Driving force behind flagship policy

Steve Maharey is modest about the part he's played in steering through Labour's flagship social assistance package, much of which comes into force today.

Costing $1.1 billion by 2007, the Working for Families package unveiled with huge fanfare in last year's Budget carries the signature of a typical Labour government - income redistribution.

Mr Maharey, the Minister of Social Development and Employment, says he can't take all the credit for the package. Although the plans originated in his office, Mr Maharey says he worked closely with Finance Minister Michael Cullen.

And while he doesn't think it's a big day for him politically, he thinks it's a big day for the Government and the country.

"This Government has always wanted to be redistributing income as a sign of itself. It's a social democratic principle and it hasn't been around for quite a while."

Working for Families is designed to put more money in the pockets of 300,000 low to middle-income earners through higher income support and other subsidies such as the accommodation supplement. At the same time, some of the main benefits are being cut by $17 to $21 a week.

The aim is to encourage parents into work and off benefits - so the bulk of the help goes to working families with children rather than beneficiaries with children.

The Government says the changes will cut child poverty, yet for all its generosity the programme has been heavily criticised.

The Child Poverty Action Group says the package is unfair because its main features do not benefit families on welfare. It says that leaving behind 175,000 children from the country's poorest families in such a major initiative is not good enough.

The group says the package will give many of the poorest families less than $10 per child per week - at a time of a booming economy, record fiscal surpluses and low unemployment. But Mr Maharey says he cannot understand why the group feels the package is the end of the Government's plans to help poor households.

While the package will not be modified in this May's Budget, changes further down the track are possible.

"We all agree that there are more things that could be done to provide more support for families, so let's not think that this is the end of the road.

"What that is, I'm not prepared to even hint at right now, because we've got to write ourselves a manifesto and look forward to another three years in government."

Mr Maharey says the Government's approach is to tackle poverty by getting people into work, and not just any work but a decent job.

But he accepts child poverty exists and believes it is possible to eliminate it.

"Yes, we have a goal of the elimination or ending of child poverty," he says. But he won't go down the road of British Prime Minister Tony Blair, who pledged to end child poverty by 2020.

National's finance spokesman John Key is critical of the package for moving welfare into the middle class and introducing high effective marginal tax rates into that group.

Previously the effect of marginal tax rates was felt in lower income groups. Marginal tax rates are the amount of extra tax paid for every dollar earned.

Last year Mr Key cited one example to great effect: two one-income families with two parents and two young children living in South or West Auckland, one earning $38,000 gross and one earning $60,000 gross.

Currently the gap in net income between them is $9266 after tax and ACC levies are deducted - and family assistance and accommodation supplement payments are added. By 2007 the gap will narrow to just $2376.

Mr Key says this creates a disincentive for people to work and get ahead.

Mr Maharey acknowledges effective marginal tax rates but says they are inherent in any targeted system of tax credits and social support operating in any country.

"Has anybody been stopped having a pay increase because of that? No."

In a paper "Cut Price Kids" released last November the Child Poverty Action Group called the package an "extraordinarily complex system" where poor families may or may not get all their entitlements.

Such families needed a "clear, simple and stable" source of support.

Mr Maharey's other grand plan - a single benefit - is also a year behind schedule.

In February he announced the replacement of the seven core benefits with a single benefit from 2007 - including a promise nobody will be worse off.

Mr Maharey says Working for Families is the boldest social policy step since National's now infamous 1991 benefit cuts.

Everyone can see the social deficits built up after sweeping reforms of the 1980s and 1990s, but he says to the credit of former Labour finance minister Sir Roger Douglas he didn't cut social spending.

"If you don't spend money on social policy properly not only do you undermine your economic performance but of course you have major social problems - which we are now living with."

Working for Families

* This is the final in a Herald series on today's big changes to family support and related benefits. Reporters Simon Collins and Kevin Taylor have examined the growing debate over whether the Government's reforms will work.

The changes

* Major changes to family assistance and other subsidies come into force today , including:
* Family Support up $25 a week for first child and $15 for each other child. 
 *Main welfare benefits for most families down $17 to $21 a week.
* Special benefit top-ups down by an average of $13.50 a week.
* Higher maximum accommodation supplement rates in urban areas.