Working families tax credit not aimed at reducing poverty, court told

File photo / NZ Herald

Tax credits for working families are not aimed at reducing poverty, but at getting beneficiaries into work, a court has been told.

The Child Poverty Action Group (CPAG) is challenging the Government's In Work Tax Credit (IWTC), part of the Working for Families package introduced in 2006.

It claims the credit, which is worth at least $60 a week and applies only to working parents, not those on a benefit, is unjustified discrimination.

The Crown presented its argument in the Court of Appeal in Wellington today.

Counsel for the Crown Cheryl Gwyn said the purpose of the In Work Tax Credit was to create an income gap between beneficiaries and the lowest-earning working families, to encourage people into work.

That justified excluding beneficiaries, as extending them the tax credit would be to contrary to the scheme's purpose.

Before the tax credit was in place, some people were better off on a benefit than working a minimum wage job, she said.

But Justice Anthony Randerson questioned whether the policy was intended only as a work incentive, saying there was clearly multiple purposes, including increasing income and alleviating poverty.

Ms Gwyn agreed those were aims of the Working for Families package as a whole, but not the tax credit.

"It does ultimately have an effect on income adequacy, but that was not the purpose of the measure," she said.

Justice Randerson responded: "That seems to be dancing on the head of a pin, with respect."

Ms Gwyn also referred to evidence provided by two OECD experts that there was always a tension between goals of reducing poverty in the short term and encouraging people into work through financial incentives.

"But moving people into work will result over time in lifting income levels and thus reducing poverty."

Ms Gwyn said that overall, beneficiaries were not worse off as a result of the Working for Families policy.

While the scheme cut child payments for families with more than one child, these were more than offset by increases to family support payments.

She said it was also a choice to remain on a benefit rather than take tax credits instead, and most beneficiaries would at some point be in paid work, and able to take up the credit.

Yesterday counsel for CPAG, Frances Joychild, told the court there were other reasonable ways to incentivise work, and that the credit benefited only a small number of parents and excluded the poorest families.

The case before Justices Randerson, Ellen France and Lynton Stevens was set to finish today.