Much was made last week of the Labour leader David Shearer's supposed nod to the tough-on-welfare crowd that apparently make up middle New Zealand.

Delivering his much-anticipated positioning speech, Shearer seemed to be channelling John Key (in his inarticulate and awkward early days), even pinching the PM's platitudinous "brighter future" in the press conference that followed. In Shearer's "new New Zealand" - a clean, green, clever place that's good for lambs - the needy will "deserve a share of the pie", and "everyone who can help to make that pie needs to be involved".

No dog-whistling to resentful taxpayers, then. But some pundits are already nodding approvingly at the probable demise of Labour's pre-2011 election pledge to extend Working for Families to beneficiaries.

I hope they're wrong.


In his speech, Shearer made mention of the 83,000 young people who aren't in employment, education or training.

The wastage of so much human potential should be keeping our political leaders awake at night, but Key didn't mention them at all in his targets speech last week, and Shearer's solution seems to lie somewhere in the distant future, when new New Zealand will have only great schools and great teachers.

As for the plight of the 220,000-plus children in benefit-dependent households who could be helped now with the in-work tax credit payment that Labour, just before the election, said they should have, they seem to have become invisible.

Why do we find it so easy to write off the children of beneficiaries?

The previous Labour government, like those in power now, took its cues from the US welfare reforms of the 1990s, which as Barbara Ehrenreich argued in Salon recently, were motivated by the idea that poverty was the consequence of a "culture of poverty" rather than lack of money.

In their analysis of Working for Families published in last month's Policy Quarterly, Susan St John and Claire Dale note that while the previous government's vow to eliminate child poverty was the political context for the development of Working for Families, that goal became submerged in the design of the in-work tax credit.

"Families with dependent children are a priority," a 2004 Cabinet policy committee paper noted, "because ... many low income families with children are no better off in low-paid work once work-related costs, benefit abatement and tax are taken into account."

The in-work tax credit was intended to "incentivise" beneficiaries, primarily sole parents, to move off the DPB and into work by "making work pay", as well as reduce child poverty.

But, as St John and Dale write, "To use one instrument, the in-work tax credit, to achieve two goals was going to compromise at least one of the objectives ..."

The losers were the children of beneficiaries (including those on student allowances) who missed out on the $60 minimum weekly payment if their parents didn't work enough hours.

(Twenty hours a week minimum for sole parents and 30 hours for a couple. Work one hour less, and it was just too bad for your children, even if, given the increasing casualisation of the workforce, and recessionary times, that was all you could get.) This despite the fact that it was known at the outset that the work incentives were only ever going to be an incentive for a small proportion of sole parents. Yes, numbers on the DPB did fall, but St John and Dale contend that there were other factors at play - not least "an exceptionally buoyant" jobs market, and other policy shifts, including increased childcare subsidies, enhanced case management of beneficiaries designed to help them into work, and a 33 per cent increase in the minimum wage from $9 to $12 between 2004 and 2008.

Given that most of the gains have since been eroded by the recession, it's clear that "policies designed to incentivise work effort may appear to work well when labour is scarce, but appear ineffectual when jobs are scarce".

We're paying a lot of money for a policy that doesn't seem to be meeting its objectives.

To "make work pay" for a sole mother working 20 hours on the minimum wage, the government has to pay her another $199 a week, plus $60 for the in-work tax credit. All up, an annual net $13,500 on top of her wage, before any extra childcare subsidies.

How is that sole mother any less a "beneficiary" of the welfare state?

St John was among those who criticised the policy for leaving out our poorest children when it was introduced in 2004 (and passed into law without a select committee). The government said it couldn't afford to include beneficiaries' children, but in the run-up to the 2005 election, $500 million a year was found. Instead of widening Working for Families to the poorest children, however, the policy was extended to "relatively high-income families, where a payment to 'make work pay' was clearly not needed".

"If the in-work tax credit is judged against the criteria of efficiency, equity and administrative simplicity, and for cost-effectiveness in addressing the identified problem, the available empirical evidence suggests that it has been a failure," says St John. "It only marginally increased employment for sole parents, and that increase has not been sustained. It has not, therefore, provided a path out of poverty, and it has met the poverty objective for only a subset of poor children."

We need a new approach. Perhaps David Shearer could find room in his new New Zealand for some real welfare reform.