New Zealands conservatives take on disadvantage Inside Story

INTERNATIONAL

13/07/2015 3:38 am

2135 words

New Zealands conservatives take on

disadvantage
25 MAY 2015

The NZ government sees

economic as well as social
benets in breaking cycles of
poverty and imprisonment.
Although the policy has its
critics, its worth watching,
writes Tim Colebatch
Right:
A different kind of conservative: NZ prime minister
John Key (right) with Australias Tony Abbott in
Wellington last month. Ross Setford/AAP
Image/SNPA

magine a country in which a government of the centre-right decided to make it a top priority to

tackle inherited disadvantage. Where much of its limited new spending is devoted to social
investment to reduce deprivation and increase workforce participation. And where its chalking up
impressive results.
You dont have to go far to nd it just across the Tasman. Taking on disadvantage is rarely a
priority for conservative governments, but it has become an increasingly important theme of the
second and third terms of the National Party government under prime minister John Key.
Last week nance minister Bill English took it further, bringing down a budget in which generally
tight control of government spending contrasted sharply with increased welfare payments aimed
at reducing the number of children growing up in hardship, especially among the least well-off
New Zealanders (largely Maori), who are dependent on welfare, and often in and out of jail.
Why? John Key himself grew up on welfare, in public housing in Christchurch with his sisters and

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widowed mother Ruth, a Jewish refugee from Austria. While he rose to become head of global
foreign exchange trading for Merrill Lynch before entering politics, he has never forgotten where
he came from. In his rst speech as National Party leader, in 2006, he declared, You can measure a
society by how it looks after its most vulnerable It is in the interests of no one, and to the shame
of us all, that an underclass has been allowed to develop in New Zealand.
Bill English, whom close observers see as the main generator of the governments ideas, came to
politics as a young conservative Catholic who had been a Treasury economist, then a farmer in the
remote Southland. He has grown into a formidable independent thinker, committed to balanced
budgets, small government, rebuilding earthquake-damaged Christchurch, and increasing business
opportunities but also to creating a society that intervenes to help its most vulnerable back into
the mainstream.
Key, English and other ministers have combined humanitarian instincts with actuarial logic to
create a world-leading experiment: investing heavily to reduce the risk of children inheriting their
parents welfare dependency, and to offer incentives and intensive help for the parents themselves
to get off welfare and into work, and then stay in work.
What is most remarkable is that Key and English have made this social investment a top priority,
in part, as a business decision to reduce the long-term cost of government. Moreover, they have
invested in trying to lift up those at the bottom at the short-term cost of another of their top
priorities: to get the budget back in surplus.
Some right-thinking Australian newspapers told us last year that New Zealands budget was back
in surplus; no it isnt, not the way they measure it. But although the shortfall embarrassed Keys
government at budget time, it has little or no economic signicance. On the Australian
governments denition of a surplus, Englishs budget for 201415 will certainly end up in surplus.
On the denition used by most Australian states, he was already in surplus in 201314.
For four years, Key and English had promised to deliver a surplus in 201415. But it tells you
something about them and their government that when New Zealands dairy prices crashed last
year, and near-zero ination slashed the expected tax growth, English atly rejected the
temptation to make sudden spending cuts, raise taxes or ddle the gures just to get over the line.
At the budget launch last Thursday, he declared, Knee-jerk responses are not a hallmark of this
government, and we will maintain spending that is supporting families, driving better public
services and helping economic growth. Those matter more than the actual date we reach surplus.
To Australian eyes, this is an unusual government. It has its faults, certainly, but even political foes
concede privately that in seven years in ofce, Key, English and other ministers have chalked up an
impressive record of competence, condence and consistency, and exhibited a progressive streak

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that differentiates them from their Australian cousins. They have legalised gay marriage, set up an
emissions trading scheme (albeit a tokenistic one), and initiated this new scheme to identify where
best to target programs and spending to lift people out of welfare and poverty.
English described it to Inside Story as using an insurance approach to crack welfare dependency
A lot of government spending is trained on a relatively small part of the population whose lives
are he paused, complex for them, and expensive for us. Targeted interventions aimed at lifting
them out of dependency and into productive working lives not only improve their lives, he said, but
also dramatically reduce government spending in the long term. What works for the community
works for the governments books.
To get the budget back in surplus, departments and agencies receive no increase for ination,
forcing them to nd their own savings, and then bid for the small amount of new spending dubbed
operational allowances in 201516, just over NZ$1 billion a year. English argues that this
discipline has forced departments to stop measuring their success in terms of getting more money
out of government. Theyve realised that the changes they need are to understand how they can
make a difference to the lives of the families theyre there to serve.
He told Keys biographer, John Roughan:
The fundamental driver of the governments budgetary costs is social dysfunction If we
stop a prisoner reoffending, we save $90,000. If we have a group of seven- to nine-year-olds
who are going to cost $750 million by the time they turn thirty, we need more health
checks, healthy homes, social workers in schools. John [Key] has created permission for a
centre-right government to talk about public services positively.
Key has set his government specic targets: to reduce long-term unemployment, achieve nearuniversal infant immunisation and early childhood education, reverse the rise in child abuse, and
sharply reduce the rates of school dropouts and prisoners reoffending. The government issues
regular progress reports, and they are surprisingly blunt about where it is falling short.
In earlier budgets, English shut down tax breaks to free up funds to achieve these goals, and froze
childcare subsidies to pay for new childcare services in disadvantaged areas. Last year, with an
election to win, the new spending was less targeted, but it included free doctors visits and
prescriptions for children under thirteen, and a revamp of the countrys minimalist paid parental
leave scheme to more closely match Australias.
Last weeks budget continued Englishs trademark austerity to grind down real spending in order to
get back in surplus in 201516. Spending is forecast to rise just 2.5 per cent next year, making 8.5
per cent in four years. Yet it also included a sizeable child hardship package of heavily targeted
new spending. In one hit, it increased the benet for families on welfare with dependent children
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by NZ$25 a week ination adjustments aside, the rst such rise for forty years. It raised tax
credits for the working poor by up to NZ$24.50 a week, and upped childcare subsidies for lowincome families from NZ$4 to NZ$5 an hour.
The hardship package was focused particularly on children at risk: those kids whose parents are
long-term welfare dependents and have family problems and criminal records. At the budget
launch, English said actuarial assessments based on longitudinal studies have found that among
children growing up in such families:
75 per cent will not complete school;
40 per cent will themselves become long-term welfare dependents by the time theyre twentyone; and
24 per cent will have been jailed by the time theyre thirty-ve.
Children growing up in this group, English said, cost taxpayers an average of NZ$320,000 by the
time they turn thirty-ve; some cost taxpayers more than NZ$1 million. These are stunning
gures, which he uses to persuade fellow conservatives that it is in societys interests to give these
children and their parents a priority on spending that they have never had before.
The new spending came with a bite: people on benets will be expected to look for part-time work
once their youngest child is three. Perhaps it is more bark than bite: ofcials assured us that no
parent would be thrown off benets if they cannot nd suitable work. It was met with silence from
the governments friends, vociferous opposition from its enemies.

t is not only the most disadvantaged that the Key government is trying to lift up, but also low-

income groups more broadly: sole parents, the working poor, and low-income families on benets
again, with the goal of getting them out of social and economic exclusion and into the workforce.
English says their monitoring is already showing lower rates of child abuse, sharply improved
workforce participation by the target groups, a 38 per cent reduction in youth crime, a 40 per cent
fall in teenagers on sole parent benets, and a closing of the gap between immunisation rates of
Maori and Pakeha (whites).
The policy grew partly out of a pair of reports written four years ago that emphasised the
importance of early intervention to prevent at-risk children and young adults from falling into
failure that would cost themselves and society dearly in the long term. As critics point out, New
Zealand has a long way to go. Its six-year whirlwind of free market reforms from 1985 to 1991,
including a 20 per cent cut in welfare benets, redesigned all the rules to favour those at the top.
The New Zealand Council of Christian Social Services quotes data showing that over thirty years,
real per capita incomes almost doubled for the top 1 per cent, but rose only 14 per cent for those at
the bottom. New Zealand has fewer than a million children, but it is estimated that 260,000 of

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them are living in poverty.

The councils executive ofcer, Trevor McClinchey, warily supports the governments approach.
Its a sensible model, he told Inside Story. From our perspective, it makes a great deal of sense to
invest in people, and to prioritise spending according to need. If people are unwell, to invest in
them to make them well, and train them to work, its a good process. But he warns that the needs
are many, and the increasing delivery of services by for-prot providers is seeing welfare services
become another commodity. It should be more about how you provide a more equitable
environment for families to live successfully employment, wages, making this a better place.
McClinchey also warns that New Zealands robust job growth 80,000 new jobs in the last year,
with unemployment tipped to fall below 5 per cent next year may be driving some of the gains
the government attributes to its policy changes. The real test will come if and when the economy
starts going backwards. Unemployment among the Maori and Pacic Islanders is now down to a
relatively low 12.5 per cent (among whites, it is 4.5 per cent). The government is forecasting four
years of solid, if slower, growth.
Labors nance spokesperson, Grant Robertson, is also cautiously supportive of the social
investment push. There are elements in it that I think might be useful particularly early
intervention, he says. Creating childrens teams from different agencies is a very good idea, as is
the evidence-based approach. But the implementation of it has been under-resourced. A true
investment approach would invest in developing peoples abilities and skills more broadly.
Others are harder to please. On the day after the budget, a group of protesters tried to storm the
Auckland Convention Centre, where Key was speaking to a post-budget lunch, complaining that
the new money was not enough, that it was all going to families, that the individual jobless were
left out. A representative of one group called it a mean trick designed to fool New Zealanders
into thinking that their government is really trying to tackle child poverty.
No one I spoke to shared those doubts. These guys are serious about getting people back into the
mainstream. Whether or not they can do it, they have started down a path that will show future
governments around the world how to start closing the poverty gaps that years of ideology and
indifference have opened up.

TIM COLEBATCH
Tim Colebatch is a regular contributor to Inside Story, and former
economics editor of the Age. He visited New Zealand for last
weeks budget.

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