Tax credits lift 50,000 children out of poverty

from the New Zealand Herald

By Simon Collins

About 50,000 children have been lifted out of poverty in the past three years, thanks largely to higher family tax credits.

The number of children living in homes with equivalent incomes per person below 60 per cent of the national average, after allowing for housing costs, has dropped from 288,000 in 2004 to 235,000 last year, or from 28 per cent to 22 per cent of all children.

The reduction of about a fifth was mainly because of the Working for Families package, which phased in higher tax credits, accommodation subsidies and childcare subsidies during those three years.

But the figures - the first official measure of the effect of Working for Families - have already been outdated by skyrocketing prices of food and petrol since last year.

The Government acknowledged this yesterday by doubling the maximum food hardship grants from $450 to $900 a year for families with one or two children, and from $550 to $1100 for families with three or more children.

Budgeting services spokeswoman Raewyn Fox said the increase was long overdue. "I'm forever hearing from budget advisers that people have reached their limit and that they are being redirected to budgeting services to negotiate with foodbanks."

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The manager of Auckland social services for the Salvation Army, Gerry Walker, said the move would especially help beneficiaries, who missed out on the controversial $60-a-week "in-work tax credit" under Working for Families. "The focus up till now under Working for Families has been on those in employment," he said.

"The reality is that people on benefits, and I include superannuitants in that, have lagged behind, and I see this as a step in the right direction to rectify that."

The poverty figures, in a report by the Ministry of Social Development, show that even working families have not done as well as might have been expected out of a buoyant economy over the past three years.

Employment rose from 64 per cent to 66 per cent of all people aged 15 and over.

But after-tax average wages only barely kept pace with prices, and there has been a surprising jump in the number of couples where one partner now stays home to look after children.

As measured by the number of children affected in families where at least one parent works fulltime, the once-dominant pattern of one fulltime worker and one stay-home parent declined steadily from 54 per cent in 1982 to just 30 per cent in 2004 - but has jumped back to 37 per cent last year.

The report suggests this may be related to a recent rise in the birth rate. But economist Susan St John said the boost to family incomes from Working for Families had probably also allowed more couples to drop back to one income.

The increase in stay-home parents has had the ironic effect of helping to slightly reduce the real median equivalent income per person of two-parent families with children, after adjusting for inflation, from $26,100 per person in 2004 to $25,700 last year.

Real median incomes barely changed at all over the past three years for both single people and couples without children, because of flat real wages.

In contrast, sole parents with children have done well out of Working for Families, gaining from all the general tax credits and also lifting their employment rate from 48 per cent to 61 per cent over the three-year period to gain the in-work tax credit.

As a result, their median real incomes rose by 10 per cent, from $14,300 to $15,700.

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