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A socially unbalanced Budget

The Budget last week was, as expected, an election year Budget. Many low and middle income families will welcome the relief of some extra money in their pockets. But much more could have gone to them rather than to high income earners, and there would have been funding left over to address problems like the underfunded the health system, education and housing.

Around 140,000 families missed out on any benefit from the “Family Income Package” Most are families relying on social welfare benefits and are likely to be in impoverished circumstances.

Tax cuts are by far the biggest part of the package – up to three-quarters of it. They are heavily weighted to top incomes. The one-fifth of households with the highest incomes gets 36 percent of the benefits. That’s more than the lowest income 60 percent get.

The benefits of the smaller part, Working for Families (WFF) and Accommodation Supplement (AS), go heavily to lower income families: over 90 percent go to the lowest income 60 percent. If we want to do more for low and middle income families, WFF is the best place to focus.

Despite the increases, WFF still has problems. Its estimated total value in 2017 is $2.33 billion in June 2016 dollars. That’s $725 million less than it was in 2010. In the first full year of the new rates (2019) it is still $511 million short of 2010. In addition, the Government has increased the rate at which families lose WFF as their incomes rise, to 25 cents in each dollar, and lowered the income level at which this kicks in.

If there had been no tax cuts, WFF could have been increased to fill the full $725 million gap, the abatement rate could have been cut back to 20 cents in the dollar and the threshold increased and indexed to wages. The cost in the first year would have been about $550 million.

There would be around $1 billion available. It could provide income to the 140,000 families who missed out, plug the $305 million gap in this year’s Health budget and begin the task of mending deteriorating services. It could put money into all school operations grants to meet their rising costs and accelerate the upgrading of Housing Corporation houses. With more balanced, but still prudent, debt targets, we could do even more. Even these are tight Budgets to do all that is necessary. Really, if we want to make a real difference, rather than just repair the damage to our social systems and infrastructure, we need to raise revenue through more progressive income taxes and taxes on wealth.

Download the full Bulletin: CTU Economic Bulletin 189 – May 2017