Working for Families

In 2004 the New Zealand Labour government introduced the Working for Families package as part of the 2004 budget. The package, which effectively commenced operating on 1 April 2005, had three primary aims: to make work pay; to ensure income adequacy; and to support people "into work".

The main component resembles the United Kingdom Working tax credit.

Both the New Zealand Ministry of Social Development and Inland Revenue have involvement in jointly delivering the package.

Components of the package

The scheme pays "Working for Families Tax Credits" (formerly known as Family Assistance) to families with dependent children (aged 18 or under) to help with the cost of raising a family. They include four types of payments:

# Family tax credit: provides ongoing support for beneficiary and working families
# In-work tax credit: available to working families, pays up to $60 per week for families with up to three children, and up to an extra $15 a week for each additional child
# Minimum family tax credit: paid to families earning up to $21,860 a week before tax and ensures a minimum income of $355 a week after tax
# Parental tax credit: helps with the costs of a new baby for the first eight weeks after birth

The Working for Families package also included additional help with childcare and accommodation, with increases in the existing Accommodation Supplement and the existing Childcare Assistance.

Family Tax Credit

Formerly known as Family Support, the Family Tax Credit gets paid to families with dependent children aged 18 or younger.

The amount paid depends on:

* total annual family income before tax
* the number of dependent children
* the age of dependent children

The maximum amount of family tax credit increases with the age and number of children. An eldest child garners a higher amount.

For an eldest dependent child aged 16 to 18, the maximum tax credit increases by $13 a week.For dependent children (other than the eldest) aged 13 to 15, the maximum tax credit increases by $8 a week.For dependent children (other than the eldest) aged 16 to 18, the maximum tax credit increases by $29 a week.

In-work Tax Credit

Formerly known as In-work Payment, the In-Work Tax Credit replaced the Child tax credit from 1 April 2006. It gets paid to families with dependent children (aged 18 or younger) who work the required number of hours each week.

A couple must work at least 30 hours a week to qualify; a sole parent at least 20 hours a week. Families do not qualify if they receive state assistance through social welfare.

The amount paid peaks at $60 per week for 1 to 3 children, with an additional $15 per week for the fourth and any additional children (thus a family with five children could receive a maximum of $90 per week).

Minimum Family Tax Credit

Formerly known as family tax credit, and prior to that as guaranteed minimum family income, the Minimum Family Tax Credit aims to ensure that the total annual income of a family with dependent children 18 or younger does not fall below $21,860 before tax ($18,460 net of tax) for the year 1 April 2008 to 31 March 2009, and ensures a minimum income of $355 a week. Families must work at least 30 hours a week (for a couple) and 20 hours a week (for a sole parent). They do not qualify if they receive state assistance through social welfare.

The annual and weekly amounts are amended every tax year.

Parental Tax Credit

Paid to families with a newborn baby for the first 56 days (eight weeks) after the baby is born, the parental Tax Credit involves a payment of up to $150 a week. Parents receiving paid parental leave or income-tested social welfare do not qualify for this payment.

Assessment of income

The authorities assess income for tax credit purposes based on a "household", which will consist of the pooled resources from up to two adults in any family with dependent children.

Three out of four families qualify for extra financial assistance under the Working for Families package.Fact|date=August 2007 Nearly all households earning under $70,000 a year, many households with children earning up to $100,000 a year, and some earning more, qualify to receive assistance [ cite web | title = Receipt of the Working for Families Package
work = Ministry of Social Development | url = http://www.msd.govt.nz/work-areas/social-research/families-whanau/receipt-of-working-for-families.html |date=1 October 2007] .

Withdrawal of tax credits

The level of assistance to individual households depends on their income and on the number and age of children.

The rate of withdrawal (the abatement rate) for the Family Tax Credit, Parental Tax Credit and the In-Work Tax Credit comprises 20%. An abatement-free threshold of $36,827 exists.

The Minimum Family Tax Credit consists of a "top-up" payment, so that regardless of the amount of income earned, it gets topped up to $355 a week. This comprises effectively a 100% withdrawal with earned income up to the set income-level.

Some New Zealand households also receive money from the increased income-thresholds and rates for Accommodation Supplement and Childcare Assistance. These two types of assistance have separate withdrawal rates.

Impact and level of take-up

Under current payment rates and abatement rates the New Zealand Government has stated that three out of four families would qualify for extra financial assistance under the Working for Families package.Fact|date=August 2007

In the tax year from 1 April 2005 to 31 March 2006 approximately 285,000 families received Working for Families Tax Credits. In August 2006 beneficiary families received an average of $110 per week of tax-credits, an increase of $30 per week compared to August 2004. Families paid by Inland Revenue received an average of $138 per week of tax-credits, an increase of $54 per week [ cite web | title = Receipt of the Working for Families Package
work = Ministry of Social Development | url = http://www.msd.govt.nz/work-areas/social-research/families-whanau/receipt-of-working-for-families.html |date=1 October 2007] . The Former Minister of Social Development and Employment David Benson-Pope stated that Working for Families had made beneficiaries better off by around $31.00 per week, and working families by around $64.00 per week, with the April 2007 increase lifting families' incomes further. Estimates suggest that Working for Families has reduced child poverty by 70% since its introductionFact|date=August 2007. This would equate to at least 70,000 children lifted out of income poverty by Working for Families.Fact|date=August 2007

Former Minister David Benson-Pope also stated that Working for Families had made it easier for some women to start work, while in other families it had made it easier for one partner to spend more time at home [] .

A government evaluation (see below) has found that the number of Domestic Purposes Benefit recipients since the Working for Families package has fallen by 8,000 [ cite web | title = Receipt of the Working for Families Package | work = Ministry of Social Development | url = http://www.msd.govt.nz/work-areas/social-research/families-whanau/receipt-of-working-for-families.html |date=1 October 2007] .

Opinions on the package

The Working for Families package has received a mixed response. Some (such as Victoria University Professor Robert Stephens) have [http://www.newstalkzb.co.nz/newsdetail1.asp?storyID=92787 praised] the package for encouraging adults to come off benefits, and for targeting families in need.

Others, however, have criticised the package for potentially [http://www.stuff.co.nz/stuff/0,2106,3620501a11,00.html extending to the relatively wealthy] and for increasing effective marginal tax rates for many people. The economist Gareth Morgan, for example, [http://articles.garethmorgan.com/a-nation-of-bludgers_1039.html commented] on how some (generally middle-income) people can face effective marginal tax rates of over 100%.

The package (with the exception of the family tax credit, accommodation and childcare components) does not extend to families on the Domestic Purposes Benefit, or to families not in work. Critics say this social group will become worse off, and get left further behind (relatively speaking) by not having access to the in-work tax credit and minimum family tax credit components.

The Child Poverty Action Group has commenced [http://www.stuff.co.nz/stuff/0,2106,3672163a11,00.html legal proceedings] against the New Zealand Government for discriminating against those not in employment in the "Working for Families" package. The case focuses on the In-Work Tax Credit and on the Child Tax Credit it replaced. The Action Group estimates that at least 175,000 children have been "left behind". ["The Independent Financial Review", 26 July 2006]

Susan St John has supported ["The Independent Financial Review", 26 July 2006] poverty-prevention over poverty-alleviation, advocating policies such as a simple universal basic payment indexed to wages as well as prices for pensioners — not conditional on work. She criticises the Working for Families package for not delivering extra income until 2005, provided nothing for the poorest in 2006 and only a small increase in 2007. She states: "a large part of Working for Families is based on the flawed logic that all families need to escape poverty is an incentive to get off benefits."

Phil O’Reilly has included Working for Families in a list of alleged low-quality governmental spending that has purportedly contributed to higher interest-rates and [http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10447527&pnum=0 lower productivity-rates] .

Some find the very name of the "Working for Families" package ambiguous. While supporters portray "working for families" as meaning "making efforts for the benefit of families", others interpret the phrase as " [giving] families work to perform". Fact|date=August 2007

Evaluations and research

The first formal government evaluation of the Working for Families package [] describes public awareness of the package and details classes of recipents of Working for Families entitlements to the end of August 2006. The report cites a high level of awareness of the overall package and a high level of receipt of Working for Families payments, meeting or exceeding original forecasts. Since the introduction of the package, the number of families receiving the Domestic Purposes Benefit has fallen by 8,000; with 2,600 recipients cancelling the benefit since the implementation of the In-Work Tax Credit. — While awareness of the package and its advertising appears high,Fact|date=October 2007 the evaluation-report found that only around three-quarters of people who believe they receive a tax credit actually did so when matched to administrative records. Further, of the people surveyed who did receive a tax credit only two-thirds realised that they did.

Several articles have addressed the potential or theoretical impacts of the Working for Families package.

One study by Auckland University economist Tim Maloney and American welfare-reform researcher John Fitzgerald [] found that, on average, working mothers spent an extra three hours a week working after the 2005 and 2006 changes from the Working for Families package. Initial speculation suggested that working hours would fall as the higher income paid to families with dependent children would mean that mothers could spent less time in work. Maloney believes that "some women already working were probably increasing their hours worked in order to qualify for family assistance payments". The authors class the results as preliminary — given the relatively recent introduction of the Working for Families package.

Timeline

October 2004

Announcement of the Working for Families as part of the Budget. Changes included:

* Abatement of Accommodation Supplement removed for beneficiaries
* Accommodation Supplement entry and abatement thresholds increased for non-beneficiaries
* Childcare and OSCAR Subsidy rates increased and aligned, and income thresholds increased

April 2005

Stage One of Working for Families implementation went live (with a further implementation deliverable released in October 2005). The changes included:

* Family tax credit rates increased by $25 for the first child and $15 for additional children
* The child component of main benefits moved into family tax credit
* Foster Care Allowance, Unsupported Child’s Benefit and Orphan’s Benefit rates increased by $15 per week
* Accommodation Supplement maximum rates increased in some areas with high housing costs
* Family tax credit became treated as income for Special Benefit, with standard costs set at 70% of main benefit plus family tax credit for people with children
* Childcare and OSCAR Subsidy rates increased by another 10%

April 2006

Stage Two of Working for Families implementation went live. The changes included:

* The in-work tax credit replaced the Child Tax Credit: it pays up to $60 per week for families with three children, and up to an extra $15 per week for each other child
* The minimum family tax credit threshold increased from $15,080 to $17,680
* A single higher abatement threshold of $35,000 replaces the two family tax credit abatement thresholds of $20,356 and $27,481
* The 18% abatement rate applying to the lower abatement threshold for family tax credit vanishes completely and the 30% rate applying to the higher abatement threshold reduces to 20%
* Introduction of the Temporary Additional Support to replace Special Benefit.

April 2007

Stage Three involves the final components of Working for Families implementation and went live in April 2007. The changes include:

* Family tax-credit rates increased by $10 per week per child
* The income-threshold for the minimum family tax-credit increased to $18,044
* Regular inflation-adjustment put in place to prevent the erosion of payments over time

October 2008

While the package had been completely implemented with the final stage on 1 April 2007, the Income Tax Act 2004 provided for regular adjustments to rates based on cumulative movements in the New Zealand Consumer Price Index; a minimum movement of 5% was required before rates would be amended. These increases would apply from the following 1 April of a year when a change was triggered based on actual data published by Statistics New Zealand. As part of the 2008 Budget, the New Zealand Government amended the Income Tax Act 2004 to increase the rates of family tax credit and the abatement free level by an anticipated movement in Consumer Price Index of 5.22%. The increases would occur from 1 Ocotober 2008. This has required the Inland Revenue department to develop composite rates and income limits for the tax year 1 April 2008 to 31 March 2009.

External links

* [http://www.workingforfamilies.govt.nz Working for Families website]
* [http://www.ird.govt.nz Inland Revenue website]

References

Bibliography

"New Zealand Government and Politics", edited by Raymond Miller, 4th edition, 2006, Melbourne: Oxford University Press. ISBN 9780195584929