Analysis by Keith Rankin.

On 12 August, the national-led government announced a new policy program to impose more sanctions on New Zealand’s beneficiaries, meaning people of working age (18-64) whose primary income is a government benefit. (Refer RNZ Government further increases sanctions for beneficiaries, 12 August 2024.)

This policy direction is intended to discourage people from seeking income support from the sovereign state, and therefore income and income support from private sources.

(The official narrative is that a significant number of beneficiaries are ‘workshy’, and are not pulling their weight as wealth-creators for Aotearoa. But the first thing this government did was to reinforce monetary policy in ways to make sure there is enough unemployment in the labour market to ensure that rising wages are not ‘inflationary’. Aotearoa New Zealand is currently in recession; seasonally-adjusted GDP peaked in the third quarter of 2022.)

The principal private source of income support for young adults is the Department of Mum and Dad. (The second most important source of private income support is charity; the third most important source is begging and other forms of recipient-initiated money transfers.)

This is not new. It was the same before the welfare state became a thing; indeed, it extended before 1938 (and increasingly today) to the Department of Aunty and Uncle. The welfare state in New Zealand – essentially 1938 to 1984 – reached its zenith during the Prime Ministership of Robert Muldoon. Pushing people towards Mum and Dad as providers of adult income support is not new in recent times; it was about 1990 that the definition of the age of a child, for the purpose of student allowances, extended to anyone under 25.

People aged 18-29 (and older)

New Zealanders in this age cohort are increasingly likely to be living ‘at home’. In many cases the Department of Mum and Dad has stepped in, giving as much as a 100% subsidy with respect to their adult-children’s living costs. With state accommodation subsidies rapidly diminishing in real terms, this leniency by parental landlords reinforces other incentives for young adults to live in their parents’ homes. And it creates decreasing incentives for adult children – at least middle-class adult children – to even bother with MSD (the Ministry of Social Development which administers a large proportion of benefits in New Zealand).

Is home-dependency a desirable situation: for adult children; for parents of adult children; for the wider socio-economy?

Underclass / Lower Working Class Family Economy, in the context of Modern Class Categories

In Aotearoa New Zealand and other western capitalist countries, traditional labels for socio-economic classes are probably out of date.

This is my preferred categorisations:

• Upper Class: the ‘one-percenters’.

• Upper Middle-Class: the ‘ten-percenter’ ‘bourgeoisie‘; professionals such as managers and lawyers, the ‘political class’, many who would consider themselves politically left-wing and classed in modern statistics as ‘labour’ (albeit high-salary recipients). Their employers, where private sector, might be Upper Class or recipients of government contracts. This class includes small business people with university qualifications supporting practitioner businesses, such as community doctors and dentists. The bulk of ‘the elite’. The Upper Middle Class tend to have a fiscally conservative ‘mercantilist’ mindset, meaning that they see the economic purpose of life as ‘making money’ (or protecting the government’s coin), whether to hoard (miserliness; sovereign wealth) or to accumulate money as a precursor to future spending. They think a lot about ‘nest eggs’, and are smugly ‘financially literate’.

• Lower Middle-Class: successful small and medium businesspeople (‘petit-bourgeoisie‘) and free-lancers; entrepreneurs, ‘tradies’ including builders, successful actors and most professional sports-people, farmers. (The lower middle class, in New Zealand, includes many immigrants.) They are vulnerable to extended recessions. Advantaged lower middle-class people have upper middle class or upper working class partners to soften the cushion of income uncertainty and variability. There are opportunities for upward mobility into upper class.

• Upper Working-Class: skilled salaried people such as technicians, teachers, hospital clinicians, secretaries, librarians; military; have some security of tenure. (The upper working class includes many immigrants.) Some upward mobility to upper middle class, though such mobility has costs as well as benefits; management-type jobs are sometimes what David Graeber called “bullshit jobs”. Vulnerable to extended recessions, though many are less vulnerable than the lower middle class. Consequence of extended unemployment is downward mobility.

• Lower Working-Class: the ‘precariat’, employed most of the time, albeit with uncertain hours and minimal security of tenure; includes stable casual work. They tend to lack formal vocational qualifications. Subject to downward mobility in tough times; may experience upward mobility in good times.

• Underclass: intermittent wage workers, unstable casual work; self-employed without capital (eg sex-workers); long-term working-age non-labour-force (including people in this category for ‘mental health’ reasons); extra-legal entrepreneurs and workers, beggars. Some members of the underclass live ‘at home’ with middle-class parents.

We should also note that those who ‘punch above their weight’ as bearers of children, as creators of the next generation – in 2020s’ Aotearoa – are immigrants and the underclass.

An important feature of both immigrant and underclass life is that the teenage and young adult children contribute to the family economy. (For a good understanding of how the family economy works, look for a good social history of the 1930s’ Great Depression. When I was writing my MA thesis on this topic, I was contacted by an older resident of Holloway Road in Wellington – a lower working class precinct – who told me that that one street had many unemployed single young people who were not seeking help from government agencies because of the terms and conditions which came with such help. Essentially, they were both getting some help from Mum and Dad – for example, free board – while also eking money by undertaking precarious forms of insecure employment and underclass self-employment.)

An important sign of the distressed family economy in contemporary Aotearoa is the significantly increased level of abstinence from secondary school participation. Another part of that family economy is for young individuals to secure a stable fulltime income stream as their contribution to the family economy.

In the idealised form of family economy which prevailed as reality from 1938 to 1984, ‘Dad’ would have a well-paid job that could support a wife and three children. Mum would also be employed once the youngest child was of school age, often returning to a profession such as teaching or nursing.

In the 1985-to-today era, the income of ‘Mum’ became a necessity, not a ‘nice to have’. What then would happen when Mum’s necessary income was lost through unemployment? She never qualified for an MSD benefit; she was expected to get a benefit from the Department of Dad. (Mum and Dad also probably incurred debt, often at high interest rates; for example, payday loans.)

If the Department of Dad could not support a family without a Mum-income, then, when there was no Mum-income, other family members – especially teenagers – would stand up to meet the challenge. This was particularly relevant to lower-working-class families; and increasingly to the increasing numbers of underclass families. Teenagers would leave secondary school as soon as they could; if not sooner.

One way to meet the challenge was to become a beneficiary; maybe a NEET (not in employment, education or training) though there are many near-NEETs who earn around $80 per week in addition to their benefits, or possibly to get a student allowance by pretending to be a tertiary student. For lower-working-class families, the benefits paid to young adult family members had the advantage of not being stood down if another family member became employed. MSD benefits provide a more reliable income contribution than a precarious low-wage job for which hours vary from week to week.

The new welfare policy of the National Government is likely to unravel this lower-class family subsistence economy for which some degree of benefit income is necessary to keep the lights on or the debt-collector from the door. This wider social process of unravelling could turn ugly. And, as we have already seen this month in the United Kingdom, we could start seeing pogroms against immigrants and their families.

Spouses aged 55-64 (mostly women) younger than their partners

I start here by noting that, since ‘marriage equality’, the word ‘partner’ seems to have been used less. Nevertheless, in law and in modern custom, the words ‘spouse’ and ‘partner’ may include people who are not in formal civil unions such as ‘marriage’.

The real ‘squeezed middle’ are married women aged 55-64. Generally, they do not qualify for an unemployment benefit if they are made redundant. Those under 65 with partners over 65 used to have the right to New Zealand Superannuation at a slightly lower level than the full amount. One of the first things the Labour Government did, in 2020, was to repudiate that right. While the spouses of retired people may apply for an unemployment benefit, it’s not automatic. Indeed, retired husbands will get a bigger pension if their income-less wives leave them!

Such women may be providing ‘senior-services’, including palliative services, to their parents. They are often the chief executives of the Department of Mum and Dad, dispensing unemployment benefits and rental subsidies to some of their adult children. They may be significant providers of care to grandchildren. Their older partners may have health issues (older husbands are nearer, on average, to death than the spousal age difference would indicate, because male life expectancies are lower); and on this account the wives may be taking the lead in setting up ‘give-a-little’ pages. These women are also the people who once were the principal principals of the voluntary (ie charity) sector; a sector with reduced capacity yet facing ‘skyrocketing’ demands.

They may have health issues themselves; the numbers of 60-year-old women dying are increasing markedly, in part because such women are in increasing competition for jobs and healthcare resources with each other. (I understand that there is an upsurge in Canada of women in their sixties, along with other demographic groups, who are taking advantage of that country’s liberal ‘assisted dying’ provisions.)

Those who do qualify for a benefit following redundancy may face significant standdowns (eg because of receipt of redundancy pay), or because the labour market is increasingly unkind to older job-seekers. The MSD will be requiring substantial commitments of time towards (often futile) job-seeking, and therefore less time on providing multi-generational family care.

Older married women performing traditional roles have not been well looked after by this government nor its recent predecessors, despite there having been many recent Ministers of the Crown who would be widely accepted as feminists. I am sure that the present Ministers of Finance and Social Development would both consider themselves to be modern feminists.

Conclusion

We need an enabling public income support system; not the present disabling system which increasingly incentivises ‘moral hazard’ behaviours, such as adult children preferring to receive their benefits from the Department of Mum and Dad, and increased financial stress, time poverty, and health burnout being perpetrated upon Mum (and Dad).

Tomorrow I will propose a simple affordable solution which better fits centre-right than centre-left philosophies.

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Papua New Guinea and Australia created another piece of history yesterday when James Marape became the first international leader to address the Australian Federal Parliament since 2020.

In a speech laden with heartfelt gratitude and sentimental recollections of the shared history of both nations, the PNG Prime Minister thanked Australia for all it had done for his country – from giving it independence, to sending missionaries and public servants to help develop the country, to fighting together with Papua New Guineans during World War II, to all the current economic and other assistance.

Marape had said before leaving for Canberra that he would not be asking Australia for any help.

He repeated that in his address yesterday — even though he really shouldn’t have, for help from Australia has, is, and will be constant going into the future.

But he did appeal to the Australians not to forget Papua New Guinea during its current, ongoing challenges.

“Today, I carry the humble and deep, deep gratitude of my people, the thousand tribes. On behalf of my people, I thank Australia for everything you have done and continue to do for us,” Marape said.

“I appreciate all governments of Australia which have assisted our governments since 1975.

‘Crucial role in develoment’
“Thank you for continuing to support us throughout the life of our nationhood. Your assistance in education, health, infrastructure development in ports, roads and telecommunications continue to a play a crucial role in our development as a country.

“I appreciate, also, all Australian investors, who, to date, comprise the biggest pool of investors in Papua New Guinea.

“We realise our success as a nation will be the ultimate payoff for the work put in by many Australians.

“Thus, I commit my generation of Papua New Guineans to augmenting the sanctity of our democracy and progressing our economy.

“We pledge to work hard to ensure that PNG emerges as an economically self-sustaining nation so that we too help keep our region safe, secure and prosperous for our two people and those in our Indo-Pacific family.”

Marape’s address comes during a period of constant domestic and external challenges.

He is facing a potential vote of no confidence on his leadership this month and his government is also dealing with competition for influence from world powers, including China, USA, India, Indonesia, France and Australia.

Australia’s ‘real friend’
But he assured Australia that Papua New Guinea is its “real friend”.

This is despite revelations last week that his government was in talks with China over a potential security deal, a revelation that has worried Australia and the United States.

“In a world of many relations with other nations, nothing will come in between our two nations because we are family and through tears, blood, pain and sacrifice plus our eternal past our nations are constructed today,” he promised.

“These have all been our challenges. But as I visit with you in Australia today, I ask of you please, do not give up hope on Papua New Guinea.

“We have always bounced back from low moments and we will continue to grow,” Marape said.

Republished with permission.

Article by AsiaPacificReport.nz

The day after New Zealand’s first lockdown was announced, I expressed to a senior colleague my concern for those around the country whose livelihoods would suffer as a result.

She agreed, but was confident that the spirit of “we’re all in it together” accompanying these drastic public health interventions would allow the government to lead the country towards a kinder, more equitable society.

“I think we might see a universal basic income,” she said hopefully.

As it turns out, the government had little appetite for progressive welfare or tax reform.

Instead, working with the Reserve Bank, they have propped up the economy through a combination of measures that have drastically inflated the price of houses.

This has most likely protected some jobs, but it has also made work increasingly irrelevant as capital gains completely outstrip wages. The wealthy have been made even wealthier, while many can no longer afford a roof over their heads.

In the past year, the average New Zealander effectively lost $54.59 for every hour they turned up to work if they did not own a home.

According to Stats NZ, the median worker earned $26.44 per hour before tax in 2020. That comes to $21.49 per hour after tax if working a 40 hour week.

Median house prices
Meanwhile, in the year to end of February 2021, the median nationwide house price increased from $640,000 to $780,000: a difference of $140,000. If houses took weekends, public holidays and four weeks’ leave off each year – which of course they do not but it makes the calculation simpler – that makes an hourly rate equivalent to $76.08 per hour. Tax-free.

This is a direct result of the decision to support the economy through a combination of quantitative easing, a reduced Official Cash Rate and wage subsidies, instead of meaningfully increasing spending on things we need such as infrastructure and welfare.

The government handed out money to the banks, effectively at no cost, allowing them to lend more at increasingly attractive rates.

The government also bought bonds at the same time, devaluing deposits and making it pointless to keep money in the bank. This combination of easy credit and disincentivised saving caused a large amount of money to start sloshing around looking for somewhere to go.

The traditional concern with this approach to stimulus is that it will inflate the price of goods and services, increasing the cost of living.

In New Zealand, though, we like to buy houses. A tax system that drastically favours property ownership, combined with a cultural sensibility that houses are a safe bet, has seen much of this newly available money pumped straight into the housing market.

A feature
This is a feature, not a bug.

It represents a new, more interventionist version of trickle-down economics for the 2020s. Decried in 2011 by Labour MP Damien O’Connor as “the rich pissing on the poor”, politicians from the right have long argued that if the wealthy feel wealthier, their increased spending will benefit those less well off.

Generally used to advocate for reduced taxes on the rich, these ‘trickle down’ arguments refuse to die, no matter how comprehensively and repeatedly they are discredited.

This revival of trickle-down economics is a little different, as it is based on direct stimulus rather than a reduction in tax, but the effective mechanism is the same.

House price inflation is desirable, we are told, because homeowners feeling the resulting “wealth effect” will spend more on the goods and services provided by other New Zealanders. The win-win logic of this argument hides the fact that, fundamentally, someone is paying a heavy price.

Another way to think about it is that the government has effectively paid for covid-19 by levying a special tax on anyone who wants to live in New Zealand, but did not happen to own property during the summer of 2020/21, and handing that money to homeowners.

Paying the price
Many will pay this price throughout their lives. Some will be consigned to renting forever, handing over ever-increasing portions of their incomes to landlords seeking increased yield from their value-inflated properties.

Too many won’t even be able to do that, and sleeping on the street or in emergency accommodation. The relatively lucky few who do manage to buy a home will have mortgages hundreds of thousands of dollars larger than they otherwise would, spreading the cost of covid across their entire lifetimes.

Even as the beneficiaries of this covid levy, most homeowners are unable to simply stop working and enjoy this newfound wealth.

They may feel that they cannot realise their capital gain because it is tied up in their family home. What this windfall does provide, however, is choice: the option to release some of their newfound capital by downsizing into somewhere cheaper, or to stay put, taking advantage of the extra equity to fund lifestyle improvements like a new boat, a bach or a remodelled kitchen.

Unprecedented demand for watercraft this summer suggests that many are doing exactly this.

It can be tempting to view this growing inequity as just another “baby boomers vs millennials” issue. Certainly, it does represent a massive transfer of wealth from generally younger New Zealanders who do not currently own homes, to the largely older folk who were able to buy homes cheaply in the past.

This disparity is reflected in Westpac’s latest consumer confidence figures, which show that younger New Zealanders are far more likely to be worried about their financial situation compared with older cohorts.

Patronising advice about avoiding avocados and food delivery services to save for a home entirely misses this point. Nonetheless, it is important to note that many older New Zealanders also live in poverty while subject to similarly individualising narratives of self-control.

Social divide
Perhaps the more important question is how this rapidly accumulating wealth will be deployed to further entrench a growing social divide.

Parents with equity to spare are increasingly using it to help their children “get on the property ladder”. On an individual basis this is an entirely reasonable thing to do.

At a larger scale, though, the competitive advantage conferred by having generous, wealthy parents makes it even harder for those who do not have such privilege to obtain a home. Many are being left behind as a new landed gentry takes shape.

These political-economic arrangements favouring existing wealth over hard work have been a long time in the making, beginning well before most of the current crop of politicians arrived in parliament.

It is notable, though, that a government that promised to address the “housing crisis” has actively and knowingly pursued policies that have produced an unprecedented upward step-change in the market.

Perhaps most concerning is that the Prime Minister has expressed her intent that house price inflation should continue, just at a more “moderate” rate, because that’s what “people expect”.

It is exactly these expectations that are the problem: these issues will not be resolved while houses remain a speculative investment vehicle, rather than a home.

‘Tipping the balance’
Tuesday’s announcement of measures to “tip the balance” towards home buyers, rather than investors, might begin to signal a growing recognition that housing is more than an investment.

A substantial class of investors have certainly been made exceptionally wealthy by the covid-19 response, even as those who work for a living have seen their incomes stagnate.

But while this separation of ‘investors’ or ‘speculators’ from ‘homeowners’ might be politically convenient, it makes something of a false distinction.

Whether a house is owned as a home, or purely a source of income, any non-improvement appreciation in value comes at someone else’s expense.

Until New Zealand acknowledges this, little will change: whoever is in charge, and no matter how many new homes get built.

Covid-19 has shown that when politicians want to act, they certainly can. As many others have pointed out, this government promised “transformational change”. I’m not sure that taking money from those with the least, handing it to those with the most, is quite the kindness my colleague had in mind.

Dr Brendon Blue is a geographer in Te Kura Tātai Aro Whenua, the School of Geography, Environment and Earth Sciences at Te Herenga Waka, Victoria University of Wellington. He mostly studies and teaches the politics of environmental science and restoration, but would have been better off owning a house instead. This article was first published on The Democracy Project and is republished here under a Creative Commons licence.

Article by AsiaPacificReport.nz