Showering cash is no substitute for policy

Published in Insights, The New Zealand Initiative’s newsletter, 31 January 2014

When the Prime Minister delivered his State of the Nation speech last week, the ideas on education reform were bold and substantial. Even the teachers’ unions, not the government’s most natural ally, were impressed.

However, much criticism came from Labour with opposition leader David Cunliffe saying he was “underwhelmed” by the announcements.

So with bated breath, we were waiting for the opposition’s very own big ideas in their ‘State of the Nation’ speech, which followed on Monday. Unfortunately, this time we were underwhelmed with what was proposed.

There is no shortage of issues in New Zealand that need to be tackled: the housing affordability crisis, or the challenges to our superannuation system, to name just two examples. But the opposition did not provide any game-changing policy ideas on either of them. (In fact, neither had the Prime Minister a week before.)

Instead, the most prominent idea in Cunliffe’s speech was a baby bonus of $60 a week and an extension of paid parental leave from 14 to 26 weeks. Is this a ‘let’s buy votes with other people’s money’ proposition or is it a thoughtful contribution to policy development? At least the speech did not establish that it was the latter.

From a policy perspective, it would help if Labour made it clearer what these initiatives are meant to achieve. The outcomes are likely to be disappointing if the objective is to increase birth rates. Overseas experience suggests that such financial assistance to families usually does not have an effect. Germany, for example, spends a lot of money on family policies while fertility rates have remained dismally low. New Zealand’s birth rate is relatively high in any case.

If, however, Labour’s objective is to ease the burden on young families, the targeting looks poor. As Labour itself calculates, about 95 percent of families will qualify for the baby bonus because their annual income is under the $150,000 threshold. But since every spending measure has to be financed out of tax revenue, this means that this policy will be paid for by the same people who also receive it. It’s not a policy that robs Peter to pay Paul. It’s a policy that robs Peter to pay, well, Peter.

At the very least, if child poverty was meant to be alleviated, the policy should have been better targeted. As it stands, it looks like just more middle-class welfare. Or indeed an election gimmick. But certainly not a big idea suited for a State of the Nation speech.

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