Whenever John Key’s National government found itself sinking in the polls, its social development minister, Paula Bennett, would spring up behind the Beehive theatre’s lectern like a beaming leopard-print jack-in-the-box to announce it was getting tough on beneficiaries. Mandatory drug-testing! IUDs for solo mums!
Few of Bennett’s schemes ever went anywhere – they were media stunts rather than credible policies – but they fulfilled their primary goals: generating outrage, filling airtime, creating the illusion of a tough and decisive government.
The coalition’s approach to welfare policy has been more restrained – possibly because its record on benefit numbers is so terrible. And so is its polling, so the Prime Minister and Social Development and Employment Minister Louise Upston have duly announced a scheme to restrict Jobseeker benefits for 18- and 19-year-olds. From November next year, they’ll need to pass a parental assistance test to access a benefit – unless they have children themselves.
This was signalled in the 2025 Budget and originally set to come into effect in July 2027, but needs must and if there’s one thing that might turn around this government’s ratings it’s the Prime Minister snarling “the world doesn’t owe you a living” at deadbeat teenagers.
All social animals punish free riders – members of the group who enjoy the benefits of co-operation without contributing. The constitution of the Soviet Union famously warned, “He who does not work, neither shall he eat.” You can’t have social-welfare systems without policing their abuse. Politicians who attack youth beneficiaries are tapping into primordial instincts: deep, prehuman desires to punish antisocial freeloaders; the innate dislike of teenagers as a species.
But the morality of beneficiary-bashing is complicated by our economic system, which needs a certain level of unemployment to function properly. In recent years that level has been quite high: we’ve needed people to lose their jobs and go on the dole to stabilise prices, and the burden of those job losses falls on younger workers because they’re the least skilled.
The new benefit restriction applies to households where parents earn $65,529 or more. There will be provisions for applicants who can demonstrate they cannot reasonably rely on their parents, although there’s never anything reasonable about the institutional cruelty of WINZ.
Number plucking
But how was that number arrived at? It’s significantly less than the median household income. Displaying his usual grasp of policy detail, Christopher Luxon explained, “Well, we chose that. It’s the number that we chose.”
More troubling is the lack of abatement. A well-designed benefit system needs to balance support for those on low incomes with an incentive to work. If you’re receiving a benefit and you’re offered a part-time job, the government desperately wants you to take it – it’s the pathway to paying net tax instead of consuming welfare.
But if it reduces your benefit by the amount you’re earning there’s no incentive to transition into the workforce. Sensible welfare systems use abatement rates to avoid this problem. If you’re currently on the Jobseeker benefit you can earn $160 a week with no penalty, and once you’re over that amount your benefit reduces by 70 cents for every dollar you earn.
Economists refer to this as an effective marginal tax rate, or EMTR. High EMTRs function as benefit traps, discouraging people on welfare from entering the workforce. The one thing politicians have to avoid when they’re designing welfare policy is a punitive EMTR.
And as of November 2026, when this new regime takes effect, a household earning $65,528 with an 18-year-old beneficiary will lose $13,942 – the annual Jobseeker income after tax – if the household’s income increases by $1 a year. Any EMTR over 100% is seriously distortionary; the government’s new regime introduces an effective marginal tax rate of 1,394,200%.
This perverse outcome was criticised by the New Zealand Taxpayers’ Union, a right-wing lobby group not known for its love of beneficiaries but which has a basic grasp of economic theory and was alarmed to see a conservative government introduce a policy that could inadvertently lift welfare numbers.
In his post-cabinet press conference, Luxon was asked whether the policy would incentivise parents close to the threshold to quit their jobs so their children would be eligible for the benefit. His reply was, “I would hope that’s not the case.”
Doh?
Why did this happen? Two popular theories. First, there were polls in the field, the government’s energy announcement was a disaster and Luxon had been personally embarrassed by a botched attack on Chris Hipkins in which his office sent a letter about bipartisanship to the Labour leader but leaked it to the media before Hipkins could read it. Luxon needed a quick win, so a tough-on-welfare policy was rushed forward without basic analysis.
Second, Luxon is still obsessed with his government’s KPIs. One of these is to reduce the number of people receiving the Jobseeker benefit to 140,000. It was 190,000 when the coalition entered office and 216,000 by the end of this year’s June quarter. It could reduce the number of beneficiaries by growing the economy and creating more jobs, but great leaders think outside the box: you can also reduce benefit numbers by simply making people ineligible for the benefit.
Unfortunately the rushed policy seems likely to undermine the strategic goal. The Ministry of Social Development now has 12 months to design an abatement scheme that avoids the EMTR trap while still reducing overall Jobseeker recipients.
Luxon’s reverse-Midas touch has delivered another miracle, transmuting everything he comes into contact with – even the pure political gold of beneficiary bashing – into excrement.
