Reducing Child Poverty

Despite many attempts, we have been remarkably ineffective at reducing child poverty. Can we expect the current government to do better?

Over forty years ago, researchers identified that children and their families were bulk of the poor It was not possible to do this earlier because there was not the data. The Muldoon Government began addressing the problem with income tax reductions for some families although the total effort was small. The Fourth Labour Government introduced Family Support in 1984 (the lead minister was Ann Hercus).

We are not sure about the exact impact of these measures. Data are sparse, high inflation devalued the sums involved, it was a time of social change (including earning mothers and changing family structures), while our measures of poverty are crude (for instance, they do not allow for childcare or schooling costs; the adjustments for housing costs are embarrassing).

In the 1990 Economic and Social Initiative, Ruth Richardson and Jenny Shipley cut benefits to families (they did not even increase them for the recent inflation). The effect of the measures was to more than double the number of children in poverty. (The exact figure depends upon the choice of poverty level and is complicated by the rise in unemployment at the time.)

Any commentator on child poverty should acknowledge this attack on children. If they do not, they are either bereft of technical competence or excessively timid, afraid that honesty will generate political wrath. That many fail to do so distorts the discussion and diagnosis. The clear message from the Richardson-Shipley cuts is that reducing child poverty involves income transfers (other measures, such as improving access to healthcare, can have a useful but secondary effect). Claiming that the chief cause of child poverty is drugs or whatever is not recognising that political decisions have been a major cause.

In 1996 National introduced the Child Tax Credit and in 2005 Labour brought in the Working For Families package. Both targeted families with adults in employment, leaving families dependent on benefits to continue to rot. In effect they reinforce the notion of the deserving and undeserving poor – ignoring that the division makes no sense in terms of the best interests of children. There is more about these measures below.

In 2016 the Key-English National Government raised benefit rates for families with children by $25 a week after tax. It proudly claimed that this was ‘the first time core benefit rates ha[d] been increased – apart from inflation adjustments – since 1972'. (True, but it did not mention the Richardson-Shipley cut and that the real rates were still below the 1972 levels.) The effects on poverty levels of this measure are not yet known because the survey data is not in.

Coming into office, the new Prime Minister, Jacinda Ardern, has given herself the responsibility for child poverty reduction, a concern she had when she was in opposition. Thus far there has been no announcement of what is going to be done but she says she wants to take 100,000 children out of poverty by 2020. (Bill English made a similar commitment.) Presumably this based on a poverty line which suggests about 150,000 are poor, with the intention is that the other 50,000 will also have financial pressures on them reduced. To these numbers have to be added their parents/guardians.

There is some divergence about how to attain this goal. Briefly, there are those who think we should scrap the current hotchpotch of measures and introduce a universal – perhaps taxable – family benefit at an adequate level to do the job. This would be a return to the tradition that Hercus and earlier Labour governments were pursuing of integrating the tax and benefit system and abolishing deserving/undeserving distinctions. (It would also be a(n expensive) step towards a Universal Basic Income, something the elderly already get.)

Others as concerned and informed about child poverty want to extend the existing system by addressing its anomalies. Their more selective approach would cost around $1.2b a year, which is a big hunk of the discretionary spending the government is likely to have available. (A universal approach will be much more expensive, but it will eliminate more poverty while minimising the anomalies and administrative hassles to be discussed below.)

I belong to the first (universal) group but the likelihood is that the Government may be trapped into the mindset which led to the Working For Families package.

This would be despite WFF being a botch-job. The Court of Appeal said that the part of the package that required paid-work was discriminatory and was thus inequitable; it did not rule it illegal, deferring to the Crown’s right to make policy. But the package is riddled with administrative complications and anomalies.

I shall not detail the complexities – there are four separate tax credits – but illustrate them by one recipient who, faced with the end-of-year wash-up which confusedly involved a hefty tax bill, thought WFF would be better called ‘WTF’.

The anomalies in the system mainly arise from the harsh targeting of WFF and the criteria for the work status of the parents. Those who are not in enough hours of work miss out. It is meant to be an incentive to get beneficiaries into paid work (the research shows it had hardly any effect). But what happens to a low income family which has to leave the full-time workforce perhaps after having been made redundant? As well as the drastic cut in its wage income, it also faces a brutal cut in child-related tax credits, just when it is most needed. WTF!

In fact the WFF (and the CTC) break the canons of good tax/income support design, obvious to anyone with a modicum of training in economics. How the designers made such a technical mess has never been explained. It may be the politicians set them ridiculous parameters in which to work; the political merit of the package is that it focused on a group of voters which Labour needed to win in 2005. One fears that the mistakes will be repeated.

This is a common problem in policy development in New Zealand, perhaps arising from the implicit neoliberal values that underpin past designs. (Many of those who worked on or supported the past packages will deny they are neoliberals; what they really mean is that they do not know what they are doing for they are not thinking about the distinction between output and wellbeing.)

Moving 100,000 children and their parents out of poverty within three years is an enormous and expensive challenge. The temptation will be to cut corners, patching up the botch-job but yet again producing a Heath-Robinson unsustainable system of family support. Our children deserve better; so does our future.