Some of the financial help being handed out to struggling Kiwis is actually keeping them poor.
Figures from Ministry of Social Development show that total debt has climbed by more than $1 billion since 2018 Photo: 123RF
The debt owed by hundreds of thousands of people to government agencies has soared in recent years, but a plan to tackle it has been put on hold.
Figures from Ministry of Social Development show that total debt has climbed by more than $1 billion since 2018 to $2.61 billion in the year to this March, and the number of people with debts has increased by tens of thousands, to 621,541.
Other ministries - including Justice and Inland Revenue - are also owed hundreds of thousands of dollars, though the total overall debt has not been updated since September 2020 when a figure of $3.5 billion was published by Inland Revenue.
It means that most beneficiaries have a debt to government agencies, according to Jennie Sim, a researcher for a non-governmental organisation called Kore Hiakai (Zero Hunger).
"It's a system that holds them in poverty rather than a system that empowers them to wellbeing," she says.
RNZ's money correspondent Susan Edmunds explains how growth in debt to MSD comes primarily from overpayments ($1.26 billion to March 2024) or recoverable assistance ($1.2 billion), while the amount of debt from fraud has been gradually decreasing each year and stands at $136 million.
"The problem with MSD is that you're on a benefit, you owe money to the government, they then take that from your benefit, and it becomes a cycle. You just can't get out of that debt.
"You borrow to pay for your electricity bill, say, and then it comes out of your benefit to pay it back but then you've got to pay your next electricity bill and around it goes. It just becomes this cycle that people can't break."
RNZ Money Correspondent Susan Edmunds Photo: Stacey Milich Photography
Edmunds explains to The Detail the difference between the types of debt. Recoverable assistance is an interest-free loan from MSD to pay for emergency, essential items. Overpayment debt typically comes when people have been confused about their income, such as earnings from a part time job, and as a result the support they receive from MSD is more than they are entitled to.
She says people who receive Working for Families support are often caught out but may not be notified of the overpayment until months later. She predicts there could be more cases of overpayment from Working for Families after changes announced in the budget.
Sim says several people have accrued debts of more than $100,000 through overpayment.
She says the problem is exacerbated by MSD's ageing IT systems.
"There's an unsolvable issue here in that the requirement to update the MSD system doesn't align with people's pay slips. Financial mentors keep saying that it's often families, and individuals are trying really hard to avoid this issue but the complex requirements, the processes around the system of MSD means that these debts occur despite people's best efforts to avoid them," Sim says.
The ministry is spending more than $2 billion overhauling its IT system, but it will take several years to complete. But until that's ready Sim says people have to grapple with a failing system.
Last year Inland Revenue, MSD and other agencies got together to work on policies to improve management of problem debt.
Figures from Inland Revenue show that in 2020 about 566,600 low-income New Zealanders owed $3.5 billion debt to government agencies and more than two thirds is owed by people in households with children.
In its annual report last year, it said it had been involved in "cross-government work to improve the persistent issues
that affect families".
"The debt owed by customers to multiple agencies has been a primary focus," it says in the report.
It goes on to say that it led the development of an all-of-government policy framework covering the creation and management of debt.
That framework was adopted by the government in July last year with the aim of improving "fairness and consistency of how people are treated across government agencies, to put more emphasis on debt prevention in policy design and ensure people get appropriate relief if they're in hardship".
A report back to Cabinet was due next month to assess whether the framework has been effective.
"In tandem with the framework, Te Tari Taake, Inland Revenue and other agencies are working on specific policy options to improve the management of problem debt," the report said.
But Inland Revenue told The Detail this week that the next month's report back will not go ahead.
"Instead, the framework is scheduled to be evaluated in 2026."
Sim says she's not surprised at the delay and NGOs will continue to press the government for a fairer system and to wipe the overpayment debt.
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