Election 2023: Child poverty at issue as National, Labour vie over fiscal holes, welfare changes

The National Party says slicing off $500 million a year in welfare payments wouldn’t plunge more people into poverty because a National-led Government would grow the economy, pulling more people off welfare and into work.

But economists are saying it could lead to beneficiaries going backwards, or even be a “recipe for real social disaster”.

National wants to revert to the old system of indexing benefit levels to inflation instead of average wage growth, saving National $2 billion over four years compared to Labour’s plan to continue using wage growth.

The amount of money involved was revealed yesterday as party leader Christopher Luxon launched National’s fiscal plan, showing a return to surplus in the same year as Labour, in 2027 and by $800m more.

It was criticised by Labour, Act and the Taxpayers’ Union, though for different reasons. The latter two said it didn’t go nearly far enough in terms of cutting spending, while Labour said it was flawed because it was based on National’s tax package, which cannot be properly evaluated without more information that National refuses to release.

The number of beneficiaries is expected to rise as unemployment is forecast to jump from 3.6 per cent in June to 4.8 per cent next year and 5.4 per cent in 2025, before dropping to 4.8 per cent in 2026.

The labour market also remains tight, with double-digit growth in applications per job in July amid falling job ad volumes - down 4 per cent compared with June, according to Seek NZ’s Employment Report.

Wage growth is projected to slow in coming years but remain ahead of inflation. Treasury forecasts show wage growth dropping from 6.9 per cent this June to 3.7 per cent in 2027. Inflation is currently at 6 per cent, and forecast to fall to 3.8 per cent in June next year and then below 3 per cent in subsequent years.

Labour leader Chris Hipkins said pegging benefit levels to inflation would push thousands of families and children into poverty, and made a joke of Luxon’s promise to lift 78,000 children out of poverty by 2028.

“Contrary to what the National Party think, it’s not easy to live on a benefit,” Hipkins said.

“People on a benefit generally live a hand-to-mouth existence. Cutting their benefits in order to pay for tax cuts would make life very difficult for those families.”

Labour claims that National’s plan - which would start in April next year - would see a single person on the over-25 rate of the Jobseeker benefit losing about $315 in the next year, $1023 by 2025 and $2261 by 2028. These are cumulative figures.

Labour released its welfare policy yesterday, including a promise to peg the abatement threshold to minimum wage increases from 2025/26. Currently, someone on a benefit can earn up to $160 a week without their benefit being cut, or about seven hours’ work on the current minimum wage.

This follows National’s welfare policy of punitive measures for beneficiaries who fail to meet their ready-for-work obligations, which experts say is not evidence-based and could lead to more hardship.

National's Nicola Willis, Christopher Luxon and Simeon Brown announce their party’s fiscal plan in Auckland. Photo / Jason Oxenham

Luxon said there were several factors in the poverty equation beyond benefit levels, such as fuel prices.

National says it wouldn’t increase fuel taxes in the next term and would cut the regional fuel tax in Auckland, though Labour says National’s climate change policies would push up emissions compared to Labour’s, and see fuel prices increase 40c a litre - a claim rejected by National.

Luxon said the main way to reduce poverty was to get beneficiaries into jobs. “We grow the economy is what we need to do, and get people from welfare into work.”

Economist Cameron Bagrie told the Herald the impact of benefit levels on poverty depended on which measure of inflation National wanted to use.

“Headline CPI [Consumer Price Index] is driven by both domestic and international factors. For someone on a benefit, domestic factors are probably a lot more relevant. If they’re using headline CPI, beneficiaries could go backwards in real terms.”

National confirmed to the Herald that its fiscal plan is modelled on pegging benefit levels to headline CPI.

Using a different measure (there are 11 CPI measures) would prevent beneficiaries going backwards, Bagrie said, though they wouldn’t go as far forward as they otherwise would under the status quo.

“You want to strike the right balance in the gap between wages and benefits. It does drive behaviour for people to get out there and work.

“New Zealand is a low-income economy. If we can move New Zealand a little bit more into that high-income group, you know, a rising tide lifts all boats, including those on benefits.”

Grant Robertson, Labour's finance spokesman, talks at Mood of the Boardroom at the Cordis Hotel in Auckland on Friday. Photo / Michael Craig

But economist Susan St John said National’s changes would, over time, “be very very damaging”.

“It’s important that living standards are comparable and relativity is maintained so that people on benefits don’t fall further behind in living standards over time. That is a recipe for real social disaster.”

She called Luxon’s plan to help beneficiaries by growing the economy “pie in the sky”.

“It’s nice to have. Trickle-down hasn’t really happened in the past, so you can’t rely on it.”

Labour’s finance spokesman Grant Robertson said there was a $537m hole in the first year of National’s fiscal plan because it was banking the gains from its proposed new taxes, such as the foreign buyer tax.

“You can’t base your fiscal plan on income no one thinks you’re going to get - it’s a sand castle,” Robertson said.

He said National’s fiscal plan leaned on its tax package, so if the tax package fell over so did the whole thing.

National’s finance spokeswoman Nicola Willis called this “nonsense”.

National expects to sell 1700 homes a year to foreigners at an average price of $2.9m, but it hasn’t said how it came to those numbers, prompting Labour to claim they’ve been plucked from thin air.

National has said its numbers have been independently verified by consultants Castalia, though other economists have variously called its expected revenue from the foreign buyers tax plausible, optimistic, and complete rubbish.

Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery and is a former deputy political editor.