Charles Waldegrave and Bob Stephens: Counting the true costs of poverty trap

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Building on Working for Families would help thousands.

Working for Families has reduced child poverty from around a third of New Zealand children to a little over a fifth. Photo / Getty Images
Working for Families has reduced child poverty from around a third of New Zealand children to a little over a fifth. Photo / Getty Images

Two important points appear to be missing from the debate about child poverty. The first is the real costs low-income families have to pay for essentials such as shelter, food, utilities, etc. The second is that we have a very good example of a policy that succeeded in reducing child poverty from around a third of New Zealand children to a little over a fifth.

That policy was Working for Families and it offers an important direction for further reduction.

Let's look at the costs first and let's take a family of two adults and two children as an example. The Building & Housing Group within the Ministry of Business, Innovation and Employment keeps up-to-date records of market rents throughout the country. Its most recent figures are for April 1 to September 30.

The lower quartile weekly rents (25 per cent of all market rents in the area) for a three-bedroom house in Mangere, Otara, Porirua East and Taita/Naenae (four of the poorest urban areas in New Zealand) respectively were $350, $340, $260 and $310.

For a two-bedroom house they were $333, $282, $220 and $270. If the children are of different genders and one is adolescent they would normally require separate bedrooms, so a three-bedroom house would be needed.

The Department of Human Nutrition at the University of Otago estimates weekly food costs for families that will meet the nutritional needs of most healthy people. Basic, moderate and liberal estimates are calculated.

The basic cost estimate assumes all food will be prepared at home. It includes the most common fruits and vegetables and the lowest-priced items within each food category. Its weekly minimal estimate for our family of two adults and two children (5 and 4 years old) is $200 for Auckland and $204 for Wellington. If there is a teenage boy and a 5-year-old the weekly food bill rises to $250 in Auckland and $254 in Wellington.

The Household Economic Survey, run by Statistics New Zealand, records the expenditure on basic items by New Zealanders. Using inflation-adjusted figures from the 2010 survey, households with two adults and two children in the lower 30 per cent of incomes spent on a weekly basis around $40 on energy, $31 on household contents and supplies (personal care, cleaning products, etc) and $110 on transport.

So let's add these items - low rent in low-income areas, minimal food costs that meet nutritional needs and lower end energy, household supplies and transport. They come to $714, $663, $605 and $655 for a two-bedroom house and two children aged 5 and 4 in Mangere, Otara, Porirua East and Taita/Naenae respectively. For a family with an adolescent boy, a 5-year-old girl and a three-bedroom house, those figures increase to $781, $771, $695 and $745.

These are pretty basic weekly family costs in the poorest suburbs of two of our main cities and do not include other essential expenses such as clothing, footwear, medical, educational, communication and recreation. They don't include personal insurance or savings.

The most commonly applied poverty thresholds in New Zealand use 60 per cent of median household after-tax income. For our family of two adults and two children that threshold comes to $800 using a relative poverty line and $750 using a constant value line. These hardly cover the first set of costs above for a family with one adolescent boy. For a family with younger children, they have a margin of around $150 to cover the second set of costs including clothing, footwear, medical, educational, communication and recreation.

It is easy to see how unexpected events such as a medical condition, the breakdown of a car, fridge or washing machine, a computer upgrade or a school trip can throw the budget substantially and are not simply the result of poor budgeting. The poverty measures applied in New Zealand are sound and internationally comparable.

Let's now look at the impact of Working for Families. In 1995 the authors published the first data showing that a third of New Zealand children lived in relative poverty. That figure stayed close to 30 per cent until the Working for Families package reduced it to between a fifth and a quarter depending which measure is used. That is a massive achievement for one policy intervention, but it still leaves far too many children in poverty.

The Working for Families package demonstrates the type of policy intervention that will effectively reduce child poverty further. It requires an investment of direct income or tax credits, at least to families with children who are unable to afford essentials. A clear medium-term goal should be set to lift all households with children above the agreed poverty thresholds, including beneficiaries. Work incentive payments could apply after that threshold was met and not simply to those with children.

This would require transparent goal setting, measurement targets and careful monitoring. We are used to this type of open reporting in the economic sphere. If we seriously want to end child poverty, we need measurement and reporting in the social sphere as well.

Charles Waldegrave and Bob Stephens write on behalf of the New Zealand Poverty Measurement Project.


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