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Accident Compensation Cases

Child Poverty Action Group Inc v Attorney-General (HC, 25/10/11)

Judgment Text

Cur Adv Vult
Dobson J, Members J Grant, S Ineson
Introduction 
[1]
This appeal relates to a claim pursued originally before the Human Rights Review Tribunal (the Tribunal), to the effect that a component of the Working for Families (WFF) package of tax credits discriminates against those who are on State benefits, and in particular against the children of those families. One objective of the WFF package was to alleviate child poverty and the claim is that the exclusion of those on State benefits from the caregivers who qualify for a component of the WFF package discriminates against the children of those in receipt of State benefits, to their material disadvantage. 
[2]
Child poverty is recognised as a social ill with significant long-term adverse social and economic consequences. For a so-called developed economy and in a society that aspires to be “caring” (which in the formal sense is manifested in our accession to various international covenants on human rights1
| X |Footnote: 1
Relevant international covenants to which New Zealand has acceded are reviewed in [47]-[53] below. 
), New Zealand has a poor record on child poverty. One source of government statistics on child poverty, pleaded in the Second Amended Statement of Claim in December 2006, referred to a Ministry of Social Development report of that year. That report identified that, as at 2004, 38 per cent of dependent children's living standards had been characterised by low living standards which included some in severe or significant hardship categories. That report also included the statistic that families enduring low living standards included 51 per cent of families whose main source of income was an income-tested benefit, compared with 17 per cent of families whose main source of income was market income.2
| X |Footnote: 2
Second Amended Statement of Claim at [2] and [43], CPG.161.0002 and CPG.161.0010. Such statistics are measured by comparison with median household incomes, so are comparative and not by reference to any absolute measure, either domestically or internationally. 
More recent data cited in evidence before the Tribunal suggests that the position has not significantly improved. 
[3]
Accordingly, a claim that steps being taken on this important front involve prohibited discrimination is to be taken seriously. Indeed, this challenge has been pursued with the commitment of significant resources. The Tribunal heard 14 witnesses and argument in a hearing lasting 19 days. The record of the proceedings before the Tribunal extended to 32 volumes in hard copy form. The Tribunal's decision contains 289 paras in 105 pages. 
[4]
The appellant, Child Poverty Action Group Inc (CPAG), is an incorporated society that was formed in 1994 to advocate for better-informed social policy to support New Zealand children, in particular those living in poverty. CPAG conducts research, publishes information and lobbies for changes to government policy. It works with other child-focused organisations and has, among its management committee, Dr Susan St John, an Associate Professor in the Economics Department of Auckland University and Professor Innes Asher, Head of Paediatrics at Auckland University School of Medicine. Both of them gave evidence before the Tribunal. 
[5]
Since 2002, CPAG has pursued complaints that forms of State assistance to families with children that are not available to families where the parents are in receipt of benefits constitute prohibited discrimination. The present complaint was pursued in respect of measures introduced in the Income Tax Act 2004 and CPAG was granted legal representation by the Office of Human Rights Proceedings to pursue the case before the Tribunal. Those representation arrangements have continued for the appeal. 
[6]
The Crown challenged the Tribunal decision that CPAG had standing as a “complainant” but its status as a complainant was upheld.3 This Court subsequently found that the Crown had waived the time prescribed for bringing the appeal when it was inadvertently filed eight days late.4 
[7]
As to the nature of the present appeal, the parties are agreed that the appellate approach settled by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar should apply.5
| X |Footnote: 5
Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141, (2008) 18 PRNZ 768Has partially negative history or cases citing, but has not been reversed or overruled[Yellow] 
This approach requires the Court to form its own view on the relevant issues, whilst having appropriate regard to the conclusions reached by the Tribunal. Although the Tribunal heard extensive evidence, it does not appear that any material issues of credibility arose, and certainly statistical and opinion evidence is well able to be assessed by us without the benefit of seeing and hearing the witnesses. 
[8]
As to the scope of the appeal, CPAG's pleaded challenge focused on the provisions in the Income Tax Act 2004 by which the WFF package was initially implemented. Before any of those measures came into effect, a relatively significant amendment to the package was introduced in 2005. At the hearing before the Tribunal, the parties joined issue on the effect of the package as introduced, including the 2005 amendments. However, the Tribunal decided that it was constrained by the terms of the pleading, and also by the lack of complete submissions on the WFF package in its amended form, from ruling on the WFF package in its amended form.6
| X |Footnote: 6
Tribunal decision at [282], [286]. 
 
[9]
Three of CPAG's grounds of appeal challenged the decision of the Tribunal not to deal with the scheme as it had come into force. It is accepted for the Crown that the appeal ought to deal with the scheme as introduced, which includes consideration of the 2005 amendments to it. 
[10]
In those circumstances, it is not necessary for us to decide whether it was in error for the Tribunal not to deal with the form of package including the 2005 amendments. It seems that nothing turns on whether CPAG can make out an error by the Tribunal in this regard for costs purposes, and nor is it likely to be applicable as any form of precedent for subsequent proceedings. It is sufficient that the appeal deal with the challenge to the scheme as it exists, given that the Court was certainly adequately informed on the existing scheme, and that there would be an artificiality in dealing with the arguments as they related to the WFF package in a form other than as it is operating. 
[11]
CPAG's challenge before the Tribunal extended to a parallel provision that was ss KD to AAA(8)(a) of the Income Tax Act 2004, excluding from those eligible for a component of the WFF package, persons in receipt of compensation payable under the Injury Prevention, Rehabilitation and Compensation Act 2001. That aspect of the challenge was not pursued on appeal. 
[12]
The formal relief sought before the Tribunal was a declaration pursuant to s 92J of the Human Rights Act 1993 (HRA) that the relevant provisions in the Income Tax Act 2004“are inconsistent with the right to freedom from discrimination affirmed by s 19 of the New Zealand Bill of Rights Act 1990”
[13]
We will first review the genesis of the WFF package, and relate that to the statutory provisions that provided for it. We will then briefly describe the outcome of the Tribunal's decision, before listing the sequence of legal considerations in respect of which we have to settle on the tests to be applied. That leads to an application of those tests to the factual circumstances as we find them to be. 
The 31 March 2004 Cabinet Paper 
[14]
The WFF package was introduced as a 2004 budget initiative. The major rationale for it was recorded in a 47 page Cabinet Paper dated 31 March 2004. It recorded that initiatives had begun in December 20027
| X |Footnote: 7
CPAG's analysis also referred to earlier work: “Social Assistance Strategy: Goals and Work Programme”, a paper for Cabinet Social Policy and Health Committee, SPH (00) 128, 15 September 2000 (CPG.054.0020) and a further paper: “Pathways to Opportunity: Social Assistance Reform”, 18 June 2001 (CPG.001.0006). 
when Cabinet had invited the Minister of Finance and Revenue and the Minister of Social Development and Employment to report on major reform of family income assistance (including child care assistance) and simplification of the benefit system. This work had expanded to include analysis of the accommodation supplement, third tier hardship provisions and the invalid benefit. 
[15]
In its summary, the Cabinet Paper described the key objectives of the WFF package as follows:8
| X |Footnote: 8
CPG.005.0310. 
 
“•
make work pay by supporting families with dependent children, so that they are rewarded for their work effort. This involves better alignment of benefits and in-work support (including Family Income Assistance, Childcare Assistance and Accommodation Supplement) so that people are better off as a result of the work they do 
ensure income adequacy, with a focus on low and middle income families with dependent children, to significantly address issues of poverty, especially child poverty. The package also addresses housing affordability problems by responding to the increased cost of private housing for low income people, and 
achieve a social assistance system that supports people into work, by making sure that people get the assistance they are entitled to, when they should, and with delivery that supports people into employment. This involves steps to streamline the social assistance system so that it is easier for people to understand and access, and initiatives to improve take-up and enhance the effectiveness of delivery. ”
[16]
The Cabinet Paper proposed staged introduction of various components of the WFF package, on a number of dates between 1 October 2004 and 1 April 2008. The components of the package on each of the dates of introduction had discrete objectives, with those on 1 October 2004, 1 October 2005 and 1 April 2006 all having the objective of “strengthening the returns from work”. In contrast, the initiatives to be introduced on 1 April 2005 and 1 April 2007 were “improving income adequacy”. Whilst the bullet points for the initiatives on these various dates did not make any reference to addressing issues of poverty or child poverty, it is fair to infer that the initiatives listed for the purposes of improving income adequacy were the ones that would address that aspect of the overall objectives. For instance, the key initiatives on 1 April 2005 included increasing family support rates, introducing a new main benefit rate structure for families with children, and increasing orphan and unsupported child benefits and foster care allowances. The 1 April 2007 initiatives constituted a further increase of family support rates. 
[17]
The final milestone, on 1 April 2008, had the objective of “maintaining income adequacy” with the initiative being to protect payments against the effects of inflation by legislating for a policy of periodic adjustments to family support rates and thresholds, as well as child care assistance thresholds and other components. 
[18]
In terms of the impact on incomes, the Cabinet Paper projected that:9
| X |Footnote: 9
CPG.005.0313. 
 
“using a poverty measure of 60% of the median household income, there is expected to be a 30% reduction in child poverty by 2007/08. Using a 50% measure, the expected reduction is 70%. ”
[19]
The paper recognised a need to bring social assistance systems up to date so that they no longer act as a barrier to people moving from benefits to employment, and that they actively support families in work. The policy objectives also recognised that child poverty hampers long-term economic performance as well as resulting in poor social outcomes. 
[20]
The Cabinet Paper did not address the conflict that could arise in advancing those two objectives. This would arise because maintaining a gap between the net income available to beneficiaries, and the net income for the lowest paid employed parents, was perceived as necessary to create the incentive for people to move off benefits and into work. Maintaining such a gap potentially limits the extent of assistance that could be provided to beneficiary parents. 
[21]
The Cabinet Paper detailed six components of the WFF package: 
(a)
Family income assistance and the in-work payment initiatives; 
(b)
Child care assistance improvements; 
(c)
Accommodation supplement initiatives; 
(d)
Invalid benefit changes; 
(e)
Special benefit changes; and 
(f)
Consequential changes to other social assistance programmes. 
[22]
The Cabinet Paper reported under the heading Human Rights Implications as follows:10
| X |Footnote: 10
CPG.005.0332. 
 
“77.
A number of changes contained in the Working for Families package raise issues of inconsistency with the New Zealand Bill of Rights 1990 and the Human Rights Act 1993. Both the Income Tax Act 1994 and the Social Security Act 1964 currently contain provisions that discriminate on the grounds of family status, employment status, marital status, sex and sexual orientation. Making changes to both Acts to implement the changes proposed for the Working for Families package will raise New Zealand Bill of Rights issues and any continued or new discrimination will need to be justified. 
78.
Before the Working for Families Package is introduced the Ministry of Justice will vet the Bill for compliance with the New Zealand Bill of Rights 1990. MSD and IRD will work closely with the Ministry of Justice to provide justifications for any continuing or new discriminatory provisions that may be contained in the Working for Families Bill. However, both Acts currently discriminate on the grounds of sexual orientation, and the Social Security Act discriminates on the grounds of sex, and in neither case is it likely that a justification for either discriminatory provisions will be accepted. The package does not introduce any additional discrimination on these grounds. It is therefore likely that a Section 7 report under the New Zealand Bill of Rights will be tabled in the House when the Working for Families Bill is introduced. ”
[23]
In the Regulatory Impact Statement appended to the Cabinet Paper, in reflecting on the magnitude of the problem and the need for government action, it observed:11
| X |Footnote: 11
CPG.005.0400. 
 
“209.
At any one time, more than one quarter of all dependent children in New Zealand are supported by benefits. Families have a higher likelihood of restricted living standards than single people or childless couples, and beneficiary families are more likely to have restricted living standards than other families. There is increasing international evidence that the negative effects of poverty on children, particularly younger children, intensify the longer a family is poor. ”
[24]
The WFF package was announced in the Budget on 27 May 2004, and on the same day the legislation effecting it was introduced and passed. The Bills containing the measures were not referred to a select committee. CPAG criticised the absence of that step in the Parliamentary process, as well as the absence of any Green Paper or White Paper to canvass for views about the proposed changes. 
[25]
The Attorney-General did report to Parliament pursuant to s 7 of the New Zealand Bill of Rights Act 1990 (BORA) in relation to the Bill. That report concluded that the effect of the Bill in treating same-sex couples differently from opposite-sex couples appeared to be inconsistent with s 19(1) of BORA and did not appear to be a justified limitation under s 5 of that Act. The Attorney-General's report did not raise issues relating to employment status discrimination. However, CPAG had raised concerns of this type as early as October 2002. The Tribunal commented on the lack of any consideration of discrimination on the ground of employment status in the Attorney-General's report as “surprising” and “unfortunate”.12
| X |Footnote: 12
Tribunal decision at [76]-[79]. 
We were similarly troubled by the absence of any analysis of the potential discrimination, particularly in light of the commitments made by signing international instruments such as the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the Convention on the Rights of the Child (UNCROC) which address such matters.13
| X |Footnote: 13
See [47]-[53] below on the nature of those commitments. 
 
2005 amendments 
[26]
The 2004 initiatives had been costed at approximately $1.14 billion per annum once fully implemented from 2007. In the course of 2005, the government became aware of the potential availability of significant further funding that could be committed to income assistance or tax relief. 
[27]
Prior to any of the measures that had been enacted in 2004 coming into effect, the government decided to extend the In Work Tax Credit (IWTC) component of the WFF package to higher income earners. This would substantially increase the level of earnings at which taxpayers would qualify for the IWTC, and also raise the levels at which the IWTC would gradually abate. Under the 2004 WFF package, the IWTC would begin to abate at $27,500 per annum in income, and thereafter there would be a 30 per cent abatement rate. Under the 2005 alteration, the threshold became $35,000 and thereafter abated at 20 per cent. The altered abatement rates were such that a family with three dependent children would only lose the last of the IWTC at an annual income of $101,000. 
[28]
As the case had been argued before the Tribunal, and initially before us, there were no cabinet papers or other departmental research documents analysing the policy justifications, or implications, of the 2005 change to the WFF package. In reviewing the facts from the Crown's perspective, Ms Foster said that this was because officials did not give advice because the amendments to the scheme were “a manifesto issue” by which we took her to mean that it was a party political initiative in anticipation of the 2005 General Election. She characterised the change as one driven by the then Minister of Finance, Dr Cullen, who was, in her terms, “very hands on” in pursuing the 2005 amendment. 
[29]
However, in response to questions from us, we were provided on the last day of the hearing with two documents that had been disclosed on discovery by the Attorney-General, but not previously included in the documents either before the Tribunal, or in the bundle for the Court. 
[30]
The first of those documents, dated 27 October 2005, was prepared by Mr Bryan Perry, a principal adviser with the Ministry of Social Development. The document was described as an assessment of the likely impact on income poverty of the tax relief package proposed by the Labour Party in that year's election campaign. The summary at the outset was as follows:14
| X |Footnote: 14
CPG.071.0005. 
 
“2.
The short answer to the impact question is that in contrast to the WFF package which is expected to reduce income poverty by a significant amount, the proposed [tax relief] package will have no impact on income poverty measured using constant value thresholds, and only a small upward impact when using relative-to-contemporary median thresholds. The difference in impact between the two packages arises because of the quite different income ranges that each package targets. ”
[31]
The second document provided to the Court was an undated Treasury report that seems most likely to have been produced in late October or November 2005. It repeated the observation from Mr Perry's paper that the proposed tax reform package would have no impact on income poverty measured using constant value thresholds, and a small upwards impact when using relative-to-contemporary median thresholds. It observed that no families below the standard poverty threshold would receive any extra assistance, but also that the very large proportionate poverty reduction expected from the WFF package would not be compromised by the impact on the median of the proposed tax relief package. 
[32]
When introducing the Bill that effected the 2005 changes on 16 November 2005, Dr Cullen described it as a Bill that delivered on “key election pledges”, one of those being to extend the WFF package. He described that part of the measure in the following terms: 
“It builds upon changes that were already scheduled to come into effect on 1 April next year as part of the phased implementation of that package. As a result of the changes in the bill, about 100,000 working families who were to receive increased assistance next April will receive even more, and an extra 60,000 families will become eligible for family assistance under the Working for Families programme. 
… That is achieved by raising the threshold at which family income assistance begins to abate, from $27,500 — actually, at the moment it is still $20,000 — to $35,000, and by reducing the rate at which assistance abates for income that is over the new threshold, from 30 per cent to 20 per cent, which, for very large numbers of working families, also decreases the effective marginal tax rate by some 10c in the dollar. ”
Terms of the legislative provisions under challenge 
[33]
The structure of the relevant provisions in the Income Tax Act 2004 was retained in the subsequent enactment in the Income Tax Act 2007 and it is convenient to describe the relevant provisions by reference to the latter statute, which continued to apply. 
[34]
There have been a number of somewhat confusing changes in the names given to various components of the WFF package. For the sake of simplicity, we will adopt the current names, and where referring to the differently named predecessors of the various components, will still give them the names that are current now, even although they were referred to by different names at various points in time. 
[35]
The contentious part of the WFF package for present purposes is the IWTC (ie In Work Tax Credit),15
| X |Footnote: 15
Prior to 2004, the IWTC was called “In Work Payment”. It was provided for in s KD to AAA of the Income Tax Act 2004. 
the objective of which was to supplement the income of those who were in work, with one consequence being that a positive margin was maintained between the amounts earned by those at and towards the bottom of the wage range, and those in receipt of unemployment or other State benefits. 
[36]
Part M of the Income Tax Act 2007 provides for tax credits paid in cash. The IWTC is provided for in ss MD4 to MD10. Section MD4 provides that a person is entitled to an IWTC for a child if, in respect of an entitlement period, the person meets the five requirements in ss MD5 to MD9. 
[37]
Sections MD5 to MD9 are headed respectively as the first to fifth requirements for entitlement. These sections provide that the person has to be: 
16 years or older; 
The principal caregiver for a child who is financially dependent on them; 
A New Zealand resident; 
Not receiving an income-tested benefit; and 
A full-time earner. 
[38]
The concept of a full-time earner is the subject of its own definition in s MA7, which provides that it is a person who is employed for 20 hours or more per week if single, or a total of 30 hours' work per week between a couple. “Income-tested benefit” is separately defined in s YA 1 of the 2007 Act. That term means the seven forms of primary benefit payable under the Social Security Act 1964, including domestic purposes and unemployment benefits. The requirement that recipients of the IWTC not be receiving an income-tested benefit is referred to as “the off-benefit rule”
[39]
The other components of the WFF package included the Family Tax Credit (FTC), payable to all principal caregivers, irrespective of their employment status.16
| X |Footnote: 16
Previously called the Family Support Credit, provided for in s KD2(3) of the Income Tax Act 2004, and s MD3 in the Income Tax Act 2007. 
That was an adaptation of relatively long-standing family support, paid per dependent child. 
[40]
In addition, for those in work but earning at low levels, a supplement to their earnings was also payable by way of the Minimum Family Tax Credit (MFTC).17
| X |Footnote: 17
Previously called the Family Tax Credit, and provided for under s KD3 of the Income Tax Act 2004, and s ME1 of the Income Tax Act 2007. 
It is only payable for the weeks in which a person is a full-time earner.18
| X |Footnote: 18
Income Tax Act 2007, s ME1(3)(c). 
 
[41]
In the evidence before the Tribunal, Donald Gray, the Deputy Chief Executive, Social Development Policy and Knowledge in the Ministry of Social Development, provided a table to reflect the different application of these various forms of benefit for both a sole parent and a couple, contrasting the situations in which a sole parent worked for 20 hours (or a couple for 30 hours) with a situation where a sole parent or a couple were not working and claiming the domestic purposes or unemployment benefits. The chart in evidence described the various tax credits by their previous names, and in the form below the current names for the benefits are added in italics as they are being referred to in this judgment. 
 
Sole Parent 
Couple 
Tax credit and benefit examples 
Working 20 hours 
Not working 
Working 30 hours 
Not working 
6 hours work 
As at April 2007 
DPB claimed (net) 
Wages (gross) 
IWP claimed (net) 
DPB claimed (net) 
UB claimed (net) 
Wages (gross) 
IWP claimed (net) 
UB claimed (net) 
IB claimed (net) 
Benefit abated for income 
194.15 
 
0.00 
255.65 
117.21 
 
0.00 
297.46 
371.84 
Family Support Credit (2 children under 12) Family Tax Credit 
139.00 
 
139.00 
139.00 
139.00 
 
139.00 
139.00 
139.00 
Family Tax Credit Minimum Family Tax Credit 
0.00 
 
158.29 
 
0.00 
 
60.13 
0.00 
In Work Payment In Work Tax Credit 
0.00 
 
60.00 
 
0.00 
 
60.00 
0.00 
Support from the State 
333.15 
 
357.29 
394.65 
256.21 
 
259.13 
436.46 
510.84 
Income from employment (secondary tax when on benefit) 
174.83 
225.00 
185.79 
 
262.24 
337.50 
282.49 
 
52.45 
Net total income 
507.98 
 
543.08 
394.65 
518.45 
 
541.62 
436.46 
563.29 
Gain from moving off benefit 
 
 
35.10 
 
 
 
23.17 
 
 
[42]
The components of the WFF package were designed so that the MFTC was means tested and only available to those on incomes at the lower end of the scale. Thereafter, the FTC abated from $35,000 in family income, until earners became ineligible at salaries of $56,000. Thereafter, the IWTC began abating from $56,000 and, depending on the number of dependent children being cared for, continued to be available until the family's income reached substantially higher levels. For two dependent children, it cut out at $86,000, for three, $101,000 and for four at $119,000. The evidence included an extract from a WFF tax credits registration document, which set out a schedule of the rates of abatement. A copy of that schedule is Annexure A to our judgment. 

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