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Investment Approach for welfare loses sight of social goals

20 May 2012

Business focused “Investment Approach” for welfare loses sight of social goals

Child Poverty Action Group is concerned that the government is adopting the USA’s harsh approach to welfare reform, which focuses on reducing the cost of welfare without regard for the wellbeing of those affected. Under the USA’s reforms, welfare rolls were reduced, but poverty and hardship increased and many people simply disappeared from both welfare and employment statistics.

Ms Bennett announced yesterday that a newly appointed board at Work and Income NZ would oversee an "investment approach to welfare." The overseeing board will adopt a private insurance approach “to reduce future liability”.

The Social Development Minister asserts that: "The cost of today's total number of beneficiaries is estimated at $45 billion.” This terrifying figure, based on the lifetime cost of all the people currently on Domestic Purposes, Unemployment, Sickness and Invalids Benefits, leads her to draw the conclusion: “it makes good economic and social sense to provide targeted support up front to get more people into work sooner".

However, if this thinking is applied to New Zealand superannuation, the Retirement Policy and Research Centre has estimated the actuarial value of New Zealand Superannuation for those currently over 65 is over $80 billion. Most people currently aged under 65 will also reach retirement, so the total expected liability for the old age pension could be about $150 billion. These figures however are somewhat meaningless, like the Minister’s $45 billion, and not a good guide to policy.

CPAG believes the mis-named “investment approach” is a fundamental shift away from the social goals which underpin the provision of social welfare in New Zealand.

CPAG spokesperson Mike O’Brien said, “The funds available for “investment” will be spent largely on restructuring administration, IT, contracts with private providers, and remunerating board members. And the American experience has shown far too much money will be spent harassing beneficiaries, and funding private providers whose incentives are misaligned with the interests of their clients.”

None of this spending will provide extra employment and training opportunities, or address child poverty, which is a major welfare issue for New Zealand. Instead the government is reducing meaningful employment in the public sector and in schools.

Mike O’Brien said: “In its search for efficiency and cost savings, the government cannot afford to lose sight of the long-term wellbeing of our children. The UK Guardian recently warned that “The aim of cuts is to "incentivise" people out of "dependency". Presumably kicking away crutches incentivises the lame to walk.”

PensionCommentary 2009-1: Why does the Accident Compensation Corporation have a fund?


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