LINDSAY MITCHELL: What an effective welfare system might look like

For three decades following the 1938 introduction of most social security benefits (including Invalid, Sickness and Unemployment), dependence never exceeded more than 2 percent of the working-age population. Today the percentage is 12.7 and the average future time expected to stay on a benefit (which does not include time already spent) is 13.6 years. For those who start on a Young Parent Payment or Youth Payment the figure rises to a staggering 24 years and for Sole Parents, 18 years.*

This growth in recipients and duration of stay, plus the now well-established inter-generational dependence, indicate a strong element of choice operating. Benefit incomes for sole and two parent families with children, compete with the median annual wage. The welfare system has evolved from providing a safety net for those genuinely unable to provide for themselves, to offering an alternative lifestyle to paid employment.

Readers frequently ask me to propose a solution to the welfare problems I write about. Primarily, I write to expose the damage done by allowing long-term dependency to fester. I don't have a personal beef with beneficiaries, but I do with a demotivating system that hurts them and especially their children. And those advocating for ever more welfare really draw my ire.

But do I have any answers? With the proviso of political viability ...

In 2016 I presented to an ACT conference outlining what an effective welfare system might look like:

1/ Two benefits only

Jobseeker with time limits (for example 36 months over a lifetime)

Supported Living Payment (formerly known as Invalid benefit) without time limits

2/ Two forms of assistance only

Cash

Income Management (IM)

Cash is self-explanatory and what most beneficiaries currently receive.

The IM technology (which MSD calls 'Money management') is already being used but sparingly. Rent and utilities are paid direct. Food and other necessities are purchased via an electronic card. What IM doesn’t provide are the choices and freedoms that come with a cash benefit or income from work. It doesn’t incentivise work avoidance, irresponsible child-bearing or benefit fraud. IM ensures beneficiary and children have a roof over their heads, power and adequate food.

3/ IM should apply to those who

- have exceeded time limits on Jobseeker benefit

- add children to an existing benefit

- are aged under twenty five

- have received an imprisonable criminal conviction

- have a benefit fraud conviction

- have a primary incapacity cause of substance or alcohol abuse

4/ Gains

- time limits on Jobseeker would encourage wiser use of the safety net

- loss of autonomy through lack of cash incentivises employment. The attitude of "It's not worth working" would disappear

- children live in homes where power and food are guaranteed

- children are not treated as meal-tickets

- sole mothers aren't financially abused by deadbeats

- household over-crowding is disincentivised as IM beneficiaries no longer able to pool resources

5/ Why people would vote for this policy

- there is justifiable and substantial concern about disadvantaged children

- people who work want it to be worth their while

- many view 'free money' as a fundamentally bad idea

- National's approach to welfare is seen as ineffective

- catering to genuine long-term incapacitation experienced by Supported Living Payment recipients remains unchanged

6/ The proposal in summary

A two-tier safety net comprising

2 benefits only

2 forms of assistance only

It's simple. The benefits are easy to explain – in both senses.

That is where my presentation ended.

But in lieu of an ensuing discussion, I will address here some anticipated objections. (Reasonable objections - not extreme Left complaints like 'the government has no right to interfere with a woman's fertility choices.')

Sole parents should have their own benefit. Most women return to work after becoming mothers. That's now a societal norm with Paid Parental Leave allowing for newborn care-giving. Expectations for sole parents shouldn't differ. In need of employment, Jobseeker is the appropriate benefit.

These reforms will lead to more crime. As the welfare state has expanded, so has crime. Violent crime, homicides, child murders, sexual violence and theft have all increased markedly. Welfare does not prevent crime. If it did, we wouldn't have any. Neither should a society be held hostage to providing ineffective and counterproductive assistance under the threat of violence.

Having their income managed robs people of dignity. Only those people capable of being self-supporting, but who have abused or over-used the system, are subject to IM. They have knowingly incurred that status. Those using some part of their welfare entitlement as a temporary backstop, or who are genuinely long-term incapacitated due to disability or illness, will continue to receive their full benefit in cash.

People will put pressure on GPs to certify them for a Supported Living Payment. That is apparently already the case because SLP is not work-tested and pays slightly more. So while it is a problem, it isn't the addition of a new problem. Perhaps the gate-keeping function should be removed from health professionals, some who have already refused to undertake this type of work due to harassment.

Won't IM make some people even more dependent? Possibly. But most people want some amount of money in their lives. What people want is often a more powerful motivator than what people need. Deprived of weekly cash, people will search out jobs.

More people will get into the black economy. Again this is also an existing problem, one that might be aggravated, but won't be new. I am not dismissing existing problems but they shouldn't stop us from trying a new approach.

'Details' people will raise many more issues, but the above plan serves the two major aims: to look after the genuinely needy while disincentivising unnecessary dependence.

(Note: The above was suggested in 2016, prior to Labour's reforms under the Ardern government. The introduction of Best Start, removal of the requirement to name fathers, child-support pass-on and softening work-testing for those who add children to an existing benefit should all be reversed.)

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You can read more about MSD's existing money management regime here.

*https://www.msd.govt.nz/about-msd-and-our-work/newsroom/media-releases/2024/future-years-on-benefit.html

Stop press. MSD's just-released Annual Report shows that the average expected future reliance time has risen from 13.6 to 14.3 years. The report does not provide a breakdown across all benefits.

Lindsay Mitchell blogs here