Working for Families
Budget 2011 includes changes to Working for Families (WFF) that simplify the scheme and put it on a more sustainable financial footing, while at the same time minimising the impact on families and lessening any effects on work incentives.
The cost of WFF has increased rapidly over the last five years as shown in Figure 3. This year, WFF tax credits will cost almost $2.8 billion - roughly twice what they cost in 2005/06.
As a result of Budget 2011, WFF will be altered over time so that the scheme has:
- a slightly lower abatement threshold of $35,000, compared to the current $36,827
- a slightly higher abatement rate of 25 cents in the dollar, compared to the current 20 cents in the dollar, and
- an alignment between the Family Tax Credit (FTC) payments for children aged 16 years and over and the FTC payments for those aged 13 to 15.
As a result, WFF will be better targeted to the most vulnerable families. A number of families higher up the WFF income scale will receive a little less than they currently do now, or will no longer qualify.
- Figure 3 - Cost of Working for Families
- Source: The Treasury
Note: Prior to 2004, WFF was known as “Family Assistance”.
Changes will not be made in one go. To minimise the impact on families, the changes will be gradually introduced, each time the FTC payments for children under 16 are adjusted upwards for inflation, which in practice happens every second or third year.
A total of four adjustments will be required to transition WFF to the new abatement threshold and rate, starting on 1 April 2012.
These changes will generate fiscal savings of $448 million over the next four years.
As a result of these savings, the total cost of WFF will reduce from $2.8 billion in 2011/12 to $2.6 billion in 2014/15.
How the 1 April 2012 Changes to Working for Families Affect People
On 1 April 2012, 387,000 families will be affected by the changes to WFF. Overall, there are more families who will receive an increase in WFF tax credits on 1 April 2012 than families who will receive less. Families receiving more are concentrated at the lower end of the income scale, with those families below the new income threshold of $36,350 receiving on average approximately $7 extra per week. Only families with incomes above the new abatement threshold of $36,350 will receive less WFF tax credits on 1 April 2012 and more than 70% of these families have an income of $60,000 or more.
- Michael and Kiri' combined family income is $40,000 per year. They have three children aged 10, 13 and 16. They currently receive $280.76 a week in WFF tax credits. From 1 April 2012, this will go up to $284.88 a week – an increase of $4.12.
- Chris is a sole parent. He earns $90,000 a year and has two children aged 11 and 16. His income is right near the top of the WFF scale for a two-child family. Chris currently receives $18.66 a week in WFF tax credits. From 1 April 2012, as a result of the slightly lower abatement threshold, a slightly faster abatement rate and the fact that there is no inflation increase in the FTC rate for 16-18-year-olds, Chris will receive $7.12 a week – a reduction of $11.54.
- Elaine and Mataio' combined family income is around $61,000 per year. They have two children, aged 8 and 10. Elaine and Mataio currently receive $116 a week in WFF tax credits. From 1 April 2012, they will continue to receive $116 in WFF tax credits.
More details about the changes to WFF can be found at: http://taxpolicy.ird.govt.nz/
