National's Transitional Relief Package - an overview

The new National-led government has responded to the increase in redundancies it expects will flow from the current economic downturn by offering a "Transitional Relief Package".

Essentially National's assistance package will provide financial assistance for employees made redundant provided they have been working in the same job for at least 6 months. That assistance will be available until the person gets another job (and their circumstances improve) or for up to 16 weeks whichever is the shorter period.

The assistance is targeted at people who lose their jobs, and as a result either go on to a benefit or rely on the income of a relatively low-paid spouse or partner. The relief package will initially be available for two years at which time it will be monitored to determine whether or not it should continue in whole or in part.

National expects the cost of the package is unlikely to exceed $42 million per annum.

How does the assistance work?

The first part of the relief package will be provided with reference to the existing Working for Families scheme administered by Inland Revenue.

Working for families provides financial assistance through two main tax credits:

1. The family tax credit, which is paid to families whether they are working or not; and

2. The in-work tax credit, paid only to families not receiving a benefit and who are in full time work. A couple must normally work 30 hours a week between them; a solo parent must work 20 hours a week. The in-work tax credit is intended to improve the position for low to middle income earners to ensure they are better off working than being on a benefit.

Under the current rules if a person is getting both payments and they lose their job they may lose their eligibility for the in-work tax credit.

National sees this as a "double whammy" as the person suffers a significant drop in income from being made redundant but they also lose eligibility for the in-work tax credit.

The maximum in-work tax credit is $60/week if a family has three or fewer children. For larger families the entitlement is $60/week plus $15/week for each child after the third.

If the person was receiving the family tax credit they will continue to do so.

Increase to Accommodation Supplement Payments

The second part of the transitional assistance package involves an increase to the Accommodation Supplement. This is a benefit that many beneficiaries and lower income working people receive. The maximum weekly amount depends on the size of the family and the geographic area in which the family resides.

Table 1
Current maximum Accommodation Supplement weekly payments ($)

*  Area 1 includes Auckland and the North Shore
*  Area 2 includes West and South Auckland, Tauranga, Wellington City, Nelson and Queenstown
*  Area 3 includes Hamilton, Christchurch, Dunedin, Porirua, the Hutt Valley and many provincial cities
*  Area 4 covers those parts of the country not covered by Areas 1-3.

Non beneficiaries have their accommodation supplement abated to reflect their income.

According to National's advice, as at 30 June 2007, 243,000 people were receiving the accommodation supplement of whom 52,000 were lower paid workers (non beneficiaries).

As these people who have been working but are made redundant will have difficulty meeting their mortgage or rent payments, the government will increase the maximum accommodation supplement they are entitled to by up to $100 per week for up to
16 weeks.

The actual amount of the increase in the accommodation supplement will depend on the amount of their rent, or minimum mortgage payments, and if they are not on the unemployment benefit, on the level of their spouse's income.  Accommodation supplements are managed through Work and Income.

Summary

It remains to be seen just how much the transitional relief package will cost and whether National's view that the costs will not exceed $42 million per year will be accurate.

The potential cost relates to the performance of the economy and the number of jobs lost in the next two years – we will have to wait and see.

For more information, please contact:

Erin Davies
Partner
t: +64 9 979 2177
m: +94 29 622 2300
e: Erin Davies

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Last updated: 3 December 2008