The tax churn debate from last week – “why the hell are we paying public servants to take money away from people in tax and hand it back to them in welfare?” – has spilt over from Crikey and onto Club Troppo, where Nick Gruen’s response to my piece from Wednesday has also been posted:

Our system provides European-style protection for the least well off and for low and middle income children at near American-style revenue cost. It’s nearly three times as targeted as the next best system – New Zealand’s. Even poverty traps have been tackled here better than most other countries…

Peter Saunders from the CIS has saved me a phone call by responding to the response in today’s comments section (and Troppo).

But here’s a funny thing. Gruen’s an economist. I used to be a political hack. Yet I suspect he’s writing more about politics than economics.

The number of people caught in the family tax benefits trap is surely an economic problem. Isn’t it causing bottlenecks in labour supply? Why work for two bucks an hour? And look at how it hits effective childcare costs when it gets really bad.

And the politics are tricky too – or so it seemed when Peter Costello tried to dismiss them yesterday:

Because more parents are receiving family allowances, you can say more parents are subject to the phase out, but if they weren’t receiving it in the first place they wouldn’t be receiving the phase out.

And in fact the only reason there are more people subject to the phase out is because more people are receiving it.

That is more people have increased incomes and it shows the ability to pluck a dark cloud out of a silver lining really to say that just because more people are receiving more help more people are subject to the phase out as well.

Er… yes, Treasurer.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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