I met a young man this week, who welcomes the cost of living payment arriving over the next three months. He had dropped out of university recently to find employment. He could no longer survive the student life of debilitating poverty, living in an expensive, dark, damp hovel with several flatmates which, in the long weeks of lockdown last year, turned into months of despair.
Learning highly technical subjects remotely in overcrowded conditions gradually undermined his mental health. Happier now in a modest service job, he mourned his lost university experience but reflected on his gratitude for the $350 cost of living payment.
The advantage of the broad-brush payment, which goes to all New Zealand residents who earned less than $70,000 a year last year, meant he could get it without having to apply. However, including everyone who meets broad criteria results in many unnecessary payments (not just to those living overseas) and risks giving far less than would make a real difference to those most in need. The cost of living payment is a large amount of money – $816 million – spread very thinly over two million or so people.
It is a similar approach for those over 65. Many in this age bracket are not poor, far from it, but the broad-brush policy gives everyone a universal non means-tested pension and the full winter energy payment whether it is needed or not. Such policies are wonderfully simple, effective in reaching those who need it but fiendishly expensive. Increasingly, superannuitants who need it most are not getting enough, while many of the very wealthiest would not even be able to tell you how much they receive from their super or energy payment.
The winter energy payment wastes about $200m on better-off superannuitants who don’t need it. Few opt out of universal payments because it is an extra effort to do so, but some of those who are better off donate their super and energy payments to worthy causes.
Likewise, some payments may also be gifted to others. A couple, for example, who earned equally an income of just under $140,000 will get an untaxed $700 cost of living payment. “Not needed, but helps pay for the lattes” one friend observed. Right now, those most in need: families at food banks, pawn shops, loan sharks and MSD counters asking for alms to barely survive, are unlikely to see any gifts of unwanted handouts from the well-off.
Spending $816 million on the cost of living payment means there is not likely to be any more help for anyone else before Christmas. When the payment stops, unless the Government can keep pulling the rabbit out of the hat, prices will remain high and pressures on limited incomes will resume unremittingly.
The money could have been spent far more wisely, concentrated on where the pain is most acute. Moreover, while the symptoms of poverty need immediate attention, systemic long-term transformation of our tax and transfer policies are required. How can we best share resources as we face a decade of reducing living standards ahead?
Given the enormity of the child and family poverty crisis, the lack of meaningful assistance for the coming recession and the pressures for the worst-off families is disturbing. Working for Families (WWF) is a well-tested mechanism for delivering needed dollars to where they will do most good, but systemic change is vital. Its long overdue review has lost momentum, if it ever had any.
The Government might plead changes to WFF are too expensive. When they tried to combat child poverty by raising the Family Tax Credit by a risible $5 per week per child this April, they were spooked by the cost. So they left the income level for maximum assistance at the low unindexed $42,700 of family income and increased the clawback from 25 percent to 27 percent for income above this, cementing in an already vice-like poverty trap for low-income working families.
But what if both major parties focused on reducing child poverty as a priority? The most cost-effective meaningful policy change they could bring about is to make all WFF tax credits available to all low-income families, regardless of the source of parental income. A family on a benefit or part benefit would get around $4000 more per year while not giving anything extra to better-off families. In contrast to the cost of living payment, it would achieve a meaningful alleviation of child poverty. The $816 million could pay for this policy for two years and be far less inflationary.
The poorest families would be able to buy basic food and not have to queue for food parcels or begrudged handouts from Work and Income. Students, like the young man in my introduction, could be helped separately.
It is time for the two major parties to agree we have a worsening poverty crisis and the impact on children is grave. Rather than short-term unfocused quick fixes, bipartisan support for substantial long-term transfer policy reforms are needed urgently to share the inevitable pain of reduced living standards.