Two Dollars A Day, Is All They Pay, For Helping With Povertay

The 2015 Budget did not deal with children’s poverty  but it did put a down payment. 

(This is based on a presentation to a Child Poverty Action Group Post-budget Breakfast.)

The budget begins by identifying five ‘fiscal priorities’. Three are about the fiscal deficit and the track of the fiscal debt, one is about ACC levies – which strictly are not a fiscal issue – and the fifth is the government’s intention to reduce income taxes from 2017 (which just happens to be an election year). Apparently the government does not have a long run priority of reducing child poverty.

Undoubtedly the 2015 budget gives some attention to child poverty. On its own estimate, it provides a $790m package over four years. It is a gross measure; the amount is not offset by reductions in the real values of other spending on children.

It is not much. A total of $790m over four years is equivalent to a spend of just over $2 a day for each of the quarter of a million children who are usually thought to be in poverty. That is an average. Some will get more, some will get less or nothing and there will be some unavoidable leakage to children who are not in poverty. Whatever, it is not a large amount. You can hear the government flipping a two dollar coin to a kid and telling them not to spend it all in one shop.

The small amount reflects two things. First, this is a very tight budget with little additional spending. I am not uncomfortable with the overall fiscal stance. It reminds that the claim that New Zealand is a rock-star economy is not very convincing; nobody has said that this government is a rock-star and its budget position certainly is not.

The second reason for the small amount is that the rise in child poverty was a consequence of substantial tax cuts favouring the rich which were paid for by cutting the incomes of poor households especially those with children. We cannot significantly address child poverty without rebalancing the tax and income support system towards them. Certainly one can find $2 a day by fidgeting around the edges of revenue and spending, but that is nowhere near sufficient. When I did a detailed analysis of a beneficiary and her child I concluded that they needed an extra $140 a week or so – about ten times as much as the $2 a day.

The government thinks it has found a way to square the circle. The budget speech says that ‘[t]he best thing we can do for these children [in material hardship] is to get their parents into sustainable, full-time work, where that is possible.’ There are two problems here. The first is that it may not be possible. The health problems faced by the particular family I was looking at – the one which needed an additional $140 a week – precluded her working very long hours. Admittedly, more income would have led to better nutrition and healthcare which may have made it easier for her to work – in which case the government’s approach puts the cart before the horse. The family needs more money in order to be able to go out to work. The government’s approach leaves her family rotting on a low material standard of living.

But there is a second issue only marginally understood by the government and those who advocate work as a solution to child poverty. Very often a working parent requires childcare; that can be costly. Their net income is actually their after-tax income less the cost of childcare. However the standard measures of poverty ignore this and treat childcare as a luxury spend. .

 Over the years there have been various childcare subsidies; they seem to be a bit of a shambles and are not flexible enough to meet many working parents’ needs, so the families end up poorer than the income statistics show, because of the costs of unsubsidised childcare. That means we underestimate poverty in working families and overestimate work as a solution to the child poverty problem. The government strategy won’t eliminate child poverty; it seems designed to allow the government off the hook of addressing the problem properly.

Yet one must acknowledge that within the tight fiscal constraints imposed by the state of the economy and the unwillingness to raise additional revenue, the government has tried to ameliorate child poverty in New Zealand.

There will be a lot of grumbling about aspects of the package as is the nature of budget commentary. Given that it is based on ad hoc incrementalism – of tinkering about with an inadequate structure – much of that grumbling is justified.

I would go the other way. Within the limitations and subject to the foolishness of their long run strategy of trying to solve the poverty problem by getting all parents out to work – the government has made some progress. The government acknowledges there is a serious problem and it is doing something about it.

But what it has done – at $2 a poor child a day – it is not enough. Or to put it more constructively, it is only a down payment. It would be totally wrong for the government to say complacently ‘we have addressed the child poverty problem, now onto the next issue’. What the children’s lobby must do is continue its pressure for further measures. It should demand another $2 a day, or more, in the 2016 budget and another $2 a day in the 2017 budget and probably for a few more budgets after that.

In the interim, I hope that the government will start doing some hard thinking and, instead of incremental additions to an existing and not very effective system of fmaily assistance, develop a comprehensive approach which – as an aside – would demonstrate that getting parents into paid work is not going to be the ultimate solution.

The lobby can take heart. It appears that it was only during last year’s election – six months ago – that the government came to the conclusion that child poverty is an issue to which it should give priority. It was not the research evidence, accumulating for forty odd years, which persuaded it; it did so because the public showed it cared about the state of our children. That is what led to the prioritisation – pressure from people like you. Congratulations. Good on you. Keep it up, you should be able – eventually – to get much more than $2 a day for our kids.