Our poorest families need urgent help, says a social policy briefing for the new Government. ANDREW LAXON outlines its findings.

Question: What is the biggest social challenge facing our politicians in the new century?

Official answer: Rescuing about 25,000 New Zealand families from a long-term poverty trap.

The assessment comes from the Ministry of Social Policy, which says about 5 per cent of families remain seriously disadvantaged and excluded from society.

"Without attention, this could lead to the long-term disengagement of part of our society and threaten social cohesion," the ministry warns in a pre-election briefing paper for the new Government.

"It is also a source of fiscal vulnerability and could jeopardise economic growth."

The ministry suggests more early intervention to help these families, along with better childcare and financial incentives to encourage the parents off benefits and back to work.

Its other big concern is that state-funded superannuation at present levels will become unaffordable within 30 to 40 years unless New Zealanders accept at least partial means testing.

The main points of the briefing are:

Families under pressure

Many families are under considerable social and economic pressure. Many now have two parents working, but almost one in four have no parent with a job.

The gap between rich and poor is growing faster than in other developed countries, and most people's real incomes have stagnated or declined in the past decade.

"The top 10 per cent of households are now considerably better off in absolute terms," the report says.

"The next 20 per cent are just holding their own, and the bottom 70 per cent are generally worse off than their counterparts 10 years ago."

Pressures on families include violence, child neglect, parental separation, increasing drug and alcohol problems and more parents struggling with personal problems "as a result of greater economic and social insecurity."

Research suggests that about 5 per cent of families are caught up in a cycle of multiple disadvantage, cutting them off from society.

A further 45 per cent are coping, but only just.

"For these families, the experience of unforeseen events such as serious illness, separation or unemployment may be enough to push them into a position of entrenched disadvantage."

The ministry adds that any benefits of economic growth are unlikely to reach the families most at risk, and no Government can dramatically increase the number of jobs available.

Maori families are worst affected as they have higher rates of unemployment, sole parenthood and crime.

The ministry suggests giving Maori organisations, such as West Auckland's Waipareira Trust, more money to run their own social services.

Work and welfare

Overall growth in benefit numbers and welfare spending is starting to slow. But almost one New Zealander in five aged between 15 and 64 is still a beneficiary.

Many find short-term work, only to end up back on the benefit soon after.

The ministry warns that community work schemes - introduced under the previous National-led Government - can end up displacing real jobs that would have been provided anyway.

They may also have little impact on jobseekers' employment chances and can even have a negative impact by delaying their return to unsubsidised work.

The briefing says the Government needs to review tax and benefit abatement rates, which give beneficiaries little financial incentive to get back to work.

It should also consider more personal help for some longer-term beneficiaries who find work, to make sure they keep their jobs. Such help could include budget management and life skills for the first six months.

The briefing urges the new Government to stop thinking in three-year budget cycles and take a longer-term view of tackling welfare problems.

Innovative solutions may cost more at first, but as the state will spend about $60 billion on benefits in the next 10 years, even a 5 per cent reduction in payments would save $3 billion.

Childcare

Most mothers on the domestic purposes benefit are better off staying on it and working part-time, because of the combined costs of childcare, tax and benefit abatement rates.

Under these circumstances, efforts to push beneficiaries back to work are unlikely to succeed.

In a national survey last year, 30 per cent of sole parents described childcare as a barrier to having a job, with cost as the biggest factor.

The ministry says free childcare for a limited time could help break the cycle of debt and disadvantage for more than 20,000 families who have lived on benefits for the past 10 years.

Other suggestions include a benefit debt "holiday" for six months and direct rent deductions from the benefit to the landlord.

Housing

People on low incomes need cheaper and better housing, says the ministry.

However, it defends National's policy - due to be overturned by the Labour-Alliance Coalition - of charging market rents for state houses, while paying an accommodation supplement to all low-income people in state-owned or privately owned houses.

The ministry says the old system of income-related rents for state houses discriminated against tenants with private landlords. It gave tenants the wrong incentives to stay in state houses indefinitely - often in an old house that was too big for them - and created long waiting-lists, instead of encouraging private-sector investment to minimise shortages.

The report argues that the present system has tackled these problems. Claims that private landlords have been able to push up rents because they know their tenants receive a state subsidy are "inconclusive."

The briefing says that if the present system continues, it is questionable whether the state still needs to own a large number of rental houses. It would be more efficient to keep a few state-owned houses for last-resort cases and manage the rest without actually owning them.

Superannuation

A big increase in the number of pensioners will make our present superannuation scheme unaffordable within 40 years.

People aged 65 and over now make up 12 per cent of the population. By 2031 it will be 21 per cent.

There are four working-age people for every superannuitant now, but by 2041 the ratio will be less than two to one.

The report avoids predicting the cost of superannuation within the next few decades but says the main options for change - outlined in previous reports from the Todd taskforce on superannuation - are raising the pension age, lowering the payment relative to wages and reintroducing means testing.

The ministry favours means testing. It suggests a basic pension should remain for all superannuitants but a much larger proportion should be paid according to need.

New Zealand is the only country in the world that relies solely on a universal pension paid out of taxes, it says. All other developed countries with public pensions require some form of compulsory contribution or use means testing.