Social Development and Employment Minister Louise Upston Photo: RNZ / Samuel Rillstone
The government is pushing ahead with legislation that would align benefit increases with inflation, rather than wage growth, under urgency.
The legislation also increases the income threshold for the minimum family tax credit by about $1000, a change which was in line with previous Cabinet policy.
National set out its fiscal plan during the election, including a move to reverse a change brought in by Labour to link main benefit increases to average increases in wages.
Wage growth has typically increased faster than inflation.
While this had been expected not to be the case this year, the latest statistics showed the consumer price index was lower than expected - at 4.7 percent - and the minister during the debate quoted the latest average wage growth figure as 5.3 percent.
This means the change will immediately mean savings for the government, with smaller increases to benefits than would otherwise be the case.
The party said its approach would save the government about $2 billion over the forecast period, but has now revised that estimate to $669.5m through to 2027/28.
Analysis by the Ministry of Social Development from late January shows making the change now will likely mean higher immediate costs for the taxpayer with bigger increases for beneficiaries, but lower costs for the government and smaller benefit increases in the long run.
In a statement, Social Development and Employment Minister Louise Upston said this would "protect the real incomes of benefit recipients and low-income working families for years to come, while also making sure the cost of the benefit system to taxpayers is sustainable and manageable in the long-term".
"Over the longer-term, taxpayers will gain from savings in benefit expenditure, while benefit recipients retain a consistent level of income."
She said the bill was going through under urgency to ensure the rate of main benefits would reflect the rise in inflation when the yearly indexation is implemented on 1 April.
The MSD analysis noted that women, Māori, Pasifika, and disabled people were expected to be disproportionately impacted by the policy, and was expected leave more children in poverty than the alternative, in the absence of other changes.
"By tax year 2028, there would be an estimated increase of 7000 (+/- 4000) children under the AHC50 poverty measure, and an estimated increase of 7000 (+/-6,000) children under the BHC50 poverty measure," it said.
The change to the Minimum Family Tax Credit threshold increases the level of income low-income families can get before the tax credit they are eligible for reduces.
It will be increased from $34,216 after tax to $35,204, keeping it aligned to the change in rates for main benefits.
"This change will ensure low-income working families remain better off financially in full-time work and receiving the Minimum Family Tax Credit than they would be on a main benefit," Upston said.