Families with newborn babies will be up to $60 better off a week as the Families Package comes into effect today and Mother Nature won't stop premature babies from being eligible for the new payment.

The Best Start payment during a baby's first year is among a raft of measures that take effect today as part of the Families Package to boost the resources of mainly low and middle income families.

Babies born or due on or after July 1 are eligible for the tax credit. Six families with babies born before their due date had applied, the Ministry of Social Development said.

Social Development Minister Carmel Sepuloni said a starting date had been needed but "it would not have been fair to set the commencement date and then to withhold payment from parents because Mother Nature determined their baby would be born earlier than expected.


"The decision to give effect to the payment for babies born from 1 July or due to be born from 1 July was a pragmatic decision," Sepuloni said.

The tax credit, which continues through the second and third years of a child's life for low and middle income families is expected to benefit around 65,000 newborns annually.

The Families Package, which was funded by cancelling the previous National government's planned tax cuts, will cost $5.53 billion over five years.

The Government estimates that by 2020/21, when the package is fully rolled out, some 384,000 families with children will be better off by about $75 a week. It is projected to lift the number of children living out of poverty by 64,000, or about 41 per cent, by 2020.

"We know that low and middle income families have been really struggling with things like the cost of housing and the cost of living. For those families, when you are encountering financial difficulties it can really put a lot of stress on the family, particularly when you have children to raise," Sepuloni told the Herald on Sunday.

"This will really make a difference to their lives."

The Child Poverty Action Group welcomed the increases to Working for Families rates but said that after six years of no adjustment for average wage and cost increases, the changes were little more than an overdue catch-up.

"Both the rates and threshold must be adjusted annually, and not just for price increases but also for growth in wages, so we protect the young just as we protect our superannuitants," said Susan St John, the group's economics spokeswoman.


Unfortunately, the package increased the "clawback" rate of Working for Families to 25 per cent once the $42,700 threshold was reached.

"It will be common for families earning over $48,000 to lose 30 cents in tax, 12 cents in student loan repayment, 25 cents in Accommodation Supplement, and 25 cents in Working for Families, from every additional dollar.

"It feels like having a 92 per cent tax rate," St John said.

Well-supported tax credits for children were essential.

"These tax credits are best seen as a way to compensate for both high income taxes and GST paid by low-income families, and are a way to recognise that more children reduce the capacity of a family to pay increased tax at each income level."

Other Families Package measures which take effect on July 1 include:

•An increase in paid parental leave from 18 to 22 weeks, and a further increase to 26 weeks on July 1, 2020

•A rise in the Family Tax Credit and Working for Families abatement threshold, making 26,000 more families eligible, rising to 39,000 by 2020/2021

•An automatic winter energy payment for beneficiaries, superannuitants and veterans pension beneficiaries. Those who don't want it can opt out

•An increase in the orphans benefit, unsupported child benefit and foster care allowance by $20.31 a week.

•Increases in accommodation supplement and benefits, announced by the previous National government.

To check what you're eligible for, go to check.msd.govt.nz and www.ird.govt.nz