Why Children are in Poverty

The Elimination of Child Poverty Requires a Universal Child Benefit. 

The Growing Up in New Zealand Study at the University of Auckland found that half of the 7000 families in their sample suffered measurable material hardship in their babies‘ first years of life. That so many of New Zealand’s children are in poverty eating poorer quality food or feeling cold and suffering other deprivations is no surprise, given that the study is yet another in the forty years of research on poverty. The real surprise is how unwilling we are to address the issue.

Rather than trying to understand why there is so much poverty, we rush into solutions which are hardly relevant. Usually we do not distinguish between causes and consequences. Some 13 percent of the sample had gone without fresh fruit and vegetables so they could pay other expenses. Therefore let us take GST off fruit and vegetables. Observe that it neither addresses the reasons nor is it well targeted on the poor.

So what are the causes? The unsurprising evidence is that poor families do not have enough income. Rather obvious, you might think, so why don’t we give them more? After all, the Working For Families In Work Tax Credit (and its 1996 Independent Family Tax Credit predecessor) deliberately avoids giving income to some of the poorest. Overall, Working for Families lifted some families out of poverty and left some families in a slough of deprivation.

Moreover ,the evidence is that child poverty rose when government income support to them was cut in 1991. Exactly how much depends on the choice of the poverty line, but the short answer is ‘a lot’.

According to the July 2014 MSD report, Household Incomes in New Zealand, child poverty today is about double what it was in the early 1980s. There is no separate analysis of parents but the likelihood is that their poverty level doubled too and that almost all the increase in those fateful years involved children and their caregivers. We do know that over 80 percent of the poor belong to that group.

What is frequently overlooked is that all the significant increase occurred between 1990 and 1992. The poverty level was much the same before 1990 (and low) and much the same after 1992 (and high), with a big jump in the period when the National Government – Ruth Richardson, Minister of Finance and Jenny Shipley Minister of Social Welfare – cut back state support to families.

If we ignore this – and it is surprising how many commentators do – we come up with solutions which wont solve child poverty. One is to send all the mothers out to work; that increases their income, doesn’t it? And besides. households with both working parents are measured to be less likely poor. Unfortunately there is a major glitch in the way we measure poverty. (Actually there are more but let’s focus on this one.)

Currently the poverty estimates (and the tax system) treat the cost of childcare while a parent is working as consumption not as a cost of production. So suppose a mother goes out to work and earns $100 (after tax) but her childcare while she is working costs $50. We record her discretionary income as increasing by $100 implying that she could have gone out to work leaving the child at home, and the childcare is a consumption indulgence. Yeah, right. Were we able to adjust for the costs of childcare we would find that poverty is much higher among both-working families. We are underestimating the level of poverty by ignoring that many women need childcare to go out to work. .

So getting mothers out to work is not a solution even if we ignore that many are unable to work for very good reasons such as their or their children’s health.

So let us go back to the lesson from 1991. If we cut public support to families, poverty goes up – indeed it doubled. Does it not follow that if we increased public support it would decrease? Why don’t we? “It would be too expensive’, say those keen to keep the taxes down on themselves irrespective of the social damage that causes.

More public support may be expensive but it is probably the cheapest effective way to reduce poverty. The badly targeted alternatives are really expensive, so much so that the likelihood is that the effort will be below what is required to reduce poverty substantially. Thus the test of whether the next round of measures address child poverty is whether they give additional support to the poorest, perhaps in the form of a universal family benefit (which might be income taxed so it is of greater value to the poorest).

That is not all that has to be done. We need to address the shambolic treatment of childcare for employed parents too. It is a cost of production and should either be treated that way for tax purposes or fully subsidised up to a reasonable level.

Having addressed the causes we also need to address the consequences. We have a backlog of twenty and more years of failure to tackle poverty. The consequence is generations of deprived children with poor health, poor educational performances and reduced opportunity. For society as a whole it is lower productivity, higher unemployment and more social ills including greater expenditure in the justice area and waste in the health and educational areas as medics and teachers struggle with the consequences of deprivation.