Debt owed to government agencies by the country's poorest residents adds up to more than three billion dollars, and there's no easy solution

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

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."

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…

Go to this episode on rnz.co.nz for more details