Working for Families does not work for families. Ironic really.

At the Morgan Foundation we, like Child Poverty Action Group (CPAG), have been looking hard at the effectiveness of policies that can support those families in New Zealand who simply don’t have enough. Not enough to cover the basics and certainly not enough to ensure their kids get a fair go at a long healthy life in which they become independent, financially successful and self determining individuals, families and whānau.

The current policy programme we have is a shambles
Working for Families (WFF) was introduced in the mid-2000s. At that time it was noted that poverty was growing in working families. Being in paid employed was no longer sufficient to cover the basics let alone the nice to haves that really help children grow and develop. Those not in paid employment were not doing well either (but this was not new). So an expansion of the existing tax credits for families with children was introduced and called Working for Families. It gives cash to all families with children to ensure their kids don’t get left behind. The amount given depends however of a vast array of confusing, difficult and sometimes frankly unfair conditions. And it is these conditions that mean WFF is not working at improving outcomes for the kids in New Zealand who don’t have enough. The burden of low income might have been shifted around a bit, but let's be very clear things are not getting better for those kids who live in families who don't have enough (working or not).

What are the conditions of WFF and why are they a problem?
CPAG has done a very thorough job of helping us understand what is frankly an impenetrable, messy and heavily bureaucratic policy. In essence (and this is simplifying it a lot) it offers families two things: a Family tax credit (FTC) paid to ALL families with children, working or not, on a low income; and an In-Work tax credit (IWTC) paid to only those families with children who are in paid employment. The FTC is the most significant but the IWTC is worth $72.50 a week to families who meet the criteria.

But being eligible is not simple – here are just some of the conditions:

  • To receive the IWTC a sole parent needs to be in paid work for 20 hours a week and a two-parent family 30 hours. They must also be OFF a benefit in that same week (which is harder than you think when you have casual low paid work that has no guarantee of 20 hours).
  • If you fall below the minimum hours the IWTC is stopped, drastically cutting your income overnight.
  • If you work the minimum hours (and come off the benefit) you may be one of the 4000 who qualify for a top-up from IRD. But then if you try to work more hours, the top-up disappears dollar for dollar, so reduces the financial worth of working. If you lose hours of work you lose the top-up AND the IWTC.
  • If you are sick for three weeks the IWTC gets stopped.
  • If you study (to better your work prospects) that does not count as work so you have to also do 20 hours a week work to meet the criteria for the IWTC while caring for your kids (no wonder sole parents struggle with this).
  • While those with children over three can access a subsidy to pay for 20 hours of childcare, if you are on your own and can’t get employment to match exactly 20 hours of work you need to find additional money to pay for the extra hours of childcare (and as we noted if you are on a low pay rate extra hours work out as being virtually valueless).

And on and on the red tape conditions and punitive actions go. Trying to figure out all the ifs and buts, maybes and conditions of WFF is pushing the proverbial up hill. What all these conditions serve to do is prevent WFF working as a tool to improve the lives of all New Zealand families and children (not to mention the huge cost to the Government of overseeing them all).

How do we know that conditions in WFF are making things worse?
Apart from listening to the lived experiences of those who rely on WFF and the benefit system (and you can read some of the nightmare scenarios parents have had to manage here), we can look to the evidence. There are two bodies of research that tells us punitive conditions in welfare and tax credit systems make things worse not better for kids and families who are struggling to cover their costs.

Firstly, extensive analysis undertaken in the US on ‘Welfare to Work’ programmes (policies that try to move those on welfare into work) is pretty clear. Policies that punish through removal of cash don’t work, while policies that literally reward and incentivise working do improve outcomes for families and kids. When low-income families with children only receive payments if they meet specific work or childcare conditions that do not account for the circumstances and experiences of the family, the economic condition of the family is rarely improved and outcomes for the children (in terms of educational attainment or well being) don’t either.

Why is this?
The big picture explanation is that conditional targeted policies are terrible at being able to account for all the complexities in a family’s life. The small picture explanation is that when low income families have to undertake a certain amount of low paid employment they often need to increase their spending to cover work and travel costs. Their overall income may reduce if payments are cut off when minimum hours are not met, they need to cover childcare costs and travel, it increases stress in the family if the conditions and work are not well aligned with the family’s needs, it reduces time parents can spend with children and increases the use of low quality childcare (to keep costs down). Net result: we as a country continue to pay the cost of families and kids who are unable to fully participate in society because of reduced economic circumstances (around $8-10 billion a year).

This takes us to the second body of research that shows us that unconditional cash supplementation is very effective at improving outcomes for children and families. We found that giving families, who don’t have enough, more money without any strings attached will have the most far-reaching impact on children’s lives. It will improve their rates of participation in education, their success at school, their economic well-being, their relationship with their parents, rates of early pregnancy, reduce participation in crime and so it goes on.

Why will it work? Kathryn Nobelis, an American neuropsychologist researching the impact of poverty on children’s brain development says unconditional cash works because:

“ It is very possible that the mechanism by which poverty operates will be different for each family, whether it [unconditional cash supplementation] allows parents to buy more books for their kids, work fewer jobs to be around their kids more, or just reduces stress for a parent about how they’re going to pay the rent.” 

Can we fix FF so it improves family outcomes?
So we can see that WFF is not working, and probably because it is so conditional that very few will receive optimal assistance. But CPAG have done extensive analysis and have some ideas on how we might fix it. At the Morgan Foundation we are particular interested in those fixes that involve removing conditions and moving it closer to an unconditional cash supplementation for those families and kids that need fewer boulders (not more) put in their path in life.

CPAG suggests that we:

Remove all work hours requirements for the In-Work tax credit immediately.
In effect, this would mean that parents can qualify for a tax credit on all money they earn whether they work 20 hours or 2hours. We REWARD for all work this way.

Join the In-Work tax credit ($72.50 from 1 April 2016) to the Family tax credit for the first child.
This would mean ALL first children get what is now only given to those whose parents are off a benefit for the whole year and working the minimum hours. 

The reality for low-income families is that many currently need to come on and off the benefit and on and off WFF as they do causal or short term work, or work that is not consistently 20 hours a week. The complicated and punitive conditions of our social welfare system come with a high risk for many families of being without any money at all for periods of time. In practice it does not reward trying to work. So why not just remove all the complications and disincentives and say no matter what all kids should get the same level of support from the system (not just those who parents are off a benefit)?

One of the other recommendations that CPAG has made interests us – and that is that we need to  liberalise the treatment of extra earned income for parents on a part-benefit.’ When a parent receiving a benefit does paid work (and many do), their benefit payments reduce sharply as soon as they hit the $100 a week mark. Parents find themselves stuck between a rock and a hard place where if they are able to earn more than the minimum but cannot get enough guaranteed permanent hours to qualify for the full WFF. So they can be in no better position for working. Research shows that kids outcomes improve markedly in families where benefit payments are allowed to be kept in a way that acts as a reward for parents working, not as a punishment.

Removing the boulders in the path of families
Working for Families was a system that was brought into address a serious and growing problem in New Zealand- families who did not have enough to ensure their kids had fair and equal opportunities. They could not afford healthy housing, good food, and quality childcare. They were facing overwhelming stress in trying to just get by. In some ways WFF helped and removed a few rocks from the paths of a number of New Zealand families (around 200,000 of them). However, as the conditions have piled up and the value of payments have reduced (by not tying those payments to wage increases) it is looking less like a policy that improves outcomes for all kids and more like one that may improve outcomes for a few kids but only if they already walking on a smooth and uncluttered path.

This month, CPAG has started a campaign to Fix Working for Families. Find out about its goals and how you can help here

Dr Jess Berentson-Shaw is a science researcher working for the Morgan Foundation. Jess holds a PhD in Health Psychology from Victoria University and has over 10 years experience working on applying science and evidence to public policy.