2 August 2012

Protecting families in New Zealand? Tell the truth, Bill

Child Poverty Action Group says the government is fudging what is really happening to family assistance. Rather than giving income security to families through difficult times as it claims, the government is actually achieving a real reduction in family assistance with serious implications for the working poor.

On the 31st of July 2012, Hon BILL ENGLISH said in Parliament:

"We believe it has been important to provide New Zealand households and families with security about their income through difficult times. We are spending $2.6 billion a year on Working for Families payments, which have recently increased by 5 percent on 1 April.”

CPAG spokesperson Susan St John says that Working for Families has not increased by 5%. In fact the spending overall has reduced from $2.8 billion in 2011 to $2.6 billion for this year.

“This is a real drop in resources going to families and policies are already in place to gradually reduce the payment further out to 2018. “The 5% increase Bill English is trumpeting is no more than a sleight of hand,” says St John.

There are several ways in which the government is actually achieving a real reduction in family assistance with serious implications for the working poor says St John.

1. The threshold for full entitlement for Working for Families has been reduced already (see Budget 2011). Had this threshold been properly adjusted for inflation it would be $38,668 in the year ended 2013. Instead it is $36,350 and will have fallen to $35,000 by 2018. This means a family on the threshold income in 2011 whose income just rises with inflation will be around $500 pa worse off in 2012/2013, than they would have been with full adjustment to the threshold. By 2018 they will be even worse off with the threshold at $35,000 which with proper inflation adjustment would be $44,700.

We might compare that with the threshold for family tax credits in Australia which is fully adjusted each year and will reach around A$55,000 in 2018 from A$47,000 today

2. The rate of abatement of Working for Families is rising from 20% in 2011 to 25% by 2018. The combination of reduction in threshold and rise in abatement means that a family on $36,870 whose wages rise only with inflation can expect to be $2,440 a year worse off by 2018.

3. A substantial part of Working for Families weekly benefits are not adjusted for inflation and remain at their 2007 levels. The In Work Tax Credit is worth $590 million of the $2.6 billion of the total Working for Families package, or about 25%, and has never been inflation adjusted. All family assistance is inflation-adjusted in Australia.

4. The Family Tax Credit part of Working for Families currently costs $2.1 billion a year and for the reasons outlined above is predicted to fall rather than rise over time. It is adjusted only when inflation exceeds 5% so with a low inflation environment adjustments are not taking place as quickly as for other benefits. This saves the government money and, at the same time, can enable the government to look generous when an adjustment is made. This is what Bill English attempts in the statement above.

5. In a recession the Government can actually save money when low-income families lose work because entitlement to the In Work Tax Credit is lost at the same time. We are in fact experiencing a protracted and serious recession, and we have also had major earthquakes in Christchurch. A properly designed family assistance programme would provide a cushion in such situations. Instead, Working for Families fails to protect children in low income families from slipping into serious poverty. They don’t have punitive polices like the In Work Tax Credit in Australia and therefore they don’t have the depth of child poverty.

www.cpag.org.nz

ENDS

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