Removing benefit indexing recommended in Cabinet paper

Proposals to stop indexing some benefits in order to get spending under control made it as far as a Cabinet paper, documents released today show.

Treasury released a second batch of budget-related documents this afternoon, several of which explore the idea of removing requirements that automatically increase government spending on financial assistance for the family tax credit, paid parental leave and childcare assistance.

In a report attached to a draft Cabinet paper, Treasury says Finance Minister Bill English had asked for work to be done on removing automatic indexing on working for families tax credits.

It said he was also interested in the other two areas.

"Cabinet approval for these changes needs to be obtained by 20 April 2009 if you want the associated savings included in budget 2009," Treasury said.

A draft Cabinet paper destined for the expenditure control committee estimated indexation of the family tax credit would cost $53 million in 2010-11, $217m in 2011-12 and $245m in 2012-13.

The family tax credit has an income threshold after which payments start abating.

If only the income threshold was no longer indexed savings of $19m could be made in 2010-11 and $76m and $86m in the next two years.

The paper recommended that the Government either remove the requirement to index the credit income thresholds or remove the indexing of both the income thresholds and their amounts.

The draft paper recommended indexing be dropped for income thresholds for childcare assistance, saving $9m by 2013, and income thresholds for paid parental leave, saving $39m in the same period.

The paper also recommended amending the Social Security Act 1964 to legislate for increases based on the consumer price index for main benefits -- as requested by Mr English to meet a National Party pledge.

Mr English last week told NZPA that the indexing idea did not progress far. It was raised in the context of constantly worsening economic news.

"Every time they came in with a bit more preliminary forecast it was below the worst one they had the week before ... it was hard, we were chasing a moving target."