29 Aug 2022

Women refunded by MSD now hit with unjust taxes - advocates

From Checkpoint, 5:26 pm on 29 August 2022

Women who have been refunded by the Ministry of Social Development after being wrongly sanctioned are now being punished again by being double-taxed, beneficiary advocates say.

New Zealand charity Shakti has worked with about 300 cases of forced marriage. (File photo).

Photo: 123rf

Under section 70A of the Social Security Act, many women receiving a benefit were sanctioned up to $28 a week for not naming their child's father.

Exemptions were available, but many women said that was never revealed or explained to them. 

In 2020 the government scrapped the sanction and some women were refunded thousands of dollars after seeking reviews.

But for some women, the victory has quickly turned sour. 

"I was elated, absolutely elated," one woman told Checkpoint

"I thought, wow, they've finally righted their past wrongs, and I just thought I can pay off some debt that I had and have a few nice things, but pretty soon it turned into a big headache."

Another woman told Checkpoint she was excited about being able to help her children financially now, after all the years struggling when they were young. 

The women expected the refunds to be taxed, but they did not expect the one-off payments would count as income in the year they were received. 

It has had enormous unforeseen implications for them. 

"I had been told by WINZ (Work and Income NZ) that there was nothing more to pay, it didn't count as income," said one woman, who is now working and no longer on a benefit. 

It pushed her into a higher tax bracket, and left her owing nearly $4000 to Inland Revenue. 

"It's a huge amount of money, especially when you've got small children as well. I have lost some money on my family tax as well, obviously going into a higher tax bracket.

"Hugely stressful because it's a lot of money when you're just working-class people." 

Another woman lost her much-needed family tax credits. Also, because the refund was wrongly treated as income, a significant amount was taken to pay her student loan. 

"They charged me all the interest from the time of the payout until present… All up it was about $10,500.

"It was awful. I actually think it was way worse getting this payout than it was when the money was being taxed back then. Because I've ended up in a huge amount of debt."

Beneficiary advocates have strongly criticised the taxation, and argue the sanctions were wrongly imposed.

They say if the payments had been made over the years they were actually due, the current problems wouldn't be happening. 

A legal opinion sought by Auckland Action Against Poverty agrees, saying the refund should be exempt from knock-on tax consequences. 

Inland Revenue has disagreed, but it does not have a binding decision on the matter. 

There is another application process to be exempted from the taxes, but the women at the heart of the problem say they do not have the stomach to go through it too. 

They say it feels like the fight for justice has not been worth it, when they are left with a huge bill. 

"You were punished in the first place for things that were out of your control, and then you're punished again all these years later. It's like they've tried to right their wrong, but they haven't really, and you're still being punished."

Auckland Action Against Poverty has written to the Inland Revenue and social development ministers, calling for an urgent law change to what they say is a prolonged injustice.

AAAP co-ordinator Brooke Stanley Pao told Checkpoint the women have been unfairly taxed when they were told they would not be. 

It was causing them further stress and hardship, she said. 

"By removing money from their benefit was already cruel and unjust, but then to also double tax them when awarding them their back payments is just keeping people in hardship - it's a back payment. 

"These back payments, people were really looking forward to as it means that they have a little bit more freedom to do what they want in their lives, and women are finding it's actually harder, and some of them even wish that they didn't even kind of go through the process of getting it in the first place.

Brooke Stanley Pao said with a majority in Parliament the government has the power to be transformational. 

"Do the right thing. You guys have the power to do the right thing. So why don't you do it?"

In a statement to Checkpoint, Revenue Minister David Parker said: "I acknowledge that these payments are made to people who may be in difficult circumstances and of the hardship that this can cause. I have asked my officials to develop a solution to this, and they are working through it."