A reformed welfare state is needed

New Zealand needs a welfare state suited to the conditions and requirements of the 21st century, writes Jonathan Boston.

Next month marks the 80th anniversary of the Social Security Act 1938, a landmark piece of legislation which laid the foundations of New Zealand's welfare state.

The first Labour government hoped this Act would end significant poverty and overcome income insecurity. But these goals have not been fully realised. Indeed, New Zealand now faces a housing crisis, with many citizens encountering serious financial stress, homelessness, overcrowding, and other forms of material hardship.

In response, the Labour-New Zealand First coalition has signalled major changes to the welfare state. The agreement between Labour and the Greens in October 2017 commits the Government to an ''overhaul of the welfare system'' with the aim of lifting families out of poverty and ensuring that ''everyone has a standard of living that enables them to live in dignity and participate in their communities''.

An independent Welfare Expert Advisory Group has been established to provide advice on how best to meet these objectives. Separately, the Prime Minister has introduced legislation to tackle child poverty and has announced ambitious poverty reduction targets.

A thorough review of the welfare state is timely. New Zealand has witnessed transformative economic, social, cultural and technological changes since the 1930s. Profound alterations have occurred regarding the nature of work, labour market participation rates, employment practices, remuneration systems, and retirement patterns. Our society is much more diverse and pluralistic. The population has expanded, urbanised and aged.

Family structures are more fragile and complicated. Inequalities in income and wealth have burgeoned, while glaring ethnic and gender disparities persist. Many new social problems have emerged. Sadly, many old ones remain.

New Zealand needs a welfare state suited to the conditions and requirements of the 21st century.

At least five key problems need tackling.

First, the level of social assistance, in the form of welfare benefits, family tax credits and housing assistance, is often inadequate. Hence, food insecurity, poor housing, and fuel poverty are all too common. For many families, especially those receiving welfare benefits, the child support system does nothing to alleviate these problems.

Second, the current benefit system is complex, onerous, punitive, and poorly integrated with other policy instruments. There is an undue reliance on temporary and transitional assistance, which places significant cognitive burdens on our most vulnerable citizens.

Third, the system is beset with contradictions and discrepancies. Those suffering sickness and accidents are treated very differently. Likewise, our indexation arrangements are inconsistent and unfair: New Zealand Superannuation is indexed to both consumer prices and average wages but welfare benefits are only indexed to prices. Many other forms of social assistance are not properly indexed. Hence, some of our most needy citizens get poorer, both in real and relative terms, over time.

Fourth, the incentives in the welfare system are often poorly designed. Staff in the Ministry of Social Development have inadequate incentives to ensure that those eligible for social assistance receive their full entitlements and that take-up rates are high. Our expenditure on active employment programmes is low by OECD standards. Against this, we spend vast sums on imprisonment.

Another problem is that many people on low incomes face high effective marginal tax rates, thereby reducing their incentives to seek better employment.

Finally, our housing policies have not delivered affordable, healthy and secure homes for citizens. Home ownership rates have declined steadily since the 1980s and the availability of social housing has fallen far below demand. These problems will take decades to fix.

Any redesign of our welfare state must be guided by clear principles and specific goals. These should include minimising poverty and material deprivation, encouraging stable and resilient families, ensuring the cost-effective use of public resources, enhancing incentives for paid employment, tackling unjustified inequalities, reducing ethnic disparities, and encouraging social mobility.

Underpinning such objectives must be a firm commitment to human dignity, compassionate and humane treatment, and the pursuit of inclusive and sustainable development.

To achieve these goals, many policy changes will be necessary. Ideally, these should be underpinned by a long-term, multi-party consensus. Achieving this will not be easy. Ultimately, it will depend on a society that honours justice, values compassion, and seeks the best for all its citizens, both now and in the future.

First, the benefit system and family assistance must be revised to deliver more assistance to those in greatest need. Changes should include a substantial increase in the value of first-tier benefits, such as Job Seeker Support and Sole Parent Support, a redesign of the In-Work Tax Credit, and a harmonisation of rates of assistance via the Family Tax Credit at the top rate, currently $113 per child.

Second, New Zealand needs a principled system of indexation covering all forms of social assistance, with core welfare benefits and Family Tax Credits linked directly to both prices and wages.

Third, the current child support system should be redesigned so that custodial parents on a welfare benefit are able to retain at least part of the contributions received from non-custodial parents.

Fourth, we need a long-term commitment to raising rates of home ownership, increasing the stock of social housing, and ensuring more secure tenancies.

Changes of this nature will require substantial additional public expenditure and almost certainly extra tax revenue. But a fairer society with less poverty and material hardship makes sense both morally and economically. It would constitute a wise investment in New Zealand's future prosperity and social cohesion.

-Jonathan Boston is professor of public policy in the School of Government at Victoria University of Wellington and former co-chair of the Expert Advisory Group on Solutions to Child Poverty.

The University of Otago Centre for Theology and Public Issues will be hosting a public lecture by Prof Boston on August 15 at 5.15pm.


NZ Super is a Universal entitlement. For the wealthy in receipt of the pension, indexation is irrelevant.