Charles Waldegrave: Cullen set to make history with cash redistributions

COMMENT

Announcements made by the Minister of Finance in the lead-up to the Budget indicate the first substantial redistribution of income to lower- and middle-income families for three decades.

The $2.5 billion announced by Michael Cullen is a turning point in the history of public policy. It comes after New Zealand's decades-long struggle to find a secure position in the global economy and at a time of increasing inequalities between high- and low-income groups.

A 1972 royal commission was set up by the Holyoake Government, but its recommendations were enacted by the Kirk Administration. They introduced the domestic purposes benefit, and lifted benefit payments to a level where they considered New Zealanders could experience "a sense of participation in, and belonging to, the community".

Since then, we have slipped down the OECD league tables and, in the process, three redistributions of income have taken place.

Under finance ministers Roger Douglas and Bill Birch, tax changes substantially increased the incomes of higher-income groups and increased the gaps between rich and poor.

Further inequality was created in 1991 when Ruth Richardson introduced her "Mother of all Budgets", which cut benefits and introduced market rents on state houses.

During the 1990s, poverty became endemic. Foodbanks grew exponentially, unemployment was high and housing costs for low-income families often soaked up more than 40 per cent of their income.

Furthermore, the social policy monitoring organisations such as the Planning Council which measured the social impact of policies were disbanded.

For these reasons, social and economic researchers established the New Zealand Poverty Measurement Project in 1992 to measure the quantity and severity of poverty, using an international methodology.

This estimated that in the mid-1990s about a fifth of the population was below an acceptable poverty threshold, with about a third of all children below the line.

The research found its way from peer-reviewed academic publications into the public debate through the media.

It provided much of the evidence for the return to income-related rents on state houses and the lifting of the floor for superannuation payments back to 65 per cent of the average wage.

In the new millennium, the Ministry of Social Development has improved its capacity to measure poverty and monitor social results. Its annual Social Report uses essentially the same methodology as the Poverty Measurement Project to measure poverty. Additionally, it has developed a robust measure of living standards as well.

This research and the corroborating results of non-government research organisations have provided the essential evidence of the undeniable levels of hardship many households with dependent children experience.

In particular, the research has exposed the malign impact of the increasingly low level of the family support payment, because it was not indexed to inflation when it was introduced in the 1980s. This payment was designed to help many families in work, as well as those on benefits.

In the light of this, Dr Cullen's announcement that $2.5 billion over three years will help 300,000 families is profoundly historic.

This huge redistribution is expected to reach about 60 per cent of all families with dependent children. This is not simply for poor families, but also middle New Zealand.

As the first substantial redistribution downwards in 30 years, this can be contrasted with the three redistributions upwards in the intervening period.

However, unlike the Kirk reforms, Dr Cullen has indicated the measures introduced in the Budget will not be confined to beneficiaries.

Those on benefits will gain, but those "in work" will gain substantially more than those living on benefits.

With unemployment running at a record low of 4.3 per cent, the minister wants the incentives to encourage work, rather than welfare.

As such, the Budget focuses more on the rewards for work as a path out of poverty than the traditional welfare approach of simply paying benefits.

We now have accurate and robust data on the levels of poverty, so that Government ministries and other research organisations can measure and monitor changes in an internationally comparable manner.

The increased research/monitoring capacity of the Ministry of Social Development and the redistribution identified for the Budget indicate the progress that has been made. Such progress suggests New Zealand is beginning to find a more mature social and economic policy balance.

* Charles Waldegrave is joint leader of the Poverty Measurement Project.