Government says welfare beneficiary's bank loans were an income

The hearing was before Justice Paul Davison today in the High Court at Auckland.

Debate about whether a beneficiary should have been disqualified from receiving state welfare payments after being granted sizeable bank loans was heard in the High Court today.

The woman, who has interim name suppression, is battling an appeal by the Ministry of Social Development against the determination of the Social Security Appeal Authority.

The authority ruled that two granted bank loans, drawn down on the woman's home for more than $100,000, should not have been treated as income, but the ministry argues the money was used for living needs and bank loans meet the statutory definition of income.

The woman also used credit card and personal loans while on a domestic purposes benefit between 2005 to 2010. She also received other benefits and grants.

The two parties appeared before Justice Paul Davison today in the High Court at Auckland.

Justice Davison reserved his decision.

Counsel for the Ministry of Social Development, Nixon Fong, argued the beneficiary used the bank loans for income related and living purposes and did not further need the taxpayer-funded benefit.

He said a welfare cheque should be "reserved for those that truly need it, for those that can't adequately support themselves".

When a person is able to support themselves the "state responsibility for the welfare is absolved" and the "need for further state assistance falls away", Fong said.

"If a person whose needs can be met through other payments, other regular payments, [it] takes them out of the needs of requiring the state's assistance."

Fong said the beneficiary was "making use of one's assets for income related expenses".

"It is perhaps understandable why one might think loans don't constitute income because of the repayable nature, but one must set that first interpretation aside."

Frances Joychild QC, who is representing the woman, said welfare payments were "not an asset tested benefit, it's an income tested benefit and always has been".

She said her client's bank loans were drawn down on her family home, which she hoped to keep, and not a farm or a big business.

The case demonstrated an "extraordinary state" of counting all of the woman's spending over and above her benefit, Joychild said.

The court also heard that while the beneficiary was receiving state funds she was trying to start a business.

Joychild said the ministry's view was "cursing people to poverty indefinitely" and setting them up with enormous debt after being forced to borrow money for living expenses.

"She had used all her resources, she had no other income ... All these loans have repayment obligations," she argued.

She added her client and "hundreds of thousands like her" were borrowing to make ends meet because the state-funded benefit did not cover their living costs.

The woman was also told by Work and Income case managers that she did not have to declare her loans, regardless of the source of the money.