Working for Families: Taxpayers’ Union says $2.8 billion scheme should be cut back in favour of tax cuts

The government’s rising $2.8 billion Working for Families bill is under fire with calls for it to be replaced with tax cuts.

The Taxpayers Union argues the scheme discourages people from upskilling and seeking promotions because they fear their top-ups might drop.

However, families on the breadline say they could not survive without it and budget services say the extra money is vital for low-income earners.

Figures obtained by NZME under the Official Information Act show $2.85b was spent on Working for Families entitlements nationally in the 12 months to March 2020, compared with $2.6b in the same timeframes to March 2019. About 344,600 families were receiving the entitlements last year.

In Tauranga, it was $89 million and 10,900 families, up from $83m while in Rotorua it rose from $58m to $62m and 7100 families.

Data from IRD after these dates was not available.

A Bay of Plenty mother of three, who asked not to be named as she felt embarrassed, said she worked part-time and so did her husband.

Their lives were turned upside down due to Covid-19 and their own business was 99 per cent out of action.

”My husband’s part-time job keeps him busy three to four days a week. And this year our income will slide in just under the lowest band of entitlement as I won’t be returning to work once my paid parental leave runs out in August.”

So far her husband’s last two pay raises of 2 per cent had left their entitlement unaffected.

”However, if we ever want to buy our own home we need much for a deposit which would mean he would need to return to full-time employment and I would need to as well.

”This would mean putting our two youngest into daycare – something we aren’t willing to do at present.”

She said they would struggle to cope if there were any changes made to the scheme.

Inland Revenue said one of the objectives of the scheme was to support families with dependent children so they were rewarded for their work effort.

However, Louis Houlbrooke, of the New Zealand Taxpayers’ Union, said Working for Families disincentivised recipients from taking on more work, upskilling, or pursuing a promotion.

”The more productive recipients are, the less relief they receive. That has a pernicious effect on our national productivity.”

A better idea was income tax relief as income tax brackets had not been adjusted since 2010 – not even for inflation, he said.

”In the long run, we’d like to see spending on Working for Families scaled-down.”

Tauranga Budget Advisory Service manager Shirley McCombe said many families could not survive without Family Tax Credits/In-work Tax Credit.

”It contributes hugely to the family’s income and often families struggle when children turn 18 and are still at home but not necessarily contributing financially.”

Rotorua Budget Advice Service manager Pakanui Tuhura said anything that supported parents to raise their children was a good thing.

In his view, he did not see any connection between Working for Families and pay rises or tax cuts.

The pressures of rising costs of living [accommodation, food, power] continued to outstrip household income, he said.

”Our society and how we relate to and within our communities is becoming more complex. People used to be able to decide if they wanted to keep up with the Joneses or not, but now it has become a necessity in some cases just to survive.”

A Government spokesman said the Working for Families system had been in place for almost 15 years but was being reviewed.

“It has served New Zealand well and made a significant impact on reducing child poverty, but within it, there are components that the Government wants to look at such as the accommodation supplement.

“We also want to look at the interaction of Working for Families with different parts of the benefit system we’ve introduced like the Best Start payment.”

The review would also look at “whether or not we are still achieving that same level of effectiveness,” the spokesman said.

IRD Forecasting and Analysis manager Sandra Watson said the Working for Families tax credits packages were implemented between 2004 and 2007.

They were 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 credits aimed to achieve a social assistance system that supported people into work by making sure that people got the assistance they were entitled to when they should, and with a delivery that supported them into, and to remain in, employment.

What is Working for Families

* Working for Families Tax Credits are payments for families with dependent children aged 18 and under. The payments are to help you raise your family. Entitlements are based on your yearly family income and family circumstances. It is not child support.

* There are four types of Working for Families tax credit payments. These include $60 per week for families supporting a newborn baby, the in-work tax credit available for families who have some income from paid work each week and the minimum family tax credit to make sure families are getting basic income where the parents or parents work a required number of hours for salary and wages.

* You can choose to be paid weekly or fortnightly, or in a lump sum after the end of the tax year, March 31. – Source IRD

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