The recent suggestion that child poverty could be relieved by a pension for children is based on widespread misunderstanding about what we currently do for children and the role of universality.
A prominent economist, who in fairness may have been misquoted, claims “the experience of superannuation showed that a universal payment was an effective way to reduce poverty in a swathe of the population”.
But hold on a moment: the reason we have been successful in reducing poverty to low levels for the older population is not because the pension is universal, it is because it is set at 33 percent of the net average wage for a partnered pension and more for singles. Take away the wage link and the rates of poverty will soar regardless of whether or not it is universal.
Nostalgia for the universal family benefit also fails to appreciate that it was only a part of a package and never enough on its own to prevent poverty. At the time it was abolished it was only $6 per child per week and was less than 15 percent of the weekly total family support ($42) paid to a low income caregiver with one child.
Universal income payments are no panacea. NZ Superannuation (NZS) is not only very expensive but the latest four-yearly projections show how the costs are escalating while other social spending is stagnating. Sooner or later we will have to confront the wisdom of paying a fully universal pension to the very wealthy and those still in full-time, well-paid work even though, unlike the proposed pensions for children, NZS is taxable and therefore worth less to those on the top tax rate.
Children are truly taonga but demanding unrealistic policies for them may do more harm than good.
The way to go is to strengthen the clawback through the tax system as suggested by the Retirement Policy and Research Centre: Intergenerational impacts: the Sustainability of New Zealand Superannuation.
The pensions for children proposal has managed to ignite intergenerational warfare. The same economist is quoted saying: “If I had my way, you’d take it away from the decrepit old folk and give it to the young ones. Make super means-tested and a benefit for children unconditional. Older people don’t need it, they have money.” And: “I would rather have a benefit universally applied to that group of people than older folk who have had 60 years to accumulate wealth to look after themselves.”
First, the derogatory name-calling is not helpful. Decrepit as a term to describe old people is entirely inappropriate. Misquoted again, perhaps? Second, not everyone in the rockstar economy can accumulate wealth over 60 years (do they start saving at five?), especially the sick and disabled, sole parents, people who voluntarily support vulnerable whānau and many others who have to continue in paid work in their later years.
If we were to means-test NZS to pay for a universal payment of suitable size to prevent poverty in children, it would have to be a draconian means test, based on joint assets and income. To illustrate the expense of a universal payment for 1.1 million children, a weekly $200 would cost over $11 billion per annum. Even if it replaced other child-related payments, it would roughly treble what we spend now.
If the universal payment is $200 per family per week, and not per child, then many low-income families would be far worse off than they are today. But even if the proposal is just an extra $200 per family over and above what is paid now, we would have to find another $7 billion, all in order to give the most well-off families an additional tax-free $10,000.
Andrew Becroft has it right when it was reported: “He could understand the reasoning for a call for universality of a benefit for children but said, given the statistics, it would be most effective to target extra money at the children whose families were struggling the most. Those to whom the trickle-down effect did not reach.”
There are cost-effective policies, such as the obvious one of paying the full Working for Families to all low-income families as advocated by Child Poverty Action Group (at a cost of $0.5 billion) regardless of whether they do enough hours of paid work or not.
That would be a great start as a move towards a more inclusionary universalist approach. Why have we not had a more reasoned debate about intergenerational issues during 2019? Children are truly taonga but demanding unrealistic policies for them may do more harm than good.