If NZ's new government wants a simple fix to improve child poverty, here’s what it should do
For those without children, its proposed payment of the full Independent Earner Tax Credit for incomes between NZ$24,000 and $66,000 would kick in from April 1 next year.
- For those without children, its proposed payment of the full Independent Earner Tax Credit for incomes between NZ$24,000 and $66,000 would kick in from April 1 next year.
- This would help some 380,000 people in low and modestly paid work with an extra $10 a week.
- At the same time, the work effort of low-income parents can be better rewarded.
How the poverty trap works
- When a family’s joint gross income exceeds the (very low) fixed $42,700 threshold, every extra dollar earned denies them 27 cents of WFF assistance.
- To help explain this, it’s useful to imagine a typical family in those circumstances.
- Let’s say this family has two children at school, with one parent in full-time employment and the other half-time, both on the minimum wage.
- Read more:
Forcing people to repay welfare ‘loans’ traps them in a poverty cycle – where is the policy debate about that?
Letting people work and earn more
- Delaying the change only decreases the incentive to work, with flow-on effects for productivity.
- This would also address child poverty, as about half of the country’s poor children are in families in low-paid work.
- Many slip further into debt every week, waste precious time arguing for means-tested top-ups from Work and Income, or need food parcels from stretched and underfunded foodbanks.
A simple solution
- This would best be achieved by an immediate increase to the Family Tax Credit, over and above the required inflation adjustment.
- Here is a counter-intuitive but serious suggestion: reduce the In Work Tax Credit by $25 a week and increase the Family Tax Credit by the same amount.
- But this basic suggestion could still be a win-win for National’s key objectives at roughly the same eventual annual cost.
Susan St John is affiliated with the Child Poverty Action Group.