Benefit cuts designed to help cut wages as well

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This is the second of a series of articles based on a speech to a conference sponsored by the Child Poverty Action Group looking at work and welfare in the 21st century. (Part 1)
Since the early 1990s, benefit levels have been slashed in real terms.
The governments of the day were motivated to save money to give in tax cuts to their rich mates.
But they also made it clear they wanted to lower real wages.
That is why they destroyed collective bargaining and union representation for most workers.
But to cut real wages the employer thinks he needs the gap to grow between wages and welfare payments. You have to make living on a benefit as miserable as possible.
In 1991, National savagely cut the rates of all benefits, including the invalids and sickness benefits. The harshest cuts were for the unemployed.
The unemployment benefit was cut by 25% for young people, 20% for young sickness beneficiaries, and 17% for solo parents. They abolished the family benefit and made many workers ineligible for the unemployment benefit with a stand down period of up to a six months. The 1992 benefit cuts were worth approximately $1.3 billion – about the same size of each of the tax cuts handed out in 1996 and 1998. Unemployment benefits were stopped for 16 and 17 year-olds and the youth rate for 18 & 19 year-olds extended to the age of 25.
Benefits as a percentage of the average wage fell significantly after 1985.The single person unemployment benefit dropped from 42 to 30% of the average wage by 1996. National Super for a married couple went from 85% to 72%. A domestic purposes benefit for a parent with one child went from 80% to 53%. The benefit for an unemployed couple with two children went from 95 to 69% of the average wage. The real value of National Superannuation was cut by 40% when combined with the extension of the age of eligibility from 60 to 65 years between 1992 and 2001 (See Table 1).
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Levels of unemployment were much lower in the period from the 1960s to the 1980s when benefits were higher I relation to average wages. When jobs were available people chose to work.
Prior to the cuts in 1991 around 25% of children in beneficiary families were identified as poor in the Household Economic Survey. That rose to 75% post cuts and hasn’t changed much since.
To justify these cuts (and the refusal of future Labour-led governments to reverse them) a whole ideology around deserving and undeserving poor has been developed. Anyone who is not working is a bludger.
Assistance is targeted to those deserving people in work through Working for families.
Universal entitlements like the family benefit were eliminated so assistance could be targeted to the deserving more accurately.
The system became one where seeking assistance became more and more difficult, humiliating, and vindictive.
The economic recession that was partly induced by the budget welfare cuts saw unemployment hit 10-12% on average. But for those of Maori or Pacifica descent the recession was a depression with unemployment reaching 25% and whole communities shattered.
Prior to this recession, Maori and Pacifica had higher labour force participation rates than did Pakeha.
That was before the infection of these communities by a mass virus of laziness that saw tens of thousands of them quit work over just a few years.
Full-time male employment fell by 120,000 over four years from 1987-91. Of course, this impacted much more on Maori and Pacifica.
Working class communities and families were torn inside out and upside down.
To compensate for the loss of real income families worked more hours. Two parent families with both working full time doubled from 20% in the 1980s to 42% of all families. Another 28% of families today had a parent working part time.
A report by Simon Collins in the New Zealand Herald 25/11/06 found that average family income in 2001 in constant dollars was the same as in 1981 despite the fact that the proportion of women working went from 47% to 61% and the percentage of families working 50+ hours a week went from half to two-thirds.
In New Zealand, average household debt went from 60% of GDP 15 years ago to 150% today. This is the second most indebted in the OECD. Much of this went into housing with the banks fuelling a housing price bubble as prices doubled since 2000 – the same as they did in the UK and Australia.
We were told not to worry. We were encouraged to use our houses as an ATM machine. Average household expenditure exceeded average income on average about 6% for those 15 years but increased to 15% in the mid-2000s. In the 3 decades before 1980 households saved on average about 10% of their income.
The bosses agenda is simple. Shift all costs onto workers (or the environment, or the government) and maximise their profits. That is the nature of capitalism.

25 COMMENTS

  1. Us two (wife/Husband) now at 70 yrs old are on a shared income of National Supper of only 66% of average wage.

    Whilst in 1985 when we had our two children we were on 84%.of the National average wage.

    We coped well then but now are suffering so the quality and wealth has depleted over the last thirty years for sure here.

    We can hardly cope today on the low super and have to find other ways to make some money so things certainly have worsened for all.

    • You wait, if National get back in again, it’ll be all-out war on super-annuitants as National’s flame burns out under 4-term Key.

      The 10% owning 90% of the wealth, will morph into 1% owning 99% of the wealth as bankers “persuade” super annuitants to sell their houses, or re-mortgage them to survive. The 1% will shift their own assets to impenetrable trusts. ‘Greedy super annuitants’ (hammered home by compliant media) will lose it all and the 1% revolution will be complete.

      Key’s legacy will not be a new flag, but pensioners living below the poverty line, as their Gold Cards are revoked, re-issued as a

      Key’s legacy will be a knighthood. Bye bye NZ, aloha Hawaii.

  2. Well done. New Right governments, of the type NZ has had since 1984 (regardless of their brand name) deliberately starve people unable to participate in paid employment in order to “incentitivise” those who are. This applies, with particular cruelty, to those too young, old, sick or disabled to participate in paid employment. Our learned judges determined that this is all fine and dandy, and reasonably justified in a democratic society. Shame on them.

    • The shame is that when the damage is clear, a party doesn’t alter direction. I don’t blame the Clark administration. Those were different, more affluent times with way lower unemployment and greater opportunities. On the other hand, I do expect any administration purportedly of the Left to modify their policies to reflect the new information and today’s realities. I don’t doubt they will.

      Labour is not run by the Josie Paganis of this world just yet. That said, I happened to watch a bit of Parliament TV last night and was shocked to listen to Clare Curren talking about something or other. Her main position seemed to be that she supported good trade deals and opposed bad ones and (hooray) that Labour had been behind the China deal, that National seemed to like (hooray, take that), as if the fact that National liked something carried with it any kudos at all!

      Time to clean house of these mumblers and stumblers who can’t tell the difference between a civil servant and an MP. There are some good people in Parliament, and maybe even some well-meaning people (don’t know if Clare comes into either of those camps). However anyone unable to speak either coherently or effectively has no place on the front desk which is Parliament. Anyone who does not know in their tripes why they are there should look for another job and make way for the best, the brightest or at least the focused.

  3. artificial construction of the working poor and destruction of the middle class, unions where the only protection the workers had and dont forget it was the labour party that betrayed that principal, our ancestors are turning in there graves right now in memory of those that gave there lives on the waterfront at the turn of the last century, do i sound bitter? try getting injured bye incomplainant government workers, then try getting any compensation or income support, i consider that the worst betrayal ever of kiwis

  4. This article – http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11515435
    features a working couple without children who earn a combined $110,000.00 a year, and still can’t afford a mortgage in Auckland. I think that’s pretty staggering. If you’re packeting over two grand a week (not sure if the figure is Gross or Net) and a home of your own is still out of reach, Aucklanders have been well and truly shafted.
    Needless to say, beneficiaries have the snowflakes chance in Gomorah of renting independently in Auckland, and the whole situation is deeply unfair on students.

    • Replying to own comment, please excuse my bad taste. Perhaps the linked article suggests that NZers aren’t willing to sign up to mortgages at these prices because they’re inflated beyond their local concept of value for money. It’s not necessarily that this couple couldn’t afford to pay a mortgage as long as their wages remained stable or increased, it’s that for us as NZers, this is simply a bad investment because it’s clearly overpriced.
      An overseas buyer has a different set of ideas around what presents value for money and opportunity.
      I don’t think home buyers should have to compete with those notions, we should be able to set the value of our housing market without overseas interference. It’s creating internal displacement. Surely it’s reasonable to have a limit on foreign investment in residential housing.

      • I don’t think home buyers should have to compete with those notions, we should be able to set the value of our housing market without overseas interference.

        The problem seems to be that our politicians and us have forgotten that it’s our market and not that of those who live overseas. They’re not going to live here so why are they allowed to buy here?

    • But the middle classes who own their own property can sell for higher prices when the market for buyers is global.

      And how dare we tell them who they can and can’t sell to!

      That’s the crux of the matter. Greed.

  5. The governments of the day were motivated to save money to give in tax cuts to their rich mates.

    That was certainly part of it but the other part was that they wanted to force more people into the workforce. You see it in the rhetoric of Welfare Queens and referring to living on a benefit as a lifestyle. So they cut benefit rates making it near impossible to live on them and also make it harder to get those benefits that are available. The influx of people to the ‘labour market’ drives wages down.

    Then there’s the removal of penal rates which meant that businesses didn’t have to hire as many people increasing unemployment and thus pushing wages down even further forcing people to work even more.

    The RWNJs have implemented a series of policies over the last thirty years that purposefully increases poverty and deprivation and the increased death and disease that comes with them.

    To justify these cuts (and the refusal of future Labour-led governments to reverse them) a whole ideology around deserving and undeserving poor has been developed. Anyone who is not working is a bludger.

    While the real bludgers, the rich, get away with stealing billions off us each and every year.

    We were encouraged to use our houses as an ATM machine.

    Of course we were. When there’s no real development happening in the economy due to us stagnating a commodities producer then the only way to get more money into the economy is to have people borrow it for non-productive ends like housing and bling.

    The bosses agenda is simple. Shift all costs onto workers (or the environment, or the government) and maximise their profits. That is the nature of capitalism.

    QFT

    The rich never produce or provide anything – they steal from the rest of us. It’s how they get rich in the first place and how they intend to stay rich.

  6. What a rotten state of affairs,its back to the 20s and 30s,then if you were deprived you had to “Go on the parish”my mum and dad through no fault of their own lost everything,my father had a fractured skull in an accident,no compensation , no health care,.To go on the parish people had to face a committee of wealthy people who treated people like nobodies and made them sell all the furniture in the house before they could get assistance. Most people then had pride and wouldn’t ask for the pittance the panel offered, my mum said she would rather starve . So mum cared for 5 children and an unconscious man. She went out mornings and evening to clean offices to excist,the times now are changing and the same type of people are judge and jury WINZ(Paula Bennet an ex beneficiary) the parish of now.
    Where is the NZ I came to 50 odd years ago? it honest simple and caring.
    Work for everyone ,easy to buy a house,free schools,free uni’s.

    For all the increased tax now, the only ones to really prosper are Keys cronies for whom he borrowed money to bribe them to follow him.
    Key and his overseas minders have stolen NZ,and I say as John Minto in another article said “give it back you bastards”.
    The present young generation have no real hope of a future, the greedy Key has stolen it.

  7. “The unemployment benefit was cut by 25% for young people, 20% for young sickness beneficiaries, and 17% for solo parents. ”

    DPB was cut 10.7% with one child; 8.9% with two children. The only sole parents who received a cut of 16.7% were those without dependent children.

    “They abolished the family benefit and made many workers ineligible for the unemployment benefit with a stand down period of up to a six months…….Universal entitlements like the family benefit were eliminated so assistance could be targeted to the deserving more accurately.”

    The universal Family Benefit was abolished but half was reallocated to into Family Support which went to beneficiary families with children. In other words the money was better targeted and made up some of the money lost through cuts to basic rates.

    The six month stand down applied to people who had become voluntarily unemployed or had a redundancy payment.

    “Unemployment benefits were stopped for 16 and 17 year-olds and the youth rate for 18 & 19 year-olds extended to the age of 25.”

    The Independent Youth Benefit was created however.

    Source: Social Developments, Tim Garlick, p146,7.

    • The universal Family Benefit was abolished but half was reallocated to into Family Support which went to beneficiary families with children. In other words the money was better targeted and made up some of the money lost through cuts to basic rates.

      The benefit cuts in 1991/92 were so dire that anything “made up some of the money lost through cuts to basic rates” was futile. Methinks you are not giving us the full story, Lindsay.

      It is apparent that whilst you may be very good at reading academic tracts, that you have no experience with day to day contact with WINZ.

    • In other words the money was better targeted and made up some of the money lost through cuts to basic rates.

      So it, you know made people worse off.

      Interestingly enough, what studies are starting to show is that targeted ‘benefits’ are worse than universal benefits because:

      1. They increase poverty
      2. They produce an us/them paradigm that is detrimental to society
      3. They end up costing more because of a) the increased poverty that they produce and b) the increase in bureaucracy to administer them

      In fact, nearly everything we’ve been told over the last thirty years has proven to be BS especially the bit about competition making things better:

      When it comes to competition, we Americans typically recognize only two legitimate positions: enthusiastic support and qualified support.

      The first view holds that the more we immerse our children (and ourselves) in rivalry, the better. Competition builds character and produces excellence. The second stance admits that our society has gotten carried away with the need to be Number One, that we push our kids too hard and too fast to become winners — but insists that competition can be healthy and fun if we keep it in perspective.

      I used to be in the second camp. But after investigating the topic for several years, looking at research from psychology, sociology, biology, education, and other fields, I’m now convinced that neither position is correct. Competition is bad news all right, but it’s not just that we overdo it or misapply it. The trouble lies with competition itself. The best amount of competition for our children is none at all, and the very phrase “healthy competition” is actually a contradiction in terms.

      That may sound extreme if not downright un-American. But some things aren’t just bad because they’re done to excess; some things are inherently destructive. Competition, which simply means that one person can succeed only if others fail, is one of those things. It’s always unnecessary and inappropriate at school, at play, and at home.

      • Lilar, don’t bother trying to debate or reason with Lindsay. Pretty certain it’s our good friend the anti-solo mum and VERY anti DPBer and hence her pathetic attempts at trying to spin the cuts as not really that bad. Her ultimate goal is to have sole parent benefits axed completely.

        • Lindsay Mitchell? Ah, now that would explain it.

          Ms Mitchell is an ex-ACT Party candidate, and self-styled anti welfare “expert”.

          Her views on solo-mothers (and they usually are centered on women) verge on misogyny. Which is bizarre as Mitchell is female.

  8. Yes, I was anti-DPB because, on balance, it hurt constructive co-dependent relationships between men and women.

    Before the DPB there was state support for sole parents. But it wasn’t a statutory entitlement. After the DPB was created, sole parent’s right to receive welfare (regardless of reasons for their circumstances) was enshrined in law. The numbers sky rocketed.

    Today single parenthood is the prime driver of child poverty.

    It’s a very hard thing to do – raise children on your own – for a mother or father. Yet that’s what the state has set people up to do with past and present welfare policy.

    • Yes, I was anti-DPB because, on balance, it hurt constructive co-dependent relationships between men and women.

      Before the DPB there was state support for sole parents. But it wasn’t a statutory entitlement. After the DPB was created, sole parent’s right to receive welfare (regardless of reasons for their circumstances) was enshrined in law. The numbers sky rocketed.

      That is incredibly naive.

      Do you not think, Lindsay, that for a woman (or man) to leave a partner, there is damn good reason?

      Do you not think that when a woman (usually female) is beaten, that staying in the relationship becomes a fucking death warrant?!

      Do you not think, Lindsay, that there are times that staying in an abusive relationship not only harms the abused partner – but also sets the children to accept spousal abuse as the norm?!

      You must live in a very sheltered, privileged life not to understand that when someone leaves such a relationship, that they are escaping – not making a “lifestyle choice”.

      It’s a very hard thing to do – raise children on your own – for a mother or father. Yet that’s what the state has set people up to do with past and present welfare policy.

      No, you silly person, what the state (ie; the citizens of this country) has “set up” is the means for women to escape abusive relationships and to live safely, free of violence (or drugs, alcohol, etc), and raise children without the fear of the fist.

      Would you rather that women stayed and endured? Are you so wedded to the concept of “happy families” that even when it’s not real, you think it’s preferable to escaping?

      You have no idea how much revulsion I feel reading your words. And I don’t say that very often.

      • As I said Frank, there was already state support for the instances you refer to. It was called the Emergency DPB (categorised under general Emergency Benefit in the data) and created in 1968 by a national government. It was the 1973 change that was the mistake.

        • So, National being National, created policy that wasn’t good enough and so Labour had to fix it, as Labour generally does, and now you want us to go back to those bad times of bad policy…

  9. Bloody good research Mike.I wish I had the memory I once had so that I could trot this inf out when I am in proselatizing mode.I sometimes think you must have a private research & development outfit tucked away in your back bedroom digging all this stuff out.
    Any way keep at it lad.There’s a whole generation of young workers who have no context for the onslaught that had occurred over the past few decades

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