Support for Children in Hardship Bill

We come now, in Part 3 of the bill, to the amendments that relate to the inland revenue Acts. There has not been a significant amount of debate in this Committee on these elements of the bill, but what we are debating does affect the current in-work tax credit, the minimum family tax credit, and some of the abatement rates and thresholds—so all of those, obviously, relate to the inland revenue Acts.

I thought what may be most useful in my contribution on Part 3 is to reflect on some of the analysis that was carried out by submitters for this part of the legislation because, obviously, what I think we all need to concede in this Committee is that we do have a relatively complex range of tax credits in this space.

What is clear when you are debating any kinds of changes to family support is that they are not particularly well-known or well understood. For instance, the Working for Families tax credit package is often just known for the in-work tax credit, but that is only one element of that package. There is also the family tax credit, which, obviously, applies to beneficiaries, and there is the overlay of a minimum family tax credit, which exists to ensure that the minimum amount a family will receive in work is above the benefit rate. Overlying all of that, of course, is the abatement regimes that apply to all of those tax credits and so on. It is a reasonably complex environment that this new change has come in and added itself to. So it is good, I think, if we reflect upon the analysis provided by some of those submitters.

So, as I said, in Part 3 we are looking at three elements: the in-work tax credit, the minimum family tax credit, and abatement. When it comes to the minimum family tax credit, as I said, this provides a guaranteed minimum level of after-tax income to low-income families in full-time work. There is this assumption that if you are in full-time work, you always need to be earning above a benefit rate in order to create the incentive to be in work rather than on a benefit. That incentive is inherently built into our system. I think we should be really clear on that.

In fact, most of the analysis around the gaps between benefit rates and rates in work demonstrate that a significant gap has actually grown into our system—a significant gap—which is why it is so hard to adjust child poverty rates. In fact, I would be really interested to hear the Minister’s view on the role of the minimum family tax credit now, because the analysis by the Child Poverty Action Group suggests that we have about 4,000 families receiving that tax credit of roughly $12 a week. So it is a minimal payment for a small number of people, which I think demonstrates that, inherently, our system does make sure that there is a significant difference between what you receive in work and what you receive on a benefit, and I would say that that has to be credited to some of those tax credit regimes already in place.

Putting that aside, let us come now to the in-work tax credit and the question of whether the Minister considered removing the minimum family tax credit and perhaps just bolstering, for instance, the family tax credit generally. I would be really interested to hear that.

The in-work tax credit, obviously, has not been a credit that is without controversy, but the Children’s Commissioner supported in his submission the increase in support for Working for Families. He was of the view that the increase to the per-family rate of the in-work tax credit would be unlikely to make a significant impact for children in larger families. This comes back to the point we were making earlier that, in our view, any change the Government was going to make—whether it was $25 a week to the base benefit rate—should have been per child. I think that is a position that is being endorsed here by the Children’s Commissioner. The Diocese of Christchurch Child Poverty Advocate submitted that the increase in Working for Families was, in its view, minimal and unlikely to make a significant impact.

I guess our view, again, would be shared—we are in support of any increase in those base rates. The in-work tax credit, we need to keep in mind, though, is obviously about creating that differentiation between benefit and work, so it is benefiting those who are in work. The point we probably need to make there is that those in work are often still in poverty as well, so we cannot, I think, make the simple assumption, as the Minister and others have claimed, that work is the sole answer. We know that it is not, necessarily.

I come to the minimum family tax credit. I have already spoken on that, so let us actually dodge over that and come straight to the wider issue of abatement and threshold changes. Here, obviously, we are working in an environment where there have been a number of changes already made by that Government to abatement regimes, and one of the points that was made by submitters is that for some this increase will not actually bring those families up to the level where they were prior to the Government’s tweaking with Working for Families and the changes to that regime.

The Children’s Commissioner again talked about changes to the abatement rates, and stated a concern that they would reduce support for low-income families with children. The Children’s Commissioner’s submission noted that the change in abatement rates would mean that families earning over $36,350 would have their tax credits reduced at a higher rate. I think we would all agree that a family earning $36,350 is not a family flush with cash, when it, potentially, is raising multiple children in that situation, and we can add to that high accommodation costs. That is a difficult situation.

The submission also noted that the impact of the abatement rate will be greater than the increase in the in-work tax credit for families over $88,000 per annum, so, overall, the Children’s Commissioner is obviously of the view that the increase in the abatement rate will reduce support for families who are only moderately better off. Again, abatement rates are always problematic. There is always a point at which you have to start putting in a decline, unless you are looking at universality, of course, to some degree. But I think the point that has been made here is perhaps that the point at which it is being added is not the right place. The changes over years that have been made by the Government to Working for Families around abatement have had a cumulatively negative impact for families.

I want to come to the family tax credit, though, because this is the element of the Working for Families package that has the broadest reach. My interest in all of this when this was first put before Parliament was about why the family tax credit was not used as the tool to lift incomes for families on low incomes. That would mean that you would help beneficiaries, but you would also reach families in work who were in poverty. It is a perfect tool.

I asked that question to Mr Perry at the select committee. Mr Perry is, obviously, at the heart of a lot of the analysis around income adequacy in New Zealand and really key to these pieces of research and debate. The response that I got around why the family tax credit was not used instead of just a base benefit increase was that the Government presented a pool of cash that was available and that the package was designed around that. So, rather than coming with an issue and saying “Look, we want to reduce the severity and persistence of poverty for children in New Zealand. What can we do?”, we instead started with a different premise altogether. I think that very much demonstrates why we have the design that we have in Part 3.

As has been summarised by the departmental report, submitters did propose that the family tax credit could be increased instead of the in-work tax credit so that all children benefit, but it is very clear in this part of the report. It states: “In first developing the Child Material Hardship Package, officials considered the full range of instruments available to deliver increased support to children in poverty and hardship. This included a range of tax-credit and benefit change options. Officials were tasked with identifying the most effective and efficient means to provide increased financial support that could be delivered by 1 April 2016, and within a maximum budget allocation of $1 Billion over four years. Officials developed and refined various packages of measures to achieve the desired impact within the allocation and delivery parameters. Ministers selected the option that they considered best met the … intent,”.

Best met the intent? The intent was to do something by a certain date and do it within a certain pot of money. The intent that was never set out was to find which children are to be targeted and why. If that was the case, we would not just have homed in on a change to benefit rates. We would have gone for the family tax credit because that hits poverty. That hits poverty, regardless of the source of income, and you would not then have had to fiddle around with in-work tax credits and deal separately with base benefit rates.

That is the problem with Part 3. It does not use the most useful instrument.

I want to talk a little bit in relation to the submissions and their relevance to Part 3 of this bill. When we were talking about tax credits, we actually had a number of submitters who pointed out issues with regard to tax credits. Some support was provided but also some concerns were raised, so I want to touch on that. I think it is really important that these submitters have their concerns heard during the select committee process, but I also think that when we have their support we should make that known.

We had the Auckland Action Against Poverty group, which said that the $20.11 average benefit increase per week, per family, was welcomed, as was the $8 average in-work tax credit increase per week, per family, but it pointed out the fact that on their own, those increases were insufficient to address hardship for New Zealand children. We had the Child Poverty Action Group discussing the increase to Working for Families tax credits. It stated that “The Bill increases the base rate of the in-work tax credit for low-income working families with children by $12.50 per week from 1 April 2016. CPAG says this reinforces the use of complex work-based measures to meet the needs of children. It would be much preferable to increase the rate of Family Tax Credit by $12.50 so all children benefit.” I wonder whether or not the Minister for Social Development took that into consideration, because it was a point that was raised not just by the Child Poverty Action Group but I also think there were some concerns raised by the Children’s Commissioner as well, along with individual submitters Graham Howell and Malcolm Croft.

When I was looking through Part 3, I did notice the fact that in order to apply this, it is the abatement rate that is being lifted slightly, and I just wanted to point out that we are very supportive of lifting abatement rates. In fact, we had a bill go through the House recently that we were hoping the Minister would support because it could have potentially meant almost $50 extra in the pockets of our poorest families, rather than $25, which we accept is something, but, as we have said on a number of occasions, it is not enough. So I would like to know whether or not the Minister took into consideration any of the concerns that were raised not just by the Child Poverty Action Group but also by Auckland Action Against Poverty, and whether or not their preference, which was to increase the rate of family tax credit by $12.50 so that all children benefit, was ever taken into consideration by the Minister or by the National Government.

Going to the Children’s Commissioner on this particular part of the bill, the Children’s Commissioner pointed out that the gap between market and benefit incomes has steadily grown over the past three decades because benefit incomes are not indexed to the median wage. So I think someone in here pointed out that before benefits were slashed—so, around 1991, I think—they were indexed to around 75 percent of the minimum wage, but it is so far from that now. And I know that the National Government has touted this as some major offering—the fact that it is giving these families an additional $25 each week—and I know the National Government has tried to highlight the fact that this is the first time benefits have been raised, but what the Government has not taken into consideration is that when Labour introduced Working for Families, actually—

The CHAIRPERSON (Lindsay Tisch): Come back to the bill. Come back to Part 3. Come back.

With regard to how it affects these families, when Labour did that, it lifted something like 120,000 children out of poverty. This measure does not lift that number of children out of poverty, and I think that that has to be of concern to all of us. So, yes, I would like to know whether or not the Minister has taken into consideration the preferences raised by the Child Poverty Action Group and any of the concerns around in-work family tax credits, and whether there has been any discussion on that.

Part 2 of this legislation, obviously, is dealing specifically with the changes to the inland revenue Acts and, in particular—

💬 Carmel Sepuloni: We’re on Part 3, Jono.

Part 3, there we go. Part 3, not Part 2. Part 3 is, in fact, the bit that does deal with the inland revenue Acts. Even if I got the part wrong, at least I got the issues right.

It has got to be fair to say that as well as the significant changes that this bill makes to the payments to families who are beneficiaries, these changes also recognise that some families—even though they are in work in some way, shape, or form—are still experiencing some level of hardship. So this part of the bill is dealing with that part of the equation, in particular, obviously, through the Working for Families part of the programme, because we need to ensure that, actually, we are continuing to work with those families who are finding it hard, whatever situation is leading towards that. So from 2016—next year in April—the low to middle income working families who are not on a benefit will get up to $12.50 a week more through Working for Families, depending on their income.

I have heard a number of comments from members across the other side of the Chamber this afternoon, basically calling that amount insignificant—calling the $25 insignificant. They have talked about the price of cheese, they have talked about the price of eggs, and they have said that this is not necessarily going to simply lift people out of poverty. I do acknowledge that for some people $12.50 does not seem particularly significant, but I can say that, actually, for some people $12.50 is significant and it does make some difference.

No one has said—no one has said—that this bill is the silver bullet to solving child poverty in New Zealand. It is part of a suite of things that are being put forward. It is part of addressing the issue. It is part of a measured approach in changes to our benefit system and to our taxation system to ensure that we can provide some level of extra assistance.

I can tell you that for the first 4 years that my wife and I were raising our children, our primary source of income was the student allowance. That made things pretty difficult, but, actually, after being dependent on the student allowance, we were then dependent on a social worker’s starting-out salary, and we were grateful for the extra assistance that we got, when things were tight at that time, through this Working for Families.

That is a few moons ago—I know a bit of water has gone under the bridge since then—and it is appropriate, now that we have been able to get things into a place where we can afford to lift those amounts, particularly by increasing the in-work family tax credit by $12.50 and also through the minimum family tax credit, to ensure that some of these families are going to get that little bit extra. In order for us to do that, obviously we have got to put that in the context of everything else that this Government is doing.

This is not a silver bullet and this is not a one-off thing that is happening. This is part of a suite of measures that this Government has been putting in place to actually address some of the issues that need to be addressed, and this particular bill needs to be seen alongside those things as well.

I rise to take a call on this bill, on Part 3, and look at the changes to the family tax credit. In my contribution I would like to draw heavily from the submission from Susan St John and the Child Poverty Action Group, which was supported by other submitters, at least in part. She pointed out that this aspect of the bill was where the Government decided to increase the discriminatory aspects of Working for Families. We have already had a case that the Child Poverty Action Group took to the Court of Appeal that established that Working for Families has elements that are discriminatory—discriminatory against children whose parents are out of the paid workforce.

This bill increases that discrimination because the aspects of Working for Families that are available to children whose parents are not in work have not been touched in this aspect of the bill. So what it does is it provides an extra $12.50, not to all poor children but only to those whose parents are in 20-plus hours of paid work a week. It will increase their income from $60 to $72.50, which is just an inflation adjustment, in actual fact, she told us. So although the Government is telling us that here it is targeting its support and helping these families out, this is an inflation adjustment. This is the extent of this Government’s support for struggling working families and child poverty.

So this minimum family tax credit will apply to only 3,500 families, which is hardly a significant number when we are looking at the scale of child poverty in this country. I really do think that it needs to be pointed out that Jonathan Boston did say that it may—and that is underlined, “may”—have a positive impact on child-income poverty rates and deprivation rates, but the impact is likely to be very marginal, and, again, that is underlined. So that is a problem. This is doing nothing, really, to address the absolute real tragedy that is going on in our country at the moment.

But there is a part of this that I think galls me even more and made it very difficult for me in terms of our vote. It is that the Government is taking from poor families to be able to deliver this inflation adjustment. The Child Poverty Action Group was saying that by its calculations, a family earning the minimum wage and working 60 hours a week on $46,000 a year is about to be $2,225 a year worse off in real terms as a result of these provisions. So here we are, giving $12.50 a week extra to children who have parents who are working, entrenching inequality and discrimination and giving just a small amount of help, and that money is being taken from families who are also struggling. To me that is actually just unconscionable. It does not make sense in terms of ensuring everyone in our society is able to participate.

I think, also, if you look at the wider perspective in terms of New Zealand’s support for Working for Families, which is supposedly a large part of this Government’s policy intent—to get people into work you need to recognise that there was a 2011 OECD report that found that New Zealand’s childcare subsidies are the most tightly targeted towards low-income families of all the 30 developed nations and that we have no tax-free threshold for low-income earners. And that 2012 OECD report found that a Kiwi couple with two kids aged 2 and 3 where one parent earned the average wage and the other earned two-thirds of the average wage would lose 97.9c out of every extra dollar from the second earner’s wage via a combination of childcare costs, reduced tax credits—which are being changed in this bill—subsidies, and higher taxes, excluding petrol and other costs. Effectively, taking in the other costs of work, that person is working for less than nothing.

This is a Government whose policies supposedly support paid employment. This is the worst outcome for any of the 34 countries listed, and is compared with an OECD average of 57c in the dollar. Did you get that? It is 97.9c in the dollar compared with the OECD average of 57c in the dollar. That is this Government’s approach to supporting our families. Rather than the Government focusing on making that better, supporting these families and rewarding work where it is appropriate and making sure that we have a strong safety net, it has actually made things worse. The Working for Families tax credit used to be indexed to the Consumers Price Index, but since the law change was made in 2011, families have had to wait until inflation reaches 5 percent before there is an increase to their Working for Families payment. This has already saved the Government, it is estimated, over $1.1 billion. My understanding is that that is significantly more than the cost of this entire child hardship package.

So when the Government is telling us that it cares about child poverty and it cares about the fact that there are children in this country without shoes, without three meals a day, without a bed of their own, and without the family being able to buy them presents on their birthday and that there are children who are worried and excluded at school and who cannot afford to go on school trips or attend any events—when the Government tells us that it cares about that, actually, we need to look at what it is prioritising. If this bill is its main initiative and it is spending less on it that it has saved in the changes to Working for Families, then I have got to say that I am struggling to find that credible. I really am very clear that this is not delivering on what New Zealanders have told us they want for their children.

The outpouring of grief, as I think you could describe it, from New Zealanders in response to the campaigns around child poverty, and even feeding children school lunches—which would not have been very expensive either, but which somehow this Government could not bring itself to support—has been clear. New Zealanders want a society where every single child has the opportunities to succeed in life. This bill is not delivering that. This bill—

The CHAIRPERSON (Lindsay Tisch): Come back to Part 3—back to Part 3.

—is ensuring that those barriers are kept in front of our children. It is preventing many from succeeding and, sadly, it is entrenching inequality and discrimination, which is not justified by any means, from my perspective.

I raise a point of order, Mr Chairperson. Sorry, but we have had a couple of messages from people watching Parliament on television, saying that there are some issues with the sound system. I was just wondering whether you could get the technicians to check that out.

Thank you. Through the microphones, I take it? I will just ask the messengers. Thank you very much.

I am going to take just a short call on this because, as you would appreciate, the amendments to the inland revenue Acts are not my strong point. However, I do want to talk about clause 15, which amends the abatement rate, and also clause 14, which is the base rate for the in-work tax credit. Some of the submitters spoke at length about the in-work tax credit and the inability of the in-work tax credit to do anything significant to address the issue of child poverty in New Zealand. One submitter actually stated that the use of the in-work tax credit has, among other things, raised human rights concerns that have necessitated complex adjustments to the tax system. They went on to state that consideration should be given to the Child Poverty Action Group’s recommendation to increase the rate of the family tax credit so that all children benefit.

When I look at page 31 of the regulatory impact statement, which sets out the table of the impact of the package on household budgets in relation to in-work tax credits, family tax credits, accommodation supplements, childcare assistance, and the like, it is obvious that this bill is going to have a minimal effect on actually raising incomes for those families. This is because, regardless of whether you are receiving an in-work tax credit—you know, if you are working 40 hours of the week and have four children—you are, on average, going to receive an increase in your net household budget of $17.50. In fact, across all of this table, regardless of whether you are a job seeker, a couple working 40 hours between you, or a sole parent on sole parent support, the rate remains around the $17.50 mark per week, except if you are a couple working about 60 hours between you, which means you also get $30.50 for childcare assistance.

But I want to qualify that with the statement that is made above this table. It states that this table has been presented based on the assumption that in all cases the wage rate is $15 an hour, and the family is based in South Auckland and paying close to a median rent for suitably sized accommodation. Well, I would have to argue that in relation to the cost of accommodation in South Auckland in particular, and Auckland in general, that $17.50 makes very little difference. In fact, families will find themselves in a negative position in relation to the cost of accommodation.

So although the Government members have said that this is part of a suite of measures to support children in hardship, there has not been anything demonstrated to date that would actually address the significant impact of accommodation costs on families, particularly if we are talking large numbers of families in South Auckland, who are purported to be supported by this bill. That is my contribution. Thank you.

Sorry, members, there is a problem with the sound on Parliament TV and the web streaming. Technicians are working on that to resolve the issue, so thank you for bringing it to my attention.

It is a pleasure to rise and speak to Part 3 in this Committee of the whole House stage, which relates to the inland revenue Acts. I have listened with interest to some of the contributions coming from across the Committee this evening. I think it has been quite interesting. I note one of the speakers pointed out that submitters were grateful for the increases but did not feel that they had gone far enough. I think that that actually lines up with quite a few of the Opposition’s contributions this evening. I think that is quite ironic because that particular party had 9 years in Government and chose not to do anything about it. [Interruption] They may well yawn, but, really, it must be a real source of embarrassment for them when we come to Part 3.

Part 3 deals very much with how people receive their abatements and so on. We have also heard quite a number of contributions about what is the best way to deal with raising these particular benefits for those people and saying that it does not go far enough because it does not get up close to the wages of people working. But that is the point. Really, benefits are there as a safety net, and the benefit to families and children living in a family where their parent or parents or caregivers are working—that example that they see every day is worth lots and lots to those people, which cannot be measured in dollar terms. I think that that has been completely forgotten by the other side.

It is very easy to complain. One person alluded to a bill that would have added $50 a week to the abatement rate. That is all very well if you do not have to balance the books. And what about the people who are out there working and showing that great example to their families about what the benefit of a day’s work is? When you have earned the money yourself, it is worth far more to you, and you will spend it more carefully than something that is given to you, which, actually, tends to have not much value at all.

I really was quite interested in the arguments about the vehicle for increasing benefits, because you can go backwards and forwards across it, but Ministers considered this very carefully. The Minister herself has spent a lot of time on this bill. She has talked to officials who have done a lot of work on this, and I was very impressed, when we had them in to the Social Services Committee, by the breadth and depth of their knowledge on this particular issue. When we had some thoughts from them rebutting some of the evidence given in the select committee, it was pretty clear that the solution that was chosen was the one that is most appropriate and delivers the best solution, given what is the aim of that—that is, not to take it right up to the wages that people are earning because, actually, that is not the right incentive that we should be sending. I support that, and I think that is brave and that is leadership, but that is exactly what people elect Governments to do—to lead and make tough decisions. I commend the Minister for taking that stand and for going to such a wide net and then pulling it back into what is actually going to give an elegant solution to raising benefits. First time in 43 years—I think that deserves a round of applause, almost, but I am sure we will not get it from members on the other side of the Chamber.

I also am quite interested that the Greens were quite adamant about how these things keep missing out and how they were not quite enough. All of these submitters who came in seeking more increases and greater solutions in that area—that is their job to do that, to advocate for as much as they can get, and to go past what is actually needed to try to get more. That is their job. I am very happy to commend this bill to the Committee. Thank you.

I must respond to the previous contributor, Stuart Smith, who said something like Labour had 9 long years to do something about child poverty. Well, Working for Families raised over 100,000 children out of child poverty. The leader of the National Party, John Key—I think he was the finance spokesperson at the time—called it “communism by stealth”, and National voted against it. And, of course, Labour’s policy at the last election would have raised over 50,000 more children out of poverty—far more significant than any aspect of this legislation.

But let us look at Part 3, in particular, because Part 3 deals with the family tax credit and the thresholds. By any measure, the increases that are available to people under Part 3 just do not touch the sides—4,000 families. Four thousand families, so—what are we talking—8,000, or maybe 10,000 children at the most, will be entitled to an extra $12 a week, and that is at a cost to the Government of $1.8 million annually? This is a Government that is spending $26 million on a flag referendum and that gave $30 million to a foreign corporate—

The CHAIRPERSON (Lindsay Tisch): Come back.

—and its response in Part 3 of this legislation is to spend $1.8 million annually? So it will take at least 13 years for this measure to get on to a par with a flag referendum?

The CHAIRPERSON (Lindsay Tisch): Come back to Part 3.

That is not an adequate response to child poverty. It is rich for a member on the Government benches to get up and say that they are doing more than other parties have done when we have been in Government when that party, in Opposition, railed against measures that had a far more significant impact on child poverty, and poverty in general, than this legislation does.

The increase of $12.50 that a handful of families is going to be entitled to under Part 3 is, essentially, an inflation adjustment. It is something that probably ought to be just built into the system anyway. It is not an increase in real terms. It is helping a handful of families to catch up with some of the increases in the cost of living. As I say, it certainly will not touch the sides. The difference that this will make is utterly negligible. If I was one of the National members, I would be ashamed to get up and speak in favour of these changes in the way that they have done, because in real terms the difference that people are going to experience is utterly negligible. At best, you could say it is assisting families to catch up with the cost of living over the last few years.

Of course any change in the right direction is worth supporting, but let us be honest about what this really is. The minimum family tax credit is highlighted with these changes, and, of course, one of the big problems with the minimum family tax credit is that there are points where it has a nearly 100 percent effective marginal tax rate. I have said this before about other legislation relating to these issues: I would have thought that National would want to do more about marginal tax rates, especially for people on the lowest incomes and especially for people who are trying to transition from benefit into work or who are trying to make work a larger proportion of the income that they receive. National rails against effective marginal tax rates for rich people, but when it comes to these people, the people who are trying to scrape by on the very least and, in particular, families—people who are trying to raise children on the very least—this Government shows, again, utter inaction.

Members, I would just like to mention that the sound issue seems to be resolved now.

I move, That the question be now put.