The high cost of poverty
A compilation of experiences reveals that the system is loaded against the strugglers, writes
Rob Stock. ‘‘There are all these hidden costs that punish people for being poor.’’ Sam Orchard, right
also mean paying more bank penalty fees.
One contributor to Orchard’s report spoke of having her benefit cancelled for failing to turn up for Work and Income meetings she hadn’t been told about.
‘‘I had two automatic payments, and each failed payment would incur a $15 fee. So every time
WINZ cancelled my benefit I would end up in ‘unarranged overdraft’ due to the $30 bank fee, and then the overdraft would incur a $15 fee too!’’
Food
Groceries are a massive part of household budgets, but unlike those with savings and surplus incomes, the poor are not able to stockpile things like toilet rolls, or canned food, when prices are low.
Jeni Cartwright from Child Poverty Action Group said lowerincome families didn’t have the money to buy in bulk when prices were attractive.
Research by Auckland University found many lowerincome families simply didn’t have enough income to provide themselves with even a basic nutritional diet.
Professor Innes Asher said, when the report was published: ‘‘Rent is the highest cost faced by most families, closely followed by unavoidable expenses such as electricity, transport and schoolrelated costs. This leaves little for a good diet, especially for older children who eat so much more.’’
Power
Now he’s in work, Orchard says he’s finding power much more affordable.
That’s because he can pay promptly, and get a prompt payment discount. At Trustpower, that’s worth 15 per cent off the bill.
Prepaid power for people on very low incomes costs more per kilowatt hour, and renters, who are more likely to live in cold, poorly insulated homes, have little control over the kinds of heating they use. That can force them to rely on expensive portable electric heaters.
Having money can also mean being able to take the risk of using the likes of Flick, which sells power at the spot rate.
Tax
Higher earners pay more tax, but the effective tax rate on every extra dollar they earn is a lot, lot less than some lower income families.
The Child Poverty Action
Group calculated last year that a family able to boost their incomes through extra hours and hard graft from $42,700 to $47,700 may end up seeing 84 per cent of the money clawed back in tax, lower accommodation supplement, loss of Working for Families tax credits, student loan repayments, and KiwiSaver deductions.
Insurance
Now he’s earning, Orchard has started paying for health insurance, which is a luxury he’s still getting used to after his experience on a benefit.
But contents insurance is more expensive for renters than for homeowners, especially in areas with higher burglary rates, which are often lower socio-economic areas.
‘‘Claims data shows that customers who rent are more likely to make a contents claim related to burglary than customers who own their own home. Renters are also more likely to make more contents claims for accidental damage,’’ says Amelia Macandrew from AA Insurance.
‘‘Premiums are calculated accordingly, so renting customers are likely to pay more for their contents insurance than homeowners.’’
Funeral insurance – sold to lower-income people on the basis that they won’t end up leaving their loved ones facing a big funeral bill if they die – is extremely expensive. Funeral cover can cost around $20 a fortnight for $10,000 of cover for a 50 year-old, non-smoking male.
Transport
The poorer you are the more likely you are to have to live in less desirable, further out suburbs in main centres.
This can mean higher transport costs, while also making it impossible to switch onto a bicycle.
Auckland Council is planning on imposing a regional fuel tax, expected to be 10 cents a litre, which will hit commuters hard, especially those forced to live in far-flung suburbs.
Fuel taxes tend to be ‘‘regressive’’ hitting lower income people hardest.
Opportunity costs
Orchard said one of the most striking features of the study was how ‘‘cyclical’’ some people’s stories were.
An example he gives is: ‘‘I can’t afford power, therefore I can’t have a shower, therefore when I turned up for a job interview, I smelt, therefore I didn’t get the job.’’
Bad clothes, bad teeth, bad diet. Factors like these can end up contributing to people missing out on opportunities to increase their incomes.
It also means not being able to build a KiwiSaver nest egg. People on higher incomes contribute more to KiwiSaver than poor people, and are more likely to get the full $521.43 ‘‘member tax credit’’ subsidy from the Government.
This is the most hidden cost of being poor.