The Commentariat

There is a regular commentariat who appear on places such as ‘The Panel’ on Radio New Zealand (4pm on weekdays), and on panels on television shows such as Newshub Nation (TV3, weekends) and Q+A (TV1, Mondays). Generally, these panellists come out in favour of targeted assistance to the misfortunate, in contrast to the provision of universal entitlements. A common refrain is: “I am not poor. Such a policy should not give me more money”.

Most of the panellists on these shows have little understanding about the process vulnerable people must face when applying for targeted help in a political society (such as New Zealand); a society in which substantial and costly bureaucratic efforts are made to deny people help. These processes represent the essence of targeted income support. (Such processes – unkind, sometimes cruel – also apply in other policy fields, with immigration being an obvious example. At present New Zealand has a substantial and vulnerable non-resident population experiencing simultaneous official cruelty from both the social welfare and the immigration agencies of government. And it’s not only government processes that can be cruel; consider the insurance industry with its propensity to seek out ways to not pay out on claims.)

Mechanisms of Income Distribution and Redistribution

A targeted mechanism to provide income support only to those people who meet prescribed criteria is unambiguously redistribution; it is supposed to save money by not helping anyone who does not fit the qualification profile for any targeted income benefit. As redistribution, the economists’ word ‘transfers’ neatly describes such benefits; although the mainstream media, with its love for inflammatory language, generally prefers the pejorative synonym ‘handouts’.

Targeted ‘support’ mechanisms are ‘rules-based’; a person or family either qualifies according to a set of rules, or does not qualify. Complex rules generally require bureaucratic processes. (Some rules – such as the rule that determines what percentage of a persons income must be paid in income tax – follow an arbitrary and seemingly complex formula; the benefits arising from these tax rules are unconditional but far from universal.)

Universal mechanisms are ‘rights-based’. The must obvious example is the right to vote in parliamentary elections, the universal suffrage. New Zealand Superannuation is essentially a universal rights-based benefit, though it does have exclusion rules, and does have rules allowing some qualifying people to get bigger superannuation benefits than other people. (Even universal suffrage has exclusion rules; for example, children are excluded.)

In practice, almost all political societies will feature a mix of rules-based and rights-based benefits. Some support mechanisms are, in essence, universal. Others are, in essence, targeted. Each political society has its own particular mix of rights-based and rules-based benefits.

A universal rights-based publicly-sourced income benefit is an aspect of income distribution. A targeted rules-based income benefit is an income transfer; an act of income redistribution.

Before and After (‘comparative statics’)

Most commentators do not think about mechanisms. Rather they think of a present status quo, without much concern for the mix of principles and historical quirk that have contributed to that ‘present’. This presentbecomes the ‘before’.

When a policy change is suggested – creating a hypothetical ‘after’ – such commentators then wish to know, in relation to its immediate implementation, who will be the winners and who will be the losers. Winners get more dollars ‘in their pockets’; loses get less money.

In this sense, both policies underpinned by universal principles and policies underpinned by targeting principles will create a redistribution, meaning that the ‘after’ distribution is different from the ‘before’ distribution. (An important exception is a purely accounting policy, which will change the description of the present, but not alter the amounts of dollars in different people’s pockets.)

Let’s consider a Basic Universal Income (BUI), as featured last month in Universal Income Flat Tax: the Mechanism that Makes the Necessary Possible and Universal Basic Income (or Basic Universal Income) and Covid‑19. (The BUI is the benefit component of the UIFT mechanism.) Because UIFT is a policy to inject universal distribution principles into New Zealand’s tax-benefit mechanism, commentators such as those mentioned above tend to assume that such a policy is not targeted, and is therefore not useful.

However, the Universal Income Flat Tax (UIFT) policy does benefit some people differently from other people, and turns out to be peculiarly well-targeted in its immediate impact. While the suggested policy to introduce UIFT makes no immediate difference to beneficiaries nor to people grossing more than $70,000 a year, that policy does distribute increased income to the remainder of the adult population, the people in the middle. Thus, a Basic Universal Income (as proposed) targets people earning less than $70,000 a year and who are not beneficiaries.

Universal Basic Income (or Basic Universal Income) and Covid‑19 presents five example people: Janet, Max, Bob, Jill and Fred. Two of these people Bob and Jill – receive increased incomes as a direct result of the introduction of a Basic Universal Income. Thus, the ‘target group’ is non-beneficiaries receiving low and lowish incomes.

The Universal Mechanism at Work

It is important however to note that those whose incomes would not immediately change are better off, not in the sense that they would receive an immediate gain, but in the sense that they would receive an emergency cushion. Thus, persons whose incomes fall below $70,000 in the future will gain support from their cushions. Further, persons who are presently beneficiaries gain support from their cushions when they move into precarious employment. (Much – if not most – employment is precarious in these days of Covid19.)

The policy – based on universalist principles – is both well-targeted and provides an ongoing and automatic (ie non-bureaucratic) mechanism to protect individuals whose circumstances are subject to change. Additionally, the policy stabilises the economy itself, by providing an automatic economy-wide cushion, when economies face contractionary circumstances (such as pandemics and financial panics).

Benefit Adequacy

This particular UIFT policy facilitates a rights-based income distribution that contains fast-acting equalisation and stabilisation measures – the important metaphor here is the ‘cushion’.

The policy does not directly address the issue of child poverty. Nor does it directly address the issue of benefit adequacy for existing beneficiaries. (By targeting lower-income adults, including parents, UIFT does mean that there should be less future child poverty. And, by cushioning people in precarious employment, the policy should contribute to a reduction in the numbers of misfortunate people needing to be beneficiaries.) Nevertheless, the policy does help parents who may be earning lowish incomes, or who may be suffering from falling incomes, or who may be experiencing income insecurity arising from precarious employment (including precarious self-employment). This help mitigates child poverty. The UIFT policy – thanks to its cushioning effect – also gives these employees more bargaining power, enabling some to earn higher wages.

Re benefit adequacy, the adoption of a UIFT policy in no way pre-empts the introduction of other policies that focus on the level of benefits payable to those we call ‘beneficiaries’; those people whose circumstances would determine that their income should include a benefit over and above a BUI.

The presence of a Basic Universal Income (BUI) does not mean the absence of other benefits. (It does however mean that, if a BUI of $175 per week is introduced, then a beneficiary presently receiving $300 per week, would have the first $175 of their present benefit replaced by the BUI. If this person needs an extra $50 per week to ensure benefit adequacy, then they should get an extra $50 per week, giving them a total disposable income – BUI plus benefit – of $350 per week.)

Conclusion

A reform policy need not be either universal or targeted. It may be both universal and targeted. Critics of universal income support mechanisms should be aware of both the universal and the targeted effects of particular policies, rather than indulge in ill-informed scattergun opposition to policies which are based on universalist principles. These critics should confine their criticism to particular universalist policies, and not extend their criticism to all policies that are informed by universalist principles.

Social Development Minister Carmel Sepuloni described this year’s annual benefit increases of 3 per cent as “significant”, and “a way of sharing the wealth”. Prime Minister Jacinda Ardern also heralded them as the biggest increase to benefits in nine years, if National’s 2015 one-off adjustments are excluded.

The details of this year’s annual increase in welfare benefits were announced on Monday, the day before the official release on child poverty statistics was scheduled. The Government had already announced last year that, from now on, annual benefit increases would be calculated in the same way Superannuation is, tying the increase to average wage changes rather than the rate of inflation.

This means that on 1 April benefits will increase by about $10. This is all explained well by Audrey Young: “The increases to benefits are larger than they would have been if they remained indexed to the consumer price index, 3.09 per cent instead of 1.66 per cent. For example, a person on a sole parent support benefit will have an increase of $10.48 a week. Under the previous indexation, it would have been only $5.64 a week” – see: PM Jacinda Ardern announces larger-than-usual increases for social welfare benefits.

Young explains how this increase compares with benefit increases under National: “The increases are the largest since the Bill English Budget of 2015, which increased benefits by $25 a week for beneficiaries with dependent children. Not counting that increase, it is the largest increase in benefits in nine years.”

Should benefits be increased by more?

Will the 3 per cent increase be enough? Many poverty and welfare experts and advocates have been campaigning for much larger increases. For example, Mangere Budgeting Services chief executive Darryl Evans has said it’s progress but not nearly enough to deal with the crisis that he is seeing in his work: “I am pleased to hear it, however, I have to question how much difference it will make… A $10-a-week increase is better than nothing… however, I do have to question just how better off families will be with an extra $10” – see Jamie Ensor and Perry Wilton’s Benefit increase: Budgeting expert questions ‘how much difference it will make’.

Evans believes that larger increases were urgently needed: “What I would have like to have seen is an increase at the first point of at least a minimum of at least 10 percent with an increase of 3-4 percent each year after”.

He and others are pointing to the fact that the Government’s own Welfare Expert Advisory Group suggested increasing benefit levels by up to 47 per cent.

The Salvation Army say three per cent is not enough, and they’re armed with evidence, showing that a big one-off increase is desperately required – see Susan Edmunds’ Benefits now worth less than after they were cut by ‘Mother of all Budgets’ in 1991, Salvation Army says.

This report from last month argued that benefits don’t just need to be bettered-indexed in their annual increases, they need a big one-off increase to make up for their erosion in value over the last few decades. They have crunched the data on cost of living increases, and have come to the following conclusions: “From 1991 to 2019, benefits were only increased at the rate of general inflation – with a one-off boost in 2015 – meaning people living on benefits faced 118 per cent real inflation, while benefits increased just 79 per cent.”

Here’s the Salvation Army’s recommendations for how much benefits need to increase right now: “It said a 22 per cent increase was needed to catch up. The cost of bringing benefits back in line with their value in 1991 would be $75 a week extra to a sole parent, $60 a week extra for a single person on supported living support, and $48 extra a week for a single person aged over 25 on Jobseeker Support.”

The Army’s social policy adviser Ronji Tanielu is quoted calling for the Government to take action: “The Government’s own experts have said benefits need to increase, we have a prime minister who has made lifting children out of poverty her main goal, and now we have a surplus that can pay for it. If benefits cannot be lifted now, then when will they ever be lifted?”

Leftwing blogger Martyn Bradbury is even more exasperated by the Government’s inability to take what he sees as the necessary action on this issue: “I can’t believe the audacity of Labour increasing the pittance beneficiaries are paid by lifting benefits adjusted for inflation and then wanting a standing ovation for granting that pittance… bloody John Key raised benefits higher than Labour have!” – see: Labour give beneficiaries a pittance increase per week – if only they could save children in poverty with the speed they saved Concert FM.

He speculates on why the Labour-led Government isn’t making more progress on this key concern: “Labour are too frightened of triggering that resentment with a benefit increase and they don’t have enough control over the Ministry to try and force a change of culture so we are left to cheer for pathetic increases rather than actually alleviating poverty. If only Labour could save children in poverty with the speed they saved Concert FM.”

Related to this, rightwing political commentator Ben Thomas recently argued that Labour’s prioritising of issues like saving Concert FM rather than building houses or dealing with inequality is very telling – see his must-read column: Concert programme fiasco is a revealing glimpse of Labour’s priorities.

The Child Poverty Action Group has also lamented that the Government doesn’t appear to be willing to increase benefits more significantly. Commenting in November on Treasury’s release of projected expenditure, the NGO says that, although the Government officially states it is “considering” the Welfare Expert Advisory Group’s recommendations of big baseline benefit increases, this possibility hasn’t been factored into projected expenditure – see: Evidence of poverty relief lacking in 2020 Budget Policy Statement.

Nonetheless, the group commends the smaller benefit increases due to the indexing changes. They say the Government simply needs to raise the benefit baseline first. They also point out the Working for Families scheme needs similar indexing, because at the moment its value is being eroded.

The group argues the Government’s Winter Energy Payment is costing $2.4bn and is a poorly targeted use of money, given that it is a new welfare payment provided to virtually all superannuants regardless of their need. They advocate that it should be converted into payments for those at the bottom.

Government still promising “transformative change” for beneficiaries

In November, Minister Carmel Sepuloni went on Newshub Nation to answer questions about why she wasn’t increasing benefits more or implementing the promised welfare reforms, and she confirmed that more change was coming in “Phase Two”, which could include a big increase to benefits – see Scott Palmer’s Carmel Sepuloni defends not boosting benefits.

Sepuloni also explained: “We never said everything was going to be able to be done in one year or even one term. There are decades of neglect here, and we are in the process of going through that transformational change.” She wouldn’t answer further questions about benefit increases, but did suggest that even if more was given, “will ever be enough?”

Similarly, the minister spoke to RNZ, saying she was fine with the fact that the expectations of some weren’t being met, and pointed out that “I think lots of people do understand that it’s a lot harder to do that, then it is to actually make the recommendations” – see: Social Development Minister ‘working quickly as I can’ on welfare reforms.

The same item reports the views of Innes Asher, who was on the government’s own Welfare Expert Advisory group, saying not nearly enough was being done: “I think that a lot of help has reached a lot of people, but in a small way, and we’re just talking about people needing a much larger lift up to stop the struggling, and the sickness, and the distress, and the hunger and so on. So I think there just needs to be a much bigger lift.”

Benefit numbers and hardship grants increasing

Last month it was also revealed that there had been a big spike in both beneficiary numbers and applications for hardship grants. Nita Blake-Persen reported: “Figures out today from the Ministry for Social Development (MSD) show that in December there were 15,000 more people on the benefit than a year earlier. That was a 5 percent increase, bringing the total number of people on a benefit to 314,408. The figures also paint a picture of people struggling to pay for the basics, with $30 million handed out to cover emergency food grants alone” – see: The benefit battle: ‘Every cent counts’.

These changes have been a problem, with Sarah Robson reporting “The skyrocketing demand for hardship grants means Work and Income case managers haven’t been able to spend as much time getting people into jobs” – see: Work and Income too busy giving hardship grants to find employment for beneficiaries.

The answer, according to Auckland Action Against Poverty’s Ricardo Menendez March, is to simply increase benefit levels: “Work and Income frontline staff can actually focus on the intensive care that they are actually hired to do… By raising benefit levels, fewer families would need to queue up at Work and Income because they cannot afford basic necessities.”

The lack of progress is particularly disappointing for the Green Party, who campaigned on getting into government to force welfare reform, and were promised this as part of their coalition agreement with Labour. 1News reports: “The Green Party is under scrutiny for failing to make significant policy changes to the country’s welfare system despite campaign promises, but co-leader Marama Davidson says more Green MPs need to be voted into Parliament to see sweeping welfare reform” –  see: Benefits need to increase, but ‘it’s not happening right now’ – Green Party co-leader.

The Greens want to see all of the Welfare Expert Advisory group’s 47 recommendations for reform implemented, and are critical that only three have been so far. Davidson says: “We are very clear that we need to see a timeframe for the entire plan and all of the recommendations to be put in place – we haven’t yet seen that.”

One beneficiary has written about life on a benefit and his response to the latest increase: “I almost celebrated, until I realised that we are still 70 per cent behind the rises in national superannuation over the past 12 years” – see Martin Buck’s People don’t understand how low benefits are, until they’re forced to apply for one.

Of course, not all commentators believe any significant increases are warranted. Mike Hosking has criticised them, saying that they’re being given without any increase in productivity by the recipients – see: On coronavirus: Now is not the time for benefit increases.

Finally, for an in-depth discussion of the electoral politics of welfare reform, see Rob Stock’s very good article, Why New Zealand is unsympathetic towards the poor.