Why New Zealand's government cannot ignore major welfare reform report

The Ardern coalition government’s immediate response to a comprehensive welfare report, released last week, has been widely panned as disappointing, even pathetic.

Labour promised to overhaul the welfare system and last year appointed an 11-member welfare experts advisory group, of which I was the independent special advisor. The group’s report made 42 main recommendations, one of which was to raise benefit levels by up to 47%.

But the minister of social development Carmel Sepuloni made only three small pre-budget announcements and indicated further work would be part of a three- to five-year work programme. Regarding the call to raise benefit levels, the minister appeared to rule this out for this term and told the Q+A programme that “there is a whole lot of recommendations that will be considered as part of phase two”.

Despite this underwhelming response, there are still reasons to be optimistic that the government will make more substantial moves on welfare reform.

Read more: Australia can learn from the limitations of New Zealand's welfare reforms

Current benefits simply not enough

The first of these is that the report itself cannot easily be ignored. While it is nothing new to beneficiaries, the report sets out clearly just how inadequate current benefits are.

One of the strongest parts of the report is the work the group and its secretariat did to assess just what a minimum adequate level of income would be for different family types living in different parts of the country. This model-families budget analysis drew on the best available data from various sources – including the University of Otago’s survey of minimum food costs, lower quartile rental costs, and cheapest transport costs – and defined minimum costs for each family.

The budgets were deliberately very tight and were split into the bare-minimum “core” costs and a small “participation” costs component, intended to allow family members to take part in their communities. The draft budgets were also cross-checked by budget advisors at Work and Income.

These calculations showed just how large the shortfall is between costs and benefit incomes, even assuming the family is receiving every benefit assistance it is entitled to, which many do not. The deficits for different family types living alone ranged from NZ$92 per week for a single person living in public housing to NZ$356 per week for a couple with two children in a private rental. Even the best scenario in the analysis – a sole parent with one child who shares accommodation with others – was a deficit of NZ$66 per week below the “participation” level of costs.

Welfare system failure

Two factors underlie the inadequacy of current benefit levels. First, the system is not properly indexed so it has fallen further and further behind each year. Some payments are adjusted annually for general price increases, others are not. None are linked to growth in average incomes in the same way that New Zealand superannuation is.

The second problem is the long-running approach to welfare of trying to minimise costs to government by layering tiers of assistance on top of each other so no-one gets more than they absolutely need. At the bottom of this is an insufficient core benefit. For most beneficiaries this is topped up with an accommodation supplement to assist with housing costs and, for some, other payments such as a disability allowance or childcare subsidies. Then there is Temporary Additional Support, intended to cover short-term needs but increasingly used long term when the maximum accommodation supplement is not enough, and a range of one-off grants and loans.

Each layer is more complex, harder to qualify for and more time consuming to administer than the one below it. Indeed, the additional staffing the minister announced is due largely to the extra time required to process growing numbers of supplementary assistance applications.

As the welfare experts advisory group report makes clear, whether you look at this approach in terms of fairness and equity, respect and dignity towards people, or plain administrative efficiency, it has fundamentally failed.

Tackling child poverty

A further reason why we may see a bigger response in the future is the government’s commitment to reduce child poverty.

The Child Poverty Reduction Act and the government’s targets are goals to be proud of. There is strong evidence of the long-term harm caused by experiencing poverty, especially prolonged poverty during childhood.

Read more: New Zealand's dismal record on child poverty and the government's challenge to turn it around

It is not clear from the minister’s public statements that the government realises quite how urgently it must act if it wants to achieve the prime minister’s short-term targets by June 2021. The surveys that the official measures are derived from will be carried out from July 2020, asking people about their circumstances over the 12 months prior. This means the government’s progress will be judged against data from a two-year window between July this year and June 2021.

That in turn means new initiatives intended to help meet poverty-reduction targets need to be in people’s pockets (or reducing their costs) very soon. For example, the impact of a change that doesn’t come into effect until July 1 next year will be discounted by half as far as the targets are concerned because half of the survey respondents will already have been interviewed by then.

It is correct that the large 2018 families package can be expected to have a sizeable impact on child poverty rates, but it will not go far enough.

The most difficult goal will be to bring the relative poverty measure down. New policies aimed at achieving the target must disproportionately benefit those at the bottom compared to those in the middle. Realistically, only a substantial increase in benefit rates or another big change to the Working for Families tax credits could achieve that.

The announcements made so far in response to the welfare report – additional staff, ending the penalty for solo mothers who refuse to name a child’s father and allowing beneficiaries to keep a few dollars extra per week in earnings – will come nowhere near it. Perhaps there will be some welfare surprises in the upcoming budget. After all, child poverty is one of the five priority areas for New Zealand’s first well-being budget.

Michael Fletcher was the independent special advisor to the Welfare Experts Advisory Group.