Amidst the current Working for Families review, Susan St. John discusses the conflicting objectives of the Working for Families ‘In Work Tax Credit’ (IWTC) in this Newsroom piece, ‘The only trade-off that matters’.
Probing at recent claims by Eric Crampton that issues around potential changes in the package create a ‘no-win’ scenario, St John points out how a fundamental tension between goals of WFF prevents low-income families from receiving the benefits of this package. Seeking to ensure adequate family incomes while incentivising work, the IWTC withholds income from low or very low-income families. This tension hinders real opportunities to reduce poverty, support families experiencing sickness, disability or those with parents or caregivers taking up child care full time, St John explains. The current settings, for example, exclude single-parent households working 20 hours or less from receiving the IWTC and the full benefits of WFF.
According to Crampton, compounding issues around the high Effective Marginal Tax Rates (EMTRs) which act as a work disincentive for middle-income families and the cost increases of lowering the EMTRs, create a necessary trade-off and the ‘no-win’ scenario. St John presents an alternative to this that is to join-up the Family Tax Credit (FTC) and IWTC. This would establish a cost-effective change to WFF that ensured credits reach low and very-low-income families, honouring the obejctive of the package to reduce child poverty.
This article was first published on Newsroom.co.nz on 15th June 2022. The article is republished by Policy Commons with permission. Read the full piece by Susan St. John at Newsroom.co.nz here. Image supplied by Getty Images via Newsroom.