistance.
The Working for Families package will surely have encouraged some people to change their behaviour to maximise the benefits on offer. The fact that so many people have incomes of $60,000 also highlights a degree of dishonesty that has been encouraged by the obstinacy of the finance minister in refusing to review tax rates and tax income thresholds, despite the ballooning fiscal surplus.
The government’s policies are steadily undermining the integrity of people who are generally willing to take responsibility for their own finances — they just want more income to help them do it. When the government insists on taxing us more than is required, and then dangles interest-free loans, savings incentives, etc, it’s easy to become grasping. But it’s the ideal of self-reliance that suffers.