Beware automatic cost cuts that harm children

Child Poverty Action Group (CPAG) says it comes has no surprise that Government’s books show a much bigger surplus - $1.8 billion for the year ended June 2016 - than the estimated $668 million it had anticipated.

The larger amount was foreseeable in light of the recent cost-cutting in social spending.

"Perhaps the Government does not realise how harsh its cuts to social spending are, especially where children and their families are affected," says Associate Professor Susan St John, CPAG economics spokesperson.

Some budget cuts are invisible to the public because they are achieved through changes to policy, and may have the resulting effect of intensifying poverty in New Zealand, especially for families and children. For example, Working for Families for low-income working families has been quietly cut back by changes in policy that cause it to reduce in value automatically, over time. Just to restore the real value of these tax credits for children to 2010 levels, the package will require spending of another $700 million, per year.

"Ironically, as children suffer, $700 million more is being quietly spent each year on New Zealand Superannuation, again through automatic policies." says St John.

If the Government reduced the tax rates on the bottom tax bracket from 10.5% to 8.5% it would cost $720 million. Very low-income earners would get between nothing (if zero income) and $5.60 per week (if income was at least $14,000). This would be a very poor way of helping struggling families. The reason it is so costly is that everyone above $14,000 would also get the $5.60 a week. Moreover the worst-off - those on benefits - would get no increase at all because benefits are set in net terms.

CPAG says it would be much better to spend $700 million restoring Working for Families. Then, if Government is serious about actually reducing child poverty, another $500 million is needed to extend the full package to all the poorest families who currently don’t get the In-Work Tax Credit worth at least $72.50 a week.

"And while we are at it, what about a permanent link for Working for Families to the growth in wages to protect families falling behind. We do that automatically for New Zealand Superannuation," says St John.