Debt to the Ministry of Social Development is now close to $2.4 billion. Photo / Bevan Conley
Anti-poverty groups say the poorest Kiwis are caught in a debt trap as the total amount of money owed to the Government balloons to $2.4 billion.
More than $250 million is also owed to Inland Revenue by families who were overpaid their Working For Families tax credit.
The top 10 per cent of people with debt are paying on average $26 a week out of their benefits - higher than the Winter Energy Payment support - and with disproportionately higher rates of repayment for women and Māori.
Māori women owing debt to the Ministry of Social Development have a balance on average 50 per cent higher than Pākehā women and more than twice as high as Pākehā men.
The total amount of money owed to the Government - which includes loans for essentials ranging from clothing to household appliances and bill payments - has ballooned to $2.4b as of March.
Alongside that is more than $250m owed by families to Inland Revenue after they were overpaid their Working For Families tax credits - a bill that has grown over 25 per cent between 2021 and 2022 amid high inflation and wage growth and changing circumstances through the pandemic, pushing many families out of the criteria often without them even realising.
The mounting debt accumulated by those on low incomes has also sparked a call from campaigners for a Government inquiry into how it further entrenches poverty - akin to a recent survey that revealed just how wealthy the country’s richest citizens were, and how little tax they actually paid.
“We had a study for the very wealthy and found they were much wealthier than New Zealanders thought, I think people might be equally shocked to realise how poor the very poorest are,” Child Poverty Action Group economist Susan St John said.
The MSD data, released to the Green Party, showed as of March this year just under $2.4b was owed by nearly 600,000 people to the Government at an average of about $4000 each. This debt had to be repaid at an average of $16 a week - taken directly out of benefits.
Further information provided to the Green Party showed the top 10 per cent of people with debts had $26 a week taken out of their benefits - higher than the Winter Energy Payment of $20.46 for a single person (it is $31.82 for couples with dependant children).
This debt is incurred through recoverable grants for items including clothing, living expenses and medical bills.
The Government is reviewing overall debt and has implemented some measures to reduce it - including more than tripling the non-recoverable dental grant from $300 to $1000 - but amid a recent rise in the cost of living the debt mountain continues to rise.
The data also reveals the hugely disproportionate impact of the welfare system on women - Māori especially - who more often end up caring for children than men and in turn incurring higher childcare costs.
Women owe MSD $1.6b - about three-quarters of total debt. Of that, Māori women owe over $724m, at an average of nearly $6000 each.
For the first time, total Māori debt has topped $1b overall, at an average of just over $5000 across 217,000 clients. This makes up about 42 per cent of total debt despite making up just 17 per cent of the population.
Pākehā owe $942m at an average of $3525 across just over 267,000 clients.
Auckland Action Against Poverty coordinator Brooke Stanley Pao Higher said those figures were just averages and they regularly worked with people who were $20,000 to $50,000 plus in debt, which was rising with the cost of living. The more debt people accumulated, the less support they could receive, she said.
“The expectation is that you can budget your way out of poverty, but it does the opposite.”
Pao said the loans often covered everyday items, from car repairs, to rent arrears, school uniforms, laptops for children, petrol, transport, power bills and whiteware.
In other situations, debt could accrue through changes in income levels and living situations, and often without people even realising it.
The data also shows disproportionate rates of repayment, which are discretionary and set by MSD agents.
Women have to pay on average $17 a week, while for men it is $13 a week. The average repayment rate for Māori is $18 a week, compared to $16 a week overall.
In the top 10 per cent of people with MSD debt, women have to pay back $28 a week and men $22. For Māori, it is $28 a week and for Pākehā $25.
Pao said the disproportionate impact on Māori and women reflected systemic racism and sexism in society, which was “inherent” in the way the welfare system operated.
She also said it raised questions about Crown obligations under Te Tiriti o Waitangi around equity.
Green Party social development spokesman Ricardo Menéndez March said the current system was creating a “debt trap” whereby benefits didn’t keep up with the cost of living, which forced people into debt, and repayments then ate further into their incomes, increasing reliance on debt.
“The fact that people are getting into debt to just pay for basic essentials demonstrates that benefits are still way below a basic standard of living. And this is why people are getting more and more into debt.”
He also said it placed greater hardship on women, who more often ended up in the caregiving role compared to men. The higher debt and repayment rates for Māori also raised concerns about systemic discrimination, Menéndez March said.
The Greens said the Government needed to wipe total debt while increasing benefits and non-recoverable grants, such as the hardship payment, to prevent people from incurring debt in the first place.
St John said their modelling showed, because of the rising cost of living, people on benefits were experiencing the same kinds of gaps between their income and necessary expenditures to survive as they did in 2018, before Labour’s big increases kicked in.
“These gaps will get worse over the next nine months, and are made even worse by debt repayments,” she said.
“Every week families have a shortfall in their budgets. They must either go into debt with Government or private loan sharks, access private charity or friends and wider family, or simply do without the basic essentials.
“Increasing numbers of families, including those in fulltime low-paid work, do not have enough after paying for the essentials to feed their families as many foodbanks are currently reporting.”
St John said income statistics alone did not show the full picture and they wanted to see an inquiry into just how poor people were in New Zealand.
As of June last year, nearly 60,000 parents who received Working for Families were in debt, which was an increase of $52.3m or 27 per cent from the previous year, and 79 per cent since 2018.
Weekly payments are based on estimated annual incomes and family structures, which function well while things are stable.
But for many families, the pandemic meant income was more variable and harder to estimate accurately, alongside inflation.
The threshold for full entitlement to WFF has been fixed since 2018 at $42,700 of annual income. The Herald reported this week that adjusted for wage inflation, the threshold should be just shy of $52,000.
When families earn more just because of inflation increasing wages or extra overtime to manage the high cost of living, 27 per cent of each extra dollar reduces entitlement to Working For Families and creates an overpayment debt.
Social Development Minister Carmel Sepuloni said addressing the impact of debt was part of the social welfare overhaul alongside improving the IT payment system so people did not unknowingly incur debt because of overpayments.
The levels for hardship grants - set at $300 more than 20 years ago - were also part of that wider work.
Consultations on a proposed framework around debt to Government had concluded and feedback was being reviewed, she said.
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