The Court of Appeal has dismissed an appeal by the Child Poverty Action Group which challenged the Government's in-work tax credit, saying it discriminated against beneficiaries.

The Child Poverty Action Group (CPAG) had said the credit, which is worth at least $60 a week and applies only to working parents, not those on a benefit, was unjustified discrimination.

The challenge was the subject of a court hearing in the Court of Appeal in May.

CPAG alleged the "off-benefit rule'' that the in-work tax credit was available only to those in full-time employment who were not receiving an income-tested benefit breached the Human Rights Act and the New Zealand Bill of Rights which prohibit discrimination on the grounds of employment status.


CPAG took the case to the Court of Appeal after both The Human Rights Review Tribunal and the High Court ruled against it.

The Court of Appeal said while it disagreed with the High Court on one aspect of the appeal, it did not affect the final outcome.

The Court of Appeal found that the off-benefit rule, on its face, subjected beneficiaries to different treatment that amounted to a material disadvantage but the rule ultimately did not breach the Bill of Rights.

"This is because the in-work tax credit deliberately created an earnings gap between people on a benefit and people who are working. The objective was to incentivise people into work and improve incomes for families with children,'' the Court of Appeal judges said in their decision released today.

"CPAG accepted this objective was important enough to justify limiting the right to freedom from discrimination but argued that the off-benefit rule was disproportionate to the objectives to be achieved.''

The Court of Appeal said the discriminatory impact of the off-benefit rule was not out of proportion to the goal of incentivising people into work and ``the evidence established that it only impairs the right to be free from discrimination to the minimum extent necessary to achieve the objective''.

Today's decision condemned children whose parents were unemployed to ongoing poverty, Green Party co-leader Metiria Turei said.

"The in-work tax credit has lifted thousands of children out of poverty but hasn't helped the one in five children whose parents study or are on a benefit,'' she said.


"Children deserve better treatment in the law and in policy than this decision gives them.''

In a statement, CPAG said it was pleasing that the court had agreed that the in-work tax credit was discriminatory but its harm affected 230,000 of the poorest children in our society.

"These children are among the group that suffer the most ill-health including third world diseases from poverty related causes. They may experience, poor nutrition, overcrowding, poor education and miss out on the basic experiences that could enrich their childhood,'' spokeswoman Associate Professor Susan St John said.

"This is quite disgraceful in a country like New Zealand and we had hoped that the court would understand the extent and impact of this harm. Parenting is challenging work even for the well resourced so it is hard to imagine a justification for departing from the principle of treating all children in low income families equally for all child-related payments.''

CPAG was considering its next move in consultation with its lawyers, she said.