Does the tail wag the dog?

The long overdue review of Working for Families  has been signalled as part of the Government welfare overhaul work programme.   

The major review undertaken by IRD, Treasury and MSD is taking place behind closed doors. There are no published terms of reference, no timeline and no public consultations at this stage.

In the meantime, one-off policies such as the recent improvements to abatement for those on benefits  are clearly causing anxiety as to how they will interact with the big picture, 10 year vision.

Working for Families (WFF) is a $3 billion dollar programme of child-related payments, so complex few understand them. The 38 page treasury reportreleased this week  and disarmingly titled ,Increasing main benefit abatement thresholds on 1 April 2021 and consequential adjustments to the Minimum Family Tax Credit”  is revealing.   It shows little evidence that the real failures of WFF are understood. This does not bode well for the direction of this review.  

This indigestible technospeak in the report focuses on a tiny, anomalous  part of WFF.  Has anyone actually heard of the Minimum Family Tax Credit (MFTC)? CPAG has long stopped writing about the MFTC as it is so minor, its design so poor and the number of families affected so small. The MFTC is worth less than 0.5% of the total WFF spend.  

This odd tax credit provides a guaranteed income of $29,440 per annum.  The person has to be employed 20 hours a week (30 for a couple).  Any income reduces the guarantee dollar for dollar providing a maximum disincentive to work an extra hour get a pay rise.  Confused?  That’s understandable.  A payment supposed to incentivise people into paid work and off a benefit actually has a disincentive to work which is far worse than abatement of benefits. 

The MFTC has never worked well – it is claimed by only 3,200 families out of 370,000 who get some WFF.  Those who jump through the hoops to get it are usually on it for only part of a year. It has a rigid hours of paid work requirement—very inappropriate in the gig economy and very dangerous for sole parents who may lose entitlement by losing hours of work and then have to argue their way back onto a benefit. 

The MFTC should be abandoned and attention paid to what really matters. 

WFF needs to be refocused to its primary role of supporting children, and not confused with incentivising paid work . 

There are two major problems with the current WFF 

It is supposed to alleviate child poverty, but the In Work Tax Credit that costs about $600m or20% of WFF is denied to the poorest families. This discrimination must be removed if government is serious about eradicating the deepest child poverty.    In 2021 there will be more than 170,000 children below the very lowest After Housing Costs 40% poverty line with Maori and Pacific children overrepresented. 

The second major problem is that indexation of WFF is seriously inadequate. All parts of it including the threshold income from which it starts to abate should be indexed to wage movements as is the pension for older citizens and core benefits for adults. 

Lets hope the review process stops going down rabbit holes and focuses on WFF’s proper purpose which is to makes sure all families have enough money to take care of their children’s needs.