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Welfare Changes Lack Substance

23 February, 2005

Welfare Changes Lack Substance

"The government's plans to introduce a single core benefit with add-ons to replace current working-age benefits seem largely cosmetic", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

"Most beneficiaries are capable of working and it is pleasing that the government is now acknowledging that unless changes are made, the numbers on some benefits will continue to grow.

"However, because the main existing add-ons remain, the claim to simplification is tenuous. There are no moves to apply stronger job-search obligations or place time limits on benefits, as advocated in the last OECD report on New Zealand . Given the assurance that no one will be worse off, a single rate implies some benefits will be adjusted upwards and the losers will be taxpayers, other things being equal."

Mr Kerr said that the best welfare policy was a sound economy and a plentiful supply of jobs, and recent positive welfare trends owed most to strong employment growth. Government welfare initiatives such as the removal of work testing for the domestic purposes benefit and the 'jobs jolt' had worsened or done little to reduce dependency, and the new policy seemed unlikely to be more effective.

"To reduce dependency in a sustainable way, the starting point should be a more credible growth strategy and a reversal of moves to re-regulate the labour market, which made employment of 'hard to place' beneficiaries more risky to employers", Mr Kerr said.

"Then New Zealand should be looking for welfare models to Australia and, particularly, the United States which has achieved a stunning reduction in welfare rolls through policies that are now bipartisan.

"Instead, the government has explicitly cited Sweden as a welfare model. Sweden, however, is characterised by poor work incentives (about 10 percent of the Swedish workforce are on sick leave at any one time), poverty traps, very high taxes to support its large welfare state, and a fall in GDP per capita rankings from the world's third highest in 1970 to seventeenth in 2000. It is not the way to go", Mr Kerr said.


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