Ideasroom

Covid-19: A catch-22 for our most vulnerable

Low-income workers whose jobs have disappeared thanks to Covid-19 will increasingly need to access benefit income. When this happens, however, they lose a tax credit for their children.

As a direct result of the Covid-19 crisis, the Government has improved its rescue policies for business. We now need to see urgent adjustment to policies that support low-income children. 

Adults on benefits will get some modest and desperately needed help from April 1. By May there will also be a higher winter energy payment. But the extra income needs of children have been all but invisible. 

In a very timid move, from July 1, families who have some employment income but cannot meet the required hours of work can retain the ‘In Work Tax Credit’ (IWTC) for the support of their children. Only about 19,000 families will qualify for this payment of at least $72.50 a week, at a tiny expected cost of $32 million. Even this is not a cost unless you think it was ever legitimate to save money by penalising children when parent lose their hours of work.

Here is an example given with the Covid-19 package:

"A is a sole parent that works 20 hours per week normally, earning income, and not receiving a main benefit. Because of this, A is eligible to receive the IWTC. However, in light of Covid-19, A’s hours may be reduced to 10 hours per week. Because of this, she would no longer be entitled to the IWTC. This change will allow A to continue to receive the IWTC in these circumstances.”   

But the problem with this example is that this sole parent will probably soon need a benefit and then her children will miss out. 

Low-income workers whose jobs have disappeared will increasingly need to access benefit income. When this happens, they lose the IWTC for their children. The IWTC cannot operate now as a work incentive, if indeed it ever could. In short, it is wrongly named. For low-income families the IWTC is just part of the Working for Families weekly payment to the caregiver for their children. It adds to the Family Tax Credit and is last to disappear when families gradually lose their Working for Families payment when their household income goes above $42,700.  

CPAG fought in the courts to establish that the IWTC be primarily payment for children and won that point. Unfortunately, while the courts agreed poor children were harmed by being excluded from benefitting from this payment, and that exclusion was discriminatory, they did not rule that this was illegal. Now is the time to remedy that.     

July 1 is three months away. This is an eternity for children and their parents. CPAG, like other NGOs, is hearing stories of sheer desperation. Families who couldn’t stock up even for a few days because they live benefit day to benefit day, families who have no fridge, families without internet or computers to keep learning going, to say nothing of families with special needs. The food needs of confined and hungry children, especially teenagers, will sky-rocket. Help for children is needed right now.

The obvious way to help the worst-off children, easily and immediately is to deliver the IWTC to all low-income families, including those receiving benefits. This group will soon include thousands who have lost their jobs due to Covid-19. The cost of doing this for those who currently miss out is around $0.5 billion. 

The state should not be saving money by denying IWTC to those who now fail to qualify, whether in the next days, weeks, or after July.  But without this policy change, that is exactly what will happen as more and more families lose entitlement to this significant payment. 

Help us create a sustainable future for independent local journalism

As New Zealand moves from crisis to recovery mode the need to support local industry has been brought into sharp relief.

As our journalists work to ask the hard questions about our recovery, we also look to you, our readers for support. Reader donations are critical to what we do. If you can help us, please click the button to ensure we can continue to provide quality independent journalism you can trust.

With thanks to our partners