Jane stopped work when their first baby came. Now John has lost his job in a restructuring. The only job he can get is part-time, paying $200 gross a week.

"That's great," you might think. "At least that's $200 towards the household budget."

But look at the table on 'The Smiths' choice'. The family is getting a net $421.36 a week on the dole, including family support and accommodation supplement.

If John Smith takes the $200 job, the family's unemployment benefit will drop, and after paying tax on the extra $200 there will be only $485.80 in the hand. That's only $64.44 extra.

But it gets worse. If John's new employer offers to double his hours and pay him $400 a week, the family would end up with less than $10 extra: $495.03.

It's a classic 'poverty trap'. Once you end up on a benefit, the system makes you a mug to get off it.

Labour, NZ First and the Alliance would all respond by raising benefit levels and reducing them more gradually as people's incomes rise. But in all cases, at certain incomes, the Smiths would still be worse off if they earn more.

The Smith's Choice Net weekly income for a Wellington couple with two children and weekly mortgage payments of $250
Non-benefit Income ($)	National 1996	National 1997	Labour	NZ First	Alliance 1st 3 mths	Alliance long-term
0	421.36	426.36	496.45	445.36	424.20	488.00
80	469.36	474.36	569.75	493.36	484.20	548.00
100	472.36	477.36	574.15	496.05	496.47	560.27
200	485.80	491.32	596.15	502.01	517.22	605.02
300	491.80	500.32	612.00	503.01	519.22	607.02
400	495.03	507.61	611.23	502.30	518.45	606.25
500	519.44	543.61	598.02	530.30	514.41	587.55
600	542.63	569.91	627.02	548.61	535.84	567.20
700	559.94	594.50	645.68	564.62	554.39	587.67
800	611.63	635.19	657.68	578.88	578.23	601.44
Source -- City Voice

Taxes would range from zero on the first $4600 of annual income up to 49% above $50,000 a year. (The existing, more 'flat' tax scale ranges from 15% under $9500 to 33% above $34,200). GST would be abolished.

The Alliance would investigate a Universal Basic Income - a benefit for everybody whether they work or not. Paradoxically, this would make it more worthwhile for the Smiths to work, because they wouldn't have benefits taken off them if they get a job.

The bottom tax rate of 8% would be used to build a Superannuation Fund to give more certainty to state pensions. Funds would be saved collectively rather than in the names of the individuals who contributed them.

Both rounds of its tax cuts have targeted the middle income tax rate, covering income between $9500 and around $30,000 a year. The effective tax rate on this income band was cut from 28% to 24% last month, and is planned to drop to 21% next July.

Family support is being raised, in two steps, by $5 per child per week for beneficiaries, and by $20 per child per week for working families. But National has no plans to raise other benefits.

It would honour National's two rounds of tax and family support changes.

The Accommodation Supplement would be go up 20%, and the Special Benefit would change so people no longer have to meet the first $10 shortfall in their weekly budgets themselves.

There would be a true compulsory contributory super scheme. Everyone would have to pay into either a state scheme or a private scheme, starting at 3% of gross incomes next year and rising quickly to 8% (the amount used in the table). The first $5000 of annual income would be exempt.

ACT's approach would make paid work worthwhile for the Smiths. Cutting income tax would obviously leave more in the hand.

However even ACT proposes a 'guaranteed minimum family income' of $24,731 a year for a fulltime working family with two children.

This would make it more worthwhile for John Smith to take up that fulltime job at $400 a week ($20,800 a year) - the state would then top up the family income to $24,731. But once he's in the job, any extra earnings would just reduce the state top-up by the same amount.

see also the Jobs Letter special issue on
party policies for Election '96.