Improving family assistance in New Zealand

I recently wrote about how to make New Zealand’s tax system more progressive. In addition to inequality, child poverty remains a large problem. Middle-income families also find it difficult to save and are feeling the squeeze. So the Working for Families scheme needs to be revised.

Simplify and increase benefits

  • Most current Working for Families benefits — FTC, IWTC, and MFTC— should be amalgamated into a simple, income-tested Child Tax Benefit. Lower abatement rates would ensure that work is still encouraged, with the removal of the IWTC.

Two-tier benefit

  • The Child Tax Benefit would have two tiers — one universal for young children, and one income-tested.
  • CTB Part A: Every family with a child aged 0–5 will be entitled to $20 per week, regardless of income.
  • CTB Part B: Families could receive up to $175 per week ($9,100) for the first child, and $120 per week for each additional child ($6,240).

Income thresholds

  • Abatement rate: The first $40,000 of income would not face any abatement. For income above $40,000, income-tested benefits would abate by 20%. For income above $90,000, income-tested benefits would abate by 30%.
  • Income limits: A family with one child could receive would lose benefit when income reaches $85,500. A family with two children would lose benefit when income reaches $107,800. A family with three children would lose benefit when income reaches $128,600.

Examples

  • Imagine a family with two children: one aged 3, and one aged 10. Their family income is $80,000. They would receive $8,380 per year, or about $161 per week.
  • Imagine a solo parent with one child: one aged 2, and one aged 6. She is on a benefit. She would receive $16,380 per year, or about $315 per week.
  • Imagine a family with one child, aged 13. Their family income is $60,000. They would receive $5,100 per year, or about $98 per week.

Costing and conclusion

  • There are about 309,000 children under 5 who would benefit from the universal element (part A) of the CTB. This would have a cost of $321.36 million per year.
  • The new, expanded income-tested benefit would cost around $4.1 billion per year.
  • The total gross cost of the package would be about $4.4 billion per year. However, since current WFF spending of about $2.6 billion per year would be eliminated, the cost would be $1.8 billion per year, net.
  • This is actually quite affordable, and it’s likely the National government will want to spend a similar amount on tax cuts come 2017. National’s 2010 tax cut for the top rate (10% of earners) now costs over a billion dollars a year.
  • An extra $1.8 billion a year would make a huge dent in child poverty — beneficiary families with one child would see an extra $83 per week. The Child Poverty Action Group estimates that a large increase in welfare incomes is needed to reduce child poverty — this would provide that increase. And it’s not just poor families that would benefit — higher benefit rates and income thresholds, along with a lower initial taper rate, would ensure that middle-income families see big increases, too.
  • When National eventually starts calling for tax cuts near election time, Labour or the Greens (or, perhaps both as a joint policy) should offer this to voters. Tax cuts will offer poor families nothing — and middle income families probably won’t gain more than $20 per week. The Child Tax Benefit would be a windfall to middle earners and the poorest children.
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