Treasury warns benefit boost won't make a difference for two-fifths of poverty-stricken children

A document dump related to Budget 2021 has revealed officials warned that increasing the benefit won't make a difference for two-fifths of poverty-stricken kids. 

Beneficiaries got a $3.3 billion bump in the Budget, which saw the Government go beyond recommendations made two years ago by the Welfare Expert Advisory Group, to increase benefit levels to help reduce poverty. 

The Government already increased the benefit by $25 a week last year. From July 1, it was lifted again by $20 a week, and a second increase will occur again next year. Families and whānau with children will also receive a further $15 per adult per week.

It means weekly benefit rates will increase by between $32 and $55 per adult by April 2022. The Government expects that 109,000 families and whānau with children will be, on average, $175 a week better off as a result of changes to income support, since 2017.

But in newly-released Budget documents, Treasury officials warned it won't make a difference for two-fifths of children currently living in poverty. 

"While benefit increases of this magnitude will substantially reduce poverty, both for households with and without children, it is important to note that around 40 percent of children in poverty live in working households and therefore do not gain from these increases."

Treasury officials said many of these children would benefit from increases to family tax credits (FTCs) instead, as this is received by both beneficiaries and low to middle-income working families. 

"The FTC has greater coverage of households with children on low to middle equivalised incomes (on the other hand, it is not available to those without children)."

FTCs fall under the Working for Families package first introduced in 2004 by Helen Clark's Labour Government. It included family tax credits for families with dependent children and 'Best Start' payments to assist with the costs of a new baby. 

Jacinda Ardern's Government in 2017 announced $5.53 billion over four years for its new Working for Families package, which included 'Best Start', a winter energy payment, family tax credits and higher accommodation supplements. 

Prime Minister and Minister for Child Poverty Reduction Jacinda Ardern.
Prime Minister and Minister for Child Poverty Reduction Jacinda Ardern. Photo credit: Getty

It was confirmed earlier this year that the multibillion-dollar package is set for an upcoming review, which will "consider options to better support low-income families with children, particularly working families", Treasury officials note.  

But documents also show Treasury's concern about how the benefit boost might limit the incentive for people to find work. 

"While financial incentives are only one factor that affects people's decisions to work, increasing out-of-work incomes without a subsequent increase to in-work incomes reduces the financial return from work," the documents say.

"There are already relatively weak financial incentives to work full-time for some people, such as sole parents and secondary earners in couples with children on low wages/earning the minimum wage. These benefit increases will weaken these incentives further."

Once again, Treasury said any negative impacts on work incentives for families with children "could be mitigated through increased income support for working families through changes to Working for Families". 

Treasury also said the impact could be mitigated through an increase in Childcare Assistance. Budget 2021 committed $13.3 million over four years to index Childcare Assistance income thresholds to annual growth. 

The Government increased the minimum wage this year to $20 an hour, after it previously sat at $18.90, which Treasury acknowledged would also help to encourage people to work rather than take the benefit.

Treasury also warned in the documents that the benefit increase could "reduce the financial incentives to study", but this was mitigated by a promise to give students an extra $25 extra a week from April 2022. 

Concerns were also canvassed in the documents about whether the benefit boost could end up sparking higher rents, if landlords decided to bump them up given beneficiaries would have more to spend. 

Ardern said in May she was confident it wouldn't cause rent rises because she went "back through the evidence" to identify any correlation - and it appears she was right.  

The documents say Ministry of Social Development officials found "no evidence that the 2020 benefit increases had a corresponding impact on housing costs for benefit recipients".