'Less work - more babies'

David Cunliffe
David Cunliffe
Labour's $60-a-week child payment scheme may produce less work and more babies, economists say.

The scheme, announced on Monday, may put some average wage-earners off working more hours because they will lose two-thirds of every extra dollar they earn through a combination of reduced child payments, tax, ACC and KiwiSaver payments.

But Canterbury University economist Dr Eric Crampton said it would also raise New Zealand's fertility rate.

"Some people will be thinking, can we afford to have another kid, and just deciding at the margin, no we can't," he said. "This extra bit could be enough to do it."

He said economists calculated that a similar "baby bonus" in Quebec cost about $15,000 for every extra child born.

"Is that value-for-money?" he asked. "Depends what you think a child is worth.

"I think life is worth at least that much to each of the children who wouldn't otherwise be born, and that New Zealand is so far below optimal population size that it would be a bargain, if results here were similar."

Labour's scheme would pay $60 a week to the parents of all newborn babies for their first year.

The only exceptions would be the 5 per cent of parents still earning over $150,000 a year after the baby is born, and the 40 per cent of parents who get paid parental leave - they would get paid leave for six months and $60 a week for the second six months.

The scheme would keep paying $60 a week for toddlers aged 1 and 2, but at those ages the payment would be clawed back at the

rate of 30c for every dollar of extra income above $50,000 a year. The payment would stop at age 3, when Labour would make children eligible for 25 hours a week of free preschool education.

Single-income families earning around the average wage of $1050 a week ($54,600 a year) already lose more than half of every extra dollar earned as existing family tax credits are abated at 21.25c in the dollar on top of income tax of 30c, the ACC levy of 1.7c and a KiwiSaver contribution of 3c for many workers - a total of 55.95c in the dollar.

That total clawback rate wouldrise under Labour to 64.7c in the dollar on incomes of $50,000 to $70,000 and 67.7c above $70,000, where the tax rate goes up to 33c.

Although the tax rate would be lower for mothers returning to work on lower part-time incomes, Dr Crampton said the combination of a high clawback rate and extra money would encourage some mothers to stay out of the paid workforce for longer.

He said more time out of the workforce reduced the chances of women coming back on salaries as high as they earned before having a baby, and so reduced the family's lifetime total income.

However Auckland University economist Dr Susan St John said it might be better for the children to have a parent at home with them for longer.

"This whole business of having to incentivise work - it's not the only thing in life."

- Simon Collins of the NZ Herald

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