Welfare and unfunded liabilities

As it is Budget Day let's talk about money. The discussion can be opened by Jim Powell of the Future of Freedom Organisation;

Back in 1935, when Social Security was being debated, nobody talked about billions of dollars of unfunded liabilities. “Trillions” was beyond comprehension. Social Security generates unfunded liabilities because current Social Security payroll taxes go to pay for current benefits, and nothing is set aside to cover future benefits of current taxpayers. FDR’s smart advisors assumed that the number of taxpayers would increase as fast as the number of people collecting benefits, but the number of people collecting benefits has grown faster, and now Social Security is going broke.

In New Zealand the same is true. The number of people collecting benefits has grown faster than taxpayers.



This table doesn't extend to the present (unemployment well down, DPB steady, Sickness and Invalid's well up) but you get the picture.

It seems to me, and has for a long time now, that this country needs to be reforming welfare because of the damage it does first, and because of the cost second. But I grow less and less optimistic that the first imperative will be realised. Sadly it will be the second. Sadly because the second will hurt people more.

You see we could have done this in a planned and compassionate way while the economy was in good shape. Instead of saying to existing beneficiaries, there is no money available for your benefit, we should have been saying to young people, there is no money available to you if you drop out of school, don't support yourself or any child you produce. The distinction is sharp.

Let's flesh it out. For example, there are over 4,000 teenage parents on a benefit right now. They all came into the system after 2005 - during a time of low unemployment. These individuals will typically stay on welfare until their late 30s. So a crude calculation means they alone are going to cost $1.6 billion. Of course that leaves out the costs of their families health and education and other social needs which could easily double the figure.

If our politicians were prepared to bite the bullet and close the door to future long-term dependants billions could be saved. Instead John Key is acting like Obama, promising to retain all social security entitlements and even extending them.

Being in a recession shouldn't and hasn't eased the urgent need for reform. It has brought the crunch closer. But the sooner the country wakes up to that, the softer the crunch will be.