NZICA: Social assistance proposals go too far

A tax policy issues paper was released yesterday which seeks feedback on suggested changes to improve the fairness of social assistance.

Revenue Minister Peter Dunne says people should not be able to receive more social assistance simply because of how they structure their affairs or receive their income.

The paper follows the Government's announcement in Budget 2010 that it will reform the tax rules around how family income is defined for entitlement to Working for Families, student allowances and community services cards.

"Basically, these schemes are intended to help low and middle-income families. People should not be getting help that they do not need.

"For example, people can receive quite large amounts of income through a trust and yet still qualify for Working for Families tax credits. That is clearly not fair," says Dunne.

To address such issues, the issues paper suggests broadening the definition of family scheme income, which is used to determine entitlements to Working for Families tax credits and other programmes.

The broader scope of the definition would include income from trusts, some fringe benefits, passive income of children such as interest or dividends over $1,000 a year, and income of non-resident spouses.

However Macalister while NZICA understands the problem the Government is trying to tackle and support shoring up the integrity of the rules, the proposals are likely to cross over the cost-benefit boundary and may cost the Government more than it will save.

"The rules will also be fraught with technicalities and equitable anomalies and are about as likely to be understood by taxpayers as the Wellington trains timetable," says Macalister.

Any changes coming from the consultation process will be added by Supplementary Order Paper to the Taxation (GST and Remedial Matters) Bill which is currently before Parliament, along with other Budget 2010 tax measures requiring legislation.

Changes to the definition of family scheme income for Working for Families tax credit applications and all new applications for the community services card would apply from 1 April 2011. The new definition could apply to all new applications for student allowances from 1 January 2012.

The issues paper is called Social Assistance Integrity: Defining Family Income and submissions close on 24 September 2010.

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