An anti-poverty lobby group has told the Court of Appeal that Working for Families tax credits have failed to help the country's poorest children.
The Child Poverty Action Group says the In Work Tax Credit is only available to working parents, and therefore discriminates against children in beneficiary families.
The group says beneficiary parents have to get off welfare and obtain a minimum number of hours required in paid work to qualify, which is not possible for 99% of them.
Its lawyer, Frances Joychild, told the court on Tuesday the tax credit was designed to encourage beneficiary parents into work, but she said many other hurdles prevent them working.
She said 227,000 children of beneficiary families are living in poverty and excluded from a credit that would mean at least $60 a week.
Ms Joychild said working families with one child still receive part of the tax credit when earning $71,000 a year, while many beneficiary families earning $15,000 a year get nothing.
Child Poverty Action first challenged the tax credit in the Human Rights Review Tribunal in 2008 and wants it declared illegal.
The two-day hearing in Wellington ends on Wednesday.