Social Issues

Where to next for dead welfare report?

The Government's welfare report was ushered into history with a quiet Friday announcement. Thomas Coughlan looks into its recommendations to see what has been ignored.

It came on a Friday afternoon. That was the first indication the Government might not be taking all of the recommendations of its landmark Welfare Expert Advisory Group to heart. In the world of politics, Friday afternoon is the witching hour, the time the Government chooses to dump things it wants buried. This Friday was special too — it was the day chosen for the much-awaited reentry of Pike River mine. 

The report contained an impressive 42 key recommendations of which the Government has chosen to implement just three. This will cost $285.8 million over four years (the standard accounting period for Government budgets). The WEAG calculated that implementing all of the recommendations would cost $5.2 billion a year, or $20.8 billion over four years. 

Given that the Government would implement roughly 1 percent of the reports recommendations (by cost) its little wonder the report was buried. Of the recommendations chosen to be implemented by the Government, one is not even being implemented in full, as Susan St John pointed out on Newsroom

Of the many recommendations, the Government chose to increase abatement thresholds of main benefits — the amount someone has to be earning before their benefit begins to taper off. Lifting the threshold encourages beneficiaries to seek work to supplement their benefit, as the rate at which their benefit becomes reduced is higher. This was relatively uncontentious, and supported by the opposition.

The Government also said it would remove the requirement for sole parents to name the second parent of their children, or risk having their benefit cut. 

It also committed to funding up to 263 new frontline staff over four years. 

So what’s missing? Well, quite a lot. Roughly 20 percent of the new funding announced will go to staffing, rather than beneficiaries themselves. This is despite a key recommendation of the report being that income levels of beneficiaries needed to rise — and rise quite high: between 12 and 47 percent. 

The problem the group has identified is that benefits are far below adequate levels. This is due to two factors: the decoupling rates from the principle of “relativity” (to other incomes) in the 1990s and out of control increases in the cost of living, particularly housing. 

Theory of relativity

First, relativity. The report reserves harsh criticism for the social welfare reforms of the 1990s. The last major reform of the sector was undertaken in 1972 when the domestic purposes benefit was added to the social safety net. This had existed in some form or another since the Social Security Act was passed by the first Labour Government in 1938.

The domestic purposes benefit was a response to an increasing divorce rate, which led to more sole-parent families. It had been guided by the principle of “relativity”, meaning benefit rates kept up with other income. But concerns about “dependency” changed this focus in an attempt to shift beneficiaries into full-time work. 

The reforms coincided with a period of mass unemployment in New Zealand, with the official unemployment rate hitting 10.6 percent in 1992, equating to 180,400 people unemployed. The rate for Māori that year was 25.6 percent.

Reforms in the 1990s were also designed to make benefits more targeted through supplementary payments like the accommodation supplement. This led to a dramatic shift in the focus of how benefits were administered. 

The report found that in 1984, spending on second-tier assistance like accommodation supplements accounted for just 1.1 percent of total benefit and pension expenditure, but by 1996 that had grown to 9.4 percent. It said a key problem with that system was that it grew "on an ad hoc basis rather than being based on empirical evidence”.

The group also said that the administrative complexity of the new system meant many people were not claiming their full entitlements, further whittling away their incomes. The group called the current system “unmanagably complex”, leading to too many New Zealanders living in desperate situations. 

Increased cost of living 

On the other side of the ledger, the group found beneficiaries had been particularly hard hit by the rising cost of living, particularly housing.

On average, housing costs make up around 45 percent of expenditure for low-income households. 

This has increased substantially over time. For the bottom 20 percent of households by income, housing costs as a proportion of income have increased from 29 percent to 51 percent since 1988, meanwhile home ownership rates have fallen to their lowest level sine 1953. 

Fixing it

The scale of the problem is massive. Each year, 630,000 people receive payments from the welfare system and 345,900 families receive a Working for Families tax credit.

The impact on children is also severe, with 240,000 living in poverty, 40 percent of whom live in working households.

It should come as no surprise given the runaway cost of houses that housing came under particular attention. The report recommends reintroducing measures of “relativity” in the area of housing. This would mean finding a way to make the supplement change to meet the actual cost of housing.

This won’t be cheap. Currently, combined welfare payments for housing make up the second-largest welfare cost to New Zealand after superannuation payments. Housing benefits are forecast to be 3.1 percent of total Crown expenditure by 2018/19.

But increasing housing benefits won’t come cheaply and finding extra money isn’t simply about borrowing more money either. Expanding ongoing benefit payments means finding a way to secure an ongoing source of revenue. That means cutting expenditure elsewhere, or finding some way of raising money. With income tax increases off the table along with any form of capital gains tax, there are precious few avenues left for the Government to raise the kind of money it needs. 

But that’s not the only problem. 

The Government is also committed, through its budget responsibility rules, to not increasing expenditure to more than 30 percent of GDP so even if it could raise the revenue, it’s committed to not actually spending it. 

Another solution could be fixing the price of housing for low-income families. The Group recommends the Government “expand and accelerate the building of public housing to an industrial scale” to fix the housing crisis for low-income families. 

While the Government is on track to fulfilling its commitment to build 6400 Housing NZ homes over four years, but failing on its KiwiBuild commitments, there’s no certainty it could actually accelerate its housebuilding if it wanted to. 

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