Policy Watch Budget Special – May 2017

NZCCSS views this 2017 Budget through the eyes of those at the margins of our communities and asks what is being done to lift up the disadvantaged. How well are we doing to share fairly the wealth of our prosperous country?

  • Is this a budget that reduces poverty & inequality?
  • Is this a budget that improves the wellbeing of children and families and older people

We are pleased about:

  • Increases in income for some families on lower incomes and some simplifications and improvements to Working for Families (WFF) and the Accommodation Supplement (AS).
  • Goals to reduce poverty by 50,000 and severe housing stress by 20,000
  • Superannuitants receive a modest increase in incomes
  • 55,000 low paid care workers get a very significant pay increase as a result of the Equal Pay settlement.
  • Small but still significant investment in expanding successful programmes like Family Start

We are disappointed about:

  • Beneficiaries do not receive any tax cuts, miss out on most of the WFF increases and many will not gain much and some nothing at all from changes to the Accommodation Supplement.
  • Not enough new social housing and no attempt to address ways to help people through assisted home ownership such as rent-to-buy or shared equity.
  • Selective use of the social investment approach and total “investment” in social investment is relatively small
  • Big increase in prison spending completely fails the social investment test
  • Income inequality is likely widened even further due to by poorly designed tax cuts that deliver more to the top 20% of incomes than to lowest 60% of income earners.

Do the good points do enough to outweigh the flaws and deliver an overall increase in wellbeing?

The Big Picture

“In the past few months the Soup Kitchen has observed an increase in demand in manuhiri (guests) being supported with the breakfast and dinner served each day, as well as those seeking support to access emergency, transitional and longer-term housing. On average 45 manuhiri are served breakfast each morning and 70 served dinner each night. This upward trend in demand has been observed at partner agencies working in the sector as well, putting a strain on organisations struggling with insufficient resources to meet community needs.” Soup Kitchen, Wellington May 2017

The quote from the Wellington Soup Kitchen is typical of the experience of community social service agencies in many parts of New Zealand. The newest trend, agencies tell us, is increasing numbers of people with jobs who still need support from food banks, with high housing costs and managing debt on very low incomes. This experience of of those on the margins in our society forms the lens through which we view the Budget 2017.

Finance Minister Hon Steven Joyce briefed social service audiences at Budget Briefings breakfasts in Wellington and Christchurch and his presentations as well as the questions and answers from those events inform the analysis in this Policy Watch Budget 2017 Special.

Earlier in May the Church Leaders group met with Prime Minister Bill English and Deputy Prime Minister Paula Bennett. Issues covered in the meeting included housing, social investment and support for refugees. The ideas for action presented and the concerns expressed by the Church Leaders group also provide the context for this Budget.

The Budget numbers confirmed the fact that the New Zealand Government finances are in a very strong position with significant budget surplus, low levels of debt and the prospect of continuing good income going forward. This Budget is indeed an opportunity for decisions to be made about who should benefit from “investing in our future“.

That future must also include the the more than 41,000 homeless people, the nearly 90,000 young people not in employment, education or training (NEET), Māori and Pacific people are harder hit by unemployment, and around 13% of New Zealanders do not have sufficient paid work.  The New Zealand population is ageing and at the same time Māori and Pasifika children make up two-fifths of young people, meaning the future of our country depends on how well they and all other children do as our population becomes more diverse.

Government spending as a proportion of total New Zealand’s total economy continues to decline down from 34% in 2008 to 28.8% this year. Putting that in perspective, 5% of total NZ GDP is around $14 billion, the amount of money not available to spend to help reduce poverty or improve our housing, health and education systems.

 Family Incomes Package

This package is targeted at the working poor, who our social services tell us are finding it tougher to get by. But the main question is whether the package also does enough to help the poorest families living on welfare benefits? Those ‘Kiwi battlers’ trying to get by without access to employment continue to suffer the most in the midst of economic growth.

Reduced Child Poverty and Housing Stress?

Two headline claims made by Finance Minster Steven Joyce are that the Budget will lift 50,000 children out of poverty (above 50% of the median household income after tax) and move 20,000 children in low income households out of “severe housing stress”.

The most recent child poverty figures published in 2016 by MSD showed 140,000 children below the 50% poverty line (before housing costs) or 210,000 (after housing costs). If reducing these numbers by 50,000 can be achieved, it will be the first major reduction in child poverty for more than a decade. It seems likely however, that it will not be enough to take most of those children’s households very far out of poverty. It appears that many families will remain under the higher 60% of median income poverty threshold that is a better indication of an adequate level of income.

While both the Salvation Army and Catholic social justice agency Caritas welcomed the additional help for people on low incomes in the Budget, the Child Poverty Action Group rightly asks why only target 50,000 children when many more are in poverty and material hardship. The families in deepest hardship are those living on welfare benefits and it is these families that benefit the least from the families package.

According to Finance Minister Steven Joyce, there are 120,000 households in severe housing stress – i.e. having only $180 per week or less left to spend after meeting rent or other housing costs. It is hard to understand why only 20,000 were targeted in this Budget. The tax reductions in the Family Incomes Package give hundreds of millions of dollars in tax benefits to the highest income earners (see below). Surely this money would have been better targeted to those in housing stress?

Poorly Targeted Tax Cuts

Changing tax thresholds works out to be poorly targeted. Most of the $1.9 billion ends up benefiting higher income earners. The CTU analysis is that the changes give more than a third of the $1.9 billion in tax reductions (i.e. 36% or nearly $700 million) to the top 20% of income earners. Meanwhile, some of the lowest income earners receive almost nothing, such as the single person earning under $22,000 per year who gains $11 per week in tax reductions but loses $10 per week in support from the independent earner tax credit.

The other significant omission in the package seems to be the lack of attention to the effect of marginal tax and income support abatement rates. As a result some people on very low incomes will see much of any additional income earned disappearing through lost entitlements to Working for Families and other income support such as Temporary Additional Support (TAS) or the Accommodation Supplement.

Direct investment into Working for Families (WFF) is welcome

The extra money for WFF is welcome but not enough to catch up the cuts to WFF that have occurred over the past 7 years. The Child Poverty Action Group has estimated that $700 million per year (nearly twice the amount actually announced) is actually needed to bring WFF back to 2010 levels. The simplification of the system by treating younger children the same as older children is also a very good move. Overall the WFF changes are designed to benefit larger families with younger children (as recommended by the Childrens’ Commissioner’s Expert Advisory Group several years ago).

But the nasty surprise for lower income families is that WFF will begin to be reduced from $35,000 per year income (currently $36,500) which is a family income not far above the poverty line and well below the income earned from a Living Wage ($41,000). This will mean people on low incomes facing tax rates well over 40% on the additional income they earn above that threshold. As tax experts have pointed out, this is the opposite of good design which should aim to raise the threshold and decrease the abatement rate to encourage people to earn more.

Beneficiaries largely miss out

Those on the lowest incomes and deepest poverty miss out entirely on tax cuts, gain only partly from WFF changes and the benefit of the Accommodation Supplement changes will be lost through reductions in entitlements to other income support such as TAS for many beneficiaries. The Ministry of Social Development fact sheets and Q&A information give sobering details for people reliant on welfare benefits.

Accommodation Supplement changes deliver welcome increases,

The first changes to the Accommodation Supplement (AS) since 2007 will deliver some significant increases to some larger families in areas where rents are rising fast. However the income thresholds have not been changed meaning that as average incomes rise fewer people are able to access this assistance. Auckland Action on Poverty describes the AS changes as a “con job” because for many people on benefits, the increase in AS will lead to a reduction in their TAS and leave them no better off. Many commentators have noted that landlords will be rubbing their hands in glee at the increases in AS and will be raising rents in anticipation. All this comes without any accompanying restrictions on rent increases or housing quality standards at a time when thousands of people are “living in slums“.

Children, Young People, Family and Whānau Services

A feature of the Budget is the transfer of funding into the new Ministry for Oranga Tamariki, which has the role of supporting thousands of children in state care. The Minister Anne Tolley announced an 18% increase in baseline funding for the new ministry, compared to the funding when it was part of the Ministry of Social Development. There is still little detail known about how this funding will be used to support the work done by non-government social service agencies such as those in  the NZCCSS networks. Those organisations have not received funding increases for over 8 years.

Social Investment – what will the $321 million over 4 years actually deliver?

A series of 14 small and tightly targeted programmes designed to test the Government’s theory that efficient spending is only spent on identified “vulnerable” groups. This spending hones in on such  “vulnerable” people and aims to “fix them up”, ideally by getting them ready for the employment market. Only brief outlines of each of the 14 funded programmes have been made available.

It is interesting to compare the “social investment” package with other Budget spending and ask what kind of “social investment” it is to spend more than $1,000 million building and running more prisons already declared a “moral and fiscal failure” by our current Prime Minister. Or what is the “social investment” case for another $982 million on defence force capability when the military openly admits that New Zealand is “unlikely to face a direct military threat over the next 25 years”? Economist Simon Chapple is outspoken in his criticism of the Government’s social investment approach that he describes as a “warm fuzzy” phrase for a political focus on reducing the size of government“.

Church leaders told the Prime Minister recently that while they support the idea of social investment, they are also concerned about the about the narrowness of the Government’s approach. They felt it would be better to identify how to get the right help to the people who needed it, when they needed it, and when they were motivated for change and propose a more coordinated system to support such an approach.

Young people – what is being done for NEETs

If you are a young person aged 18 years, out of work and homeless but not under the statutory care of Oranga Tamariki, there is nothing specific in this budget to address your concerns (youth homelessness or NEET rates). But – if you are a young person in prison, the budget provides $13.939 million over four years to services to reduce offending. We can conclude what constitutes a ‘vulnerable’ young person and therefore worthy of government funding is both narrow and high threshold. You will have to be a young person already sitting at the bottom of the cliff if you want help to turn your life around.

Early Education Sector

The ability to access quality early education is critical to government’s focus on mother’s returning to paid work, particularly if they are poor. Budget 2017 offered no thaw to what has been an 8 year in a row freeze on per-child funding. A small concession has been made to target ‘disadvantaged’ children with $35.490 million over 4 years.  Sounds a lot but NZEI Te Riu Roa President Lynda Stuart described it as …. a $2-a-year increase for targeted funding for “at risk” children – less than the cost of the Prime Minister’s Budget Day pie,” she said.

Housing

The new announcement in this Budget was the changes to the Accommodation Supplement (AS). NZCCSS and many others have been calling for changes to AS which has not been changed since 2007. The changes are welcome and will deliver much-needed relief for low income families with high housing costs relative to their incomes, especially in Auckland. But in reality the increases still fall well short of catching up with changes in rents since 2007.

The changes are also one-off and there is no proposal to index the thresholds and AS rates to inflation or housing costs. There is also no link to improving housing standards nor any mechanism to ensure that landlords do not simply increase rents further to capture the gains in their rental income. Minister Joyce has said he will be “keeping an eye on landlords” but offers no clues as to how he might act against any profit-taking behaviour from landlords.

Not enough social and affordable housing is planned that could help reduce the housing costs for families.

Church leaders told the Prime Minister in meetings shortly before the Budget that an “ensuring everyone has access to affordable housing is perhaps the most important means to lifting New Zealanders out of poverty and boosting the nation’s collective health and prosperity.” The leaders presented a comprehensive strategy on each aspect of the housing continuum, urging ministers to implement a broader strategy of ownership, rental, social and emergency housing solutions. The Budget announcements will have left them on partially satisfied.

The Minister of Social Housing has announced that the number of social housing unit will increase by 6,000 over the next 3 years to 2020 to 72,000. Some of those new social housing places will be part of the other announcement of $2.2 billion to build 34,000 new homes on existing Housing NZ properties in Auckland over the next 10 years. As a number of commentators point out, this looks to be far too few social houses and far too few genuinely affordable houses to meet the huge need in Auckland. The 8,275 existing social houses will be replaced by 13,500 new social houses (adding just over 5,000 or 500 per year) and the rest (20,600) will be sold into the market with the restriction of just a fifth of those houses (4,120) having to be “affordable” (currently defined as below $680,000 in Auckland). This policy means effectively selling off most of the state housing land into the high-end of the Auckland property market and once sold off, this greatly reduces the ability for Government to find land to build more social housing that will be needed in the future.

Housing projects specifically aimed at Māori also feature in the Budget announcements. Māori Development Minister Te Ururoa Flavell  announced a $27 million Māori housing package including $10 million over four years allocated to “help repair and restore whare and revitalise the paepae, building resilience of those charged with maintaining the protocols of marae.”   In addition, the Pathways to Home-Ownership – Te Ara Mauwhare will provide $9 million over three years to “trial innovative new approaches helping whānau achieve more housing independence”.

As economist Shamubeel Eaqub points out the AS spending and the emergency housing spending announced last year are both “bottom of the cliff stuff” and that the Budget has “no material and aspirational investment in significantly boosting housing supply“. The new housing announced in the Budget is simply nowhere near enough. Community Housing Aotearoa CEO Scott Figenshow, while welcoming the gains in the Budget, this “only partly delivers” on the social investment needed to get to the 15,000 more social houses needed over the next 10 years and the $1 billion being spent on new prisons would have been far better invested in building social and community housing and delivering affordable pathways to assisted home ownership for low incomes families such as shared equity or rent-to-buy.

Health and Aged Care

Celebrating the Equal Pay Settlement:

The aged care sector, both rest homes (aged residential care) and home support for people living in the community are welcoming the huge investment in increasing the wages of care workers. This is an historic achievement and the legislation being pushed through Parliament to implement it has cross-party support.

No sign of further investment

However, beyond this major lift in wages there is virtually nothing else for the sector. Aged residential care will receive a small additional top up for cost pressures at 1.8% but home support and other parts of the sector such as the overstretched mental health services, must join the queue funds from for the ever tightening health budget.

Health overall received an estimated $300 million less than needed

This is not enough to continue to fund existing services allowing for wage and cost pressures and population growth. It is estimated that around $1.1 billion additional funding is what is actually needed to maintain current levels of health services. This will inevitably mean a continued “belt-tightening” approach from DHBs that has led to reductions in primary health and community and public services. Yet this is at a time where there is growing evidence of the extent of unmet health need in our communities.

NZ Superannuation will increase

The estimated $6.60 – $8.50 per week in April 2018  to NZ Super is part of the tax changes, which will directly benefit the two-thirds of older people receiving it that have little other income or wealth and whose incomes are near the poverty line. This is because NZ Superannuation is indexed to average wages after tax and will be adjusted to compensate superannuitants for the effect of tax cuts on wages.