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Thursday, November 03, 2011

National: on superannuation and solo mothers

Welfare tends to become an issue before elections, and the renaming of different benefits is not unusual at this time. Labour in 2008, for example, were calling a centralization of benefits to the notion of a 'core benefit' to eradicate differences in the way that different kinds of benefits are treated. Welfare and social security is one of the largest costs in the operating budget for any incoming government winning the election, so it its not surprising that this is a heated area. Last year, the proportion of Government's operating budget that was spent on welfare was $25.3 billion, and welfare usually constitutes around a third of the total operating budget. However, over half of this is on superannuation rather than benefits. If we look at real costs of social security in the government's operating budget, the number of people receiving superannuation has surpassed 1990 levels after a brief dip and costs for superannuation are set to double by 2050 as our population ages. By 2051, 50% of the population will be over the age of 46, so the decisions that we make now on superannuation really are going to have a massive impact on our future generations. So in real terms, it is superannuation that is more likely to cause our social security budget to balloon in the future than our welfare system.

Welfare versus superannuation: a key election issue in wooing the vote

Goff's announcement last week over the raising of the retirement age from 65 to 67 signaled that the battle lines are being drawn over superannuation and welfare as the two parties battle it out ideologically to convince voters that they have the best approach to promoting growth and drawing New Zealand out of the recession. This was a risky move, because while debate over beneficiaries is seen as fair game before an election, superannuation is often regarded as something that cannot be touched. A Ministry of Social Development Social Report last year found that voters over 65 years old were the most likely to turn up to the ballot box, with a voting rate of 94%, only rivaled by the 89% of voters who are between 45-64 years of age who by this life stage are generally beginning to contemplate the ramifications of their financial security for retirement. 54% of the New Zealand population is over 40, which makes them a very influential group for voters (hence Winston Peters' seemingly unmatched ability to continually reanimate himself). When half the population is in the age group that Goff's changes will effect, this is a bold move, and one that was calculated to position Labour as making strong decisions on economic policy and defeat the National Party's catch cry of Cunliffe's "decade of deficits" (a slogan that is certainly debatable when looking at the current government's books where much of our borrowing has been focussed on attempting to stimulate the economy by spending $44 million a week on tax cuts to the top demographics).

So while superannuation is key to addressing our economic issues in the future, it is not an issue that prior to an election either major party are keen to make major changes to, as doing so threatens their share of the vote while they fight it out for the centre. This has been true of prior elections, such as National's promises to leave superannuation alone at 66% of the level of the after-tax wage in 2008 before ceasing payments to the Cullen Fund quietly in their first budget. This time Key has said that he will resign before touching superannuation. Even Labour's reticence around this issue can be seen in the way that their release of the superannuation policy was executed with important caveats designed not to scare voters - that there would be an increase in Kiwisaver contributions but the responsibility for this would fall more heavily on employers and that this would become a buffer to raising the retirement age to 67, and that they would cover people that were not able to work from 65 with intermediary payments. In the slight possibility that Labour gets in after the election, Labour's ability to introduce this raise may be affected by it's potential coalition partners, and in distinguishing themselves from NZ First they have allowed Winston to carve a small percentage of National's vote that Labour would have probably not received anyway.

National's welfare policy

The National Party's announcement of a welfare reform shakeup is an announcement that has been expected for quite some time. The announcements come off the back of the controversial Welfare Working Group, which was brought together to see if it was possible to get 100,000 people off benefits. The baiting of the middle class over beneficiaries is classic National Party election tactics, as it corresponds to their ideological stance of equality of opportunity before equality of outcome. John Key's 2008 campaign speech on benefit reform began with recounting the story of his solo mother's struggle to get out of poverty and how getting a job was helpful to his family. National's policies were centered on the idea of a party that wasn't scared to call 'a spade a spade' and how 'hope' and hard work were what dragged his family out of poverty. In real terms, welfare is not going to be solved by getting tougher on people - there are numerous reports that signal New Zealanders do get off welfare by and large when there are jobs available. There is little doubt that the rise of 60,000 people on benefits has a lot to do with the repercussions of the global recession, a fact Paula Bennett alluded to on Breakfast before redirecting focus to sickness beneficiaries and solo mothers. The shift in focus here is because after three years in power and placing increasing pressure on job-seeking in relation to benefits, it is difficult to say that these reforms have not worked, so the focus is shifting to the groups of people that are seen as less deserving, tapping into beliefs about 'good' recipients of welfare versus 'bad'.

It is worth highlighting at this stage that the debate over welfare is much more performative than having a massive influence on the Realpolitik - it is the level of private debt that is currently problematic for New Zealand rather than the public debt. In terms of our public or Government debt, we are relatively average in the OECD in terms of our borrowing. However, as the IMF's Country Report (11/102) warned, it is the private debt that places the largest pressure on our economy, and is this debt that needs urgent reduction through the encouragement of private savings. As Bernard Hickey and Gareth Morgan have highlighted, there is an over investment in property in New Zealand that saddles our economy. The same IMF report pointed out that house prices are overvalued by about 15-25% and that the price to rent was inflated by about 43%. This means that the costs of living are getting higher in New Zealand, and together with inflation on food making the average household income go much less further, we are seeing increasing rates of child poverty, which saw the UN announce that New Zealand urgently needs to address the quarter of our children in poverty late last week. Welfare is an issue as it does contribute to a proportion of our operating budget, but certainly not as much as superannuation will, and while we need to reduce our borrowing, the key places that changes will need to occur are actually in the property market and in encouraging private savings.

In the leaders' debate on TVNZ, Key said that there had been an exponential rise in solo mothers since 1971. What he did not say is that this rise is a result of broad social changes that occurred in western nations following the advances made by the Second Wave of Feminism and the contraceptive pill (two changes that as a female voter I am very thankful for). There is little doubt that social security around the issues this shift has created are having impacts on other European countries, but how Key attempts to resolve this short of a historical regression is really unclear. National have said that their figures are based on 170,000 people getting new jobs and Treasury's prediction of a 3% growth in the economy, the first figure being dubious due to the Ministry of Economic Development's admission in June that they had no idea where the figure came from and had not done any analysis as to where the jobs would come from. Presumably some of these will be in Christchurch, however, as Labour's Annette King argued on TVNZ in debate with Paula Bennett, there is a problem with job matching (the fantasy headline 'solo mothers and sickness beneficiaries rebuild Christchurch' comes to mind). For this policy to work, National need to back this up with some evidence on how they will be creating jobs, and we would really expect to see that some solid analysis has been done rather than quoting supposititious figures.

National argues that solo mothers can be shifted off the benefit and into work through making them begin to look for work when a second child had on a benefit turns one. All solo mothers will have to look for part-time work from the time their child turns five, and be in full time work by the time their child is 14 years of age. Critics say that despite the myth of breeding for benefits, children actually cost a lot of money so there would be little economic gain to women in this position. As I have argued before, there are issues around this in that we do not have the same institutional structures as the other nation states that the Welfare Working Group cites, such as Denmark, Finland, Sweden and Norway. In Sweden, there is twice the rate of childbirth outside of marriage than the US which has a much harsher position on solo mothers, but 49% of solo mothers in the US live in poverty compared to 10% in Sweden. It is not welfare dependency in itself that creates a cycle of poverty. In response to the high child poverty statistics, Dr Monika Queisser, head of social policy for the Organisation for Economic Cooperation and Development (OECD), already told the Welfare Working Group in June that it was impossible to compare New Zealand to Scandinavia and France as most of those countries had a universal child benefit. Queisser followed this up by stating that "The gap between material deprivation of children and older people is biggest in New Zealand out of 27 countries".

Moreover, there is evidence to suggest that when solo mothers do find work, that they are often pushed into non-traditional working hours that can clash with childcare responsibilities, as a November 2001 report by the Ministry of Social Welfare evaluating the 1999 reforms to the Domestic Purposes Benefit found. National have said that they recognize that this will require more spending on childcare, which presumably will cut into the $1 billion in savings that they claim the welfare reforms will gain overall. In fact, it is surprising that the figure being touted at this stage is so large, because even the Welfare Working Group said the government would need to spend more to implement the support needed to make such reforms.

So in sum, National's policy releases might be fighting words, but they are somewhat lackluster in whether they will have any actual effect on child poverty or debt reduction.


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