1. © The Treasury So, Is It Really Paradise? Reflections on Family & Economic Policy & Policymaking in New Zealand Nick Johnson * Axford 2005

2. © The Treasury Is NZ a Policy Paradise? Was the “Working for Families” package a triumph of policymaking? Can its successes/ shortcomings be explained?

3. © The Treasury My Axford Project Based at Treasury Secondment to Ministry of Social Development Title of paper: “Working for Families in New Zealand: Some Early Lessons” n

4. © The Treasury 2005: A long, long time ago… Labour government running for re-election Lowest unemployment in OECD Large budget surplus Recent high rates of child poverty Also some political pressure for tax cuts

5. © The Treasury Selected US-NZ similarities Policy context: –Higher-than-average sole parenthood –Cultural tradition of egalitarianism combined with high actual inequality Policy settings: –Relatively flexible labor market –High reliance on personal income tax –Use of tax system to deliver cash aid to low- & moderate-income families

6. © The Treasury Selected US-NZ contrasts: cash-assistance policy NZ: Much less complex system of aid to poor families NZ: In some ways, a more favorable system for the working and non-working poor –Higher minimum wage –Better welfare benefits, generally –BUT – until WfF - less net assistance for full-time, low- wage workers/parents

7. More US-NZ contrasts: tax policy NZ: Very broad-based income tax – very limited use of tax expenditures as an explicit tool for social policies –“Tax policy is social policy” – at best a theoretical assertion in New Zealand –“Broad base, low rates” – such a mantra that it has its own acronym at Treasury: BBLR NZ: In part because the tax is so straightforward, most New Zealanders no longer have to file tax forms

8. © The Treasury What Did Working for Families Do? Changed New Zealand’s Family Assistance programme of tax credits –More generous (1.7% of GDP) –More targeted to working families –Extended further up the income scale –Better outreach, coordination across agencies –Strong component of data collection/evaluation

9. © The Treasury The “Working for Families” Process Massive interagency working groups Early involvement of MSD, Treasury and IRD (the tax agency) Early involvement of the implementing agencies as well as policy advisors

10. © The Treasury My Findings: The Impacts of Working for Families IntendedUnintended Poverty & incomes Substantial reduction in poverty; boost income for near-poor None [but greater creep into middle class & greater cost than initially planned] Incentives/ behaviour Improved financial incentives for non-working sole parents to work Weakened financial incentive for second earner to work; increased “marriage penalties” for two-income families Admin- istration Improved outreach, communications, coordination between MSD/IRD, evaluation Potential compliance issues for partnered couples

11. © The Treasury Why the unintended consequences? Some tradeoffs are unavoidable –cost vs comprehensiveness –work incentives vs reducing poverty “Hold harmless” requirement: no one can be made worse off An unwillingness to take on “BBLR”

12. © The Treasury Some conclusions about policymaking New Zealand is somewhat in post-reform mode: consolidating & protecting reforms, no longer venturing boldly (e.g. not challenging BBLR). The impact of mixed-member-proportional: skittishness about political ramifications. Still and all: Working for Families is likely to succeed in its goals, and moreover will generate a good body of data to allow for good future reforms.

13. © The Treasury