How many beneficiaries does it take to make a crisis? And what does history tell us? When were benefit numbers at their worst? For all this and more, read on...

The Welfare working Group (WWG) is convinced. There are "major deficiencies" in New Zealand's welfare system. "Fundamental change" is required. The costs are too high and they are ringing the alarm bells.

I'd agree that those adults who can work should provide for themselves and that the 330,000 working age New Zealanders living on a benefit is not a record of which we should be proud. The Prime Minister and many others have quoted the figures that since 1970 the percentage of the working age population who live on benefits has increased from two to 13. This, he declares, is unacceptable.

But what percentage would be acceptable? What is realistic?

The WWG wants 100,000 New Zealanders off benefits by 2021, a round number that suggests it was chosen simply because it is round. And large. But is 200,000 on benefits suddenly our definition of success?

This matters because it raises other questions, such as whether we have a clear idea of what percentage of the population will simply never work again, what percentage have been nobbled by injury or illness and what percentage simply lack the skills for the jobs available. In other words, how many New Zealanders are simply going to struggle to hold down work, regardless of policy or ideology.

Or, perhaps a better question is whether we have a clear idea of just how many jobs the New Zealand ecomony of four million souls can realistically create.

To this end I've had a look back at the history of benefit numbers. And they tend to say, crisis, what crisis? Or, at least, if it is a crisis we've enduring it for a generation.

I can only go back to 1976, but for 18 of the years since the percentage of the working age population on a benefit has been 12 percent or higher. In the past 20 years, from 1990-2010, the average has been 14.2 percent; higher than it is today.

The government's choice of 1970 as the starting point for its comparative dates suits its narrative that 'something must be done!'. And indeed in the '70s the average was four percent.

So what's changed since 1970? Paula Bennett said on Q+A on Sunday "it's a different sort of country we live in now", and she's not wrong.

Have many more become addicted to "lifestyle" welfare? Have we lost our work ethic? Are generations of bludgers breeding generations more? I'm not convinced, at least on the data I've seen.

As I've written before, since 1970 we've seen the introduction of the DPB. That is now the largest benefit, taking care of more than 100,000 New Zealanders, many of whom wouldn't have been on a benefit in 1970. Given that it allowed women to get out of unhealthy, unhappy, even dangerous, relationships, I assume we think it's not a bad policy. We've seen tariffs removed and a resultant collapse of the manufacturing sector. Oh, and then there's the increased percentage of women in work and the number of people working on past retirement age. Plus, of course, we've seen the government sector cut and assets sold into private hands, resulting in a massive loss of jobs.

Forgive me if I'm repeating myself, but this brings me to Sue's post last week, in which she wrote there are too many New Zealanders on benefits:

"not because they’re lazy bludgers, but rather because Labour and National Governments in the 1980s and 1990s deliberately created mass unemployment through their economic policies..."

Several comments laid into her for that, but she has a point. I wouldn't use the word "deliberately", but history tells its own story. She has a point. Now that I've got the numbers I can more confidently say that unemployment leaped when Labour and National reformed the economy, handing chunks of the public sector to private owners. It's hard to believe the two aren't linked.

The percentage of the working age population on benefits rose significantly in the late '80s, hitting double digits for the first time in 1988, sitting consistently at 14 or 15 percent through much of the '90s before peaking at 16 percent in 1998 and 1999.

Government departments may have been inefficient, but they employed people who then struggled to meet the requirements of the private sector. The rail and post office and so on may have been little better than make-work schemes at times, but even being just marginally better meant that they did, well, make work and keep people off benefits.

The government is right to talk about linking up training and childcare, about better assistance and a focus on skills. All those efforts can help some make the step from sub-market ability and give them marketable assets.

Maybe there's simply a larger number of people than we'd care to admit who aren't up to the kind of work the market requires. Maybe we need to think harder about how to create sustainable, extra-market jobs that do minimal damage to the private sector's own creation of jobs. Maybe we need to put an end to the national tradition of blaming beneficiaries for their plight. And maybe if governments want to cut benefit numbers, it should do away with the stick and put its resources into growing more carrots.

Comments (27)

by donna on June 08, 2011
donna

Tim, you are one of the only people who has had the wit to look at the number of beneficiaries as a proportion of the working population. Stats 101 but not many, including our opportunistic politicans, seem to manage it.

The number of DPBs as a proportion of the working age population declined slowly but steadily throughout the 2000s as the economy grew, but rise quite sharply again in 2008. Coincidentally, this was about the same time National was ignoring the by-then obvious recession as it campaigned in the election. In fact a closer analysis of DPB numbers suggests they are highly sensitive to the number of jobs in the economy. No surprises there. No evidence that we have a dependency problem, either. Often ignored is that much of the increase in beneficiary numbers you have noted comes from Sickness and Invalids benefits. This increase has occured across the OECD: part of the increase is related to our ageing population, but a bigger part is unexplained. Still, this is a government that never let evidence - or the lack of it - get in the way of its determination to withdraw state support for ordinary New Zealanders.

Rather alarmingly it appears the government is determined to move 100,000 people off benefits to...where? The 170,000 jobs that will be created in the next four years? Yeah right. Pull the other one, it's got bells on.

by Richard Aston on June 08, 2011
Richard Aston

Good post Tim and I absolutely agree with the philosophy that there will always be a certain number of people who “aren't up to the kind of work the market requires.”  Any halfway decent society should look after its people unable to work for a living.
The issue for me is how many people of 330,000 on benefits are in the above category and how many are genuinely lazy. I’d love to see that number and I wonder if it is even known. It’s pretty easy to talk about people ripping of the system but not putting numbers to the allegation is irresponsible. 
When ever the hard numbers are absent in the debate I get suspicious of the motives.

Doing some rough numbers myself - removing 100,000 of benefits will "save" around $2 billion pe yr.

But turn that number around means we would need $2 billion plus per yr  in extra jobs.

I remember the seventies very well - unemployment benefits were almost unheard of but they were so many jobs around you could pick and choose and there was the railways if you really didn't really want to work.

 

by Tim Watkin on June 08, 2011
Tim Watkin

Richard, short of individual interviews and subjective judgements, we'll never know who's lazy or not.

by donna on June 08, 2011
donna

Who's lazy? Well, there could be a question on the benefit form: Are you a lazy bludger? Hmm, yes, I see the problem...

All beneficiaries are interviewed and have to jump through a number of hoops to even get a benefit. This is supposed to weed out the indolent but people lie, obfuscate, and tell the interviewer what they think s/he wants to hear. But surely the fact that the number on  UB fell to about 18,000 before the recession suggests we don't have a major crisis on our hands. Of the 18,000 who remained on the dole we know many should have been on a SB or IB, or lived in areas of high unemployment (Eastern Waikato and BOP, Northland, East Coast). The spatial distribution of unemployment has been ignored by most commentators and the WWG but it largely reflects the major structural shifts in the economic base both Sue and Tim have refered to.

by stuart munro on June 09, 2011
stuart munro

One of the things we might expect of an even vaguely competent government would be a conscientious effort to understand welfare -structural or otherwise, before wheeling out more tired and failed remedies. Or is it tried and failed remedies.

A cynical person might think that the government were merely using bene-bashing as a device to increase job insecurity to reduce the bargaining power of workers.

But this will neither grow the economy nor produce more jobs, nor close the gap with Australia. Makes you wonder what we pay the government for.

I prefer the Korean government - who have kindly offered to fund my MA. This place has their priorities right. ^^

by David Smith on June 09, 2011
David Smith

Its nice to see someone address the facts rather than offer the information free commentary that is usual from all sides in this debate.

An answer to your challenge is this:

i) There is no doubt there is a huge gap in the debate about what counts as "the right number on benefit". We have benefits because we believe society believes some (and only some) people need financial help, yet the debate is dominated by a bizarre contest between 'bashers' (every beneficiary is a bludger, so fewer is always better) and 'beatifiers' (every beneficiary is a hero of the recession and its evil to even ask if some should not be receiving the money).

ii) One gap this silly debate creates is that we do not seriously ask whether or not the people receiving benefits are who society intends should receive them. There is not even a proper language for asking this question since it is either basher language about bludgers, or beatifier language about victimhood.

The best (but poor) way of expressing it is by analogy with tax. They distinguish between tax evasion, defrauding the system, and tax avoidance, the murky area of people rearranging their income to pay as little tax as possible. The current debate is implies you either believe every person getting a benefit is a fraud, or every person getting benefit is getting an entitlement.

The real issue is the analogue of how far do we allow tax avoidance: how far we feel people should be allowed to arrange their life so they receive payments? For example, most people (I hope) think a victim of domestic violence should be supported when they leave an abusive partner; but is it okay for two people in a relationship to live in next door flats when one is a parent because benefit rules mean the couple are financially better off?

iii) To be more specific about some of the numbers:

a) There have always been structural changes in economies, for instance, in New Zealand there was big economic shift as mining became less important in the late 19th century. What is different about the 1980s is that the unemployment that economic shift created has lasted for decades. The mystery is not why did the 1980s create unemployment, but why the unemployment has lasted so long.

b) With DPB the issue is how insensitive it is to economic, social and policy change. Basically the number on it has wobbled around 100 000 for the last two decades despite changes in work testing, in-work incentives, changes in demographic profile, etc. It's as if WINZ had an unofficial quota of DPBs to justify employing so many people...

c) The biggest underlying increase has been in number on Invalids Benefit. Contrary to myth we can rule out the existence of some gulag archipelago of mental institutions that released all their patients in the 1980s (Allowing for changes to demographics and population the increase in IB has been roughly 60 000 people. The change in number of people in mental hospitals was around 1000.) This is despite improvements in health, the introduction of ACC (the 15 000 long term ACC would have been on IB before 1970) and better treatment. Again, its interesting that the easiest cases for WINZ to manage are people on IB, who are basically processed and left to rot....

by Tim Watkin on June 09, 2011
Tim Watkin

Thanks Donna, good points. You're right that the fact numbers have fallen significantly in the recent past suggest a willingness to work amongst most. And you're right, some of the hardest to employ will be in the most remote communities. Question: Should they be required to move to work? People have been doing that for the past two centuries.

David, it's a good question, asking why some unemployment has lasted so long. What I'm getting at – and it's based on limitied evidence, I admit – is that there are some folk who just don't have the skills (as basic as reading etc) or health that the market demands, and hence if we want them in work we may have to think about those extra-market jobs.

As for the DPB, so what drives it?

by Richard Aston on June 09, 2011
Richard Aston

"Richard, short of individual interviews and subjective judgements, we'll never know who's lazy or not."

Thats the point. effective casemanagement would give us this answer - I work in the social services area and know its quite possible via individual interviews and case history to determine those  - I won't call them lazy - who prefer not to work.

I'd just like to know the size of it - in my liberal world view I'd accept a certain percentage of people who just don't want to work - what the hell I reckon we can carry a few but how many?

.

 

by Chris Trotter on June 09, 2011
Chris Trotter

An excellent post, Tim.

Evidence-based journalism - what a novel idea. I wonder if it will ever catch on in the mainstream news media?

by Richard Aston on June 09, 2011
Richard Aston

Why are the welfare reforms not looking at NZ Superannuation? That is if the motive is to reduce the overall cost to the country.

The 2011 budget shows NZ Super takes 60% of the main welfare budget, 15.8 Billion/yr.  Whereas unemployment takes 6%, DPB 12% and Invalids 8% .

NZ Super or old age pension was started in 1898 and was driven by an assistance approach ie assisting older people who did not have the means to survive. As it was targeted at those in need it was naturally means tested.
Are the pollies too scared to bring up the idea of means testing Super?  Again there is a paucity of information on this but it seems if cost reduction is the motive the first place to start should be with the biggest budget line, NZ Super.

by Tim Watkin on June 09, 2011
Tim Watkin

Now and then, Chris. Now and then. And of course you've been part of that mainstream media for many years. Just sayin'.

Richard, of course you're right. Super is the most expensive benefit and it's increasing. The short answer is yes, they are too scared. It'll cost votes.

Thing about means-testing is a) where you draw the lines and b) if it's no longer universal, do you lose political support for it, so that it ends up like KiwiSaver or tariffs or dole rates, being cut and trimmed.

by on June 09, 2011
Anonymous

Debate about welfare is rarely sensible or based on much logic.  According to the Estimates for 2011 by far the biggest proportion (55% almost $10b) goes to National Super.  The much maligned DPB accounts for $1.8b or 11%.  Accommodation assistance accounts for $1.2b (7%) and Unemployment for $1b or 6%.  The Sickness and Disability benefits come to about $1b or 6% for both of them.

I don't know what the numbers are, but at the end of the day its not numbers on a benefit that matters, but the cost of it.  The usual targets, DPB, Unemployment and disability/sickness account for about a quarter of the benefit bill.  There is little room for cutting there not if you want to make serious inroads.

An attractive solution to reduce the numbers of people of welfare if not the cost would be to tackle Working for Families - that brilliant scheme which takes money from taxpayers and then gives it back to them - why not just adjust the tax rates and cut out the middle man?

There seems to be an assumption that being on a benefit is 'a bad thing'.  For some, it is.  For most its simply a stage in their life they're going through.  What we need to do is analyse why a person can't earn an income and provide appropriate support until they can.

If I were king, the process would be: individual has not got work.  Why?  Over 65 (or whatever the latest age is) - pay them super.  Mentally or physically unfit?  Provide rehab/training etc until they are.  Single parent?  They already have a job.  Provide support until parent is able to find work themselves.  No work in the area?  Provide support to move to area where the work is.  Your specific skill sets no longer required?  Provide re-training until the skill set matches the market.

New Zealanders have a very unfortunate habit of 'policy by envy'.  Must be a hangover from our Presbyterian forbears, but it goes along the lines of: "My neighbour is getting something which I am not.  I am going to heaven and earth to stop them getting it."

As long as this is part of our psyche, welfare debate will continue to be sterile, emotive and based on envy.

by william blake on June 09, 2011
william blake

The percentage of people on a benefit is a reflection of the confidence that the employers have of making a profit. In these recessionary times the employers are making jobs redundant either through lack of marketing skills, poor products or just plain cold feet. So unemployment goes up. Don't blame the victim / workers for their plight.

I remember Muldoon talking about unemployment and his very real fear of the mob; it was some stupidly low number like 5% unemployment that he thought that this would bring about revolution: hence his love of state employment.

Consider 2014, (not Muldoon's 1984) 20% unemployment and benefits gone, a pretty pessimistic but highly likely prediction under a far right government. What measures will be in place to restrain this, impoverished under class. Armed Police? employment I.D.? Work camps?

by william blake on June 09, 2011
william blake

Never forget "Arbeit macht Sie frei" written large on the gates of Aushwitz Work Camp, work makes you free.

by Brendon Mills on June 10, 2011
Brendon Mills

Those who call the loudest for the DPB to be axed, etc should really be careful what they wish for.....

by Tim Watkin on June 10, 2011
Tim Watkin

Brendon, you're right. People don't think what comes after if the government was to axe benefits. My question is always, "what about the children?"

Richard, interesting numbers. I suspect most retirees wouldn't put themselves in the same category as other beneficiaries, which is perhaps part of the political problem. As for WFF vs tax cuts, the issue is that you can achieve much more efficient redistribution with the former than the latter. WFF can select target groups, say those on 80-120,000 (random choice of numbers) and move it to those on 40-50,000. Tax cuts for those at the bottom, say the first $10,000 of income, also give tax cuts to the richest. So tax cuts to help the poor are hugely expensive, hence Cullen's preference for WFF.

by on June 10, 2011
Anonymous

Thank you for your analysis of this I have always suspected that Super is the biggest welfare cost so what are the dollar amounts of those percentages? Could you post please.

by Richard Aston on June 10, 2011
Richard Aston

"What measures will be in place to restrain this, impoverished under class. Armed Police? employment I.D.? Work camps?"

um... Reality telly , celebraty worship and cheap drugs should do it nicely.

by on June 10, 2011
Anonymous

Jeremy, the figures are as follows:

NZ Super $9.7b (Yes, thats a b), DPB $1.8b, Accomodation Assistance $1.2b, Sickness & Disability allowances $1.2b, Unemployment benefit $1b.  Some years ago, I saw some figures which suggested PAYE was sufficient to cover the benefit system, while GST covered the rest (Health, Education, Police, Defence, etc).  It may have changed since, but I found it sobering.

Tim,

Correct - but thats the problem with managing the benefits/income/taxes triangle.  There is no perfect solution, just a series of undesirable outcomes from which policy makers need to choose the least worst.

My problem is decisions made on knee jerk reactions dictated by our peculiar presbyterian view of the world.  That seems to be the angle the Welfare Group is coming from (though to be fair, I haven't read the entire report).  Get single mothers back to work'.  Having been a single parent employed full time, I think that approach is nonsense.  We'd be better off ensuring single parents had the necessary resources (money, skills housing) to keep their kids fed healthy at school and out of jail.  It would be expensive for this generation but less expensive in the long run. 

by on June 10, 2011
Anonymous

Just looking through the numbers, we have an interesting set of priorities. Of the total welfare budget, only about $700m (approx 4%) goes to payments designed to get people off benefits (study awards etc).  Of that, $600m is student allowances and arguably not a welfare payment as such.  So when we say lets get people back in work' do we put our money where our mouth is?

by George Darroch on June 10, 2011
George Darroch

The biggest section of "bludgers" in the country are those over 65.

They're all on benefits, aren't they? The myopic sectional focus on the vulnerable tells you that this is much more about the prejudices of the right and their desire to divide the world into deserving and righteous, and undeserving and sinful. It isn't about saving money. That follows the unspoken premises, it doesn't lead them.

by william blake on June 10, 2011
william blake

"Reality telly , celebraty worship and cheap drugs should do it nicely"

Perhaps my etreme passimism deserves a glib response Richard but that 20% won't be able to afford any panaceas as they are unemployed and have no state provided social welfare.

Does beg the question why people see unemployment as a time of self medicated, liminally stimulated stupor rather than the sober reality of finding a safe place to live and putting food on the table.

by Sean on June 11, 2011
Sean

The reason for the change in the number and type of available jobs since the eighties is simple. Cheap computers and automation!
The stark reality is that most people in a real job now are competing with a robot/computer system that can do the job better.
In 2011 the truth is that only higher functioning humans have a place in a competitive economic system. Nobody is going to want to pay 50% of the population three times as much for a worse job that some automation can do.

It is unfortunate that we live in a time where technological change has put objective reality at odds with our societies norms. The spectacle of the politicians and their cronies trying to fit an obsolete paradigm to a new situation would be funny if it wasn't so sad for so many people.

That was the good news.
The bad news:

Up to now the automations have had the disadvantage of being quite limited and capital intensive.
It turned out that the assumptions of thirty years ago that replacing human judgement/vision/senses only required moderate computing power was wrong by quite a few orders of magnitude.
This mistake has kept job replacement rate at moderate levels for three decades.
This is about to change drastically.
According to technology roadmaps of Arm, Intel, AMD etc. in two years time a general purpose computer with a 1 teraflop capacity ( the ability to process 1 thousand BILLION floating point calculations per second ) will consume just over 1 watt of power.
To put this is perspective the computational power required to safely drive a car will no longer need half the engine power to run a bank of server racks. It will use less power than the car radio!
Worse, the cost will not be measured in hundreds of thousands of dollars but in tens of dollars.

This development has happened very quickly and is a game changer.
Other things happening at the same time are:
Improvements in battery technology.
Development of low cost high power electric motors.
Cheap solar power giving ubiquitous stand-alone power capability.

In ten years time only the most highly functioning 5% of the population will be able to compete economically with automations for real work.
Is it not time that society started thinking about a structure that will let the other 95% have a meaningful life and not feel useless and starve?

by on June 12, 2011
Anonymous

Make Richard Davies King.

by on June 12, 2011
Anonymous

I think the real bludgers are those who use trusts to disguise their wealth and then claim student allowances for their kids, invalids pensions and later super for themselves with all the accoutrements of home help and lawn mowing services.

Single parents already have a job - some time ago I read a report that said that 85% of single parents have come from a relationship of more than 2 years duration. Those who used the mechanism of the training incentive allowance (when it was actually an incentive to train and supported professional qualifications) stayed on the DPB for an average of 2.5 years and tended not to reapply. Since then (mid 1990s) the TIA has been eroded to cover only job training courses lasting 6-12 months (under Labour) only to be removed altogether under National. It does make one wonder if there is any real commitment to changing outcomes for families already living in stressful situations, made more stressful by poverty and punitive welfare policy. No wonder Gluckman's findings were swept under the rug.

The WWG policy recommendations seem to be predicated on single mothers all being teenagers who never finished high school. Evidence based policy indeed.

by on June 18, 2011
Anonymous

Hi, I'm new; first ever comment.

I am one of those nasty Invalid's Beneficiaries who is bleeding the country dry. The tenor of many comments on this issue assume that we benes are as I described above. If those same commentators applied their vitriol to a different group - say one based on race - they would be rightly called racist. Generalisation in the area of welfare is just as demeaning and offensive. I am one of many who has kept his nose clean, kept the same nose to the grindstone and faithfully paid his taxes and ACC levies. I always assumed that should anything go wrong, as it did one wet Monday morning on the way to work, there would be some kind of back-up.

That this country chooses to reward its hardworking, law abiding citizenry with abject poverty and a sense of guilt for needing even that pittance came as a real kick to the tes.... (Sorry, I can't use that word!!)

The brickbats should be reserved for those who are supposed to be ensuring full employment and directing people towards those jobs, rather than those who are often the victims of a failed economic model.

There are many things I could do, for 5 or 6 times the current Invalids Benefit rate, if there were not 200 or so in front of me in the queue. I say this not by way of complaint but only to indicate that many of us who are genuinely on a benefit would prefer to work and enjoy a fair slice of the cake.

At the end of the day this issue is about people. Treat us with some dignity please - ensure that there are enough jobs to go round, recognise that some of us may never work again and only then  debate how many we can afford to have on a rate of welfare that is not an insult to those of us unable to earn our own living.

by on June 19, 2011
Anonymous

"NZ Super $9.7b (Yes, thats a b)"

The elephant in the room raises it's trunk. This is the growth area of the economy folks, and these people are never going back to work.

I for one fail to see why my uncle (a millionaire who also collects a very generous armed services pension) and my parents (well covered by their savings and with a reasonably generous public service pension) need to be paid a state benefit?

I know that tackling this issue is politically unpopular, but I'm surprised that this is an invisible issue in an election year?

Given that our already gaunt public service (by international standards) is asked to trim $1billion, can't the richest demographic in the country make a similar sacrifice?

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