Changes to the Working for Families system were not included in the Budget.
Changes to the Working for Families system were not included in the Budget.
A proposal to change the Government’s $3 billion Working for Families tax credit system failed to make it into the Budget this year, despite Treasury officials listing it among the “highest priorities” for new spending in the Social Development portfolio.
Budget documents released this week show that Social Development Minister Carmel Sepuloni put changes to the system at the heart of her bids for Budget funding.
A February 16 paper prepared by Treasury for a meeting between Sepuloni and Finance Minister Grant Robertson said Sepuloni had “sought significant funding” for the Budget, although it did not specify how much.
“The largest new spending initiative would fund changes to Working for Families (WFF),” the paper said.
It warned the new funding was “unlikely to be possible given fiscal constraints”.
Treasury, as it does with nearly every portfolio, put the Budget bids into a draft package - a pared-back list of initiatives officials think could get over the line, considering any funding constraints.
The Working for Families changes was included in this list of high-priority spending, listing it as one of the “highest priorities”.
“We consider the highest priorities within this package to be the following non-discretionary initiatives that relate to MSD’s core services and changes to Working for Families,” officials said.
At some point after being put in the draft funding package, ministers decided to drop the changes from the Budget.
Sepuloni told the Herald that “as is the case with every Budget process, policies and ideas get tested, some are accepted and others aren’t”.
“This year’s Budget process was no different. We had to focus on the issues front of mind for many New Zealanders, which included easing the pressures of the cost of living without adding to inflation and responding to the impacts of the North Island extreme weather events,” Sepuloni said.
“This is a Government with a track record of getting significant increases in financial support for low-income New Zealanders across the line at Budget time – with the largest increases to main benefits since the 1940s, a Families Package that supported more than half of all families with children in New Zealand, increases to main benefit abatement thresholds and initial changes to Working for Families that mean 346,000 families will be better off by an average of $20 per week all coming through previous Labour Budgets,” she said.
Social Development Minister Carmel Sepuloni. Photo / Mark Mitchell
It appears multiple options for Working for Families reform were on the table at the Budget. The Herald has previously reported that as many as six packages for reforming the system have been considered.
The scheme, introduced during the Clark Government has been effective at lifting the incomes of families, but it has also been criticised for its fiendish complexity and the fact many people fall through holes in the system.
The Jacinda Ardern-led Government initiated a review of the scheme in 2021. It found Working for Families was “largely fit for purpose”, although it appears to have also recommended significant changes.
However, unredacted sections of those papers showed sector groups recommended broadening the number of families who receive the in-work tax credit, a payment of $72.50 a week for families with one to three children (and $15 a week for every fourth and following child).
Officials reported back to ministers that anti-poverty groups said this tax credit “should be paid to all families and not just those who are off a benefit and in paid work”.
“These stakeholders argued that the payment was discriminatory or unfair, particularly given children were unable to choose whether their parents were working. They also emphasised the need to value other contributions people make, such as caring for children or voluntary work,” the review said.
Sepuloni said the Government was “continuing the review of Working for Families as part of our welfare overhaul work programme and we are committed to doing it”.
Labour’s welfare policy for the election has not been finalised.
University of Auckland associate professor Susan St John told the Herald, when aspects of the review were released earlier this year, that the in-work tax credit needed to be fixed.
“The most important thing to fix is the in-work tax credit because it’s just a terrible blot on the whole structure of Working for Families that we ever introduced something so discriminatory and unfair in the first place and so ineffective as a work incentive,” she said.
One change that was previously rejected for Budget funding was to lift the family tax credit abatement threshold from $42,500 to $48,000, meaning families would not lose any of the credit until they earned $48,000.
A separate Official Information Act response showed this was submitted as a Budget 2020 bid, and submitted again as a Covid-19 economic stimulus measure, but rejected both times.
It’s estimated to cost $220 million and would benefit about 183,000 families to the tune of $23 a week on average.
Rampant income inflation has pushed people’s incomes out of the brackets in which they would have received Working for Families tax credits. Unfortunately, because the cost of living has risen faster than wages recently, those higher incomes do not translate into greater material wellbeing for people.
Instead, families are often left worse off, because their higher income has pushed them out of the bracket where they would receive Working for Families support, despite being no better off in purchasing power terms.
The review found that rising income levels had meant that fewer families are receiving Working for Families. Just under 350,000 families receive it now, compared with more than 400,000 in the early 2010s.
