May 03, 2019

Income adequacy – a wero for the WEAG

The Welfare Expert Advisory Group report to Government has been released. Establishing the level of income that is adequate in today’s Aotearoa was a fundamental issue. Constructing example family budgets that found a shortfall between actual income and adequate income of the order of $100 per week, indicated the enormity of the challenge.

Amongst the many challenges confronting the Welfare Expert Advisory Group (WEAG) was one critically fundamental question – what is an adequate income in today’s Aotearoa?  Notably there have been few official efforts to establish an adequate level of income in New Zealand.

Some community groups and organisations have measured income deficits for a range of households using a variety of methods.  Arguably, the most comprehensive was that undertaken by the Poverty Measurement Program (PMP) of the 1990s in the Family Centre, using a range of data, budgeting experts and focus groups capturing a variety of households.  This process assessed the income required to live in New Zealand and also formed the foundation of today’s Living Wage calculation1.

For WEAG to determine a level of income adequacy, we needed to understand the objectives and purposes for such income.  These purposes needed to be driven from the values and principles underpinning a new social security fit for purpose for 2020 and beyond.  Consequently, an adequate income needed to be consistent with enabling people and families, individuals and whanau to meaningfully participate in and contribute to their communities.

Informed by the efforts of the PMP (and others), officials working for the WEAG devised budgets for a set of example families to assess the level of income required for them to participate meaningfully in their communities.  The income needed to cover more than a range of core needs such as food, clothing, and shelter.  Adequate income has to cover nutritious food, satisfactory clothing, and warm and dry shelter.  Thereafter, there needed to be provision for power, gas, and transport to participate in caring, working, studying, and volunteering activities.  There needs also to be provision for children to participate in school and community activities, as well as for unforeseen emergencies (e.g. medical, or to fix a broken washing machine), and family, whanau, and community obligations.  Further, wider wellbeing to enable meaningful participation requires a mobile phone with data access; a modest holiday outing per family per year (visiting and staying at relatives); along with presents for children (again a modest allowance per child).

We imposed stringent assumptions on our example family budgets for these provisions – for example, a food budget that was less than $10 per day per person.  Only three visits to the doctor per year, and one visit to the dentist.  No smoking and limited alcohol (if any), and little savings was allowed for in our budgets.  Note, further, that the budgets and associated assumptions were reviewed and tested by professional budget advisors for their reliability2.

Even with these stringent assumptions, we find that most of our example families had current income well below a level adequate for meaningful participation.  Note that we also optimistically assumed that all our example families accessed their full entitlement to income assistance (welfare benefits and supplements, including Working for Families payments).

The estimated deficits (i.e. actual income minus adequate income3) range from 

  • $130 to $170 a week for a single person receiving a benefit and renting privately 
  • $110 a week for a sole parent with three children receiving a benefit and renting privately, to around $250 a week for a sole parent with one child aged under 2 years
  • $350 a week for a couple receiving a benefit each and renting privately with two children.

These weekly deficits convey a profound failure of the current social welfare system. For families facing deficits consistently of more than $100 a week their options are unpleasant.

These weekly deficits convey a profound failure of the current social welfare system. For families facing deficits consistently of more than $100 a week their options are unpleasant. Their choices are between low quality and less nutritious (or, more likely, unhealthy) food, homes that are damp and unhealthy, skimping on heating to minimise power and gas bills, avoiding doctor’s visits or other medical needs, children unable to participate in school activities and outings, and others.

Of course, another option for these families is to borrow.  However, at more than $5,200 down each year, borrowing will only exacerbate their helpless situation.  Nevertheless, the attractiveness of pay-day lenders (and their accompanying street-level food ‘trucks’) is clear for those in such dire situations.  But the accumulation of interest and the cycle of debt is a trap that will in no way enable families to move towards meaningful participation in their communities.

The words meaningfully participate were central to our assessment of income adequacy.  In Aotearoa of 2020 and beyond, individuals and families should not just be able to exist – that would just be such a waste of potential, talent, and opportunities that no country could neither afford nor allow.

That so many people in our communities are disengaged, excluded, and lack the opportunity to participate has been the cause of much pain and suffering and impose substantial costs for individuals and for the nation to bear.  These costs present themselves in a range of deficits across the court, police, health, education, and labour market sectors.  These costs are not only substantial, they are set to explode under current settings of the welfare, business, community, and government models.

Meaningful participation in a community for all should be central to Aotearoa of the future.  Consistent with this perspective, the framework of the social security system can be re-oriented towards mutual and reciprocal expectations.  For example, communities expect all to participate and contribute, and this is mutually reinforced by communities ensuring respect for individual situations and the availability of options and opportunities through adequate levels of income.  Reciprocity sees individuals, families, and whanau actively engaging in caring, working, studying, and volunteering activities, mutually reinforced by improved wellbeing, inclusion and respect for institutions, groups, and communities.

A social security system based on mutual and reciprocal expectations

Alongside improved wellbeing, reduced long-term financial costs in lower court, police, health, and education deficits will be mirrored long-term in more fruitful engagement and productivity in labour market activity.

Stephens, R., C. Waldegrave & P. Frater (1995) “Measuring Poverty in New Zealand”, Social Policy Journal of New Zealand Te Puna Whakaaro and Waldegrave, C., S. Stuart & R. Stephens (1996) and “Participation in Poverty Research: Drawing on the Knowledge of Low Income Householders to Establish an Appropriate Measure for Monitoring Social Policy Impacts”, Social Policy Journal of New Zealand Te Puna Whakaaro; and Waldegrave, C., P. King & M. Urbanova (2018) “Report of the Measurement Review for a New Zealand Living Wage”, Family Centre Social Policy Research Unit
Full information of method, assumptions, data sources, and results are contained in “Example families and budgets: Investigating the adequacy of incomes”, available from www.weag.govt.nz.
For example, a single person renting in South Auckland required an adequate income of $596 per week, but currently have an actual income (receiving a benefit) of $423 per week. And a couple with two children renting in South Auckland required an adequate income of $1,252 per week, but currently have an actual income (both receiving a benefit) of $870 per week.