Media release
22 April 2009

“Welfare Mess” Needs Review

Increased child poverty, more complexity and a dwindling ability to cope with the labour market’s recessionary influences is New Zealand’s future if a comprehensive review of New Zealand’s “welfare mess” is not started now, a leading Auckland economic academic warns.

Dr Susan St John — an Associate Professor of Economics at The University of Auckland’s Business School — says a comprehensive welfare review to take into account 21st century social and economic conditions is well overdue.

Immediate and necessary changes to the welfare system are the only way of better balancing a model that serves New Zealand extremely poorly, she says.

She is co-author of a study urging the Government to look urgently at laws such as the use of joint income testing for couples, hours-worked criteria, thresholds for abatements, overlapping incomes tests and the zealous use of targeting.

“The National Government’s recent changes include tax cuts, a transitional redundancy package called Restart, and a new ‘Independent Earner’ tax credit,” Dr St John says. “These compound rather than alleviate the welfare mess. Now they are reneging on the small adjustment they had signalled for the weekly allowable earnings for be΅eficiaries.

“There is no clear way out of this welfare debacle signalled in the foreseeable future — only more complexity, less adequacy, increased child poverty, and less ability to cope with recessionary influences in the labour market.”

In a study of substantial changes to welfare policy between 1999 and 2009 — co-authored by Unitec Department of Accounting and Finance lecturer Keith Rankin — Dr St John says the current tightly means-tested and conditional “work-first” approach to core welfare is incompatible with the concept of welfare, promoted by the 1972 McCarthy Commission, that offers all New Zealanders a chance to belong to and ῰articipate in society.

Effective marginal tax rates are too high for many people, creating a dis-incentive to work more hours, and the outdated concept of the Guaranteed Minimum Family Income has been extended and renamed.

“The Working for Families scheme reduced child poverty among many of the employed poor, but entrenched the position of beneficiary families and introduced more complexity and discrimination into family assistance,” Dr St John says.

“A comprehensive review of the welfare state in New Zealand for the 21st century social and economic conditions is well overdue. Longer term reform may also involve the use of basic income ideas such as provided by refundable tax credits,” the authors say.

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