Making sure that enough is enough

In the leadup to Thursday's Budget, we explore the main issues. Today RUTH BERRY looks at the delicate balance between work income and benefits



When Finance Minister Michael Cullen reveals his Budget on Thursday, his critics in Parliament will immediately focus on the "hoary old chestnut" of welfare policy.

It's his phrase for the politically sensitive balancing act of ensuring low-income earners have enough incentives to keep working and off benefits, without at the same time consigning beneficiaries to poverty.

Much to the Opposition's irritation, the Government has been promising benefit rises, but to also increase the income gap between those on welfare and low-paid workers and appease the middle class by offering family assistance sweeteners.

The aim is to ensure "income adequacy" for low and middle-income families, while making work worthwhile.

Making work pay is National's mantra as well, but it prefers more stick and less carrot when it comes to benefits, which it says it would not increase.

It and Act will paint Dr Cullen's offering on Thursday as a Budget designed to cushion beneficiaries' armchairs.

They will argue that boosting the incomes of low and middle earners does nothing more than hand back the tax unnecessarily taken out of their pockets by the Government.

The Government will be trying to convince voters that the Budget will better equip the labour force of the future, today's children.

In Dr Cullen's favour is the lowest unemployment rate in years. At the end of March 312,707 people of working age were on income-tested benefits.

Nearly 57,000 fewer people were on benefits than in March 1999, the year Labour became the Government.

The Opposition will claim this has everything to do good fiscal times and nothing to do with the Government's welfare policy.

But the figures undermine claims that the Government is fostering welfare dependency.

Also weakening National's attack will be the absence of its own welfare policy.

The party's social welfare spokeswoman, Katherine Rich, last year issued a discussion document on welfare reform which will form the basis of the policy.

But the party is holding its final position for a big splash later in the year. In its defence, the wait-and-see approach may be necessary if the Budget contains major change.

How significant the change will be is the question.

Minister for Social Development and Employment Steve Maharey says the Budget is "very significant" because it is the Government's biggest social development spend-up.

But he says it dovetails with reforms already introduced, such as the reduction of student loan repayment burdens and the introduction of income-related rents.

The Budget won't contain any announcements on introduction of the "universal" benefit system Dr Cullen began touting in 1990 and Mr Maharey said in 2000 he hoped to have finalised two years ago.

But Mr Maharey says that's more because it "doesn't deliver any money to anybody" rather than because it is not happening.

Detailed announcements on moves to reduce 13 benefit types down to one core benefit with add-ons will follow the Budget.

But it will set aside money to cover software changes and staff training for the transition, to improve the way family assistance payments are administered.

It is to be a three-year process, requiring legislative changes.

The theory is that today's benefit system is so multi-layered and complicated that people aren't getting their entitlements.

It is also too inflexible to enable effective work incentives and respond to individual needs.


Those moving from benefits to work will get further financial support in the Budget, bolstering existing transition packages.

Abatement rate changes will enable part-time workers on benefits to earn more before their benefit is decreased, rewarding work.

More childcare support, also designed to get people working, is also likely.

The Government has already increased the maximum hours of entitlement to the subsidy from 37 to 50.

Budget options include increasing the amount of the subsidy and the number of people eligible for it.

Increased publicity is also likely, as many working people are not aware of their entitlements to child support and the accommodation supplement.

The supplement will be increased, acknowledging regional pressures which have affected beneficiaries in areas such as Auckland and Nelson, where rents have soared.

In the last financial year, 252,000 people received the supplement. Each got an average of $2800 a year, and the total cost was $740 million.

But the increase is unlikely to eliminate the assistance gap between people on the supplement and those in state houses, who get an average $5700 a year subsidy for each household.

Income-related rents were introduced in 2000 and the number of state housing units has increased by 3800. Another 2500 are planned.

More money for housing - some of which will be used to build more state housing - is also expected this week.


Many middle-income families, particularly large ones, will be entitled to Family Support for the first time.

But low-income working parents will reap the biggest benefits from changes to Family Support as the Government seeks to, in Dr Cullen's words, "increase the wedge between benefits and paid work".

Wellington poverty expert Charles Waldegrave, whom the Government consulted, believes Thursday will be historic. He says it is the first significant redistribution of money "downwards" since the royal commission on social development in 1972. In the interim, he says there were two redistributions upwards, under finance ministers Roger Douglas and Bill Birch.

"This is the sort of modern social democracy a number of us have been working for in terms of economic and social balance for some time. Benefits will be lifted and lifted substantially."

But he says the extra assistance will be aimed at those with children, which suggests Family Support and other supplements, rather than the core benefits, will be used to target families.

"But it's going to blow people's minds when they see what is going to happen to the working poor."

Figures already touted indicate that as a result of Thursday's announcement, the incomes of some of those families will increase by well over $100 a week, possibly closer to $200, within three years.

Victoria University poverty assessment expert Bob Stephens is a member of the Ministry of Social Development's reference group for the Budget.

He agrees it will be the biggest redistribution of income in favour of the poor since 1972. Apart from minor inflation adjustments, he says there have been "no really positive moves for low-middle income families" since the 1991 Mother of All Budget benefit cuts.

But he believes that the point arrived at this week is the result of evolutionary change started under National.

National took a "stick" approach with the introduction of work for the dole - since abandoned - but it did start moving towards the individual case management approach and finding work for beneficiaries.

"They were reasonably successful, and I think you could say Labour has taken that much further to have work brokers seeking out work in the community."

Katherine Rich's discussion paper talks of a return to work for the dole and the introduction of time-limited benefits.


They are the harder-hitting proposals, with the imposition of tougher sanctions, which the party is likely to confirm as policy in some form this year.

But in practice, some of these policies might not be as harsh as they seem.

During its short life-span, the last work for the dole scheme left most beneficiaries untouched.

And Rich admits that introducing it on a large scale would be expensive.

Time-limited benefits can mean a range of things from reducing or ending all support, to providing work or different support.

No country has ever reduced all support and National is highly unlikely to advocate that approach.

It is in the motivational signals such "stick" approaches send to beneficiaries (and some voters) that the value primarily lies, supporters acknowledge.

Headline-grabbing distinctions aside, Rich's welfare wishlist isn't so different to Mr Maharey's.

Greater childcare support would reduce the biggest barrier to getting single mothers back into the workforce, she says.

More active case-management and improvements to job seeker training are also crucial, she says.

And while National wouldn't raise benefits levels, it wouldn't slash them either.

Asked if the party would give more assistance to low-income workers, she said: "We must look at putting more money into the hands of working people."

Tax cuts are one way, but Rich can't say yet exactly how National would achieve this.

That hoary old chestnut again.