Point of Order: Bigger benefits from tomorrow – bravo! But they might not buy as much as before

Ministers have been celebrating their wisdom in raising benefits substantially from April 1.

Social Development Minister Carmel Sepuloni led the chorus by telling Parliament it is the biggest lift to main benefits in decades. For many years, the rate of main benefits has fallen further behind the average wage, placing many people, including children, in undue hardship, she said.

That was an unusual admission, given the Labour Party has been in office for four years.

So now the good news:

“In addition to indexing main benefits to wage growth, we are further lifting main benefits so they don’t fall further behind. The Ministry of Social Development’s analysis shows that from 1 April, a couple on a benefit with children will now be, on average, $237 a week better off than they were when the Government took office in 2017.

“As a Government, we have worked hard to lift as many children out of poverty as possible, and while raising the level of main benefit is only one way to achieve our goal, it is an incredibly important step in the right direction”.

Then there are changes in income support for working families.

Sepuloni says in addition to main benefit increases, childcare assistance income thresholds will also begin to increase annually in line with net average wage growth. Income thresholds for eligibility for childcare assistance have been frozen since 2010.

The growth in wages in the last 12 years has meant that the number of low-income parents and caregivers who can access childcare assistance has been steadily declining.

”This change is the right thing to do and will support low-income working families who need to access childcare. Working for Families tax credit, Best Start tax credit, and family tax credit will also increase from 1 April, providing 346,000 families with an average of an extra $20 per week. This is a Government that is targeting support at families who need it most to support with key costs of living like childcare.”

As for superannuation, the annual general adjustment comes into effect from 1 April. Single superannuitants living alone will see a rise of $52 per fortnight, and couples who both qualify will see an extra $80 per fortnight in total from 1 April.

On top of that, from 1 May, people on superannuation will receive a boost every week thanks (for a few months) to the winter energy payment ($31.82 for couples), which provides extra income for over 1 million New Zealanders.

PM Jacinda Ardern was also in celebratory mood over how many New Zealanders the government is helping. She told the House:

“I stand by this Government’s plan to accelerate our economic recovery and lift the incomes of New Zealanders with a number of changes that will come into effect this week on April 1.

“Compared to 2017, these changes will see over 100,000 beneficiaries with children better off by an average $175 per week, increasing to $207 per week during the 2022 winter period; nearly 350,000 beneficiaries better off by an average of $109 per week, increasing to $133 per week during the 2022 winter period; adjusting the income thresholds for childcare assistance annually, in line with average wage growth, benefiting 1,000 families, or around 1,500 children, after being frozen by the previous National Government.

“We’re also increasing minimum wage, student allowances, and superannuation. Our economic recovery plan is all about making sure we focus on supporting New Zealanders through this economic recovery. There’s no silver bullet that will fix the cost of living, but we have a plan and are implementing a range of measures that, together, will make a difference”.

The problem neither minister discussed in detail is inflation and how it is undermining the value of these increases even as they are received. Moreover, those classified as middle income earners are being left worse off..

According to the ASB Bank, high inflation and rising interest rates will cost households an average $150 a week extra.

The ASB economists say this would equate to an extra $15 billion households will have to find over the next year – equivalent to about 7% of household disposable incomes.

Housing costs are likely to be about 8% higher.

In a detailed crunch on the household living cost outlook, ASB senior economist Mark Smith says households built up a larger saving buffer in the 2020 and 2021 lockdowns. Household deposits have jumped by about $25 billion since early 2019, though the build-up in savings “is unlikely to have fully dispersed across the household sector and many households would still be living pay cheque to pay cheque”.

“Nevertheless, if current spending patterns are broadly maintained, rising costs look set to place a significant dent in household budgets,” Smith says.

He points out cost increases are becoming increasingly widespread and affecting core items such as food, housing, and fuel, which would lift household costs by about 7% this year, or $15 billion.

“Further volatility lies ahead, but we expect consumer prices to continue to ratchet higher, with debt servicing costs sharply increasing. Both will place household budgets under pressure.

“Some households could have bigger cost increases, particularly those with large debt they need to refinance. Some could see less, if they don’t have a mortgage or they might be a smaller household size.”

He said wages were unlikely to keep pace with cost increases and that would mean households having to make tough choices.

Meanwhile the ANZ bank’s senior economist Miles Workman thinks the Reserve Bank has no option but to aggressively raise the OCR to combat inflation headed above 6 percent.

“In fact, it may already be too late to prevent a widespread inflation-induced belt tightening from driving a more marked slowdown than we expect.”

Digesting those views on cost-of-living increases —$150 a week ahead, $100 a week over the past year— Point of Order notes that while benefit rates are indeed getting their biggest lift in years, the purchasing power may be no greater, and could even be less, than in previous years.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton.