Making ends meet in the middle

The hikoi may have been dramatic but, when it comes to capturing the votes of middle NZ, the best route maybe through their wallets. KEVIN TAYLOR reports


Politicians neglect middle New Zealand at their peril. That's why Prime Minister Helen Clark and her Labour Government have been unswerving in their determination to vest the foreshore and seabed in the Crown and ensure public access.

Allowing Maori to go through a process that could give them freehold title of foreshore and seabed areas would simply be unacceptable to much of middle New Zealand, that huge and amorphous group that decides elections every three years.

Labour's dip in the polls following National leader Don Brash's Orewa speech is being blamed on treaty issues, not economic issues.

But the foreshore issue, emotional though it may be, is probably a minor concern for most middle New Zealanders.

Lurking in the background is a worry among middle-income earners about increasing pressure on their wallets and the feeling they have been ignored or left to their own devices.

Professor Jack Vowles, head of political studies at Auckland University, says middle New Zealand has not been ignored, but its issues have not been addressed either.

"Middle-income New Zealanders have been under pressure really since the 80s," he says.

That's largely because of increased targeting of benefits, which has seen those on very low incomes qualify while those who might be struggling on higher incomes miss out.

United Future leader Peter Dunne is another who believes middle New Zealand has been unhappy since the economic reforms of the 80s.

"There's been a strong sense over that period that every move - whether it's the tax cuts or moves in family support and other mechanisms - have always missed them out."

Dunne believes a "massive sense of resignation" has meant a real lack of political motivation in middle New Zealand.

BNZ chief economist Tony Alexander puts it another way: "Are we going to band together and walk across the bridge because we object to something? No.

"We don't feel strongly enough about it and we are maybe too busy scraping by."

Vowles, also referring to the foreshore and seabed hikoi, says walking over bridges and demonstrating on the streets of Wellington doesn't necessarily get those protesting what they want.

"The middle class is potentially a lot more powerful than Maori," he says. "There's a hell of a lot more of them.

"So in terms of their ability to command the attention of politicians at election time, they don't have to be organised to the same extent."

But Vowles says more organisation might increase middle New Zealand's visibility on the political radar screen.

Green Party co-leader Rod Donald says the ever-rising student loan balance, now at $7 billion, is one of the main worries of younger middle-income earners.

"Student debt is having a major impact on our society, our economy, and our demographic," he says.

He is not alone in believing that. Census figures show fewer people in their 20s are home owners, couples are putting off having children and delaying saving for retirement.

National Party deputy finance spokesman John Key believes Labour's increases in direct and indirect taxes, which cost $2600 extra on every household, has angered middle New Zealand.

"No wonder they are hurting - they are getting hit in every direction," he says.

"The average New Zealander now doesn't start earning for themselves until after lunch every day. All the income in the morning goes to tax."

Key thinks resentment is being further fuelled by perceptions about wasted spending - like the taxpayer-funded $20,000 grant to two women to travel the world studying hip-hop.

"Middle New Zealand are out there doing the hard graft, and they are struggling to reconcile that."

Each Budget gives the Government a prime opportunity to show it is trying to help a particular section of the electorate. This year's May 27 Budget is being billed as the "battler's Budget" that will finally deliver a long-awaited social dividend through a package called "Future Directions".

The package is so important that Beehive officials are planning a separate lockup for journalists, where they read the details under supervision before they are publicly released, on Future Directions alongside the usual one.

It will be a big day for senior Cabinet minister Steve Maharey. As Minister of Social Development and Employment he has been working - and many in the Labour Party have been waiting - for this moment for a long time as payback for the pain of economic restructuring in the 1980s and early 90s.

The Government has variously claimed the package is for "low to modest" and "low to middle" income earners.

But Maharey and Finance Minister Michael Cullen are clear the Budget will not deliver just for those at the lowest end. The package will be targeted at households in the $25,000 to $45,000 income bracket, which will gain through the tax credits system operated by Inland Revenue.

Even a couple with a household income of $55,000 and four children will benefit.

People will see their incomes improve progressively over three years as the next two tranches of the package are delivered in 2005 and 2006.

Not surprisingly, National's Key is unconvinced, believing middle New Zealand will be subjected to a public relations snowjob on May 27.

He argues that while the Government will claim middle-income earners will be better off, most of the $1 billion will go to beneficiaries.

He bases that on indications that Future Directions will target the family support tax credit - the largest of the four types of tax credits Inland Revenue operates.

This tax credit cost $888 million in 2001-02, going to 206,000 beneficiary families but only 59,000 non-benefit families got it.

The other types of tax credits together cost only $218 million in 2001-02.

However, Maharey accuses Key of creating his own snowjob and repeats that the package will benefit both low and modest income earners.

The problem for any government is the reality that extending state assistance too far up the income scale would be astronomically expensive.

Hundreds of thousands of New Zealanders already rely partly or wholly on welfare for their existence.

Excluding superannuation, benefits accounted for 23 per cent of the $41.7 billion core Crown spending in the 2003 Budget.

Maharey acknowledges resources are limited but says the Government's job is to ensure everybody shares in better economic conditions.

"If we've got the money from a growing economy, it's going to go in your pockets."

The Budget will also simplify the benefit system, boost the accommodation supplement and improve access to early childhood education and childcare to increase the number of women holding down jobs.

National's prescription for the middle class is simple - tax cuts - but it is short on specifics following a backtrack this year.

Looking to fight off suggestions that it is the party of the rich, National said it would not cut the top personal rate immediately, but instead give tax relief to low and middle income earners - so-called "hard-working New Zealanders".

Key says the mid-rate of 33c - which applies to incomes between $$38,000 and $60,000 - will have to be targeted in any tax cuts but is no more specific.

National also intends getting tough on beneficiaries by reintroducing work testing and promoting work for the dole.

The Greens want to reintroduce a universal family benefit and universal student allowance and wipe student debt. This huge cost will come from savings in government spending, eco-taxes, tariffs on imports and a capital gains tax on property other than the family home.

Donald also peddles a politically unpopular line - rampant consumerism has meant middle New Zealand is partly responsible for its own financial plight as consumer debt has risen dramatically.

"Our expectations are beyond our means, both as a nation and individuals, both in economic and environmental terms," he says.

New Zealand First says a range of its policies from welfare to immigration will improve the lot of middle New Zealand.

It believes in reducing taxes over time, but does not believe cuts should be made if services will suffer.

The party also wants to fund universal student allowances and offer tax breaks to improve savings.

Act would abolish the top tax rate and tax everybody earning over $38,000 at 20c. At present every dollar between $38,000 and $60,000 is taxed at 33c, while incomes above that are taxed at 39c in the dollar.

Act finance spokesman Rodney Hide says the middle class is being squeezed - it pays all the tax and misses out on all the handouts.

Cutting tax would boost investment, wages and growth, he believes, and cuts can funded through the Government's surplus and without reducing spending.

Maharey believes middle New Zealand's obvious concerns about their finances have not translated into loss of support for Labour.

Nor does he accept that middle New Zealand is feeling ignored because the Government's messages have failed to penetrate. .

"Middle New Zealand do not write to me at all, frankly, on this issue."

He accepts those in the middle bracket do not find it easy to live, pay the mortgage and educate their children.

Real incomes fell from 1972 to 1999, he says, so the Government was "acutely aware" when it came to power that middle earners were under severe pressure.

That is why it has aimed most of its measures at that group, including axing interest on student loans while students are still learning, introducing paid parental leave and a new Holidays Act, and increasing childcare subsidies and family assistance thresholds.

"These are all policies you would hope would be recognised by middle New Zealand," Maharey says.

But although Vowles expects the Government will try to address middle income issues as much as it can afford to in the Budget, the problem is the huge fiscal cost of extending assistance too far.

"Clearly there is a lot more that could and should be done, but when it comes down to it the Government is under severe fiscal constraints."

The economy is coming off the boil and politicians have only a certain amount of room to manoeuvre, he says.

So, while the wallets of middle New Zealand are not on the political radar at present, their concerns remain any Government's soft underbelly.

Balancing the income figures


The Battler's Budget

What the May 27 Budget is expected to contain:

* A package aimed at low- to middle-income families called "Future Directions", worth around $1 billion. It includes a boost to - and simplification of - the complex tax credit system. It aims to increase family income and improve incentives to work.

* Reform of the welfare benefits system to simplify it.

* A boost to the accommodation supplement for low-income earners.

* Better access to early childhood education and childcare with the aim of increasing women's participation in the workforce.

Current personal tax rates

* 19.5c per $1 on income up to $38,000

* 33c per $1 on income between $38,000 and $60,000

* 39c per $1 on income over $60,000

What we earn

Average individual wage earnings:

Full-time earner $39,627

Part-time earner $14,576

Average family gross income (including from benefits):

Couple with children $73,929

Couple with no children $62,390

Sole parent $24,163

Source: Budget 2003

Tax: who pays what

Individual taxable income (including super and other benefits) with the number of earners, and percentage of workforce in brackets

$0 - 170,000 (6%)

$1-$10,000 - 557,000 (19%)

$10-$20,000 - 869,000 (30%)

$20-$30,000 - 360,000 (12%)

$30-$40,000 - 341,000 (12%)

$40-$50,000 - 215,000 (7%)

$50-$60,000 - 130,000 (4%)

$60-$70,000 - 94,000 (3%)

$70-$100,000 - 109,000 (4%)

$100,000+ - 71,000 (2%)

Source: Budget 2003