Thousands affected by Working For Families cuts

Finance minister Bill English was appaluded after reading the 2011 Budget, which revealed details of cuts to the Working For Families scheme. Photo / NZPA/Ross Setford

Tens of thousands of parents will have less money in their pockets when today's budget changes come into effect.

About 110,000 parents will be affected by cuts to Working For Families unveiled in the budget, with more than 23,000 of them earning less than $60,000 in combined annual income.

Three changes to the $2.8 billion scheme announced in today's budget are designed to save $448 million over the next four years.

Finance Minister Bill English said the move would better target payments towards lower income families, ensuring the scheme was sustainable into the future.

"At the time when the Government is dealing with costs from the global financial crisis and two Canterbury earthquakes, these savings will free up funding for other Government priorities such as improving frontline public services and reducing borrowing."

The changes are lowering the abatement threshold from $36,827 to $35,000; raising the abatement rate from 20 cents to 25 cents in the dollar; and aligning the FTC payments for children aged 13 to 15 with the payments for those aged 16 at $101.98 a week.

The Government is attempting to dull the pain from the changes by gradually introducing them. The first will kick in on April 1, 2012, with three further adjustments every two years or so.

The threshold will go down by $477 in 2012, and $450 thereafter, and the abatement rate will go up each time by 1.25 cents in the dollar.

Payments for children aged 16 and over will be temporarily halted while rates for children aged 13 to 15 catch up, and then will change with inflation.

Of the 397,000 families affected by the 2012 changes, about 278,000 families earning less than $70,000 a year will receive more money.

Over 87,400 earning between $10,000-$20,000 a year, more than 60,000 earning between $20,000 to $30,000, and over 37,500 earning between $30,000-$40,000 will pocket more money.

Those earning less than $36,350 are expected to earn about $7 more per week.

About 110,000, mostly earning $60,000 a year, will receive less, including 7000 families which will no longer be eligible for Working For Families. Of the families getting a cut, over 23,000 earn less than $60,000.

Those earning between $40,000-$50,000 will get $2.68 less per week, and parents earning between $50,000-$60,000 will get $1.97 less.

The Government does not have the final number of families affected and Working For Family payments expected when the changes are fully implemented as figure change with inflation.

Social Development Minister Paula Bennett said the scheme was to be better targeted to those in need when the changes kick in.

"Lower income families and beneficiaries will be largely unaffected by these changes, and the majority of families currently receiving Working For Families will get an increase in their payments after April 1," she said.

"A number of families higher up the Working For Families scale, however, will receive a little less than they currently do now, or will no longer qualify," she said.

Revenue Minister Peter Dunne said implementing the changes in steps ensured the effect on families was small.

Families with children under 12 will feel the pinch in April 1, 2012 when:

- Earning over $50,000 with one child, highest loss is $5.33 per week;

- earning over $65,000 with two children, highest loss is $5.74 per week;

- earning over $75,000 with three children, highest loss is $7.36 per week;

- and earning over $90,000 with four children, highest loss is $7.76 per week.

The changes to the Working For Families scheme have been criticised by Labour, the Green Party and the Council of Trade Unions.

Labour's Finance spokesperson David Cunliffe said Budget 2011 left struggling Kiwi families worse off.

"Budget 2011 continues the same selfish theme -- a free ride for the wealthy, but higher costs for Kiwi families through changes to KiwiSaver, Working for Families and student loans.

"There is no plan to deliver much needed relief to hard working families stressed to the max by runaway living costs."

Green Party co-leader Russel Norman said middle and lower-income New Zealanders were shouldering a disproportionate cost of the Government's poor economic management.

"It's disappointing that we've previously had tax cuts that help the wealthy, while for the rest of New Zealand, the price of food and petrol goes up and now KiwiSaver, Working for Families, and other essential government services goes down," Dr Norman said.

Today's budget confirmed the government had "no idea what families are facing to balance their budgets," according to CTU president Helen Kelly.

"Working for families is a crucial addition to many family incomes. Families earning $35,000 are not faced with choosing between what's nice to and what they need to have. They are choosing between which of the necessities will be paid for this week."