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Complexity wins again

I was pleased to read Brent Edward’s excellent recent stories on Radio New Zealand regarding the advice from the Ministry of Social Develoment on addressing child poverty in the 2013 budget. Good on him for persevering with this issue and bringing it up again.

It is clear that MSD has had its hands tied by the ‘affordability’ card. But Edwards’ article also unintentionally illustrates the problem with the complexity of Working for Families (WFF). The government is able to bluff us into thinking it is doing something important because no one understands how Working for Families works - especially after they changed all the names of the component tax credits in late 2007.

 As CPAG wrote way back in 2008:

 “Apparently the names were changed to make it clearer that child-related payments were not welfare, but tax relief. For parents trying to negotiate their way around the tax credit system, the name changes are likely to cause further confusion. For researchers writing in a historical context, the name changes have been daunting. A more ill thought-out selection would have been hard to devise (St John, 2007b). The name changes are detailed in Table 3 below.

Table 3: Name changes to family assistance payments Old name

New name

Family Support

Family Tax Credit

In-Work Payment

In-Work Tax Credit

Family Tax Credit

Minimum Family Tax Credit

Parental Tax Credit

Parental Tax Credit

From  Left Behind: how social and income inequalities damage children (p52)

Let’s look at the latest way the confusion plays out:

The following quote from Edwards’ article is a spot-on criticism of the budget changes:

 “The document obtained by Radio New Zealand also said the biggest dent made on poverty in the past decade had been a result of the increases made to Working for Families tax credits by the former Labour government. Labour's children's spokesperson, Jacinda Ardern, said it was clear what should be done. "It is frustrating to see that the Government was advised that there was a tool that they could use that would help them make a difference to families in poverty and that was using the Working for Families framework. "Now that was something we've asked from the very beginning when we saw the Budget announcement. Why wasn't there just an increase in the family tax credit?" Ms Ardern said.”

However, the article goes on to say:

“But, as well as lifting benefits by $25 a week from April next year, the Government is also making changes to Working for Families, which it says will increase the family tax credit by $24.50 a week for very low income working families. Opposition parties said the increases, while welcome, were not enough to make a substantial difference to families living in poverty.”

So everyone is now nicely confused.  Was Jacinda Ardern wrong?   AS CPAG has repeatedly pointed out, the changes that might give $24.50 extra a week affect only 4000 families at the most and have a fiscal consequence of only $1.8m. The $24.50 has NOTHING to do with the Family Tax Credit.   The Family Tax Credit goes to all low income children on the same basis. The $24.50 does not - it is a combination of an increase to the In Work Tax Credit and the Minimum Family Tax Credit.  These are NOT accessible to those low income families who do not fulfil the minimum hours of work and off benefit criteria. 

Jacinda Ardern is right.  To address child poverty the government should have increased the Family Tax Credit. It could have achieved the targeting objective and saved money by reducing the IWTC at the same time.  

CPAG appreciates Radio New Zealand’s efforts to give these complicated issues airtime and this is in no way a criticism of their journalists.  It is simply very frustrating that the government has made things impossibly complex and can pretend things are much more generous and significant than they are.