Understanding income changes as they impact on children

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Understanding income changes as they impact on
children

• Inequalities and Health Seminar
• Dr Susan St John
• Department of Economics
• University Auckland
• s.stjohn_at_auckland.ac.nz

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Children below the unofficial poverty line (MSD,
The Social Report 2004)
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Child poverty causes

• The benefits cuts of 1991
• Tax cuts of 1996
• Introduction of the Child Tax Credit,
• Lack of indexation of Family Support
• The explosion in housing costs
• Student loans and family debt
• Casualisation of low wage employment
• Social hazards such as drugs and gambling
• Time-fractured nature of family living.
• Invisibility of children

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1991 Winter lecture
Winter Lecture 1991
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Economic growth is not the answer
MSD 2003
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Doubling since 1996
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Measuring child poverty
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2004 Budget

• This is the biggest offensive in the war against
  poverty in decades
• Helen Clark
• Using a poverty value measure of 60 per cent of
  median household income there is expected to be a
  30 per cent reduction in child poverty by
  2007/08.
• Budget 2004

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Money isnt everything, but

• Children need
• Stable and secure housing
• Sufficient income
• Without this minimum, any family dysfunction
  cannot be addressed

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Background to neglect

• From Post war security
• 1986 Family Support/ Family benefit
• 1991 Family Support
• 1996 Family Support and the Child Tax Credit

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One child, two parent family on benefit

• Maximum Family Support
• 1986 42 a week
• 47 a week
• Needs to be 75 to have the same purchasing power

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(No Transcript)
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Work not welfare? The Child Tax Credit

• Rewards independence from the state, not extra
  hours worked.
• Complex
• Difficult to administer.
• Criteria are crude and discriminatory
• Punishes children whose parents who lose their
  jobs.

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Other countries do much better

• UK universal child benefit
• 16 for the eldest child
• each other child 11.
• Australia
• Quasi-universal payment of A 21.00
• Only 6 miss out and only when income is
  86,000-126,000.

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Problems

• Child-related payments are
• too low
• have not been adjusted for inflation
• cut out from low income levels
• are all related to income
• Poor children are denied the Child Tax Credit
• Work incentives not the answer to child poverty

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Budget will help- eventually
For those on benefits
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Outcome of 2004 Budget

• Children in poverty must wait until next year
• Substantial real gains for in work families
  from 2006
• The poorest 250,000 children will still be poor
• Inflation- proofing 2008

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The price of the In Work Payment

• high effective tax rates long income ranges
• A 4-child family on over 38,000
• Earns another 1000
• tax 330.0
• Loss of Family support 300.0
• ACC 12.2
• Student loan 100.0
• Retains only 257.8

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In Work Payment

• Drives a large wedge between families on benefits
  and those in work
• Focus is not child poverty
• Purpose is to get parents off benefits

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The In Work Payment

• An impediment to child poverty reduction?
• Better ways can be used to provide a work
  incentive
• These may have better outcomes for poorest
  children

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Why not the Australian approach?

• EMTR problem is limited
• Initial abatement down to universal 21 a week
  per child
• Tax on first 6000 is zero
• Part of family assistance abated against
  caregivers income
• Abatement of family assistance reduced from 30
  to 20

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Conclusion

• There is real redistribution to working families
  by 2006/8
• Those who fail to qualify for the IWP are left
  behind
• Child poverty will remain severe