Why not a Universal child payment

Gareth MorganTax and Welfare

John Key dismisses the idea of a universal child payment as “dopey”

Updated: Labour’s newly announced ‘Best Start’ policy is being sold as a win for NZ’s poor kids and their parents. The benefits for these families of having a bit more cash each week are easy to see. The fact that the policy, unlike Working for Families, doesn’t discriminate against children whose parents are out of work is a step forward. But continuing to target government payments like this – keeping them just for those who don’t earn ‘enough’ – is the wrong thing to do. Not only does targeting cost heaps in terms of day to day administration (‘please tell us when your circumstances change’) , it penalises parents who have the chance to earn a bit more but risk losing the payment. There is no benefit to them in taking up the opportunity. Targeting traps people in poverty. By all means pay parents of young children $60 a week, but for goodness sake stop pandering to those who object to paying it to ‘millionaires’ (or those who get $150,001 for that matter).  Pay it to every child and stop pretending anything else makes sense. We have no hesitation paying NZ Super to millionaires, what’s the difference?


Last week the Children’s Commissioner released an “issues and options” report from an expert panel asked to investigate what can be done about child poverty. The panel included medical experts, economists, policy advisers, academics, business lobbyists, consultants and others.

One of the recommendations of the panel is to introduce a universal payment for each child up to the age of 6, the idea being to help parents find balance between paid work and caring for their kids in the most vulnerable years. Yeah, you’ve heard this idea before – here – they’re talking about a child version of the UBI. Or some of us are old enough to remember the Family Benefit – paid to mothers because of the fear fathers would our it down their gizzards at the local boozer.

What Key doesn’t seem to grasp, but the expert panel did, is that targeted systems are part of the poverty problem.
John Key was quick to add to the quality of the debate, quoted in the New Zealand Herald dismissing the idea as “dopey”, and instead endorsing the “very targeted system” delivered through Working for Families (WFF). It’s incredible together that a financial markets’ literate politician can endorse a benefit that has stellar effective marginal tax rates – around 100 cents in the dollar.

What Key doesn’t seem to grasp, but the expert panel did, is that targeted systems are part of the poverty problem. Targeted systems work by gradually reducing the financial support parents get from the system as they earn more. It sounds good in practice. But targeted systems trap people – they reduce the benefits from working a few more hours or getting a slightly higher paying job. The extra income is “clawed back” by the abatement of the targeted benefit.

With WFF the effective tax rates people pay on their additional income are at eye-watering levels, nearly 100% in some cases. You have to get a dramatically better job to escape these punishing claw back provisions and that’s unrealistic for most people. So they don’t bother. They are stuck, unable to boost their income a little by their own efforts. No that is “dopey”.

A universal payment avoids all this, delivering help to parents but not trapping them further.

People who support targeted systems often do so because they say the rich benefit from universal payments too. If that concern was genuine then the solution is to close down the glaring gaps in the tax system which those of us with wealth exploit. Doing this while simultaneously introducing a universal child payment, would address biting poverty and see that policy funded.

I suspect the real dopes here are those who think they can lift the 25% of children who in poverty through obscenely high marginal tax rates for beneficiaries (remember WFF is granted to families who with earned income up to $100,000!) and bringing in more and more tests to make sure the need is “genuine”.

Targeted social welfare is a sham that has had its day and many of our politicians need to wake up to that reality

Why not a Universal child payment was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.