The Treasury and the tax authorities have advised against paying the cost of living

The government’s cost-of-living payment, first announced in the May budget, went hastily despite the Treasury and the Inland Revenue both advising ministers against the idea.

In a release of the budget documents on Thursday morning, a joint Treasury and Inland Revenue document on March 25 warned the government against the program, citing “significant risks associated with designing this proposal quickly.”

The government’s main economic agency has also warned that a one-off payment is not the best way to support those who struggle the most with inflation.

Inflation – the general level of prices – has risen by 7.3% over the past year and the government has used the cost of living payment as a central pillar of its budget, delivered on May 19.

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Under this program, those earning up to $70,000 a year are entitled to two installments totaling $350.

The government was also warned that the tax administration would require considerable resources to administer the scheme.

The first payment, made on August 1, initially went to 780,000 people less than the estimated 2 million and was paid to people overseas who were in New Zealand during the working holiday.

Finance Minister Grant Robertson presents the 2022 budget to Parliament.

Ross Giblin / Stuff

Finance Minister Grant Robertson presents the 2022 budget to Parliament.

“A targeted broad-based payment based on individual income is unlikely to be the best way to provide support to those who are struggling the most,” the report said.

“Inflation is expected to be broad-based and persistent. This makes a one-time payment a poor mechanism to support households facing a longer-term problem. »

The Treasury also noted that there were other government priorities the money could be used for, “for example, initiatives that have a direct impact on the child poverty milestones”.

“Because of these factors, the Treasury does not recommend advancing a broad-based CoL payment.”

The Treasury has instead suggested that the winter energy payment could be extended to more people.

The briefing also reveals that while the Treasury has suggested that if the payment is to stand, the Inland Revenue should be the agency to administer it.

However, he notes that the Inland Revenue Commissioner was against the idea as it was “estimated that it would require around 1000 staff at its peak for around two months, have critical operational impacts on Inland Revenue… while delivering the Covid -19 current economic supports.

“Adding this payment to the portfolio of services that the Inland Revenue already provides would seriously compromise the already stretched Inland Revenue workforce,” the briefing notes.

It also says that, given the closeness to budget, “its advice was produced quickly and therefore does not consider the full range of options to address the cost of living problem for many New Zealanders”.

The Treasury also warned that because inflation is persistent and not a one-time event, it “could make it more difficult to ensure that this payment remains a one-time event.”

The Treasury also warned that the payment would likely add to inflationary pressures.

“A widespread payout of this magnitude would add to short-term inflationary pressures, although the risk of longer-term inflationary pressures is relatively low if the payout is timely,” the report said.

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