Estimates of Working for Families eligibility and take-up rates 2007 – 2020

Methodology

We look at the 14-year period from the 2007 tax year (April 2006 to March 2007) to the 2020 tax year (April 2019 to March 2020). There is at least an 18-month lag before WFF data is reliable, and 2021 tax year estimates will not be able to be produced until at least late 2022.

We focus on the main WFF tax credits – Family Tax Credit (FTC) and In-Work Tax Credit (IWTC). These payments accounted for between 97 and 99 percent of all WFF payments each year over our period of interest. For a description of these payments and trends in receipt, see Graham and Arnesen (2022).

A separate study estimates take-up of the Best Start tax credit that was newly introduced in July 2018 (McLeod and Wilson, 2022). Our estimation for Best Start follows a different approach, as eligibility is almost universal in the first year of a child’s life, and family structure and family incomes are less important.

Steps and data sources

Our estimation approach is based on linked survey and administrative data held in the Stats NZ Integrated Data Infrastructure (IDI) (Milne et al., 2019) and proceeds as follows.

1. We take samples of respondents from the Household Labour Force Survey (HLFS) for the 2007 to 2020 tax years. The HLFS is a continuous national survey of households and has a rotating panel where households are surveyed in eight successive quarters. We take the most recent survey response for each household in each tax year. All respondents who were in the household at that time are selected. Households can appear in our estimates in three successive tax years. The definition of a family group used for our analysis is broadly analogous to that used in the tax and income support systems, being one or two parents (or caregivers in a parent role) with children under the age of 18. Each household can include more than one family group.
2. We exclude households from our study if there are no adults aged 15 years and over in the household able to be linked to the IDI spine, or where one or more adult links to the spine, but no adult in the household has any matching income data in the tax year being examined. This results in the exclusion of around 5-6 percent of respondents in each tax year from 2007 to 2015. The percentage of excluded records has dropped in more recent years, to a little over two percent in 2019 and 2020. Weights are adjusted to correct for this exclusion.
3. We weight all adults aged 15 and over to total NZ population estimates for the relevant year using an expanded set of Household Economic Survey (HES) individual and household benchmarks. The expanded set of HES benchmarks is used due to difficulties with using HLFS weights for the purpose of estimating the population of families, particularly those relating to difficulties estimating the number of families supported by benefits or tax credits. These difficulties and the expanded set of benchmarks are discussed in McLeod and Wilson (2021).
4. We next restrict our sample to parents aged 18 or over who had a child aged 17 years or under living with them at the time they were surveyed for the HLFS, or who had a child aged 18 living with them who had been aged 17 at some stage during the tax year. We exclude parents who have a WFF record showing they had no dependent children in that year, as well as those who were receiving a benefit but had no children included on that benefit. We also exclude families if neither parent has matching income data in the IDI. Finally, families with all parents overseas for more than three months of the tax year are excluded (based on NZ Customs Service data).
5. The next step is to derive sub-groups of families for analysis according to their characteristics using HLFS survey data (sub-groups allow results to be presented by whether the respondent is a sole versus partnered parent, age of youngest child, number of children, ethnic group(s) of parents or caregivers, disability status
   of parents or caregivers, and neighbourhood deprivation (NZDep)).
6. Next, linked data in the IDI are used to derive parents’ incomes. Incomes are derived from Inland Revenue (IR) and MSD administrative data sources as described in Wilson and McLeod (2021). Income from WFF tax credits is assigned to the period in which the entitlement fell, regardless of when the payment was made. We approximate the definition of parental income used for WFF assessment in the relevant year. Sub-groups according to whether the family was receiving income from a main benefit as at the end of the tax year are derived at this step.
7. An estimate of whether the parent (in the case of a sole parent family) or parents (in the case of a two-parent family) meet the income criteria for WFF tax credits is derived based on the number and ages of children (based on family structure at the time of their HLFS survey) and the parents’ incomes (based on linked administrative data1). For those with incomes below the relevant WFF cut-out point, payment levels and abatement rules are applied to estimate the size of the potential entitlement. Families cannot receive FTC or IWTC for children if they receive a Foster Care Allowance, Orphan’s Benefit or Unsupported Child’s Benefit for them. If the family receives income from one of these payments at any stage in the tax year, we assume they have no FTC or IWTC entitlement.
8. An estimate of whether the family meets the hours of work requirement (which applied to In-Work Tax Credit for most of the study period) is derived using IR earnings and self-employment income data. Whether families meet these requirements cannot be accurately identified as comprehensive data on work hours are not available. Our estimation involves calculating earnings thresholds based on the required number of hours times the minimum wage. If a family earns above the threshold across the tax year, we assume they meet the requirement.
9. An estimate of whether the family meets residence requirements is derived using a combination of birth registration data, Census data, visa approvals data from the Ministry of Business, Innovation and Employment, and data from the NZ Customs Service. WFF payments are available to families who meet a residency requirement either through a parent or the child. The requirement can be met by the child if the child is ordinarily resident in New Zealand and is present in New Zealand for the period of entitlement. The requirement can be met by one or both parents if the parent is ordinarily resident in New Zealand and has been in New Zealand for 12 months continuously at any time.
10. Finally, if a parent is observed to have received a WFF payment during a tax year, then they are assumed to have been eligible for WFF on income and employment grounds, and on residence grounds. This is on the basis that IR and MSD have better information available to them to assess entitlements than we have with the data available in the IDI.

Two key measures are then estimated as follows:

Eligibility rate: Number of families estimated to be eligible for WFF payments x 100
Estimated number of families with children
Take-up rate: Number of families estimated to receive WFF payments x 100
Number of families estimated to be eligible for WFF payments 

Those estimated to be eligible are those who, based on the calculations and assumptions set out above, appear to meet income, hours of work (where relevant), and residence requirements.

We do not present confidence intervals for the estimated eligibility and take-up rates as confidence intervals only reflect sampling error and could suggest more certainty about the true range than exists. It is important to emphasise that the estimated rates should be considered approximations. This is discussed in more detail in the ‘Strengths and limitations’ section below.