Government does an 'about-face' on tax credits for workers with children

By SIMON COLLINS

The centrepiece of Labour's "Working for Families" package is a huge jump in a tax credit for working families which Labour MPs condemned when the former National Government introduced it in 1996.

The independent family tax credit, later called the child tax credit and now renamed again as the "in-work payment", gives extra family support payments to families that do not get any other welfare benefits.

It started at $10 per child per week in July 1996 and rose to $15 the next year. From April 2006 it will leap to a new system paying a flat $60 a week for a family with one to three children, plus an extra $15 a week for every child beyond that.

This is on top of family support payments which are the same for all low-income families, whether they are on benefits or in work.

The qualifying criteria have been tightened. Until now, the tax credit has been available simply to any low-income family that does not get any other welfare benefit. From 2006, sole parents who want to claim the credit will also have to work at least 20 hours a week, or couples at least 30 hours a week between them, as well as not claiming any other benefit.

On the other hand, superannuitants will be allowed to claim the credit if they work the required hours and look after dependent children. Until now, national super has been treated as a welfare benefit, so superannuitants have been barred.

Families on accident compensation, who have also been barred from the tax credit after three months, will now qualify if they were working the required hours when they had their accident.

In 1996, the Opposition finance spokesman at the time, Dr Michael Cullen, described the new family tax credit as "simplistic moralising". He said it would punish 264,000 children who, through no fault of their own, had parents who drew benefits.

Yesterday he stressed the need to give more to working families.

"For those in employment, the gains are very much more substantial and extend well up the income range," he said. "In particular, the incentives for moving from benefit into employment are very much increased."

Former National Party Finance Minister Sir William Birch, who introduced the tax credit in 1996, welcomed the "about-face".

"It's a big turnaround in his approach, and he was hugely critical of it at the time," Sir William said.

"There needs to be good policy in place to assist the transition to work and provide incentives to ensure that people who do go back to work get the benefits out of it. I wouldn't criticise that aspect of what he's done."