The 1991 Benefit Cuts
January 29th, 2007 at 12:20 pm by David FarrarThe left often go on about the 1991 cuts to some benefits as the great evil of the 1990s, without ever putting them into context (of course) or noting they have never ever reversed them despite record surpluses. If you only read from the left you would think that National did them because it hated poor people (which is what they want people to think).
First of all, it is important to note that Labour did not campaign in 1993, 1996 or 1999 on reversing them. Sure they whined non stop about them, but never did they promise to reverse them. Why not? Because they knew they couldn’t be afforded and also the would destroy the gap between low paid jobs and being on a benefit. And despite being in office for seven years with record surpluses, they still have not even once increased the base level of a benefit beyond that required by inflation.
Now let’s look at why some benefits were cut in 1990. The main reason is because Labour left the country almost bankrupt. The accounts were done then on a cash basis and money from asset sales was hiding the fact that there was a large operating deficit.
How large? Before the 1990 election we were told there was a surplus. In fact the new Govt found out that there was a deficit projected to be $5 billion. And this was back in 1990 when that was a whopping 19% of total crown income (then only $26b). So we were set to overspend by around 20%.
Now on top of that we had a crippling level of public debt. How much? A whopping 44 billion which represented 169% of total crown income.
And what did that debt cost to service? In 1991 it was a huge $4.6b. By comparison health expenditure was under $4 billion. Yes we spent more on debt than we did on health. Thanks to those 1991 cuts this is no longer the case.
And worse it was a vicious circle. Run a $5 billion deficit and that is $5 billion more debt which at the 15% interest rates of the time was $750 million more interest annually so even if nothing else changed the deficit grows by $750 million so next year it is almost $6 billion.
So in 1991 we had a deficit of 20% of crown income, a debt of massive proportions, 15% interest rates which meant servicing on the debt cost more than either health or education votes and this all looking just to get worse in a vicious circle.
Obviously there was a huge fiscal need to cut the deficit and debt. Anyone who denies that is lying. And that is why so many areas had expenditure cuts. Because if they had not been cut in 1991, they would have been cut not many years later when we couldn’t pay the interest on the debt.
The incoming National Government had this dire situation hidden from it. They took the tough calls in order to save the country. The situation now is vastly different from 1990. We have structural surpluses and almost no debt. We have them to thank for that.
No tag for this post.
January 30th, 2007 at 5:25 am
The real point is whether they did just what was necessary, or whether this crisis was a convenient excuse to ditch election promises and go down the neo-liberal track far past what was required.
Vote:January 30th, 2007 at 5:31 am
The real point is whether they did just what was necessary, or whether this crisis was a convenient excuse to ditch election promises and go down the neo-liberal track far past what was required.
Vote:January 30th, 2007 at 6:03 am
well..i guess that’s ‘one take’ on a complex issue.piece of history…
and as..at that time..you worked for/ sat at shipleys shoulder..urging her on with cries of ‘more cuts..!’..’more cuts..!..’..
’tis understandable you would now defend the miseries you helped spread/propagate….
eh..?..
phil(whoar.co.nz)
Vote:January 30th, 2007 at 7:44 am
David, how about addressing the ‘health cuts’ of the 1990s as well. My recollection is that there was no reduction in the $$ going to health at all, but that the spin from Labour took over from the facts. What really happened?
Vote:January 30th, 2007 at 7:46 am
Yet, as stated, labour has not seen fit to reverse these changes and so return NZ to those pre-reform sunlit rose-tinted glory days of the ’81 tour duffle coat and flaired loons.
I wonder why.
Vote:January 30th, 2007 at 8:11 am
After the cuts other allowances compensated. The special benefit and special needs grants for instance.
Vote:Hence total social assistance only ever dropped once. Between 92 and 93 by $442m (after increasing by $313m between 91 and 92). Then it continued to climb again.
January 30th, 2007 at 8:38 am
oh to be a ‘flaired-loon’..eh..?
phil(whoar.co.nz)
Vote:January 30th, 2007 at 9:41 am
Oh come on David, this is a pretty biased post even for you. You neglect to mention that National clocked up a huge debt under Muldoon/Birch/ThinkBig – so some of that inherited debt in 1990 was actually your own.
You also neglect to mention the alternatives: increase taxes, spread debt repayment out over a longer period of time, cut spending in other areas etc.
It’s also ironic that you are now proclaiming the virtures of reducing debt when National planned to massively increase it if you had one the 2005 election…
Vote:January 30th, 2007 at 10:05 am
I think I need a new moniker. Too many Chris’ floating around the ether.
I think DPF would be the first to admit and acknowledge that National built up huge debts under Muldoon. Today’s National party is very different from Muldoon’s National, in the some way that Clark’s Labour is markedly different from Lange’s Labour. Parties and policies change with the the times. Both parties caused and contributed to the huge debt build up that finally got addressed in the 1990s.
National did not plan to massively increase debt. National planned to borrow prudently for large capital expenditure against future revenue. That is precisely what every sensible business does and is completely different to what went on prior to 1990. So it’s not ironic at all – just sensible.
Vote:January 30th, 2007 at 10:24 am
The main reason is because Labour left the country almost bankrupt.
Would that be the Act Labour government?
Vote:January 30th, 2007 at 10:26 am
phil u
well..i quess thats ‘one take’ on a complex iusse.piece of history…
Please phil don’t leave us hanging, surly you have the socailist version that you could share with everyone. Oh thats right, it takes time to rewrite history dosen’t it. But I quess we should be all grateful that there are no “miseries” now days and everything is just peachy in good old NZ.
Vote:January 30th, 2007 at 10:44 am
Andrew – that would be the Labour Government Clark was Deputy PM of, and Cullen Associate Finance of.
Chris – I love it how supplying facts on the fiscal situation of the time is biased, yet having Chris and his colleagues refer to them as awful despicable nasty cuts is not.
Of course some of the debt in 1990 was from Muldoon. Absolutely. One reason I never supported Muldoon. But who it came from didn’t change the fact the level of debt and deficit in 1990 was staggering.
Chris suggests tax increases as an alternative. Increasing taxes in a recession – yes that will help the unemployed find jobs. A 20% increase in tax paid would be horrific.
Chris also suggests cuts in other areas. There were! Every area had funding cut or frozen. Defence did. Most areas did. Welfare was far from immune.
Finally Chris is unable to tell the difference between borrowing for capital investments (standard best practice) and borrowing to fund a huge operating deficit. Also unable to tell the difference between borrowing when one has no net public debt and borrowing when net public debt is twice the size of the Govt’s income stream.
Vote:January 30th, 2007 at 11:18 am
Meanwhile we await the great tax cut bribe of 2008 when the dimbulbs will be bought by their very own pieces of silver by the Socialists.
Vote:January 30th, 2007 at 11:23 am
You forgot about the BNZ being in dire need of a bail out.
Vote:January 30th, 2007 at 11:26 am
One of the reason the ‘benefit cuts’ werent reversed were they were relatively small. I think it was something like $10 a week. Which is a lot for each beneficiary ( the total numbers swelled enormously under those first three years of National).
Actually $1 billion was saved from Social Welfare Vote by moving the disability sector ( ie permanent , usually from birth) to the Health Vote. There making Health look like an increase as well.
So must of the ‘cuts’ were a big lie on the pre Xmas announcements. later as the economy went into severe recesion in early 1990 , the numbers of unemployed rose significatly which meant lose of tax revenue and increase in benefit payouts.
Vote:So by making a small gesture of $10 per week National probably doubled the numbers on unemployment benefits.
This can all certainly be blamed on Ruth Richardson, as she was dumped after the next election ( probably for upsetting big business as well,like Brierleys who wanted favourable tax treatments for their busineses, whereas Ruth was very much a believer in the ‘level playing ‘ field)
January 30th, 2007 at 11:27 am
Benefits were not cut primarily to save money – they were cut to restore a (small) differential between what could be earned on welfare and what could be earned through low-paid work. This is why, despite the huge surpluses, Cullen and co have not raised benefits. They understand there needs to be a differential between the income available from welfare and work.
Vote:January 30th, 2007 at 12:44 pm
Anon
This might be true when you are talking about single people, but it is certainly not true when the full force bribe of WFF and child support is considered.
How would the earning potential (less childcare costs) of an uneducated mother of 5 compare to the benefits available ?
Labour don’t actually care about the welfare of the unemployed, they just want their vote and will use our money to achieve that.
Meanwhile welfare payments are linked to CPI and Helen Clark-enstein’s salary increases at about 9% every year.
Vote:January 30th, 2007 at 1:22 pm
hayman..stop rewriting history…(a ten dollar cut..!.)
they were cut ..accross the board..by about one-third..
anyway..i’m sure david will remember the exact percentage figure..eh..?
(being ‘the hand behind the pen’..as it were..)
phil(whoar.co.nz)
Vote:January 30th, 2007 at 1:55 pm
Burt – WFF is not paid to beneficiaries.
Vote:Phil – they were cut by nothing like a third – you don’t remember because you were in kindergarten then
January 30th, 2007 at 3:51 pm
Anon, WFF includes the In Work Payment which replaced being on a partial benefit. You could be on the DPB working part-time and without changing your hours move onto the In Work Payment and off the DPB.
Vote:January 30th, 2007 at 4:45 pm
why thank you anon..(i’m older than i appear..a small fortune on plastic surgery does the trick….eh..?..)
but i was around…
and it was a third..
phil(whoar.co.nz.)
and side show bob..you seem to be under some impression that ..like you..my critiques are ideologically driven/one-eyed..
anyone who has looked at whoar will know that is not the case..
unlike you..i try to assess the various issues on their merits..not just accept whatever my political masters dictate..eh..?
and just this morning..i’ve been ripping shards off helen clark..and the greens..
so there you go..
Vote:January 30th, 2007 at 7:47 pm
I don’t recall the % cut off benefits but think maybe 20%. I was not a parliamentary staffer until 1996.
Vote:January 30th, 2007 at 10:19 pm
“The left often go on about the 1991 cuts to some benefits as the great evil of the 1990s,”
Thats because it was EVIL.
Probably the start of the violent society we have today as well, its no use hitting those who are already poor,it just makes matters worse for all.
Vote:January 31st, 2007 at 7:55 am
The cuts varied from 3 to 25%.
25 for youngest 18-20 unemployed, 3 for married unemployed with two children.
The more dependents, the lower the cut.
Lefty, the violence came well before the benefit cuts. How can trying to make work a better alternative be evil?
However I would have opposed cuts myself. It’s not the answer as we saw.
Vote:January 31st, 2007 at 5:59 pm
Lindsay , i agree with you that work is better, my grandson who was caught up with nationals last “work for the dole” was not happy with it at all, our family wrote letters and faxes to the PM at the time to inform the authorities he would not do these meaningless degrading pathetic jobs work and income were giving him, they stopped his dole for 3weeks and he had to re-apply=another 3wks, total 6wks no income, our family had to foot the bill, however we got the money back in other ways ,by applying for large grants and extra sickness benefits for other family members.
Unless they can give people MEANINGFUL work it will not work at all.
My son is now a teacher at a good school in AK.
Vote:and he will never forget what national did to him and our family.
January 31st, 2007 at 9:45 pm
Lefty as of 3 years ago I still heard a lot of Work and Income clients go on about Meaningful work, however its a crap argument.
What is a meaningful job to me may be completely meaningless to you and vice a versa, hence the obligation that each recipiant of UB agrees to as part of their benefit which is they will accept any job.
UB isn’t there to support people while they find their ideal job, its their to assist people find a job. It doesn’t matter what that job may be as long as it comply with NZ employment law (minimum wage etc).
Personally if a person on UB hasn’t been able to locate a job after the expected average time frame (this varied depending on local job markets etc however was generally 12 weeks when I worked for WINZ) then I completely support UB recipiants being required to work a minimum of 3 days a week and spend the other two days doing compulsory work skill courses.
Failure to attend either should result in their benefit being immediately suspended and if resumed only from the date of they comply with their obligations and not back payed as under the current work testing model WINZ uses.
Vote:February 2nd, 2007 at 5:27 pm
Mr Farrar you know very well
that the billion dollars saved pa by the benefit cuts based on the arguement that there was a need because there was a budget deficit
(there usually is during a recession – and that one was caused by floating the dollar
while running interest rates at 15% and destroying export industries, this sort of reliance on monetary policy is still handicapping our economy to this day)
was later given away in tax cuts as soon as there was a budget surplus (as soon as the recession ended)
The tax cuts were spent on consumer imports. The alternative was to spend the money on neglected infrastructure or reverse the benefit cuts.
As to Labour policy in response to tax cuts made then with the benefit cut money
- with due realism as to winning elections in the centre, you can see Labour’s response in their resistance to tax cuts to this day.
Their focus on help to those over 65 in pension levels, their state housing policy, their Super Fund. The money poured into education and health and into neglected nfrastructure.
The drive to reduce unemployment (and reduce
the numbers dependent on benefits), increasing the minimum wage and the increased support to families via the In Work payment – creating real incentives to work.
The numbers on the UB and DPB reflect what this is achieving. The next round of wage increases to a $12 an hour minimum and the conclusion of the increases in family support payments should progress this further.
Albeit in the need for further develop programmes in the area of inter-generational poverty, policy is on track.
And yes there are still those who criticise that some families dependent on benefits are struggling because of the benefit cuts (I don’t agree, the cuts for families were not large – the problem is the rising cost of power and or rates is not really covered by CPI increases – and power is a much larger cost factor for poor families at home all day than for others). The real change was the cut in dole for singles (thus hardship for those living away from home and older singles without owned property).
Vote:February 2nd, 2007 at 6:40 pm
spc said..”..the cuts for families were not large -”
that is an outright lie…
sole parents..in particular..were kicked hard..
(are they families..?.spc..?…in your world view..?..)
phil(whoar.co.nz)
Vote:February 2nd, 2007 at 6:51 pm
My point was that a problem with todays benefits, is that the CPI increase does not cover the increased costs that those on benefits actually face – in areas such as power.
Yes some beneficiaries raising children (on the DPB) faced larger benefit cuts than others.
Whether this involves hardship, is usually dependent on the housing situation. 2 sharing accomodation were/still better off than 2 adults on UB with the same number of children. Todays accomodation supplement also provides assistance to those on the DPB living alone and renting privately not available in those times.
Vote:February 2nd, 2007 at 7:18 pm
Of course the rising cost of rent cost is also faster than inflation and the AS only covers part of the rent cost. So whenever rents rise, as they have of late, then there is increasing
hardship.
But younger people on the DPB may live with parents and those separating from partners may have mortgage issues rather than rent.
Vote:March 13th, 2007 at 12:20 am
Basically, crap
The reason the benefits were able to be cut in 1991 was it was just after an election, no vote buying to worry about so away goes Ruth Richardson, slash and burn.
Now if you use the line of argument you are following then why not keep on slashing, why stop at the first billion?
Answer is fairly simple. Bouyed at the apparent lack of political fallout Ruth goes on to even greater heights to have a go at slashing super payments. Except that this time it was closer to an election. Net result, National falls to a record low level in the polls, and then nearly loses the election. Bolger sees political reality and sacks Ruth.
Labour obviously have not found it a high enough priority, but they have driven a very different policy approach that has had a similar effect. Shipley got Winz managers to have their case managers withhold information on entitlements. Labour made sure that people got the full info on entitlements.
Also as we know Labour did reverse Shipley’s super slashing.
Vote:March 13th, 2007 at 12:29 am
Basically, crap
The reason the benefits were able to be cut in 1991 was it was just after an election, no vote buying to worry about so away goes Ruth Richardson, slash and burn.
Now if you use the line of argument you are following then why not keep on slashing, why stop at the first billion?
Answer is fairly simple. Bouyed at the apparent lack of political fallout Ruth goes on to even greater heights to have a go at slashing super payments. Except that this time it was closer to an election. Net result, National falls to a record low level in the polls, and then nearly loses the election. Bolger sees political reality and sacks Ruth.
Labour obviously have not found it a high enough priority, but they have driven a very different policy approach that has had a similar effect. Shipley got Winz managers to have their case managers withhold information on entitlements. Labour made sure that people got the full info on entitlements.
Also as we know Labour did reverse Shipley’s super slashing.
Vote: