The Government is putting poverty on the agenda despite denying that there was a problem during the election campaign. It is difficult to see how it can address poverty without increasing incomes, yet Ministers talk about not “throwing money at the problem”.
This matters for working people because it is partly about wages and partly about a social welfare system that underpins good wages. On average between 2009 and 2013, two in five children in poverty (41 percent) were from households where at least one adult was in fulltime employment or was self-employed. This was down from over one in two children (52 percent) before the Working for Families package in 2004. Clearly, more money did make a difference for families with people in work.
We know that many more are struggling, with home ownership unaffordable, little or no savings in the bank, and just managing to pay the bills from week to week. Restoring the value of Working for Families would be a start. Raising wages would be even better.
But Working for Families did almost nothing for children in beneficiary families. Being born into a family dependent on an income-tested benefit is almost a guarantee of living in poverty. In 2013, 80 percent of children in such families were in poverty.
This matters not only for those families. What happens to people in work when a crisis strikes and they lose their jobs or can’t work? The “replacement income” from benefits is crucial to keeping families going. If it is low and they have few savings, then people are forced to find work as quickly as possible to keep paying the bills. That pulls down wages and forces people into jobs that don’t suit their needs, skills or experience. So benefit levels underpin wage levels and decent jobs, particularly with the insecurity and high job churn New Zealand suffers from.
The replacement income level for accidents, through ACC, is 80 percent, yet benefits are under 55 percent of the average weekly wage, one of the lowest proportions in the OECD. The level, which was up to 80 percent in the 1980s, fell as a result of the poverty-creating cuts in the 1991 Budget. It has kept falling because benefits are pegged to inflation, not wages. Wages have risen too slowly, but faster than inflation. The Government says increasing benefits might reduce “the incentive to work”. But even an increase of 25 percent would only restore benefits for families to the level that National found a good enough “incentive” after the 1991 cuts. The “incentives” argument is a crock. More money would make a real difference. It needs to be done.
Download the full bulletin: CTU Economic Bulletin 163