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Increase to Minimum Wage - so what about Working for Families?

Yesterday's announcement of a  50 cent increase in the minimum wage from April 1 to $15.25 per hour is welcomed by Child Poverty Action Group (CPAG). It means an additional twenty dollars (before tax) for a 40-hour week on the minimum-wage: an overall annual increase of $1,040.

It recognises that improving low incomes is a critical issue.

Given this recognition of the importance of income, CPAG Economics Spokesperson, Associate Professor Susan St John, asks, "Why is the Government letting the Working for Families payment erode by deliberate policy changes that reduce it for families on minimum wage incomes?"

For example, the principal caregiver in a working family with two children aged under 13 has a maximum weekly Working for Families (WFF) entitlement of $72.50 of In-work tax credit (IWTC) and $156 of Family tax credit (FTC), totalling $11,882 annually.

If this family has one and a half earners, they work a total of 60 hours per week.  At $15.25 per hour, they earn between them a total gross family income of $47,580. This is much less than the living wage, nevertheless, their income is high enough to cause a reduction in tax credits for their children of $2,526.75, from $11,882 to $9,355.25.

Apart from a small adjustment to the IWTC for inflation this April, there has been no adjustment to any part of WFF since 2012 - and the next adjustment is not until 2017. Moreover, the Government has signalled that over time the rate of clawback will rise to 25% and the threshold when reductions start will reduce to $35,000. So for struggling working families WFF gets more miserly over time.

For the family in the example given above, every additional dollar of income earned by the primary earner is taxed at a marginal tax rate of 53.45% (a combination of 17.5% PAYE, 1.45% ACC, 22.25% loss of WFF, and in many cases a 12% Student Loan repayment). This is hardly an incentive to earn more money.

Working for Families is an extremely necessary programme that helps moderate the burden of tax when there are children to care for, but in its current state it is simply inadequate and poorly designed. The young need generous redistributive programmes, just as the old need them. However, in New Zealand we deliver such programmes very well for the old but very badly for our children. "If the Government is serious about protecting vulnerable children," says St John, "They will Fix Working for Families."*

 

*For more information on Child Poverty Action Group's Fix Working for Families campaign visit:

 

http://www.cpag.org.nz/campaigns/the-latest-fix-working-for-families-fwff/