A problem with Working for Families’ abatement rates

Methodist Mission southern director Laura Black.

Increasing the minimum wage as a way of lifting people out of poverty has a strong track record.

It has been supported by both main political parties in New Zealand, doesn’t seem to affect overall rates of employment that much and creates a gap between the dole and work that is supposed to encourage folks to want to work.

Working for Families (WFF) has been around now for nearly 16 years.

In terms of government policy, that’s pretty mature stuff – it survived nine years of a National government after being created by a Labour one.

WFF is a way of getting extra money to working folks with children who are not earning enough.

There are hundreds of thousands of families who rely upon the WFF top-up.

But there’s a place where these two things combine badly.

And it seems to be for people working between 20 and 36 hours a week, on minimum wage, getting Working for Families.

These people don’t get to spend the increase in their minimum wage when it gets hiked, because of the abatement rates (the price point at which WFF is lowered for you earning more).

Although their gross income is increasing, their take-home stays flat.

All that is happening is that the taxpayer is saving money, while employers are paying more.

But the worker and their family do not see any of that extra money.

This matters. By definition, being on the minimum wage is pretty tight. Having a family, as most folks know, is not exactly cheap.

And 40% of the children living in poverty in New Zealand live in a household where work is the main source of income.

This should have an easy solution. The abatement rates need adjusting when the minimum wage is changed.

It’s an easy solution that would help out thousands of Kiwi families.

It would be fairer. It would help “incentivise work” (in the language of social welfare these days).

It would make a huge difference to a good portion of those 40% of children living in poverty.

So why hasn’t it been done?

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