Families package rolls out to thousands more
01 April 2006

Families earning up to $142,000 a year get more in their pockets from today as the Government rolls out its Working for Families programme. Pensioners, students with loans, some Kiwis returning from overseas and businesses are also set to benefit from measures introduced today. But there is bad news for motorists, who will pay one cent a litre more at the pumps under the first inflation-linked rise in the proportion of petrol tax set aside for new roads.

From April 1, Working for Families is extended to an estimated 85,000 more households.Other changes include increasing superannuation to 66.12 per cent of the net average wage. That will give an extra $12.44 a week to married pensioners and $8.09 for those living alone and will cost $181 million in 2006-07. Also from today, interest on student loans is wiped for borrowers who remain in New Zealand, a key election promise that will cost about $1 billion during the next five years. The interest is wiped automatically, though it can be reimposed if borrowers leave the country for more than six months at a time.

Kiwis returning from overseas after 10 years away will not have to pay tax on foreign earnings for four years and businesses will benefit from a decrease in fringe benefit tax. The Government hopes Working for Families changes will lay a solid foundation for its third term, an even help kick-start a stalling economy. However, National says the changes discourage low-income families from earning more and beneficiaries from moving into work. Finance spokesman John Key said the changes were also likely to leave thousands of self-employed taxpayers in debt to Inland Revenue.

The Working for Families increases come about because the amounts paid and the earning thresholds at which families become eligible have been raised. The biggest change is the new in-work payment, which replaces child tax credits and will be available to more than 200,000 households at a cost of $530 million a year. It is worth $60 a week for the first three children and an extra $15 for each extra child. Because of the new income thresholds, it will be available to a six-child family earning up to $142,120. The previous system paid $15 for each child.

Social Development Minister David Benson-Pope says the changes mean three out of four Kiwi families will now be eligible for assistance, including almost all those on less than $70,000 a year. But the income level at which the payments kick in has caused much criticism and debate over across- the-board tax cuts, favoured by National, compared with targeted relief.

Mr Key said the changes made beneficiaries of the wealthy and he warned that the inclusion of more self-employed workers could create problems. "The whole model says you have to work out how much money you earn, and if you say you're going to earn $50,000 a year and actually end up earning $60,000, then you get too much under Working for Families and have to repay it." He said that when a similar scheme was introduced in Australia, about $1 billion a year was overpaid in the first two years, much of which had to be written off.

There are also concerns about the message the programme sends to low-income families and beneficiaries, who face big marginal tax rates if they increase their earnings. National's revenue spokesman Lockwood Smith said a domestic purposes beneficiary with three children whose income from work increased from $10,000 a year to $25,000 would keep only $1694 of the extra cash.

Finance Minister Michael Cullen dismissed the example, saying the abatement rate had been in place for many years. Mr Benson-Pope's office also rejected concerns about recipients running up debt. Inland Revenue could track income fluctuations and self-employed workers could choose to take in-work payments in a lump sum at the end of the year.