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photo: RNZ/Rebekah Parsons-King
New figures show debts on the Families Working Scheme have risen by more than $42 million in nine months, and people have been warned the situation could get worse as unemployment rises.
The Inland Revenue said the total debt under the Working from Home scheme stood at $280.025 million at the end of May this year.
In August last year, the total debt was $238 million. In July 2020, 44,000 people owed $162 million.
Auckland University associate professor Susan St John said debt levels had doubled since 2018.
She said there were two “opposing” reasons why people might go into debt.
“First, households earn more than they expected, often they are self-employed and receive the Working From Home Payment each week – and then they find when they get their tax return the ATO is chasing them for the overpayment, which can be quite substantial.”
The amount families can claim is tied to their income, so if they make more than expected they will have to pay it back.
She said because the threshold for receiving the Working Families Supplement was fixed at $42,700, more people were being pushed up to that level as wages rose, even if their pay was just keeping pace with inflation.
Above that level, credit declines at a rate of 27 cents on the dollar.
Some families choose to make annual payments to avoid overpayments.
Some people may also receive a Working for Families bill because they lost their job and ended up living on the dole, St. John said.
Working Tax Credit Weekly increase of $25 to just under $100which relies on recipients to work for a living.
“They can only go two weeks without paid work. People don’t realise, and it could be a long time before, they’re out of work trying to re-arrange their lives and receive Working from Home benefits as they did before because of course their children’s needs don’t change,” St John said.
“And then they find out they shouldn’t have received (the in-service credit), and then they get this bill. I think we’re going to see more and more of this.”
she says Working Tax Credit Increase This could mean paying off a larger debt.
People may also end up with overpaid compensation if their relationship breaks down. “It’s based on the family’s joint income when they lived together, but how do they know all that information to be able to adjust it in real time?”
She said “working for the family” needed to be reset and a serious rethinking of what it meant.
“Its primary purpose is to protect children and provide a financial cushion when families hit hard times.
“If you put the needs of children rather than paid work at the heart of policy, then the whole rationale for the in-work tax credit disappears.”
She said the system needs to be simplified to a single tax credit.
In its most recent annual report, the tax office said 67 per cent of its wage-earning clients were being paid 20 per cent less than they should have been. At the time, 46 per cent of debts were more than two years old, the report said.
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