Fuel crisis package and the ‘paid work first’ failure

The Government’s fuel crisis package is being criticised for prioritising paid work over need, leaving many of New Zealand’s poorest families and children without meaningful support.

A very flawed approach ignores the very real need among families and their children.

Fuel crisis package criticised as inequitable

Nicola Willis promised she would help low and middle income ‘working’ families. And here it is – worse than expected, crude, simplistic and illogical, highly inequitable and a clear failure of the imagination.  

Fuel crisis package: Nearly 150,000 families to receive $50 a week | RNZ News. 

‘Paid work first’ ideology drives policy design

The strong ideological framing centres one kind of work, paid work as the only valuable activity. The IWTC is a payment for children who are only valued if their parents are not on benefits. The fuel crisis income support package also displays a gross ignorance of how our major tool to look after children ‘Working for Families’ WFF actually works and perpetuates the myths around it. 

The weekly WFF is paid to the caregiver for help with the extra costs of children. These needs don’t disappear when parents lose work in this terrible recession.  

Who benefits from the package — and who misses out

Of the 328,000 families getting WFF, only 143,000 families will receive the extra $50 a week IWTC for a year. Their IWTC will rise to around $150 per week.  

Around 186,000 families, who are the worst off do not get any IWTC currently and get nothing from this package.  They include about 250,000 of New Zealand’s poorest children who are left out from this child related payment. Their parents are left to struggle with the same rising food and fuel costs without any extra help even if they are working part time. Their sin is being so poor they need a full or part-welfare benefit.   

How Working for Families and IWTC actually work

WFF is the total of the Family Tax Credit and the In Work Tax Credit. It reduces for income above $44,900 by 27.5% for each extra dollar. It is poorly understood that the FTC reduces to zero first, and only then does the IWTC reduce. Here’s the rub: the increased IWTC goes right up the income scale, not just to the squeezed middle. 14,000 better-off families who don’t currently qualify for any WFF because they earn too much will now qualify. For example, a 3-child family at $140,000 will now be newly eligible for an annual $2,600 of IWTC.  Wow, to think that could be paid to her at this high household income level even if she does no paid work at all. 

But Willis said: 

“The policy is carefully targeted to families in the squeezed middle – parents who are working hard for a living, are not eligible for main benefits, and yet have modest household incomes with which to support their children,” 

High cost, limited impact

The cost of the increase to the IWTC is $373 million for the year, making the total spent on the poorly designed IWTC close to $1 billion. Is that really the best way to spend such a huge amount of money?  Surely the highly paid advisors could find better options for $373 million.

Ironically, while we are told the package focuses on the squeezed middle those who do qualify for the IWTC will still find themselves caught in a vicious poverty trap:  their total WFF reduces rapidly from the very low threshold of $44,900, severely disincentivising more work effort. The same low threshold applies whether there is one parent or two. 

The unfairness, cruelty and stupidity will be apparent in the next months as the election looms. The only bright side to this pathetic, expensive, ill targeted policy is that it exposes the government’s incompetence and lack of humanity. 

Policies that reward status over need don’t just fail economically — they entrench inequality in ways that become harder and harder to undo.