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It’s official: the poorest get nothing

Letter from Elsewhere

It’s official: the poorest get nothing

Anne Else

So you thought the first round of tax cuts helped everyone? Think again.

It’s abundantly clear that despite Working for Families, many families are struggling to cope with the rapid rises in basic living costs. Food went up by 7 percent in the year to June, and petrol by 34 percent, and more since, though it’s now down a bit. Power prices are jumping again too - Contact has just raised them by 10-12 percent.

Housing is the biggest expense, of course. Buying is completely out of reach for lower income families. But despite faltering house sales and falling prices, there’s been no corresponding fall in market rents. Instead they’ve stayed “blissfully unaffected by sales trends – at least in most areas”, (according to Crockers Market Research). The national average for three bedrooms was $340 a week in June, and $436 for Auckland; for two bedrooms it was $280 nationally, and $335 for Auckland.

Working for Families did do a lot to help low income earners. But it did much less for beneficiary families. They are now the poorest of the poor. Over a year ago, The Ministry of Social Development pointed out, in an internal advice paper, that “After deducting housing costs - and even with Accommodation Supplement - the median equivalised disposable household income for beneficiary families with no earned income falls to below the very stringent 40% poverty line, where there is nothing in reserve.” Last year these families were already in “significant hardship”. It can only have got worse since then.

Yet the first round of tax cuts has done nothing to help them. They are the only group to miss out completely. National’s proposed tax cut programme would do nothing to help them either.

Benefits are taxed at source, just like wages. So you would think that when taxes are cut, beneficiaries would get a little more. Not so. In order to make sure that beneficiaries do NOT get anything from the tax cuts, the gross benefit rates before tax have been lowered by amounts ranging from around 3% to around 5%.

The justification is that cost of living increases already apply to net benefits. So they did go up by 3.2 percent in April - because that's what overall consumer prices rose by in the year to last December. But these delayed increases are completely failing to keep up with the rising costs of basic necessities. The CPI calculations they are based on can’t capture the full impact of these rises. If others on low incomes needed extra help, how much more so do beneficiaries.

Cost of living increases apply to New Zealand Superannuation payments too. But superannuation is also linked to average wages. Pensioners, unlike beneficiaries, were permitted to benefit from the tax ctus – and they got free public transport as well. Benefits have been left to fall steadily behind as a percentage of wages.

Only two of the political parties likely to be in Parliament after 8 November – the Greens and the Maori Party – seem to have grasped that benefit levels are now far too low to sustain anything like a decent basic standard of living, and that keeping them at this level is storing up huge problems for the future.

In August the Women’s Studies Association asked political parties, “What do you propose to do about ensuring that the amount of state support available to those families where parents are currently or more permanently unable to support themselves and their children through paid employment, or through enough hours of paid employment to qualify for the full Working For Families package, is adequate to meet actual basic living costs such as rent, healthy food, transport, power, clothing, education costs, and medical costs?”

Labour said it was “committed to the elimination of child poverty, and to improving the quality of life for individuals, families and communities, both economically and socially. We have already made real progress - in the last four years, child poverty fell on every income measure. This has occurred because of four things achieved by Labour:

  • extra help to families through the Working for Families package,
  • a strong economy, with high employment and low unemployment,
  • fewer families whose main source of income is a benefit,
  • the restoration of income-related rents for state housing so that qualifying low-income tenants pay no more than 25 per cent of their income in rent.
  • Labour also recognises some families are struggling with increases in the price of food and petrol. In Budget 2008 we responded with a comprehensive tax cut package and from 4 August 2008, the financial assistance available through Special Needs Grants will increase. At the same time Labour is committed to annual inflation adjustments to benefits to maintain their real value.”

But maintaining the “real value” of benefits is meaningless when that value is already so far below the minimum required to cope with basic costs. And special needs grants for food are a very unsatisfactory way to respond to the hardship of beneficiary families.

National insists even more robotically than Labour that
“the best form of social security is a job. However, there will always be state assistance for those who need it, and National will provide indefinite support to people who are physically or mentally unable to support themselves… National believes in practical policies that get help to those most in need. We will focus on what works, whether that's through state provision or NGOs – the main thing is to get help to those who need it. We will also work with public and private providers to explore practical solutions like the Breakfast in Schools initiative supported by John Key.”

National is also “extremely concerned at the amount of debt owed by beneficiaries, many of whom have multiple debts with loan sharks as well as Work and Income.” Our meetings with budgeting services confirm that beneficiaries are having immense difficulty repaying this debt. (Yes, of course they do – because they’re borrowing to make ends meet.) National will look at ways to prevent the creation of new debt and provide more in the way of budgeting advice. The best form of income adequacy is a well-paid job and our economic policy is aimed at lifting incomes as New Zealand comes out of the current downturn. The current Government has increased the level of income support to families and we will maintain those levels.”

So apart from more charity, no real help there.

The Greens show a much more intelligent grasp of the problem. They support
“the introduction of a universal child benefit, at the level of $16.25 per week for the first child, and $11.50 per week for each subsequent child, and the universalisation of the In Work Tax Credit that currently discriminates against children of beneficiaries and students. We also support raising benefit levels, then indexing them to a price index based on food, energy and housing prices. Currently, benefits are indexed to the Consumer Price Index (CPI). The CPI is rising less that the price of these essentials, because it is affected by the falling prices of things like new cars and plasma-screen televisions, which people on low incomes tend not to buy.”

The Maori Party sees the elimination of child poverty as “one of the nation’s most urgent priorities”. Like the Greens, they promote “extending the in-work tax credit (with an appropriate renaming) to cover all families with children; providing a universal child benefit; and raising real benefit levels.”

If you get the chance during the campaign, ask the politicians exactly what they plan to do about the dire situation of beneficiaries, especially families.


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