PENALTY REGIME ON BENEFITS

PENALTY REGIME ON BENEFITS
Presently the rate of penalty or claw back on income derived not from Work & Income by a person on a benefit is 70c in the dollar for each dollar earned over $80 per week, and add to that the fact that the Inland Revenue also take somewhere in the 20c in the dollar as PAYE. If the income is reasonably regular and that the customer also lives in a State House then Housing NZ also have their hand out for 20c in each dollar earned.

In the end the person earning the income is losing $1.10 for each dollar earned over $80 a week. We then have a situation where people or families that are on a benefit decide, and quite rightly so that it is better to stay solely on the benefit and not bother to seek work at all. This does not take a rocket scientist to work out.

My idea that I would like to propose to you is that the $80 a week threshold be kept. That, what I shall call the ZERO POINT would be that point at which a person ceases to be eligible for the benefit. The zero point would be a figure adjusted and set each year on 1 April. The zero point dollar figures would be what is currently called the GUARANTEED MINIMUM FAMILY INCOME (GMFI) a figure currently touted by the IRD.

Now, the calculation goes that - Take the family's income, then deduct the $80 allowable income, and from the remainder, a set percentage of their benefit is lost.

An example of this would be - A family earns $400 NETT doing a job, from this we deduct the $80 leaving $320. If the GMFI is $500 a week then the deduction from the benefit would be that they would lose 64% of their benefit.

Another example - A family earns $100 NETT doing a job, from this we deduct the $80 leaving $20. If the GMFI is $500 a week then the deduction from the benefit would be that they would lose 4% of their benefit.

Mathematically one would say simplistically

((a - b) X 100) divided by c = e

a = family's Nett income
b = $80 allowable income
c = GMFI
e = Percentage deduction from the benefit

There is a reason why I am talking in terms of Nett income and that is because the Inland Revenue already Tax (PAYE) the gross income at its source before it is paid out. If the gross amount is used in the calculation then we have a situation bordering on "double dipping" by the NZ Govt as a whole. This may then become an issue in the future.