Wednesday, July 09, 2014

Listener column: Greatest Risk

This week's Listener contains a three page opinion piece (invited) from me about child poverty.

It is behind a pay-wall so I've reproduced it here in full.

The Listener titled it, Greatest Risk. 

Growing up in 1960s New Zealand, houses were smaller and families bigger. Paradoxically, overcrowding and child poverty weren't a major issue. Most families had two parents and many could even afford a stay-at-home mum. A very small percentage of families experienced financial hardship associated with an absent father.

What changed?

In 1973, influenced by the Royal Commission on Social Policy's urgings, the government introduced a statutory benefit for sole parents regardless of the reason for their single parenthood. In the following 20 years unmarried births with no resident father more than quadrupled from around 2,500 to 12,000 - 22% of all births - annually. The relatively generous DPB saw single mums dropping out of the workforce. (The Royal New Zealand Plunket Society partially attributes this development to the eventual non-viability of Karitane hospitals which had provided live-in employment for unmarried mothers.)

These births accumulated in the statistics. By the early 1990s around a quarter of a million (mostly) mothers and children were dependent on the state for their survival. But the benefit still kept them above the poverty threshold.

When the incoming National government of 1990 opened Treasury books, the news was bad. This is where the authors of Child Poverty in New Zealand pick their story up. They describe "benefit cuts of between 10 percent and 30 percent for many beneficiaries supporting children." In fact, for a lone parent with one child, the cut was 10.7%; for those with two, 8.9 percent. The universal family benefit was abolished, but half of the savings were reallocated into increasing Family Support for beneficiaries and low-income families.

Nevertheless, the drop in income was enough to push beneficiary households below the poverty threshold (though they had probably been barely over it prior). Compounding this was the high number of partnered jobless parents created by an unemployment rate exceeding 11 percent in 1992. From that time the proportion of children in poverty, measured at below 60 percent of median disposable household income after housing costs, has been flat to falling slightly.

Sixty nine percent of children in sole parent households are poor compared to 15 percent in two parent families. Today, a lone parent heads around 30 percent of all families with dependent children. Long-term dependent sole parent families aren't typically the result of a marriage breakdown. They hail from very young mothers with no educational qualifications, work skills or regular partner.

Every year around one in five new-born babies will be reliant on their caregivers benefit by Christmas. This pattern has persisted from at least 1993. For Maori the number jumps to over one in three.   Add to this Treasury's advice to the Ministerial Committee on Child Poverty,
"...around 1 in 5 children will spend more than half of their first 14 years in household supported by main benefit. This group is at the highest risk of material hardship and poor outcomes across a range of dimensions”.

The worrying aspect of this pattern is its persistence through good economic times. In 2007, when New Zealand had record low unemployment, the percentage bottomed at around 19%. Over three quarters will rely on a sole parent benefit, the remainder on either an unemployment or disability benefit. While some of the reliance will be due to unforeseen circumstances like are job redundancy, most could have been predicted by the parent.


In a recent Listener column Jonathan Boston wrote " is worth pausing and considering how easy we would find it to raise children under such circumstances." The same counsel should be put to those people who can actually change the pattern. Though too much emphasis on "personal responsibility" would give less weight to "fairness and compassion" according to the book. Why these societal attributes would be mutually exclusive is unclear.

Not all poor children live in beneficiary families. Fortunately, though, low incomes in working families are often short-lived. Crucially, Boston and Chapple find:
"Sustained full-time employment of sole parents and the fulltime and part-time employment of two parents, even at low wages, are sufficient to pull the majority of children above most poverty lines, given the various existing tax credits and family supports."
The reality is raising children on one income is more difficult than on two. Compounding this are lower educational qualifications and work skills amongst the beneficiary population. Any moral judgement about single parents is irrelevant. Sole parents can raise children well but it's nearly always a financial struggle.

So knowing where the major share of chronic poverty lies, what can be done about it?

Currently sole parents must be available for part-time work when their youngest is 5, full-time at 14. Boston and Chapple suggest full-time work expectations much sooner. Following the Nordic States example, work-testing when a child is aged 1-3 is mooted. As well, much stronger "employment activation policies" are urged. But the question of why education and training would work post-parenthood when it failed pre-parenthood isn't addressed. It is the first-time failure of education that makes having a baby at 16 or 17 look like a palatable prospect. (Neither is the significant population of sole parents in a multitude of small towns like Kawerau, Kaikohe and Ruatoria dealt with).

To satisfy the authors' recommendation, the economy would need to quickly produce around 60,000 jobs for newly work-tested parents (not to mention the 100,000 or so people on an unemployment benefit). That is a very big ask.

But not an impossibility. To meet the needs of mothers expected to work when they have infants, substantial expansion of Early Childhood Education would be required. That in itself presents work opportunities. Our rapidly ageing population demands a growing workforce of residential and in-home carers. Many more jobs could be created by transferring funds from Work and Income's budget into Education and Health. These job creation schemes could be expenditure neutral.

Boston and Chapple though, want a good deal more government expenditure and increased revenue. Not only to support the "employment activation policies", but to pay higher benefits. It is improbable that raising income tax, introducing a capital gains tax, re-introducing inheritance tax and redirecting child support offset are likely to generate the economic growth needed to produce thousands of new jobs.

Even more concerning, raising benefit incomes is an enormously risky solution to solving child poverty. Multiple studies from a wide array of countries show a strong correlation between the level of benefits and unmarried births. Last year Innsbruck University published research that found,
   "... the welfare state decouples marriage and fertility, and therefore, alters the organization of the family."

OECD research shows when English-speaking countries reduce poverty through the benefit system, they simultaneously increase the number of workless households.

If the gap between income from welfare and income from work is further reduced, the incentive to take a job diminishes. An average sole parent with two children in South Auckland receives $642 weekly, a combination of basic benefit rate, Family Tax Credits and Accommodation Supplement. That's 73 percent of the median weekly income from wages or salaries in Auckland. A large portion may go on rent but that's ultimately the parent's choice. Importantly, the poverty rate for sole parents who live within a wider household is only 23 percent versus 69% for those who live as a separate unit. Perhaps the most accessible and immediate financial relief for single mums is to pool resources: flat together, live with their own parents  or take in boarders.

There is no doubt that some New Zealand children are doing it very hard.  Treasury estimates that the number exposed to long spells of low income associated with "significantly worse outcomes" is 180,000 (50,000 spend 13-14 years on a benefit; 130,000 spend half of their first 14 years dependent.)
It's a shame that some advocates insist on promulgating inflated numbers like 285,000. That turns the debate away from practical remedies to fighting over definitions.

Recognising most of the deep-seated deprivation occurs in beneficiary families, the government is acting accordingly. Aware that very young parents produce the most vulnerable children, the way support is provided has been changed. Under the new Young Parent Payment regime dedicated mentors ensure rent and power is paid directly, funds for food and groceries are loaded onto a payment card, and only a small cash allowance is given. Parents are required to attend a teen parent unit, enrol their child in the WellChild programme and with a local GP. Extra income can be 'earned' by attending parenting and budgeting courses. Paternalistic? Yes. But the priority is their babies. Simply paying young parents a non-conditional cash sum doesn't protect their children or break the inter-generational dependence shown by 90 percent of 16 and 17 year-old beneficiaries coming from welfare-supported homes. For older parents not coping, who are repeatedly turning up at Work and Income needing extra cash, it's highly likely the payment card regime will be extended. Provision is signalled in the planned rewrite of the Social Security Act 1964.

Many other practical developments over the past few years have targeted poor children. Insulation of over 200,000 homes; increased access to GPs; an intensive campaign to reduce rheumatic fever; boosted budgeting advisory services; low cost procurement of household essentials like washing machines; low interest loans to combat loan sharks; partnering with charities providing food and clothing to poor children; home visitation programmes like Early Start; extended income-related rents to non-government social housing; and Whanau Ora, to mention some.

Large scale second-hand clothing stores like Savemart and Rebound make it hard to understand why any child would lack a warm jacket or more than one pair of shoes. The quality of merchandise often outstrips cheap retailers at much lower cost.

In relative terms, New Zealand remains a rich country where social security protects against grinding poverty. But it is vital to recognise benefits have also influenced a major change in family structure culminating in our current dilemma.

Boston and Chapple say, "In our view, all children should have the opportunity to fully participate in and belong to New Zealand society."

Exactly the same sentiment ushered in the DPB forty years ago. Yet the hoped for panacea only exacerbated the problem. A small level of insufficiency at the margins developed into a major shortfall.

Employment for existing sole parents, and deterrence for prospective, particularly young parents, is the most effective approach to reducing child poverty. In that respect Jonathan Boston and Simon Chapple's prescription is half right. But a strong and competitive economy capable of producing the necessary jobs won't result from the greater taxation and wealth transfer the authors advocate.

A prevailing attitude that only government can solve child poverty is actually a large part of the problem. If there is a solution it largely lies in the hands of those who choose the circumstances in which their children will be raised.


Rodney Hide said...

Tremendous analysis and report. Well done. It should be pinned to Treasury's wall.

Rodney Hide

Anonymous said...

Three pages, 1500+ words, and you utterly fail to mention the only effective solution to welfare, the only solution that has worked every time its been tried:

stop welfare

Fact is that 16 year olds are behaving quite rationally when they have kids to hit the DPB - or whatever it's called after the Great Welfare Renaming. Cashcards, courses, still the same problem, and the same massive expense.

Countries without welfare simply do not have this problem.

Anonymous said...

yes it is a great piece and a great site, and thank you. Tell me, do you see any political prospect of a gradual increase in the age of initial entitlement, after all the superannuation age will rise eventually?

Lindsay Mitchell said...

Sickness and invalid benefits have been available to 16+ since at least the 1970s. That is the age that young adults with life-time incapacity eg severe intellectual disability, will qualify to state assistance in their own right.

The Independent Youth Benefit began in 1991 possibly as a response to the street kid problem and very high unemployment.

Prior to the Young Parenting Payment, single parents under 18 went on what was called the Emergency Maintenance Allowance. They didn't qualify for the DPB (but got paid the same rate anyway).

But I take your point.

Super qualifying age should rise in line with life expectancy. So perhaps the increasing trend for young people to stay at home longer (with parents better placed to support them for longer) should also warrant raising age entitlement for state support at the other end.

But I expect there would still be emergency, discretionary provision.

Anonymous said...

after all the superannuation age will rise eventually?

Perhaps. Or Perhaps we might another combination of circumstances:
- the next "Great Financial Crisis"
- Wellington decimated by an earthquake
- and a government with the courage to do what is right

and just end welfare provision completely in NZ.
One day, in NZ as well as everywhere else, governments will finally have to do the right thing.