Working for Families: reducing child poverty

Steve Maharey Comments at the Public Health Association and Child Poverty Action Group post-Budget Breakfast. Loaves and Fishes, Wellington.
Introduction

Thank you for inviting me to address the Public Health Association and Child Poverty Action Group post-Budget breakfast. Welcome to everyone here, and to the wide range of organisations you all represent.

The wellbeing of New Zealand’s families and children is clearly a subject close to the heart of all of us.

And May 27, 2004, was an historic day for New Zealand’s families.

Yesterday, this Government delivered a Budget package that will lift living standards for almost 300,000 low-and-middle income families in New Zealand. This Government launched the biggest offensive on child poverty New Zealand has seen for decades. We launched a package that will properly reward parents’ work to provide for and raise the next generation of New Zealanders.

That package is Working for Families.

By April 2007, Working for Families will deliver over $1.1 billion a year to New Zealand’s low-and-middle income families. It will remove barriers to employment, and ensure that all families, whether they get their income from wages, from benefit, or from a mix of both, have enough income for an adequate standard of living.

Investing in families is fundamental to this Government’s social development approach. Social development means investing in people’s capability, while also ensuring they have a safety net when times are hard.

Some measures in Working for Families will also benefit single people and couples without children. But families will make the biggest gains. Supporting parents, particularly parents in work, is an absolutely essential investment in our future.

Working for Families makes that investment. It provides initiatives like the new In-Work Payment to make work pay. It substantially increases Family Support and other Family Income Assistance. It provides more help with housing and childcare costs. And Working for Families creates a simpler, more generous abatement system, so working people don’t see their earnings swallowed up by reduced entitlements.

Why we’ve developed the package

Working for Families is part of a much bigger overhaul of a social assistance system that was developed over 65 years ago. Designed as a safety net for people temporarily out of work, it suited the economic and social make up of our country in the 1940s and 50s.

In the first decade of the 21st century, however, our society and economy are much more diverse and dynamic than they were in the mid-1990s. Today, to have real opportunities to participate in the modern economy, New Zealanders need more than a safety net alone.

They need a modern, flexible system of social assistance – one that provides income adequacy, invests in their capabilities and supports them into employment. A system that provides incentives to work and rewards people properly for their efforts. A system that provides a clear and simple transition from benefit to work—and makes being in work worthwhile.

Currently, work does not pay for some low income families. Costs such as childcare and transport eat into incomes, and abatement thresholds kick in at low levels.

Working for Families squarely addresses these problems. The package provides the direct financial incentives that make moving off a benefit into employment financially worthwhile, and addresses the rules and processes that in the past have made the transition from benefit to work daunting and difficult.

Working for Families also acknowledges that many families not in work are struggling, and unlike the opposition, we have no intention of making anyone better off by robbing from the poor. We will not cut benefits, as Dr Brash has said he would do. Nor do we believe that an across the board tax cut is the right way efficiently assist hard pressed families with children. A family earning $55,000 a year with four children would gain only $39 dollars a week even if tax rates were slashed to 20 per cent – whereas, as Dr Cullen pointed out in his Budget speech, someone on his income would gain over $490 dollars per week from that. Working for Families will provide that same family with an extra $70 dollars per week from 1 April next year, building to nearly $110 per week on 1 April 2006 and nearly $150 a week from 1 April 2007. Direct assistance ensures that the money goes were it is most needed.

Through Working for Families the Labour led government is providing increases that will help lift living standards for all low-and-middle income families.

Making work pay and ensuring adequate incomes

The new In-Work Payment is central to Working for Families. From 1 April 2006, the In-Work Payment will replace the Child Tax Credit for eligible working parents. It will have the clarity and the work incentive effect that Child Tax Credit lacks.

The In-Work Payment will pay up to $60 a week per family, with up to an additional $15 per week for the family’s fourth and subsequent children. At the same time, an increase in Family Tax Credit for eligible working families will ensure a minimum net income of just over $17,000 a year.

To help ensure adequate incomes for all low-and-middle income families, Working for Families also makes substantial increases to Family Support and other Family Income Assistance.

Increasing Family Support for low-and-middle income families, rather than universalising the payment, enables us to target the additional support where it’s most needed.

After April 2007, all the Family Support rates but one will be worth more in real terms than they were in 1986. The single exception will be the rate for the first child under 16.

For families receiving a benefit, the child component of their benefit will move into the increased Family Support. This will make this assistance readily transferable when parents move off benefit into employment—and make that transition easier.

The $20,000 abatement threshold for Family Support has gone, replaced by a single 30% abatement rate on family incomes above $27,500. This is a simple and clear abatement that targets more help at families in the lower income range.

After 2007, Family Support will be indexed to inflation. The rates and the new abatement threshold will increase in line with prices every time the Consumers Price index reaches a total increase of 5 per cent.

By 2007, the Government’s investment in increased Family Income Assistance and the new In-Work Payment will build to over $1 billion a year.

After that date, 61% of all families will be better off by an average of $66 a week. The biggest winners will be families earning between $25,000 and $45,000, who will make average gains of around $100 a week.

More help with housing costs

Housing costs can be a significant burden for many low-and-middle income families. Working for Families provides significantly more assistance in this area, increasing the rates of Accommodation Supplement, and setting a more generous abatement system.

After October 2004, beneficiaries with additional income will be able to keep all their Accommodation Supplement. Working people on higher incomes and paying lower accommodation costs will also be eligible for assistance, and will be able to earn more before that help is reduced.

These changes won’t only benefit families with children. Over 39,000 singles and couples without children will also benefit from increased rates and eligibility for Accommodation Supplement. The Government’s increased investment will build to over $146.22 million a year by 2007.

Budget 2004 also provides $126 million for Housing New Zealand Corporation to add more than 3000 homes to its stock over the next three years; and $6.2 million for a review of the Residential Tenancies Act, to ensure it provides more certainty and protection for both tenants and landlords.

These initiatives all contribute to one of the Labour Government’s key commitments when it took office in 1999, to address housing-related poverty.

Income-related rents for HNZC tenants, along with the Healthy Housing and retrofitting programmes for HNZC houses, are helping ensure families have affordable, healthy, quality rental accommodation. And the pilot Mortgage Insurance Scheme is helping to bring the dream of home ownership closer for some low-income families.

Childcare Assistance

Of all the factors that influence parents’ ability to work, access to quality, affordable childcare is perhaps the most critical. Lack of access can be a major barrier to work, education or training for these families.

Working for Families substantially increases the rates of Childcare Assistance, sets more generous income thresholds for assistance, and introduces Work and Income Childcare Co-ordinators to help parents access quality childcare and subsidies.

At least 28,000 families and 33,000 children will benefit from these increases, with average gains of about $23 a week per child from 2005.

Budget 2004 also provides $307 million of new funding over four years to help make quality early childhood education more accessible and affordable.

From 1 July 2007 all three- and four-year-old children will be able to receive 20 hours free education at community-based services.

This is a major step towards the Government’s vision of low-cost early childhood education for all.

A simpler system

To ensure families can access all this additional assistance, Work and Income and Inland Revenue are developing co-ordinated processes to deliver Working for Families.

Working for Families teams and 0800 Working for Families telephone lines will make sure the assistance is easy to understand and gets to the right people.

Co-ordinated delivery is just one part of creating a simpler, more accessible social assistance system. Work is already underway on improving the structure and rules of benefits, and exploring ways to reduce the complexity of assistance available.

As part of our Sickness and Invalids Benefit strategy, we’re changing the Invalid’s Benefit rules to make it easier for people receiving this benefit to try out employment for 15 hours or more a week. We’re developing more clarity and consistency around how Special Benefit is assessed, as demand for hardship assistance should reduce as Working for Families income increases kick in.

Our purpose is to develop a system that is fair and transparent, where everyone gets what they should receive; a system that is easier to understand and deliver, that supports people into employment, and lets them keep more of their hard-earned cash.

Government focus on families

While Working for Families is a milestone package, it has by no means happened in isolation. Families have been a priority of this Government since it took office in 1999.

Income-related rents, increases to the minimum wage and New Zealand Superannuation, the introduction of Paid Parental Leave, the Employment Relations Act, have all helped improve family incomes and helped families achieve a good work/life balance.

Work opportunities have improved greatly. A focus on regional economic development and job rich growth has seen 193,000 more New Zealanders securing decent paid work, which means thousands more families with a working breadwinner. And with unemployment at a sixteen year low and job ads at high levels, the outlook for further gains in employment is excellent.

More than two million New Zealanders are now enrolled with a Primary Health Organisations, providing affordable quality primary health care. Every enrolled 6 to 17 year old is funded to receive low-cost healthcare and from 1 July this year everyone over 65 years of age enrolled with a PHO will have access to low cost primary health care and pay only three dollars for most prescriptions.

Enhanced case management for Domestic Purposes Benefit clients, last year’s Jobs Jolt employment initiatives, and enhancements to the Training Incentive Allowance are supporting parents, and other New Zealanders, into relevant training and worthwhile employment.

Three years of frozen tertiary fees and an interest write-off on student loans for full-time low-income students are improving access to tertiary education for young New Zealanders.

Community programmes are providing support for parents raising their children, with more support through the just-launched SKIP—Strategies with Kids—Information for Parents, initiative on positive parenting.

Soon, the new Families Commission will be actively promoting the interests of families and helping to build understanding of the full range of New Zealand families.

Conclusion

Significant, far-reaching social change takes time – a bit like raising children. Working for Families is a major leap forward. The biggest change to New Zealand’s social assistance system in over a decade, the impact of which will be felt for years.

Using a poverty threshold of 50% of 1998 household median income adjusted for inflation, Working for Families is forecast to lead to about a 70% reduction in child poverty in the next three years.

Using the higher threshold of 60% of median income, Working for Families is forecast to lead to about a 30% reduction in child poverty by 2007.

Living standards will improve among almost all families earning under $45,000 a year, and a significant number of families earning $45,000-$70,000 a year. Larger families with incomes over $70,000 a year will also gain. Many families will be entitled to assistance for the first time.

Working for Families is the centrepiece of Budget 2004. And Budget 2004 is an opportunity Budget. It supports people to take up opportunities to reap the rewards of our growing economy. It helps families who need more assistance to raise their children. It dramatically shifts the focus of our assistance from passive entitlement to active support.

This Government is committed to supporting parents to raise their children. We are committed to helping people take up opportunities to achieve economic independence. We are committed to ensuring that families have enough income to provide for our most precious resource.

Working for Families delivers on that commitment.

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