Muddled Numbers Provide an Opportunity for Government to Lead Visionary Change

Child Poverty Action Group (CPAG) says that Treasury’s error in overestimating the numbers of children lifted out of poverty by both National and Labour’s families packages provides an opportunity for the Government to take bold action.

Pre-election, both National and Labour promised to reduce the number of children living under the 50% before housing costs (BHC) line by 100,000 - but this will be more costly than originally anticipated by either Government, and a new approach is urgently needed.

Moreover, after a long period of neglect the Families Package will not reduce any child poverty at all for six months because implementation is delayed until July 1.

"Some families, especially smaller families, don’t get nearly enough out of this package to lift them out of poverty," says Associate Professor Susan St John, CPAG economics spokesperson.

Using the Family Tax Credit (FTC) as the tool to reduce the worst of child poverty is not the most cost-effective approach. It has already been substantially increased, and increasing it further to make an impact on the worst poverty figures will be expensive as it will be received well up the income scale. To counter the cost of increasing the FTC, National planned to increase the abatement rate from 20% to 25%, and lower the income threshold for the maximum payment. This policy would have disastrous consequences for low-income families in paid work.

More money needs to be channelled to the families currently falling below the very low 40% poverty line. There is a way to do this without creating impossible cost pressures.

CPAG urges the Government to pay the full Working for Families (WFF) package to ALL low-income families with effect from 1 April. This means paying the In-Work Tax Credit (worth at least $72.50 per week) to all families who currently receive any of the FTC. It will go only to children in the lowest-income families. This is a simple change requiring minimal administration from Inland Revenue, and the $500 million required could be transferred from the proposed restart of payments into the New Zealand Superannuation Fund.

"This is the most cost-effective spending that can be done to impact on families living below the 40% AHC poverty line, and together with the July 1 package would give credibility to the Government’s desire to substantially reduce child poverty," says St John.