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Lindsay Mitchell
22 March 2009
Welfare Reform in a Recession

During a recent radio interview I was asked, is this a bad time to be talking about reforming welfare? No, I replied with little hesitation. There is no bad time to be trying to reform welfare.

The period under the last Labour government would have been an ideal time to radically reform welfare because jobs were plentiful (thanks to the 1980s economic reforms, globalisation and a strong world economy). Now, with recessionary unemployment rising, job opportunities are becoming more scarce seeming to thwart the chances of moving people off welfare.

I would be mad to argue with the facts but look at it another way. If increasing resources are going to be needed for unemployed people, an effort to reduce dependency on other benefits is doubly urgent.

Traditionally, when unemployment rises, so do numbers on each of the other main benefits - DPB, sickness and invalid. Families break up under the stress of unemployment; stress itself can drive people onto a sickness benefit. As the dole looks like becoming a more permanent prospect, some recipients will seek to be reclassified onto better paying benefits such as the invalid's benefit. Indeed, long-term unemployment and family break-ups make people depressed, or worse. Psychological and psychiatric conditions are the leading causes of incapacity for work and subsequent reliance on one of these benefits.

But there is also the matter of welfare as a chosen lifestyle.

The current benefit system does young people no favours by allowing them to default to welfare with relative ease. The rate of teenage birth has been rising since 2003 and so has the percentage of DPB ( or EMA*) recipients who are aged 16-19.  These newcomers to welfare present a double whammy because they tend to stay on welfare the longest. As well as being a heavy financial cost to the nation,  the mental and health costs to their children are significant.

Just last week the Prime Minister, John Key, admitted on radio that there are young girls for whom, " ... a pathway forward is to have a baby by  some random guy because the state will give them money to ... they are raising children in very poor conditions, they are at risk; their children are at risk." (Key also conceded that a cap on the number of children a woman can have while on the DPB would reduce welfare abuse but has no plans to introduce one.)

Surely now is the time to be saying enough is enough. Birth control has never been easier to access or use. The  DPB should be replaced by a return to what happened in earlier times; financial assistance provided for a short specified period only.

Thereafter, single parents who cannot find work should be subject to the same payment rate and  work tests  as any other unemployed individual. If the expectation of a life on welfare, no questions asked as long as there is a child in tow, was removed, behaviour would change.  As one English commentator has suggested, take away the subsidy and the steam would go out of the single mother industry over night.

An idea I didn't hear suggested at the recent Jobs Summit was this; around half of the sole parents currently on the DPB care for just one child. This group, about 50,000,  could create jobs (and incomes) for themselves by providing sorely needed childcare for others. It's an idea which deserves at least as much attention as the much-touted cycleway.

Looking at the dole, youth unemployment is always higher than unemployment in the general population. At the moment, among 15-19 year-olds  it is  17.3 percent  versus 4.6 percent.

Should young people be allowed to collect the dole having made no prior tax contribution? When the unemployment benefit was originally set up it was funded from social security contributions. The abiding public perception was - no contribution, no benefits. During the 1960s dedicated funding was scrapped in favour of funding from the consolidated fund. Entitlements expanded and means-testing was relaxed. Ultimately New Zealand needs to review the thinking behind funding the dole through general taxation in favour of genuine unemployment insurance with dedicated employer/employee contributions. But in the interim the payment of welfare to young people should become discretionary as opposed to 'as of right'. Support from wider families should take priority over financial assistance from the state. Parental income, for the purpose of student allowance qualification is, after all, tested until the student is aged 24.

In regard to other benefits, the movement onto either the sickness or invalid benefit has to be seriously discouraged. One in twenty working aged New Zealanders now rely on one or the other of these benefits. Over 130,000 people in total. Perhaps qualifying certification needs to be shifted from solitary doctors to a panel of practitioners to prevent strong-arming and intimidation. It goes without saying that there are genuinely needy people receiving these benefits. But, there are,  for example, more people relying on an incapacity benefit because of substance abuse than because of cancer. When resources for those made unemployed through no fault of their own are severely stretched, can we afford to keep indulging people who cause their own incapacity to work? Recession or not, the question about whether people should be paid to perpetuate self-destructive habits is begging some discussion, if not a definitive answer.

Never before has the idea that tough times call for tough measures held truer. It may be that a radical overhaul of social security is impossible during a deep recession, and anyway, National has committed to keeping the Social Security Act 1964 legislation in place. But a lot can be done through amending the Act and changing rules.  During the wealthy days of the 1950s and  60s social security was constantly broadened through the principles of universalism and entitlement.  It now needs to be subjected to a heavy dose of the principle of discretion. 'Getting' can no longer be a given.

* The Emergency Maintenance Allowance is payable to single mothers aged 16-17

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