Welfare changes seen cutting liability by $4.4b

VERNON SMALL
Last updated 14:55 15/01/2014

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Kiwis are spending less time on welfare, which has reduced the system's total liability by $4.4 billion, officials say.

Other savings from changes to inflation and better investment returns, in addition to the impact of reforms such as extra work obligations on sole parents and widows, has resulted the welfare system cutting its estimated "lifetime liability" by $10.3 billion.

Social Development Minister Paula Bennett welcomed the latest valuation of $76.5b as at June 2013.

She said of the $10.3b reduction, $4.4b was due to Work and Income exceeding expectations by getting more people off the benefit for longer, and fewer people coming onto benefit.

‘‘This translates to benefit payments being $180m lower than expected for the year.”

Just over $1b of the reduction was due to more sole parents going off benefit and fewer going on during the year.

“I hear from sole parents every week who say they’re really grateful for the support from Work and Income case managers; who are often the first to ask them what they want to do with their lives and then help them find work,” Bennett said.

A third of the total liability was attributable to those who entered the welfare system as young people under the age of 18 or as teen parents.

A further 40 per cent was attributable to those who first went on welfare between 18 and 20 years, Bennett said.

“Breaking the cycle of intergenerational welfare dependence is hard. Some children have grown up with parents, grandparents, aunts and uncles and cousins all relying on benefits. Reliance on welfare is ingrained for many and we have to turn that around, but the good news is we can and we are doing just that.”

The report said a large factor in the decrease was a rise in the discount rate applied to investments  causing a $3b decrease in the total liability. The CPI increase applied to benefits in April was 1.49 per cent, which was below the projected 2.1 per cent rate. That cut the liability by $1.1b while future changes to inflation forecasts sliced another $800m off the liability.

‘‘Once factors outside of MSD’s management control are removed, the $180m lower than expected benefit payments have contributed to a $4.4b decrease in liability,’’ the report found. Of that $1.8b came from lower numbers of beneficiaries and $2.6b from improvement in future forecasts.

The costing is an actuarial assessment of all future costs of benefit payments and associated expenses for those receiving benefits in the 12 months up to June 30, 2013 until they are aged 65.

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- Fairfax Media

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