National is displaying a quite inadequate understanding of their own policies and worrying inability to respond to criticism. When John Key trots out his old, tired example of how ‘work pays’ on Morning Report this week to justify leaving 260,000 children in poverty, no new thinking is required to combat it.
John Key has again pointed to the mythical sole parent who gets a 20 hours job at the minimum wage and is so much better off now they are no longer a ‘beneficiary’. Thus in his eyes welfare to work policies are a success, poverty is solved by paid work, looking after your own children is not proper work, and all families should just, well, get a job.
At the back of all of this is his misunderstanding of the Ministry of Social Development (MSD) data on poverty. Key is committed to the belief that work is the way out of poverty and has twisted the data to reinforce his belief. In the third leaders’ debate, (42 minutes in) he denied that 40% of all poor children are in non-beneficiary families and claimed that only 11% of the 260,000 children in poverty are in families supported by paid work. But here is what the MSD actually says:
“Poverty rates for children in working families are on average much lower than for those in beneficiary families (11% and 75% respectively), but 2 out of 5 poor children come from families where at least one adult is in full-time work or is self-employed.”
Mr Key’s argument from back in 2012 was that the “system supports high levels of income for people in work” and that by working 20 hours per week someone on what is now Sole Parent Support would be about $10,000 per year better off. Strangely, this week he is claiming they are only $100 a week better off. Perhaps he is allowing for childcare costs? This sole parent example, and his erroneous belief that there are very few poor children in families in paid work has convinced him that child poverty is readily solvable by the parents themselves.
As I pointed out at that time, that in order to make work pay, the sole parent gets an even bigger pot of money from the state than they would if they were working 20 hours while staying on a part-benefit. Sole parents with young children need support and calling government support by another name doesn’t make a parent more worthy.
We update the figures in the income chapter of CPAG’s pre-election publication, Our Children Our Choice. Working 20 hours a week, off benefit, at the current minimum wage of $14.25 an hour equals $285 gross per week, or $249 in the hand. A one-child family also gets the Family Tax Credit of $92 but the total is not enough to support the family and comes to less than $391 she would have got just being on the sole parent benefit. So to make ‘work pay’ for her the state tops up her income with $189 per week from the Minimum Family Tax Credit and another $60 per week from the In Work Tax Credit.
Work alone is the way out of poverty? I think not.
She becomes dependent on The Minimum Family Tax Credit which has a 100% effective marginal tax rate, making it the worst work incentive ever devised. That means for every additional dollar of net income she earns, the Minimum Family Tax Credit disappears dollar for dollar. At the minimum wage, someone who was working 20 hours would have to work an additional 15 hours before being any better off at all.
The Minimum Family Tax Credit is effectively a subsidy to employers. They can get away with paying only the minimum wage as they know a higher hourly rate will not give any more in the hand.
Sole parents are vulnerable to having their incomes reduced sharply should their hours fall below 20 a week, losing both the In Work Tax credit and the Minimum Family Tax Credit. Workers who face casualised employment have the ongoing problem of reporting in to IRD on a weekly basis, as well as extremely uncertain income.
Sole parents report high stress of never knowing exactly what they will get. They may face aggressive demands for the repayment of tax credits from IRD when IRD says they did not satisfy the rules. Families cannot possibly budget or function with any level of certainty and security under these circumstances.
Employers also face uncertainty when they take on sole parents with very young children. It does not take much imagination to see the problems that arise when a child gets sick or school holidays require time off. Sympathetic and accommodating employers are in short supply, especially in a recession. If a parent loses hours of work she may lose all work-based tax credits and may find it difficult to access a benefit immediately.
The Minimum Family Tax Credit harks back to the failed policies of Roger Douglas, who tried to introduce a flat tax in the late 1980s. He relied on the “Guaranteed Minimum Family Income” to prop up the income of “working” families.
In 1988 Brian Easton referred to the Guaranteed Minimum Family Income as “a fiasco that reflected badly on quality of Treasury advice”. He noted it was open to widespread abuse, and that it was “socially reactionary” and “fiscally explosive”. Now renamed the Minimum Family Tax Credit, these criticisms remain as valid as they were in 1988.
* Susan St John is Economics spokesperson for Child Poverty Action Group and associate professor of economics at Auckland University.