Budget 2011: Working for Families changes mean lower income families to get more, while most over NZ$60,000 to get less; 7,000 families to drop out

By Alex Tarrant

Changes to Working for Families will mean lower income families will receive an increase in payments, while some families earning over NZ$60,000 will receive smaller payments, with others dropping out of the scheme altogether by 2012/13.

The changes, to be made over seven years, were announced in Budget 2011 and should cut the total expected future cost of the scheme by NZ$448 million over the next four years, Finance Minister Bill English and Minister for Social Development Paula Bennett said.

Following the changes, it was estimated about 280,000 families earning less than NZ$70,000 a year wouldreceive an increase in WFF payments, while about 110,000 families – mostly earning over NZ$60,000 a year will receive slightly less.

Of the second group, about 7,000 families would no longer be eligible for WFF in the 2012/13 year, Bennett said.

In that second group of families earning over NZ$60,000 a week, the average reduction in payments per week would be NZ$4, with a maximum loss of NZ$15, English said.

The largest losses would be borne by higher income families with children aged 16 or 17 and no younger children, English said.

“Working for Families is a broad and generous scheme and that will remain the case. But these changes will better target payments towards lower income families, ensuring the scheme is sustainable into the future,” English said.

“The cost of Working for Families has roughly doubled from about NZ$1.5 billion in 2005/06 to about NZ$2.8 billion this year. That kind of growth is no longer sustainable and without changes the scheme would quite quickly become unaffordable,” he said.

“These changes will save NZ$448 million over the next four years, compared to what the scheme was forecast to cost. The total cost of Working for Families will reduce to NZ$2.6 billion in 2014/15.”

The changes:

The next four times Family Tax Credit (FTC) payments are adjusted for inflation:

• The WFF abatement threshold will decrease by $477 on the first adjustment, and thereafter each time by $450.
• The WFF abatement rate will increase each time by 1.25 cents in the dollar.

After those four adjustments, WFF will therefore have:

• A slightly lower abatement threshold of $35,000, compared to the current $36,827.
• A slightly higher abatement rate of 25 cents in the dollar, compared to the current 20 cents in the dollar (this means WFF payments will reduce faster as income increases).

As the law already prescribes, FTC payments will next be adjusted for inflation on 1 April 2012, and thereafter every time CPI inflation cumulatively reaches 5 per cent or more. On current forecasts these further changes are expected to occur on 1 April 2014, 1 April 2016 and 1 April 2018.

In addition, inflation adjustments to FTC payments for children aged 16 and over will be temporarily halted until payment rates for children aged 13 to 15 catch up with them, as they will after successive inflation adjustments (this will reduce the number of different FTC payment categories from five to three).