Will Working for Families changes leave people worse off?

Otago Daily Times

a day ago

By Susan Edmunds of RNZ
An organisation representing financial mentors around the country is worried that proposed changes to the Working for Families scheme could leave some families worse off.
As part of the Budget, the government said it would look at options to help avoid the issue of Working for Families debt.
In the 2022 year, only 24 percent of households receiving weekly or fortnightly Working for Families payments and who were squared up by IRD at the end of the tax year had received the right amount of money.
People who earned more than expected can end up with an overpayment debt that that they struggle to pay back.
There is almost $300 million owed in Working for Families debt.
A discussion document, on which submissions were sought, said the government's current thinking was that a quarterly assessment of Working for Families eligibility could strike the right balance between responsiveness, certainty and recipient effort.
This would adjust what people were paid much more frequently.
But Fleur Howard, chief executive of FinCap, said in a submission in response that she was worried that some families could be left without enough money.
A shorter quarterly assessment period would be an improvement, she said, but it needed to be refined.
"Aspects of the proposed design appear to suit some whānau situations better than others. We are concerned that in its current state, this design would have a disproportionally negative impact on those who are already experiencing financial instability due to more fluctuations in payment amount."
She said FinCap's internal data showed most financial mentor clients had a weekly budget deficit even after they had received help.
"More often than not, this deficit is due to whānau trying to pay for essentials, and commonly going into debt to do so.
"This, among other markers, points to the fact that government support is not currently adequate to cover living expenses. We have concerns that some of the proposed changes would exacerbate income inadequacy in certain scenarios, particularly for whānau who need that money week to week."
She said an example used in the discussion document, outlining a situation where a woman on the sole parent benefit went into additional work for a short period of time, highlighted a potentially unacceptable outcome.
In that case, the woman's Working for Families credits would be reduced by $130 a week for the quarter after her temporary work, even though she was no longer in work, because the calculation was based on the higher income from the previous quarter.
"We can see that the 'lagged income' mechanism makes sense from the perspective of achieving accuracy, however the potential for a decreased payment below what a whānau is entitled to poses real risk for wellbeing and social participation.
"There is also a real concern over the dynamic whereby a quarterly period of higher income followed by a quarterly period of low income would see increased hardship within the low-income period, due to those payments reflecting the past higher income.
"While this could be squared up during the end of year process, our data tells us that most whānau living week to week need that money as part of their weekly payments."
Howard said mentors were also concerned something similar could happen if someone lost a job and went on the benefit, because their reduced income would not show up in the Working for Families calculation for another quarter.
"Whānau need every cent they are entitled to in a timely manner when events such as job loss occur."
A solution could be for the quarterly assessment period to look forward, rather than backwards, she said.