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So, Is It Really Paradise?Reflections on Family & Economic

Policy & Policymaking in New Zealand

Nick Johnson * Axford 2005

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Is NZ a Policy Paradise?

• Was the “Working for Families” package a triumph of policymaking?

• Can its successes/ shortcomings be explained?

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My Axford Project

• Based at Treasury

• Secondment to Ministry of Social Development

• Title of paper: “Working for Families in New Zealand: Some Early Lessons”

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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

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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

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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

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

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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

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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

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My Findings: The Impacts of Working for Families

Intended Unintended

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

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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”

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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.

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