Benefit Increase? The truth about the 2015 Budget

By   /   May 23, 2015  /   11 Comments

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There is much trumpeting about the 2015 Budget announcement of payment of benefit increases of $25 to parents. It’s not really a benefit increase; it’s a child allowance in lieu of the In-Work-Tax-Credits ($60 per week) payable to non‑beneficiaries with children. And this allowance comes with still more terms and conditions.

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There is much trumpeting about the 2015 Budget announcement of payment of benefit increases of $25 to parents. It’s not really a benefit increase; it’s a child allowance in lieu of the In-Work-Tax-Credits ($60 per week) payable to non‑beneficiaries with children. And this allowance comes with still more terms and conditions.

In February 1974 a single person’s unemployment benefit was $24.50 per week, $1274 per year (1974 Official Yearbook, which happened to be the oldest Yearbook in my office). Gross domestic product (GDP) per person was then $3,015. That benefit represented 42.3% of GDP per person.

GDP per person is currently $51,500. This is 90% of the average wage of $56,000 cited by Bill English. The single person’s unemployment benefit is $209 per week ($10,871 per year), 21.1% of GDP per person, and 19.4% of the average wage. There was no increase in a person’s benefit in this Budget, only the assumption that inflation-indexing will continue, which may mean a fall to say $208 next year.

The benefit today represents less than half of its 1974 income share. On historical equity grounds it should today be $419 per week. (If the 1974 benefit had only kept up with inflation, it would be $268 this year.)

Beneficiaries who might qualify for this new child top-up will face much tighter controls that in the past; a requirement to work 20 hours per week if their youngest child is aged 3. We are told that these controls equate to the requirement to behave ‘responsibly’. But to be responsible, you have to have agency. Beneficiaries, by virtue of these controls are being denied agency.

Some choices do exist when there are conditional entitlements. It’s no coincidence that many rich people declare their personal market income at $70,000 per annum, which is the upper tax threshold. They have received tax avoidance advice, and have chosen to arrange their financial affairs accordingly.

How does a beneficiary with children – probably a woman – rearrange her affairs?

If she is going to be forced to take an inappropriate job, she might prefer to make her own choices instead. She may partner, and move onto the In-Work-Tax-Credit if her and her partner’s combined hours are at least 30. (She wouldn’t want a partner on a zero-hour contract, of course. How can they access In-Work-Tax-Credits?) We note that inappropriate repartnering is a huge risk factor for family violence. Instead, she might repartner briefly, have another child, and then departner. She would thus avoid the work test and might be able to look after her children in the way that she thinks best; not the way that Work and Income think best.

She may find a 20-plus hour job other than the one Work and Income wants her to take. She may choose to take employment in the sex industry. At least she would earn more than the minimum wage, and, being legal, such work would fully meet the legislated conditions on her benefit. (Even better for the government, her new employment status might give her an entrepreneurial career pathway from a sinful dependent stay-at-home into an independent businesswoman. Dependency has become the greatest sin of all since the Ruthanasia period of the 1990s. Career aspiration is the greatest virtue.)

What jobs will Work and Income be pushing onto their female clients? My guess is low-wage jobs in the rest-home sector will be near the top of the list. Indeed this benefit policy might just about be regarded as a way of sourcing cheap labour in what is clearly going to be the growing service market over the next three decades.

 

A Better Way – A Universal Accounting Approach

What might be a better way? The Budget policy is one of tightening welfare conditionality and selectivity; otherwise known as targeting and means-testing. (We might also note that, in the Budget, effective marginal tax rates on Family Tax Credits are going to increase as these payments increase slightly. This means, for low-income ‘working’ mothers, slightly less poverty but a bigger poverty trap. Most qualifying ‘working’ mothers are mothers with employed partners; not employed mothers.)

The better way is universality. And how do we achieve that? We can actually create a universal welfare society with the stroke of a pen on Monday. We just define the income tax rate as 33% and the fiscal benefits implicit in our tax system as what they really are, ‘benefits’. Thus a person earning $70,000 receives an unconditional fiscal benefit of just over $9,000 per year. A person grossing $60,000 receives a fiscal benefit of just under $9,000 a year.

If the government was to lower the rate on the 30% statutory tax bracket to 28% that would have precisely the same meaning as increasing benefits to everyone earning over $70,000 by $440 per year. They would receive an extra $440 of publicly sourced money in their electronic wallets every year.

At least 90% of all adults in New Zealand qualify for either a fiscal benefit or a Work and Income benefit, or a combination of both. The only ones who do not qualify are (mainly women) being supported 100% by their partners, and some students who depend 100% on a mix of student ‘loans’ and their parents.

Some people might say that you cannot redefine what is a tax and what is not a tax. Wrong. Academia exists to investigate the realities that underpin our superficial notions and observations and obfuscations. Bill English calls the new international travel tax a ‘levy’. The rest of us call it a tax. It will be a tax, whatever it is called in the legislation. The grandmother of someone I know was listed in the cemetery records as ‘male’. But that did not make her a man.

Whether based on principles or pragmatism, there is no better way to define income tax than as a 33% share of income. What such a definition reveals is that everyone is a beneficiary, and that every firm in New Zealand receives corporate welfare; some much more than others. Relative to the 33% benchmark tax rate, the company tax of 28% is actually a 5% subsidy to companies. That’s OK; benefits are good, not bad. (Just look up the etymology of words like ‘benefit’ and ‘welfare’. Shareholders of Spark are beneficiaries of Spark; that’s good.) We should just be honest about this corporate subsidy. If we are honest and transparent about the present then we can see better policy pathways for the future; albeit pathways that are presently obscured.

 

Beneficiaries with Agency

What does this all mean for a female beneficiary whose youngest child is about to turn three? Well, what if we removed all the conditions around her benefit, just as persons earning over $70,000 have no conditions on their benefits. We would give her agency. We would give her the responsibility and the opportunity to make her own choice about how her child is cared for and about what kind of contribution outside the home she performs.

Why might people work in rest homes? It’s hard work. It can be unpleasant work. But it’s also community service work. People with agency will resist exploitation and control. Present policy forces people – especially women – into exploitation. But, if given a choice, people choose to do service work – even unpleasant service work, and even at low wages – so they can contribute to their communities in positive ways. Most assuredly, it is not the normal condition of humanity to be lazy, living unashamedly off the labour of others. Given agency, perhaps 90% of us will contribute more, not less.

By redefining what portions of our present incomes are privately-sourced and what portions of our present incomes are publicly sourced, we can see that almost all of New Zealand resident adults are presently beneficiaries of NZ Inc. And we can see that the remaining few most assuredly should be beneficiaries as well. Universal welfare, equitably and well designed, gives positive choices. Especially, it gives us the choice to serve without being exploited. We are all beneficiaries; not just the poor.

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11 Comments

  1. Lindsay says:

    In 1974 the DPB was $40.70 weekly with 2 children. Family benefit per child was $3. There was no accommodation supplement or Family Tax Credits which now make up a good portion of a total benefit payment.

    Using your GDP figures the 1974 payment amounted to 80%.

    Today (or thereabouts), an average sole parent with two children living in Auckland receives $642 weekly (http://www.beehive.govt.nz/release/better-work)

    Again using your gdp figure that’s 65%. Lower, admittedly, but not half.

    Did you know that the Yearbooks are now all on-line?

    http://www.stats.govt.nz/browse_for_stats/snapshots-of-nz/digital-yearbook-collection.aspx

    • Keith Rankin says:

      I was looking at a benefit for a single person, no children. I agree that various top-ups have been applied to beneficiaries with children to make up for the substantially reduced core benefit.
      And yes, I do know the Yearbooks are online. I do like my memento Yearbooks, however, and I did want to show that there was a reason for my choice of 1974.

    • Today (or thereabouts), an average sole parent with two children living in Auckland receives $642 weekly

      That sounds a considerable amount. But mentioning Auckland, rentals range in price from $510 per week in Parnell to Otahuhu at $310 per week. (http://www.enz.org/flat-rents-auckland-central.html)

      A quick look at Trade me yielded one property listed at $315 p/w; one at $320 p/w; and the rest $370 p/w or above.

      The average between Parnell and Otahuhu (at $315) is $412.50 p/w.

      Take $412.50 p/w out of $642 leaves $211.50 for power, transport, food, clothing, shoes, school fees, doctor’s fees, prescription charges, child care, etc.

      Perhaps solo-parents should be on the Board of Directors of major companies (especially Solid Energy). They certainly know how to stretch a dollar.

  2. byron says:

    An interesting read as usual keith, thanks. It occured to me that zero hour contracts are incompatable with current benefit conditions. A zero hour contract would make a job “inappropriate” according to conditions requiring solo mums to work 15 hours? Does this have any bearing on the govt’s decision to scrap them?

    • Keith Rankin says:

      I’m not sure that Government is actually scrapping them, though it clearly wants to mitigate them. The whole concept of fixed-hour employment that underpins family welfare legislation is simply incompatible with the concepts of labour market flexibility that are reflected in zero-hour contracts.Yet the government attempts to travel both paths simultaneously.

      It’s just one more reason why basic benefits should be unconditional. Then adults can decide what kind of employment deals (or other forms of contribution) they will or will not sign up to, without government-imposed penalties. And enhanced bargaining power on the part of adults will give them more scope to reject dud employment contracts.

      • GettingOn says:

        Yes, I came across an interesting case the other day. I do contract work for a company in the field of payroll. I went to see a young Maori man at his home in the poorer part of Manurewa. He had started up his own business, and was employing his first member of staff. He seemed a pretty switched on guy, so I feel confident that he will be successful.

        By the time I got there, however, his employee had left because the young man starting up the business couldn’t offer enough hours to enable him to meet WINZ requirements. I don’t know what benefit he was on, but clearly the conditions discouraged him from working.

  3. Save NZ says:

    Parents of 3 year olds should not be forced to work. They should wait until the child at least 8. Secondly there are not enough part time jobs and the cost of getting to work is so high now it is often not worth working. Solo parents probably can’t afford to pay to even get to work especially if they live in rural areas. They will be worse off. In addition Children are constantly sick at that age so their parent would always be taking time off. The whole thing is a paper political solution with zero reality of what parents of young children are able to do.

    I think ALL parents should be encouraged to spend more time with their kids at that age so these single parents are just completing for part time jobs that a student or unemployed person could do. There is no point to it. It is just undermining the job of being a parent and taking part time work away from others more suited to it.

    Personally I think that Grandparents looking after grandchildren should get some sort of subsidy (maybe as their 20 hrs work) and Adult children should get a subsidy for looking after their elderly parents. In economic terms would save the country a lot. To have a elderly person in a home is probably well over $600 per week, so to pay a family member to look after them full time is not only good for the elderly parent but also good for the economy. They do have some sort of benefit for this but it is not very well publicised.

  4. […] reality is that this budget didn’t do a damned thing for the poor. What has slipped past the mainstream media are the new work requirements. National are set to […]

  5. Mike the Savage One says:

    The above figures presented by Keith can be a bit confusing and misleading, I fear. For instance, I doubt that in 1972 there was anything like an accommodation supplement, a disability allowance and temporary additional support.

    It is these present day supplements or top ups that so many get while being on a benefit, which create many problems, when there is a change in income, a rise in the base benefit, especially since they also get reviewed over various periods.

    So comparing benefits from 1972 with benefits today is a bit like comparing apples with pears.

    But we know full well, that at least since the slashing of welfare benefits in 1991 or thereabouts, many fell into real poverty traps, and the gap between benefits and wages and salaries has tended to widen, to now have reached a level not seen before, as even Bill English admitted on TV and radio interviews the last 2 to 3 days.

    Even the Labour government under Helen Clark never reversed the nasty cuts made in the early 1990s.

    So in any case, the meagre increase that is now offered to families on benefits (per household, NOT per person or per child!), will not compensate for the past cuts, and for the big gap that has widened between those on benefits and those in work (I exclude the working poor, some of whom are no better off either).

    What the government has also not clarified enough is, how much total benefits will be affected through abatement of other benefit supplements, when the base benefit is increased by $ 25 per week.

    WINZ published this, but I dare to presume, it does not tell us the whole story:
    http://beehive.govt.nz/sites/all/files/l2b-english-tolley-fact-sheet-2-increasing-benefit-rates-for-families-with-children.pdf

    Under these links are just bits of data to be found, how abatement is calculated:
    http://www.workandincome.govt.nz/map/income-support/extra-help/temporary-additional-support/standard-costs-01.html
    http://www.workandincome.govt.nz/map/legislation/regulations/social-security-tas-regulations-2005/regulation-10-prescribed-amount-of-support-general.html

    Temporary additional support is capped at 30 percent of the base benefit, as far as I know, so the cap may go up a little, due to the base rate increase, but not by that much. As we see from the WINZ fact sheet, accommodation costs for those in social housing will rise, and for some the accommodation supplement will decrease, for those living in private rentals. I think the presumption that the average increase will be around 23 dollars is rather optimistic.

    The new expectation for parents that are capable to work to look for at least 20 hours part time work will result in those getting such work receiving less benefit, less than working only 15 hours, and extra costs of travel and clothing and so, for work, will hit them.

    Also, forcing parents to work as soon as the youngest kid is only 3 will force many into whatever jobs (see some extreme options that Keith mentions above), so WINZ and the government may save costs there, pushing more off benefits earlier.

    What many have forgotten is a new rule that the government brought in during 2012 or 2013, and that is the one, that parents (mothers) on benefits, who have another child while on the benefit, will under certain circumstances be expected to look for part time work as soon as that youngest child turns 1!

    http://www.workandincome.govt.nz/individuals/obligations/having-another-child-while-you-are-on-a-benefit.html

    So with all this, WINZ already expects some parents on benefits to look or at least prepare for work, if they have a further child on the benefit, when the next younger one is not aged 5 as yet.

    That is just a glimpse of what is changing, and what is already the rule for many.

    The media may report on the “increase”, which is not quite what it seems, ignores the past cuts and impoverishment of beneficiaries, and does not even understand that most will NOT even get 25 dollars extra, but perhaps only a fraction of it.

    • Keith Rankin says:

      My initial two points were:
      (1) to show that this $25 in the Budget is a further conditional add-on; an allowance only for beneficiaries with children, and not an increase in core benefit. Many beneficiaries do not have children, and their benefits have not increased in this Budget.
      (2) to show that the core benefit is half of what it would be if the 1974 benefit had not been subject to the many debasements that it has faced, and had maintained its relativity to national income.

      The conditional add-ons you mentioned can be understood as necessary consequences of a debased core benefit.

  6. […] substantially selective, and significant universal elements do remain. Further, as I noted in Benefit Increase? The truth about the 2015 Budget (23 May), a costless stroke of the fiscal accountant’s pen can reframe what we have right now […]