Gordon Campbell on welfare | Labour’s exchange rate cynicism

Paula Bennett’s refusal to front up on National Radio this morning and discuss her latest spasm of beneficiary policy is symptomatic of her overall performance as Minister. The Social Development Minister is happy to announce any number of 'get tough' measures for those on benefits, but is unwilling to fulfil her own – or her government’s – responsibilities to meet their side of the social bargain. The policy announced yesterday will require beneficiaries to comply with certain health and early childhood obligations by July 1st next year – but without the government taking any responsibility for ensuring that the services involved (a) exist or (b) or are priced at a rate that beneficiaries can afford.

Oh, and in a variant of the ‘three strikes’ policy, if beneficiaries fail to comply they face the prospect of having their benefits cut by up to 50%. All for the sake of the children of course. And what will happen then to those families and their children, given that such a policy would tip them out onto the street? Do we all really think it’s a good idea to punish children in this fashion to the extent of denying them adequate food and shelter, because of the sins of their parents? Wouldn’t a 50% cut in benefits for whatever reason, put New Zealand in breach of the UN Convention on the Rights of the Child?

Who knows, because Bennett was too chickenshit to front up to RNZ and be questioned on the subject. As the Green Party Co-Leader Metiria Turei has also pointed out, why is this policy of mandatory health checks and compulsory early childhood education being directed only at beneficiaries and not, say, at the children of the working poor who also receive state support - in their case via Working For Families?

Is this discrimination being fostered because the Minister already knows the policies are inherently impractical even for beneficiary families, unless there is to be a massive infusion of matching state funds before July 1st, 2013, in order to expand the services in question and/or to lower the price barriers that currently deter people from accessing the medical care that they and their families need? Or does the beneficiary vs. WFF distinction exist because the government is too afraid of the political backlash from the working poor if it similarly threatened to cut 50% of the supplementary income that they receive from Working for Families? Certainly, it is hard to see where the welfare of children at risk is being treated as the priority in this grubby little exercise. If it were, Bennett wouldn’t be being quite so gunshy about fronting up to defend the policy.

Quite a week though, on child poverty. As things stand, this government wants to make it mandatory for beneficiary kids to have early education and systematic health care in their pre-school years. Good. Yet once those kids reach the ripe old age of five, the same government strongly opposes making sure that they have had breakfast, and can concentrate on their lessons. Go figure the logic.

Exchange rate follies

One of the grand advantages of being in opposition is that you don’t have to take the political consequences of enacting what you advocate. Thus, Labour’s David Parker can call for action to bring down the exchange rate and he (presumably) hopes to win friends for Labour among exporters via such advocacy – but without having much in the way of visible regard for the consequences on poor and medium income workers and their families, who stand to bear the brunt of the sharp rise in food and petrol prices that would result.

In other words, what Parker is advocating is naïve at best, and deeply cynical at worst. Parker is clearly trying to snooker the government. In practice, it cannot help exporters on this point without removing the shield that a higher exchange rate provides for everyone else, against higher import costs. Much as the Key government may like to help its mates, it cannot afford the political backlash.

There are other factors to be considered. Yes, lowering the exchange rate would give the export sector a comfier ride. There is no guarantee this would benefit Labour’s core constituency. Moreover, such action would penalise the capable exporters who have successfully adapted to the current settings, and would reward the lazy, inefficient players still in the export game who – for some reason – cannot make ends meet with the existing 20% margin against the US dollar and the existing margin against the Australian dollar. How much of an exchange rate handout does Parker think these people need?

And what does he think will happen to the poor and medium income families he is supposed to represent, as a result of what he is advocating? Yes, it would be nice if exporters used their extra earnings to create more jobs. The more likely outcome is that would (a) pocket the money or (b) invest in technology that would further reduce the demand for labour. Parker is asking people to take a lot on faith. Meanwhile, ordinary people would almost certainly be paying through the roof for food and petrol. Yesterday, Economic Development Minister Steven Joyce was absolutely right in the House to be pointing out these downsides. Not only is there no free lunch on lowering the exchange rate, lunch would quickly become more expensive.

How much more? Here’s one recent calculation of what an exchange rate devaluation might do to the price of petrol:

The high NZD is a major irritant for the export sector, but it is also shielding us from higher adverse cost shocks. USDD oil prices have risen by close to 25% since late June, and while domestic oil prices have climbed more than 23 cents a litre since early July, the level of oil prices (all else being equal) would be significantly higher with a lower NZD. We estimate prices for unleaded 91 would bee at the $2.65 a litre mark if the NZD/USD [ratio] was 60 cents, and $3 a litre with a 50 cent NZD.

Food prices would rise on the back of those numbers. I think Labour and the Greens are both wrong on this. Labour is trying to win business friends, and higher fuel costs would assist the Greens campaign against further major motorway construction. In the meantime, ordinary New Zealanders would suffer, and would take out their pain on the government. No doubt, Parker would say he doesn’t intend to drive the NZD down to a 58-60 cents rate against the USD, but that assumes a de facto devaluation can be a Goldilocks one that is neither too big nor too small, but just right. Again, that’s either a disingenuous position, or a deeply cynical one.

ENDS

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