By Kim Sare
May 11, 2018

A Lack of Benefits: The Working Poor

On the 17th of March, Prime Minister Ardern announced on The Nation that there is no additional funding available for child poverty reduction beyond that already allocated for the Families Package.

At the end of January, Prime Minister Ardern announced her commitment to reducing child poverty in New Zealand from 15% to 5% through the Child Poverty Reduction Bill. But now the estimated number of children that can be helped through this has decreased to just under 65,000. Due to Labour’s negative stance on breaching the self-imposed governmental debt limit, it is unlikely that additional funding will be made available within the next few months. However, less than two weeks after her statement on The Nation, Miss Ardern announced her government's goal to reduce the number of children living in poverty by 70,000 over the next three years, with a majority of this being achieved through the new Families Package.

With more than a month passed since Ardern’s initial statement, we spoke to Waikato Professor Dr Ottilie Stolte from our Psychology Department to get some insight into the situation and find out whether or not we should be concerned.

Nexus: Do you believe that this Family Package alone is sufficient for addressing and reducing child poverty in New Zealand?

OS: The government’s Family Package will help many families. New Zealand has become an expensive place to raise a family due to many people having relatively low and insecure incomes, and due to high living costs including housing, transport, utilities and food. Increasing numbers of families are struggling to make ends meet. This is reflected in the over 40 percent of households now experiencing some form of food insecurity, the increasing numbers of families facing serious housing issues or homelessness, and the over 40,000 children admitted to hospital every year with preventable poverty-related illnesses.

The Family Package is, however, not sufficient on its own. Poverty is a complex issue, so no single policy initiative can resolve it. Income is vitally important for poorer families, but it is only a part of the picture of poverty. The other thing to consider is the cost of living. If living costs rise faster than incomes, then poorer people will be worse off even if their incomes rise somewhat. This means we also need to do something about rising living costs. The most observable issue here is that, since 2002, New Zealand has one of the highest rates of property price inflation in the OECD. This property hyperinflation has been fuelled by asset speculation, increased borrowing, and the practice of leveraging. Countless fortunes have been made by people ‘on the property ladder’, and these same people do not want the party to stop. New Zealand’s housing bubble has, however, been a disaster for poorer families and first-home buyers. In most of the larger cities, low-income families have no hope of ever purchasing a house. Moreover, the years of minimal investment in state housing means many poorer people are at the mercy of highly competitive private rental markets.

The challenges facing poorer families today, such as over-priced housing, insufficient food and poverty diseases, demonstrate that poverty is not a natural state of affairs, nor is it something that exists all by itself and separate from the rest of society. The Nobel Prize-winning economist Amartya Sen has argued that poverty is generally the outcome of an unequal distribution of wealth, a concentration of wealth in fewer hands, and unbridled market speculation (which typically means higher living costs for people on fixed or low incomes). Consequently, alongside boosting the incomes of the poor, we need to do more to reduce the forms of market speculation that escalate the cost of basic human needs such as shelter and food. In addition, it is also crucial to develop a comprehensive policy approach to poverty to ensure that all citizens can meet basic needs and have access to decent jobs, affordable housing, healthcare, food, education, disability supports and social protection. As Ruth Lister argues, poverty is a denial of human and citizenship rights.

It is also important to acknowledge the situation of the ‘working poor’. In the past, paid work was the pathway out of poverty. Today, this is not necessarily the case. Many jobs at the lower end of the labour market are characterised by low pay, insecure hours or on-call work, high costs, secondary taxes, inflexible employers, and the constraints of juggling parenting and working hours. Given this situation, various forms of welfare payments (such as Jobseeker Support, Working for Families and the Accommodation Supplement) have become essential to ensure families can survive on low or inconsistent wages. Such payments also function as a subsidy to employers that allows them to keep wages low. However, accessing benefits and income supports has become an increasingly difficult and stigmatising experience for beneficiaries. Poorer people are routinely chastised when they need to access welfare. A report resulting from the “We are Beneficiaries” campaign, compiled by Sam Orchard, uses art and quotations to poignantly document the soul-destroying experiences from people who have had to engage with WINZ. We need a welfare system that addresses human needs, not one that adds to people’s suffering.

Nexus: What do you think has led to the lack of additional money?

OS: I am not an economist, and we will not know the full extent of the coalition government’s economic constraints until the Budget is announced in May. However, economic experts and commentators such as Shamubeel Eaqub, Ganesh Nana, Brian Easton, Susan St John and Bernard Hickey have all expressed the concern that there has been a considerable period of sustained under-investment in New Zealand’s public infrastructure and services. The priority of various governments, during this period, has been to pay off debt and generate surpluses to allow for things like tax cuts. In addition, New Zealand has had record net migration for the past five years. As a result, the current coalition government faces a double-whammy of crumbling infrastructure and overstretched services, alongside increased demand from rapid population growth. Every day there are media reports about new crises related to shortages of teachers, nurses, doctors or midwives, dilapidated hospitals, stretched mental health services, housing shortfalls, overflowing sewage systems, and clogged-up transport systems. None of these issues can be resolved quickly or cheaply. Then, there are the additional pressures of population ageing, climate change-related weather events, and biosecurity threats. It is hardly surprising to hear that the coalition government is running out of cash.

Shamubeel Eaqub has recently stated that the current coalition government has tangled itself in knots with its economic management approach, and especially the self-imposed Budget Responsibility Rules. These rules mean the government has set itself inflexible targets which limit debt and social spending. Internationally, a growing number of economists are questioning such austerity approaches to government budgets since they lead to economic stagnation. The examples of Greece and Iceland following the 2008 GFC have provided natural experiments of divergent economic paths following economic shocks. Iceland had one of the worst fiscal crises in modern history, but the nation invested in its people rather than in the banks and has recovered much faster compared to Greece and without as much societal damage. Such examples demonstrate what Amartya Sen argued some time ago with his capability framework that in order to have sustainable economic development there must also be human development. The two go hand in hand. The OECD estimates that rising inequality in New Zealand over 30 years has stunted economic growth by one third. The current coalition government is in a tight corner, but the path it makes now will have ongoing repercussions for the economic and social health and wealth of the country (as is the case with all governments).

Nexus: Do you think this is a serious issue for New Zealand, or not really something we have worry about?

OS: Poverty has a high human cost in terms of the suffering it causes. However, we know from over 150 years of epidemiological research that poverty is bad for people’s physical and mental health. Poverty leaves lasting scars that reduce a person’s ability to flourish and make a positive contribution to society, particularly when it occurs early in a person’s life. Childhood poverty and poor health are strongly linked and result in absences from school, disruptions to parents’ employment, and additional costs of doctor’s visits and prescription charges. Disruptions to children’s education mean fewer life chances and reduce social mobility.

Today, it is nearly impossible to survive on a benefit and/or the income from a minimum wage job if you live in a major city and do not have (monetary and/or non-monetary) assistance from supportive family or close friends. Most people find that they need to supplement their low incomes with under-the-table work, informal bartering, relying on regular charitable donations of food or clothing, illegal activities, or living in overcrowded or unsuitable housing. It is not uncommon to hear of families of four with food budgets of $40 or less. The food budget is also often the only ‘flexible’ component of the household budget when unexpected bills arrive, which explains why poorer people (not just school children) regularly go hungry in a nation that exports food.

Making an effort to become more aware of poverty or doing something about poverty is hard. Sometimes it just feels too hard; so, many New Zealanders who are not in poverty prefer to think that poor people must be doing something wrong, or that they are just too lazy or stoned to get a job. Yet, such negative views about poorer people are not actually doing any of us any good. In many cases, poorer people are doing the best they can. According to Associate Professor Mike O’Brien, 37 percent of children in poverty actually have both parents working in jobs. This reflects how poverty is not necessarily resolved when people go off benefits and into paid work. The phenomenon of the working poor is a consequence of the low wages and irregular hours that are now a feature of an increasing number of jobs. These are changes in New Zealand that we should all be worried about.

Nexus: Will this lack of extra funding have an effect on lower income families in New Zealand?

OS: It is good that there will be some assistance for poorer families, however, many will continue to struggle to make ends meet. Poverty and inequality are at a crisis level in New Zealand, and we have some of the worst statistics in the OECD. This crisis is reflected in numerous reports that loudly raise the alarm about poverty from agencies including the United Nations, the Child Poverty Action Group, the Salvation Army, Oxfam, the NZ Council of Christian Social Services, UNICEF NZ, the Child Poverty Monitor, Amnesty International, etc.…

The Guardian UK reported that poverty is New Zealand’s most shameful secret and that poverty has been ‘normalised’. Many New Zealanders are no longer surprised to hear about families with six children living in a motel room because they cannot access affordable housing. Nor, are people shocked by families sleeping in cars or living in damp, mouldy houses that make their kids sick. Such realities are taking a huge toll. Sadly, 1180 children have died of health conditions directly related to substandard housing in the period from 2000 to 2015. The Families Package is going to help, but the crisis is now at such a level that a lot more needs to happen before these stark realities are addressed.

Nexus: Do you think the government should breach it’s self-imposed ‘debt limit’ in order to acquire more funding to achieve lower poverty rates?

OS: I am not an economist so cannot comment on the technicalities or implications of government borrowing. However, it may make economic sense to divert additional funds towards poverty reduction even if this means the government takes on a bit more debt. The reason is because not doing enough about poverty is very expensive in the longer term. Giving money to families and poorer people can be good for the economy since low-income people tend to spend a greater proportion of their income – they have to in order to survive. Poorer people also tend to spend this money locally, which stimulates local economies.

Nexus: Do you have any other comments regarding child poverty in New Zealand and the funding going towards its reduction?

OS: Doing more to address poverty makes economic, social and moral sense. Poverty affects us all and, in the longer term, we all end up paying for the downstream health and social problems that result from poverty. However, to eradicate poverty in New Zealand, we need much more comprehensive changes to the economy and society. To begin, we need transformational policies to ‘reset’ the economy. The current system is not working for the poor (nor the majority of lower-middle income Kiwis) because they are not benefiting from economic growth. Oxfam and Credit Suisse both report that New Zealand now has an extreme wealth gap where 10 percent of Kiwis now own half of the country’s wealth, while 50 percent of New Zealanders own less than 5 percent of all the wealth. Over the past few decades, various policy settings have allowed the richest Kiwis to keep accumulating wealth by avoiding taxes, cutting jobs, and by driving down wages and the prices paid to producers. All such actions reduce opportunities for poorer citizens to pull themselves up by the bootstraps. We need an economy that serves all of New Zealand, not just wealthy people. Relatedly, Professor Stephen Keen has argued that we also need an economy that spreads wealth more evenly and one that offers greater rewards to productive activity over passive investment. As the economist Thomas Pikkety has so clearly demonstrated, in many economies, wealth does not trickle down; it gushes upwards towards a shrinking group of people at the top of the economic pyramid. Pikkety’s meticulous analysis of 200 years of tax records in six countries has shown that skewed economic systems (such as that in New Zealand today) have occurred many times across history and that this has generally led to increased suffering, social problems, conflict and even wars.

One obstacle to offering more assistance to the poor is the idea that this is unaffordable. However, the world is richer than ever before in human history, so we do have the resource capacity to address poverty. New Zealand has a considerable amount of wealth, but it is not well distributed, and a lot of this wealth is deliberately hidden. Professor Lisa Marriot cites IRD figures for 2015-16 which show that detected tax ‘discrepancies’ in New Zealand were at least $1.2 billion annually. Undetected tax fraud and avoidance could be as much as $6 billion. If everyone paid their tax, we would have sufficient resources to resolve child poverty, as well as fix our hospitals, schools, roads, drains, libraries, public transport etc.… Shamubeel Eaqub made the statement that ‘tax is love’ to argue against those who want to avoid paying any tax at all. Tax is about caring. Tax is about pooling our resources and redistributing so that all of society is better off. Eaqub’s statement about tax can seem a little strange given the widespread view that governments should adopt austerity, and restrict spending on healthcare, education and social protection. Yet, there is comprehensive empirical evidence to support the idea that using taxes to invest in the population is both a socially and economically sensible thing to do. As Richard Wilkinson and Kate Pickett have demonstrated, Scandinavian countries that do this have far better social and health outcomes. The economic benefits are also measurable. David Stuckler and Sanjay Basu have calculated that for every $1 a government spends there can be at least a $3 return. However, they warn that this fiscal multiplier effect is the most optimal when a government spends on health, education and social protection. In contrast, government spending on the military or bank bailouts usually has a negative multiplier effect.

My colleague Professor Darrin Hodgetts and I have recently published a book titled “Urban Poverty and Health Inequalities: A Relational Approach.”

https://www.routledge.com/Urban-Poverty-and-Health-Inequalities-A-Relational-Approach/Hodgetts-Stolte/p/book/9781138124363%20http://

We wrote this book as an alternative to the widespread assumption that poverty is primarily due to the faulty behaviours and choices of poorer individuals. Instead, we argue that poverty is a relational issue that arises from particular relationships between groups in society. Sure, poorer people can make mistakes, as we all do. However, when I make mistakes, I have sufficient resources, social networks and opportunities to bounce back from them. For poorer and/or more marginalised people mistakes are costly, and can result in stress, hunger, debt and homelessness. In New Zealand today, the increasing disparity between the haves and have-nots is entrenching social divisions, reducing social mobility, deepening poverty traps, and harming the physical and mental health of poorer people. To have any hope of solving the poverty of children and their families we will need bold alternatives to the path taken by nations such as New Zealand over the past few decades.


 

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