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Will the new benefit rates be enough to live on?

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The budget saw a substantial rise to benefits announced. Whether it’s enough to provide ‘adequate income and standard of living’ is another matter, writes Michael Fletcher, a Victoria University of Wellington based economist who worked as special adviser to the Welfare Expert Advisory Group.In last week’s budget Grant Robertson announced some impressive-sounding increases in benefit […]

The budget saw a substantial rise to benefits announced. Whether it’s enough to provide ‘adequate income and standard of living’ is another matter, writes Michael Fletcher, a Victoria University of Wellington based economist who worked as special adviser to the Welfare Expert Advisory Group.

In last week’s budget Grant Robertson announced some impressive-sounding increases in benefit rates. By April 1 next year main benefits will be between $32 and $55 per adult higher than they are now. This is on top of the $25 per family increase introduced as part of the Covid-19 response. According to the finance minister, the government has finally reversed Ruth Richardson’s infamous 1991 welfare cuts. More concretely, Robertson says that by April next year main benefit rates will equal or exceed the rates recommended by the Welfare Expert Advisory Group in its February 2019 report, Whakamana Tāngata.

But are the new rates enough to get by on? Will they be enough “to ensure people have an adequate income and standard of living…and are able to participate meaningfully in their communities” – to quote the government’s own vision statement in the WEAG terms of reference?

Data on benefit adequacy is limited in New Zealand – unlike in many other countries, the New Zealand government has never carried out a full minimum budget standards study. But the best recent information comes from WEAG’s own “Model Family Budget” analyses designed to work out the minimum income needs of different family types, in different circumstances and living in different regions. They calculated minimum household costs line by line using StatsNZ and other data, then checked these with WINZ budget advisors. The minima were split into two categories: “core” – which covered the barest essentials, and “core plus participation”, which included small extras like $5 a week for a child to participate in sport or recreation and a dollar a week per person to buy presents. It was this analysis that reinforced what WEAG was hearing from its public consultations and which was one input their recommendations.

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I have updated WEAG’s calculations from when they were done in late-2018 to now (March quarter 2021) and the figures for their main analysis of beneficiary families are presented in Table 1. They relate to a person or family living in South Auckland and paying lower-quartile rent (WEAG did similar analyses for other towns, too). The great thing about the budgets in Table 1 is the detail. It allows you to think about where you could shave a few dollars off to make savings. Do you need $9-$10 per week per person for food? Maybe beneficiaries can do without a car (but remember each three-zone trip in Auckland is $10.80 return with a HOP card)? Conversely, maybe you think the rent is too low; it is certainly less than most people pay in South Auckland.

Table 1: Could you live on this?

So how will things look after the benefit increases have been fully implemented? In Table 2 below I then calculate what these beneficiary households’ total incomes will be after the new rates come into force next April. Expenditure costs are also adjusted for expected inflation to the same date.  The income figures include the main benefit, Accommodation Supplement, the Winter Energy Payment, Working for Families tax credits and Temporary Additional Support.

Table 2: The income shortfall after the benefit increases


On the one hand we can see the sizeable increases the government has introduced: for these model households, the amounts are between $83 and $163 per week more than in late-2018, On the other, all of these households still face substantial weekly deficits. Even looking just at "core" expenditure, only the sole parent with one child family comes close to even; the others are between $56 and $150 per week in deficit.  Include participation allowances and these households will be between $74 and $286 per week short. Go back to Table 1, and you might feel you are able to trim $20 – or perhaps even $30 – per person off the weekly budget but making the budgets balance is going to require deep cuts and, unless you have savings or some other income to fall back on, serious hardship.

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These figures show – as WEAG’s earlier analysis did – just how inadequate our welfare system had been allowed to become over the last three decades. The government’s main benefit increases have gone some way towards reversing that. But the fundamental reality is we are still a long way from ensuring those on benefit have an income that provides an adequate standard of living and the ability to participate meaningfully in the community. We need to ensure this minimum safety net for the poorest is enough for a decent life before looking to introduce any new higher-rate unemployment insurance scheme which will tend to favour those who are less poor.

Source: The Spinoff https://thespinoff.co.nz/politics/27-05-2021/will-the-new-benefit-rates-be-enough-to-live-on/

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Finance Advice 2021