No simple answer to help New Zealand's poor

Last updated 05:00 08/10/2017

Single mother Bella says she feels stress, not support, to get off the benefit.

Targetted handouts, services or universal payments? Decision makers have to choose what's least likely to hurt the poor while not excessively costing the taxpayer.
Eric Crampton says boosting benefit rates means higher taxes, and less incentive to work.
It is hard to get a clear picture on the return on investment from welfare spending.
Homeless people beg for money in Auckland's CBD.
Jess Berentson-Shaw says unconditional cash assistance is the most powerful method of assistance.

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West Auckland mother-of-three Bella* never expected to end up on the benefit.  When she and her husband split four years ago, she thought she would be "taken care of".

"I wasn't. I have been on a benefit ever since."

She does casual work, cleaning or taking care of children, but every week is a struggle.

"The hardest thing is covering the costs of childcare and then weighing up the benefit of a few extra dollars a week for the stress of stretching myself so much physically," she says.

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"I don't get a dollar-for-dollar amount per hour in my pocket. Once I earn over a certain amount, my benefit drops. I lose temporary additional support and with childcare costs, I might only have a few dollars per hour benefit."

Bella is degree-educated and thinks of herself as highly employable. "But juggling the needs of my family really limits what is possible."

Of her weekly income of about $800, work depending, half goes on rent. 

"I have three children and we live in a small two-bedroom home. Lunch boxes can be scarce on nourishment. Bills are always behind. I have zero safety net in terms of saving for unexpected expenses."

Families such as hers received extra attention in the recent election campaign. Labour leader Jacinda Ardern pledged to increase Working for Families payments, a "best start" payment for children's early years and a winter energy payment for beneficiaries.

Prime Minister Bill English said he would lift 100,000 kids out of poverty.

But what is the best way to do that, and is just giving poor families more money enough?


First, you have to define poverty. The main measures used in this country are relative poverty and deprivation.

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Relative income poverty measures indicate that as many as 25 per cent of kids live in households that earn less than 60 per cent of the median income. The after tax median household income before housing cost in 2016 was $76,200.

NZIER data shows income inequality – and relative poverty – increased significantly between the 1970s and 1990s.

NZIER principal economist Derek Gill said a problem with the relative measure was that even if the GDP were to double tomorrow and everyone's incomes increased in line with that, a percentage of New Zealanders would still be seen as impoverished.

On the other hand, deprivation indexes show that that 16 per cent of New Zealand children are in households that regularly go without five or more basic needs, including things such as clean drinking water, suitable clothing, dental care as required, a computer in the household and transport.

By international standards, we have a relatively high rate of deprivation among young people and low deprivation among the elderly, probably thanks to our universal pension.

But Gill said there was a poor fit between the number of people who experienced relative poverty and the number who reported suffering deprivation – which would indicate money isn't everything in determining living conditions.

Some people with relatively high incomes reported deprivation while some on low incomes reported that they had everything they needed.

"It's not as simple as: 'This many people are under the poverty line'."


How you try to tackle the problem may depend on where on the political spectrum you sit.

Gill said left-wing politicians would usually put more emphasis on relative poverty measures and look to increase benefits as a way to help to boost incomes across the board.

"If you're a bit more on the right, you might say the data is more complicated than that. You may not have an income adequacy problem, it may be drugs and alcohol or mental health …

"If you're worried about relative income measures, you might look at tax credits … If you're worried about deprivation, you may look at more targeted interventions."

Simon Chapple, director of the institute for governance and policy studies at Victoria University, agreed most welfare measures fell into one of two camps: Giving people money and giving people "things".

For some people, more money would be sufficient to help solve their problems, he said.

For others, money on its own it would not be sufficient. "They need more than simply money to help them."

That was when other services such as employment services, training or budgeting help might be useful, he said.

But he said something had to change in the way New Zealand tackled its poverty problems.

"What we are doing at the moment is clearly not working."

At the moment, New Zealand spends $13.6 billion a year on NZ Super, and $10.5b on other benefits, including $1.8b in the family tax credit, $1.7b in job seeker support and $1.2b in accommodation assistance.

Child poverty is estimated to cost $2.2b in poor education outcomes and its impact on productivity, up to $4.5b in health costs, and $2.2b in crime.


Jess Berentson-Shaw, head of research at the Morgan Foundation, said unconditional cash assistance had been shown to be the most powerful of the cost-effective interventions available for low-income, low-opportunity children.

That was followed by parenting and education programmes involving home visitation.

Cash without strings was most helpful because it did not add other strains to the family, she said.

"When cash assistance is conditional on fulfilling the obligation to work, that work has a ripple effect on the family's economic situation.

"There are increases in travel times and costs, childcare costs and the need for after-school care; the parent spends less time with children; and in the case of low-skilled jobs in which parents have little control over their own affairs, parents experience reduced personal autonomy. 

"Of course, if the overall economic gain for the family is significant, these compromises may be manageable.

"But in the kind of low-paid jobs that those on welfare can typically get, the gain may be negligible. The conditions may do little more than increase family stress."

She pointed to a 2007 study that found that for a family on US$10,000 (NZ$13,970) a year, a US$10,000 increase in income led to a 124 per cent change in "developmentally stimulating resources in homes during early infancy".

For a family on US$50,000, the same increase led to a 25 per cent jump in these resources.

She estimated that introducing a one-year universal basic income for families with children would save $400m in education costs, $666m in health costs and $360m in the cost of crime. 

"The best recipe would be cash and building a low-cost universal housing system. Housing to ensure homes are a source of wellbeing and stability for children, and cash to improve the economic conditions of their parent's life; as it is these better conditions that allow parents to make more and better choices."

 Berentson-Shaw said the provision of services, such as healthcare or public transport, were appealing to the public but there was mixed evidence on whether they were effective in redressing the imbalances between kids in poverty and kids who are not.

But Eric Crampton, of the New Zealand Initiative, said it was not so straightforward.

"Giving money to poor people is an effective way of making the recipients of cash less poor, but comes at the cost of higher tax rates, which reduce incentives to work and hurts longer-term economic growth."

Depending on how the eligibility conditions were set, it could create perverse outcomes, he said.

"So if you – rightly – believe that support should be focused on those in most need, and if you believe – rightly – that children of single parents who are unable to be in work, are more in need of support than children of partnered couples with strong family support, and if you target assistance in that way, you create an incentive for people to hide relationships and support."

He said all support systems had "horrible trade-offs". 

"Targeting cash assistance to those in most need requires intrusive and demeaning questions, and risks inducing unintended and counterproductive behaviours.

"Targeting assistance less sharply, for example by using a Universal Basic Income, avoids doing that, but comes at an exceptionally high cost, either through very, very high clawback rates on earned income at the bottom, or through very high tax rates across the board."

He said "in-kind" programmes, which offered assistance in non-monetary ways, could avoid some of those problems.

"Suppose that basic literacy is really important for getting out of poverty. Suppose it costs the government $1000 to provide a basic literacy programme to those wanting to take it up.

"It can wind up being the case that even if the recipient of the literacy programme prefers the cash, it's much cheaper for the government to provide the literacy programme, because only people who need the programme take it up while others might try to get access to the cash payment if it were just a cash payment."

Crampton said more evaluation of interventions was needed. Some commentators would say a monetary return on investment (ROI) was too narrow a measure to judge the welfare system with, he said.

"It's easy to imagine changes that would increase measured ROI or reduce fiscal liabilities, but that would nevertheless be detrimental.

"So imagine some small programme that provided minor training and then dumped people off the benefit, whether they were able to secure employment or not."

But he said it was likely that those kinds of moves would be ruled out politically anyway, and a fiscal ROI was a good proxy for the kinds of outcomes society should be targeting.

Chapple said the way the National Government had defined its social investment strategy was largely about fiscal returns, rather than outcomes for people.

"The focus has been on taxpayers gaining – can we give taxpayers a tax cut as a consequence?"

The Government has a target of reducing the number of New Zealanders on a main benefit from 295,000 in June 2014 to 220,000 by June 2018 and to reduce the long-term cost of benefit dependence by $13b.

But Chapple said that was creating perverse incentives because it was assumed that anything that got someone off a benefit was good.

There was a major issue with people who were not taking what they were entitled to, and government departments had no incentive to chase that up.

Sometimes people did not know, sometimes they were worried about the stigma of being on a benefit and sometimes they did not want to go through the process of applying for their entitlements, he said.

"There are a lot of people who are working poor who will not be on the accommodation supplement because they are not signed up. That's likely to be most important for families with children.

"There is also a significant number of families who are entitled to the in-work tax credit and not taking that up."

Bella is optimistic about the future but says it's hard work getting off the benefit. "If each hour I worked added up to greater financial benefit for me, then it wouldn't seem so hopeless.

"I have just applied for a job that has reasonable pay and it looks exciting. It's 20 hours a week, which will be a big push for me. Especially at times when kids get sick... I would love to be financially independent, though."

* Bella did not want her surname used.


NZ Super costs $13.6 billion.

Welfare benefit expenses $10.5b consisting of:

                $1.8 billion in Family Tax Credit

                $1.7b job seeker support and emergency benefit

                $1.5b Supported Living Payment

                $1.2b Accommodation Assistance

                $1.1b sole parent support

                $900m income-related rents

                $2.3b other welfare benefit expenses

* Comments on this article have been closed.

- Stuff


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