Families feast on Budget

A family package in the centrepiece of this year's Budget. Photo: Shane Cowlishaw

As expected, the centrepiece of this year’s Budget is a family package. Shane Cowlishaw explores where the money will be spent.

It was an announcement that again cemented National firmly towards the centre.

An extra $2 billion per year will be spent on a Family Incomes Package, made up of boosts to both Working For Families and the Accommodation Supplement, plus a rise in the bottom two income tax thresholds.

It follows the 2015 Budget, which saw benefits rise beyond inflation for the first time in 30 years.

Even students weren’t forgotten this time, with the Accommodation Benefit rising by 50 percent in Auckland, Wellington, and Christchurch. It receives a more modest boost in Dunedin, Hamilton, and Palmerston North.

During these announcements, officials love to throw averages about and this was no exemption.

In total, it’s expected 1.34 million families will be better off by an average of $26 per week. More than a block of cheese, but less than a tank of gas.

Of course, there are always those that miss out when complicated changes are introduced.

Some families will be worse off and $2.2m has been set aside to help those disadvantaged by more than $3 per week.

Dragging housing cost back to reality

It has been signposted for some time, and frankly was becoming an embarrassment.

Calls for a boost to the Accommodation Supplement, a benefit based on rents in 2003, have been getting louder as the costs of housing spiked across the country.

Official data showed that in Auckland, median rents have risen 56 percent since 2005, while the national median has jumped 60 percent.

In the Budget the Government responded, making a boost to the Accommodation Supplement the core of its package to assist the most vulnerable.

Those eligible for the supplement, especially those living in the main centres, will have significantly more money to help with housing.

For example, a family of three or more living in Area 1 (which includes Auckland, Tauranga and Queenstown) will receive up to $305 per week, an extra $80, depending on their income.

Those living in the three other areas will receive less of an increase, ranging from $5 to $55 per week.

An extra $1.23b will be spent on the supplement over the next four years, with Finance Minister Steven Joyce saying about 20,000 households were expected to be lifted out of severe housing stress.

One fear that has been raised about increasing the supplement is that it will give a green light to landlords to ramp up rents if their tenants are suddenly flush with extra cash.

Joyce admitted this was a risk and said a “close-eye” would be kept on how the market responded.

With housing shaping up as perhaps the main election issue, the Government had little choice but to boost spending in the area or pay for it at the polls.

Tax threshold

Tax rate cuts were not part of the Budget, but workers will still have more money in their pockets.

The two lowest tax brackets will be raised, with the $14,000 threshold moving to $22,000 and the $48,000 threshold increasing to $52,000.

This will mean anyone earning more than $22,000 a year will pay just under $11 less tax a week, and those earning more than $52,000 will pay just over $20 less.

The aim of the former is to encourage those on benefits into work, while the latter is designed to encourage people to work, and earn, more.

While this is good news for families, single workers claiming the Independent Earner Tax Credit will no longer be able to.

The Government has scrapped the credit, worth up to $10 per week, saying it had not proven popular and only 32 percent of those eligible claimed it.

Again, the threshold changes were not unexpected. With the average wage having risen to $58,900, the Government has signalled it wants to update and modernise the tax system, especially around marginal tax rates which can discourage people from working.

Working For Families boost, but not all sugar

National has come a long way from labelling Working For Families “communism by stealth” when it first came to power.

The series of tax credits will be boosted with extra funds targeted at families earning the least, an area where Joyce said the Government had decided there was the most need.

Working For Families is made up of four tax credits: the family tax credit, the in-work tax credit, the minimum family tax credit, and the parental tax credit.

It will be the family tax credit that is increased, with the same blanket rate introduced for all children regardless of age.

Currently eligible families receive an annual credit of $5303 for an eldest child aged between 16-18 and $4822 for one under 15. This will be switched to the higher rate for all.

Subsequent children also received varying credits depending on age, but these will be moved to the higher rate of $4745 for all.

It is estimated this will mean extra cash for about 310,000 families, with those with an eldest child under 16 receiving an extra $9.25 per week and up to $26.81 for any subsequent children.

For the upcoming financial year spending on Working for Families will be $2.4b.

By 2021 it is estimated to rise to $2.63b, a jump from the $2.46b estimated at last year’s Budget.

While this is good news for most families, those earning more will take an extra hit on the amount they earn.

The Government announced it would accelerate plans to increase the abatement rate and lower the abatement threshold.

Essentially, abatement is the rate at which welfare payments fall as income rises.

So, for every dollar earned over the threshold, tax rates start jumping.

Currently, the abatement rate is 22.5 percent and the threshold $36,350.

This will be increased to 25 percent, and $35,000, a threshold that was expected to be reached by 2025.

There was little choice but to move these figures, as they are mandated to do so each time Working For Families is adjusted for inflation, but the rapid rise was unexpected.