NZ budget benefit hike unlikely to impact labour market, advice says

Friday 10th July 2015

The government's plan to put an extra $25 dollars a week into beneficiaries' back-pockets isn't expected to deter them from chasing employment, with tougher requirements on parents returning to work, higher minimum hours people have to seek, and more childcare support likely to offset any financial incentive to avoid finding a job, according to official advice.

In its May 21 Budget, the government announced an additional $240 million a year to low-income families on benefits and in work, while making new demands of sole parents, including that they be work ready by the time their youngest child turns three, rather than five years old, and increasing the number of hours parents returning to work have to seek to 20 hours from 15 hours, which would shift sole parents from the benefit to a working tax credit.

The changes take effect from April 1 next year and will add $25 a week to benefit rates for families with children, the first increase beyond an adjustment for inflation in 42 years. Childcare subsidies will rise to $5 an hour for up to 50 hours of childcare a week from a previous $4 level.

A Cabinet paper delivered by the office of the deputy prime minister Bill English, and released yesterday, details the National-led government's commitment to child poverty, while maintaining its austere fiscal approach.

"There has been a growing gap between the take-home incomes of beneficiary households and those of low to average wage workers," the cabinet paper said. While on one hand, that gap created a strong incentive to move from welfare to work, on the other hand there was concern about the children affected when their family resources fall further and further behind other households.

"There is a balance to be achieved," it said.

On balance, the increase to main benefits while still increasing incentives for low income families were "expected to have a small negative impact on financial incentives to work, and on labour force outcomes." However, more childcare assistance and the tougher requirements on families returning to work were expected to have "a strong positive impact on financial incentives and labour market outcomes."

Overall, officials' judgement of the package was that it was "well balanced" with "broadly neutral impacts on financial incentives to work and slightly positive impact likely in terms of employment outcomes overall."

There were 284,260 people on benefits at the end of the March 2015 quarter, a drop of 11,060, or 3.7 percent, compared to a year ago, according to figures from social development minister Anne Tolley. That's the lowest level since March 2009, the trough of the last recession.

Meanwhile, New Zealand unemployment has been trending down, and was unchanged at a revised 5.8 percent in the March quarter. The number of people employed rose 0.7 percent in the quarter, while the participation rate increased 0.2 of a percentage point to 69.6 percent, a new record.

The government expects the new package to cost $790 million over the next four years, with $245 million to be spent in 2016/2017, the first full year of the changes.

The cabinet paper breaks down who and how the package will flow through to low income earners and those on the benefit. It predicts 108,000 beneficiary families with children will have an extra $23.10, with 26,000 working families to receive an extra $8. Tax changes for low income families will earn up to $12.50 extra a week, while an increase to childcare assistance will see 18,330 working families get an extra $22.96.

BusinessDesk.co.nz

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