Child Poverty Action Group (CPAG) welcomes the long overdue increases to Working for Families (WFF) rates coming in this Sunday. But after six years of no adjustment for average wage and cost increases, the changes signify little more than an overdue catch-up.
Working families on low incomes have been particularly hard hit by past cuts to the income threshold from which families’ payments start to reduce. Labour’s Families Package will raise the threshold to $42,700 from today’s $36,350, so more families will be eligible for the full amount. Just the increase in the threshold means a family on $42,700 will get $37 per week more than they would have under National’s proposed reduction of the threshold to $35,000.
“Both the rates and threshold must be adjusted annually, and not just for price increases but also for growth in wages, so we protect the young just as we protect our superannuitants,” says Associate Professor Susan St John, CPAG economics spokesperson.
Unfortunately the package increases the “clawback” (see footnote) rate of Working for Families to 25% once the $42,700 threshold is reached.
St John says, “It will be common for families earning over $48,000 to lose 30 cents in tax, 12 cents in student loan repayment, 25 cents in Accommodation Supplement, and 25 cents in Working for Families, from every additional dollar.
“It feels like having a 92% tax rate.”
Well-supported tax credits for children are an essential part of the way all developed countries assist families.
“These tax credits are best seen as a way to compensate for both high income taxes and GST paid by low-income families, and are a way to recognise that more children reduce the capacity of a family to pay increased tax at each income level,” says St John.
Working for Families was not a new idea. It replaced and extended existing per week payments for children in 2005-7.
“The problem was that it was badly designed. The Families Package does not go far enough in correcting the flaws of how WFF operates,” says St John.
After 1 July, new-borns will get more assistance from the new Best Start tax credit. But that policy does not help any of the children born before then. CPAG is particularly concerned that for the worst-off children, the flaw that denies them the full package is not addressed.
The 140,000 children living in unacceptable pockets of hardship miss out on at least $72.50 because parents do not fulfil work hours criteria
“This discrimination has perpetrated the worst of child poverty since 2006. We hope that the review of this is not swept under the carpet.”
– “Clawback Rate”: The rate at which WFF reduces, equivalent to 25c for every extra dollar earned over the $42,700 threshold.