Why child poverty targets make no sense

Published in NBR, Friday, Feb 9, but behind a paywall:

Why child poverty targets make no sense

The new coalition government intends to set targets to reduce the proportion of children living in low income homes, and impose them on future governments. It's feel-good stuff from a fledgling Prime Minister who's made fighting child poverty her own personal crusade.

It's feel-good but definitely fraught, and probably futile and foolish. Let me explain by way of example.

My family is 2,2 (two adults, two dependents). That's the coding description used in the Household Incomes Report, the official  source of child poverty statistics.

For argument's sake, our income could be $100,000.  Because, according to the report, "... a larger household needs more income than a smaller household for the two households to have similar standards of living... " a process called equivalisation is applied. That means  $100,000 is scaled down to $50,000 for comparative data purposes.

Equivalised incomes provide the median from which thresholds are set. Children in poverty are usually deemed to live in households with incomes under the 60 percent threshold of the equivalised median.

Your eyes are glazing over.

But the point to make is that in 2017 our 2,2 family reduced to a 2,1 group after 1 left home to study in Dunedin. Immediately we got 'richer' due to the equivalisation process artificially bumping up our income.

In fact we got 'poorer' because 1 in Dunedin required more financial support than when part of our 'official' household.

The current statistical measurement does not capture what is actually happening in our household. We apparently got richer but actually got poorer. Of course this is just a one-off example of how surveyed statistics can't accurately measure what is happening in individual households.

At the macro level, let me pose a circumstance whereby children in poverty could also apparently get 'richer'.

The ageing population and reducing home ownership means that increasingly, more elderly will rely solely on Super. That means more will be poorer. As they move into statistical ranks of poverty, fewer children can occupy those ranks (remembering all measured poverty in New Zealand is relative).

The Household Incomes Report - a meticulous and honest piece of work -  highlights how various circumstances can throw up misleading outcomes:

"...in times of good economic growth with rising real wages, rising employment and reducing unemployment, median income (and therefore the poverty lines which are simply a proportion of the median) can rise more quickly than the incomes in the lower parts of the income distribution. In these circumstances a REL measure would report increasing poverty even if those in low-income households were experiencing real income growth.

This counter-intuitive result was observed in Ireland in the 1990s: the poor became ‘richer’ in real terms, but because the income growth of the middle income households was even greater, poverty rates grew considerably as measured using a REL threshold. This also happened for New Zealand from 1998 to 2004, albeit on a more modest scale.

The reverse is also possible. It was observed in the Czech Republic, Hungary and Poland in the early 1990s when each of these nations experienced large falls in national income. Real incomes fell, but poverty was reported as declining as measured by a REL approach as a result of the falling median and therefore the lowering poverty thresholds."

Under this scenario, a government which drove the local economy into recession could still argue it had met its child poverty reduction targets!

Then we have another problem. The statistics apply in any given year (and are always lagging). But incomes are very fluid. Especially for the contracted and self-employed. Also, parental relationships and living arrangements change more frequently than in the past. A child recorded in poverty in 2017 might not be in 2018. The economic fluidity of parents in New Zealand is much greater than in lesser economically developed countries. Poverty is not generally persistent.

The minefield that is measuring and setting poverty reduction targets has already been exposed. The United Kingdom tried and failed. Aware of this, the National government nevertheless kept a close eye on every available social indicator. Anyone who doubts this should refer to the work of the Ministerial Committee on Poverty (https://www.dpmc.govt.nz/publications/ministerial-committee-poverty).

They concluded that a small group of children were in persistent and chronic poverty. They targeted efforts at this group (which in part explains their support for whanau ora). For example the strongest correlate for child poverty is welfare dependence. A goal of reducing the number of children in benefit-dependent households was set as part of the Better Public Service goals. Real progress had been made seeing a reduction of 61,000 between 2011 and 2017, yet Labour has scrapped the goals.

Most voters didn't have a clue what English was up to. But he had studied the problem for decades.

New kid in town hasn't had the time or experience to draw conclusions vital to effective action.

Re-resorting to hiked income redistribution to lift children above artificial and arbitrary thresholds is senseless.

Worse, there is a very real prospect of the deep-seated problems connected with parental state dependency - diminished or relinquished responsibility for their own children -  will worsen.