Increased working-age welfare dependency is a problem

Dr Bryce Wilkinson
NZ Herald
1 February, 2024

New Zealand’s welfare system is a problem for beneficiaries, taxpayers and others. Think of those affected by the reported problems in Rotorua from emergency housing in motels.

At its most concerning, welfare dependency is associated with inadequate housing, mental illness, child poverty, drug dependency, inability to budget, obesity, poor parenting, household violence, school absenteeism, and the intergenerational transmission of misery.

Of course, most beneficiaries are not like this. Moreover, many of those not on welfare have their share of such problems.

But government has a particular responsibility towards welfare recipients. Think, for example, of kids born into homes where state welfare is the dominant means of support, where they experience abuse and where education is undervalued.

The quality of state welfare matters. The conditions attached to it affects the fate of these children. Cash handouts to drug addicts or those who cannot budget may feed the problem.

Welfare dependency is impoverishing and unfulfilling for those who have become dependent on state handouts. People cannot be expected to feel good about themselves if they are not living meaningful lives that benefit themselves and others.

The rise in working age welfare under the previous government is dramatic.

The (optimistically named) Ministry of Social Development’s latest figures show 378,711 people of working age were receiving a main benefit at the end of December 2023. Most of these (71%) had been doing so for over a year. How can this be?

That total is 35% higher than the 280,177 beneficiaries in December 2017.

At 11.9% of the working-age population, the December 2023 figure is a massive 24% higher than the December 2017 proportion of 9.6%.

What has driven this increase? The rise in those on jobseeker support is a major factor. In December 2023, the number of people on the jobseeker support benefit was, at 189,708, 54% higher than the 123,041 number in December 2017.

For the portion classified as “job-ready”, the rise was 32%, from 83,100 to 109,698.

In contrast, the number unemployed in September 2023, at 92,400, was 13% less than the September 2017 figure of 106,600.

Why the difference? It appears that more of the unemployed are now on that benefit and the proportion on that benefit that is not work-ready has risen sharply.

Regardless of the reasons, the increase in working age beneficiaries adds to the burden on those with jobs of New Zealand’s ageing population.

Those who have jobs could be forgiven for feeling resentful. The greater the sense of entitlement amongst those on benefits, the greater the potential for growing resentment. The absurdly high cost of housing can only heighten the sense of ‘being put upon”.

Many contributing factors are reversible, given enough electoral support.

First, the last government put the interests of those with jobs ahead of those without jobs. It hiked up the minimum wage. This helps those who retain work at the expense of those who cannot find an employer to hire them at the new, higher minimum wage. Expressed differently, it helps those with jobs at the expense of those who are hardest to employ.

Second, the last government increased the burdens on those who have jobs by relating benefit levels to wage increases rather than increases in the cost of living. This is also a problem with national superannuation.

If the purpose of state superannuation and welfare benefits is to help with the cost-of-living, the focus should be on keeping pace with the cost-of-living, not wages.

Relating benefits to wages reduces the incentive to work. Why work and lose leisure time if there is little or no gain in standard of living?

Indeed, there is evidence of a shortage of people willing to work at the minimum wage. The mainstream media told last season of fruit rotting on the ground for lack of fruit-pickers. The hospitality industry also struggled to find even unskilled labour, particularly when immigration was on hold.

Third, since the early 1990s governments have failed to increase the age of eligibility for national superannuation with the rise in life expectancy. That failure reduces the incentive to save for retirement. It also increases the tax burden on younger members of the labour force.

Fourth, the last government dropped the ball on how best to help people get off welfare and back to leading fulfilling, independent lives. It kept the public in the dark about what was happening with long-duration welfare dependency. It did so by preventing the publication of independent actuarial estimates of changes in welfare dependency. Its excuse was that measures of the likely future fiscal cost of welfare dependency demeans beneficiaries.

To avoid measuring whether current policies are increasing or reducing long-duration welfare dependency is to avoid accountability. A government that is not assessing whether its policies are working is not taking New Zealanders’ well-being seriously.

Fifth, the last government buried Bill English’s social investment approach. That approach aimed to rigorously assess which state-funded welfare programmes actually help people escape their predicaments as distinct from perpetuating them.

The essence of social investment is to compare the outcomes for those in a given programme with those for a similar control group that was not in the programme. Such assessments require rigour, hard data and statistical expertise.

Those are not qualities that come naturally to a bureaucracy with a budget to defend.

This is a list of things that could be done much better, given the political will. 

Add to this the dire need to reduce housing costs by freeing up land supply for housing and improving local authority incentives.

The best welfare policy does not necessarily save taxpayers money in the short term. Done well, it should reduce future spending on benefits. But that is a bonus.

The best welfare policy would focus on helping those it encounters to thrive in life. It is their individual abilities, challenges, aspirations and dreams that should be at the heart of policy efforts.

To read the full article on the NZ Herald website, click here.

Stay in the loop: Subscribe to updates