Helping hand or poverty trap?
With the Government’s Families Package increases on the horizon, Working for Families has been called into question. Joel Ineson speaks to a mother ‘‘trapped’’ by the help she receives, and a budget advice expert who says the system has contributed to New
When Sue* got a promotion and $16,000 pay rise, she thought she would be able to start saving and eventually take her three children on holiday.
Instead, tax credits and subsidies decreased for the solo mother, leaving her only about $50 a week better off despite moving into full-time work.
In March, she was given the opportunity to take on a new role at her workplace, moving from a 30-hour week to 40, and having her pay increased from $36,000 to $52,000.
‘‘I was only just getting by [before]. Every single thing was budgeted and I used to do two trips to the shop – one for food and another to get nappies and formula – so that I found it easier to get to the checkout and not get a shock,’’ she says.
‘‘I had to have everything budgeted. I just thought if I could get a better job or more money it’s just going to remove that stress.’’
Before tax, Sue’s new earnings were about $310 extra a week. Because she is the sole breadwinner for her family, she was previously entitled to an $81-per-week accommodation supplement through Work and Income – but a higher salary reduced that to $8.
A weekly $311 Working for Families tax credit was also reduced, to $239.
Before the pay increase, Sue would get about $911 a week in the hand, including the supplement and tax credits. In the new job, she was left with $962. Both figures include child support received.
Sue got a reprieve from April 1 when the Government rolled out the first part of its Families Package; her accommodation supplement increased by $100, ‘‘but it would’ve gone up by $100 if I’d been on $36,000 as well’’.
The new supplement also affected a childcare subsidy, which she required to be able to go to work.
Work and Income provides the childcare subsidy to anyone with a gross weekly income lower than $1400. Sue’s new job moved her into a new pay bracket, reducing her childcare subsidy by $43 a week.
Work and Income put her on a ‘‘transitional assistance payment’’ which covered the childcare deficit, but if she gets another pay rise it gets worse – the payment stops if her income increases, the accommodation supplement stops or she gets a Working for Families payment increase.
On July 1, the Government will roll out another phase of its Families Package, increasing Family Tax Credit rates and raising the income threshold for eligibility.
According to an estimate on the Work and Income website, Sue’s tax credit entitlement will increase by nearly $80 a week. However, she will lose the $43 childcare subsidy and it is unclear whether her accommodation supplement will decrease.
‘‘I don’t want people to think I’m not grateful for all the help that I get from the Government – I am.
‘‘I would rather they encourage people to work . . . with tax cuts. But welfare encourages people not to.’’
Kay Read, the Ministry of Social Development’s group general manager for client service delivery, says the assistance available to people in work, like Sue, remains a better situation than receiving a benefit.
‘‘While the income from working may not be hugely different initially as other assistance reduces, opportunities from working are better than on a benefit,’’ she says.
‘‘Working helps you get the things you need and helps you use your skills in your community. Working can help to make people happier, more selfconfident, [and] there is evidence that work is good for your mental and physical health.’’
Work and Income can also help with one-off, urgent or unexpected costs, Read says.
Beneficiary Advisory Service spokeswoman Rebecca Occleston says that, although the service deals mostly with beneficiaries, situations like Sue’s are not uncommon.
‘‘Better off is better than being worse off, but it doesn’t seem like a lot for an extra 10 hours-a-week’s work. You’re then, what, working for $5 an hour.’’
Workplace growth ‘a waste of time’
Sue says she does not want sympathy, but to highlight what it is like for many New Zealand families wanting to get ahead. She says she is doing everything in her power to provide a better life for herself and her family.
‘‘There are all these people who comment ‘you need to work more’ or ‘you need to get a better job’. Well, you work it out . . . We’re trapped.’’
Staff at Work and Income have ‘‘always been fantastic’’; she enjoys her job and is grateful for the new opportunity. Sue is reluctant to compare herself with the many working poor struggling to make ends meet across the country because a knack for budgeting means she can make ends meet.
Last month, Salvation Army head of welfare services Pam Waugh said the growing number of those seeking help like food parcels was ‘‘fast becoming a national crisis’’. Charities like 0800 Hungry and the Christchurch City Mission have reported increasing numbers of working families requiring assistance.
Sue managed without having to reach out to such charities because every cent she spent was pre-meditated and a big bag of potatoes or rice could go a long way.
‘‘I’m not flush with money and certainly if there was a big bill, like the car broke down, I’d have to figure out what on earth I was going to do, but we’re certainly not starving, we have a roof over our heads,’’ she says.
‘‘The point is that for any of these families [like mine] it’s just so hard to try and help yourself.’’
The Working for Families scheme seemed to have ‘‘the unintended result of trapping people in poverty’’, and her situation is not unique, she says.
Single-income families where the stay-at-home parent decides to get a part-time job, a working parent being offered overtime or a small pay rise, or parents completing qualifications to seek employment could all be affected.
‘‘In all of these situations, the financial benefit to the families would make their efforts a waste of time.’’
Her concerns with the Working for Families set-up are echoed by David Marra, who manages the Christchurch Budget Service. The service has operated for 50 years and specialises in helping people permanently, casually or selfemployed.
‘‘[Situations like Sue’s] have been an ongoing problem for years,’’ Marra says.
It began when the Helen Clark-Michael Cullen Government brought in Working for Families after wages were ‘‘held down for a long time’’ from National earlier introducing the Employment Contracts Act in 1991, he says.
No particular government could be entirely to blame. Clark’s had improved working families’ situations, but ‘‘overlooked’’ the fact it did not improve conditions for all workers. When National was elected in 2008, there were no amendments to the policy, nor was it overturned, over the next nine years.
‘‘Whether it was intentional or whether it was an unintended consequence . . . Working for Families has worked as a mechanism to keep wages down because it removes motivation,’’ Marra says.
‘‘It removes . . . the incentive, for workers [with families] to go for relatively small or moderate pay rises because it actually has no effect on the household income – because Working for Families tops up the income and then it abates [when pay increases].’’
But the policy also has an impact on the wages of those who do not have families, Marra says. They have to compete with those receiving Working for Families, who would be happier to settle for a lower salary because the tax credits brought them up to the median income anyway.
‘‘Why would I employ you if you have no children and I have to pay you more when I can employ Bill, who has children and because there is this subsidy I can get Bill for cheaper than you. So I’m going to employ Bill.’’
Those factors, along with the Employment Contracts Act, have created ‘‘downward pressure’’ on all incomes ‘‘and that is part of what has created this low-wage economy that we have going on in New Zealand’’.
‘‘It means wages are kept artificially low, because the wage is no longer about having adequate income to support a family, it’s just allowed wages to be a market figure.’’
The result is that Working for Families, framed as a tax credit, is functioning as ‘‘an employer subsidy’’.
‘Don’t keep up with the Joneses’
Part of the way Sue manages her funds is through a revolving credit mortgage, where her home loan is an everyday account and money can be spent up to a certain credit limit.
Interest savings are increased by keeping the account’s overdraft balance as low as possible, requiring careful budgeting so as much money as possible is in the account at any given time. ‘‘Each month the fixed expenses such as mortgage, rates, internet, phone and all the insurances come out of it,’’ Sue says.
‘‘We also have Sky, shock horror, that comes out of this fund. There’s around $30 left over [each] week which sits and builds up on the revolving credit and I use this when the annual expenses fall due, like registration, WOF [and] new tyres. Basically, I don’t touch this fund.’’
About $350 of her weekly income goes into a spending account, to cover groceries, fuel, power, additional childcare costs and any other expenses.
‘‘I allow $50 a week for fuel, $80 for power . . . [and] try to allow $100 for groceries a week.’’
She sets aside an additional $30 for other items like nappies, baby formula, cleaning products and other non-food items, meaning she is left with about $40 in this account ‘‘on a good week’’.
Marra says these costs need to come before anything else is spent. Then the cost of having an income has to be taken into account.
Things like specific work gear, clothing, the cost of childcare and transport for work should all be separated from people’s weekly income.
Having long-term savings, like KiwiSaver, and a short-term emergency fund are important steps. People should avoid credit cards ‘‘unless you are super disciplined’’.
Other than that, people could make significant savings ‘‘by changing their behaviour’’.
‘‘Examples are as simple as making their own lunches and drinking the boss’ coffee. The big one to avoid is expensive consumer debt, and buying expensive toys like cellphones with features you will never use on plans.
‘‘The message is don’t keep up with the Joneses – they are probably in debt.’’
* Stuff has kept Sue’s identity hidden to protect her children.