Families need more money to reduce child poverty

Child Poverty Action Group says Prime Minister John Key is mistaken to rule out extending the In Work Tax Credit to all poor children (The Nation 11th Oct) and CPAG challenges government advisors to come up with a more cost effective way to reduce the worst child poverty.

Economics spokesperson Associate Professor Susan St John says, “The government will not significantly reduce child poverty without raising the inadequate incomes of beneficiaries with children.  The In Work Tax Credit is the most cost effective, immediate way to do this.”

“More money is proven to make a difference,” says Susan St John.  “Ministry of Social Development research shows clearly that the child poverty rate in families in paid work reduced significantly due to the In Work Tax Credit payment.  Of course extending the IWTC is just the first step.  Other things are also important, such as affordable quality housing, but these are longer term measures.”

Susan St John says important improvements around adjustments for inflation are also needed urgently. “The purchasing power of ordinary working incomes and the availability of jobs provide a decent standard of living for families are both in serious decline. Working families on low incomes are being hurt by the gradual changes National is making to thresholds and abatement as outlined in CPAG’s latest publication Our Children Our Choice “ 

CPAG says the government must acknowledge many sole parents can only manage part time paid work, and often that work is intermittent, children may get sick, and in many weeks the required hours of paid work may not be fulfilled. Keeping the payment for children consistent and allowing the sole parent to retain more income when they are on a benefit is a much better policy to incentivise paid work and reduce child poverty, while also acknowledging the  huge effort involved with parenting itself.

“There are many ways to reward paid work that are more sensible and constructive than the In Work Tax Credit,” says Susan St John.  “John Key says he will govern for 'all New Zealanders’, but his refusal to consider extending the IWTC perpetuates highly discriminatory policy that excludes the poorest children from assistance.” 

The Working for Families’ In Work Tax Credit was found to be discriminatory under New Zealand’s Human Rights legislation by the Courts. The court ruling of discrimination required that the high test of material harm to 230,000 of New Zealand’s poorest children was met, but the courts were ill equipped to assess whether that harm was justified.

John Key’s government must decide if the marginal and unproven impact on work incentives is worth the harm inflicted on thousands of children. There is no such discrimination amongst the deserving and undeserving elderly.   New Zealand also lags behind Australia where all children get the same access to tax-funded child-related tax credits. Children there are not used as a labour market tool.

CPAG is urging the Government to take another look at the design of Working for Families and consider children's needs, particularly those in the most deprived families. Spending $450m to extend the In Work Tax Credit to beneficiary families would re-establish the principle of equal treatment of all poor children while acknowledging the rights of the child under the UNCROC convention to full social security. 

Despite the name, the In Work Tax Credit is just a part of the weekly payment to the caregiver to help with the needs of children. She can get it while not in the paid workforce even if the family income is over $100,000 just because the partner works. At these income levels it is false to argue there is a need for a work incentive, or need to make work pay. In this example, she does not have to do any paid work at all, while the children of a struggling sole parent in the casualised workforce is penalised if her hours dip below 20 hours a week.

The In Work Tax Credit is taken away if the family loses paid work in a personal or natural disaster, or in a recession, if made redundant, if they happen to be on a student allowance, or they are unable to leave the benefit system for enough hours of paid work.

“The needs of the children do not magically reduce when parental income is cut,” says Susan St John.  “This policy denies parents who cannot fulfil the required hours of paid work, a minimum of $60/week in order to provide a work incentive for others.  Families who cannot respond to a work incentive, living in very deprived situations because of sickness, study or care-giving of young children, are prevented from accessing this tax-funded assistance.”

A sole parent has to work 20 hours a week to qualify for the IWTC, but if they do this, say at the minimum wage, they cannot afford to leave the benefit system unless their ex-partner can provide significant private child support. Many get very little from ex partners. The government needs to be honest about this. To survive off-benefit working 20 hours, a sole parent is likely to need the top up provided by the Minimum Family Tax Credit.

The Minimum Family Tax Credit is very badly designed. The policy has a 100% effective marginal tax rate proving a maximum disincentive to work more than 20 hours. It provides zero incentive to the employer to increase the hourly rate of pay and is rightly described as a wage subsidy.  Under this policy, state subsidies to the sole parent can be even more substantial than if she had remained on a part benefit.  

Susan St John says, “John Key says work is the way out of poverty but it is actually the payment from the state for children that lifts families out of poverty.”