Ardern Jacinda: Support for Children in Hardship Bill — In CommitteeText is incorporated into the Bound VolumeArdern Jacinda: Support for Children in Hardship Bill — In Committee[Sitting date: 01 December 2015. Volume:710;Page:8414. Text is incorporated into the Bound Volume.]JACINDA ARDERN (Labour): We come now in Part 3 of the bill to the amendments that relate to the inland revenue Acts. There has not been a significant amount of debate in this Committee on these elements of the bill but what we are debating does affect the current in-work tax credit the minimum family tax credit and some of the abatement rates and thresholds—so all of those obviously relate to the inland revenue Acts.I thought what may be most useful in my contribution on Part 3 is to reflect on some of the analysis that was carried out by submitters for this part of the legislation because obviously what I think we all need to concede in this Committee is that we do have a relatively complex range of tax credits in this space.What is clear when you are debating any kinds of changes to family support is that they are not particularly well-known or well understood. For instance the Working for Families tax credit package is often just known for the in-work tax credit but that is only one element of that package. There is also the family tax credit which obviously applies to beneficiaries and there is the overlay of a minimum family tax credit which exists to ensure that the minimum amount a family will receive in work is above the benefit rate. Overlying all of that of course is the abatement regimes that apply to all of those tax credits and so on. It is a reasonably complex environment that this new change has come in and added itself to. So it is good I think if we reflect upon the analysis provided by some of those submitters.So as I said in Part 3 we are looking at three elements: the in-work tax credit the minimum family tax credit and abatement. When it comes to the minimum family tax credit as I said this provides a guaranteed minimum level of after-tax income to low-income families in full-time work. There is this assumption that if you are in full-time work you always need to be earning above a benefit rate in order to create the incentive to be in work rather than on a benefit. That incentive is inherently built into our system. I think we should be really clear on that.In fact most of the analysis around the gaps between benefit rates and rates in work demonstrate that a significant gap has actually grown into our system—a significant gap—which is why it is so hard to adjust child poverty rates. In fact I would be really interested to hear the Minister’s view on the role of the minimum family tax credit now because the analysis by the Child Poverty Action Group suggests that we have about 4000 families receiving that tax credit of roughly $12 a week. So it is a minimal payment for a small number of people which I think demonstrates that inherently our system does make sure that there is a significant difference between what you receive in work and what you receive on a benefit and I would say that that has to be credited to some of those tax credit regimes already in place.Putting that aside let us come now to the in-work tax credit and the question of whether the Minister considered removing the minimum family tax credit and perhaps just bolstering for instance the family tax credit generally. I would be really interested to hear that.The in-work tax credit obviously has not been a credit that is without controversy but the Children’s Commissioner supported in his submission the increase in support for Working for Families. He was of the view that the increase to the per-family rate of the in-work tax credit would be unlikely to make a significant impact for children in larger families. This comes back to the point we were making earlier that in our view any change the Government was going to make—whether it was $25 a week to the base benefit rate—should have been per child. I think that is a position that is being endorsed here by the Children’s Commissioner. The Diocese of Christchurch Child Poverty Advocate submitted that the increase in Working for Families was in its view minimal and unlikely to make a significant impact.I guess our view again would be shared—we are in support of any increase in those base rates. The in-work tax credit we need to keep in mind though is obviously about creating that differentiation between benefit and work so it is benefiting those who are in work. The point we probably need to make there is that those in work are often still in poverty as well so we cannot I think make the simple assumption as the Minister and others have claimed that work is the sole answer. We know that it is not necessarily.I come to the minimum family tax credit. I have already spoken on that so let us actually dodge over that and come straight to the wider issue of abatement and threshold changes. Here obviously we are working in an environment where there have been a number of changes already made by that Government to abatement regimes and one of the points that was made by submitters is that for some this increase will not actually bring those families up to the level where they were prior to the Government’s tweaking with Working for Families and the changes to that regime.The Children’s Commissioner again talked about changes to the abatement rates and stated a concern that they would reduce support for low-income families with children. The Children’s Commissioner’s submission noted that the change in abatement rates would mean that families earning over $36350 would have their tax credits reduced at a higher rate. I think we would all agree that a family earning $36350 is not a family flush with cash when it potentially is raising multiple children in that situation and we can add to that high accommodation costs. That is a difficult situation.The submission also noted that the impact of the abatement rate will be greater than the increase in the in-work tax credit for families over $88000 per annum so overall the Children’s Commissioner is obviously of the view that the increase in the abatement rate will reduce support for families who are only moderately better off. Again abatement rates are always problematic. There is always a point at which you have to start putting in a decline unless you are looking at universality of course to some degree. But I think the point that has been made here is perhaps that the point at which it is being added is not the right place. The changes over years that have been made by the Government to Working for Families around abatement have had a cumulatively negative impact for families.I want to come to the family tax credit though because this is the element of the Working for Families package that has the broadest reach. My interest in all of this when this was first put before Parliament was about why the family tax credit was not used as the tool to lift incomes for families on low incomes. That would mean that you would help beneficiaries but you would also reach families in work who were in poverty. It is a perfect tool.I asked that question to Mr Perry at the select committee. Mr Perry is obviously at the heart of a lot of the analysis around income adequacy in New Zealand and really key to these pieces of research and debate. The response that I got around why the family tax credit was not used instead of just a base benefit increase was that the Government presented a pool of cash that was available and that the package was designed around that. So rather than coming with an issue and saying “Look we want to reduce the severity and persistence of poverty for children in New Zealand. What can we do?” we instead started with a different premise altogether. I think that very much demonstrates why we have the design that we have in Part 3.As has been summarised by the departmental report submitters did propose that the family tax credit could be increased instead of the in-work tax credit so that all children benefit but it is very clear in this part of the report. It states: “In first developing the Child Material Hardship Package officials considered the full range of instruments available to deliver increased support to children in poverty and hardship. This included a range of tax-credit and benefit change options. Officials were tasked with identifying the most effective and efficient means to provide increased financial support that could be delivered by 1 April 2016 and within a maximum budget allocation of $1 Billion over four years. Officials developed and refined various packages of measures to achieve the desired impact within the allocation and delivery parameters. Ministers selected the option that they considered best met the … intent”.Best met the intent? The intent was to do something by a certain date and do it within a certain pot of money. The intent that was never set out was to find which children are to be targeted and why. If that was the case we would not just have homed in on a change to benefit rates. We would have gone for the family tax credit because that hits poverty. That hits poverty regardless of the source of income and you would not then have had to fiddle around with in-work tax credits and deal separately with base benefit rates.That is the problem with Part 3. It does not use the most useful instrument.