Poverty denial – Where does National get its advice from?

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National is displaying a quite inadequate understanding of their own policies and worrying inability to respond to criticism. When John Key trots out his old, tired example of how ‘work pays’ on Morning Report this week to justify leaving 260,000 children in poverty, no new thinking is required to combat it.

John Key has again pointed to the mythical sole parent who gets a 20 hours job at the minimum wage and is so much better off now they are no longer a ‘beneficiary’. Thus in his eyes welfare to work policies are a success, poverty is solved by paid work, looking after your own children is not proper work, and all families should just, well, get a job.

At the back of all of this is his misunderstanding of the Ministry of Social Development (MSD) data on poverty. Key is committed to the belief that work is the way out of poverty and has twisted the data to reinforce his belief. In the third leaders’ debate, (42 minutes in) he denied that 40% of all poor children are in non-beneficiary families and claimed that only 11% of the 260,000 children in poverty are in families supported by paid work.  But here is what the MSD actually says:

“Poverty rates for children in working families are on average much lower than for those in beneficiary families (11% and 75% respectively), but 2 out of 5 poor children come from families where at least one adult is in full-time work or is self-employed.”

Mr Key’s argument from back in 2012 was that the “system supports high levels of income for people in work” and that by working 20 hours per week someone on what is now Sole Parent Support would be about $10,000 per year better off. Strangely, this week he is claiming they are only $100 a week better off. Perhaps he is allowing for childcare costs? This sole parent example, and his erroneous belief that there are very few poor children in families in paid work has convinced him that child poverty is readily solvable by the parents themselves.

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As I pointed out at that time, that in order to make work pay, the sole parent gets an even bigger pot of money from the state than they would if they were working 20 hours while staying on a part-benefit. Sole parents with young children need support and calling government support by another name doesn’t make a parent more worthy.

We update the figures in the income chapter of CPAG’s pre-election publication, Our Children Our Choice. Working 20 hours a week, off benefit, at the current minimum wage of $14.25 an hour equals $285 gross per week, or $249 in the hand.  A  one-child family also gets the Family Tax Credit of $92 but the total is not enough to support the family and comes to less than $391 she would have got just being on the sole parent benefit.  So to make ‘work pay’ for her the state tops up her income with $189 per week from the Minimum Family Tax Credit and another $60 per week from the In Work Tax Credit.

Work alone is the way out of poverty? I think not.

She becomes dependent on The Minimum Family Tax Credit which has a 100% effective marginal tax rate, making it the worst work incentive ever devised. That means for every additional dollar of net income she earns, the Minimum Family Tax Credit disappears dollar for dollar. At the minimum wage, someone who was working 20 hours would have to work an additional 15 hours before being any better off at all.

The Minimum Family Tax Credit is effectively a subsidy to employers. They can get away with paying only the minimum wage as they know a higher hourly rate will not give any more in the hand.

Sole parents are vulnerable to having their incomes reduced sharply should their hours fall below 20 a week, losing both the In Work Tax credit and the Minimum Family Tax Credit.  Workers who face casualised employment have the ongoing problem of reporting in to IRD on a weekly basis, as well as extremely uncertain income.

Sole parents report high stress of never knowing exactly what they will get. They may face aggressive demands for the repayment of tax credits from IRD when IRD says they did not satisfy the rules. Families cannot possibly budget or function with any level of certainty and security under these circumstances.

Employers also face uncertainty when they take on sole parents with very young children. It does not take much imagination to see the problems that arise when a child gets sick or school holidays require time off. Sympathetic and accommodating employers are in short supply, especially in a recession. If a parent loses hours of work she may lose all work-based tax credits and may find it difficult to access a benefit immediately.

The Minimum Family Tax Credit harks back to the failed policies of Roger Douglas, who tried to introduce a flat tax in the late 1980s. He relied on the “Guaranteed Minimum Family Income” to prop up the income of “working” families.

In 1988 Brian Easton referred to the Guaranteed Minimum Family Income as “a fiasco that reflected badly on quality of Treasury advice”. He noted it was open to widespread abuse, and that it was “socially reactionary” and “fiscally explosive”. Now renamed the Minimum Family Tax Credit, these criticisms remain as valid as they were in 1988.
* Susan St John is Economics spokesperson for Child Poverty Action Group and associate professor of economics at Auckland University.

32 COMMENTS

    • Eralc, another example of the economic stupidity of the neo-con’s. Funny how they get on a high horse of hate, and expect decent people to agree.

    • I will try to point something out to you, Clare. The other day I listened to a woman on Sean Plunketts Radio Live show, she was the sole worker in her family, her husband was out of work, middle aged and a PI, a bit of double whammy.
      They had a couple of kids, no car but it was clear she did not think of her family as living in poverty (Plunkett lapped that up) but when she got to the bit where she said that her kids did not play any form of organized sport as they could not afford fees, strip etc, it became clear that they were definitely in poverty where opportunity goes. There could be a couple of future sports stars out there throwing a frisbee around as a substitiute.
      I think you need to open your mind, wide wide open.
      Full marks to that family for not surrendering to poverty but surely all kids should have the opportunity to follow a sport and I imagine they don’t get much time at the beach or on holiday.
      Your sort makes me want to upchuck, you did not really deserve a proper reply to your stupid comment

    • The truth is out there. Some people are not motivated to find the truth and make blanket statements without evidence. There aren`t the same resources in the community as there was when John Key was growing up or Paula Bennett took advantage of.. they have made a “them and us” story. Is corporate welfare more acceptable to you? Do you think it`s ok that rich and greedy shareholders take profit while an average family struggles to pay their power bill?… and so it goes on and on..

    • I could show you several such poor families with good parents, Eralc, but they should not be subject to voyeurism such as yours. Interestingly John Key’s mother was able to parent at home until he was 7 and then got night work. Bronagh Key was described as an ‘at-home mother’. Being cared for by your own parents is a right for small children and should be a choice ballencing on the child and parent’s whole needs.

    • That’s an interesting assumption, that all poor people are also poor parents.

      Or perhaps your assumption is that we don’t have any real poverty in New Zealand because we are not as poor as some countries in Africa or Asia?

      Take a trip up to the Far North, or East Cape. Stay a while. Get to see how people live there. You’ll see plenty of poverty to rival that seen in other “poorer” countries.

    • This remark (Eralc above) displays not only bleak ignorance, it puts on show a contributor who is him/her self ill from poverty of another kind, that is poverty of mind, heart, and soul.

  1. Key’s argument does not stack up because it is is purely an ideologically driven one – with the principal aim of maintaining privilege.

  2. FJK!!!!!!

    Not much longer now, this capitalist personal greedmongering govt will be gone in just a few days now, and good riddance!!!

    7 more sleeps. Then the Green and Labour Parties will look after our poor and helpless.

    God defend New Zealand.

    Opinion.

  3. John Key – product of a free tertiary education; decent welfare system; strong employment legislation, and social housing.

    It’s a pity he never learned a single damn thing from his youth.

    • Akshully Frank what people are really interested in which I cant comment on but I can say this, that at the end of the day the GSCB , and all Left wing smear campaigners , small Maui dolphins and that the fact is I have no record of that and cant comment on the fact because I dont have all the details yet , that I was not aware and didnt know Mr Dotcom and small Maui dolphins , and being the SIS we have a ‘ No Suprises ‘ policy which at the end of the day means I must have known but didnt akshully know about small Maui dolphins .

  4. Cunliffe said in the last leaders debate he would raise the abatement level from $80 a week to $150 to enable people to earn up to $150 a week before benefit is cut.

    • Even 150 a week is pathetic , needs to be 350 a week before benefit is cut, to be anywhere near where the benefits were, when Jenny shipley and ruth richardson and bolger co cut them in 1992.

    • From tomorrow, for a week, it is the International Week of Unconditional Basic Income. This movement is growing globally. It means that every citizen receives a basic income, no means testing, and no abatement (like Superann, with excess recovered in tax)) one simply works on top of it to the extent possible. Check out Perce Harpham’s website for NZ costings etc. It is worth studying as a solution to precarious work, precarious security and the drift of wealth upwards.

  5. What’s so difficult about saying ‘ fuck ‘ ? Fuck is fine . I see F**k , I see ‘ phuck’ , I now see ‘ whuk ‘ ? I mean WTF ?

    @ ERALC is correct in saying what he says . Poverty IS poor parenting . Poverty stricken parents trying to tread water while the select few make millions and don’t go on rampages burning down Banks and money lenders are negligent in their responsibilities to the greater community , much less to their kids .

    @ ERALC ? Are you sure you want to take this argument to the next level ? Take your time and think about it .

  6. Show me someone who doesn’t care that we have children living in poverty and I’ll show you a poor excuse for a human being.

    • We can see to it that no child lives in poverty if we choose to do so. A vote for National, ACT or Conservatives this election is a deliberate choice to let our nation’s children grow up in poverty. No if, buts, or maybes.

    • I don’t doubt that there are children in poverty in NZ. We need to do something about that as it is a disgrace that in a so called 1st world country we have kids who don’t eat 3 meals a day, or are warm on a cold night.

      Where the do-gooders hurt their cause however is by trotting out a 260,000 children in poverty figure. This figure is based on some arbitrary decision that anyone earning less than 60% of the median income must be in poverty. Poor does not equal poverty.

      This 60% myth means that there will ALWAYS be poverty, even if median income is 1 million a year and that people earning 600,000 or less would then be in poverty. Relative to the majority they would be poor, but poor does not equal poverty.

  7. John Key’s Mum was on a widows benefit – he says she worked to supplement their income – I wonder if there was an abatement regime for widows then?
    My friend who is a bit older than JK was also raised on a widows benefit in a state house. He says it was no hardship except for not having a Dad. Widows have always been well looked after being a better class of solo mothers than that other lot. State houses were newer. He is not from shtruggle street really. Maybe that is why he cannot relate to it.

  8. child poverty is a big issue. it is sad that families with younger children are forced to pay someone else to raise their children so they can keep a roof over their head. yes people are better off working than on benefit. but at $14.25 an hour, how far will that money be strecthed?what happens to all other necessity? such as sport, family time an the rest. something needs to be done, a policy need to be put in place to protect the next generation, as they are our future. If they keep on missing out on basic necessity how do we expect this cycle to be broken? every child deserve the same privilege as another child and for this to happen is for their parents to have decent jobs that pays well but also gives them freedom to be there for their children and to afford to pay for the extra curricular.

  9. The 100% effective marginal tax rate does not make this the worst work incentive ever devised. When I was receiving the Student allowance in 2003 if I earned a single dollar my entire $200 was cut for that week. That was far worse. I had to earn over $200 in a week to make it worth anything.

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