Friday, April 8, 2022

NZCPR Newsletter: Labour's Deepening Dependency Trap

Last week’s benefit increases delivered on promises made by Labour’s Finance Minister Grant Robertson in the 2021 Budget.

During his speech to Parliament at the time, he harked back to the past: “This Budget is set against the Budget delivered 30 years ago this year, the so-called ‘Mother of All Budgets'. It was the Budget that finalised the benefit cuts… We will restore dignity and hope for some of the lowest income New Zealanders by righting the wrong of those benefit cuts by boosting main benefit rates by up to $55 per week.”

Former Finance Minister Ruth Richardson had responded to his criticism explaining: “My budget was driven by a desire to lift economic growth and to make employment attractive. Grant Robertson’s budget is overtly driven by politics and the desire to pay off Labour supporters… The tragedy of this approach is that it locks in intergenerational state dependency with benefits becoming more attractive than jobs.”

So, who was right? Let’s look at what the evidence tells us – but first, some background.

Thirty years ago, it had become clear that ill-advised welfare changes recommended by the Holyoake Government’s Royal Commission into social security and implemented by Norman Kirk’s Labour Government in the early seventies had created a devastating cycle of long-term intergenerational benefit dependency.

Three policies in particular had proved disastrous for New Zealand.

Firstly, the needs-based, ‘good character’ requirement for state support, which had been a cornerstone of Michael Joseph Savage’s original vision of welfare, had been replaced with a ‘universal benefit’ entitlement requiring taxpayers to fund even those exhibiting anti-social and criminal behaviours. Secondly, raising benefit levels similar to a working wage, had effectively undermined the incentive to work. And thirdly, the introduction of the Domestic Purposes Benefit subsidised family breakdown, marginalised fathers, and left single mothers struggling to raise their children on their own.

Preventing generations of children raised in deprivation in families with a culture of violence, no history of work, and no interest in education, from repeating the dependency cycle, became the catalyst for those 1990s benefit reforms.

Helen Clark’s Labour Government, however, dismantled many of the changes during their nine years in office. As a result, when John Key’s National Government came to power in 2008, they found only a third of all working age beneficiaries were being work tested.

By failing to make the receipt of a benefit conditional on the need to look for work and take available jobs, intergenerational welfare dependency had again become such a serious problem, that a TV One Colmar Brunton poll showed “more than eight in every 10 people surveyed believed there was an underclass problem.”

The OECD was also highly critical, identifying New Zealand’s stand-alone sole parent benefit as the primary cause of child poverty. In comparison to other countries where assistance for sole parents is temporary and work-related, they found the benefit’s weak work requirements and generous payments encouraged women with children to stay on welfare for far too. As a result, New Zealand had one of the highest rates of child deprivation and sole parent dependency in the OECD.

With research unequivocal, that child abuse, substance abuse, domestic violence, educational failure, crime, suicidal behaviour, and other forms of social dysfunction, are much higher in single parent beneficiary families than two parent or working households, National’s reforms focussed on providing improved outcomes for mothers and children. Based on the principle that welfare should be a hand up to work and a better future, work-testing and sanctions were available to prevent welfare becoming a lifestyle choice.

A range of social obligations for sole parents were introduced, to ensure their children were enrolled with a GP, were up to date with Well Child health checks, were involved in early childhood education, and attended school.

Teenage parents were expected to be in education or training, and their benefits were subjected to ‘Income Management’, whereby their rent, power and other essentials were paid automatically, with only a small allowance available for personal use.

With early childhood education available from age three, work requirements for sole parents obliged them to look for part-time work of at least 20 hours a week and to accept any suitable job when their youngest child turned three, with a full-time job when they turned 14.

In light of the poor outlook for children born into welfare dependency, the benefit was aligned to employment law, to discourage beneficiary mothers from having more children. This meant that once a new baby was a year old, the mother was expected to resume the work requirements in place before her baby was born.

To encourage single parents into jobs as the pathway to higher incomes and a better future, a range of supports were available including a guaranteed minimum income, which ensured that a sole parent working 20 hours a week would be substantially better off in employment than on a benefit.

With all of that in mind, let’s dive into the detail to determine whether Labour’s welfare changes will indeed restore the “dignity and hope” Minister Robertson claims, or further entrench the dependency trap.

Grant Robertson’s “biggest in more than a generation” benefit increases were based on the recommendations of the Welfare Expert Advisory Group, headed by Dame Cindy Kiro, who is now our Governor General. Their 2019 report of 42 recommendations, which included raising core benefit levels by up to 47 percent, had a price tag of over $5 billion a year.

The first tranche of the promised benefit increases was introduced on 1 July last year, when welfare payments were raised by $20 a week. The second increases came into effect on 1 April, when weekly benefits increased by $20 to $42 per adult.

A February Cabinet paper explains there is a statutory requirement to adjust the rates of social assistance on 1 April each year as part of an “Annual General Adjustment”.

That means many of last week’s changes such as to superannuation - which is linked to Consumer Price Index increases and adjusted to ensure it is not less than 66 percent, nor more than 72.5 percent, of the net average wage - would have happened anyway.

While welfare benefits increased with the average wage, Cabinet authorised an additional payment: “Adult rates of main benefits are further increasing to the rates recommended by the Welfare Expert Advisory Group in 2019, with an additional $15 per week, per adult for families with children…”

As a result of these changes, the Ministry of Social Development estimated 364,000 beneficiaries will be better off by an average of $109 per week than they were in 2017 when Labour took office. That's a significant increase in benefit levels.

So, how have benefit numbers been tracking?

Overall the number of people reliant on welfare has increased by 27 percent from 290,000 in December 2017, to 368,000 in December 2021. While Covid has clearly had a major impact, with Jobseeker numbers rising 53 percent from 123,000 in December 2017 to 188,000 in December 2021, the numbers began increasing as soon as Labour took office - as did the length of time jobseekers are staying on the benefit.

This week’s NZCPR Guest Commentator Lindsay Mitchell, a social issues analyst who closely monitors welfare developments has been investigating what’s going on:

“Since Labour came to power in 2017 the number of people relying on welfare has grown significantly, as has the time people spend dependent. This development is due to both political ideology and political incompetence.

“Finance Minister Grant Robertson makes frequent self-serving references to New Zealand’s low unemployment rate of just 3.2 percent. He does not talk, however, about the Jobseeker dependency rate which is much higher at 6 percent.

“In absolute numbers 93,000 people are officially unemployed according to Stats NZ but there are 188,000 on a Jobseeker benefit. It is unusual for the gap between the two numbers to be so large. Four years ago, the respective numbers were close at 128,600 and 123,039.”

Lindsay explains that the difference between the Stats NZ official unemployment rate and the numbers on the Jobseeker benefit is due to definitions. Stats NZ defines the ‘unemployed’ to be someone without a job, who is available for work, but – crucially - must have been looking for work in the past four weeks or be ready to start a new job within the next month.

That means that anyone on a Jobseeker benefit who hasn’t been actively looking for work, is not classified as being “unemployed”.

This Stats NZ definition creates a bizarre incentive for any government chasing “good news statistics” – if they weaken work testing obligations, fewer jobseekers will search for work and the better the unemployment numbers will look!

While most of the existing welfare sanctions have been introduced to encourage a transition from welfare to work, the Kiro Advisory Group wants them abolished.

A 2021 Cabinet paper outlines those under review include sanctions for failing to comply with benefit approval requirements or resolve outstanding arrest warrants; failing to undertake pre-employment drug testing, drug rehabilitation, or return to work assessments; failing to reapply annually for a benefit; and failing to ensure children are enrolled with a medical practice, are up to date with Well Child checks and are attending early childhood education or school.

Two sanctions relating to sole parents have already been removed. The subsequent child rule, which required welfare mothers who had another baby to resume work requirements after twelve months, has been scrapped. There are now no work test requirements for three years, and if Labour adopts the Advisory Group’s recommendations, there will be no work testing for six years.

The second sanction to be removed was known as the section 70A deduction. Introduced by Labour in 1990 to ensure that fathers contributed to the cost of bringing up their children on the Domestic Purposes Benefit, a rort had developed whereby mothers received cash in return for not naming the father on their child’s birth certificate, so he could avoid paying Child Support. While Helen Clark’s Labour Government increased the penalty, Jacinda Ardern’s Labour Government has scrapped it.

While the majority of sanctions are still in place, enforcement action, which was already declining before the pandemic and was put on hold during much of 2020, has virtually collapsed – down 66 percent from 14,778 sanctions in December 2017 to just 5,040 in December 2021. In other words, Labour is turning a blind-eye to work-testing.

Meanwhile, the statistics for sole parents are worsening.

In December 2011, the number of sole parent beneficiaries peaked at 90,000, but, as a result of National’s reforms, had declined to 61,000 by December 2017, when the Ardern Government took office. That trend has now reversed with a 20 percent increase in sole parents to 73,000 by December 2021.

The number of dependent children being raised in those sole parent households has increased by 23 percent from 118,000 in 2017, to 145,000 in 2021, and the length of time on a benefit is also rising with 81 percent of the mothers receiving Sole Parent Support at the end of 2021 having been on a benefit for longer than a year, compared with 74 percent in 2017.

If Labour continues to enact the Kiro Advisory Group’s recommendations to increase the value of benefits and remove sanctions, the dependency trap will grow deeper and become more and more dangerous for children.

The Prime Minister is fooling herself and the country when she tells us she is improving child poverty by raising benefits. The only sustainable way to improve the outcome for children is to support their parents into jobs and a better future.

Minister Robertson claimed he wanted to restore dignity and hope for some of the lowest income New Zealanders. But he too is foolish if he thinks paying people more to remain on welfare will achieve that outcome. Dignity and hope come from freedom and being independent of state handouts to survive.

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*Is Labour taking welfare policy in the right direction or the wrong direction?

Dr Muriel Newman established the New Zealand Centre for Political Research as a public policy think tank in 2005 after nine years as a Member of Parliament. The NZCPR website is HERE. We also run this Breaking Views Blog and our NZCPR Facebook Group 

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