A we lfa re sta te fit for the 21st c e ntury T he 2008 L - - PowerPoint PPT Presentation

T he 2008 L inc oln E fford Me moria l L e c ture WE A Christc hurc h Susa n St John

A we lfa re sta te fit for the 21st c e ntury

Re turn of Rog e r- re run 1991?

Just how uncertain we have yet to see, but it with a sense of foreboding that I see the return of Roper Douglas to parliament and his clone Rodney likely to be appointed to a ministerial post. I suggest that his 1993 Unfinished Business which is the Douglas vision of where we should be in 2020 hold portents of where we may be going: In the foreword of that book he quotes the former Czech Minister of Finance Vaclav Klaus “We need an unconstrained unrestricted, full- fledged unspoiled market economy and we need it now.” I will return to his vision of the welfare state in which self responsibility with low tax is stressed and contrast that with an alternative vision

Shades of the Great Depression?

Perhaps shades of the depression is an exaggeration, but I am fearful that we are like the man whose house was built on sand. The affluent times have not been used well to provide a basic floor to living standards for everyone and just as we need it most the welfare state lies battered and worn- full of holes and crumbling framework. Even in the academic world it is not a fashionable topic except perhaps in sociology depts. Yet in the extraordinary times we live in we may yet rediscover that the market can turn on us and be a very bad

• master. Perhaps this is the wakeup call for the

welfare state and hopefully now the election is over we can put aside all the policies that have been made on the hoof and agree to go back to some fundamental principles

Welfare State wake-up call

Va lue s of soc ia l justic e

• The equal worth of all citizens
• Equal right to meet basic needs
• Wide opportunities for all to

participate and belong especially access to education

• Elimination of unjustified

discrimination especially that which causes material disadvantage

• Moderation of income and wealth

inequalities: it is not just about the poor, but about the rich, how they got rich and what is an appropriate reward

• The Market is servant not master:
• Under the policies of the new right we have

become enslaved to the concept of growth, more stuff is good, more shopping is good, more hours at work is good, marketised child care is good. And critically only paid work has value

The role of the welfare state

• Alleviate poverty
• Prevent poverty
• Provide insurance
• Certainty
• Security
• Economic stability
• Promote social justice

T wo vie ws of the we lfa re sta te

• 1. Welfare state causes poverty

Should be

“Only for the poor” Work is the way out of poverty

• 2. Welfare state provides security

“for all citizens”

Security encourages flowering of human potential in paid and unpaid work

We lfa re sta te 1: T he ROGE R DOUGL AS a pproa c h People need sticks and carrots- Choice and competition drive growth Low flat tax Self reliance

• Private insurance
• Private saving

Targeted welfare

• High effective marginal taxes on the poor
• Creation of the Gap
• Use of guaranteed minimum income

Wha t do we le a rn from History? T he la st 20 ye a rs:

Turmoil of the late 1980s

Rapid rise in unemployment Sharemarket crash Deep recession early 1990s

E le c tion 1990s – Re turn to the de c e nt soc ie ty?

• Ma rke t libe ra lism
• Individua lism a nd c hoic e
• Moving ‘be yond de pe nde nc y’

1991 budg e t: F rom the c ra dle to the g ra ve

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T he 1990s - Na tiona l

• Benefit cuts
• Tight targeting and flat tax
• User- pays
• Market rents
• Attacks on the New Zealand pension
• Labour market reform

Employment Contracts Act

• 1996 tax cuts
• 1998 Privatisation ACC
• Cuts NZS

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T he fifth L a bour Gove rnme nt Reverses some of the excesses

Labour market Renationalises ACC 80% owner of Air NZ Buys back Railways Income related rents Restores Pensions Changes from hard to soft workfare

Influe nc e d by the ‘T hird Wa y’ Follows the Third Way

“We are the government of labour” 2002 promises to eliminate child poverty

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1999- 2008 T he fifth L a bour g ove rnme nt: T he booming e c onomy

9 ye a rs of T he T hird Wa y: T he 2000s

The Calvinistic enabling state Social inclusion is through work Paid work is the way out of poverty Making work pay Antipathy to benefits Working for Families Fear of losing power Fear of consultation and lack of academic debate Loss of hard won principle Loss of simplicity

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Changes in income inequality in NZ, 1982-2007 (GINI)

Source: OECD

20 24 28 32 36 40

1980 82 84 86 88 90 92 94 96 98 00 02 04 06 2008

HES year Gini coefficient x 100

AHC BHC

Fastest increase in OECD (Perry, 2008)

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Rise of poverty in the 1990s % pop below CV and Rel 50 and 60% AHC poverty lines

0% 5% 10% 15% 20% 25% 30% 35% 1980 82 84 86 88 90 92 94 96 98 00 02 04 06 2008 HES year P roportion of population below thresholds

HH 60% 98CV HH 60% RE HH 50% 98CV HH 50% RE Constant value thresholds are based

• n the 1998 median and adjusted

forward and back with the CPI. 60% 50%

(Perry, 2008, fig f2)

Poverty today

Foodbank organisers say they are under increased pressure with rising demand for assistance as government agencies struggle to help low income families. That is despite the government's highly publicised working for Families package.

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Inc re a sing F

• odba nk use : Auc kla nd City

Mission

Auckland City Mission

Third world diseases

Professor Innes Asher Starship hospital

Serious skin infections hospital admissions1990-2006

Craig E, et al. NZCYES: Indicator Handbook. 2007.

Hospitalisation for serious bacterial infections and respiratory diseases risk by ‘deprivation’ 0-14 yr 2002-2006

Craig E, et al. NZCYES: Indicator Handbook. 2007. Cause of hospital admission Least deprived (NZDep1) Most deprived (NZDep10) Meningococcal disease# 1 4.93 Rheumatic fever 1 28.65* Serious skin infection 1 5.16 Tuberculosis 1 5.06* Gastroenteritis 1 2.00 Bronchiolitis## 1 6.18 Pertussis 1 3.70* Pneumonia 1 4.47 Bronchiectasis 1 15.58 Asthma 1 3.35 #0-24yr ##<1yr *NZDep9-10

S

• urc e : Ministry o f S
• c ial De ve lo pme nt 2006

Living standards 2004: families with dependent children by family type and income source

32 6 31 5 25 16 33 6 15 24 9 17 17 17 19 10 21 6 28 2 2 26 1 7 11 15

5 10 15 20 25 30 35 Sole-parent beneficaries Sole-parent market incomes Two-parent beneficaries Two-parent market incomes

Family type and income source Population percentage

Left to right: severe hardship to very good living standards

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Ne w ma ntra : work is the wa y out of pove rty

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Re writing the na tion’s va lue s

Social Security Amendment Bill 2006 “Work in paid employment offers the best

• pportunity for people to achieve social

and economic well-being”

The Social Security Amendment Bill wipes away any notion that our social security system is about ensuring everyone can participate as

• citizens. Instead, it makes getting people into a

job, any job, the fundamental duty of citizenship.

Be ne fits a re simply to a lle via te ha rdship.

The Bill fails to acknowledge that many undertake unpaid work looking after children, the sick and the elderly or doing other community activities. This work is crucial to the running of our society but receives no value in the Bill. Nor does the proposed legislation do anything to ensure that meaningful, adequately paid, secure employment is available. Instead it punishes those who can’t find work. The Bill allows for a new pre-benefit activity to be completed before anyone is even allowed to apply for the Unemployment Benefit. Under a new government, this activity could include work-for-the- dole.

Being sick or disabled is no longer an excuse not to work. Sickness and Invalid’s beneficiaries will be subject to new ‘planning and activity’ requirements which means that if they don’t start for planning for work, they could risk having their benefit suspended or reduced. Spouses are also expected to get paid work even though they may be caring for their sick spouse and/or have young children. The rationale for these new requirements is that Sickness and Invalid’s benefit numbers are increasing at a time of low

• unemployment. But rather than an epidemic of ‘dole-bludgers’

shifting to these benefits, we are largely seeing the effects of an ageing population who due to improvements in technology are living longer than ever but nonetheless may suffer from ill health that stops them working the last few years before retirement.

As if in hindsight, the Bill does provide some social security “to help alleviate hardship”. But this phrase is far more limiting that the goals of eliminating poverty and ensuring participation and belonging for all citizens .

Those outside the workforce are in grave danger of being regarded as second-class citizens. While we don’t yet have health insurance tied to employment as in the US, access to a major part of Working for Family Tax Credits and KiwiSaver subsidies to ensure a secure old age are already conditional on being in paid work. Caregivers, who are predominantly women, should be alarmed at this trend. That a Labour government is undermining the

• riginal notion of ‘well-fare’ would have Michael

Joseph Savage turning in his grave.

Perceptions of the welfare state

Reality

Antiquated Stigmatising Miserable level

Falling relative to wages Joint income test

Tops ups harder to get Poorest children denied their rightful payment Disgraceful levels of child poverty

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We lfa re sta te a nd c hildre n

From Post war security: 1986 Family Support/ Family Benefit 1991 Family Support Loss of the simple universal FB 1996 $20 per child, pw increase for some $5 FOR THE ‘OTHERS’ To Working for Families In Work Tax Credit $60+ conditional on work

One of the chief ways to improve the economic position of poor children is to protect their child benefits. The history of family assistance in New Zealand has been one of neglect. From post war security when there was a meaningful and universal family benefit, low cost medical care and affordable housing New Zealand has increasingly adopted measures designed for the poorest families only. In 1986 the tax credit Family Support was introduced as a per week per child payment based on family income

In 1991 the Family Benefit was absorbed into the tax credit Family Support and all of it reduced against joint parental income. Over time the effect of inflation in reducing the spending power of these payments was considerable. Family Support was eventually increased in 1996, but $15 of the increase was carved off and called the Child Tax Credit. Children whose parental income was from a benefit

• f any kind- student allowance ACC superannuation

sickness were excluded. In effect what happened in 1996 was poor children were denied $15 of the compensation for past inflation. It is a highly significant amount for families on tight budgets and buys a lot of bread and milk. One way to see the price such families have paid is that it

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It is no wonder that we do not value the work that is done in our homes, because we dismiss it and give it no economic value at

• all. That is disgusting. To divide children into

those whose parents are good parents because they work and children who are bad because their parents do not is absolutely disgusting. Annette King MP Wha t did L a bour sa y in 1996?

T e n ye a rs on: T wo c la sse s of poor c hildre n

• 1. The deserving poor

Family assistance for 1-child- $146 a week Threshold $36,000

• 2. The undeserving poor

Family assistance for 1-child $86 a week UE $307 for a couple per week

Family weekly assistance - deserving and undeserving families

100 200 300 400 500 600 700 1 2 3 4 5 6 7 8 no of children $ per week With In Work Tax Credit Without In Work Tax Credit

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Working for Families doesn’t work for those on benefits Astonishing complexity for those on benefits - many left just ‘no worse off’ Core benefits reduced Hardship provisions reduced 150,000 children ‘ Left behind’ in severe and significant hardship.

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Doe s it re wa rd work e ffort? Sole parent, 1 child, part-time job 20 hrs min wage Family Support $82 Part DPB benefit $194 Net earned income $175 Total income $451

EMTR = 92.3% State provides $276

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If she be c ome s a ‘working fa mily’

In Work Tax Credit $60 Family Support* $82

Min Family Tax Credit $161 Net earned income $186 Total income $489 EMTR = 100% State provides $303 Guaranteed Min Income

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Proble m - the re we re two obje c tive s for the In Work T a x Cre dit

Reduce child poverty Encourage work effort But Criteria hard to justify

20 hours’ work sole parent 30 hours’ work couple “off benefit ”

Prima Facie discrimination causing harm not justified by higher good

T he Huma n Rig hts T ribuna l

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4 we e k he a ring by the Huma n Rig hts T ribuna l - June / July 2008

IN THE MATTER OF A CLAIM UNDER THE HUMAN RIGHTS ACT 1993 AND ITS AMENDMENTS BETWEEN CHILD POVERTY ACTION GROUP INCORPORATED Plaintiff AND THE ATTORNEY-GENERAL Defendant

T a le told by a n idiot… .full of sound a nd fury

Policy process is deeply flawed

Principles are easily lost Conventions only as good as the good will of those in power

Who holds the policymakers to account?

Law route last resort

Subverting the language helps

Orwellian name changes

Lawyers will argue that black is white Progress is hard won and painfully slow

Mode l of the we lfa re sta te 2 Universal provision

Pension, health, education, ACC, children Progressive taxation

• Claws back from the better off
• Higher tax rates at the top end
• Simplicity

People are social animals and don’t need sharp sticks to see the value of work

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T he simple st a nd most c ost e ffe c tive re tire me nt sc he me in the world? Public provision

New Zealand Superannuation

Private provision

Voluntary unsubsidised Saving

Social insurance for all protects for longevity, investment, inflation risks Underpinned by progressive taxation

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Ha ve polic ie s pre ve nte d pove rty ?

MSD 2007

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NZ Supe r a suc c e ss story?

Living standards by age - 2004 (MSD 2006)

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Are polic ie s fa ir? Pre KiwiSaver NZS : Flat rate same for everyone No paid or work-based contributions needed

Good for women

Taxable Same age for men and women No hidden tax incentives that tend to be:

• Pro rich
• Pro male
• Costly

NZS equaliser of incomes

2007 L

• st sig ht of princ iple

Universal NZS And wage indexation And generous KiwiSaver subsidies And PIEs And free trips to Waiheke!! And low tax $307 Joint income test Stigmatised top ups $463 No joint income test Couple sickness benefit Couple NZS

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KiwiSa ve r E quity proble ms Two tier retirement

Young retired with and without KiwiSaver Old poorer retired vs younger with KiwiSaver Size of tax subsidy on retirement varies by:

• Age of joining
• Income
• Gender
• Ethnicity
• Employment status
• Net real returns

E thnic ity, g e nde r:

Maori and Pacific Island

Lower incomes

Women

Far lower incomes on average Median $20,085 vs $33,000 male (HES 2007) Lower workforce participation at all ages Less income from paid employment

Australian experience shows the way

Average super payout 2006 $130,000 for men, and $45,000 for women

(ASFA 2008)

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Is the solution to ma ke KiwiSa ve r c ompulsory? “If compulsion was to be introduced we would have to think about income testing New Zealand Super. That was just an awful phase in New Zealand's history." Michael Cullen (NZH, Nov 9th, 2007) “KiwiSaver is likely to become compulsory if the sign-up rate so far is anything to go by.” Peter Dunne (NZH Oct 27th 2007)

R

• ge r

Douglas

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“A compulsory saving scheme should aim to completely replace the existing scheme with a top-up only for lifetime low income earners” Unfinished Business 1993

Ne e d to a sk the que stion: Why? Why tie subsidies to employment?

No advantage to employer Remuneration negotiation problems Double dipping problems

Why give children KiwiSaver accounts?

They need access to their savings Different take-up perpetrates inequities

Why give the largest tax-funded lump-sums

• n retirement to better off? To the smart?

Why tax investment income less than earned income?

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How should we lfa re e volve in the 21st c e ntury?

Charitable model

Non-deserving poor Tight targeting /flat tax Poverty traps Foodbanks/ means-tested supplements

Social insurance

Work-related welfare as of right

Basic income

Basic floor; universality, progressivity NZS a prototype

Pre-election acknowledgements of the deficiencies of the welfare state Emergency patch ups for the redundant

Removal of the joint income test National’s bombshell “For families who lose eligibility for the in-work tax credit as a result of redundancy, National will pay a top-up to Working for Families payments equivalent to the maximum in-work tax credit. This will apply for up to 16 weeks.” October 31st 2008

Advice to the incoming government

Need to return to principles of welfare state 2 Remove discrimination

Universalise Progressive taxation

Hold fast against the forces of the extreme right