Working for Families: latest statistics
In 2021, the Government signalled that it is initiating a review of the Working for Families (WFF) package. WFF provides crucial income support for children in low-income households, and is therefore a critical means of addressing entrenched child poverty in Aotearoa.
CPAG has long advocated for reform to the flawed design of the package. This page summarises some of our recent 2021 research, highlighting two key policy asks of the Government as it conducts this review.
Ensuring all children in low-income households benefit from the full WFF package
CPAG has long advocated for the extension of the In-Work Tax Credit (IWTC) to all children in low-income households, regardless of the paid work status of their parent(s) or caregiver(s).
The WFF package as it stands is depriving children in benefit-receiving households of significant resources. As Table 1 below demonstrates, a one- to three-child family on a benefit will have missed out on $18,850 in the five years to 2023, with even bigger losses for larger families.
Table 1: Total nominal annual WFF tax credits for 1-6 children families, with and without the IWTC as at July 2021
The New Zealand system – which discriminates between ‘deserving’ children (whose parents are not on any benefit) and the ‘undeserving’ (whose parents are on a benefit) – stands in stark contrast to the treatment of children in the Australian system. In Australia, all children in low-income households are treated the same – they receive the same levels of child-related family assistance, regardless of the paid work status of their parent(s) or caregiver(s).
Table 2 below demonstrates the relative generosity of the Australian tax credit system compared to the New Zealand system, particularly for those families receiving benefits. Over the course of the year July 2021-22, a three-child family in Australia receiving a benefit will be roughly $8,300 better off (before exchange rate is accounted for) compared with their counterparts in New Zealand.
Table 2: Comparison of family assistance NZ vs Australia for families on- and off-benefit, July 2021-2022*
The extension of the In-Work Tax Credit would be a cost-effective and highly targeted measure to address deep child poverty; CPAG estimates it would cost between $500 and $600 million per year. We are calling on the Government to ensure all children in low-income households have access to the full WFF package as part of their upcoming review of WFF.
For full detail on the Australian family assistance scheme compared to Working for Families see Part 2 of CPAG’s 2021 series, Rethinking Income Support for Children: Australia and NZ tax credits for children. A 5-year comparison: 1 July 2018 – 1 July 2023.
For more information on the In-Work Tax Credit, see CPAG’s 2020 paper Briefing on reform of the In-Work Tax Credit.
Ensuring the Working for Families package is fully indexed
Unlike core benefits and NZ Superannuation, which are both now indexed to movements in wages, the Working for Families is not wage-indexed. The package is only partially indexed to inflation, meaning that one-off increases to tax credit rates are quickly eroded in relative value.
Wage-indexation of the package is crucial to ensure that increases such as those included in the 2018 Families Package are ‘baked in’. Our modelling in Part 1 of CPAG’s 2021 series, Rethinking Income Support for Children: Ensuring Adequate Indexation of Working for Families, suggests that the Families Package largely reflected a 10- to 11-year catch-up on erosion in relative value due to the lack of wage indexation.
The two graphs below demonstrate how the Families Package increases in the year ending March 2019 merely restored rates to roughly their 2008 levels in wage-adjusted terms, rather than delivering any substantial increases. Erosion in value has been more significant for young people aged 16-18, albeit starting from a higher point (see Graph 2 below).
Graph 1: Maximum weekly FTC rates for children 0-12, indexed to wages 2008-21 (in Q3 2020 dollar terms)
Graph 2: Maximum weekly FTC rates for 16-18 year olds, indexed to wages 2008-2021 (in Q3 2020 dollar terms)
Without proper indexation, the gains made from one-off increases such as the Families Package are lost, as is evident in the relative erosion since 2019. We are calling on the Government to ensure all Working for Families payments are wage-indexed as part of their upcoming review of Working for Families.
For full details, see Part 1 of CPAG’s 2021 series, Rethinking Income Support for Children: Ensuring Adequate Indexation of Working for Families.