The poverty is­sue

Search­ing for ways to help the poor.

Sunday Star-Times - - BUSINESS -

How do we de­fine poverty and which mea­sures might help the most? Su­san Ed­munds in­ves­ti­gates.

West Auck­land mother-of-three Bella* never ex­pected to end up on the ben­e­fit. When she and her hus­band split four years ago, she thought she would be ‘‘taken care of’’.

‘‘I wasn’t. I have been on a ben­e­fit ever since.’’

She does ca­sual work, clean­ing or tak­ing care of chil­dren, but ev­ery week is a strug­gle.

‘‘The hard­est thing is cov­er­ing the costs of child­care and then weigh­ing up the ben­e­fit of a few ex­tra dol­lars a week for the stress of stretch­ing my­self so much phys­i­cally,’’ she says.

‘‘I don’t get a dol­lar-for-dol­lar amount per hour in my pocket. Once I earn over a cer­tain amount, my ben­e­fit drops. I lose tem­po­rary ad­di­tional sup­port and with child­care costs, I might only have a few dol­lars per hour ben­e­fit.’’

Bella is de­gree-ed­u­cated and thinks of her­self as highly em­ploy­able. ‘‘But jug­gling the needs of my fam­ily re­ally lim­its what is pos­si­ble.’’

Of her weekly in­come of about $800, work de­pend­ing, half goes on rent.

‘‘I have three chil­dren and we live in a small two-bed­room home. Lunch boxes can be scarce on nour­ish­ment. Bills are al­ways be­hind. I have zero safety net in terms of sav­ing for un­ex­pected ex­penses.’’

Fam­i­lies such as hers re­ceived ex­tra at­ten­tion in the re­cent elec­tion cam­paign. Labour leader Jacinda Ardern pledged to in­crease Work­ing for Fam­i­lies pay­ments, a ‘‘best start’’ pay­ment for chil­dren’s early years and a win­ter en­ergy pay­ment for ben­e­fi­cia­ries.

Prime Min­is­ter Bill English said he would lift 100,000 kids out of poverty.

But what is the best way to do that, and is just giv­ing poor fam­i­lies more money enough?

First, you have to de­fine poverty. The main mea­sures used in this coun­try are rel­a­tive poverty and de­pri­va­tion.

Rel­a­tive in­come poverty mea­sures in­di­cate that as many as 25 per cent of kids live in house­holds that earn less than 60 per cent of the me­dian in­come. The af­ter tax me­dian house­hold in­come be­fore hous­ing cost in 2016 was $76,200.

NZIER data shows in­come in­equal­ity – and rel­a­tive poverty – in­creased sig­nif­i­cantly be­tween the 1970s and 1990s.

NZIER prin­ci­pal econ­o­mist Derek Gill said a prob­lem with the rel­a­tive mea­sure was that even if the GDP were to dou­ble to­mor­row and ev­ery­one’s in­comes in­creased in line with that, a per­cent­age of New Zealan­ders would still be seen as im­pov­er­ished.

On the other hand, de­pri­va­tion in­dexes show that that 16 per cent of New Zealand chil­dren are in house­holds that reg­u­larly go with­out five or more ba­sic needs, in­clud­ing things such as clean drink­ing wa­ter, suit­able cloth­ing, den­tal care as re­quired, a com­puter in the house­hold and trans­port.

By in­ter­na­tional stan­dards, we have a rel­a­tively high rate of de­pri­va­tion among young peo­ple

and low de­pri­va­tion among the el­derly, prob­a­bly thanks to our uni­ver­sal pen­sion.

But Gill said there was a poor fit be­tween the num­ber of peo­ple who ex­pe­ri­enced rel­a­tive poverty and the num­ber who re­ported suf­fer­ing de­pri­va­tion – which would in­di­cate money isn’t ev­ery­thing in de­ter­min­ing liv­ing con­di­tions.

Some peo­ple with rel­a­tively high in­comes re­ported de­pri­va­tion while some on low in­comes re­ported that they had ev­ery­thing they needed.

‘‘It’s not as sim­ple as: ‘This many peo­ple are un­der the poverty line’.’’

What can be done?

How you try to tackle the prob­lem may de­pend on where on the po­lit­i­cal spec­trum you sit.

Gill said left-wing politi­cians would usu­ally put more em­pha­sis on rel­a­tive poverty mea­sures and look to in­crease ben­e­fits as a way to help to boost in­comes across the board.

‘‘If you’re a bit more on the right, you might say the data is more com­pli­cated than that. You may not have an in­come ad­e­quacy prob­lem, it may be drugs and al­co­hol or men­tal health …

‘‘If you’re wor­ried about rel­a­tive in­come mea­sures, you might look at tax cred­its … If you’re wor­ried about de­pri­va­tion, you may look at more tar­geted in­ter­ven­tions.’’

Si­mon Chap­ple, di­rec­tor of the in­sti­tute for gov­er­nance and pol­icy stud­ies at Vic­to­ria Uni­ver­sity, agreed most wel­fare mea­sures fell into one of two camps: Giv­ing peo­ple money and giv­ing peo­ple ‘‘things’’.

For some peo­ple, more money would be suf­fi­cient to help solve their prob­lems, he said.

For oth­ers, money on its own would not be suf­fi­cient.

That was when other ser­vices such as em­ploy­ment ser­vices, train­ing or bud­get­ing help might be use­ful, he said.

But some­thing had to change in the way New Zealand tack­led its poverty prob­lems.

‘‘What we are do­ing at the mo­ment is clearly not work­ing.’’

At the mo­ment, New Zealand spends $13.6 bil­lion a year on NZ Su­per, and $10.5b on other ben­e­fits, in­clud­ing $1.8b in the fam­ily tax credit, $1.7b in job­seeker sup­port and $1.2b in ac­com­mo­da­tion as­sis­tance.

Child poverty is es­ti­mated to cost $2.2b in poor ed­u­ca­tion out­comes and its im­pact on productivity, up to $4.5b in health costs, and $2.2b in crime.

What’s the re­turn on in­vest­ment?

Jess Ber­entson-Shaw, head of re­search at the Mor­gan Foun­da­tion, said un­con­di­tional cash as­sis­tance had been shown to be the most pow­er­ful of the cost-ef­fec­tive in­ter­ven­tions avail­able for low-in­come, lowop­por­tu­nity chil­dren.

That was fol­lowed by par­ent­ing and ed­u­ca­tion pro­grammes in­volv­ing home vis­i­ta­tion.

Cash with­out strings was most help­ful be­cause it did not add other strains to the fam­ily, she said.

‘‘When cash as­sis­tance is con­di­tional on ful­fill­ing the obli­ga­tion to work, that work has a rip­ple ef­fect on the fam­ily’s eco­nomic sit­u­a­tion.

‘‘There are in­creases in travel times and costs, child­care costs and the need for af­ter-school care; the par­ent spends less time with chil­dren; and in the case of lowskilled jobs in which par­ents have lit­tle con­trol over their own af­fairs, par­ents ex­pe­ri­ence re­duced per­sonal au­ton­omy.

‘‘Of course, if the over­all eco­nomic gain for the fam­ily is sig­nif­i­cant, th­ese compromises may be man­age­able.

‘‘But in the kind of low-paid jobs that those on wel­fare can typ­i­cally get, the gain may be neg­li­gi­ble. The con­di­tions may do lit­tle more than in­crease fam­ily stress.’’

She pointed to a 2007 study that found that for a fam­ily on US$10,000 (NZ$13,970) a year, a US$10,000 in­crease in in­come led to a 124 per cent change in ‘‘de­vel­op­men­tally stim­u­lat­ing re­sources in homes dur­ing early in­fancy’’.

For a fam­ily on US$50,000, the same in­crease led to a 25 per cent jump in th­ese re­sources.

She es­ti­mated that in­tro­duc­ing a one-year uni­ver­sal ba­sic in­come for fam­i­lies with chil­dren would save $400m in ed­u­ca­tion costs, $666m in health costs and $360m in the cost of crime.

‘‘The best recipe would be cash and build­ing a low-cost uni­ver­sal hous­ing sys­tem. Hous­ing to en­sure homes are a source of well­be­ing and sta­bil­ity for chil­dren, and cash to im­prove the eco­nomic con­di­tions of their par­ent’s life; as it is th­ese bet­ter con­di­tions that al­low par­ents to make more and bet­ter choices.’’

Ber­entson-Shaw said the pro­vi­sion of ser­vices, such as health­care or pub­lic trans­port, were ap­peal­ing to the pub­lic but

‘‘What we are do­ing at the mo­ment is clearly not work­ing.’’ Si­mon Chap­ple

there was mixed ev­i­dence on whether they were ef­fec­tive in re­dress­ing the im­bal­ances be­tween kids in poverty and kids who are not.

But Eric Cramp­ton, of the New Zealand Ini­tia­tive, said it was not so straight­for­ward.

‘‘Giv­ing money to poor peo­ple is an ef­fec­tive way of mak­ing the re­cip­i­ents of cash less poor, but comes at the cost of higher tax rates, which re­duce in­cen­tives to work and hurts longer-term eco­nomic growth.’’

De­pend­ing on how the el­i­gi­bil­ity con­di­tions were set, it could cre­ate per­verse out­comes, he said.

‘‘So if you – rightly – be­lieve that sup­port should be fo­cused on those in most need, and if you be­lieve – rightly – that chil­dren of sin­gle par­ents who are un­able to be in work, are more in need of sup­port than chil­dren of part­nered cou­ples with strong fam­ily sup­port, and if you tar­get as­sis­tance in that way, you cre­ate an in­cen­tive for peo­ple to hide relationships and sup­port.’’

He said all sup­port sys­tems had ‘‘hor­ri­ble trade-offs’’.

‘‘Tar­get­ing cash as­sis­tance to those in most need re­quires in­tru­sive and de­mean­ing ques­tions, and risks in­duc­ing un­in­tended and coun­ter­pro­duc­tive be­hav­iours.

‘‘Tar­get­ing as­sis­tance less sharply, for ex­am­ple by us­ing a Uni­ver­sal Ba­sic In­come, avoids do­ing that, but comes at an ex­cep­tion­ally high cost, ei­ther through very, very high claw­back rates on earned in­come at the bot­tom, or through very high tax rates across the board.’’

He said ‘‘in-kind’’ pro­grammes, which of­fered as­sis­tance in non­mon­e­tary ways, could avoid some of those prob­lems.

‘‘Sup­pose that ba­sic lit­er­acy is re­ally im­por­tant for get­ting out of poverty. Sup­pose it costs the gov­ern­ment $1000 to pro­vide a ba­sic lit­er­acy pro­gramme to those wanting to take it up.

‘‘It can wind up be­ing the case that even if the re­cip­i­ent of the lit­er­acy pro­gramme prefers the cash, it’s much cheaper for the gov­ern­ment to pro­vide the lit­er­acy pro­gramme, be­cause only peo­ple who need the pro­gramme take it up while oth­ers might try to get ac­cess to the cash pay­ment if it were just a cash pay­ment.’’

Cramp­ton said more eval­u­a­tion of in­ter­ven­tions was needed. Some com­men­ta­tors would say a mon­e­tary re­turn on in­vest­ment (ROI) was too nar­row a mea­sure to judge the wel­fare sys­tem with.

Chap­ple said the way the Na­tional Gov­ern­ment had de­fined its so­cial in­vest­ment strat­egy was largely about fis­cal re­turns, rather than out­comes for peo­ple.

‘‘The fo­cus has been on tax­pay­ers gain­ing – can we give tax­pay­ers a tax cut as a con­se­quence?’’

The Gov­ern­ment has a tar­get of re­duc­ing the num­ber of New Zealan­ders on a main ben­e­fit from 295,000 in June 2014 to 220,000 by June 2018 and to re­duce the long-term cost of ben­e­fit de­pen­dence by $13b.

But Chap­ple said that was cre­at­ing per­verse in­cen­tives be­cause it was as­sumed that any­thing that got some­one off a ben­e­fit was good.

There was a ma­jor is­sue with peo­ple who were not tak­ing what they were en­ti­tled to, and gov­ern­ment de­part­ments had no in­cen­tive to chase that up.

Some­times peo­ple did not know, some­times they were wor­ried about the stigma of be­ing on a ben­e­fit and some­times they did not want to go through the process of ap­ply­ing for their en­ti­tle­ments, he said.

‘‘There are a lot of peo­ple who are work­ing poor who will not be on the ac­com­mo­da­tion sup­ple­ment be­cause they are not signed up. That’s likely to be most im­por­tant for fam­i­lies with chil­dren.

‘‘There is also a sig­nif­i­cant num­ber of fam­i­lies who are en­ti­tled to the in-work tax credit and not tak­ing that up.’’

Bella is op­ti­mistic about the fu­ture but says it’s hard work get­ting off the ben­e­fit.

‘‘If each hour I worked added up to greater fi­nan­cial ben­e­fit for me, then it wouldn’t seem so hope­less.

‘‘I have just ap­plied for a job that has rea­son­able pay and it looks ex­cit­ing. It’s 20 hours a week, which will be a big push for me. Es­pe­cially at times when kids get sick ... I would love to be fi­nan­cially in­de­pen­dent, though.’’

* Bella did not want her sur­name used.


Tar­geted hand­outs, ser­vices or uni­ver­sal pay­ments? De­ci­sion­mak­ers have to choose what’s least likely to hurt the poor while not ex­ces­sively cost­ing the tax­payer.


There are about 220,000 chil­dren liv­ing in poverty.

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