National's Budget backtrack on tax credit for childless workers

Labour's Finance Spokesman Grant Robertson says some will miss out from National's Budget package. Photo / Marty Melville.

About 85 per cent of the low income workers who lose a $520 a year tax credit under National's "Families Package" will not get any gain from other aspects of the package - despite National introducing the credit in 2009 to help childless people it said were neglected by the Labour government.

National's "family incomes package" included tax cuts of up to $20 and boosts for many on Working for Families and the Accommodation Supplement.

However, those missing out include 515,000 people on low incomes up to $48,000 who effectively pay for their own tax cut after the decision to scrap the Independent Earner Tax Credit - a $10 a week credit introduced by National in 2009 for those who
do not get assistance from Working for Families, superannuation or a benefit.

At the time, Bill English said it was targeted at single and childless people ignored by Labour in its Working for Families package: "It covers a group of people who, in 9 long and wasted years under Labour, received no tax reductions whatsoever, primarily because they did not have children."

The loss of the tax credit effectively cancels out the tax cut those workers will get from the change to the tax thresholds - most would get $10.70 a week, leaving them just $0.70 cents a week better off compared to the average increase in income of $26 a week.

Treasury has estimated only about 15 per cent are also on the Accommodation Supplement and likely to get a bit more.

A spokeswoman for Joyce said most of those who were losing the tax credit would benefit in other ways - mostly through a partner's tax cut as well as some through the Accommodation Supplement.

Treasury had estimated about 407,000 people would have been eligible for the credit in 2018 and of those 269,000 were gaining from other parts of the package - including the Accommodation Supplement but mostly a partner's tax cut.

She said 138,000 people on the IETC would get no other benefit from the package than their own tax cut - of those 126,000 were single and about 12,000 in couples.

Labour once described the IETC as aimed at "the grumpy white male vote" and discriminating against families but is now using the plight of a cleaner on the minimum wage who is losing the tax credit as part of its attack on the Budget- saying Steven Joyce will get an extra $20 a week while the cleaner gets just 70 cents.

Joyce has justified scrapping the tax credit by saying it will be compensated for by the tax cut - National introduced the IETC in 2009 and at the time Bill English said it was a targeted way to deliver tax relief without changing the tax threshold to those on low incomes Working for Families.

Finance spokesman Grant Robertson said it was still working through its full response to National's package and the IETC "is on the table".

"But no final call has been made yet."

Labour has also claimed that some families with one child will get a smaller increase than couples without children under the changes to the Working for Families abatement rates.

English said while a few thousand households, such as those with older children on higher incomes, would be worse off by a few dollars a week only about 200 would be significantly worse off from lower and faster Working for Families abatement rates. A $2 million fun was in place to help them.

He said Labour was focusing on individual elements of the package rather than the full deal - so while some might miss out on Working for Families they could get more in accommodation grants.

The Green Party has highlighted officials' advice to National in 2015 that increasing the Accommodation Supplement carried a risk landlords would put up rents.

English said the Government had considered the pressure on the rental market but it was not a reason not to go ahead with the package increases. He said there was no evidence the last rise had been absorbed by rent increases and the risk was "pretty low".

"We felt the opportunity we have to relieve pressure on those households is worth taking whatever hypothetical risk there was. Just because we put up Working for Families doesn't mean the supermarket's going to put up the price of Weetbix just because they know shoppers have more cash."

Joyce said last week that officials would monitor the rental market to ensure landlords weren't trying to capitalise on the increase and would act if there were signs of it.

English also took aim at the differing positions of the Green Party and Labour on legislation introducing the family package. Labour was the only party to oppose it. English said the Greens and NZ First decision to vote for the Budget showed it was supported by many people who would not normally support National.

"If the Opposition parties can't organise themselves in Opposition, you wonder how they're going to organise themselves in government when in Opposition all you've got to do is oppose what the Government does. It looks pretty easy, but they can't manage that."

He said the Budget was a step, but it took more than that to win an election.