Benefit changes: New rates reduce forecast incomes of disabled by $2300 by 2028

Social Development Minister Louise Upston and Prime Minister Christopher Luxon. Photo / Michael Craig

Benefit changes being legislated under urgency will mean people on the equivalent of a disability benefit and their carers will lose out on more than $2300 a year by 2028 - a change equivalent to about 5 per cent of the recipient’s income.

Social Development Minister Louise Upston has introduced legislation to index benefit rates to CPI inflation rather than wages. Benefits have historically been increased upwards each year by CPI inflation. Benefits will still go up each year, but by thousands of dollars a year less than had the change not been made.

In 2019, the former Government switched the method of indexation to wages, which is similar to how superannuation rates are calculated. Wages tend to rise faster than inflation, meaning benefit rates would rise higher, faster under Labour’s system. The new Government is reverting to the old system, which officials believe will save the Crown $669.52 million over the next four years. Benefits will still go up each year, but by much less.

Figures presented to the House modelled what the changes would do to benefit rates; however, they were based on out-of-date assumptions, including a forecast that the Consumers Price Index (CPI) would be higher than wages this year, meaning the change would be net-positive for beneficiaries this year, before those gains ebbed away.

The Herald has taken the most up-to-date figures from the Beehive to update the figures presented to the House.

The new figures show the new system will immediately begin to cost beneficiaries.

Under the old system, the rate for a married couple with children’s supported living payment would rise from $686.20 to $722.56 on April 1. Under the new system, the increase will be to $718.45 a week.

This will mean those benefits are $4.25 a week lower this year than they would be under the old system or $221 lower for the year. However, the increase grows throughout the forecast period. By 2028, the end of the forecast period, this gap widens. Under the existing system of indexation, the weekly wage would be $832.31; under the new system, the rate will be $786.93, leaving its recipients $45.38 worse off each week or $2359.75 worse off over the course of the year.

A supported living payment is paid to people who are disabled and cannot work and their carers. As of December 2023, 101,502 people receive a supported living payment.

The sole parent support will rise by $2.93 less this year under the changes. Under the old system, sole parent support would rise to $573.46 a week by 2028. Under the new system, it will rise to $542.19 - $31.27 a week less.

About 76,170 people receive sole parent support as of last December.

Labour and the Greens have slammed the changes, warning that officials estimated 7000 children could be plunged into poverty under the changes, although that figure could be as high as 13,000 or as low as 1,000.

Those figures were based on the old modelling. The new figures compiled by the Herald show on the most recent forecasts beneficiaries will get slightly less again, making those higher estimates more likely to occur.

Beneficiary households also experience costs that rise faster than the rate of CPI inflation. Stats NZ’s Household Living Costs survey found living costs rose 6.2 per cent in beneficiary households in the year to December 2023, higher than the CPI inflation rate of 4.7 per cent.

Since becoming a minister, Upston has voiced displeasure at the number of people on benefits and the length of time they spend on a benefit.

“Despite widespread workforce shortages, the previous Government’s polices saw them leave office with 189,798 people reliant on Jobseeker Support - up 19,695 in just the past year,” Upston said.

“Labour was either unable, or unwilling, to get people off welfare and into work. As a result, we’re already close to MSD’s forecast of Jobseeker Support numbers hitting 198,500 in January 2025,” she said.

Finance Minister Nicola Willis echoed these remarks in the House on Thursday, saying a key element of the new Government’s plan to reduce child poverty would be getting people into work.

“This Government is... determined that for those who can work, we want to support them into work, because that is what lifts their incomes in the long term. We think it is shameful that under a time of declining employment, 69,000 more people went on to the jobseeker benefit under Labour, with 50,000 more children living in benefit-dependent households. That is no way out of poverty,” Willis said.

This works for some households, but not for others. Advice presented to the last Government’s Working for Families Review said children living in benefit-dependent households were not being lifted out of poverty because benefit rates remained low, despite wages growing. This is particularly hard for children living in households subsisting on a supported living payment, who are far less likely to see their carers move into work, which would increase household income.

Labour’s social development spokesperson Carmel Sepuloni told the House yesterday she was concerned Upston had not adequately considered the “actual impact that this bill will have on child poverty targets and the reduction targets moving forward”.

“As a Government, we made reducing child poverty a target. We actually took it so seriously that we enshrined it in legislation. That side of the House, when they were in Opposition, actually supported that legislation, and they now need to be held accountable to actually meeting those targets. So when they introduce a bill like this, where there is evidence that clearly states that it will actually reduce their ability to meet those child poverty reduction targets, then they should be ashamed of themselves,” Sepuloni said.

The Greens’ Social Development spokesman Ricardo Menéndez March also wanted the Government to front up about whether the changes would reduce child poverty.

“Will this bill worsen child poverty? I think that’s a pretty simple question, right? I know that I can’t demand a yes-no answer, but I would like an answer in relationship directly to the impacts of this bill.”

He also asked whether the Government had considered the impact the change would have on people applying for hardship grants.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.