Two economists are calling for a fundamental rewrite of New Zealand's welfare system because of the numbers of people being made redundant who can't get the dole because their partners are still working.

Dr Susan St John of Auckland University and Keith Rankin of Unitec say the system is based on "outmoded social concepts" such as assuming that everyone lives in single-income families where dad goes out to work and mum stays home with the children.

On this basis, the unemployment benefit is clawed back by 70c for every dollar earned above $80 a week by either the main earner or their partner. This means anyone with a partner earning more than $534 a week cannot get even a partial benefit.

In Australia, the dole is reduced by only 60c for every dollar of a partner's income above A$387.50 ($485) a week, so a partial benefit is available until the partner earns A$1069 ($1340) a week.

Mary Williams, of Muriwai Beach, who lost her job in a bank in March, said in a letter to the Herald: "Why am I classed as a single earner paying ACC and income tax when employed but classed as a couple when out of work?"

She and her husband Neville have started selling their possessions.

"Because my husband earns just above the income limit for a couple I cannot register for unemployment," she said.

Mr Rankin said NZ's much tighter treatment of partner income was probably the main reason a Ministry of Social Development analysis last week found that only 32 per cent of the unemployed get the dole in this country, compared with 99 per cent in Australia.

A paper he has written with Dr St John, Escaping the Welfare Mess, argues that all main benefits should be assessed on the basis of individual, rather than household, income.

"Anachronistic requirements to meet hours worked or to force couples to aggregate their incomes for benefit purposes need to be progressively removed," they write.

Dr St John said: "The use of the married couple as the unit is as antiquated as the fax machine [and] reflects the refusal to recognise the welfare mess and the lack of consistency with the tax system (and NZ super and ACC, where the unit is the individual)."

Social Development Minister Paula Bennett said any change to the system would have a huge economic impact.

"While I sympathise with the situation an increasing number of family breadwinners find themselves in, this is no different to how the country's welfare system has always operated."

Deon Thuynsma, 53, has been denied welfare since the Rodney District Council decided in December to contract out his $80,000-plus job as community facilities manager.

His partner earns just over $1000 a week - well above the $534 point where the benefit cuts out. But the rent on the couple's Orewa home, and other expenses that were based on their joint income, have not changed. They have been forced to cut back.

"I feel like I'm in home detention," Mr Thuynsma said. "We can't just hop into our car like in the past and visit friends in South Auckland."

Les McDonald, a self-employed contractor in Western Heights, Waitakere, lost the house that he and his wife had owned for 20 years the last time work dried up after the "IT crash" in 2001. This time, he has been refused the dole because his wife earns about $30,000 in a part-time job.

"The only way to get additional assistance [the dole] is to separate and leave my family," Mr McDonald said.

"I've been given that hint by some people at Work and Income indirectly. I know people who have done that - the husband moved out, the wife gets the domestic purposes benefit, and they come around to stay for extended periods."

Mr Rankin said the "incentive to separate" had been heightened in recent years because sole parents were allowed to earn up to $180 a week before the 70c clawback cut in, whereas the $80 limit for the unemployment benefit had not changed since 1986.

However, the conservative Maxim Institute said it would be better to solve the problem by assessing income for both tax and welfare purposes on a household basis, rather than shifting both to an individual basis.

Maxim policy manager Alex Penk said allowing two-income couples to split their income for tax purposes would automatically reduce their taxes if one partner lost their job.

Revenue Minister Peter Dunne said an update of the welfare system would be a "massive undertaking".

"The system has grown haphazardly over many years. [Revision] is not going to happen this year [or] next year. It will happen over a long period.

Mr Dunne said the delivery of a new welfare system would be as important as the policy. "It would be as much about bringing the technology up to date as the policy. The Inland Revenue Department system would have to be designed to cope with the changes, as it was not even ready for Working for Families."

* What your partner can earn per week before you lose the dole:

New Zealand