The New Zealand Experience of Child-Based Work Incentives

Abstract

New Zealand has gone further than most European countries in the use of child-based tax credits that emphasise work as the way out of poverty, especially for lone parents. From a background of neglect, as outlined in St John's ‘New Zealand's Financial Assistance for Poor Children: Are Work Incentives the Answer?’ published in the European Journal of Social Security (2006), family financial assistance was substantially boosted between 2005 and 2007 when the Working for Families package was introduced. The In Work Tax Credit (IWTC) is a major part of Working for Families. It is a dual-purpose tool, aiming to both improve labour market participation of lone parents and to reduce child poverty. Holding to the two objectives has however been problematic, and the IWTC has proved to be a costly experiment. It has also raised human rights concerns; necessitated other complex adjustments in the tax system; and proved to be poorly designed in times of recession with unintended consequences for children. Official evaluations have not established that the small work incentive effects justify the selective achievement of the child poverty objective. European countries may find the New Zealand experience interesting as they also grapple with the seemingly intractable problems of child poverty and look to paid work as the solution.