More than half a million low income New Zealanders collectively owe the government $3.5 billion. Why do they owe so much and can they even pay it back?
What happens when you're in debt to the government and you can't pay it back?
More than half a million low income New Zealanders collectively owe the government $3.5 billion, with debts across Inland Revenue, the Ministry of Justice and the Ministry of Social Development (MSD).
"We determine problem debt to be debt that's become unmanageable," says Ngā Tāngata Microfinance chief executive Natalie Vincent.
"It's when it's spiraling out of control, it's causing you a lot of stress and anxiety, you're worrying about how you're going to pay your debt, as well as meeting other commitments.
"And worst case scenario you're borrowing further to pay for existing debt."
Ngā Tāngata Microfinance provides people on low incomes with no interest loans, to help them get out of a tough spot or get their debt under control.
Vincent says most of the people they help have some debt to the government alongside other consumer debt.
"For a lot of people, that debt when they first took it out, it may not have been unaffordable – not all lending's irresponsible – but circumstances change, incomes change, family situations change and suddenly debt can actually become unaffordable and unmanageable," she says.
People can end up in debt to government for a number of reasons.
There can be unpaid taxes and child support to Inland Revenue; unpaid fines or legal aid debt to the Ministry of Justice; and benefit overpayments (through error, or in rare cases, fraud) or recoverable hardship grants to MSD.
In the Cabinet paper, officials acknowledge that problem debt can have a significant impact on individuals and whānau in hardship, contributing to financial hardship, stress, poor physical and mental health, stigma and social exclusion.
"Individuals and whānau with problem debt are more likely to experience income inadequacy and poor health, and to engage in risky behaviour or violence. This comes at a cost to government, through spending on health, welfare and justice services, as well as the cost of debt recovery," the Cabinet paper says.
While MSD doesn't charge interest and the repayment amounts of under $40 a week seem small, Vincent says they can be crippling for someone on a low income, whether it be the benefit or a low wage job.
Further to that, unlike other government agencies, MSD doesn't have the ability to write off debt on hardship grounds.
Vincent says that's especially problematic, because many people with MSD debt have borrowed to pay for essential items, like school uniforms or household appliances.
And it's a problem that’s likely to be exacerbated by the rising cost of living.
"It's just showing that people are going backwards by a staggering amount every week, they cannot live on what they're receiving, whether that be low income employment or whether that be a benefit, the levels are just not high enough," Vincent says.
"People are having to borrow to keep up with just basic living costs."
The Cabinet paper acknowledges that dealing with debt to government has the potential to substantially improve the lives of many families: "Reducing debt for people in hardship will help some of New Zealand's most vulnerable children, and contribute towards reducing child poverty and in particular, reducing rates of material hardship."
Vincent, and others working in frontline social services, are calling on the government to wipe all debt to MSD.
"I think it's completely viable, and I think it's something that they do need to do...I don't think we can afford not to."