Thursday, March 30, 2006

Charles Waldegrave: Family package logical for children's welfare

Bringing up children is a costly business. Most income and expenditure studies show that the parenting phase is the poorest phase in the lives of most adults when all income and costs are taken into account.

The Working for Families package is a smart piece of public policy that invests in children and their families. The substance of the package begins on Saturday.

Practically all parents love their kids and happily give up sleep, independence and plenty of resources for them.

In reality this comes at a considerable cost.

Our research in the New Zealand Poverty Measurement Project has shown during the 1990s and the early part of the new millennium, that more than 30 per cent of all children lived below the poverty threshold, whereas fewer than 20 per cent of all adults suffered the same experience.

The trend of these figures is not dissimilar from other countries with similar situations.

That is why governments in most OECD countries have developed family assistance packages.

The Australian Government, for example, pays tax credits to 82 per cent of their families with children at a cost of $15 billion ($17.5 billion) a year.

Britain goes further with a weekly child benefit that is available to all families regardless of income and a child tax credit for most.

The New Zealand version, Working for Families, will cost about $1.6 billion a year and reach 348,000 families with children.

This is about a third of all households and three-quarters of all the households with children. It is the biggest fiscal investment in the children of this country in three decades.

The biggest part of the package begins payment to families later this week.

Most families with children, where the combined income is under $60,000 and at least one parent is employed, will receive on average $100 a week extra.

This sort of sum can make a real difference for children. Increased family assistance in other OECD countries has been shown to improve health, education and housing.

But the policy has its critics at both ends of the political spectrum.

There are those who say that Working for Families is pushing a beneficiary handout mentality into the middle classes.

They say it would be better to help families by replacing the policy with tax cuts for everyone.

But 90 per cent of Working for Family payments are tax credits paid through Inland Revenue Department, not welfare benefits paid through Work and Income, such as the unemployment benefit and domestic purposes benefit.

They are work-related tax credits for families with children.

Tax cuts across the board would not invest in children in the same way.

Furthermore, to the extent that they could help families, they would invest more in the children of the wealthy rather than those on low and middle incomes.

The greater the income, the more the family would gain.

The argument against Working for Families from the other end of the political spectrum is that families on income-tested benefits are discriminated against.

Such families are entitled to parts of the package, including more income through increases in family assistance and the accommodation supplement.

They are not, however, entitled to the new in-work payment and the family tax credit parts of Working for Families, which are only for those who work 30 hours or more a week or, in the case of sole parents, 20 hours a week.

Working for Families has been designed to encourage people to move off benefits and into work.

The in-work payment part of the tax credit system has been planned to make work pay much more than a benefit.

The incentive has been backed by United States research which shows that income supplements help people in temporary, low-paid and insecure jobs to gain a sustainable foothold in the labour market rather than being constantly recycled through temporary employment and then unemployment.

It is hard to see how people on benefits are discriminated against simply because they don't receive a tax credit designed to give people incentives and traction in the labour market.

With our unemployment among the lowest in the OECD, the opportunities for work and the substantial tax credits are considerable.

Providing an incentive to move people off welfare is a rational step.

For those of us who have worked to reduce poverty and increase the living standards for low and middle-income families, Saturday is a red-letter day.

After years of crude policy settings with a single focus on the economy to the neglect of the social contribution, this is a welcome balance of social and economic policy.

* Charles Waldegrave is a social policy researcher at the the Family Centre Social Policy Research Unit and joint leader of the New Zealand Poverty Measurement Project.

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