As a nation, we like to think of ourselves as honest andpretty self-sufficient, and we certainly used to believe in helping those lessfortunate than ourselves. But a paternalistic government congenitally opposedto reducing taxes and awash with revenue is producing polices that persuademany to latch very firmly on to the government teat wherever it is available. Fora growing proportion of people, milking the system is the only way they see ofgetting back the excess taxes they have been paying.
The irony is that the combination of government generosityand 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 onoutstanding student debt for everyone, rather than only those from low-incomefamilies. At a time when the government was desperate to encourage Kiwis tosave (we’ll come to that shortly) here they were offering not low, but no-costdebt.
At one level the response was reassuring â€“ smart students whodidn’t really need a loan quickly worked out the financial advantages of havingone. At another level, though, the inducement to take out a loan for thosewhose parents were willing to invest in their tertiary education created amoral dilemma. Should they and their family help themselves to something theydidn’t really need? No. But what the hell â€“ it was the only way they weregoing to get some of their taxes back.
KiwiSaver is another classic case â€“ the only way you’ll getyour taxes back is to milk the KiwiSaver scheme for all it’s worth. So we havepeople coming up to their 65th birthday opening a KiwiSaver accountso 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 NewZealand Superannuation. Now this might be morally palatable if it were confinedto those on lower incomes reliant solely on superannuation. But it’s morelikely to be people who already have other income to supplement their super andtherefore can afford to make the contributions needed to maximise the benefitsoffered by the government. This is double dipping at its best, or worst.
The real moral pothole in KiwiSaver, though, is the factthat it’s an expensive scheme which appeals mostly to those who need it least â€“higher income people who already do a reasonable amount of saving. Thesepeople will shift some of their savings to KiwiSaver accounts simply to pick upwhat’s on offer from the government, which is again a grabbing back of thetaxes they resent having to pay. It’s difficult to see how those on lowincomes will be able to divert around 5% of their weekly spending to aKiwiSaver 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 abank account â€“ the returns are impressive given the government’s (taxpayer) generosity. A sticking point is that you can’t withdraw money from your Kiwisaver accountto get rid of your student loan. But if you’ve been running your KiwiSaveraccount for five years you’ll be entitled to make a withdrawal to purchase yourfirst 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 leastin need of the financial assistance.
The Working for Families package will surely have encouragedsome people to change their behaviour to maximise the benefits on offer. Thefact that so many people have incomes of $60,000 also highlights a degree ofdishonesty that has been encouraged by the obstinacy of the finance minister inrefusing to review tax rates and tax income thresholds, despite the ballooningfiscal surplus.
The government’s policies are steadily undermining theintegrity of people who are generally willing to take responsibility for theirown finances â€“ they just want more income to help them do it. When thegovernment insists on taxing us more than is required, and then danglesinterest-free loans, savings incentives, etc, it’s easy to become grasping. Butit’s the ideal of self-reliance that suffers.
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