Opinion: It's amazing how critical Labour is of its old policy in its Working for Families extension to beneficiaries; And it supports National's tax changes too

By Alex Tarrant

I found it quite amazing looking through Labour's new policy of extending Working for Families credits to beneficiary families to read how critical the party was of the policy it brought in under Helen Clark.

Working for Families was implemented to give tax credits to low and middle income working households with children. The rationale was this would help alleviate child poverty, and Labour claims the policy has already lifted 130,000 children out of poverty.

But beneficiary families were not included - this was a policy for working families, with the design supposed to encourage those on benefits to enter work so they could access these tax credits.

Now Labour wants to include them at a cost of NZ$1.13 billion over the next seven years. I have no argument against focussing more on beneficiary families - surely if a policy is focussed on alleviating child poverty, then it should include those families on the bottom rung. Whether using tax credits to do so is another argument all together (which you're of course welcome to discuss in the comment section below).

Deputy leader Annette King said this was "unfinished business" for the Labour Party.

Well, if the policy was designed to try and alleviate child poverty, leaving the bottom rung until last seems to be the wrong way of going about it. The old cynic in me says this was therefore initially a policy to appease middle income voters.

Old rationale contentious

In its policy document released yesterday, Labour said a particular focus of concern was the lower rate of assistance those with little or no paid work (including beneficiary families) receive compared to families in paid work.

"This differential was introduced by National through the Child Tax Credit in 1996 and preserved as part of Working for Families, through the In Work Tax Credit which replaced the Child Tax Credit. The rationale for keeping this differential was to acknowledge the additional weekly costs associated with going out to work," it says in the document.

"This rationale was always contentious. Moreover, since the introduction of Working for Families, Labour continued to lift the Minimum Wage significantly over time, helping to 'make work pay' and avoid a 'poverty trap' that had previously existed where moving off a benefit was scarcely worthwhile for some families, once work-associated costs were taken into account. Labour is, as noted above, committed to lifting the Minimum Wage further to $15 an hour (from NZ$13 now) when it becomes government," it says.

So here we have Labour saying the rationale it previously used, of incentivising work over the benefit, was contentious, as it was scarcely worthwhile for some families to move off the benefit into work. But then Labour says:

"Current tax and Labour's future wage arrangements mean families in paid work are better off, and incentives to work are stronger. Benefits are already low and falling against average wages, and depriving benefit families of tax credit support on top of that means there is simply not enough money to go around – and both parents and children suffer."

So even though the incentives to enter work are now stronger, due to National's tax changes in Budget 2010, and the future Labour promise to immediately hike the minimum wage from NZ$13 an hour to NZ$15, instead of raising it in line with inflation, Labour now still thinks beneficiary families need more help.

If they need help now, surely they needed help back when the policy was first designed.

"In this context, we also consider that the ways the In Work Tax Credit stigmatises beneficiary families, undervalues care, and keeps poor families' income unnecessarily low outweigh any remaining issues about work incentives," Labour says.

"We therefore intend to move over time to phase out the In Work Tax Credit and extend this funding to all of those eligible for Working for Families, including families caring for children fulltime and receiving benefit support to do so. We estimate that this policy will effectively eliminate child poverty in sole parent families once fully implemented," it says.

The details

Labour released this policy as part of a NZ$2.6 billion package focussed on children. The policy would be rolled out in three tranches based on the age of the youngest child in the family. The timetable for implementation would be as follows:

April 2013: $6 a week tax free-zone introduced (applying to beneficiary families as well as others), and Working for Families increased by $60 a week for a quarter of families, which we estimate would cover those with a youngest child aged 0-2.

April 2014: Tax-free-zone increased to $10 a week per adult (which means $20 a week for a beneficiary couple).

April 2015: Working for Families increased by $60 a week for another quarter of families, which we estimate would extend coverage to those whose youngest child was under 5.

April 2018: In Work Tax Credit abolished and all Working for Families recipients qualify for the extra $60 a week, which will now be paid via the 'first child' component.

"Based on the Ministry of Social Development's Household Income in New Zealand analysis, there is good reason to believe that this would have a very significant impact on levels of child poverty. The impact is likely to be particularly significant for children in sole parent families who make up a disproportionate number of the children in poverty," Labour says in the document.

"Taking into account the number of children reliant upon benefit income and estimates of poverty rates for different groups as presented in the Household Income in New Zealand reports, it seems reasonable to expect that this policy will effectively lift at least 100,000 children out of poverty once it's fully implemented," it says.

"This is based on a measure of 50% of the median wage before housing costs. There are likely to be significant impacts based on the 60% line and taking into account housing costs as well, but these impacts are more difficult to estimate as they would require information about expenses and supplementary sources of income that is not readily available. Labour will also review recent changes to support for older children aged 16-18 years, to ensure this support is adequate."

???

If these families make up a disproportionate number of children in poverty, and this was initially a policy desiged to alleviate child poverty, shouldn't the initial focus have been here?

Seems to me that they have realised middle class welfare to appease voters did not really help lift children on the bottom rung out of poverty.

Your view?

(Updates with video of Goff)