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A Step Change For Children: Fix Working For Families.

Susan St.John

New Zealand now has two classes of low income children; the worthy who can be supported to the full extent of social security legislation, and the unworthy who are consigned to remain in poverty. This shameful disparity is between the treatment of children in families who can find paid work for a set minimum number of hours in a week[1] and those children whose families cannot. The ‘undeserving’ are denied full tax-funded support, even when such assistance is explicitly to alleviate child poverty and whilst that same support is provided to others.

When the poorest, most vulnerable children are excluded from tax-funded financial support, we get the results we are seeing: a much greater depth of poverty; more ill-health, parental depression and a loss of hope. This discrimination is unjustifiable. Moreover, discrimination[2] of any kind is not only against the law in New Zealand, most New Zealanders would agree it is morally reprehensible.

Child Poverty Action Group believes that the social security system should address the needs of all children, not just a ‘deserving few’ whose parents work the right number of hours. With this fundamental principle in mind it can be clearly seen that the current work-based criteria for entitlement to the full Working for Families (WFF) child tax credits seriously disadvantage our poorest children.

The IRD can cut off much needed child payments as soon as it can prove the parents are not working enough hours. They can lose $60 or more a week – a very significant amount for a low income family. The payment has little at all to do with providing a sensible work incentive for parents on benefits[3] and completely devalues the work of a parent looking after young children in the home.


Examples of exclusion:

Tama has worked only 25 hours of work this week in his zero hours contract job, so he won’t get the IWTC which is given to a couple working at least 30 hours. The mother of his children is not entitled to the same weekly payments as caregiver as she is in the weeks he is fortunate enough to be rostered 30 hours.

After a violent marriage, Christine was left with two young children and wants to mother her children at home and not put them into day care. She is not entitled to child care subsidies nor is she entitled to the full Working for Families tax credits for the children.

Montana has just had a baby but she doesn’t have a partner and needs a benefit. She is not entitled to the in-work tax credit, nor the parental tax credit nor paid parental leave.

 

Other families are effectively excluded from the full assistance because they have some benefit income or are students. Others may fear overpayments and repayment demands from Inland Revenue. Still others may be too suspicious of the system and find it far too complicated to get what their children are actually entitled to or need.

Work-based criteria for entitlement to WFF creates anxiety, instability and increased poverty in already financially stressed homes. Low income families can have their child payments cut if their working hours fall below the threshold when the next economic downturn strikes, a child or parent gets ill, or a natural disaster robs families of their livelihoods.

If parents of a newborn fail work-based criteria there is no extra help for that new baby. Only some newborns are given the extra tax–funded support of Paid Parental Leave, some of the rest are given the low value Parental tax credit, while the very poorest babies who need extra help the most get nothing extra.

The UNICEF Innocenti Centre states that Government policy has the single biggest impact on child poverty rates.[4] This was demonstrated in New Zealand when child poverty increased in the early 1990s following the 1991 Budget and then when there was a significant decline in child poverty in the period 2004-2008 when Working for Families was introduced.

The decline in child poverty was a welcome outcome of Working for Families, but whose poverty was reduced and have we cared about those who were left out? As the Ministry of Social Development said in its 2014 report:

The WFF package had little impact on poverty rates for children in beneficiary families (close to 75% in both 2004 and 2007), but halved child poverty rates for those in working families (22% in 2004 to 12% in 2007, and close to the same since then). [5]  

CPAG proposes seven principles to guide reforms. These are set out briefly in Box 2. Fundamentally, as signatories to the United Nations Convention on the Rights of the Child, New Zealanders should have no difficulty in supporting the right of all children to benefit from social security, especially those tax-funded measures that reduce poverty, improve child health and enable children to participate fully in their communities.


Principles to underpin reform:

  1. Equal treatment for equal child need
  2. Best Interests of the Child approach (UNCROC).
  3. Adequacy of weekly child payments and parental welfare benefits
  4. Recognition of the unpaid work of mothering especially when child is young
  5. Paid work where appropriate with needs/ wellbeing of the child/children prioritised.
  6. Simplicity
  7. Transparency

 

Other principles stress the need to put the best interests of the child to the fore and ensure adequacy of income at all times. Keeping families poor to provide an incentive for parents to find paid work is a discredited policy that ensures child poverty remains embedded in New Zealand’s social fabric. Good policies to help working parents do not need to create poverty to be effective.

Much is known now about the importance of the quality of care in first three years of life for child development New Zealand must do better to support caregivers and value the work they do, especially when babies are aged under one year. There is also a need for huge improvements to simplicity and to transparency of policies: how they work and who is affected. Based on these 7 principles CPAG recommends urgent improvements to Working for Families as set out in Box 3 with approximate costings. Further details are available on the CPAG website.

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[1] This is 20 hours a week for a sole parent and 30 hours for a couple. Parents must also be ‘off-benefit’

[2] Children’s rights are universal and a fundamental principle of the United Nations Convention on the Rights of the Child (UNCROC) is non-discrimination. UNCROC sets out children’s rights to the highest attainable level of health and a standard of living that supports their mental and physical development. In domestic law, the Human Rights Act 1993 enshrines New Zealand’s core legislative principles countering discrimination.

[3] The latest evaluation of the work incentive effect from Treasury suggests that overall hours worked may have actually fallen: there was a very small increase of 0.6 hours a week for sole parents but a fall of 0.5 hours a week for partnered women. See Working Paper by Mok, P. and J. Mercante (2014) Working for Families changes: The effect on labour supply in New Zealand.

[4] UNICEF Innocenti Research Centre, 2005, Child Poverty in Rich Countries.

[5] Perry, B., 2014, Household Incomes in New Zealand trends in indicators of inequality and hardship 1982 to 2013.

 

 

 

Susan St.John
About the author

Susan St.John

Associate Professor – University of Auckland

Susan St.John is Associate Professor in the Department of Economics at the University of Auckland where she teaches public policy. She is a founding member of the Child Poverty Action Group and Co-Director of the Retirement Policy and Research Centre. In the 1990’s she was awarded a research fellowship at the International Social Sciences Institute at the University of Edinburgh and has published extensively over recent years in the areas of family incomes, pensions, taxation and accident compensation. Her current projects include developing a life annuity with long-term care insurance and welfare reform appraisals. Her website is found at: http//homes.ec-auckland.ac.nz/sstj003/.

Child Poverty Action Group: www.cpag.org.nz