working for families

Workers on the average wage are at the centre of a political row after figures show thousands of dollars in pay rises have been whittled back to a few hundred by higher taxes and inflation.

A "Joanna Average" is at the centre of the tussle, with National's figures showing she is only $500 a year better off than seven years ago once inflation and higher taxes are taken into account - despite her earnings increasing from $33,968 a year to $44,123 a year. Her earnings mirror the average fulltime wage.

Labour does not dispute the figures, but has put forward its own calculations suggesting Ms Average is better off than National suggests - but only if she has children.  And it says National's figures simply underscore the importance of keeping inflation under control.  The row comes as National raises the stakes over tax cuts, with Australia looking to slash taxes by a further NZ$40 billion.

Prime Minister Helen Clark told Parliament yesterday that tax cuts would be addressed in next year's Budget. A rise in tax thresholds is among the likely options.

"Bracket creep" has pushed greater numbers of workers into higher tax brackets as pay packets have filled out.  Labour's Ms Average is a mother in a two-parent, single-income household with two children under 12. She works more than 30 hours a week and earns $41,000. 

National's Ms Average also works fulltime but doesn't have children.  Under its scenario, Ms Average earned $33,968 in 2000 and paid $6624 in tax. In 2007, she earned $44,124 and paid $9430 in tax.  National says that is a 42.4 per cent increase in tax paid, due to her pay rises pushing her into a higher tax bracket. Inflation accounted for the loss of $6842 more in spending power - leaving Ms Average $506 a year better off.

But Labour says its Ms Average fares better than that because she gets cheaper doctors' visits, interest-free student loans and cheaper early childhood education.  But the biggest factor is Working for Families, which means that, in effect, she pays no tax, Labour says.

Welfare beneficiaries without children are now worse off in relation to the average worker than at any time in the past 26 years, and probably in the last 60 years.

Auckland University research shows that the net dole for a single adult without children has dropped from a recent peak of 45 per cent of the net average wage in 1986 to 28 per cent today.

The current rate is the lowest since the university data started in 1981, and economist Brian Easton said it seemed to be the lowest since the average wage was created in 1948.

His data, based on the benefit rate for couples, shows that the previous lowest rate for couples was 54 per cent of the net average wage in 1972. The single adult rate is 60 per cent of the adult rate, making it around 32 per cent of the net average wage in 1972, but the tax rate for single adults would have been different from the married rate.

Auckland University doctoral student Gerry Cotterell said benefit rates had continued to fall slightly further behind the net average wage in recent years because they were adjusted in line with consumer prices, not wages.

Since the Labour Government took office in the December quarter of 1999, the average wage has risen by 28.4 per cent while consumer prices rose by 20.1 per cent. A royal commission on social security recommended in 1972 that married benefits should be kept at 80 per cent of the net wages of building and engineering labourers, to ensure that beneficiaries could "participate in and belong to" the rest of society. Benefits were increased the next year in line with the commission's recommendations, but since then have always been adjusted in line with prices, not wages.

The single adult rate was also cut by $14 a week in the "mother of all Budgets" in 1991, and has never been restored. Instead, the gap between real net single benefits and the real net average wage has widened from $300 a week in 1991 to $400 a week today.

Mr Cotterell said beneficiaries could not feel a sense of "participation and belonging" with such a wide gap behind wages. Given economic improvements "surely there is an argument for restoring the rates that existed before 1991".