In the lead-up to Election 2023 in October, we’re posting a series of blogs written by our members and kaimahi, tied together with threads of hope and optimism for how Aotearoa might change in the near future. We want to highlight what our members are seeing out there in their communities, and also suggest innovative solutions for positive systemic and individual change.

In this blog, Nikki Hurst (Kaiwhakahaere Matua | Executive Officer) writes about the connection between our tax and welfare systems, exploring their entwined history of purpose as well as their pitfalls. She proposes how to streamline these systems to make the best use of public money and support people who need it most.

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I like to joke that my early career choice of being an accountant was a decade-long accident. It certainly wasn’t something anyone saw coming, and current friends and colleagues are surprised it was ever a good fit. That may say more about how we view accountants, although I know my subsequent career choices (counselling, academia, leading an NGO) have felt more “me”. But I remain glad for the skills and knowledge I gained during that decade in accountancy. I’m not scared of spreadsheets. I know how to use numbers to tell a story and I have a good feel for finance.

I also have a deep understanding of how our tax system works, how it’s changed over the years, how it could change further, and how it interacts with our welfare system.

Cradle to Grave Welfare system

Back in 1938, then Prime Minister (and one of my personal heroes) Michael Joseph Savage famously implemented our Cradle to the Grave Welfare system. Many of the tenets of that system survive to this day – universal superannuation, state provided housing, particular supports given to our farming and growing sectors in times of need, and targeted payments to families with children. For over forty years families could rely on additional support, as an acknowledgment of the value raising children afforded our society. And for a decent chunk of time, that family benefit was able to be capitalised, and used as a deposit on a home – supporting high home ownership rates, the envy of the rest of the world. The universal family payment remained until the Mother of All Budgets in 1990 slashed and burned its way across our societal support system.

Working for Families

The Clark Government reintroduced family payments with Working for Families (WfF) in 2005, a targeted family support system aiming to support adequate incomes, those in work, and those returning to work. Successive Governments have used WfF and early childhood education subsidies as the key levers supporting families ever since. At all times, these payments have been complex and specific.

Payments are made based on a calculation looking at:

• how much income a family earns;
• how many children they have; and
• what age those children are

There have generally been three types of payment:

• a basic family payment;
• a top-up for those in-work; and
• some form of payment related to the birth of a child.

The system is designed to reduce payments as household income increases. In many cases, this leads to an overpayment of WfF that then creates a debt that must be repaid. This also makes it possible (and entirely legal) for those in business to ensure their accountants arrange their finances so they too can access WfF payments.

Superannuation

Annually the Social Development spend takes up around 40% of our total national budget. Of that 40%, 60% is paid out in superannuation. This means that nearly a quarter (24%) of our total national budget is spent on superannuation. Anyone over 65 who meets residency requirements receives superannuation in New Zealand. There is no means testing, no adjustments and no reduction for additional income. Nearly all New Zealanders agree that this is a good thing, with “super” acting as a protective factor for many as they age. Annual adjustments have seen super remain “liveable” for those who own their own homes. For those renting, they are eligible for an accommodation supplement. And everyone over 65 also receives a winter energy payment to help pay for increased heating costs across winter.

Over the years, suggestions of means testing superannuation have been met with strong opposition, and arguments that the cost of administration would be larger than the reduction in payments to those who may not need it. Movements such as “spend my super” have sprung up to encourage those who feel they don’t need their pension to donate to charities. There remains a national sentiment that super has been “earnt” across a lifetime, and that it would be against our cultural values to limit it.

Differences between systems

At the same time that our pension system has remained open to all, our family payment system has increased in complexity and decreased in who can access it. Current estimates are that around 58% of families with children in Aotearoa are able to access the scheme. Within the family support framework, there is a strong focus on parents being in work, with those who are employed receiving additional incentives to do so. Payments are adjusted in ad hoc ways, that change depending on political will. Current policy carrots from the two main parties see small adjustments to WfF and higher adjustments to those with children under 5 for use in the early childhood education system (largely for-profit businesses, and a bug-bear topic for another day). Our analysis of party policies tells us that for those with children 6 and up, no material additional support is to be expected.

It is deeply strange to me that where we continue to see value in keeping super universal, we don’t for those with children. It is also strange that when discussing superannuation we can see that making the system more complicated would financially be more trouble that it was worth. But with families, we are more focused on only those who “need” or “deserve” additional support. And to be clear, I don’t bring up our approach to superannuation as some sort of “either/ or”, my strong preference is for “both/and”. More than this, I want people to consider that all the reasons for keeping super universal, could also be applied to a family payment.

How much does it cost to administer?

Over the last 6 months, we here at NZCCSS have been asking government how much it spends on maintaining Working for Families. We have asked Inland Revenue (IR), the Ministry for Social Development (MSD) and others for details of how much this complexity costs – that is:

• How many additional roles, units and admin costs relate to our regulated and over-assessment payment system?
• How much does it costs for the system to generate debt, and then for that debt to be pursued?
• How much additional cost exists where the admin of WfF overlaps between MSD / WINZ and IR?

No one can tell us.

Logic would suggest that this cost is substantial. Not only is there cost in the delivery and maintenance of WfF, there is a whole ecosystem that exists to support it. Everything from policy makers, accountants, budgeting services and benefit advocates to the impact of low-income families paying debt and the supports that exist in that space. The simple act of having enough IT capacity and capability to help people understand their entitlement… All of these things cost money.

Could that money be used a different way?

Our question is – does the complexity cost as much as returning to a universal family payment? Since the government departments who administer it can’t tell us, we can’t know for sure. But again, logic would suggest that if a universal super is cost effective, and complexity in that space is cost prohibitive, then surely the same would apply to New Zealanders with families? My ex-accountant brain certainly feels like that would be the case. Accountants and business advisors nationally spend many, many hours with clients supporting them to simplify or at least understand that the more detail you have, the more it costs. The same is true for how our Government runs our national finances.

The benefits of a certain and stable financial level to support the wellbeing of families is unarguable. Our current economic model requires ever increasing profit, and therefore ever increasing cost. Having security of income means stability and better longer term planning, both nationally and locally. We might even be able to leverage the payments into home ownership, as generations before us did. And we all know that high home ownership would move the dial of wellbeing in this country.

What next?

As we head to the polls, there are a number of parties who also see value in a universal payment and a reduction in the cost of complexity. The Greens, Te Pāti Māori and TOP all have costed universal payments as core policy. All intend to leverage higher tax for the very, very wealthy few, to ensure a better life for the many.

A change in Government will mean a need to measure our impact, and return on investment. Surely it would be fair to ask the Government to do the same? In their inability to be able to tell us the real cost of our complicated family system, Government make it incredibly hard to have a mature conversation about returning to Mickey Savage’s ideal – a liveable and universal income for those who most need it – our deserving older citizens, and those raising our futures.