"Of particular concern are those New Zealanders who face persistently low incomes, material hardship and multiple barriers to economic and social participation. This includes children in welfare beneficiary households, who have the highest risk of material hardship and poor long-term outcomes across a range of dimensions."
To be fair, last month's Budget did something for those kids. But the child hardship package, when it kicks in nine months from now, will represent an increase of less than 2 per cent in welfare spending.
And it is part of a Budget which, yet again, embodies real per capita cuts in public spending.
Meanwhile, no matter which measure of poverty or material hardship you use, children are faring worse than the rest of the population, as are Maori and Pasifika.
Employment and labour force participation rates are high by global standards, but the unemployment rate is still 5.8 per cent.
Poverty (defined in this case as living in a household with less than half the median disposable income) is relatively low by OECD standards for households with at least one person working. Only 4 per cent of the latter are poor by that measure.
But for households where no one is working, two-thirds are poor, the third highest ratio in the OECD.
In view of the high child poverty rate in beneficiary households, priority should be given to raising income by increasing benefits for welfare beneficiaries with dependent children, it says.
The ratio of benefit payments to the net average wage lurched lower with Ruth Richardson's mother of all budgets in 1991 and has continued to decline relentlessly since then as real wages have risen.
"Increasing main benefits and indexing them to median wages would reduce poverty across all beneficiary classes, including single-person households [below age 65], who have the second-highest relative risk of poverty [after sole-parent households]."
New Zealand Superannuation, after all, is indexed to the average wage and not, like the main welfare benefits, to the CPI.
That is a major reason, along with the ageing population, that in the 10 months to April superannuation payments at $9.6 billion were 6.7 per cent higher than in the same 10 months a year earlier.
Meanwhile, welfare payments at $8.9 billion were 3.2 per cent lower, reflecting very weak CPI inflation and some thinning of the ranks of beneficiaries (down 4 per cent).
Clearly, the system needs to signal that people will be better off working if they can. But after decades of a widening gap between wages and benefits, the signal is loud enough already. Any change to the indexation would be from a very low base.
The OECD also highlights the high effective marginal tax rates confronting people moving off a benefit into work -- how much of their gross wage is whittled away by income tax and the reduction of entitlements to support from the state.
"Rates at which benefits are withdrawn as income rises are very high for people working more than 20 hours. This is reinforced by the steep abatement of childcare subsidies beyond 20 hours per week for three- and four-year-old children. As a result, a sole parent taking up full-time, low-wage employment faces an average effective tax rate of over 80 per cent, a third of which reflects childcare costs."
It recommends the Government strengthen the incentives for those on low incomes to work more than 20 hours a week, by reviewing abatement rates for benefits and Working for Families tax credits, as well as reducing childcare costs.
One of the most pernicious effects of income inequality is the extent to which it is liable to limit the opportunities of the disadvantaged young and become entrenched between generations.
When looking at the extent to which parents' income is a predictor of their children's income when they are adults, the OECD finds New Zealand in the middle of the pack, with more intergenerational mobility than the Americans or the British but less than Australians, Canadians and much less than the Nordic countries.
It warns, however, that we are beginning to see the intergenerational effects of the sharp increase in income inequality which occurred between the mid-1980s and mid-1990s.
"Countervailing measures ... will be needed if intergenerational earnings mobility, which is assessed here when the next generation is 30 to 40 years old, is not to decline."
In particular, when it looks at the effect socio-economic background has on how well New Zealand teenagers do in standard international tests of reading, maths and science, it finds that the impact is greater and has increased by more than the OECD average. Educational inequality is already apparent by the time 5-year-olds start school, it says.
Participation rates in early childhood education among Pasifika and Maori have improved, but still fall well short of the 98 per cent target the Government has set.
From the standpoint of businesses thinking about the quality of their future workforce and the spending power of their future customers, the OECD's report makes sobering reading.
Living in poverty
• Households with at least one person working: 4 per cent
• Households where no one is working: 67 per cent
*'Poverty' defined as living in a household with less than half the median disposable income
