Kerre Woodham: Is it fair that taxpayers support employers to pay wages that New Zealanders can live on?

In 2004, the New Zealand Labour Government introduced the Working for Families Package as part of the 2004 budget.

The package, which basically began in 2005, had three primary aims to make work pay to ensure income adequacy and to support people into work. There was concern about the number of young women who were on benefits, they were a valuable resource, it was important they get into work. But getting into work is really expensive when it comes to childcare and when it comes to transport and when it comes to all sorts of things and getting the wardrobe for work you can't just have somebody work ready overnight.

Working had to be worth it.

And there was also a letter from, as I recall, the wife of a Waihi school teacher who said how is it that we are working, my husband's doing an important job, and yet we're materially worse off than people on benefits. Thus, Working for Families was born, and right now, there are about 350,000 families receiving the tax credit.  

A review of the Working for Families system has found that while the system is largely fit for purpose, there are some ‘serious design issues’ with the way some of the tax credits are applied.

One of the tax credits was so flawed that half of the families that received it were accidentally overpaid, creating a tax debt they needed to pay back. A really unexpected and unpleasant surprise to receive. Most of the other half of the families were underpaid during the year and only got paid the credit as a lump sum at some point. So the way in which it's being delivered, there are some design flaws as the review saw.  

It also warned that despite the tax credit system in work, poverty is becoming an increasing issue for families. No surprises there for many families, I'd imagine.

There is no doubt that Working for Families has been a lifesaver for many working families, but there are critics of the scheme who basically say it's tax payer subsidies of employers. That employers would have to pay more if taxpayers weren't topping up working New Zealanders incomes with the Working for Families tax credit.  

So when it comes to the Working for Families package, the Government has promised to act upon the review that has been delivered. They're not committing to anything just yet. Carmel Sepuloni said no decisions have been taken, we can continue to consider the advice that we've been given. Any decisions would have to be part of a budget process if there were going to be any changes to Working for Families.  

Carmel Sepuloni said she can't pre-empt whether or not it's going to be part of this budget.

Doing away with Working for Families would be very difficult, as the New Zealand Initiative points out, many low income families have taken on mortgages on the understanding that these tax credits will continue.

Therefore, to remove them would be incredibly unfair. And yet, at the same time, is it fair that taxpayers support employers to pay wages that New Zealanders can live on?  

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