spinofflive
Image: Tina Tiller
Image: Tina Tiller

PoliticsMay 17, 2022

The cost-of-living crisis means we need bolder budget calls on child poverty

Image: Tina Tiller
Image: Tina Tiller

Budget 2022: Those families doing it tough now will likely keep doing it tough after the release of this year’s budget – but it doesn’t have to be that way, argues Kate C Prickett.

Urgent and bold – transformative even – budget decisions are needed if we are to get serious about the cost-of-living crisis and what it means for families and children living in or on the edge of poverty.

Our supposedly resilient economy, with its low unemployment, has clearly missed the memo on high inflation, housing costs and plummeting real wages.

Goods that all people typically need – such as food, housing and petrol – have seen New Zealanders spending an extra NZ$4,000 to $5,000 a year on the basics. In short, people are feeling the pinch.

And while it has been higher-spending households that have experienced the largest increase in the cost of living (6.9% in the past year), lower-spending households and beneficiaries – families least able to fund the rising costs – were not far behind (6.0%).

Failing to keep up

Understandably, then, the cost-of-living crisis has been dominating media headlines and political talking points. And while much of it appears aimed at the middle class, the crisis is surely having an impact on those with the least resources.

Indeed, although we do not have child poverty figures for the past year, there was an indication this crisis and the pandemic years have started to take their toll: declines in child poverty have slowed in the past year on multiple indicators.

In fact, one of the primary poverty measures we examine has risen: the proportion of children living in households with less than 50% of the median disposable household income (before housing costs are considered). This highlights again the disproportionate burden of the housing crisis on low-income families.

Even recent increases in welfare payments have not been enough to stem these trends. Recent modelling suggests a majority of families receiving benefits will still not meet their household costs.

Furthermore, benefits have just switched from being pegged to inflation to being indexed to wage growth. Wage growth typically outpaces inflation, but not this year. What was meant to be (and should be in future) a good thing for family budgets is having an unintended negative effect.

Image: Tina Tiller

Modest poverty targets

Of course, it’s not all about the pandemic or the economy. The government has the tools to change the child poverty calculus. Indeed, the 2017 Labour-led government came to power on a bipartisan mandate to reduce, if not eliminate, child poverty.

The landmark Child Poverty Reduction Act 2018, brought in shortly after Labour came to power and supported almost unanimously across political party lines, mandated the government set both intermediate (three-year) and long-term (10-year) child poverty targets.

One telling sign of the government’s appetite for eliminating child poverty with this week’s budget can be seen in its second intermediate poverty target (covering the 2021-2024 period). Released in June last year, it was set amid uncertainty about the extent of the economic impact of the pandemic, and in the middle of a housing affordability crisis.

In fact, the policy brief recommending the new targets acknowledged the pandemic might unravel some of that earlier progress.

Even with this uncertainty, however, the new targets Labour set rested on an assumption of a consistent and modest downward trend towards the long-term poverty target.

This suggests we’ll see a correspondingly modest approach to poverty reduction in the budget, in line with the past three years, which child poverty experts have decried as being not enough.

That uncertainty, coupled with high inflation and slipping real wages (fuelled by stressed supply chains and the war in Ukraine), means those families doing it tough now will likely keep doing it tough.

Inflation
Image: Getty/Archi Banal

Bold policy moves needed

Big and brave policy moves are needed – and fast. Policies that redistribute support to those who need it most during these uncertain times are not unprecedented.

The US — the perennial social policy punching bag — set an example of what a sweeping attempt to alleviate poverty might look like during this pandemic with a series of stimulus payments and child tax credits in 2021. The child poverty rate halved from 10.5% in 2019 to 4.9% in 2021.

The US example, however, also sent a warning: when those tax credits expired in January 2022, the child poverty rate jumped back up to 12.1%.

Working For Families (WFF) tax credits are one existing avenue for delivering income support for families. But a comprehensive review of the programme now under way will be too late to significantly influence this budget.

Watch those projected trends

Furthermore, the limited scope of that review, and already proposed changes to WFF, suggest a modest redistribution of tax credits from higher-earning families to the lowest. And this will be mostly for families already in work rather than those without employed adults.

Various options for investing more in WFF, and redistributing tax credits more progressively, were presented to key ministers ahead of this year’s budget. The most generous option showed changes to WFF would lift 17,000 children out of poverty – a mere 1% drop on the poverty rate (before housing costs) from 2020-21.

It’s not to say this change to WFF wouldn’t help families — it would. But it falls short of what’s needed to meet the modest child poverty targets that were set, even before the full impact of the current economic climate is reflected in current and future poverty rates.

When the budget is released on Thursday, keep an eye on the child poverty projections. Anything short of a serious correction of current trends will signal the need for big, bold and urgent policy change in next year’s budget


Follow When the Facts Change, Bernard Hickey’s essential weekly guide to the intersection of economics, politics and business on Apple Podcasts, Spotify or your favourite podcast provider.


Kate C Prickett is director of the Roy McKenzie Centre for the Study of Families and Children at Te Herenga Waka — Victoria University of Wellington

This article is republished from The Conversation under a Creative Commons licence. Read the original article.

Keep going!
Image: Tina Tiller
Image: Tina Tiller

PoliticsMay 16, 2022

From aspiration to Zoom: the 2022 budget alphabet

Image: Tina Tiller
Image: Tina Tiller

Budget 2022: It’s a big week for big spending – prime yourself for Thursday with 26 points of interest. 

A

is for Aspiration, Ambition and All That

With Covid-19 no longer absorbing all the energy and a sweet six billion bonus bucks to spend, finance minister Grant Robertson will be looking to wheel out some of the familiar aspirational, ambitious cliches associated with budgets across the years. Another, more sobering A is Adaptation: expect to see a fair bit of money put into programmes for those whose homes face destruction by climate-induced rising seas.

B

is for Balance

The budget is inherently about balancing the books – or at least setting out how they’ll be balanced in the years ahead. But this year Robertson has been saying “balance” every second minute in the budget lead-up, and using it in another sense – to mean balancing priorities, such as the needs of today versus longer term challenges. Expect more of that on Thursday. See also: bracket creep, the phenomenon that pushes earners into higher tax brackets even when they’re not making any more money in real terms.

C

is for Cost of living

Robertson has sought to play down expectations of something major in the budget to address the cost of living crisis. So there’s bound to be something, and it will probably be more than the extension of half-price public transport, which might even be included as part of the Emissions Reduction Plan to be published today (Monday), meaning C is also for carrot, the one that goes with the stick.

D

is for Deficit and Debt

A perennial, this, but worth a reminder. The deficit measures how much more is going out of the state coffers than is coming in across a budget year. National debt is the sum owed, all up. Related: The opposite of deficit is surplus – when there’s more money coming in than going out in a budget year. After a series of Covid-induced deficits, they’re forecasting a return to surplus in 2024/25.

E

is for Emissions

Climate is one of the two big stated priorities for Budget 2022 (health is the other), and will be part three of three in what we’ll call “emissions season”. Part one was the emissions budgets, which gained cross-party support last week, and laid out just how many emissions need to be cut across the next 15 years. Part two is the Emissions Reduction Plan, out today (Monday); that’s a huge deal, detailing just how those emissions will be cut (probably some won’t be cut; they’ll be purchased from abroad). On Thursday we’ll see how those costs are apportioned within the $3.7bn Climate Emergency Response Fund, which is in turn funded out of revenue from NZ’s emissions trading scheme? Got all that? Sorry.

Image: Tina Tiller

F

is for Fiscal 

The budget is the centrepiece of fiscal policy. “Fiscal” simply describes the raising of dosh by a government, mostly through taxation, and its spending.

In the lead-up to this budget Robertson announced new fiscal rules for budgets henceforth, including a “net debt ceiling” of 30% of GDP (gross domestic product). That increase is designed to “buffer” against economic shocks and allow spending for infrastructure to lift productivity and tackle climate change. “It makes sense for us to spread the costs of these investments over time,” said the finance minister.

G

is for Global 

In budgetspeak 2022, there is no such thing as inflation, a cost of living crisis or an energy crisis. There is only global inflation, a global cost of living crisis and a global energy crisis

H

is for Health

Along with climate, health is the other bumper line item, to cover the innumerable costs of setting up Health NZ and the Māori Authority while disbanding and hoovering up the debt of the 20 DHBs. In the detail of the spending there are bound to be clues, too, about some of the structural and policy decisions that have been taken on the new setup.

I

is for Inflation 

Currently running at almost 7%, the highest for three decades. One of the trickiest challenges for Robertson to – that word again – balance is how to spend more dough without driving that inflation up further. Just nobody utter the word stagflation.

Image: Tina Tiller

J

is for Jargon.

Budget day is a great day for acronyms like Befu (the economic and fiscal update published on budget day) and Obegal (Operating balance before gains and losses, as you know).

K

is for Key, Max

The unexpected new critic and conscience of New Zealand fiscal policy.

L

is for Luxollis

National leader Christopher Luxon and finance spokesperson Nicola Willis, whom no one until now has described as Luxollis, have made an impressive start in their roles, and for the first time take on the task of parsing, unpicking and upbraiding the budget. They have to strike a balance, too: combine ruthless criticism with a crisp, sober, statespeople-in-waiting tone.

is for Monetary policy

The cousin of fiscal policy, this is all about money supply and interest rates, which is for the most part the purview of the NZ Reserve Bank.

N

is for Neckties 

So you’ve got your fiscal, you’ve got your monetary, and then there’s the third piece of the puzzle: cravatomancy. As explored in this explosive post, the pattern and colour of the tie worn by the finance minister, should said finance minister be a wearer of ties, is a powerful portent of the budget’s contents. The selection of the finance minister’s budget-day neckwear has in recent years fallen to Jacinda Ardern.

Image: Tina Tiller

O

is for Operating allowance

The operating allowance is new operating funding available for a budget, announced in advance based on government financial statements. This year it’s $6 billion – a lot. Again, in spending that, the government doesn’t want to spark further inflation.

There’s two types of spending: operating expenditure (ongoing) and capital (one-off).

P

is for Petroleum and Public transport

Petrol prices encapsulate the tension between immediate cost of living challenges and longterm, ruinous climate change. The likelihood is that the cut in fuel tax will be extended beyond June. It seems near certain the halving of public transport prices will be extended – and emphasised in the rhetoric. Because P is, after all, also for polling.

Q

is for Qost of living

Following disruption to supply chains and heavy demand for words like Covid and Cost (of living), the letter Q has been asked to take some of the burden.

R

is for Rabbit 

Will Robertson pull one out of the hat on Thursday? He’s sworn against “untargeted tax cuts”, but there could yet be a surprise, and it would surely be a qost-of-living-focused initiative. A forensically targeted tax cut even? Wrap the large part of dental health into the new health service? Make Ka Ora, Ka Ako, the healthy school lunches programme, universal? R is also for recession: “The chances of the New Zealand economy moving into recession are rising by the day,” said BNZ economist Stephen Toplis the other day.

Will Grant Robertson pull a rabbit from the hat on Thursday? (Photo: Getty Images)

S

is for Security

Alongside “balance”, the words “security” and “secure” have been identified by The Spinoff’s team of semantic analysts as high-rotate language in the budget lead-up. Amid the global uncertainty, Robertson will tell us he has found the balance and will deliver economic security.

T

is for Transition

The “just transition” centres on the economic implications of cutting emissions – specifically, where does it leave people and communities whose jobs will disappear as we shift gear on the track to carbon zero? This is likely to be a chunky line item on Thursday.

U

is for Unemployment

Despite the upheavals of Covid, the unemployment rate is at a historic low of  3.2% – do not doubt that we will be reminded of that.

V

is for Verbiage 

While some pore over the fine print, others scour around for a catchy shorthand to sum it all up. Most are too boring or deranged to stick in the memory – Michael Cullen’s “chewing gum budget” of 2005 being an obvious exception. In 2022, I’m betting someone on the opposition benches will call it the “Ram Raid Budget”.

W

is for Wellbeing 

After the well-bells and being-whistles of 2019, they’re all wellbeing budgets now, and every budget spend must, in theory at least, be run through the wellbeing scanner. If they really want to lean in this year, Grant Robertson must stand at the dispatch box on Thursday and intone that cost of living is important, yes, but what about the cost of loving crisis?

X

Is for Xi

Xi is a Greek letter that was skipped as a Covid variant name. Xi Jinping is the president of China. Taken together in a desperate attempt to find something for “X”, they are arguments for a diversification of New Zealand’s export markets. Throw the geopolitical nerves prompted by the invasion of Ukraine into the mix and that project is increasingly urgent – there’s every chance Robertson will chuck some cash at exporter initiatives to spread that risk.

Y

is for Yolo

You really do.

Z

is for Zoom

On Saturday morning Jacinda Ardern announced that the coronavirus had got her. That means she’ll have to use Zoom (or whatever the government-mandated equivalent is) to take part in any budget chat. Let’s hope she was prepared, and purchased Robertson’s tie nice and early.


Follow our politics podcast Gone By Lunchtime on Apple Podcasts, Spotify or your favourite podcast provider.

But wait there's more!