Labour has copped criticism for delaying a key Working for Families promise to 2026 - which, if it wins the election, would be its ninth year in government.

Labour has promised it would lift the abatement threshold for Working for Families credits from $42,500 to $50,000 in 2026 if re-elected. Critics have said the adjustment does not account for the wave of inflation that has occurred since 2018, the last time the threshold was adjusted.

It means some families may still be worse off after the change triggers in 2026, because of how fast incomes have risen. The abatement rate would need to be lifted by twice as much as Labour is currently promising, all the way to $57,000 in 2026 to keep pace with inflation since the threshold was last lifted in Labour’s 2018 families package.

Working for Families tops up families’ incomes through a Byzantine network of tax credits. Those credits are withdrawn after the family’s income reaches a certain threshold.

As the person earns more, they get less in credits. The system is meant to encourage people to work more if they can, by allowing families to keep their tax credits as they work.

But over time, Governments have tweaked the scheme so that it does the opposite, quickly withdrawing credits as incomes rise.

Labour’s Social Development spokeswoman and the Minister for Social Development Carmel Sepuloni said Labour’s latest promise was “certainly a good start”.

Sepuloni said the $25 increase to the In-Work Tax Credit, which will begin in 2024 if Labour is re-elected, was “really important”.

Labour and Sepuloni have come under pressure for not implementing any dramatic changes to the Working for Families system, despite having it under review since 2022 and having findings from the review with ministers before the budget. Sepuloni said the review was “still under way”, and that more could yet come from it.

“The intention is that we report back to Cabinet with that before the end of the year,” Sepuloni said.

Asked whether it was disappointing that the lifting of the abatement threshold will only take place in 2026, Sepuloni said “look, you work really hard in this place to get as much as you can over the line”.

National’s Nicola Willis reiterated that her party would not get rid of Working for Families - former leader Sir John Key famously called the scheme “communism by stealth” in Opposition, but kept the credits when he was in office.

Green Party MP Ricardo Menendez March said his party promised a higher threshold. Photo / Sylvie Whinray

Willis said there will be more detail on her party’s plan when it publishes its tax policy ahead of the Pre-Election Economic and Fiscal Update on 12 September.

Green Party social development spokesman Ricardo Menéndez March said his party’s “Income Guarantee” would drastically alter the existing system.

The Greens have promised to replace the Working for Families system with a single, simplified payment.

It will provide parents or caregivers with up to $215 every week for the first child, and $135 a week for every other child. The abatement threshold would be shifted to $60,000.

Currently, all families, including families on a benefit, get the family tax credit, but only families that work get the In-Work Tax Credit.

The In-Work Tax Credit is the credit Labour plans to lift, meaning beneficiary families do not benefit from Labour’s tax credit boost.

University of Auckland associate professor Susan St John agreed the discrimination between families who work and families who do not should be changed.

Labour has recently been arguing its GST policy to take GST off most fruit and vegetables by noting that this practice is common overseas.

St John said that this argument could be applied to the Working for Families system, noting that Australia does not “differentiate between the deserving and the undeserving children in their family tax benefits”.

“Why don’t we do what Australia does?” she said.

Susan St John said the changes needed to go further.

St John agreed the current abatement threshold needed to be lifted, noting that it would be about $52,000 now if adjusted for inflation.

“The effect of leaving that threshold fixed has already had a bad impact and it is going to have a bad impact right to 2026,” St John said.

She said adjusting the change in 2026 did not deal with the systemic issue of not inflation-adjusting the thresholds.

“This non-indexed change from 2026 to the threshold doesn’t deal with the systemic issue that it’s never been inflation-adjusted,” she said.

St John expressed frustration at the lack of progress on the Working for Families review.

She said another problem was the steady hiking of the abatement rate - this is the rate at which the tax credits are withdrawn.

The abatement rate has slowly been lifted from 20 per cent in 2012 to 27 per cent now.

Lifting the abatement rate and the abatement threshold means that while people can keep their Working for Families credits at higher income levels, the credits abate much faster because of the higher abatement rate.

St John noted this was against the principle of the scheme, which was to encourage work.

Taking people’s credits away at such steep rates effectively penalised people for working more.

“It’s contradictory,” she said.