The Australian Priority Investment Approach to Welfare invests in people who can find and hold a job. It will first target groups in society who have a high propensity to rely on welfare payments throughout their whole life.
The minister’s announcement in parliament
Government call for expressions of interest
The proposal outlined here complements and assists this approach by providing ways for any Welfare Recipient to invest and accumulate wealth. If people accumulate capital and can turn it into an annuity, they have less need to access the welfare system. This proposal offers ways to assist individuals and families build their capital resources and use any capital resources they possess.
The money to pay for the accumulation of wealth and to operate it comes by removing the cost of interest and the cost of inflation. It is a flexible approach and accommodates individual circumstances. It starts small and is scalable.
Capital Accumulation for welfare recipients
In this proposal, capital accumulates in two ways. The first turns rent into a mortgage repayment.
Turning rent into mortgages provides a way for individuals and families to have tenancy rights over the place they live. It reduces housing stress and gives a home ownership foundation to personal finances. When a person gets older, the accumulated capital can return as an annuity. Removing interest from money and repaying the money over a longer time reduces the cost to accumulate wealth while giving a fair return to savers.
The second way to accumulate wealth rewards those who use fewer community resources such as water, energy, transport and other community infrastructure. The rewards are investment capital invested in developing more community infrastructure. Non-consumption is a form of savings and turning it into investment capital is a way to turn it into a future annuity income.
Funds for Investment
Removing interest and the effect of inflation on wealth accumulation provides the money at no extra cost to the government. What happens is that the use of community assets move to custodianship and control by individuals but remain owned by the community. It is leasehold rather than ownership in perpetuity.
Most investment funds will come from superannuation and other personal savings. As an alternative to putting money into banks to earn interest, funds are invested to pre-pay tax. The savers get a return on investment by getting a discount on any future taxes or fees paid to the government. The discount can apply to goods and service, income, or capital gains taxes. If a person cannot use the pre-payment, they can sell it on a secondary market. There is no money created, and the system can compensate for inflation. Doing this removes the cost of interest and the cost of inflation. Over a person’s lifetime, these are significant costs.
Members of the community receive the benefits from the investments and so are better able to pay their taxes and not require income support from taxes. Most superannuation savings are likely to remain in these pre-payment accounts until needed for a retirement or emergency annuity.
Funds for operations come from transaction fees on transfers of value. A 1% charge on all transfers should pay the total cost to support individuals and for software services. It means there is no cost to the government to operate the system.
How quickly can it start and how much will it cost to trial
There is no need for legislation to start a trial. Funds to construct the system can come from sales of pre-payments within a month of a decision. The trial itself can commence within three months of a decision.
As with the Australian Priority Investment program, it is proposed to start with a trial of people at risk of becoming homeless or who are suffering financial stress because of the high cost of housing.
What are the benefits?
This approach will assist a person to own their home by the time they reach retirement. It will provide a place for superannuation contributions to be safe and to provide high annuity payments on retirement. The approach can be extended to all citizens and is likely to take people off the old age pension. We can expect the welfare bill to reduce every year as more pensioners use their house capital and the high annuity returns available from buying rewards. The government’s debt will drop, and there will no longer be the burden of ever increasing debt repayments.
Instead of welfare payments going directly into bank accounts, payments can go to Rewards accounts or Rent accounts. Money in any of these accounts increases in value over time. With the permission of the Reserve Bank, payments for goods and services can be made directly from these accounts. The government no longer needs to use interest bearing money and so can reduce its debt. Welfare recipients get a return while ever the money remains in their accounts. The savings to the community is the cost of interest and the cost of inflation on the amount of money.
How does it fit into the NZ model?
Building capital resources require the individual to have access to, control over, and understanding of their finances. These are all capabilities that people need to get the most from Investments in themselves. This proposal includes the software systems to help a person manage their finances. The accounting software will be an adaptation of the small business accounting software. Organisations like those identified in the Australian Priority Investment program will act as advisors with the software and help people to monitor their finances. The systems will be in place and available to help other “Investment in People” initiatives.
This proposal has no net cost to the government. It will assist the deployment of the Australian Priority Investment program. It has the potential to reduce welfare payments by increasing the capital available to welfare recipients. If trials are successful, it is scalable. It requires no legislation or funding to start. It requires the government to allow pre-payment of taxes with a discount. It requires the cooperation of a state government agency to institute a rewards program such as Water Rewards for consumers who use little water.