Fact sheet 2: Increasing benefit rates for families with children
Fact Sheet 2 – Increasing benefit rates for families with children
From 1 April 2016:
• Benefit rates for families with children will increase by $25 a week.
• Beneficiaries receiving Sole Parent Support will have to reapply for their benefit every year.
• Student Allowance rates for families with children will also increase by $25 a week.
What is changing?
From 1 April 2016, rates of main benefits for families with dependent children will increase by $25 a week after tax.
An estimated 110,000 families, with 190,000 children, will be better off as a result.
It will be the first time core benefit rates have been increased – apart from inflation adjustments – since 1972.
The $25 a week per family increase will be in addition to the normal annual inflation adjustment to benefits.
Around nine in every 10 beneficiary families are sole parent families. An increase of $25 a week amounts to an 8.3 per cent increase in most sole parents’ base rate of benefit (currently $301 a week).
In addition, to ensure the increase is going to the right people, those receiving Sole Parent Support will have to reapply for their benefit every 12 months, matching the current process for people on Jobseeker Support. This change will affect around 70,000 sole parents.
Why is the Government increasing benefit rates?
Two-thirds of children in more severe material hardship are in families supported by a benefit.
The Government’s primary focus is on paid employment as the best route out of poverty for most families.
However, when families do rely on a benefit, it has to be enough for children to get a decent upbringing.
Over many years, take-home incomes for beneficiary families have remained relatively flat, in real terms, because benefits only increase with inflation.
However, working families have benefitted from real wage growth, and the minimum wage has risen faster than inflation. Changes to family support in the mid-2000s favoured working families to a much greater extent than beneficiary families.
On one hand, the gap between benefit incomes and working incomes creates a strong incentive to move off welfare into work.
But the Government is concerned about the effect on children when their family’s resources fall behind those of other households.
In terms of that balance, and with an improving economy, the Government considers there is scope to increase benefit rates for families to help ensure they can pay for family necessities.
This increase to benefit rates comes after widespread reform of the welfare system, so the Government is confident it will have a positive impact on the lives of beneficiary families and children, rather than contribute to further dependence.
What are the different types of benefit?
The main benefits for working-age people are:
• Supported Living Payment – for people who are permanently and severely restricted in their ability to work because of a disability or illness.
• Sole Parent Support – for sole parents with children under 14.
• Jobseeker Support – for most other adults requiring a benefit, including sole parents whose youngest dependent child is 14 or over.
• Emergency Benefit and Emergency Maintenance Allowance – for people in hardship who don’t qualify for another type of benefit.
The $25 a week per family increase will apply to all the above benefits.
It will also apply to young people with children getting the Young Parent Payment.
Why will most beneficiaries have to reapply every year?
Beneficiaries receiving Jobseeker Support already have to reapply for their benefit every 12 months. This change extends that requirement to beneficiaries receiving Sole Parent Support, and means that around two-thirds of all beneficiaries will face an annual expiry and reapplication process.
This process is an opportunity to check that people’s eligibility hasn’t changed, they are getting the right support and they are fulfilling their obligations, including to prepare for and find a job.
Work and Income will contact clients at least 25 days before they need to reapply.
What else changes when benefits increase?
The interconnected nature of the welfare system means that the $25 a week per family increase in benefit rates will have an effect on some of the supplementary payments that families may be receiving.
Beneficiary families who pay income-related rents for social housing will pay slightly more in rent than they otherwise would. Their rent is set at 25 per cent of their income, so a benefit increase of $25 a week means their rent will go up by $6.25 a week.
Beneficiary families who are renting privately, getting the Accommodation Supplement, and receiving less than the maximum subsidy for their area, are expected to get $4 a week less in Accommodation Supplement than they otherwise would.
People who are receiving Temporary Additional Support on top of their benefit may also find this reduces slightly because of the increase in their income.
These flow-on effects mean beneficiary families will receive, on average, an in-the-hand income gain of just over $23 a week.
Low-income working families (not on a benefit) who receive Accommodation Supplement will gain indirectly, by up to $9 a week, from the increase in benefit rates, because these rates feed into the Accommodation Supplement formula. An estimated 26,000 low-income working families with children will indirectly gain in this way, by around $8 a week on average.
Beneficiary families receive the Family Tax Credit, which currently pays between $64 and $102 a week per child, depending on the age and number of children. They may also receive other forms of supplementary assistance such as Accommodation Supplement or the Income-Related Rent Subsidy.
What is changing for Student Allowance rates?
Since Student Allowances is paid at the same rate as benefits, Student Allowance rates for families with dependent children will also increase by $25 per week after tax, from 1 April 2016. Around 9,000 student families with children are expected to benefit from this increase.
These changes will occur in April 2016, and until then payments and obligations are unaffected.
Work and Income and StudyLink will contact families affected by the changes in early 2016.
If people have questions about their own particular circumstances, or how they might be affected, they should call Work and Income on 0800 559 009 or StudyLink on 0800 88 99 00.