Activists concerned poverty missing as Sepuloni receives $3b benefit review

Thomas Coughlan, NZ Herald,
Publish Date
Thu, 28 Jul 2022, 1:46pm
Social Development Minister Carmel Sepuloni has received a review into Working for Families. Photo / Mark Mitchell
Social Development Minister Carmel Sepuloni has received a review into Working for Families. Photo / Mark Mitchell

Activists concerned poverty missing as Sepuloni receives $3b benefit review

Thomas Coughlan, NZ Herald,
Publish Date
Thu, 28 Jul 2022, 1:46pm

Ministers are weighing up changes to the $3 billion Working for Families welfare scheme after receiving the first sliver of advice from a review, but anti-poverty campaigners are worried the Government is too focused on getting people into work rather than reducing poverty.

The scheme supports about 58 per cent of families with children through an often complicated network of tax credits.

The Government started reviewing the scheme last year, and went out to consultation this year. Social Development Minister Carmel Sepuloni said the Government had now received "initial information on the outcomes and insights linked from engagement from the Working for Families Review".

She added that ministers were now "exploring potential options" with decisions "to be made in due course". She did not detail any of the advice, or any potential "options".

The backbone of the system is the family tax credit of $127.73 a week for the oldest child and $104.08 a week for every other child in a family. It also includes an "in-work tax credit" for families who are also working. This is $72.50 for families of 1-3 children and $15 for each additional child.

The scheme has copped criticism from some sectors for its complexity, the way it focuses on work rather than poverty, and the level at which support is withdrawn.

Much criticism is directed towards the rate at which payments are withdrawn as people earn money from work, known as an "abatement rates". The system works so that a person always earns more income from working than not working, but abatement rates are often so steep that people face little incentive to work more because of the amount of benefit they lose.

Once a family earns $42,700 a year, their Working for Families payments "abate" at a rate of 27 cents for every extra dollar earned, up from 25 previously.

Associate Professor Susan St John of the Child Poverty Action Group said a key problem with the current system was the Working for Families merged a benefit that is meant to alleviate poverty and help families with bringing up children with an the in-work tax credit incentive to help people get into work.

The two objectives often competed with each other.

St John was disappointed Sepuloni's remarks appeared to suggest work incentives were still a clear part of the scheme.

"It confuses looking after children with work incentives," she said.

"The way the in work tax credit is structured is it only goes to families with children - it is not well designed as a work incentive at all and doesn't seem to have a lot with incentivising work and misses out people who might need an incentive like younger people," she said.

"Our recommendation was to drop the idea of trying to build a work incentive into working for families at all and attack work incentives through other mechanisms like lower taxes, higher minimum wages, less abatement."

St John's submission to the review called for the abatement rate to drop to 20 per cent.

Green Party social development spokesman Ricardo Menéndez March agreed that the Government should not conflate an anti-poverty policy with a scheme designed to encourage people into work.

He said the terms of reference of the review were flawed for their focus on work rather than alleviating poverty.

"We believe the Government should have gone back in terms of the terms of reference because the whole focus on transitioning people into work actually misses out what should have been the underlying principle which should be to eliminate poverty," Menéndez March said.

He said there should be a move to universalise the scheme so that caregivers on a benefit were able to access the whole scheme. Currently, they cannot access the in work tax credit.

"Caregiving is work," he said.

Menéndez March said the scheme also needed to be simplified.

Act leader David Seymour agreed the scheme provided disincentives to work, but said the solution was to lower tax rates, making work pay more .

"It's the income tax rate plus the abatement rate that matters. Our proposal of getting the top tax rate down to 28 creates a lot more space for lower abatement rates for a large portion of the workforce, and what's more, getting the income tax rates for people under $70,000 down to 17.5 really helps with that - it means you can abate more rapidly," Seymour said.

National's social development spokeswoman Louise Upston said her party mainly wanted to see that people were rewarded for work and "not penalised for taking on more hours".

"However, the complexity of the current system means that, in some instances, there are perverse incentives to reject further job opportunities or additional hours. We hope the Government rectifies this and, amidst a cost of living crisis, enables New Zealanders to keep more of what they earn," she said.

Working for Families is just one part of the social safety net. At the Budget, it was estimated to cost $2.9b this year, rising to $3.2b by 2025/26.

Jobseeker and emergency benefits cost $3.4b, the supported living payment will cost $2.2b this year, and sole parent support will cost $1.8b this year, and supplementary benefits will cost $6.7b. The most costly benefit, NZ Superannuation, will cost $19.5b this year, rising to $24.5b by 2025/26.