Budget ineffective in aim says Treasury

By RUTH BERRY, political reporter

The Treasury estimates only 2 per cent of sole parents will move off benefits into work and there will be no net change for couple families as a result of the Budget, even though one of its aims was to encourage people into jobs.

The sums were included in Cabinet papers detailing the Budget planning released yesterday.

In May, Finance Minister Michael Cullen said the Budget had three aims.

It would make work pay by supporting working families with dependent children.

It would ensure income adequacy for low to middle-income families with dependent children. And it would "support people into work and keep them there".

A spokeswoman for Dr Cullen said yesterday that the Treasury estimates were based on overseas modelling.

She said they were conservative as it was hard to calculate behavioural responses to benefit changes.

The papers noted that the Treasury believed savings from people moving into work "may well be higher if we are able to capture the dynamic gains from improved work incentives combined with enhanced delivery to move clients into work".

But accompanying Labour Department comment was sceptical about the Budget's impact on unemployment.

The department said the package should help those facing barriers to work such as sole parents and low-income earners with high effective marginal tax rates. It said it had done no modelling of the likely net employment impacts of the package.

"However, overall it would appear that the package is likely to have relatively modest employment impacts.

"This effect is due to the fact that some groups, such as those on middle incomes, will now face higher marginal tax rates from family assistance, thereby reducing incentives to increase unemployment."

The papers also reveal the Government used the Budget to prevent some beneficiaries receiving "inappropriate levels of assistance" through the special benefit.

Beneficiaries receiving the special benefit - for those requiring extra financial help - increased by over 170 per cent between July 2002 and February this year, and there is no monetary upper limit on it.

The benefit will be phased out and replaced by a more tightly controlled regime with a capped entitlement.

People getting the benefit now will be "grandparented", which means they will end up with no less in the hand as a result of changes increasing their family assistance but reducing their special benefit.

The papers show only 3 per cent of beneficiaries would be worse off without the grandparenting. But they also show a significant 22 per cent of those on the special benefit will barely be better off.

The vast bulk of that group, over 90 per cent, are sole parents with one child who will receive an overall benefit increase of just 14c a week.

A clamp-down on the entitlement to cap payments for some on special benefits due to payment of some "unusually high allowable costs" is also raised in the papers.

They also reveal:

* Two working parents sharing custody of a child for more than a third of the year will each be entitled to the new in-work payments for the child.

* Plans for extensive information-sharing between Inland Revenue and the Ministry of Social Development.

* Plans to further review the adequacy of the accommodation supplement.