Working for Families versus tax cuts

Essential income assistance? Or trapping low income workers in a ‘handout cycle?

Working For Families was introduced in New Zealand in the 2004 budget of the Clark/Cullen government. It has been both praised and criticised.

It provides tax credits for families with dependent children aged 18 or under who are not in full employment. There are four types of payments:

  • Family tax credit (FTC) is paid regardless of your source of income.
  • In-work tax credit (IWTC) is an additional payment for families who normally work a minimum number of hours each week for salary and wages.
  • Parental tax credit (PTC) helps with the costs of a new baby for the first ten weeks after your baby’s birth.
  • Minimum family tax credit (MFTC) is paid to families earning up to $26,156 (from 1 April 2018) or less after tax to ensure a minimum family income of $503 a week after tax. To get this payment, at least one parent must be working for salary or wages for a minimum number of hours each week.

It is complex – see the Payment Table.

I’m not sure exactly what this means: “The amounts are based on your eldest child being aged 15 years or under and all other children being aged 12 years or under. If you have older children, you may be able to earn more and still be eligible.”

See also from IRD: Types of Working for Families Tax Credits

In opposition John Key referred to Working for Families as ‘communism by stealth’. However when National got into Government in 2008, faced with the Global Financial Crisis they left Working for Families in place and didn’t look like dumping it in their 9 year tenure. This effectively entrenched it.

A difficulty with stopping Working for Families is that it would substantially reduce the income of low income families, or an equivalent income would have to be provided via alternate benefits or tax cuts.

Talking of tax cuts, one person thinks that tax cuts would be a better solution in I’m trapped in a handout cycle, but I’m not a ‘bludger’.

People called me a ‘bludger’ when I spoke out about how a $16,000 pay rise only left me with $50 a week extra in hand, and how Working for Families has kept me in need of Government support. They were wrong, and most missed the point.

I am grateful for the support I get from the Government. I just wish I never received it in the first place.

The point I wanted to make was this: the Working for Families system is broken because it encourages people not to work or seek a higher income. Tax cuts for everyone in work is a better solution.

People missed the point that I am working more to reduce my reliance on Working for Families. If the system was geared towards incentivising working more, or going for that promotion, everyone would win. But it isn’t and this has the negative effect of subsidising wages for a group of people, holding them down for all workers.

Governments seem to prefer to take money off people via taxes, for most people income tax and consumption tax (GST), and then give money back to some.

Working for Families pays out to families in the middle- to high-income bracket. I will not escape the Working for Families trap until I earn around $120,000 a year, and that is not going to happen any time soon.

One significant criticism is that it gives tax credits to relatively high income earners who have children, while keeping income tax and GST high for other working people (employees or in business).

In the meantime, for every dollar I earn, I lose 70 to 85 cents at the other end.

This reduces incentives to work more or earn more.

With a different tax system and wages at the level they should be, I believe most families – including mine – could support themselves with no additional help from the taxpayer.

I don’t want handouts. They reduce the value of my own work and make me feel as though my family’s income is out of my hands. Unfortunately, I am caught in this cycle. Working for Families is such a large proportion of my income that declining the payouts is not an option.

I mentioned tax cuts as a better alternative as I believe allowing people to keep more of the money they earn will motivate them to improve their own situation rather than relying on the taxpayer.

But there seems little chance of any significant change to tax levels or Working for Families.

In the last election, both of the main parties’ answer to “children in poverty” was Working for Families.

The National Government had put tax cuts in place for this year but with no change to Working for Families, and in any case the Labour led government scrapped the tax cuts.

My vote in the next election will go to the party that is brave enough to say there is a better solution, that will also help people who are struggling but don’t have children.

The Government, following Labour policy, is doing a tax review but it doesn’t look like addressing tax levels and Working for Families credits.

There are some interesting comments too, SarahMC:

I am a single mother working all the hours my children are at school, working through some lunchtimes to do more hours, and also working a couple of evenings. When I’m not working, I am caring for my children. I receive a WFF payment. It bothers me that I work extremely hard but I still need a ‘handout’. I work all the available hours possible, but still feel like I’m a drain on society. It’s psychologically draining.

There is also a cost of adminstration – Jantar:

Redistributing income through supplements and handouts does not just penalise those who want to get ahead, it also wastes a lot of the additional tax take required in administration costs.

This comment doesn’t make sense – NewsRanger:

Ahhhh I think you’ll find your $16,000 pay rise left you $16k better off. It also means the taxpayers of New Zealand are $13,400 better off in not having to subsidise you. That money can now be invested in other New Zealanders in need. You didn’t lose anything, it wasn’t yours to start with.

Pre-tax income was their’s to start with, before the Government took most of it.

Gissie:

Surely Working for families is just a subsidy to the employer. Without it businesses would have to either pay a reasonable wage or succumb to the market forces they always bleat about.

Or ask for more low skilled immigration to work below minimum on the promise of residency. All our leaders seem happy with this answer.

BobbyM repeats a commonly made point about ‘corporate welfare’:

These wage top ups are nothing more than corporate welfare, or a taxpayer subsidy in recognition of minimum pay wage rates, It.s the employers that should be ashamed not the recipients of these payments.

It isn’t just ‘corporates’ that benefit from Government income assistance, many people are employed by small businesses.

I think there’s no doubt that Working for Families takes pressure off low wage employers.

However it makes things difficult for workers stuck in low wage jobs who don’t have children,

15 Comments

  1. Gezza

     /  June 28, 2018

    If the system was geared towards incentivising working more, or going for that promotion, everyone would win.

    The working class
    Can kiss my arse
    I’ve got the foreman’s
    Job at last

    Not enuf foreperson jobs.

    BobbyM repeats a commonly made point about ‘corporate welfare’:
    These wage top ups are nothing more than corporate welfare, or a taxpayer subsidy in recognition of minimum pay wage rates, It.s the employers that should be ashamed not the recipients of these payments.

    Nailed it.

  2. Gezza

     /  June 28, 2018

    Bugger. Italics fail. Try again.

    If the system was geared towards incentivising working more, or going for that promotion, everyone would win.

    The working class
    Can kiss my arse
    I’ve got the foreman’s
    Job at last

    Not enuf foreperson jobs.

    BobbyM repeats a commonly made point about ‘corporate welfare’:
    These wage top ups are nothing more than corporate welfare, or a taxpayer subsidy in recognition of minimum pay wage rates, It.s the employers that should be ashamed not the recipients of these payments.

    Nailed it.

    • Alan Wilkinson

       /  June 28, 2018

      The employers didn’t ask for them. (Or vote for them.)

      • Gezza

         /  June 28, 2018

        Well, in a decent democratic society such as ours they ARE the result of the neolib revolution.

        Without them the unrestricted capitalist globalist offshoring that shafts local businesses & workers, but enriches the wealthy & a select few shareholders, drives an international wages race to the bottom so the business owners & execs can use or compete with the cheapest possible overseas labour. Precisely what your hero Trump rails against as he profits from it.

        Without a minimum wage rate & transfer payments we would see thousands of kiwi workers working for a few loaves of bread & a bag of grain or whatever substandard fruit or meat the restaurants rejected if that’s what some employers could get away with.

        The capitalist globalist offshoring & outsourcing revolution that hijacked the concept of international free trade creates a false national economy that encourages businesses to start up or expand when those that aren’t able to charge big bucks for all their privileged specialist employees really cant afford to pay a fair & decent wage to workers involved in basic occupations.

        • MaureenW

           /  June 28, 2018

          I think you are right – there has been no real wage growth in this country since 2008 – people are being squeezed by rates and rent increases, fuel increases and the cost of decent food.

        • Alan Wilkinson

           /  June 28, 2018

          Overseas workers and wage rates have no influence on work carried out in this country that cannot be off-shored. Jobs that can be off-shored have been.

          Yes, Governments have increased taxes and charges far beyond inflation. But, more damaging, they have increased regulation and bureaucracy thereby vastly increasing costs, killing opportunities, efficiency and therefore wage growth.

          None of that has anything to do with neo-liberalism. Gezza could not be more wrong in his diagnosis.

          • MaureenW

             /  June 28, 2018

            Don’t really understand the point you are trying to make in your first paragraph.
            Jobs have been off-shored because they can be completed cheaper – what’s left is probably going to be performed by robots. Tried contacting a “call centre recently”? Where do you see retail in 5 years? These are interesting times.

            • Gezza

               /  June 28, 2018

              He’s talking libertarian crap. The bureaucracy got reduced by numerous governments & kept regrowing because of the need to redress all the negative impacts of suck it & see deregualtion. It’s a perverse result of the economic restructuring of the Douglas & Richardson administration’s wrecking balls. As Trump knows but Alan doesn’t. It lost its competent staff as it began to use more & more dodgy consultants & employ more spin doctors.

            • Alan Wilkinson

               /  June 29, 2018

              All kinds of jobs can only be performed locally – just think for yourself.

              Call centres and some retail are examples of jobs that can be off-shored and have been.

            • Alan Wilkinson

               /  June 29, 2018

              No, you are talking crap. And you don’t understand it is not just the weight of Government payrolls but the dead hand of prohibitions and obligations that are put on individual and private enterprise. Road cones are just the visible tip of the iceberg.

            • Gezza

               /  June 29, 2018

              Your fixation with road cones is actually a bit of a worry. Never come across any person as fixated on road cones as you except nutters & the odd drunk uni student.

            • Alan Wilkinson

               /  June 29, 2018

              Drove up Te Maiki hill this morning which is a road that carries about 50 cars a day and sure enough, there was a truck parked putting out road cones. When half the population is employed making road cones and moving them around you can be sure productivity is in the doldrums.

            • Gezza

               /  June 29, 2018

              Ok, we can safely rule you out as a drunk uni student. So that puts you in the remaining category.

  1. Working for Families versus tax cuts — Your NZ – NZ Conservative Coalition