Poor sacrificed in rush to aid ‘squeezed middle’

It’s always a bold move, in a Budget, to deliberately bar the poorest New Zealanders from its centrepiece policy. Yet that’s what happened yesterday. The surprise announcement of a $350 ‘‘cost of living’’ payment was carefully targeted to the ‘‘squeezed middle’’, excluding anyone earning over $70,000 – but also those receiving the winter energy payment, among them pensioners and everyone else on a benefit.

The Budget does, admittedly, have some bright points, the starriest of which is to reverse a decades-long injustice for sole parents on benefits. Until now, child support payments from their ex-partners have been taken by the state to ‘‘offset’’ the cost of their benefit. This has always been bizarre: the point of child support is to do what it says on the tin, support children, not reduce a government’s net welfare costs.

Campaigners have urged the full ‘‘pass-through’’ of child support, as it is known, for years now, and will be delighted. Some 40,000 parents will benefit, typically by $24 a week, and an estimated 6000-14,000 children will be lifted from poverty. Elsewhere, Community Service Card holders will get permanent half-price public transport, and poorer households will have their dental grants increased from $300 to $1000.

But that’s about it from a Budget mostly devoted to salving middleclass pain. In one sense, it’s scarcely surprising: middle-income voters swing elections, and they feel – rightly or wrongly – that previous Budgets, and their big benefit boosts, have helped the bottom more than the middle.

Middle-class people may say there is too much inequality – but only because they believe themselves to be its principal victims, while the rich evade taxes and the poor gorge themselves on the supposedly over-generous welfare state. There is, though, widespread sympathy – I think – for poorer (as well as middle-class) families facing rising fuel and grocery prices. So even politically speaking, the exclusion of beneficiary households from the cost-of-living payment seems strange.

Philosophically, it looks worse still. The Government’s own logic here is tortuous. The Treasury’s Budget release says inflation will have a greater immediate impact ‘‘on low and middle-income households’’.

It is, in fact, even more unequal than that: over the last decade and a bit, the cost of living has risen just over 25% for the typical household, but 35% for the poorest households. Those most affected by inflation have been excluded from the payment designed to address it.

The logic here is probably fiscal: even with beneficiaries excluded, the payment will cost over $800 million, and the Government’s refusal to raise much more tax means there is little left in the kitty.

Either way, the decision poses big problems for the Government’s anti-poverty drive and the targets it has set itself to cut child hardship in particular. It has done moderately well so far, thanks mostly to 2018’s $1 billion-a-year Families Package. Anywhere from 20,000 to 60,000 children, according to the measure, have been lifted out of poverty. But progress had flatlined, and foodbank queues lengthened, even by the middle of last year.

Projections in the Budget paint a mixed picture: the declines in poverty, thanks to child support and other changes, are balanced out by the increases, as the cost of living bites. In a few years’ time, the projections say, child poverty will be where it is now: lower than when Labour started out, but still far higher than it should be.

Labour has three main childpoverty targets for 2024; as things stand, it will miss at least two, and perhaps all, of those targets. This is potentially disastrous for a prime minister who has put such store by this issue.

The absence of any big-bang welfare spending in the Budget was, admittedly, predictable. There has long been a sense that Labour feels it has ‘‘done’’ benefit increases for this term.

The problem is that the advice from officials is exactly the opposite: alongside moves to get beneficiaries into paid work, and to tackle housing and debt issues, the Government needs an equivalent of the Families Package every term if it is to keep making inroads into poverty. Yet no such package has been delivered, and even in the unlikely event of one coming next year, it would be too late, at least for the 2024 targets.

In the final analysis, the big story here is the failure of what Education Minister Chris Hipkins likes to call ‘‘radical incrementalism’’, the Government’s strategy of trying to achieve its grandest goals step by step.

This works only if you are prepared to increase the ambition of your policies at every point along the way. Instead what we see, for the poorest New Zealanders, is a slowdown.

Middle-class people may say there is too much inequality – but only because they believe themselves to be its principal victims ...