Emily Keddell: Tax credit system leaves many disadvantaged

The Working for Families tax credit system works well for some women and their families but not for others.

A tax credit system leaves those without a partner for support at an unfair disadvantage. This is a tale of two women:

It was the best of times, it was the worst of times. This is not a tale of two cities but of two women: woman A and woman B. It could be man A and man B but it usually isn't.

Each woman has three children aged 4, 2 and 1. The lives of both women revolve entirely around these small people: endless cleaning of busy hands, feeding hungry mouths, changing dirty nappies, and cleaning Playdough off the curtains.

Both women have the normal worries of every parent: are the children eating enough healthy food? Drinking enough water? Getting enough iron? Got sturdy shoes? The sheer amount of work and attention involved in keeping these little lives cheerily trundling through the day-night cycle means neither woman is able to work for money, not without substantial support. There's just not enough time or energy.

They differ in one way only: woman A has a partner who works for money, and woman B does not. This means, in addition to the support woman A gets when her partner comes home, she is also treated very differently by our tax and benefit system.

Woman A, as the primary caregiver of children with a partner in paid employment, gets in her hand all the components of the Working for Families tax credit package: the tax credit, the minimum family income (if her partner earns very low wages), the parental tax credit (if she has a fourth child), and the in-work tax credit.

She gets these last three not because of her own valuable labour looking after her little ones, but because her doing so enables her partner to have a paid job.

The one to keep a close eye on is the in-work tax credit as this is the one most commonly paid to people with children if they meet the minimum work requirement - 20 hours for sole parents, 30 hours for a couple.

The in-work tax credit is paid right up to an annual income of $104,000 (for those with three children) and $120,000 for those with four or more. So most families in paid work get at least some of it.

The aim of the tax credit system should be to buffer ALL families against the vagaries of the economy and job markets, not just some. Tax credits can help alleviate child poverty when designed for children's needs, not unrealistic work incentives.

But woman B, even though she does exactly the same job as woman A with less personal support, gets only the sole parent benefit plus the family tax credit component of the Working for Families package. The lack of the in-work tax credit equates to $72.50 a week less than her counterpart, woman A.

So woman A gets more from the state despite the fact that the actual activities of both women are identical, their relationship to the labour market is identical (they're not in it) and most importantly, the needs of their children are identical: shelter, food, clothing, care, attention.

What justifies this difference in treatment? The Government claims the justification is work-related - that the in-work tax credit helps incentivise people into work. This argument falls down for several reasons.

• First, even if woman B did get the in-work tax credit, she would still get substantially less in her hand than her counterpart. So an "incentive" differential would still exist.

• Secondly, woman B is not really able to be "incentivised" into work, as it's not that she doesn't "want" to work and needs a carrot to get her into it, it's that she is not actually available for work. She already has a job. This is perhaps why the research into the effectiveness of the in-work tax credit found it resulted in the princely increase of 0.62 hours of paid employment for single parents (and a small decrease in paid employment for secondary earners in partnered families.

• Third, Winz does not require her to be available for work until her youngest child is 3, so why pay her less in tax credits when she's not expected to be working for money anyway?

• Fourthly, if she was to start working for money, but was on a "flexible" contract that offered her 5-25 hours work a week, she would qualify only for the in-work tax credit on the weeks she worked more than 20 hours. This means a precarious income, both from her employer and the state.

Woman A, on the other hand, continues to get it whether she works for money or not. She faces no attempts to incentivise her into paid work. In fact, her caring for her children is often applauded as the right and proper role of a mother.

The aim of the tax credit system should be to buffer ALL families against the vagaries of the economy and job markets, not just some.

Tax credits can help alleviate child poverty when designed for children's needs, not unrealistic work incentives.

Woman B will eventually return to paid work, but in the meantime, she needs enough to make sure her children are taken care of. For woman B and her children, it's still the worst of times.

The Child Poverty Action Group has launched a campaign to fix this and other anomalies in the tax/benefit system.

Dr Emily Keddell is a senior lecturer in the department of sociology, gender and social work at the University of Otago and an associate member of the Child Poverty Action Group.

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