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What should be done about Child Poverty?

Susan St.John

Budget 2014 was presented in an environment of economic recovery and growing optimism. A more buoyant economy provides an opportunity to repair the damage to the social fabric suffered during the recession by policy measures aimed at reducing child poverty and inequality. What is deeply troubling is that there no cause for optimism on this front. Deeply ingrained in policy makers’ minds is that paid work, and paid work alone is the answer to child poverty.

Yet the sheer impossibility of many poor families achieving reliable full-time paid work, especially sole parents or households experiencing sickness and disability, leads to the inevitable consigning of these families and their children to poverty.

We now know that the figures for child poverty for the past 3 years from the Ministry for Social Development were significantly understated. The Treasury and Statistics Department had ‘made a mistake’. Instead of 265,000 children below the 60% after housing costs poverty line, there are actually 285,000. It is not just about finding another 20,000 children are in poverty, the real implication of the corrected figures is that almost all children in poverty are far further below the poverty line than we had been led to believe. In fact, 205,000 children are below the very low 50% after housing costs poverty line.

Their parents are the ones who: line up at foodbanks and welfare agencies; face bleak choices such as whether to heat the house or pay for the child’s medicine; go to a loan shark when the washing machine breaks down; can’t afford to maintain their cars or go themselves to the doctor when sick. Their children overload the hospitals with preventable third word childhood diseases, often suffering neglect and malnutrition and stunted life opportunities.

While the recession has been a contributing factor to this disturbing picture of significant child poverty, policies have also failed to protect children. Major components of Working for Families, namely the In Work Tax Credit,(IWTC), the parental tax credit for new-borns and the minimum Family Tax Credit top-up, have been denied to the poorest families when they are on any benefit or student allowance, or they simply fail to meet the hours of work required.

While all low income children qualify for the Family Tax Credit, a per child weekly payment to the caregiver, they are not entitled to the IWTC, worth $60 a week for one to three children and an extra $15 per child for larger families unless two stringent tests are met.

The first test requires 20 hours of paid work a week for a sole parent and 30 hours a week for a couple. This anachronistic rule has never been reviewed in light of the nature of the modern, just-in-time, casualisation of the low end of the labour market. Business leaders ought to be raising questions about the design of this policy. Families that don’t meet the hours of work in any period can be chased for any over-payment, making many families very vulnerable. There is no recognition that the needs of the child don’t change when parents lose hours of work in a recession or following an earthquake.

The second test for the IWTC is that a parent must not be on any kind of benefit, or student allowance, even if working part-time. No matter what work incentive is offered, most parents with young children in the benefit system, cannot work full time either because they or their children are sick, disabled or chronically ill, or they have care-giving roles, or there is no work available.

While Working for Families reduced child poverty among working families, it has failed miserably to help the very poorest families as has been noted repeatedly by the Ministry of Social Development:

The fall in child poverty rates from 2004 to 2007 for children in one-Full Time -one-workless 2 Parent households was very large (28% to 9%), reflecting the Working For Families impact, especially through the In-work Tax Credit. (Perry, 2013)

For those who missed out on the IWTC however, the Ministry itself says

From 2007 to 2012, [he poverty rates were] around six to seven times higher for children in workless households. This to a large degree reflects the greater WFF assistance for working families than for beneficiary families. (Perry, 2013)

The impact of this discrimination has been felt disproportionately by Maori and Pasifika children. As the MSD notes in the revisions to the figures:

…on average over 2010 to 2012, using the AHC 60% fixed line measure, around 17% of European/Pakeha children lived in poor households, 34% of Maori children, and 34% of Pacific children (double the rate for European/Pakeha children). (Perry, 2014)

New Zealand has been very cavalier in ignoring that the poorest children are denied the protections of the UN Convention on the Rights of the Child. We have signed this convention that states all children have a right to social security and that the Government has an obligation to implement measures necessary to achieve full realisation of that right.

What should be done to turn around the terrible statistics on child poverty? Child poverty is not a party political issue; it is a moral and ethical issue. As Bryan Bruce says in his award-winning documentary, Inside New Zealand Child Poverty, “We are good people. We can fix this… If we want to.”

We delude ourselves if we think it can be done without a deliberate reallocation of resources on many fronts. Extra spending must be focused on housing health and education for the children of low income families. At the same time social hazards such as loan sharks, pokies machines and liquor outlets must be controlled in low income areas. No one pretends that more money on its own will be enough, but more income for families is crucially important.

On a recent visit to New Zealand, Kate Pickett, one of the authors of “The Spirit level” said academics have a responsiblity to be very clear in what they say to government about what should be done. Caveats and excuses, woolly thinking and unchallenged sloppy analysis will not inspire any politician, but all too often that is what they get. We wonder why nothing happens.

If we care that the poorest children have been denied a significant tax–funded child poverty relief, government needs to hear that, as a crucial first step it must immediately remove the discrimination in Working for Families. Once the hours worked criteria and the off benefit rule are removed, the IWTC becomes just an addition to the Family Tax Credit.

Child Poverty Action Group says the simplest most cost effective thing to do is to add the $60 the first child rate of the Family Tax Credit, and an extra $15 for the 4th and subsequent children. That way the extra payment goes to the families that are poorest and need it most, and the expense (around $450m per annum) is confined to this group alone. There is much more that needs to be done but until we get this right we will be tinkering around the edges.

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Perry, B. (2013). Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2012. Wellington: Ministry of Social Development. Retrieved from http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/monitoring/household-incomes/

Perry, B. (2014). Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2012 Revised Feb 2014. Wellington.

Categories: Poverty
Susan St.John
About the author

Susan St.John

Associate Professor – University of Auckland
Susan St.John is Associate Professor in the Department of Economics at the University of Auckland where she teaches public policy. She is a founding member of the Child Poverty Action Group and Co-Director of the Retirement Policy and Research Centre. In the 1990’s she was awarded a research fellowship at the International Social Sciences Institute at the University of Edinburgh and has published extensively over recent years in the areas of family incomes, pensions, taxation and accident compensation. Her current projects include developing a life annuity with long-term care insurance and welfare reform appraisals. Her website is found at: http//homes.ec-auckland.ac.nz/sstj003/. Child Poverty Action Group: www.cpag.org.nz
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