Eligibility rules don’t reflect today’s families and need updating
Existing eligibility rules for welfare support reflect an outdated view of New Zealand families. Families, and arrangements for the care of children, are more diverse and fluid than in the past. Most children live in two-parent households, but it is now common for children to spend some part of their childhood in a sole parent family.
In many cases, sole parenthood means reliance on a benefit and is associated with a high risk of poverty. For many families, two (or sometimes three or more) jobs are need to provide an adequate income. However, income support is still based on a one-earner model where one income was enough for a family. This means when partnered people are affected by job loss, they will often not qualify for any income support from main benefits if their partner is in paid work (even on the minimum wage) because of the joint income test and the tight targeting of payments. Hence, the low number of couples on main benefits and the growing number of working poor.
The Government must modernise the eligibility rules to reflect this changing nature of families and society. Many other rules warrant further consideration that we could not give in the time available.
Income support system needs substantial reform to significantly improve its adequacy and design
The income support part of the welfare system has fallen behind the real growth in New Zealand incomes. The fiscal cost of improving the adequacy and design of income support is estimated to be around $5.2 billion a year. There are a number of other options that Government can also consider, each with various trade-offs and at differing costs. However, this package was considered by the Welfare Expert Advisory Group to be the best fit for policy and fiscal purposes. It is important to recognise that the current system has costs of its own – those associated with the broader negative effects of poverty including lower educational attainment, imprisonment and poorer health.
We expect significant gains in wellbeing from our recommended package of changes, including fiscal savings from lower health and justice costs in the longer term and productivity gains from a more skilled workforce. Significant gains beyond the financial are also to be expected – gains in self-esteem and the quality of relationships. Quantifying these gains is beyond the scope of this work.
The Welfare Expert Advisory Group recommends the adoption of 10 principles to guide the redesign of the income support system. These principles focus on ensuring the adequacy of the system for meaningful participation in communities, that people are financially better off in paid work (where work is an option), that support is easy to access, simpler to understand, and timely, and that people are treated with dignity and respect when accessing this support.
The Welfare Expert Advisory Group also recommends a comprehensive package of changes to significantly improve the adequacy of income support and to maintain this support over time in line with wages. These changes are broadly based on the consideration of adequate incomes levels found in the example families research we conducted and presented within this report. Changes include increases to main benefit rates, family tax credits and changes to housing support. This package of changes should reduce the need for additional financial support through hardship assistance.
Implementing these changes will substantially reduce the number of adults and children living in poverty. While estimates of poverty impacts are limited by current models, we expect these changes to reduce the number of children in households with incomes below 50% of the median income (after adjusting for household size and before deducting housing costs) by around 40%, and to reduce the number of working-age adults below the same income threshold (50% of the median income) by around 30%.
The Welfare Expert Advisory Group also recommends further work exploring the adequacy of incomes. The example families research was necessarily limited by the time constraints of this review, and further work to cover additional scenarios and circumstances is needed, particularly around the costs associated with health conditions and disabilities. This research also needs to be underpinned by consultation and focus groups with a wide variety of New Zealanders and should be commissioned from an agency independent of government.
In the best interests of the child, child support needs improvement
To improve adequacy of incomes and ensure the system considers the best interests of the child, the Welfare Expert Advisory Group recommends that all child support is passed on to the carers of children. The compulsory application and penalties associated with a parent failing to apply for child support should be removed, with parents deciding whether child support or a voluntary agreement for support is in the child’s best interest.
The Welfare Expert Advisory Group recommends further work to ensure shared and split care of children is reflected fairly in income support payments, and that agencies (that is, Inland Revenue and MSD) are aligned in their approach.
Implementing these changes will substantially reduce the number of adults and children living in poverty.
Relationship’ needs to be redefined
One of the strongest findings from the consultation was that the rules for determining whether a ‘relationship’ exists (that is, whether a relationship is ‘in the nature of marriage’) are not working and are causing considerable harm. The definition of a relationship is unfair and does not reflect how relationships actually form, and the financial penalty for partnering is significant and may be unduly influencing partnering decisions.
The welfare system should not unduly influence the decisions people make about their relationships. We recognise that achieving this is difficult in a system built around different family types.
The Welfare Expert Advisory Group recommends that the welfare system allows more time before deeming a relationship to have formed, so people have a longer period in which to determine whether a relationship is likely to work before their level of support is potentially reduced.
The Welfare Expert Advisory Group recommends moving income support settings over time to become more neutral in their impact on people making relationship decisions. Options to be considered include bringing the couple rate of benefit closer to double the single rate, and introducing a short-term entitlement to a main benefit for partnered people who lose their jobs or become unwell or disabled (such a benefit would disregard the other partner’s income).