I’ve started reading Irving Fisher’s The Nature of Income and Capital.(download here)written in 1906. Next will be his Theory of Ineterest, but because of my interest in tackling/studying  the effective tax rate on capital in NZ’s modern welfare state I’m going back to basics. What is income? What is Capital? How does one conceptualise and measure both income and capital? SO I thought I’d start with the best – Irving Fisher!

My reading of WINZ’s philosophy/culture is that they feel that they have the legislative/regulatory right and the discretion to:

• assess and measure an individual’s “command over resources at any point in time” – not just a flow of income, but the accumulated stock of wealth – , and
• to selectively use  concepts/measures of wealth in their definitions of “income”  that are subsequently used to vary individual entitlements to various types of subsidies
• they are unrestrained in what they choose to assess as income for welfare subsidy purposes – unlike, for example, IRD

How draconian is this? Well consider the case of Ms E, DPB beneficiary , accommodation allowance, supporting two children on modest incomes, estranged from her husband who sees kids regularly, contributes through IRD, etc. . Husband dies in a tragic accident and there is a life insurance payout to Ms E. WINZ stops her subsidies, completely, even though her income remains unchanged. (Abstractly, loss of valuable human capital, an asset in all senses of the word, gets replaced by an inadequate insurance payout, some financial wealth, and suddenly MS E and her family’s effective income drops dramatically). I think the same procedures apply to inheritance payouts – if your wealth (not your income) goes up , your subsidies thru WINZ will decrease – perhaps completely. I wonder what has happened with all of the insurance payouts for low income people with earthquake related claims in Christchurch? If they treat those as they would sale of a house, then the wealth tax kicks in after 6 months if you are still looking and haven’t actually purchased.

These sorts of effective marginal wealth taxes (change in wealth of type X leads to abatement rates Y for flow subsidy Z) have, yto my knowledge,not even been acknowledged in studies of the welfare state in NZ. (Note to self – must ask susan st john about this, liane dalziel, paul d too)

There are lots of issues here. What are the legislative restrictions and provisions for dealing with capital accounts and income accounts in various Government agencies involved in taxation and subsidisation, and case law ? (not just the variety here- but also the policy implications) . From a welfare standpoint is it justifiable to have a wealth tax on the poor and disadvantaged? How large are these effective wealth taxes, and where is the burden of effective taxation?   Is it wise to give broad discretion on these definitions/measurements to welfare/tax agencies? What sort of appeal procedures are there for restraining bureaucratic head hunters? What are the “performance” incentives received by bureaucratic alleged fraud finders?