Finance Minister Bill English has just returned from an International Monetary Fund (IMF) meeting in Washington. He said that despite a fair bit of pessimism about the global economic outlook, New Zealand’s economy remains resilient and our prospects for 2-3 percent growth over the next three or four years is still on track.
The IMF’s call for bold action and a focus on growth will increase the pressure on our government to prioritise reforms that will reduce the roadblocks to progress and lead to economic expansion so all citizens can benefit from more jobs, rising wages and improving living standards.
These objectives are consistent with the proposal announced by John Key on his first day back at Parliament after being re-elected Prime Minister, to reduce child poverty. Extreme caution is needed, however, when dealing with the poverty issue – especially since New Zealand has no ‘official’ poverty line.
Poverty was originally based on the struggle to acquire the basic necessities of life. This remains the reality in many third world countries where the World Bank’s measure of abject poverty is based on the number of people living on US$1.25 or less a day.
The situation in developed countries is quite different. While there may be cases of persistent deprivation and hardship, the rise in living standards and the establishment of a universal welfare safety net has essentially led to the disappearance of real poverty. That did not suit advocates of income redistribution and progressive taxation, so the measure of poverty has had a make-over and transformed from an absolute to a relative measure.
Relative poverty is a political construct based on a country’s income distribution. People are considered poor if they earn less than a benchmark based on the median wage. In New Zealand, the measure usually used is 60 percent of the median disposable household income after adjusting for housing costs.
This week’s NZCPR Guest Commentator, Dr Jacqueline Rowarth, Professor of Agribusiness at University of Waikato, illustrates the fallibility of relative poverty:
“The drop in the Global Dairy Trade auction price, and the subsequent decrease in Fonterra’s forecast to farmers, puts the average dairy farmer in the Waikato under the poverty line.
“The calculation is on the basis of comparing budgets at $6.30 per kg of milk solid with $5.30. Without adjusting farm working expenses, the hit is taken on the farmer’s income which drops to below 60% of New Zealand’s household median.
“Note that the definition of poverty is not to do with the necessities of life, but a comparison with other households.”
I wonder how strongly the activists pushing the exaggerated claims of widespread inequality in New Zealand will campaign for poverty relief for farmers!
In her article Professor Rowarth discusses the international research which shows that on a global scale New Zealand is performing relatively well and she concludes that rethinking what constitutes poverty is timely.
In Britain there have been numerous attempts to redefine poverty using a ‘basket of goods’ approach similar to that used in New Zealand to calculate the Consumer Price Index. Such an approach would mean identifying the goods and services that the majority consider to be necessities, then using the total cost of the basket as a poverty line. This is a concept that could have merit for New Zealand.
When Mr Key asked his officials to come up with some fresh approaches to alleviate child poverty, he wanted to ensure that any new initiatives do not narrow the gap between the incomes of those on benefits and those who are working, since it is this differential that creates the incentives for beneficiaries to move into employment.
As the Minister of Social Development explained, taking allowances into account, while an average sole parent with two children under thirteen, living in South Auckland would receive around $642 a week on a benefit, if they worked for just 20 hours a week on the minimum wage, they would receive $814 and be $172 better off.
Most of the groups that campaign on child poverty ignore the importance of incentives. Their focus is on income redistribution, which not only undermines wealth creation and economic growth, but increases benefit dependency and deepens the welfare trap. They say that raising the incomes of beneficiaries will alleviate child poverty. But it won’t, since that does not address the causal issues of those experiencing severe hardship. Their problems are complex and often behavioural.
Take the case of a mother of two toddlers who recently appeared for sentencing in the Invercargill Court: she was so drunk that she passed out leaving her son naked on the road and her daughter in a bathtub full of water.
“The court was told the woman neglected her son and daughter, both aged under 4, on June 12 last year. Judge Raoul Neave said a concerned neighbour called police because she noticed the woman’s infant son playing on the road naked. The court was told associates of the woman then arrived and found the young boy playing naked in the driveway. They took him inside and heard screaming coming from the bathroom. They found the woman’s young daughter with soap in her eyes, clothed and in a bathtub overflowing with cold water. The friends were forced to kick the bedroom door open because the woman, who was hungover, had barricaded herself in. The mother did not wake up, so the associates clothed the children and took them away from the house. Police arrived at the house and questioned the woman but she became abusive and refused to discuss where her children were.”
The Judge said that parents who chose to neglect their children could expect no sympathy from the court – she had put alcohol ahead of her children and was sentenced to five months’ home detention.
In cases like this, more money is clearly not the answer. There are no easy solutions, except helping parents to get their chaotic lives back in order, so they can take responsibility for raising their children, earning a living, and moving off welfare.
But when beneficiaries spend money that should be used for children on alcohol, drugs, cigarettes or gambling, they should not only be required to seek help for their addiction and attitude, but they should also undergo ‘income management’, whereby a third party manages their benefit, to ensure funds are available for food and other family essentials.
So here’s a recommendation for the Prime Minister to reduce child poverty: Expand the benefit ‘income management’ scheme from teenage parents to any parent who consistently uses their benefit money unwisely and neglects their children – until they show that they can take responsibility, and are no longer in need of support.
In New Zealand, most child poverty involves sole parent families on welfare. The fact that New Zealand has consistently had one of the highest rates of sole parenthood in the OECD indicates that the public policy incentives in this benefit are wrong – it has become a destination for women, instead of being a safety net of last resort.
So here’s a second recommendation for the Prime Minister: Abolish Sole Parent Support as a stand-alone benefit and bring it under the umbrella of Job Seeker Support – as recommended by the Welfare Working Group. Doing this would signal to women that benefit support for sole parents comes with strings attached – namely the expectation to get a job and become the breadwinner for the family.
Special conditions would, of course, apply, such as the suspension of work requirements for new mothers while their baby is very young. But isn’t it time to align benefit conditions with New Zealand’s employment law, so that sole mothers on a benefit and in the workforce are treated the same? That would mean that work testing would begin when the child is a year old.
Requiring sole parents to look for work when their youngest child is around a year old is one of the key reasons that countries like Denmark, Sweden, France, Norway and Finland have such high rates of sole parent employment and such low rates of child poverty. The two go hand in hand. Emulating their positive results should be a priority for the government.
And if the problem of sole parents on a benefit having more children continues to grow, then the solution can be found in an even greater alignment with employment law – since sole parents in the workforce do not receive a pay rise when they have more children, nor should sole parents on a benefit.
Replacing the sole parent benefit with one based on work, would also encourage the fathers of the hundreds of thousands of children who live with their mothers on welfare to become more openly involved in their support.
The Prime Minister has identified housing as a significant cost for families. Encouraging the building of houses in areas where shortages have driven up prices, is an important anti-poverty measure. In most cases unaffordable housing is caused by councils not only failing to release sufficient land for the building, but also by imposing excessive consent costs. As Bill English explained, “Planning processes have probably done more to increase income inequality and poverty in New Zealand than most other policies. In recent years there’s been almost no lower-value housing stock built.”
The legislation that is largely responsible for housing problems is the Resource Management Act and the Local Government Act 2002. These two laws have given councils all the ammunition they need to make housing unaffordable. But when looking at reform options, the government would do well to remember that both laws were designed by Labour Governments committed to the socialist doctrine of the United Nations’ Agenda 21. This ideology promotes government control of land to limit human impact on the environment. It uses ‘sustainable development’, ‘smart growth’, ‘urban boundaries’, ‘biodiversity’ and other worthy sounding objectives to prevent ‘urban sprawl’ – even though human development in New Zealand accounts for less than 1 percent of our total land area.
The Ministry of Health explains it this way on their website: “Agenda 21 was an outcome of the United Nations Conference on Environment and Development at the Earth Summit in Rio de Janeiro in 1992. It is based on sustainable development for the present that does not compromise the ability of future generations to meet their needs. Processes in the Local Government Act 2002 are consistent with Agenda 21’s approach.”
And the Ministry for the Environment website states: “New Zealand’s legislation is largely in accord with the themes of Agenda 21 (for example the Resource Management Act 1991 and Local Government Act 2002). Action needs to be directed towards implementing this legislation in the best possible way.”
The problem for the government is that tinkering with such ideologically-driven laws will undoubtedly leave the wrong incentives in place, which will continue to drive poor policy outcomes in the future. Maybe the only real answer is to repeal both the Resource Management Act and the Local Government Act 2002 and replace them with common sense legislation designed to do a common sense job. Now there’s a challenge for the Prime Minister!
THIS WEEK’S POLL ASKS:
Do you believe that increasing the value of welfare benefits would reduce child poverty?
*All NZCPR poll results can be seen in the Archive.