The real value of benefits is being cut by switching the calculation of annual changes from the movement of the average wage to the Consumer Price Index. The CPI has traditionally been a lower number.
Benefits had been switched back to the average wage movement only as recently as 2020 after being tied to the CPI in 1990.
That decision was made by the National Party Finance Minister Ruth Richardson in her “Mother of All Budgets” of that year. That decision wasn’t reversed during the nine years that Labour held office under Prime Minister Helen Clark from 1999-2008.
National Superannuitants get the average wage movement so their benefits have retained their relative value to wages over the last few decades and one of the reasons New Zealand has low poverty rates for the elderl – in fact, the lowest in the OECD.
In 2024 we have gone back to CPI adjustments but its impact has been muted by the fact that inflation has remained higher than usual. A 4.66% adjustment was needed to benefits from April 1, 2024, compared to the net average wage increase this year of 5.28%.
This government does seem to be echoing the anti-beneficiary rhetoric that accompanied the 1990 cuts with the demand for “sanctions” to be applied.. However, shifting the calculation of adjustments from being tied to average wage movements is mild compared to the direct 25% cut in the value of unemployment benefits that was made then in addition to the way it way changes were calculated each year.
The 1990 direct cut and then the way it was calculated for the next 20 years saw it lose half in value compared to the average wage – dropping from 37.8% of the average wage for an adult single benefit to just 19% of the average wage before Labour reversed course on this way of calculating benefits in 2020.
A direct consequence of the austerity budget that was imposed in 1990 was also a sharp contraction in the New Zealand economy. Unemployment jumped to between 10% and 11.6% for ten consecutive quarters from the beginning of 1991. Unemployment reached 25% in working-class communities and among Māori and Pacifika.
Despite the anti-beneficiary rhetoric and the reduced value of the benefit the number of people forced onto benefits exploded. From around 140,000 on all forms of means-tested benefits (unemployed, sole parent, invalid & sickness) to 340,000 by the mid-90s (about 13% of the working age population from 16-64).
Capitalists hate having people on benefits because working people have a cushion against being forced into the worst-paid and most dangerous jobs. Increasingly punitive systems were put in place by the government agencies managing benefits to force people off benefits and in theory “into work”. What happened was people were forced off benefits and into absolute poverty. This can be documented.
The Household Labour Force Survey measures the number of people officially unemployed, as well as a broader number of people who are “jobless” – the “underutilisation rate”.
Between 1990 and 2003 the number of people on benefits never dropped below 64% of the “jobless” number. Over the next decade, it dropped to only 18% of the “jobless” number. During the same period, it went from 120% of the official unemployed number to only 45% in 2013.
No explanation has ever been provided as to how this was achieved. However, it does help explain the explosion in the need for special benefits and food banks when official unemployment numbers were falling. It stayed at around those numbers until the 2017-2023 Labour government was elected and we also had Covid to manage.
It seems that the government agency managing benefits, WINZ, was asked to be slightly less punitive. The percentage of beneficiaries who are “work ready” (which compares more closely to the old unemployment benefit) was 109,698 at the end of December or about 32% of the jobless number – still half the percentage that applied from 1990 to 2003 but up from 19% minimum reached in 2013.
Using the April 1 new benefit rates (compared to December 2023 average weekly wages of $1394.11) the new weekly adult unemployment of $353.46 benefit has also crept up under Labour to be about 25.3% of the average with some small but real value increases under the last three years of the Labour Party-led government. However, it was still way below the value of 38% that existed in 1990 before Ruth Richardson’s cuts in value.
It seems that there is no direct relationship between the level of benefits (or minimum wages for that manner) and the number of people unemployed. New Zealand benefit levels (and minimum wages) were much higher when unemployment was low from the period after World War Two until the 1980s. This was also a period when real wages were able to be pushed up.
The austerity unleashed in the 1990s was designed to break union power and lower real wages, to boost the profits of big business. Cutting benefit values and access to benefits, they believe helps that process. The economic and social results last time were horrendous. But it seems that the bosses and their political representatives are planning on going down the same road again.
Last time we couldn’t stop them because the working class movement had been to an extent disarmed by the 1984-90 Labour government initiating the austerity agenda and unemployment had already gone from 4 to 7.5% before National took power. The union leaders told us then that there was no alternative and we could not fight. Today we know that there must be an alternative and we must fight.
Non-frictional unemployment had been entirely abolished prior to the 1980’s, due to the Full Employment Policy. Both parties were committed to Post-War Consensus economics, because the ruling class believed they had come close to being overthrown by angry workers during the Great Depression.
The ultimate goal of the Atlas Network types is to replace social security with a fully privatised system (run by the insurance companies and mutual funds on Wall Street), and then simultaneously abolish the minimum wage. Groups like the H.R. Nicholls Society have been peddling these proposals for years.
Just a correction, according to s15(2) of the New Zealand Superannuation and Retirement Income Act 2001:
(2)
Subject to subsection (3), the rates of New Zealand superannuation stated in clause 1 of Part 1 of Schedule 1, and clause 1(b) of Part 2 of that schedule, must be adjusted, by Order in Council, as at 1 April each year so that in each case the new rate (after the deduction of standard tax) is the rate at that date (after the deduction of standard tax and before the adjustment under this section is made) adjusted by any percentage movement upwards in the Consumers Price Index (all groups) between the Consumers Price Index (all groups) for the quarter ended with 31 December one year before the immediately preceding 31 December and the Consumers Price Index (all groups) for the quarter ended with the immediately preceding 31 December.
There is a minimum (and maximum) linked to average wage. Which is why the tax increases (or cancelled tax cuts if you like) in 2017 resulted in the promised super to be reduced, hence the winter allowance.
Yes it would be good for beneficiaries to get higher increases, but what about low to middle NZ. Tax bracket creep has meant the average tax rate for a worker on the average wage has gone from 15% to 20%, meaning they pay $3,000+ extra each year. But fixing that is called “tax cuts” and won’t happen because “rich people get it”. Well I have news for you. No rich prick helps me pay my groceries each week so I’d rather have some of that tax back thank you very much. All right for you rich pricks who don’t have to budget.
You have written a very good description of how the system is designed to help those with wealth & a major factor in getting the “squeezed middle” to support those policies that actually punish them as well is the constant media focus on the very few people who seem to free ride the welfare system with the implication that almost all those on welfare are gaming the system.
I do think the Atlas arsholes can be beaten only by powerful unions and I wish universities too would speak up more as they did in years past. I’d urge everyone to join a union and give them full support.(Not the dishonest tax payers union which is just a bunch of Atlas arsholes).
Agree Rodel. I have joined The Free Speech Union and recommend it. There is excellent information on the site https://www.fsu.nz/
Yeah, your right Rodel the red neck taxpayer union who took government money during the covid lock down and then criticized the policy bunch of scabs. We all need to work together collectively.
Yeah, your right Rodel the red neck taxpayer’s union who took government money during the covid lock down and then criticized the policy are nothing but a bunch of scabs. We all need to work together collectively.
Yeah, your right Rodel the red neck taxpayer’s union who took government money during the covid lock down and then criticized the policy are nothing but a bunch of scabs. We all need to work together collectively.
Good points Mike. And we need to keep critiquing our CPI. Our inflation rate is kept down by not counting the things most affecting the ‘common person’. Now if it is called the Alternative Inflation Rate and the total relation rate is regarded as notional and must be kept hidden because of … commercial sensitivity – that would be honester if that is a word. If it isn’t I have just made one up as in this tricky, meretricious NZ world, making things up is just alert creativity at work and we need more than one lert – a mass of lerts.
So the hourly rate for work goes up but the limit for earning on a benefit stays the same. Earn over $150 a week with the wage increase and pay 70c in the dollar on the extra, were is the incentive.
do bennies still pay pre deducted tax on their payments? if so are they not entitled to govt tax relife?
bennies pay PAYE just like folk on wages – not contractors – and therefore, if they obtain work during the year they may be eligible for a tax refund. Sorry but not sure what you mean by govt tax relife?