The In-Work Tax Credit (IWTC), one of the main Working for Families tax credits administered by Inland Revenue, goes to about 150,000 low-to-middle income families with dependent children.
To be eligible for a full credit, a family must have a working family member and a combined family income of less than $44,900.
A second lever Willis could pull, likely in tandem, is the Independent Earner Tax Credit (IETC), which is worth up to $10 a week and goes to people earning between $24,000 and $70,000. This is the tax credit that was a key part of the Government’s tax plan.
To get this credit, someone needs to be in work, but they cannot receive Working for Families, a main benefit, or New Zealand Superannuation.
The tax credit was invented to increase the incomes of people who are on low incomes but are left out of the benefit system because they don’t have families to support.
A document from the 2024 Budget, which significantly increased the eligibility of the tax credit, estimated about 725,000 people would receive it.
In her comments at a press conference on Thursday, Willis said she was conscious of the pressure the price at the pump was having on many families.
“I want to be straight that the Government won’t be able to alleviate all of that pressure,” Willis said.
“But I am exploring measures and have actively sought advice on the methods by which we can provide very timely, temporary and targeted support to those households we anticipate will be most affected by increasing prices and who are not able to avoid them.”
Her focus was on “helping families directly with the money they have available to them in their bank accounts”.
Later, Willis added, “I’m very focused on working people who, I know in many cases, in order to do their job each day, have no choice but to drive to work.”
She hinted that the support wouldn’t be limited to just helping families with the cost of fuel, “recognising that people face a range of different circumstances and a blanket measure such as reducing fuel excise would not target those in the most need”.
The support would have a clear time frame, Willis said, noting it “needs to be timely”.
“What that implies is that we need to use the systems we already have. Inventing a brand-new system would both take time, cause delay, and potentially mean that money wouldn’t reach the people that it’s meant to reach.”
There would be other families who wouldn’t get support, but it would be “irresponsible for us to help every New Zealander”.
Higher spending might lead to higher inflation and therefore put New Zealand in a “vicious spiral”, Willis said. Plus, there were increasing borrowing costs internationally, she added.
Willis’ comments suggest support would need to find an eligibility criterion that targeted people on low incomes but might exclude people on a benefit or receiving superannuation.
It would also need to find a way to touch people both with and without children, categories of households that access income support in different ways.
That means the total number of people in line for income support would be about 975,000 at a minimum, although the true number would be higher because many of the 175,000 families getting the In-Work Tax Credit will comprise two parents.
The Government will be consciously trying to avoid 2022’s Cost of Living Payment, which also used the tax system.
This payment went to people whose income in the prior year had been less than $70,000. Unfortunately, that meant the likes of French backpackers and the deceased received the payment – a fact ruthlessly prosecuted by National in opposition.
Using tax credits rather than last year’s income makes this less likely because it uses current employment and income status.
Luxon: “Very difficult time for New Zealanders”
The Prime Minister, speaking alongside Willis on Thursday, turned his comments on several occasions to the need to be financially disciplined with any response.
Citing lessons from the recent Royal Commission of Inquiry into the Covid-19 Response, Christopher Luxon said any measures taken need to have a “minimal impact on driving up inflation”.
He said the Government needed to ensure there was “coherence in our fiscal strategy”.
“That is important because actually that’s what we should be doing responsibly, because there will be increasing volatility in the global environment.”
This is the second year in a row that Luxon’s Government has faced economic turmoil spilling out of international events. Last year, United States President Donald Trump’s tariff announcement hit business confidence hard.
Asked if that was frustrating to him, the Prime Minister acknowledged ‘the world’s a lot more volatile” and “a lot more uncertain”.
“Yes, we’ve had to deal with a lot of international events, but my real thought is actually to think about how we help New Zealanders,” said Luxon.
“New Zealanders have been through a pandemic, they’ve come through a recession, they’ve dealt with the effects of high inflation, and then we get these shocks happening in the international system, whether it’s tariffs last year or whether it’s oil this year. What we have to do is control what we can control.”
He said it had been a “very difficult time for New Zealanders”.
“It’s not about how we feel about it. We have to manage the situation that we have to the very best of our ability, for the benefit of New Zealanders, and that’s what our single focus is.”