'Baby bonus' a small but significant step

... However, many families remain stuck with a tax and benefit system that either traps people on benefits or forces them by financial pressure into full-time paid work, says Simon Collins.

Don't scoff too quickly at the "baby bonus." It's a significant help for low-income families, but in a wider context only a small step towards a fairer tax and benefit system.

The maximum tax credit of $150 for eight weeks - or $1200 - is an increase of about a third on the combined maximum of $3224 a year that a working family with one child has been able to get until now from family support and independent family tax credits.

Put another way, it is equivalent to a pay increase of 4 to 6 per cent for a family in the target income range of around $20,000 to $30,000.

For a Government that started out in 1990 by cutting benefits and state spending, it is a significant step in the opposite direction. Labour and the Alliance are not yet in power, but already they're driving the direction - if not the detailed form - of policy.

The direction of change in 1990 was towards drastically reducing the role of the state. Health care, education and superannuation were all to be tightly restricted to the poor, and those on higher incomes were to pay for themselves.

This theme is still present in this Budget, in the nod towards unspecified further tax cuts at some unspecified time in the next three years and in the continued restructuring of accident compensation along private insurance principles.

But the stronger theme is in the subtitle: "Investing in the next generation." It's the traditional social democratic idea of taking from those who can afford it to support those in need - in this case, low-income families.

In fact, the social democratic idea has moved on from the simple tax and benefit model of the 1930s.

Laila Harre's paid parental leave bill is inspired by the idea of empowering people to make choices about paid work, parenting and family life without feeling hemmed in by financial pressure.

Parents these days don't just want financial security. They also want flexible workplaces so both parents can balance paid work and time with the children and with each other.

From this perspective, the "baby bonus" is a very limited step forward, for five reasons.

First, its inspiration is narrow and restrictive rather than empowering. It is restricted to low-income working families, excluding those who are in by far the most desperate need of the extra income - beneficiaries.

Secondly, because it is also restricted to those on low incomes, it further intensifies the "poverty trap" in which the low-paid live already. The combination of so many tightly targeted forms of assistance - basic welfare benefits, accommodation allowances, student allowances, healthcare concessions, student loan repayment exemptions, family support and now the parental tax credit - means that many parents can actually be worse off if they get paid work or increase their working hours.

Thirdly, the new tax credit applies only to the year in which a child is born. The costs of feeding, clothing and caring for a child, and for at least one parent to take some hours each week out of the full-time paid workforce, go on for years afterwards.

Fourthly, the amount of assistance in the first year, even to families qualifying for the maximum family tax credits, is only $4424 - far less than the real extra costs of caring for the child and coping with either reduced parental hours of paid work or paid childcare.

And fifthly, the "baby bonus" does virtually nothing to widen parents' options for paid work and family life. There is nothing to encourage employers to accommodate more flexible working hours; nothing to make childcare more affordable after the first year; and no move towards extending the principle of free public education into the preschool years.

We are still stuck in a blind alley with a tax and benefit system that either traps people on benefits or forces them by financial pressure into full-time paid work leaving no time or energy for the family. It will be interesting to see whether any other parties in this election year are any more enlightened.


• Simon Collins is a former Herald political editor.