Spin Or Solution?

- Greg Waite

Grant Robertson's Budget speech claimed: "In addition to meeting the levels recommended by the Welfare Expert Advisory Group (WEAG), the Budget provides an additional $15 per adult per week to families and whānau with children from 1 April next year" (2022). Was this spin or were the changes substantial and significant? The short answer is both. These are significant increases - but they fall well short of the WEAG recommendations. There are many reasons for this, summarised below. Activists need to really understand our dysfunctional benefit system, so we can advocate effectively to fix it.

Why The 2021 Budget Falls Short Of WEAG Recommendations

  1. On my addition, benefit recipients without children do not quite meet the WEAG recommendations, while those with children receiving the extra $15 per adult do. They are significant increases though, and close to WEAG's 2019 recommendation.
  2. But - no allowance has been included for inflation between 2019 and 2022 when the final 2021 Budget increases commence, despite big rises in rents over those three years. This is extraordinary, given the Government's own commitment to future increases matching movements in wages. It seems they think it's ok to spin the public on the initial levels, then, after that, benefits will keep pace with wages, i.e., they'll remain permanently too low.
  3. Research (Humpage, 2021) has shown that much of increases to base benefits don't reach recipients because of rules-based reductions in Accommodation Supplement (the starting threshold rises as benefits rise) and Temporary Additional Support payments (calculated as income less costs).
  4. The real baseline provided by the WEAG report is not their recommendations for benefit increases, which they acknowledged were limited by the restraints of the current system. The true test is their budgets which detail the minimum incomes which different households need to support a basic standard of living.
  5. Since Government isn't publishing any analysis on actual increases received by benefit recipients, we will only know how effective these changes are when independent researchers measure actual incomes and rents of people on benefits and compare them to the WEAG's budgets for a basic living income.

For all the reasons above, and based on recent New Zealand research on benefit incomes, I am certain these increases will not, in practice, come anywhere close to meeting the WEAG's minimum income standard. The scary thing is Grant Robertson's speech sounds so certain it's "problem solved" that this central issue - basic income for our poorest families - is now likely to be mentally ticked off by most senior people in Government. But you can't fool the continuously rising number of people relying on foodbanks, or the growing group of researchers who are calling out the Government's failure to deliver. It's clear we will need to keep fighting this battle for years to come.

This seems to be a common theme for all the big issues in New Zealand's free market approach to social policy - spin trumps solutions. We talk up benefit changes - but nobody in Government checks if they flow through to make a real difference to recipients. We'd rather import cheap temporary foreign labour than train people - too bad for our own marginalised low skill workers left with casual or no work. We can't do anything about excess house price inflation because we're committed to preserving the unearned wealth of home-owners - too bad for renters.

New Zealand's insane housing policies are especially critical for the growing class of low-income households. For four decades now we've wished and hoped that eventually house prices would correct. But if the policies stay wrong - no capital gains tax, high migration to boost business profits, low interest rates to subsidise business - the result is now clear. House prices just keep growing. Housing is so unaffordable now, prices may plateau - but the class interests of property owners are so dependent on keeping their untaxed capital gains, they will never sell at a loss. Restricted numbers of properties on the market means prices stay high.

This Is Not Just An Immediate Problem

It is a long-term problem which will result in much harsher futures for New Zealand's low-income households. Most obviously, home ownership has been declining since 1990 and is now similar to rates in 1954. And these declines have been higher for Maori and Pacific peoples. The largest decreases between 1986 to 2018 were for people aged 30-34 years, and 35-39 years - both groups falling by around 20 percentage points. If nothing substantial changes, this will mean New Zealand moves from a nation where 90% of retirees owned their own home, to a future where many more retirees have to rent.

Pause and imagine living on the current single pension of $437 per week, while paying the average rent for one bedroom of $358 per week (Orewa)/$396 (Glenfield)/$357 (Mangere) etc (source: MBIE/Crockers research hub). Yes, you will get help from Accommodation Supplement ($165 per week in the Mangere example; Ministry of Social Development online estimator). That leaves you with $245 per week to live on, at today's rents.

But that's only half the story. Future rents must increase substantially because rental investors are in it for the money, i.e., the return on investment. For the last 40 years, that has included untaxed capital gains, so that landlords got much more from rising values than rents. This is about to change. This Government won't act to reduce overpriced housing, but somewhere in the near future there is a ceiling where extreme unaffordability means prices plateau. Investors may be happy to keep pushing prices up, but New Zealanders will simply leave their country, past a certain point.

So - how does the end of capital gains affect investors? Simple, they have to take their return on capital from rents. And with crazy high prices, that means a future of crazy high rents. You can prove this for yourself by using Westpac's rental investment calculator. For example, a "typical" Auckland investment property "worth" $1 million returned 12.3% from market rents and capital gains in 2020. Take out the capital gain and the rent has to rise from $589 per week to $707 a week to get a return of 5.6%. And every extra half percent return would require a further 5% rent increase. New Zealand life is on a steep downhill slope, unless we can force big changes in current policies.

The WEAG Budgets

Since we are in this for the long haul, I recommend to all our readers to take a little time and really understand the level of living income proposed by the WEAG. Work out what you spend each week. It's easier than you might think. Just get a dump of your last three month's bank transactions from your online banking, then take out all transfers, income and housing costs.

Now compare your average weekly spending to WEAG's basic budgets in the table below, and think about what life would be like if you had to cut your current spending to live on that income. And that's just the minimum we're advocating for - today's benefit recipients have to live on much less, e.g., Jobseeker single $258.50 per week, Jobseeker couple $413.62 per week after tax but before rent!

WEAG Basic Living Standard Budgets, Private Renters Without Paid Work June 2018
($ per week)

Single person Single person Single sharer Sole sharer 1 child Sole parent 1 child Couple 2 children
Age of children - - - 2 2 10, 15
Benefit, allowances
($, estimate)
461 423 313 558 690 870
Non housing expenditure ($2018) 308 298 265 374 412 755
Non housing expenditure ($2021) 325 315 280 395 435 798
Notes: SLP is Supported Living Payment, JS-WR is Jobseeker Support Work Ready, SPS is Sole Parent Support. Final line includes Consumer Price Index [CPI] adjustment of 5.6% 2018-21 (Statistics NZ CPI All groups March).

It's important to really feel what life is like in New Zealand today for benefit recipients. We can see from the USA what life becomes when incomes are too low and housing costs too high - fragile, marginalised, living in cars and campervans, dependent on multiple casual low wage jobs. This is the world New Zealand is heading for, unless we fix this.


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