Working For Families is failing families in poverty, and a review of the system shows that proposed changes will do little to help those who are struggling the most, says Susan St John.
For the last two decades critics have seen Working for Families as discriminatory, poorly designed, far too complex and woefully ineffective in addressing the worst child poverty.
In 2004, the Child Poverty Action Group (of which I am a founding member) explained what was so wrong in a publication called Cut Price Kids and the group has been campaigning to fix Working For Families (WFF) ever since.
After the Welfare Expert Advisory Group report in 2018, the government began its widely anticipated WFF review. We participated in good faith along with many other NGOs. Our recommendations are found here.
The main part of WFF is the per child per week Family Tax Credit that goes to all caregivers in low-income families on the same basis. This is the best tool to ensure income adequacy. The second component, confusingly named the ‘In Work Tax Credit ‘ is added to the Family Tax Credit weekly payment, but only when parents are eligible on paid work criteria.
While fixed hours of work no longer have to be met, if there is any benefit or part benefit paid, then the children of those parents cannot have any of the In Work Tax Credit.
As a result, about 200,000 of the worst-off children in New Zealand miss out on a substantial part of WFF – at least $72.50 a week. The reasoning has been that paid work is the only way out of poverty and therefore their parents need an incentive to work.
In the review of WFF, cabinet approved as the starting point these two key very contradictory objectives:
• to make work pay by supporting families with dependent children, so that they are rewarded for their work effort
• to ensure income adequacy, with a focus on low and middle-income families with dependent children to address issues of poverty, especially child poverty
The worst-off 200,000 children get nothing – they remain invisible and left further behind – Cut Price Kids indeed.
Susan St John
University of Auckland Business School, Child Poverty Action Group
Parents are not on benefits for fun. Their children are four times more likely than other children to live in poverty – that means going without the basics, not enough money after rent to pay for school uniforms or the power bill let alone nutritious food.
Many of these families are sole parents, many have disabled children, or there is sickness in the family, few job opportunities and lack support of all kinds. Even if they manage a part-time job, their part benefit makes their children ineligible for the In Work Tax Credit.
When a payment to a caregiver is designed to be enough to address child poverty but it is withheld from the worst-off families who are on benefits to create a work incentive, the result is deeper child poverty not more parents off-benefit.
Phase one of the WFF review decided to focus on the second objective, and in the 2022 Budget increases were announced to the Family Tax Credit. This was largely a delayed inflation catch-up implemented from 1 April 2023, and was soon eroded in the cost-of-living crisis. Most unfortunately, as part of the same package, low-income families in paid work lost their Working for Families more quickly as the rate of clawback (or abatement) rose from 25 percent to 27 percent for each dollar earned over the very low fixed threshold of $42,700. So much for work incentives!
Thomas Coughlan had previously outlined in the NZ Herald how serious thought had been given pre-2023 budget to fixing flaws in the WFF design.
He reported that in the WFF review:
Anti-poverty groups said this tax credit “should be paid to all families and not just those who are off a benefit and in paid work”.
“These stakeholders argued that the payment was discriminatory or unfair, particularly given children were unable to choose whether their parents were working. They also emphasised the need to value other contributions people make, such as caring for children or voluntary work.”
So now we have part two of the WFF review – maybe this is Labour’s way of putting that tortuous review to bed. They announced on 13 August that if elected, the IWTC will be increased by $25 a week from 1 April 2024 creating an even bigger gap between children in families on benefits and other low and middle income families in paid work. The threshold stays fixed at $42,700 and there are no automatic indexation provisions. However, the threshold will rise to $50,000 by 2026, just in time for the next election. The rate of abatement stays at 27 percent.
The worst-off 200,000 children get nothing- they remain invisible and left further behind – Cut Price Kids indeed.
Susan St John is an honorary Associate Professor at the University of Auckland Business School.
This article reflects the opinion of the author and not necessarily the views of Waipapa Taumata Rau University of Auckland.
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