Polices

The Effectiveness of Government Policies on Equity and Equality.

Taxation

Progressive Taxation- this is where people on a higher income are taxed at a higher percentage.

In New Zealand there is a progressive taxation system where those on a higher income are taxed at a higher rate.

Top rate: 33% from $70,000
30% - $48,001 to $70,000
17.5% -$14,001 to $48,000
10.5% - $0 to $14,000

The Company taxation rate in NZ is 28%.

Impact of a Progressive Tax on the Lorenz Curve

Equity
The progressive Tax brackets move the Lorenz curve closer to the Line of Equality. Both High and Low income earners are taxed proportionally to their income therefore redistributing income in a more equitable way (positive equity effect).
It is vertically equitable because different people with different incomes are taxed proportionally.
It is horizontally inequitable as capital gains are not taxed.
Efficiency
Due to the marginal Tax brackets where higher income is taxed at a proportionally higher rate, lower income earners have no desire to increase their income as that section of their income over the tax bracket will be taxed at the proportionally higher rate. Therefore workers will be unmotivated to increase their income so productivity will decrease (negative efficiency effect).

Working For Families

Working for Families is a package designed to help make it easier for low and mid income households to work and raise a family.

Working for Families Tax Credits are made up of four types of payments - family tax credit, in-work tax credit, minimum family tax credit and parental tax credit. Families may qualify for one or more, depending on their personal situation.

A regular adjustment is made to ensure that the Working for Families Tax Credit rates keep up with the Consumers Price Index.

Working for Families Tax Credits increases the income of low to mid income working households with children. To qualify one of the care givers must be working 20 or more hours a week. Money is paid according to the level of income of the household and the number of children.
The tax credit helps families to pay for their childrens needs such as health care, education and better quality food.

Impact of Working For Families.

Equity
By increasing the income of low to middle income earners with dependable children, this group seen as poor by society will now earn a relatively higher income. This will move the income of the poor closer to the line of equality thus being more equitable in the eyes of society.
Efficiency
Due to the policy being a ‘targeted’ policy (benefits based on assets and incomes of the families) it reduces the drive of the individual within the working family to increase there current level of assets and income as they may move out of the benefit bracket. As the individual has no motivation to improve income due to government rewards outweighing personal rewards a decrease in efficiency occurs. Under motivated human capital causes a decrease in efficiency resulting in a decrease in output.

Overall Impact of Transfers and Taxation on Equity and Equality.

Gini Coefficient For NZ Before and After Taxes and Transfers

HES year	Before taxes and transfers (market income)	After taxes and transfers (disposable income)	Reduction (%)
1986	36.4	26.4	27
1991	42.4	31.3	26
1996	43.1	32.9	24
2001	43.1	33.1	23
2004	41.7	32.9	21
2009	40.3	32.3	20
2010	39.6	30.6	23
2011	43.3	33.6	22
2012	39.6	30.6	23

The impact of progressive taxes and transfers such as the working for families tax credit is to cause a fall in the Gini Coefficient and so therefore an increase in equality.

The diagram shows that due to a progressive taxation system and transfers 50% of New Zealand Households effectively do not pay any tax.

This helps to increase equity by distributing wealth from higher income households to lower income households.