Benefit rates need to rise… and now, for people and the economy

Thursday, 15 August 2019

The New Zealand welfare system is hurting people and leaving too many behind.

OPINION: When Reserve Bank Governor Adrian Orr said monetary policy needs friends he was right. With the cash rate bottoming out, there's little room for further economic stimulus if and when the economy starts to slow.

This has led to calls to consider tax cuts, particularly for lower income earners. Put the money into the lowest income households, goes the plan, and it works its way back up through the economy creating growth on the way. That makes sense, except there's a better way of doing it: Raise benefits.

I was a member of the government's Welfare Expert Advisory Group (WEAG) together with others including economist Ganesh Nana, and former head of Business New Zealand Phil O'Reilly. We spent the best part of a year digging through the legislative and regulatory mess that is the welfare system, talking to people who have experienced the welfare system, and to experts both at the frontline and in academia, and questioning officials.

The conclusion we all came to is the system is broken. After 30 years as a political football, the welfare system is no longer coherent, and it is no longer delivering the wellbeing or the economic outcomes it was designed to.

* Putting people back into the welfare system

* New Zealand needs to cut tax, if the Government wants to avoid a recession**

Instead it is full of tacked-on 'fixes' that have created other problems, policy driven by political stunts rather than useful outcomes, and perverse incentives. We found endless examples of policy that make it harder for people to return to work or training, that punish them for honesty, and that further marginalise them from the very society that the system was originally set up to help support.

In short, this rats' nest of a system has got a long way from the whole point of social security which was based on the simple, and very Kiwi, idea that when we look out for each other we all do well. And it is a system that is hurting New Zealanders and their children. That's why WEAG ended up making more than 120 recommendations, very few of which were minor.

That said, many of those recommendations are simple. One of the most straightforward and important of which is the recommendation to raise benefits. Now. As in, 'this is urgent!' The most basic role of a welfare system is to make sure people can maintain a foothold in society.

For people who are unemployed that foothold offers the first step back into work. For those with disabilities it means being able to live as close to an ordinary life as possible.

Working on that premise, WEAG modelled the cost of living and budgets at two levels. The first was based on what was required for people to not fall behind. For them to not slowly lose their homes, their ability to put food on the table or pay a power bill, for their health and their childrens' health to not deteriorate.

The second was more 'ambitious' and I use the word advisedly. It was the cost of these basic needs plus the cost of modest participation in society. Things like being able to pay for a school trip, or to visit family in another town once or twice a year.

What we found is that benefits have fallen so far behind that to achieve even that first, most basic, level they need to rise by 12 per cent to 47 per cent or up to $100 a week for each benefit.

The received wisdom is that it is politically difficult to raise benefit levels. But right now, this Government needs to be brave and to make the call to do so. From a wellbeing point of view, it will mean fewer children living in poverty, more work-seekers keeping that foothold in society that helps them stay connected with their communities and back into work, and it will mean people with disabilities shifting away from an impoverished life.

From an economic point of view it will mean dollars being spent in our communities and businesses at a rate that provides ground-up economic stimulus. That's more jobs and better business at a time our economy it's likely to be desperate for it. Because make no mistake, in our poorest households every extra dollar gets spent and it gets spent domestically.

Adrian Orr is right, monetary policy does need friends. Jacinda Ardern's Government can and should give the 277,000 benefit recipients and their children the opportunity to be those friends.

It's the right thing to do for our people. It's the smart thing to do for our economy.

Kay Brereton was a member of the Government's Welfare Expert Advisory Group.