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Dr Muriel Newman

The Litmus Test of Welfare Reform

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As New Zealanders, we have grown up to believe in and cherish an egalitarian society. We like to think that our children’s futures will be determined by their abilities, their motivation and their hard work. We want all kids to have a genuine opportunity to use their talents and to get rewarded for their efforts. That’s The Kiwi Way.

There are streets in our country where helplessness has become ingrained. There are streets of people who believe they are locked out of everyday life. The worst are home to families that have been jobless for more than one generation; home to families destroyed by alcohol and P addiction; home to families where there’s nothing more to read than a pizza flyer; home to families who send their kids to school with empty stomachs and empty lunch-boxes…

These are tough problems – very tough problems. But I have no intention of being a Prime Minister who tackles only the easy and convenient issues. I don’t pretend I’ve got all the solutions. But I can tell you that dealing with the problems of our growing underclass is a priority for National, both in opposition and in government.

The Kiwi Way, John Key 2007

The National Government has just announced their welfare reform package. The crucial question is whether the measures will fulfill John Key’s promise that “dealing with the problems of our growing underclass is a priority for National, both in opposition and in government”.[1]

Before examining the refroms that National is proposing, it might be useful to reflect on the drivers of today’s welfare underclass. The underclass had its beginnings in the changes made to the welfare system back in the seventies. Up until that time, welfare had changed little since it was introduced by Michael Joseph Savage in 1938. Designed to be a hand-up to work, state welfare supplemented community-based charitable efforts to assist those in need. The system worked well – for over thirty years there were no more than 15,000 people receiving benefits at any one time with under a thousand of those unemployed. In fact on the 31st of March 1952, there were only two people registered as unemployed in the whole of New Zealand!

However, during the late sixties, in response to concerns that the benefit system was losing relativity with the booming economy, the Holyoake Government established a Royal Commission to review the social security system. It was three of their recommendations, that were adopted by the 1973 Kirk Labour Government, that laid the foundation for the growth of the underclass.

The first was to change benefit eligibility from being needs-based for those ‘of good moral character and sober habits’, to being a universal entitlement. This move destroyed the well-established social contract that ensured only those who were good citizens and met community standards were eligible for taxpayer-funded state benefits. For the first time ever, the welfare system began to reward destructive behaviours such as alcoholism, drug addiction, and idleness – negating the need for personal responsibility.

Secondly, benefits were increased to a level similar to a working wage, so that someone on a benefit could “enjoy a standard of living close enough to the general community standard for him to feel a sense of participating in the community and belonging to it”. When the income gap between welfare and work was closed, the crucial incentive for a beneficiary to take a job to make themselves and their family appreciably better off all but disappeared. This set the scene for the establishment of long-term, intergenerational benefit dependency.

Thirdly, the Domestic Purposes Benefit (DPB) – a statutory benefit for sole mothers with dependent children – was established to enable an estimated 20,000 women trapped in violent relationships to escape with their children. This was the first benefit to be made available for reasons of personal choice – such as no longer wanting to remain married – rather than for reasons outside of a person’s control such as the death of a spouse, the loss of a job, illness or accident. By providing a long-term income to single parents, the DPB undermined the family by creating a strong incentive for women to rear their children on their own. As expected, the number of un-married women on the DPB has soared particularly amongst Maori. Only 22 percent of Maori babies are now born into families with a mother and father who are married.

The DPB has had devastating social consequences. According to British analyst Blair Gibbs, “The consensus is that out-of wedlock birth and growing up in a single-parent family means the child tends to experience retarded cognitive development; lower educational achievement; lower job attainment; increased behaviour and emotional problems; lower impulse control; and retarded social development. Unsurprisingly, such children are far more likely to engage in early sexual activity; have children out of wedlock; be on welfare as adults; and engage in criminal activity.”[2]

An examination of how different OECD countries support lone parents shows that New Zealand is one of only four countries to have a special stand-alone sole parent benefit. Most other countries provide support for mothers and children through temporary mechanisms. With no enforceable work requirements, New Zealand’s DPB ranks as one of the world’s most generous benefits. As a result, women and children stay on it for far longer than ever intended, which is why New Zealand has one of the highest rates of child deprivation and sole parent dependency in the OECD.[3]

If John Key is really serious about reducing the welfare underclass, he must address these three underlying factors:

  • · The DPB needs to be restructured so that support for sole parents is provided on a temporary basis through one of the other main benefits;
  • · The relativity between welfare and work must be carefully managed so that no-one who is capable of working is better off on a benefit than in work;
  • · People with destructive behaviours, such as alcohol and drug addictions, should be required to accept personal responsibility for their future by engaging in treatment interventions otherwise it is unlikely that they will ever leave the welfare system.

So, what are the changes that National has announced and will they have a significant impact on the underclass?

Firstly, according to the Ministry of Social Development, the number of working age beneficiaries dependent on welfare at the end of December 2009 was 345,476, up from 269,732 in 2007. Of those, 109,289 were receiving the DPB (an increase of more than 11,000 since 2007), 85,038 were receiving the Invalids Benefit (an increase of 5,000), 66,328 were receiving the Unemployment Benefit (an increase of 44,000), 59,158 were receiving the Sickness Benefit (an increase of 10,000), and the remaining 25,663 were receiving a range of other benefits including the Widows’ Benefit, Independent Youth Benefit, and Emergency Benefit (an increase of 6,000).

From October, National intends to begin work testing the 43,303 DPB recipients whose youngest child is 6 or older. These sole parents will be expected to undertake part-time work of 15 hours a week or more. The rationale is that once these women are connected to the workforce, they will realise that if they work 20 hours a week they will qualify for an in-work tax credit which will make them substantially better off outside of the benefit system.

Progressing this policy will be slow. Only 4,500 sole parents will be work tested at a time with the focus on the most ‘work-ready’. These are the sole parents who have had recent work experience, have completed a work-related training course, or who have higher qualifications. Background Cabinet papers indicate that there are some 12,500 sole parents who meet two of these criteria, but astonishingly, there is no evidence that they leave the benefit quickly – even when their children are older – as over half of this group has spent more than seven years out of the last ten years on a benefit!

Some beneficiaries with more ‘complex’ needs, such as the 8,500 women with children over the age of 6 – who entered the system as teenagers – will progressively receive assistance, but lower priority groups, such as long term beneficiaries, those who have had additional children while being on a benefit, and those with low or no qualifications, will have to wait.

Welfare analyst Lindsay Mitchell, this week’s NZCPR guest commentator, in her article Reforms Could Arguably be Worse than the Status Quo, warns that National’s proposals may generate unintended consequences:

“What better way to worsen inter-generational dependency than tell people on the DPB that if they want to avoid working they should have more children? Of course not all would take this course of action. Some do want to work. But then, people on the DPB who do want to work are not the problem. Around 5,000 children are already added to an existing benefit each year,so even without work-testing there is an established pattern of behaviour created through cash incentives. Additional children mean increased income.

“The reform fact sheets issued by the Ministry this week showed that a DPB recipient with two children living in Auckland would typically receive $580 a week. That is 14 percent more than someone working full-time on the minimum wage earns. It isn’t difficult to understand why people would seek to stay on a benefit. If the birthrate of benefit dependent women rises, more children will be raised long-term on welfare. These children are far more likely to become beneficiaries themselves, hence inter-generational dependency will increase”.

Other changes being proposed by National include the re-introduction of work testing for the Sickness Benefit along with more frequent medical assessments, a tightening of eligibility for the Invalid Benefit in conjunction with stricter monitoring, the introduction of a 12-month requirement to re-apply for the Unemployment Benefit, major changes to the sanction regime for non-compliance with work testing, and a toughening up of the criteria associated with the granting of supplementary and hardship assistance.

All in all, while the reforms being introduced are definitely a step in the right direction, National appears to be so sensitive to criticism from socialist opposition groups that the changes are too modest to significantly alter the dynamics in the welfare system. As a result they will do little to address the problem of the growing underclass.

The point is that welfare is at the coalface of socialism. In the view of socialists, those on welfare should not be disadvantaged. Driven by the misguided belief that people should not be expected to take on “dead-end” jobs (who is meant to do these jobs is never made entirely clear!), socialist governments expand welfare entitlements – as the Kirk and Clark Governments have done – to the point where it is no longer worthwhile for a beneficiary to take on a basic job at the minimum wage.[4] That’s why the system becomes riddled with fraud and abuse – as it is today – because people who are quite capable of working and shouldn’t be on a benefit use their skills to rort the system instead of getting a job.

Welfare is a litmus test issue for governments: it shows their true colours – whether they are really red or blue. At the present time, far from introducing the ambitious changes needed to deal with the problem of the growing underclass, National has instead delivered some minor tweaking of a pinkish hue! This is extremely disappointing. One can only hope that the working group that is being set up to advise the government on the future direction of welfare reform is made up of people of sufficient calibre and spine to enable the Prime Minister to deliver on his election promise to reduce the underclass and in doing so make a significant contribution to the future direction of this country.

1.John Key, The Kiwi Way
2.Blair Gibbs, The Underclass and Crime 
3.OECD, Benefits and Wages: Statistics
4.During their nine years in office, the Clark Labour Government expanded welfare entitlements in a number of different ways including:

  • · Removing the work test for DPB recipients whose youngest child is 6 or older
    · Removing the three week stand-down between quitting a job and going onto the DPB
    · Extending the eligibility for the DPB from when the youngest child is 14 years old to when the youngest child is 18 years old
    · Scrapping work for the dole
    · Removing the work test requirement for the Sickness Benefit
    · Doing away with mandatory budgeting assistance for beneficiaries who demand excessive numbers of hardship grants.