How can we grow the economy by 4.27%? Photo / 123rf
How can we grow the economy by 4.27%? Photo / 123rf
Opinion by Simon Wilson
Simon Wilson is an award-winning senior writer covering politics, the climate crisis, transport, housing, urban design and social issues. He joined the Herald in 2018.
The Council of Trade Unions (CTU) says eliminating poverty would grow the economy by $17.7 billion a year.
Poverty is rising in New Zealand for the first time in 25 years.
“It’s not party policy, but we should just hand it over – if you ask me.”
That was Labour MP Ginny Andersen, speaking at a poverty conference in Wellington last week. “It” was the justice system.
Andersen was commenting on the news 63% of women in prisonare Māori, which she said probably makes Māori women “the most incarcerated population in the world”.
I asked Andersen to clarify what she meant by “hand it over”. She backed up and said she wasn’t really advocating for a separate Māori justice system. She talked about Te Pae Oranga, a kaumātua-led restorative justice programme for young offenders that has reduced repeat offending.
It’s unlikely Labour or National will “hand over” the justice system, or health, education, housing, welfare or anything else, anytime soon.
But the concept points to a central issue that came up for debate over and over at that conference. How do you strike at the causes of poverty?
You can manage it better with more funding, more compassion in policy and frontline implementation, a focus on programmes that can prove their value and less right-wing populist politicking.
And Te Pae Oranga is far from being the only tikanga-led programme that makes a difference. We have them in health, education, housing and other parts of justice and corrections. But they’re not enough.
The conference was organised by the Stout Centre at Te Herenga Waka Victoria University and its name was Pakukore: Poverty, by Design.
The name suggests poverty is not a bug in the system, it’s a feature. That says our economic policies and the welfare state built on top of them are designed in the full knowledge they will reinforce poverty.
That was the context for Andersen’s comment. What we’re doing isn’t working. Is there a way to do it differently? Tikanga Māori says there is.
But how far are we prepared to take that thinking?
Andersen’s suggestion wasn’t the only controversial thing anyone said at the conference. CTU economist Craig Renney declared that if we eliminated poverty, we’d grow the economy by 4.27%.
That’s more than any official projections for the foreseeable.
“Economists like to use decimal places to show they have a sense of humour,” he added, explaining that his figure was the average of several studies.
His 4.27% in lost GDP growth equates to $17.7 billion more economic activity a year. It means the Government is missing out on $5.1b in tax revenue.
“If you told the Minister of Finance, ‘Here’s a way to get another $5 billion to spend on infrastructure and hospitals and schools,’” he said, “you’d think she’d want to know more.”
Renney was one of the 15 economists who wrote an open letter last week to Prime Minister Christopher Luxon and Finance Minister Nicola Willis, to say the Government’s fiscal policy is making the current recession worse. In particular, they said, it is “hollowing out business capacity” and undermining export potential.
Craig Renney. Photo / Mark Mitchell
Minister Chris Bishop responded on behalf of Willis, noting she was in Antarctica and would probably “prefer to take advice from a penguin”.
Good joke, but a poor response to the criticism. At the conference, Renney did not admit to any plans to buy a penguin mask.
Over 10 years, he said, those annual figures compound to $229b of lost economic activity and $66b in lost tax.
In other words, poverty isn’t an unfortunate side-effect of economic growth. Poverty stifles growth.
How? There are so many ways.
Less tax revenue means less Government spending. And with poverty causing worse outcomes in health, education, crime and the rest, more of that spending has to be at the bottom of the cliff.
Every expensive new prison and courthouse is built with money not spent on roads and railways, houses, schools, trade training, tech innovation, climate resilience – investments that would materially help our economic development.
Spending cuts in social housing have already forced many builders to the wall. We’re short about 40,000 social houses, relative to 1991, when the big cuts began. That’s 40,000 households living in conditions that make all the other hardships of poverty worse.
Paul Gilberd from Community Housing Aotearoa said Kāinga Ora was “building 4000 houses this year, none the year following, which seems to be a bit of a stupid idea in a housing crisis”. It sure does.
Then there’s health. Nikki Turner, a primary healthcare expert at the University of Auckland, told the conference New Zealand spends 10% of its GDP on health. The OECD average is 11.5%; the difference equates to about $5.8b.
According to Pat Hanley from Poverty Free Aotearoa, that’s the idea. “The point of poverty is to suppress wages,” he said. “It is intentional and it is systemic. But we blame the people who are in poverty.”
Max Rashbrooke is an author and researcher based in Wellington.
Economics researcher Max Rashbrooke reported that 61% of children living in poverty are in households where people work.
“Work shouldn’t make you poor,” he said. But we have such a low-wage economy, working does exactly that for many people.
CTU research has found that in the years after the Employment Contracts Act was introduced by the National Government in 1991, the pay of supermarket workers fell by 44%.
If that had not happened, by 2023 supermarket workers would have been earning $36.52 an hour. Instead, they were on the minimum wage: $21.20.
One of the most sobering speakers at the conference was paediatrician Jin Russell. She reported a British study that found a 19% gap in cognitive ability between children living in poverty and those who have never lived in poverty.
You can see it in the structure of children’s brains, she said. Those in poverty “have less grey matter”. Their brains don’t grow as well.
She also said there was good news: “This can be mediated. Resources and early support show big and long-lasting progress.”
So we should do that. But for Russell, this was not enough. “Even though I see the value of the interventions and all of that, I just wish we would tackle the root cause, which is poverty itself.”
Households are in poverty if they can’t meet basic needs such as food, clothing and shelter. Officially, that’s said to be when their income is less than 60% of the median.
In 1982, Poverty Free Aotearoa’s Hanley said, 8% of households fitted the definition. By 1994, after 12 years of neoliberal reforms, it was 23%.
Since then, the figure has reduced: in 2023 it was down to 12.5%. Now it’s rising again, for the first time in 25 years. Next year, Hanley said, it’s likely to be 15%.
And yet we don’t need to be stuck with this. Rashbrooke noted that despite Government rhetoric, we don’t have a spending crisis or a debt crisis. Public debt is about 20% of GDP, while the OECD average is closer to 30%. In Australia it’s 40%.
“It’s not irresponsible to borrow to build for the future,” he said. “The opposite is true.”
Taxation professor Lisa Marriott added that while we’re entrenching poverty, the Government made $14.6b in tax cuts this year and most of it is going to landlords. She called this “a very deliberate choice”.
Marriott had another statistic. For the six years 2015-2021, 60% of households saw little change in the value of their assets. But the asset value of the wealthiest 40% rose from $1.328 million to $2.024m.
And most of that gain was not taxed because it was in property and other asset gains, not income.
Is it time to try something different?
Ida Malosi, the principal Youth Court judge, told the conference: “It takes a village to fix a problem that the village created.”
Ida Malosi, principal Youth Court judge.
She described her work like this: “We engage with young people and their whānau to understand what happened to them to lead them to offend. Then we work out what to do about that.”
She said 50% of all prisoners in New Zealand jails were exposed to family violence as children. In the Youth Court, it’s more than 90%.
Murray Edridge, the Wellington City Missioner, quoted the American priest Greg Boyle, who’s described as “the founder of the largest gang intervention, rehabilitation and prison re-entry programme in the world”.
“You stand with the belligerent, the surly and the badly behaved,” Boyle has said, “until bad behaviour is recognised for what it is: the vocabulary of the deeply wounded and of those whose burdens are more than they can bear.”
Labour’s Ginny Andersen said: “If we had a health system that makes us sicker, we would complain. But we have a justice system that turns people into worse criminals. And we think that’s okay.”
Edridge believes things are “worse now than they’ve ever been. There have been times it was tougher, but they were associated with world wars. Our community workers are now seeing, for the first time, hopelessness”.
At the City Mission, he said, the operating principle is simple. “Anybody who walks through our door, they will be treated with dignity and respect, irrespective of how they treat us.”
“‘Poverty-free’,” said Pat Hanley, “doesn’t mean we don’t encounter hardship. It means when people encounter hardship, the resources to help them are there as of right.”
But that’s not how the economy functions. Or the welfare state, despite the enormous commitment of so many people working in it.
The Youth Court’s Malosi called poverty “a thief that robs people of opportunity in their lives”. She said she always wants to say to those people: “Hold on, hold on, we are coming.”
Are we?
Sarah-Jane Paine, research director at the Growing Up in New Zealand study, had a question. “How is it possible for so many people to care so deeply about poverty and for nothing to change year after year?”
“It got me thinking about love,” she said. “Aroha, in its full meaning.”
Associate Professor Sarah-Jane Paine.
She talked about a lack of empathy that keeps people at a distance. She said colonial systems “can say they know and care about us, but their basis in white supremacy means they cannot”.
That doesn’t let them off the hook, they have to front up. But she went a lot further than Ginny Andersen. “I’m talking about a radical, decolonial kind of love. It often comes with a kind of rage.”
Cancel poverty. And grow the economy. We could do it, if we change the way we’re trying to do it.
