Welfare debts pushing thousands into 'poverty trap'

Author
Thomas Coughlan, NZ Herald,
Publish Date
Fri, 10 Dec 2021, 3:23PM
(Photo / 123RF)
(Photo / 123RF)

Welfare debts pushing thousands into 'poverty trap'

Author
Thomas Coughlan, NZ Herald,
Publish Date
Fri, 10 Dec 2021, 3:23PM

The Government is collecting tens of millions of dollars worth of penalties and interest on debt owed by some of the poorest Kiwis. 

Campaigners argue that these often punitive charges and interest penalties force people into a debt trap - where debts mount up as people have less and less money to pay them. 

As of September 30, Kiwis owed the Government $193.2 million from being overpaid working for families tax credits - usually because they have not notified MSD that their family circumstances have changed. 

Payments vary depending on whether someone is in a relationship or is living with children of a certain age. If the Government is not kept abreast of a person's changing personal status, that person might be overpaid any benefits or tax credits they receive- the Government will then treat the overpayment as debt, and try to claw it back, in some cases with interest. 

More than a quarter of debt relating to working for families ($54 million) is actually not the overpayments themselves - it is the penalties and interest charged on that debt. 

The debt is made up of $138.2m in overpayments,$29.6m in penalties, and $25.4m in interest debt. 

Overdue child support tells a similar story. 

While the actual amount overdue constitutes $256.8m, the penalties applied to the debt are worth twice that amount: totalling $563.1m. 

Those figures were current as of September 30, 2021. 

Overall, the figures show that while people owe the Government a lot of money in overpaid benefits, tens of millions of dollars of this is penalties or interest. 

The data comes from Parliamentary questions by Ricardo Menéndez March. 

Green Party MP Ricardo Menéndez March. Photo / Sylvie Whinray

Green Party MP Ricardo Menéndez March. (Photo / Sylvie Whinray)

The answers to his questions reveal that debt repayment rates - that is the weekly amount of money debtors are charged to repay their debts, varies starkly along gender and ethnic lines. 

Māori face the highest level of weekly repayments, with an average weekly debt repayment of $16.01. 

The next highest average weekly repayment rate is for Pacific Peoples, who pay $14.46 a week. 

NZ Europeans follow with an average repayment of $12.78. 

Women were also being asked to pay significantly higher repayments each week than men. 

The average weekly repayment for women is $16.33, while for men it is $11.09. 

For people who identify as gender diverse the average weekly repayment is $9.32. 

March said these discrepancies resulted from the discretion that was given when MSD negotiated weekly repayment levels with debtors. 

"When we have discretion at play, we expose people to the systemic discrimination that exists to government agencies. 

"Case managers even with the best intentions will have biases that are reflected in different payment rates," March said. 

March is calling for a debt amnesty, which would wipe people's debts clean. 

"We support an amnesty and we think especially when it comes to borrowing from Government agencies it creates a poverty trap," March said. 

March said a lot of debts were triggered by things as innocuous as a change in someone's relationship status that MSD determines is significant enough to alter someone's benefit. 

He said this could be as simple as going on "a few tinder dates" with someone. 

Auckland University associate professor Susan St John said one of the challenges with debt to Government is that people receiving welfare might not even know they're racking up debt. 

"You can easily not realise that your circumstances have changed - it could be as easy as your partner is earning more money and you didn't know about it," she said. 

She said the problem with benefit debts is that people usually do not have the means to repay them. 

"We're talking about people in poverty - by the time they realise they were overpaid, all of their income would have gone already," she said. 

A partner's income level affects the level of benefit each person gets paid. 

St John said she would back an amnesty, but she also wanted to look at fixes for what was putting people into debt in the first place. 

March said he would like to see the welfare system individualised, meaning that people's relationship status would not affect how much they were paid, minimising the chance that people could get into debt. 

As of December 2020, 557,496 people owed a total of $1.9 billion in debt to the Government through MSD. 

The Ministry of Social Development has advice telling debtors "if paying money back just is not possible right now, we'll work with you to come up with a solution. 

"We want to make sure your repayments are at an amount you can afford."