19 May 2011

Working for Families reduced for higher income families

7:38 pm on 19 May 2011

Working for Families will be reduced for middle- and high-income households under changes announced in the Budget on Thursday.

The cost of Working for Families has almost doubled from $1.5 billion in 2005/2006 to $2.8 billion this year.

Finance Minister Bill English says the changes are necessary to ensure the scheme is sustainable into the future.

Mr English says they will save $448 million over the next four years, and the cost of the scheme will reduce to $2.6 billion in 2014/2015.


Social Development Minister Paula Bennett says the changes will ensure Working for Families is better targeted to those most in need.

The Government estimates about 280,000 families earning less than $70,000 a year will receive an increase in Working for Families payments.

About 110,000 households earning more than $60,000 will receive slightly less.

Some 7,000 of those will no longer be eligible for Working for Families in 2012/2013.

For example, a one-child family earning less than $30,000 a year will receive $4.60 more a week, while the payment for a two-child family earning around $60,000 will be unchanged.

A family with two children where the income is $77,000 a year will receive $3.82 less a week, and a family with two children and an income of $90,000 will receive $11.54 less a week.

Family Tax Credit payments will next be adjusted for inflation in April 2012 and then every time CPI inflation cumulatively reaches 5% or more.

The Government is to decrease the abatement threshold by $477 on the first adjustment and by $450 every adjustment after that.

Further adjustments are expected in 2014, 2016 and 2018. The abatement rate will increase each time by $1.25.

After those changes, Working for Families will have a lower abatement threshold of $35,000 compared to $36,827 at present.

The Government will also temporarily halt inflation adjustments to the Family Tax Credit for children aged 16 and over until the rates for children aged 13 to 15 catch up with them.

This will reduce the number of different Family Tax Credits from five to three categories.