The Elimination of Child Poverty Requires a Universal Child Benefit. 

The Growing Up in New Zealand Study at the University of Auckland found that half of the 7000 families in their sample suffered measurable material hardship in their babies‘ first years of life. That so many of New Zealand’s children are in poverty eating poorer quality food or feeling cold and suffering other deprivations is no surprise, given that the study is yet another in the forty years of research on poverty. The real surprise is how unwilling we are to address the issue.

 

Rather than trying to understand why there is so much poverty, we rush into solutions which are hardly relevant. Usually we do not distinguish between causes and consequences. Some 13 percent of the sample had gone without fresh fruit and vegetables so they could pay other expenses. Therefore let us take GST off fruit and vegetables. Observe that it neither addresses the reasons nor is it well targeted on the poor.

 

So what are the causes? The unsurprising evidence is that poor families do not have enough income. Rather obvious, you might think, so why don’t we give them more? After all, the Working For Families In Work Tax Credit (and its 1996 Independent Family Tax Credit predecessor) deliberately avoids giving income to some of the poorest. Overall, Working for Families lifted some families out of poverty and left some families in a slough of deprivation.

 

Moreover ,the evidence is that child poverty rose when government income support to them was cut in 1991. Exactly how much depends on the choice of the poverty line, but the short answer is ‘a lot’.

 

According to the July 2014 MSD report, Household Incomes in New Zealand, child poverty today is about double what it was in the early 1980s. There is no separate analysis of parents but the likelihood is that their poverty level doubled too and that almost all the increase in those fateful years involved children and their caregivers. We do know that over 80 percent of the poor belong to that group.

 

What is frequently overlooked is that all the significant increase occurred between 1990 and 1992. The poverty level was much the same before 1990 (and low) and much the same after 1992 (and high), with a big jump in the period when the National Government – Ruth Richardson, Minister of Finance and Jenny Shipley Minister of Social Welfare – cut back state support to families.

 

If we ignore this – and it is surprising how many commentators do – we come up with solutions which wont solve child poverty. One is to send all the mothers out to work; that increases their income, doesn’t it? And besides. households with both working parents are measured to be less likely poor. Unfortunately there is a major glitch in the way we measure poverty. (Actually there are more but let’s focus on this one.)

 

Currently the poverty estimates (and the tax system) treat the cost of childcare while a parent is working as consumption not as a cost of production. So suppose a mother goes out to work and earns $100 (after tax) but her childcare while she is working costs $50. We record her discretionary income as increasing by $100 implying that she could have gone out to work leaving the child at home, and the childcare is a consumption indulgence. Yeah, right. Were we able to adjust for the costs of childcare we would find that poverty is much higher among both-working families. We are underestimating the level of poverty by ignoring that many women need childcare to go out to work. .

 

So getting mothers out to work is not a solution even if we ignore that many are unable to work for very good reasons such as their or their children’s health.

 

So let us go back to the lesson from 1991. If we cut public support to families, poverty goes up – indeed it doubled. Does it not follow that if we increased public support it would decrease? Why don’t we? “It would be too expensive’, say those keen to keep the taxes down on themselves irrespective of the social damage that causes.

 

More public support may be expensive but it is probably the cheapest effective way to reduce poverty. The badly targeted alternatives are really expensive, so much so that the likelihood is that the effort will be below what is required to reduce poverty substantially. Thus the test of whether the next round of measures address child poverty is whether they give additional support to the poorest, perhaps in the form of a universal family benefit (which might be income taxed so it is of greater value to the poorest).

 

That is not all that has to be done. We need to address the shambolic treatment of childcare for employed parents too. It is a cost of production and should either be treated that way for tax purposes or fully subsidised up to a reasonable level.

 

Having addressed the causes we also need to address the consequences. We have a backlog of twenty and more years of failure to tackle poverty. The consequence is generations of deprived children with poor health, poor educational performances and reduced opportunity. For society as a whole it is lower productivity, higher unemployment and more social ills including greater expenditure in the justice area and waste in the health and educational areas as medics and teachers struggle with the consequences of deprivation.

Comments (8)

by Alan Johnstone on March 09, 2015
Alan Johnstone

What is the definition of poverty that is being used in these stats ?

by Tim Watkin on March 10, 2015
Tim Watkin

The point that it comes back to benefit levels has been made often enough and those 90s cuts. I wrote about it last year. The problem of course is that no-one likes that answer and the cost it would impose on 'middle NZ'.

I'm incredulous that childcare costs aren't included in the maths. If it wasn't you Brian, I'd be asking 'are you sure?... Really?'. Any numbers are nonsense without allowing for that cost.

Jonathan Boston reckons it's cost about $1b, maybe $1.5b, a year to really tackle this. How much do you think it would cost Brian? And why a UCB? Why not targeted, even at the bottom half? 

by Brendon Mills on March 11, 2015
Brendon Mills

"What is the definition of poverty that is being used in these stats ?"

The accepted definition is being in a situation where more than 60% of ones income is spent on housing.

 

by Charlie on March 12, 2015
Charlie

Brian: So what are the causes? The unsurprising evidence is that poor families do not have enough income.

Sorry Brian, your thinking is upside down.

The cause is people with insufficient income having children anyway and then demanding the taxpayer fund their lifestyle choice.

Looking at the big picture, if we are to progress and succeed as a nation we need more children from educated, middle class couples and less from the lower stratum of society where violence and illiteracy are more prevalent. Although National has partly addressed the DPB issue as a nation we are still effectively funding failure.


by Brian Easton on March 14, 2015
Brian Easton

Alan Johnstone asks ‘what is the definition of poverty that is being used in these stats ?’ I was using the tables in Section H of Bryan Perry’s  Household Incomes in New Zealand 1982-2013. Both the 50% and 60% of average income, which give a similar story.

 

I’ve never seen your definition of poverty before, Brendon Mills.

 

I’m afraid Tim Watkin, the failure to address child-care costs reflects the primitive state of our research on child poverty, and that most people use the data without understanding it. Briefly, the background is this. When I described the basic model forty years ago I only had aggregate data and could not make adjustments such as for childcare costs. But you will find them and other problems discussed in my writings at the time. About a decade later the possibility of the adjustments became possible, but independent researchers could not get access to it. Ten or so years ago I invented a way to do this, and got a grant. (Today we can get direct access, but there has not been the funding to exploit the opportunity.) We worked on the elderly, equivalence scales and housing at first, but sadly the grant authority had other priorities and our funds ran out before we got to doing children properly. (Perhaps it should be said that the work we did on housing has still not been taken on board; the current way we deal with housing expenditure is embarrassingly crude and probably results in underestimates of poverty.)

 

As I understand it, the Boston figure addresses neither childcare costs or housing, nor does it address the consequences of the two-decade backlog of deprivation. $1.5 billion a year would be a good start, and gratefully received (especially if a minuscule amount of it were put into serious research). But I doubt that it is enough.

 

Income tax is a form of targeting. If we are not willing to spend enough to address poverty we end up with very high effective marginal tax rates on the poor (far in excess of those on the rich).

 

I leave others to address Charlie’s position. But note that it does not address that children do not choose to be born into poverty nor the long term consequences that the deprivation causes.

by Tim Watkin on March 16, 2015
Tim Watkin

Alright Charlie, I'll bite. How do you stop poor people having children and encourage the (rather saintly) middle-classes to have more? Forced sterilisation? Leavings kids without food and healthy homes?

Fact is your argument eats itself because it's a lack of education and opportunity that often leads to bad choices... and having fewer children often keeps families in the middle-class.

Question is, if people have big families (and they make those choices for all kinds of reasons, not just financial. Just ask Tariana Turia), do you punish those families? Or, as Brian is suggesting, invest in them thereby increasing the odds the children will prosper and make better choices. (Assuming that not having a child is the better choice, which it may not always be).

by Judy on March 24, 2015
Judy

Charlie, spotted this on The Standard blog under heading 'Poverty, Parenting and Paula'.  Seems having children is indeed becoming a luxury but "only 0.2% lowest income households under $20K have 3 or more children" 

"24 March 2015 at 7:06 pm

I have had a look at the StatsNZ Total Household income, grouped by household composition, for households in private dwellings from the 2013 Census…..some of the above comments about children and poverty (and nasty comments about people breeding for the benefit gain ) and a comment I saw on open mike over last few days about high income families being able to afford to have children triggered me to look further into the data.

What I found was: 76% of households with 3 or more children are in highest quintile/bracket of household income of $100,000 or more, 13% in $70-$100k bracket, 5% in $50-$70k, 3% in $30k-$50k income bracket, and only 1% of households with three children or more are in the lowest two brackets – 1% in $20-$30k household income and 1% in less than $20k income.
This reconfirms the assertion that higher income households can afford to have larger families……does this confirm that larger families can now be classified as a luxury good?

The highest proportion 64% of low income households earning under $20,000 are one person households (e.g. single people….haven’t cross-tabbed with age, but perhaps older people?).
31% of low income households are 1 child households.
Only 0.2% of the lowest income households (under $20k) have three or more children.

I know you can cut data any-which-way, but I hope this gets rid of some of the myth around low income households having large numbers of children."

by Brian Easton on April 24, 2015
Brian Easton

Good that you looked at the data Judy. Just a caution. The standard estimates of poverty adjust income for household size. A simple adjustment would be to calculate per capita income, although it is actually more complicated than that. As a result we tend to find larger households with children are poorer. I doubt such an adjustment would markedly affect your argument. 

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