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Friday, October 31, 2008

Pass the Kool-Aid for economic Armageddon

Both major parties have now released their “transition” policies for the coming economic Armageddon.

(A third group, Destiny Church, has released its policy for perhaps the literal Armageddon: Bishop Brian Tamaki plans to retreat into a separate independent city in South Auckland for the faithful. In the current troubled market, your correspondent foresees a rise in Kool Aid shares.)

National and Labour have released support packages for redundant employees.

The cost of the packages is roughly the same, although National’s promises a bigger payout to people with children – bumping up the maximum accommodation allowance by $100 a week, but also allowing families to keep the “in work” payment of Working for Families even if the recipient is, well, no longer in work.

This assistance will help out for up to 16 weeks for employees who were in jobs for six months or more and then made redundant. It will therefore benefit those with high accommodation costs and those with families.

(The in-work payment is fairly significant – for a family with a total income of $60,000, the payment is $55 a week or over $3000 a year.)

It’s not as sweeping a plan as the National party had suggested, and so should be applauded for that reason.

In contrast, Labour says there will be no spousal income testing for the unemployment benefit – this benefits couples, where the redundant worker’s spouse earns above slight wages, but does nothing for (say) solo mothers who lose their jobs.

The initial analysis has been Labour’s plan will spread the same amount of money more widely but thinly. That’s not necessarily true.

The unemployment benefit could in some cases be a bigger lump sum than, say, a $55 Working for Families subsidy and an accommodation supplement. If the recipient had no children and a high earning spouse then the “equity” argument could go the other way and see labour’s plan lining middle class pockets.

The wealth of such scenarios under which both transition packages could be seen to be playing favourites undeservedly (not even starting with the apparent resurrection of a class of so-called "deserving poor") points to the flaws in redesigning welfare on the hoof.

Unemployment is expected to jump. The pre-election Treasury update guessed it would hit 5%; earlier in the year the Reserve Bank predicted 6%. These figures, high in comparison with recent high employment in New Zealand, are both historically low and also compare well with other developed countries.

There are fears that it could go higher given the recent financial crisis, especially with expatriates returning home from troubled foreign job markets.

That's the problem. As they come up with their rescue plans John Key and Helen Clark– and although he might quibble, probably Bishop Tamaki as well – can only guess at what's in store for the future.

[more NBR columns]


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