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LOANS TO FEED KIDS ARE INCOME AND DISQUALIFY BENEFIT, SAYS MSD

Beneficiaries who borrow money to feed their children should have their benefits cut but those who borrow to buy shares should be entitled to benefit support, according to the Ministry of Social Development.

The Auckland High Court will hear the closing day of argument in a test case about benefit entitlement on 27 October.

MSD argues that loans taken out by beneficiaries to survive comprise “income,” and accordingly disqualify them from benefit support.

The hearing started in July but could not be completed then, so will wind up this Friday.

The case involves Ms X,* a woman with two children who was on a Domestic Purposes Benefit between 2005 and 2010 and at times received other support such as the Accommodation Supplement, Special Benefit, Temporary Additional Support and a Special Needs Grant.

In 2010, Ms X’s abusive former partner made a complaint to the Ministry of Social Development about her, alleging that she had received financial support from her mother and had bought and sold houses while on a benefit.

The Ministry began an investigation into Ms X’s circumstances and entitlement to the benefit.

Her former partner later admitted that his complaint had been malicious and unfounded, but that did not stop the Ministry’s action against Ms X. 

The Ministry concluded that, as Ms X had borrowed money and spent it on basic necessities for herself and her children, she had not been entitled to a benefit and was accordingly required to repay $120,398.38.

This was despite the fact that Ms X was specifically told by her Work and Income case managers that she did not have to declare loans, irrespective of whether the loans were from banks, credit cards or family members.

As benefits in Aotearoa are deliberately set at levels which are too low to live on, Ms X borrowed from her bank, her mother and her credit card to stay afloat.

She lived outside Auckland at the time and owned a property, which she was trying to hang on to so that her children would have a home. She borrowed to buy paint for the property and to fix a leak to prevent sewage from running through the floor.

The benefit review form did not ask Ms X to list loans – in contrast to the United Kingdom form which has a question about this.

Ms X also provided detailed information to MSD showing that the loans had been repaid.

MSD’s argument is that the loans, even though they have been repaid, were “income” and accordingly disqualified her from benefit support.

The case has already been to the Benefits Review Committee and the Social Security Appeal Authority. Ms X has spent hundreds of hours providing details of her situation and explaining her finances – at the same time as caring for her children, studying for a degree and trying to start a business to support her family.

The amount she is alleged to owe has been adjusted several times, so that the figure has ranged between $109,852.91 and $127,275.05.

The Social Security Appeal Authority ruled that two bank loans should not have been treated as income, but held that other loans were income and that Ms X should be required to repay $109,852.91.

The Authority also said that the forms used by Work and Income were clearly inadequate to notify beneficiaries of the information MSD alleged they needed to provide.

The Ministry of Social Development appealed to the High Court against the Authority’s decision that bank loans were not to be treated as income. Ms X also appealed, arguing that money she borrowed from her mother and others was not income.

Section 3 of the Social Security Act 1964 defines “income.” The definition is more than one-and-a-half pages long. Section 3(b) states that income includes

 

“..whether capital or not and as calculated before the deduction (where applicable) of income tax, any periodical payments made, and the value of any credits or services provided periodically, from any source for income-related purposes and used by the person for income-related purposes;”

 

Section 3 defines “income-related purpose” as meaning the purpose of –

 

“(a) replacing lost or diminished income; or

 (b) maintaining the person or a member of his or her family; or

 (c) purchasing goods or services for the person or a member of his or her family, being goods or services of a kind that are commonly paid for from income; or

 (d) enabling the person to make payments that he or she is liable to make and that are commonly made from income.”

 

When the case was in the High Court in July, the judge asked the Crown lawyer whether there was any loan that would not be counted as income and he replied that, if credit was used to buy shares, it might not be counted.

That response illustrates the level of unreality of MSD’s approach.

It is arguing that borrowing for the most basic necessities should disqualify people from benefits, but loans for the luxury of share-buying should not.

Does the Ministry seriously believe that beneficiaries are share buyers ?

The answer can be set alongside the response of a different Crown lawyer to a judge’s question in an earlier case I acted in.

MSD was trying to recover approximately $120,000 from a chronically-ill beneficiary in her 50s who will never be able to work again. The Ministry has pursued her for years and spent a large amount on the case, even though it is plain the woman has no money and her health will never allow her to work again.
The judge asked the Crown lawyer whether it was worth continuing to pursue the beneficiary.

The lawyer responded that it was, as the beneficiary might win Lotto and would then be able to repay the money.

Neither Crown lawyer’s reply relates in any way to the reality of the lives beneficiaries actually lead.

The absurdity of MSD’s argument in Ms X’s case can be clearly illustrated by applying it to someone in work.

If loans really are income, then employees with mortgages and other debt would be required to pay tax on their loans.

Or, is it one rule for beneficiaries, and another for the rest of Aotearoa ?

 

*Ms X has name suppression.

**Catriona MacLennan is a Barrister and journalist.



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