social security

Lindsay Mitchell – The Greatest Risk

Lindsay Mitchell has written a fantastic piece and has asked me to publish it so it gains a wider audience. I am very happy to do so.

As Rodney Hide said in the comments, this should be pinned to every wall in Treasury.


Growing up in 1960s New Zealand, houses were smaller and families bigger. Paradoxically, overcrowding and child poverty weren’t a major issue. Most families had two parents and many could even afford a stay-at-home mum. A very small percentage of families experienced financial hardship associated with an absent father.

What changed?

In 1973, influenced by the Royal Commission on Social Policy’s urgings, the government introduced a statutory benefit for sole parents regardless of the reason for their single parenthood. In the following 20 years unmarried births with no resident father more than quadrupled from around 2,500 to 12,000 – 22% of all births – annually. The relatively generous DPB saw single mums dropping out of the workforce. (The Royal New Zealand Plunket Society partially attributes this development to the eventual non-viability of Karitane hospitals which had provided live-in employment for unmarried mothers.)

These births accumulated in the statistics. By the early 1990s around a quarter of a million (mostly) mothers and children were dependent on the state for their survival. But the benefit still kept them above the poverty threshold.

When the incoming National government of 1990 opened Treasury books, the news was bad. This is where the authors ofChild Poverty in New Zealand¬†pick their story up. They describe “benefit cuts of between 10 percent and 30 percent for many beneficiaries supporting children.” In fact, for a lone parent with one child, the cut was 10.7%;¬†for those with two, 8.9 percent. The universal family benefit was abolished, but half of the savings were reallocated into increasing Family Support for beneficiaries and low-income families.

Nevertheless, the drop in income was enough to push beneficiary households below the poverty threshold (though they had probably been barely over it prior). Compounding this was the high number of partnered jobless parents created by an unemployment rate exceeding 11 percent in 1992. From that time the proportion of children in poverty, measured at below 60 percent of median disposable household income after housing costs, has been flat to falling slightly.

Sixty nine percent of children in sole parent households are poor compared to 15 percent in two parent families. Today, a lone parent heads around 30 percent of all families with dependent children.¬†Long-term¬†dependent sole parent families aren’t typically the result of a marriage breakdown. They hail from very young mothers with no educational qualifications, work skills or regular partner.

Every year around one in five new-born babies will be reliant on their caregivers benefit by Christmas. This pattern has persisted from at least 1993. For Maori the number jumps to over one in three. ¬† Add to this Treasury’s advice to the Ministerial Committee on Child Poverty,

“…around 1 in 5 children will spend more than half of their first 14 years in household supported by main benefit. This group is at the highest risk of material hardship and poor outcomes across a range of dimensions‚ÄĚ.

The worrying aspect of this pattern is its persistence through good economic times. In 2007, when New Zealand had record low unemployment, the percentage bottomed at around 19%. Over three quarters will rely on a sole parent benefit, the remainder on either an unemployment or disability benefit. While some of the reliance will be due to unforeseen circumstances like are job redundancy, most could have been predicted by the parent.
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In a recent¬†Listener¬†column Jonathan Boston wrote¬†“…it is worth pausing and considering how easy we would find it to raise children under such circumstances.”¬†The same¬†counsel should be put to those people who can actually change the pattern. Though too much emphasis on “personal responsibility” would give less weight to “fairness and compassion” according to the book. Why these societal attributes would be mutually exclusive is unclear. Read more »

Good news on tax

The good news keeps on coming, this time it appears research shows that our tax burden is amongst the lowest in the world.

New Zealand is among the minority of developed countries where the tax burden on wages has lightened over the past three years.

The tax burden or wedge is measured by taking the total taxes and social security contributions paid by employees and employers, minus family benefits received, as a proportion the total labour costs for employers.

In its latest Taxing Wages report the OECD says that across its 34 members the tax wedge increased from 35.1 per cent of labour costs in 2010 to 35.9 per cent last year.

In New Zealand it dropped slightly from 17 per cent in 2010 to 16.9 per cent in 2013.

That is for a single person on the average wage and without dependent children and is the second lowest (after Chile) in the OECD.

Read more »

Welfare reforms in UK encouraging entrepreurial spirit

Good news out of the UK as welfare reforms appear to be working well.

Benefit cuts are pushing more people into self-employment and helping to create a new generation of entrepreneurs, the Bank of England has suggested

The Bank announced that one of the most ‚Äústriking‚ÄĚ features of the economic recovery has been the record 4.5‚ÄČmillion Britons who are now self-employed.

According to official figures, the number of self-employed workers has risen by more than 600,000 since 2010, accounting for more than a third of the 1.5 million new jobs created since then.

The Bank said the trend was partly down to government welfare reforms, such as the ¬£26,000 benefits cap, pushing people back into work. Iain Duncan Smith, the Work and Pensions Secretary, claimed that the figures were evidence that the Coalition was reviving Britain‚Äôs ‚Äúentrepreneurial spirit‚ÄĚ.

He told The Telegraph: ‚ÄúEvery one of our welfare reforms has been about getting Britain working, so it‚Äôs encouraging to see the Bank of England explicitly linking our reforms with the strength of the UK labour market. ¬†¬† Read more »

Labour gets tough on bludgers

Oh wait…it’s not Labour in New Zealand it is Labour in the United Kingdom that is getting tough on bludgers.

Well-paid workers who lose their jobs could be paid claim more in benefits under Labour plans to reward work.

More experienced people who have paid more in tax would receive a £120 bonus when they are first made unemployed.

The controversial policy would be paid for by extending the amount of time someone must have been in work before they can claim jobless benefits.

Shadow work and pensions secretary Rachel Reeves said the change was needed to help those people who suddenly found themselves looking for work after a long time in employment.

People who have paid National Insurance contributions for four or five years would receive more Jobseeker’s Allowance than others.

She suggested it could be worth an extra £20-a-week for six weeks, worth an extra 28 per cent more than the £71.70 weekly rate for over-25s.

The move is part of a Labour drive to restore the contributory principle to the welfare state, where people can only claim if they have first paid in.¬† Read more »

Welfare reforms kick in today, Herald starts campaign on behalf of losers

The governments welfare reforms kick in today.

Thousands of people are expected to be chopped off welfare benefits as sweeping changes in the social security system come into force today.

The reforms represent the biggest upheaval in the welfare state since the Social Security Act was passed by the first Labour Government in 1938.

All sickness beneficiaries, and sole parents and widows with no children under 14, are now subject to the same requirement to look for fulltime work as other jobless people, although sickness may be accepted as a valid reason to postpone work temporarily.

Other new obligations include drug-testing for jobseekers in relevant industries, which is expected to trigger benefit cuts for up to 5800 people, and a requirement for beneficiaries to clear outstanding arrest warrants.

About 8000 beneficiaries have arrest warrants outstanding for issues such as unpaid fines. Unless they clear them within 38 days, their benefits will be halved if they have children, or stopped completely if they don’t, in what is likely to be the biggest single purge of the benefit rolls since the system was created. ¬† Read more »

29,000 less bludgers taking from taxpayer

Paula Bennett has confirmed that there are less bludgers taking from the taxpayer…29,000 less bludgers.

Social Development Minister Paula Bennett said there were now 29,000 fewer New Zealanders receiving benefits since the last quarter, the lowest number of beneficiaries at this time of year since 2009.

She said more than 17,600 people went off the unemployment, domestic purposes and sickness benefits and into work in the last quarter.

There are now 310,146 people on benefits, including 92,550 sole parents on DPB, 58,208 on sickness benefits and 48,756 on unemployment benefits.¬† Read more »

A ponzi scheme called welfare

In the US and in Europe there is great debate about retaining “entitlements”¬†promised¬†by¬†successive¬†governments.

The same goes for New Zealand…especially with schemes such as ACC, Superannuation, interest free student loans and Welfare for Families. Those programmes all have to be paid for and as Margaret Thatcher once said…eventually you run out of other people’s money to spend.

Sometime soon our politicians are going to have to start being honest with us.

If there were not a single Republican, or none who got elected to any office, arithmetic would still end “Medicare as we know it,” for the simple reason that the money in the till is not enough to keep paying for it. The same is true of Social Security.

The same has been true of welfare state programs in European countries that are currently struggling with both financial crises and riots in the streets from people who feel betrayed by their governments. They have in fact been betrayed by their politicians, who have promised them things that there was not enough money to pay for. That is the basic problem in the United States as well.

We are not yet Greece, but we are not exempt from the same rules of arithmetic that eventually caught up with Greece. We just have a little more time. The only question is whether we will use that time to make politically difficult changes or whether we will just kick the can down the road, and keep pretending that “Medicare as we know it” would continue on indefinitely, if it were not for people who just want to be mean to the elderly.

In both Europe and America, there are many people who get angry at those who tell them the truth that the money is just not there to sustain huge welfare state programs indefinitely. But that anger might be better directed at those who lied to them by promising them benefits that were inherently unsustainable.

Neither Social Security nor Medicare has ever had enough assets to cover its liabilities. Very simply, there has never been enough money put aside to do what the government promised to do.

These systems operate on what their advocates like to call a “pay as you go” basis. That is, the younger generation pays in money that is used to cover the cost of benefits for the older generation. This is the kind of financial pyramid scheme that got Charles Ponzi put in prison in the 1920s and got Bernie Madoff put in prison in our times.

A budget surplus, asset sales AND top notch crumpet

ŠĒ• The Local

So much for sweden being socialist. It seems they have it all.

Sweden’s national debt office (Riksgälden) stated on Tuesday that the country’s budget surplus from 2011 stood at 68 billion kronor ($9.85 billion).

“Despite increased concerns about the debt situation in the world and an expected slowdown in the economy during the second half, Swedish government finances developed strongly in 2011,” the debt office said in a statement.

While Sweden, with its heavily export reliant economy was hard-hit during the 2008-2009 financial crisis, its recovery “continued to be strong in 2011, which generated higher tax income,” the office said.

The debt office pointed out that the government during the year had also sold off shares worth 23 billion kronor in the Nordic region’s biggest bank, Nordea, and in Swedish-Finnish telecom giant Telia Sonera.

Sweden’s central government debt meanwhile stood at 1,108 billion kronor at the end of 2011, which corresponds to 32 percent of the non-euro-member’s gross domestic product (GDP), far below the 60-percent level allowed within the eurozone.

This should sort the deficit

Is Welfare a Ponzi scheme?

via Andrew Sullivan

Texas Governor Rick Perry is an aspiring presidential nominee and he has been suggesting that welfare, or social security as the American’s call it is in fact a Ponzi scheme. Since welfare is what the country is talking about then this discussion via Andrew Sullivan is extremely pertinent.

Reacting to Perry’s¬†repeated claims, Zaid Jilani¬†consults the dictionary:

A Ponzi scheme is an economic arrangement where the money paid into the system by later entrants is paid right back out as benefits to earlier entrants. None of these social insurance programs that Perry mentioned fit this definition. They benefit those who pay into them with guaranteed benefits.

Daniel Indiviglio perks up:

Wait — what? Social Security fits that¬†precise definition.

It was created during the Great Depression by President Franklin D. Roosevelt. Retirees began receiving benefits immediately, without having paid into the program themselves. Those benefits were paid by taxing current workers. So, in fact, Social Security is technically identical to the definition of a Ponzi scheme that Jilani provides.

But what about those “guaranteed benefits”? Don’t those make a difference? Well, let’s think about this. Imagine if an investment advisor came to you and said:

“Hi there! I want to sell you a retirement vehicle for which you will be provided a guaranteed benefit of x dollars per year after the age of 65. But the money you contribute will be paid to current beneficiaries, while your money will be paid by future beneficiaries. If there’s ever a shortfall, we’ll just borrow money from China in order to keep the guaranteed benefits coming — or force future contributors to provide more money. Alternatively, we might increase the age at which you’ll receive benefits. And we might even think about means testing your benefit.”

All of those supposed “guaranteed benefits” sure come with a lot of caveats, don’t they? Is it even fair to call those benefits guaranteed? For all we know, the U.S. could continue to run into deficit problems for the next few decades and could feel compelled to do away with Social Security altogether.