Beneficiaries are now worse off in relative terms than they were after the notorious benefit-slashing of 1991, Social Development Minister Ruth Dyson has admitted.
And she has said the government should consider whether benefit levels should be pegged to wages to stop benefit payments falling further in relative terms.
As price rises savage middle-class budgets, a confidential government report has put the spotlight on the even greater pressures being felt at the bottom of the economic heap.
Under the government's "making work pay" policies, Working for Families has helped the working poor, but done less to help beneficiaries living in poverty.
The report, titled Pockets of Significant Hardship and Poverty, reveals that many beneficiaries in South and West Auckland and the South Island are living in extreme poverty.
Beneficiaries were being hit by "significant price shocks" in food, housing, power and transport, said the June 2007 report by the Ministry of Social Development. It was released to the Sunday Star-Times under the Official Information Act.
The report shows the value of benefits, relative to average earnings, are now even lower than they were after National slashed benefits in 1991.
For beneficiaries with children and no extra income living in South and West Auckland and most of the South Island, their incomes were between 30% and 40% of median disposable household incomes.
That is well below the widely recognised poverty line of 50 to 60% of median disposable household incomes.
Dyson said she agreed that "comparatively", beneficiaries were now worse off than they were in 1991.
"In my view the report is factual," she said.
"Obviously something that we're not satisfied with is people who live in long periods of financial hardship, so we're certainly turning our attention to what else might be done in addition to what we've already done."
She would not say what measures the government was looking at to help beneficiaries or whether there would be announcements in the budget.
"When we've made a package of decisions they'll be announced properly," she said.
Asked whether it was official government policy for a widening gap between benefit levels and wages, Dyson said "we don't have a link between wages and benefits, as they do in some countries. We don't have a relativity as part of our structure, and in my view that's worth consideration, but at the moment we don't have one."
She said Labour had lifted benefits each year since it came into office in 1999 by making yearly adjustments for inflation. However, wages have increased even faster. New Zealand Superannuation is the only government payment pegged to wages.
After the benefit cuts in 1991 the single adult unemployment benefit was worth 28% of the average wage or $129.81 a week. Now it is $184.17 a week, worth only 21% of the average wage.
Beneficiary numbers have fallen by one-third under Labour, in part because of a booming economy. But other factors driving more people into work have been more government help to working families, a steadily rising minimum wage, and a growing gap between benefits and wages.
Salvation Army social policy director Major Campbell Roberts said some beneficiaries were simply not receiving enough to live on, with high housing costs in areas like South Auckland contributing to the problem.
"You're talking about people living in very marginal situations. You're getting to the point where people are not able to meet basic needs, providing food, providing housing, providing energy for their home," he said.
Greens MP Sue Bradford said Dyson's admission that benefit levels in relative terms were lower than they were in 1991 was "amazing".
"This report is a wake-up call to the government. Core benefit levels must be lifted to levels people can live on in 2008," she said.
National welfare spokesman Judith Collins said beneficiaries had been saddled with rising debts to Work and Income New Zealand, up $300m to $760m under Labour. She said there should be more stringent checks and budget advice by Work and Income before lending money.
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