Working For Families scheme takes 1200 out of workforce

Pauline and Ken Gaoa with their children Kathryn, 7, Ethan, 6 and Josie, 4, benefited from Working For Families. Photo / Natalie Slade

Labour's $1.5 billion Working for Families package has driven a net 1200 parents out of the paid workforce - achieving the opposite of its aim to "make work pay".

An evaluation by Inland Revenue and Social Development Ministry researchers has found the $60 a week in-work tax credit lured 8100 sole parents into paid work. But 9300 second-earners in two-parent families dropped out of work because higher tax credits let them stay home with the children.

But Labour social development shadow minister Annette King said yesterday the contrasting results were "two good outcomes".

"It enabled people [sole parents] on the benefit to go out and earn more and to reconnect with the workforce because it was worth their while," she said. "And if people [in couples] who were doing part-time work are now able to stay home with their families, that's a win too, because we have two groups that have different needs."

The package raised child tax credits by $25 a week for a first child and $15 for subsequent children, and paid an extra $60 to sole parents who worked at least 20 hours a week and to couples who jointly worked at least 30 hours.

There were also increases in childcare and accommodation subsidies and the income allowed before child tax credits were clawed back - extending tax credits to families with three children earning up to what is now $106,000 a year.

The evaluation confirmed previous evidence that the package reduced child poverty. Children living in families on less than 60 per cent of the national median income fell from 26 per cent in 2004 to 20 per cent in 2007.

But experts warned from the outset that it could drive some second-earners in two-parent families out of paid work.

This was because the extra cash made it easier to cope on one income and the clawback of tax credits on incomes of up to $106,000 left less money in the hand out of the second earner's extra income.

The in-work tax credit had a dramatic impact on sole parents. The numbers working at least 20 hours a week leapt from 36 per cent of all sole parents in 2004 to 48 per cent in 2007. The evaluation says three-quarters of this was due to the in-work tax credit.

Sole parents working part-time but still on the domestic purposes benefit dropped by a quarter, and the total numbers on the benefit plunged from 58 per cent of all sole parents in 2004 to 46 per cent three years later.

Two-income couples increased from 63 per cent to 64 per cent of all couples with children in the three years to 2007, but the evaluation says that would have risen to 66 per cent in the absence of Working for Families.

Bonus fulfils mum's dream

Three children in Mt Eden's Gaoa family can thank Working for Families for having mum at home through their preschool years.

Kathryn Gaoa, 7, brother Ethan, 6, and little sister Josie, who turns 5 in three weeks, have had mother Pauline Gaoa at home since Josie was born in 2005 - four months after child tax credits for a three-child family jumped by $55 a week.

The new in-work payment from April 2006 gave the family another $60 a week because dad Ken Gaoa works fulltime as a warehouse manager. They also qualified for an accommodation supplement to help pay the mortgage.

Mrs Gaoa jumped at the chance to stay home for the kids.

"I think it's the best thing for our family and for our children," she said.

"I grew up in a family where my Dad went to work and Mum stayed home till my youngest brother was 10 or something, and so we had our Mum at home all the time. So that's what I wanted to do for my children."

This year she has started a paid job working for the Auckland Playcentre Association during school hours leaving her free for the children after school and in the holidays.

Cancelled out

* 8100 more sole parents working due to in-work tax credit.

* 9300 more partnered parents staying home with the children.