Anti-poverty groups call for Government to wipe Kiwis' debt to Ministry of Social Development

"I can't tell you what a difference wiping debt to MSD would make."
"I can't tell you what a difference wiping debt to MSD would make." Photo credit: Getty Images.

The Government's being called upon by a group of anti-poverty campaigners to wipe Kiwis' debt to the Ministry of Social Development (MSD), arguing it would make a "huge difference" to whānau in a cost of living crisis.

The Fairer Future coalition, made up of a number of groups like Auckland Action Against Poverty and Save the Children, released a report on Monday detailing seven stories of New Zealanders struggling to make ends meet.

One woman says she was accused of benefit fraud but later cleared in court. Afterwards, she found out she owed an $80,000 debt for child subsidy. While she doesn't understand how that figure was calculated and went through a review process, she is now on a payment arrangement to "pay back a bit of what they say I owe, week by week". 

"I want to pay it back because if anything happened to me, I wouldn't want this on my family. My youngest son has an intellectual disability and has faced real challenges at school. 

"$10 a week might not sound like a lot to pay back. But sometimes we need that $10. I know I won't ever pay back what they say I owe. 

"I'll be long gone by the time I get up to what I owe. I'd never experienced debt like this before. I'd had a mortgage and student loan, but those are different. I'd had a credit card. But you can pay off all those debts. This one feels like it's never going to go away."

She says the process has made her feel like a "criminal" and had significant impacts on her life.

"I can't tell you what a difference wiping debt to MSD would make. I'd be freer in my own head. It would lift things off my shoulders. But it's also the stigma that would change. I'd feel less self-doubt about people judging me."

The report said that in 2020, more than 461,000 people owed debt to MSD with an average debt of $3550. It's likely this will have grown over the COVID-19 pandemic. 

Debt to MSD can be accumulated through a number of ways, including recoverable assistance, benefit advances, or overpayments. 

"Wiping the debt is a small change that would make a huge difference to the lives of many whānau," says ActionStation's Max Harris.  

"With insufficient income support levels forcing people to choose between essentials like healthcare and food, they're forced into debt to make it through the week. 

"Then debt repayments are deducted from future income week-to-week, creating a cycle of stress and hardship. These conditions make it near impossible to put healthy food on the table, offer the best possible start for children, prepare for and recover from emergencies, and keep a roof overhead."

Carmel Sepuloni, the Minister for Social Development, said there is ongoing work on debt to Government. She said she didn't want to pre-empt what it may recommend.

The minister responsible for that work is Dr Deborah Russell. She said it is "progressing well".

"The report released today is timely as consultation on a proposed framework for addressing debt owed to Government begins tomorrow. The consultation period is open until 6 April after which officials will report back to the joint Ministers."

The Government says the overall amount of debt owed to MSD has been increasing at a relatively stable rate over the past few years. At the end of 2022 it was at $2.3 billion, an increase of $54 million over the previous quarter. About $1.5 billion is attributed to current clients.

 A Cabinet paper released last year said 566,600 low income individuals owe $3.5 billion of debt to MSD, Inland Revenue and the Ministry of Justice.

"Individuals and whānau with problem debt are more likely to experience income inadequacy and poor health, and to engage in risky behaviour or violence," the paper acknowledged. 

"This comes at a cost to government, through spending on health, welfare and justice services, as well as the cost of debt recovery."

The Government wants to make sure debt recovery is fair, effective and avoids exacerbating hardship. It also wants to prevent debt from occurring "so that it does not create future problems for those in hardship".

Sepuloni said on Monday: "We know that people incur debt to MSD for various reasons.  Sometimes it is a result of an overpayment which could be due to changed circumstances, other times it is through an Advance Payment of Benefit to purchase an essential item." 

"These items can include, but are not limited to, bond, rent, appliances, school supplies or furniture.

"Advance Payments of Benefit are interest free, and are paid back at a rate negotiated with MSD. MSD recommend that people on low incomes and in need of essential items talk to MSD prior to taking on interest bearing debt to see if an Advance Payment or Recoverable Assistance Payment (if they are employed), is right for them."

The limit to non-recoverable Special Needs Grants for dental treatment increased from $300 to $1000 in December. From then to January 23, the the average amount paid for emergency SNGs was $744, below the non-recoverable limit of $1000. 

Only four clients required additional recoverable payments for dental treatment during that period, with a total debt of $4000. During the same time period the previous year, 3,719 people required assistance above the previous $300 limit, creating debt of $4,111,639.

The Green Party is also calling on the Government to clear MSD debt. 

"Wiping debt to MSD would help people cover the essentials, protect against predatory lenders and give people the freedom and resources to do what is right for their communities," said Greens social development spokesperson Ricardo Menéndez March.  

"Right now thousands of people are struggling to pay bills and put food on the table. Even pre-pandemic people struggling to make ends meet were already trapped in a cycle of debt with the very agencies that are supposed to support them."