Labour forgot percentages

October 13th, 2015 at 11:00 am by David Farrar

Stuff reports:

Fewer people coming off a benefit and moving into work shows a “stalling economy” and a “failing Government”, says Labour.

But the Government says Labour had gotten its maths wrong on figures the party obtained.

While the real numbers of beneficiaries moving into work had decreased, the overall percentage of people going into work had actually gone up, as the total pool of beneficiaries decreased, said Social Development Minister Anne Tolley.

If you have fewer people on benefits, then yes there will probably be fewer beneficiaries going into work.

Labour’s social development spokesperson Carmel Sepuloni said she stood by the argument, and they still showed there was a proportionate decrease in the number of people going into work, than the year prior.

The figures released to Labour under the Official Information Act showed that the number of New Zealanders moving off benefits and into work fell by nearly about 3500 in the last twelve months – from 84,477 to 80,967.

In that period, the total number of main benefit cancellations fell by 22,085 – from 220,497 to 198,412.

At the end of March 2015, 284,260 working age people were receiving a main benefit.  That was down from 295,000 people in June 2014, according to the Ministry website.

“At the same time the New Zealand Income Survey shows an extra 27,500 people were receiving government transfers – primarily benefits and superannuation – as their main source of income compared to 12 months ago.

“Crucially, there was a 38.85 per cent increase in the number of people aged between 50 and 59 years on these transfers between 2014 and 2015,” Sepuloni said.

Oh this is desperate stuff. The NZ Income Survey is basically a poll of a few thousand NZers. It provides very good data on incomes, but using it to claim a certain level of people are on welfare is ridiculous, because you have the actual individual welfare data available.

It’s like claiming the results of an exit poll over the actual election result.

Tolley said Labour was looking for a bad new story where there was none.

“Labour has been found out once again for not doing its homework and failing to realise this is a good news story.

“40.8 per cent of beneficiaries left benefit for work in 2014/15, up from 38.3 per cent the previous year, and 33.5 per cent in 2010,” she said. 

So thanks to Carmel for highlighting the positive trend.

“This is against a backdrop of fewer people on benefit – a fall of 38,000 compared to three years ago – and Labour reckon this is a bad thing?”

It’s an awful thing for Labour – the more people reliant on the state for their income, the more potential votes for Labour.

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Change practice to reflect the law not vice-versa

September 18th, 2015 at 1:00 pm by David Farrar

Stuff reports:

Underpayments to beneficiaries over the past 18 years could cost the Government millions of dollars.

Radio New Zealand reported Work and Income had underpaid some beneficiaries by a day since 1998, as it had paid people from the day after their “stand-down” period ended.

When people applied for a benefit, they often had to wait two weeks for it to start.

Work and Income was meant to pay a beneficiary from the day after the two week period ended, but instead had been starting payments the following day, RNZ reported. 

The Government was now trying to retrospectively change the law dating back to 1998, when the provisions took effect.  

Social Development Minister Anne Tolley downplayed the amount the mistake could cost the Government in unpaid benefits, but said it would not be a “huge amount”. 

The amendment to the law would line up with what was happening in practice, changing the payment date to the day after the stand-down ended, Tolley told RNZ. 

I would have though if practice doesn’t match the law, then it is the practice you should change – now the law.


Labour against using data to identify at risk children!

September 17th, 2015 at 10:00 am by David Farrar

The Herald reports:

The Treasury has carried out the analysis of anonymised information after being given access to a detailed dataset compiled by the Ministry of Social Development.

The work is part of the Government’s “investment approach” to social spending, which aims to identify where up-front spending can cut costs later.

Treasury’s preliminary analysis shows that children with specific risk factors could have cost taxpayers an average extra $256,000 by the time they hit 36.

Finance Minister Bill English said it aimed to identify which families were the most vulnerable, what help they received and whether that made enough difference.

“It is a bit more intense than we thought – that cycle of dependency is tighter, it is a smaller group of people I think in a longer term, which highlights for instance that a lot of these families will need sustained, intelligent support.

“We are making a lot of progress with this compared to five or six years ago – flying pretty much blind to now getting much more of a picture of what really happens. It shows that some of these kids are likely to be getting multiple services, these families, some might not be getting much at all.”

This work is potentially very important. Identifying at risk families before things go dramatically wrong could make a real difference.

The work has frustrated Labour, who say the exercise crudely simplifies what are complex, real-life situations.

“The social workers who are in this space already know how to identify the families that need help,” Labour’s spokeswoman for children Jacinda Ardern said. “Our problem is that we are not properly resourced to deal with it.”

This makes me despair. First of all social workers can only identify families they are already dealing with. But secondly to put reject using science and data to identify families more likely to be at risk is just dumb. Labour’s answer to almost everything is to reject change, and just demand more money.

The Treasury research comes as a Productivity Commission report, released yesterday, found the 10,000 “highest-cost clients of the social services system” each cost at least $500,000 in lifetime services.

Ouch. That is a total of $5 billion on 0.2% of the population.

More cost-benefit analysis to allocate funding has worried unions, including the Public Service Association, which has said the “lottery” of contestable funding causes too much uncertainty.

I care more about outcomes.


Fewer people on welfare

July 21st, 2015 at 11:00 am by David Farrar

Anne Tolley announced:

Social Development Minister Anne Tolley says the latest benefit figures show the number of people receiving welfare is the lowest for any June quarter since before the Global Financial Crisis.

There were 285,349 people on a benefit at the end of June 2015, a drop of 8,237, or 2.8 per cent, compared to a year ago. This is the lowest June quarter since June 2008.

“I’m pleased to see the strong downward trend is continuing as Work and Income supports more people into work,” Mrs Tolley says.

“Sole parents continue to lead the way with a 6.5 per cent reduction nationally, including a 10.7 per cent drop in the number of Sole Parents who only have obligations to prepare for work.

“This puts more money in the pockets of these parents, and it improves the future prospects of both parents and children.

“Getting off a benefit and into employment or study reduces long term welfare dependency and allows individuals and families to thrive,” Mrs Tolley says.

Good to see the trend continuing.

Over the last five years we’ve seen:

  • 47,500 fewer people on main benefits
  • 25,000 fewer people on a benefit for more than a year
  • 14,500 fewer under 25s on welfare
  • Reduction by ethnicity is 21% for Pasifika, 18% European and 7% Maori
  • 28,300 less on jobseeker benefits
  • 19,000 fewer on sole parent benefits (21% down)

Tighter focus for social services funding

June 7th, 2015 at 4:00 pm by David Farrar

The Herald reports:

Some agencies are expected to close in a radical revamp of social service funding unveiled by Social Development Minister Anne Tolley.

A new “community investment strategy”, published yesterday, will focus most public funding of non-government social services on three priorities:

• Supporting vulnerable children and children in hardship and reducing maltreatment.

• Supporting vulnerable young people, including youth offenders, and reducing youth crime.

• Supporting adult victims/survivors, addressing perpetrators’ behaviour, and reducing violent crime. …

Dave Henderson of the NGO umbrella group Hui E! Community Aotearoa said there was wide agreement on the three priorities and the need to review existing programmes.

“The department’s services have grown like topsy.” He pointed to a chart in a recent Productivity Commission report which listed 45 new programmes started over the past 10 years, including seven in one year.

“Every year they are adding programmes because they are someone’s hobby horse, or because of lobbying, or because of media pressure, and they are not reviewing them.”

A tighter focus normally produces better results. We’ve seen this in the health sector where the 80 or so old targets were replaced with fewer than a dozen health goals, and the sector has largely met them.

The three priority areas look sensible to me.


Ex-prisoners go straight onto the sickness benefit

June 5th, 2015 at 4:00 pm by David Farrar

Stuff reports:

Released prisoners make up a big proportion of those joining the sickness benefit, and their children are falling through the cracks, the deputy PM says.

Finance Minister Bill English said data sharing has revealed that 5500 of the 7500 prisoners released each year join the sickness benefit within 12 months, and nearly half of those go on to reoffend.

If they’re well enough to commit crime, they’re well enough not to be on the sickness benefit.

“They [the prisoners] left healthy, trained, probably in their heads not quite rehabilitated, and within 12 months two-thirds of them are on a sickness benefit which means they don’t have to front up for a work test,” Finance Minister English said.

“We’ve had [the prisoners] drug free, alcohol free, fed properly, insulated and warm.

“That is nuts. We didn’t know that until about three months ago – that the main flow of people on to a sickness benefit is healthy former prisoners.”

The great thing about the data focus we are seeing is as we learn stuff like that, then you can do something about it. You need to identify the problem, before you can solve it.


The poverty industry

May 27th, 2015 at 3:00 pm by David Farrar

NBR reports:

Asked about measures to tackle poverty and child poverty, Mr English told a Maxim-organised gathering in Auckland last night that those terms have been taken over by ideologues and the government does not trust the way those words are used.

“The term ‘poverty’ has been captured by a particular idea of how you measure poverty and a particular solution to it. That is, you measure it relative to incomes, and the solution is mass redistribution.”

And we should resist that definition. Once you accept that as the definition then the only way you can solve poverty is to massively increase taxes on half the population to redistribute it to the other half. If you accept that as the definition, then the only solution is socialism or communism. Doubling the wealth of every person in NZ wouldn’t reduce poverty by one iota according to some in the poverty industry.

“We are not addressing that phenomenon. What we are addressing is absolute levels of hardship. That is someone not having enough to live, and we don’t think that is worse just because someone else has a bit more.”

But the poverty lobby groups do. They don’t want anyone earning too much more than anyone else.

Incomes are only one part of what keeps people at the bottom of the social heap, he says, and other factors matter more.

Labour have said that lifting benefits by $25 a week is not a solution to poverty, it just makes life easier for those in poverty. They are right. Just increasing benefits is not a solution to poverty.

The solutions to poverty take a generation or so to succeed. They are things such as:

  • Having a free economy and flexible labour market that creates jobs, for those wanting to get off welfare
  • Welfare reforms that don’t leave people on welfare for 20 years
  • Targeting the tail in education with initiatives such as the Investing in Educational Success initiative and charter schools
  • Reducing crime rates, and reducing reoffending rates
  • Reducing child abuse
  • Not taking kids from dysfunctional parents and sticking them with their extended family who are equally dysfunctional

Sadly labour have opposed most of these initiatives, which will actually make a difference long-term in reducing poverty. There is no doubt that being on welfare for more than a short period of time has a huge impact on not just income, but also education and health achievement. The data is crystal clear. So you need to ensure those on welfare are supported adequately, but you need to work just as hard at making sure you don’t leave adults who are able bodied on welfare.

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Herald calls for all benefits to increase by 24%

May 21st, 2015 at 8:30 am by David Farrar

The Herald editorial:

It has long been an anomaly that benefits for the young are raised annually by the rate of inflation while superannuitants have their pensions pegged to increases in wages, or inflation if it is greater.

Wages in recent years have increased at a rate above low inflation, causing benefits to lag the general rise in living standards enjoyed by wage earners and the retired. The cost of indexing working age benefits to wages might be considerable but it seems only fair that it should be done. If fiscally possible, it should be accompanied by a catch-up adjustment to benefit rates over the next few years.

This may be the stupidest and most financially illiterate editorial of the year.

First let us calculate what this would cost.  NZ Super has increased by 78% since it was given a floor relative to wages. Inflation during that time has been 44%, which is how much other benefits have increased. This means that in today’s dollars you would need to increase all benefits by 24% to bring them in line with NZ Super increases.

The current cost of non NZ Super benefits is $7.3 billion, so the cost of the Herald’s editorial policy would be $1.74 billion.

The cost of this policy would be around $1,800 per working family.

So the Herald wants the Government to take an extra $1,800 off every family in work, and give it to people not working, on welfare. They think this is the best use of $1.74 billion. I’m staggered by their detachment from reality.


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This is deliberate

May 18th, 2015 at 1:00 pm by David Farrar

Stuff reports:

Pensions have risen by $67 a week in the last five years –  while the incomes of parents of childre

n born into low income and beneficiary households have fallen further and further behind.

The gap is poised to grow even larger as the country enters a long period of low inflation because while pensions are pegged to average wage rises, benefits are linked to living costs, or the CPI.

The latest round of benefit adjustments painted a stark picture of the growing disparity. Pensions increased 2.07 per cent, or $11.60 a week for a married couple, in line with wage rises. But other benefit rates rose by only 0.51 percent.

This is deliberate. Benefits are tied to inflation so they remain static in real terms. NZ Super has a floor tied to the average wage, to maintain relativity to working income.

The reason is because retiring from employment and going onto NZ Super is meant to be permanent.  While going on a benefit should generally be temporary. You don’t want people remaining on welfare for an extended period of time. Making benefits more generous reduces the gap between work and welfare.

Analysis of household data by shows Government payments to over-65s have eclipsed those of any other age group, sparking harsh criticism the Government prioritised elderly over the young, which make up nearly half of New Zealands lowest earners.  

This has been the policy of all Governments in the last 20 years or so. NZ Super is linked to wages, and other benefits linked to inflation.

If you linked all benefits to the average wage, it would have costed tens of billions of dollars and many more people would be on welfare.

I actually think having NZ Super linked to the average wage will become unaffordable in the long term. As more and more NZers are aged over 65, we won’t have enough working NZers to support a universal wage linked pension. I’d propose that it be also linked to inflation – but say CPI + 1% – this would mean it always grows in real terms, but becomes more affordable.

In 2010 the Government adopted a policy change, to index superannuation with the average wage, while benefits remained driven by inflation. GST rose to 15 per cent that year, and tax cuts were not applied to benefits. 

No. Wrong. This has been policy for 15 years. In 2010 that policy was put into statute, but the policy has applied since the 1990s.

Labour Party finance spokesman Grant Robertson said while the elderly had been looked after, Government policy meant younger generations would not reach retirement with the same level of savings or income base.

“If you look at the 2010 tax cuts, they very specifically protected the incomes of the elderly, and that’s good that they did that.

“But at the same time they completely failed, and in fact went in the opposite direction, for people on main benefits. They took a policy decision to deliberately exclude those on main benefits from having their incomes protected, so to me that is definitely to the detriment of other age groups.”

Also wrong. The main benefits being inflation adjusted were fully compensated for the increase in GST.

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Future welfare bill reduced by $7.5 billion

March 3rd, 2015 at 7:00 am by David Farrar

Stuff reports:

Reforms have helped slash the forecast cost of New Zealand’s total welfare bill by $7.5 billion within the past year, a report says. 

The estimated liability of the welfare system is now $69b, down from $76.5b in 2013, according to the latest valuation of the future costs faced by the Ministry of Social Development. 

Based on New Zealand’s current situation – which includes rates of employment, inflation and trends of decreasing welfare dependence – that is forecast to drop a further $5.3b by 2019, according to independent consultants Taylor Fry.

Of the $7.5 billion reduction, $2.2 billion was directly attributed to reforms within the ministry – both legislative and policy changes, as well as operational changes.

That’s great news. Around a third is due to the policy changes that the opposition so vehemently opposed.

The major impact though is from the improving economy and low inflation.


This is what the protesters are calling a war on the poor!

February 17th, 2015 at 11:00 am by David Farrar

Lindsay Mitchell summarises the war on the poor that some on the left are claiming the Government has:

  • Insulation of over 200,000 homes
  • increased access to GPs
  • an intensive campaign to reduce rheumatic fever
  • boosted budgeting advisory services
  • low cost procurement of household essentials like washing machines
  • low interest loans to combat loan sharks
  • partnering with charities providing food and clothing to poor children
  • home visitation programmes like Early Start
  • extended income-related rents to non-government social housing
  • Whanau Ora

Yeah that is a real war on the poor.

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Half of arrest warrants are for people on welfare

February 9th, 2015 at 2:00 pm by David Farrar

The Herald reported:

Figures released under the Official Information Act reveal more than 5500 beneficiaries were issued with warrant-for-arrest notifications between July 2013 and September last year.

The policy was implemented as part of the welfare reform changes on July 15, 2013, with people with outstanding arrest warrants no longer able to receive a benefit.

It was estimated of the about 15,000 people subject to an arrest warrant, more than half of them – about 8200 – were on benefits.

And up until last year you could carry on claiming your benefit, despite being effectively a fugitive from justice.

Work and Income deputy chief executive Debbie Power said the Government was committed to stopping the benefits of people who had not resolved their warrant to arrest.



Our generous welfare state

February 3rd, 2015 at 4:00 pm by David Farrar

minimum wage extended burtless fig 2

From Jim Rose’s blog, this shows the level of our unemployment benefit is higher than Sweden, Germany, Australia, Denmark, Norway, Switzerland and the UK.

This is worth bearing in mind when people claim benefits levels have been so low since 1991, that they must be massively increased to keep relatively with NZ superannuation.


No contraception no dole says former Labor MP

January 4th, 2015 at 10:00 am by David Farrar reports:

NO contraception, no dole – that’s the view of an ex-Labor Minister who believes welfare should be linked to compulsory contraception.

Gary Johns, writing in The Australian, suggests there should be “no taxpayer inducement to have children”.

The former MP who served in the Keating government admits such a measure will “undoubtedly affect strugglers, [and] … Aboriginal and Islander people in great proportions”.

“But the idea that someone can have the taxpayer, as of right, fund the choice to have a child is repugnant.”

Welfare should be there for people who have a child and then lose some of their income through a split, redundancy etc. It should not be there for people already on welfare unable to support their existing children, to continue having more children.

The ex-Minister claims “it is better to avoid having children until such time as parents can afford them”.

That’s what 90% of families do. They time having children to when they can afford it, and they limit the number to what they can afford. But around 10% just have child after child on welfare, as taxpayers get them more and more money. We should limit welfare so that if you are already on welfare, you don’t get additional welfare payments if you have further children on welfare.


Have fewer kids ad don’t blame the Sallies

December 23rd, 2014 at 9:00 am by David Farrar

Stuff reports:

An Invercargill couple say their six young kids will go without on Christmas day and it’s the Salvation Army’s fault.

However, the Salvation Army says the parents are to blame for their family’s predicament because they have relied on handouts rather than trying to help themselves.

Shelly Edwards and Leo Hewett said their six children aged 3-10 will get no presents and have a diet of chicken and bread on Christmas day because the Salvation Army failed to help them in their time of need.

“How can we tell the kids there’s nothing for Christmas?” Shelly asked from their south Invercargill state house yesterday.

Shelly said she was on the invalid’s benefit and received a working for families benefit, while her partner was unemployed and seeking employment at the meatworks.Their weekly income was $631 but just $15 was left over after paying for their rent, bills, food and petrol.

If you are on the invalids benefit, then you have probably been on there long-term. So wouldn’t it be a good idea to stop having kids, if you are struggling to pay for the ones you already have? Over 90% of families do this. They discuss how many kids they can afford (and want), and restrict their family to that size. Yes, accidents can occur – which is why we have a generous welfare system for families, but primarily you should not keep having more kids if you are on welfare and unable to provide for the ones you already have.

Struggling to afford a decent Christmas for their kids, they thought it was sorted when the Nga Kete trust referred them to the Salvation Army scheme called adopt-a-family, which sees businesses and individuals sponsor struggling families during Christmas by providing them with a hamper filled with food and treats.

The family had been on the same scheme last year and received presents for their children, a supermarket voucher and a food hamper, they said.

However, when Shelly failed to turn up to a budget advice meeting early this month she was told she had been taken off the adopt-a-family scheme this year, she said. …

Salvation Army spokeswoman Brenda King said the family had never been put on the adopt-a-family scheme this year, effectively because they had failed to help themselves.

Shelly had been using the services of the Salvation Army for about two years and when she received more than three food parcels in one year she was referred to a budget advice centre to receive financial planning assistance, King said.

However, Shelly had not engaged with the budget advisory service so was not put on the adopt-a-family scheme, King said.

The Salvation Army’s aim was for its clients to get to the point where they could look after themselves and be self sufficient.

“If we keep handing out we are enabling them to stay in the situation they are in. We aren’t actually helping them at all in the long run.”


Incidentally I think their estimate of their income is low. I make it:

  • Invalids Benefit (couple rate) $217.75
  • JobSeeker (couple rate) $174.21
  • Family Tax Credits (for six kids) $414.00

So that is a total of $805.96 a week net, not $631. On top of that it is highly likely they get the accommodation supplement or a statehouse subsidized rent.

It would be nice if media did not just take for granted what people say they earn, but independently check their entitlements as I have done.

UPDATE: Assuming there are not two Shelley Edwards in Invercargill, it would seem the mother has convictions for fraud and dishonesty, and breaching home detention. The Judge commented:

You are a thoroughly dishonest woman

Also Stuff has closed comments on the article after just a couple of hours, presumably because they were running 99 to 1 against.

This is why trust in media keeps falling. They just present a sob story to their readers with no independent research or fact checking.


A good investment

November 4th, 2014 at 11:00 am by David Farrar

Stuff reports:

The Government has spent almost $2 million on an initiative encouraging beneficiaries to move to Christchurch for jobs.

A dozen people have abused the $3k to Christchurch scheme by taking grants and not fronting for work.

Despite this, Social Development Minister Anne Tolley is describing the initiative as a “winner”, saying it could be extended to other parts of the country.

A spokesman for the Ministry of Social Development said 523 men and 110 women had moved to Christchurch, at a cost of $1.89m, since the scheme began in July.

Of those, 350 had found work in the construction sector, 41 in transport, postal and warehousing and 31 in manufacturing.

Twelve people had been required to repay the grant and 24 people had reapplied for benefits.

So that’s around 500 more people in work. That reduces the welfare bill by probably $5 million a year and increases the income tax take by around $2.5 million a year, so not bad return for $2 million.


Issues that matter: Welfare

September 16th, 2014 at 3:00 pm by David Farrar

The fourth of my series looking at issues that I think most New Zealanders are interested in.

Child Abuse


In 2008 the number of child abuse notifications went up 11.4%. In the last 12 months they have declined 2%. Source MSD

child poverty


In 2007 there were 240,000 children in households defined as below the relative poverty line of 60% Fixed Line After Housing Costs. In 2013 this was slightly lower or static at 230,000. Source: MSD



Many go on welfare for short periods. I have. But job seekers who are unemployed for over a year can be a serious issue. In 2010 there were 77,689 unemployed for over a year and in 214 this has reduced to 68,932 – a 11.9% reduction. Source: MSD



The Stats NZ Household Economic Survey asks households if their income is adequate. In the year to June 2009 17.2% said they had inadequate income. In the year to June 2013 it was a lower 14.0%

Sole Parents


Research has shown that teenagers and young NZers who go on a benefit early often stay on for over a decade, and have a huge lifetime cost. In 2009 (typo in graph) there were 18,276 people under 25 on sole parent benefits. In 2014 this had reduced 16.8% to 16,506. Source: MSD



We hear quite a lot about income inequality. One measure is the ratio of income from those in the 10th or top decile to those in the lowest decile. In 2009 it was an 8.6 ratio and in 2013 it was an 8.3 ratio – showing a slight lessening in inequality on this measure. Source: MSD

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An example of how it will be better to remain on the benefit under Labour

August 19th, 2014 at 2:00 pm by David Farrar

The Herald looks at parties’ social policies and gives an example:

Solo mother Mia Silverman works 20 hours a week in a professional job – but she is virtually no better off than she would be on a benefit.

A media production assistant at Auckland University, volunteer yoga instructor and established singer-songwriter, Ms Silverman is multi-talented.

Mia Silverman with Monty, 4, and Frankie,2. Photo / Dean Purcell

But when she tried working fulltime when her second son Frankie was still under 2, soon after her marriage broke up, it was too much.

“After working two weeks fulltime, I did a breakdown of my budget,” she says.

“What is better – being really, really stressed and working is great, but the stress of running around was too much.”

She received $680-$690 a week on a benefit. Current rates are $299.45 for a sole-parent benefit, $157.17 in family tax credits for two children, and Ms Silverman got about $205 a week in accommodation supplement for rent.

Now her 20-hour university job pays $430 a week after tax, her tax credits and accommodation supplement are reduced, but she also gets the $60-a-week in-work tax credit, taking her total net income to about $850 a week after tax.

Out of that she pays a net $100 a week for Frankie’s childcare after allowing for a government subsidy, a $16 top-up for her older son Monty’s kindergarten because he needs to be there slightly more than the 20 free hours a week, plus $35 for parking at university and $100 a week for petrol.

“I enjoy being back at work, but I’m not really that much better off.”

Ms Silverman is right. The gap between being on welfare and work is sometimes not great. It would be good to have policies that mean there is a greater gap.

But see that $60 a week in-work tax credit. Labour and Greens want to give that to people not working. What will that mean? It means the already small gap between the income on welfare and work may disappear entirely for people like Ms Silverman.

I think it is vital the in-work tax credit remains for low income people in work, and is not extended to people not in work. It may mean people will earn less if they move into work, and hence they won’t.


W is for welfare

August 6th, 2014 at 3:00 pm by David Farrar

The latest from the NZ Initiative series:

The biographies of top economists indicate that they were often motivated to study economics in order to be better able to contribute to the common good.  

But what is meant by the common good and what policies contribute to it?  After all, in general elections, voters are commonly confronted with at least one party advocating higher taxes in order to make New Zealand a better place for New Zealanders – and at least one other party advocating lower taxes in the same cause.

Welfare economics is a branch of economics that explores what might be meant by the common good, and seeks to evaluate economic policies on the basis of their effects on the well-being of members of a community.

As explained previously in the economic ABCs, an insight that has endured since Adam Smith (1776) is that competition, in conjunction with security in person and property, induces even solely self-interested butchers, bakers and the candlestick makers to serve their customers’ interests. Otherwise we freely take our business elsewhere.

During the 20th century, welfare economics formalised this insight into the proposition that stylised competitive processes will produce a zero waste welfare outcome.  It is optimal in the sense that no one person’s (self-perceived) welfare can be increased with reducing that of at least one other person (whether such a change is worth doing regardless remains a moot point).

Welfare economics has clarified the many situations in which the same competitive processes will potentially fail to maximise welfare in this sense. These include problems of monopoly, public goods (such as national security and communicable diseases), environmental pollution, income distribution, poverty, malleable preferences and distorting taxes. Economists have formally shown in many of these cases how a well-motivated government might ideally use taxes or regulations to improve general well-being.

Nevertheless, related branches of economics have also illuminated many difficulties that confront government action, including problems of voting behaviour, inadequate information and political and bureaucratic incentives.  The UK TV series, Yes, Minister, brilliantly depicts these difficulties. “Doing good” in government is subject to the Law of Unintended Consequences.

What about the welfare state? One of the earliest uses of this term was in the1942 Beveridge Report that ideologically proposed that the state was responsible for individual welfare “from the cradle to the grave”. What followed was a dramatic increase in taxes and social service spending in member countries of the OECD, albeit with significant national variations. Its effects on well-being will long be debated.

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Benefit numbers down 5%

July 18th, 2014 at 1:00 pm by David Farrar

WINZ has released the latest benefit stats, and they’re good news.

  • 16,196 fewer people on a main benefit than a year ago
  • A 5% decrease for all benefits from June 2013 to June 2014
  • An 11% decrease for sole parent support benefits
  • A drop in the proportion of working age adults on welfare from 11.2% to 10.5%
  • Lowest number of people on welfare since 2008 before the Great Recession
  • Welfare numbers peaked at 352,000 in 2010 and now 294,000.
  • The number of teen solo parents is down 12%. On average a teenager who goes on the benefit stays there 19 years and has a lifetime cost of $246,000

It is great to see the welfare reforms working. The best way to boost incomes is for people to move from welfare into work.

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Dogs prefer work over welfare also!

June 24th, 2014 at 1:00 pm by David Farrar

The Daily Mail reports:

In humans the ‘eureka moment’ is a commonly known feeling that occurs when we solve a particularly troubling problem.

But new research suggests that we’re not the only animals to experience this – dogs, too, gain pleasure from solving a tricky task.

In a series of experiments, scientists found dogs were happier when they earned a reward by performing a task, rather than just being handed a treat.

Those dogs won’t be Labour voters then! :-)

The experimental dogs were only given access to the treat on the ramp when they successfully manipulated the three pieces of equipment they had been trained to use.

The control dogs, meanwhile, were given access to the reward when the puzzles were solved by their partner in the other arena, irrespective of how they used the equipment.

The dogs in the pairs were then tasked with performing the same run several times, and also played both roles of experimental and control dog.

The researchers found the experimental dogs were much more excited to actually get in the arena and solve the pieces of equipment.

On repeated runs they showed visible excitement, such as wagging their tails vigorously, at being led to the entrance to solve the problems again.

The control dogs, on the other hand, were more reluctant to go in and pick up their treat without having to solve any of the ‘puzzles’.

This, according to the researchers, shows that dogs enjoy problem-solving just like humans do.

Good doggy.


Maybe Australia needs some welfare reform also

May 12th, 2014 at 2:00 pm by David Farrar

The Adelaide Advertiser reports:

The Advertiser revealed on Thursday that there are a whopping 7313 Australians who receive the disabled pension but don’t live in Australia.

Many of them live in holiday destinations such as Bali and Thailand, where the $813 dollars they receive from the taxpayer every fortnight goes much further in the form of rupiah or baht.

More than 1200 of them are in Greece, nursing the kind of injuries which are so permanently debilitating that they apparently prevent them from ever re-entering the workforce, yet not from jumping on a 30-hour economy class flight to Europe and a ferry ride to the island of their choice.

Almost 1000 of them are over the ditch in New Zealand, just a stone’s throw from the country which is kindly subsidising their existence. …

The purse for this largesse is sizeable, coming in at $99.9 million a year. And at a time when the nation has been put on notice that the age of entitlement is over, it is a stellar example of how witless governments are when it comes to reining in unjustifiable drains on revenue, yet so adept at creating new streams of revenue by launching another assault on the people who are actually working.

The way it works now is an insult to people with genuine and permanent disabilities, exploding as it has from 500,000 to 800,000 recipients in less than two decades, its annual bill careening towards $15 billion.

The rule of thumb for government should be to provide generous support for those who genuinely cannot work.

It should also involve the ruthless denial of assistance to those who simply choose not to work, and who hide behind confected conditions to opt out of a contributive life, even heading overseas to bludge in a more agreeable climate where the beers are cheaper.

A good summary those last two paragraphs.

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Herald on $3k to Christchurch

May 8th, 2014 at 3:00 pm by David Farrar

The Herald editorial:

It is almost 35 years since Norman Tebbit infamously told the unemployed of Britain to get “on yer bike”. The Employment Secretary was frustrated that, unlike his father in an earlier time, people out of work were not prepared to take to the road to find work. His plea for a less static workforce fell on deaf ears, however, not least because jobs were thin on the ground in the early years of the Thatcher Government.

No such problem exists these days in Christchurch, however. The rebuilding of the city has created plenty of opportunities. Any initiative that makes it easier for beneficiaries to move to this work is, therefore, welcome. …

As well as helping the beneficiaries, the scheme will, obviously, aid the rebuilding of the city. The need for more workers is evident in Canterbury’s 3.4 per cent unemployment rate, which is much lower than the 6 per cent national rate. According to the Social Development Minister, Paula Bennett, work is available not only in the construction sector, which has increased its workforce by 90 per cent since the earthquakes, but in hospitality, retail and many other industries. If the pressure on housing in Christchurch could cause a problem or two, that is hardly a reason to scrap the scheme, given its potential value.

All up, the initiative will cost, at most, $3.5 million. That is an insignificant sum for something that could be a life-changing experience for those who seize the opportunity during its 12-month span.

There should be no shortage of applicants. About 19,000 beneficiaries are required to be available for part-time or fulltime work in the 18-to-24 age bracket alone. Some of that number may be loath to leave the relative comforts of home and family. But rather than being disinclined, they should heed the “need work, will travel” mindset that has become common worldwide. Take, for example, the Poles, Czechs, Hungarians and others from central Europe who have moved thousands of kilometres to become part of the British workforce. …

Most beneficiaries also want to be doing meaningful work. Helping to rebuild a shattered city surely fits that bill. Nor are beneficiaries being asked to travel to another country and culture like the Poles and Czechs in Britain, or, indeed, the many people from overseas who have come to work in Christchurch. There is every reason for them to grasp the opportunity.

Hopefully they will.

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$3k to Christchurch

May 6th, 2014 at 2:00 pm by David Farrar

John Key has announced:

So today I am pleased to announce a new initiative to further support the rebuild and at the same time help job-seeking beneficiaries outside the region gain work.

It’s called ‘$3k to Christchurch’, and it has two parts.

The first part is Work and Income actively promoting through advertising and direct marketing, job opportunities in Christchurch and surrounding districts to beneficiaries outside the region.

This will involve staff discussing with beneficiaries if moving is an option, and looking at whether their skills and a job in Canterbury can be matched up.

The second part is providing a lump-sum, one-off $3000 payment to beneficiaries interested in moving to Christchurch or surrounding districts who gain a confirmed job offer.

To be eligible, a beneficiary would need proof of a confirmed full-time job offer of at least 30 hours a week and for more than 91 days.

Sounds a good initiative.  Getting people into work is excellent.

  • Beneficiaries will not be required to provide proof of costs.
  • The money will be paid in one lump sum, and it will be non-taxable and exempt from any income and asset tests.
  • In most circumstances the payment would be non-recoverable, but situations where it may have to be repaid would be for cases like misconduct leading to dismissal.
  • The offer will be open to all ages who are on benefits, but with a particular focus on those aged 18 to 24.

Non-taxable makes it more attractive.

Also announced:

The apprenticeship reboot I announced in January last year was so successful that by October, 8000 people throughout the country had signed up for training in apprenticeship programmes. 

That happened in the space of just seven months – when the normal sign-up rate for a full year was 7000.

Because of this demand, in December last year we expanded the reboot to a total of 14,000 places.  And they too have been filling up quickly.

Today, I am pleased to announce that the scheme will be expanded again because of continuing high demand.

Budget 2014 will provide up to $20 million to expand the Apprenticeship Reboot by 6000 places.

This move will boost the total number of places to 20,000.

This extension means we have doubled the number of apprentices that can get their training costs subsidised since the scheme was first announced.

Both are about helping young people get into work. The first job is often the most important one.

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Overseas travel on the benefit

April 4th, 2014 at 10:00 am by David Farrar

3 News reports:

More than 21,000 people have had their benefits cut since rules around overseas travel were tightened, Social Development Minister Paula Bennett says.

More than $10.5 million has been saved since July last year by suspending the benefits of those who chose to travel, Ms Bennett says.

The largest group of suspensions applied to nearly 11,200 people on job seeker benefits, followed by more than 4800 sole parents.

More than 1750 people had their benefit suspended for multiple overseas trips.

The figures don’t include people receiving superannuation.

Hard to be looking for a job when you’re overseas!

Almost 5000 people have had their benefits cancelled because they failed to reconnect with Work and Income eight weeks after their departure from New Zealand.

Ms Bennett said although the rules are tighter, they still allow for overseas travel on compassionate or health grounds in certain cases for job seekers.

People without work obligations may in most cases travel overseas for up to 28 days.

Sounds reasonable.