ALASDAIR THOMPSON looks at the plight of Kiwis on low fixed incomes and asks what’s to be done?
Our population is aging. More New Zealand baby boomers are retiring, some forced to by ageist attitudes but most voluntarily. Their working or earning days over, they rely on National Super and savings. Their income is now relatively fixed and rising prices erode it.
National Super is a benefit funded like all others from annual taxation. It costs more than all the other main welfare benefits put together. The Labour-led government said 710,000 New Zealanders on National Super would benefit from the Winter Energy Payment.
There were also 277,410 on ‘main’ welfare benefits, which exclude National Super, at 30 June 2018, with unemployed people (not all of whom are on benefits) making up more than 45 percent of those on the ‘main’ benefits. Various other beneficiaries, such as Supported Living, Sole Parent, Youth/Young Parents, make up the rest.
Added to the 710,000 superannuitants and 277,410 main beneficiaries, are the low income working people who are being partly supported by Working for Families (WfF), Best Start tax credits, accommodation and emergency supplements. How many of them are there? There could be near 600,000. Who knows? But the Government’s budget says they will cost $1.16 billion in 2018/19, rising to $1.62 billion in 2021/22.
These working poor are also trapped on low incomes because if they get paid more wages they lose an equivalent amount of the WfF tax credits.
In any event, there is a huge number, maybe 1.6 million of our adult population, on low and relatively fixed incomes with little hope of changing their income circumstances. The government’s recent increase to beneficiaries helped, but more tax-funded welfare alone cannot solve the problem.
It’s not that Kiwis don’t work hard. In fact, our labour participation rate of 70 percent is one of the world’s highest. The USA is barely at 62 percent. More adults work, at least to some extent, in New Zealand than just about any other country in the world.
New Zealand’s problem has been its low labour productivity rate. For a developed country, labour is cheap here so manufacturers use more labour and less robotics or automation. And what we produce is mainly low value-added commodities. Add to that, that about 20 percent of adults cannot read, write, or do fractions or percentages adequately. Too many are unskilled. We don’t have enough tradespeople to build the new houses we need.
Thus we have a very large number of people on low incomes.
The big issue facing low and relatively fixed income people in New Zealand is the big cost of living increases they are hit with. Alternatively, they have to live without heating, doctors’ visits, insurances, even food.
Sure, consumer goods inflation has not been high in recent years but other things like housing costs, housing rentals, insurance, rates, electricity and healthcare have rocketed up.
Insurance costs between 2007 and 2016 increased on dwellings by 149 percent, house contents 132 percent, health 72 percent, and life insurance by 56 percent according to NZ Household Expenditure Statistics.
IAG, New Zealand’s largest general insurer, warned back in June 2017 that vehicle insurances would likely increase by double digits for 2017-18 and my insurer has told me it will be worse next year.
Council Property rates and charges increased 57 percent over the past 10 years whereas overall inflation in that same period was just 17.3 percent and population growth was even lower at 14.4 percent. The government has initiated a Productivity Commission enquiry into that. Already, the Local Government Association is asking for new sources of revenue, like getting back the GST on rates. They want even more money.
Against these massive living cost increases, people’s wages have not gone up much but for the people trapped on low incomes and/or welfare, including National Super, it’s even worse. National Superannuitants’ income does go up a bit each year but the accumulative rise for them has only been 28.8 percent since 1 April 2009, compared to the big price increases they have faced.
This government, like the last one, continues to run a surplus. There is a little room for higher government spending but it must target its spending wisely and not fritter it on vanity stuff just to hold a coalition together.
The government must work with business to raise investment in all those things that will raise labour productivity. Public education outcomes need improving.
Funny, I wrote about all this 17 years ago after the Knowledge Wave Conference. Yes, there have been some successes since then but overall we, the government, business and people have failed to lift the value of the goods and services we produce and sell in order to raise our incomes so that all New Zealanders might become self-sufficient.