University of Auckland, November 25th 1999
 

Social and Economic Policy
by Susan St John
Child Poverty Action Group
 

I want to focus on social and economic policy as relates to the Convention. The framework we have adopted in New Zealand it is a particularly narrow one. This framework is defined by three major Acts:

• The Reserve Bank Act which aims to achieve very low inflation. If we are thinking about children, the tools with which we achieve low inflation are very inimical to them and their families. When it looks like the band 0-3% inflation is under threat, interest rates are raised. While the older age group benefit from higher returns on their saving, families with children are squeezed through higher mortgage costs and credit charges.
• The Fiscal Responsibility Act which stresses prudent fiscal management operating surpluses and low public debt. How are children affected? It can be argued that one outcome inimical to our children has been the student loans scheme. The Fiscal Responsibility Act encourages a shift away from Government expenditure towards creating a bigger surplus. One way to achieve this is to reduce state spending on education and then lend the enlarged surplus to students. While the reality of actual spending may not be different, the fiscal outturn looks more responsible as these loans appear as assets on the Crown’s balance sheet. We now have a student loans asset predicted to be $4.3billion by 2001 which is as big as Telecom was when it was sold.
• The Employment Contracts Act which stresses labour market flexibility. This is another piece of our framework developed without consideration of the impact on children at all. It has allowed the development of low paid and casual work with poor conditions, affecting the ability of many low income working parents to provide for their children.

Children are invisible in our economic framework. You won't find the word 'children' in any of those three Acts that I’ve mentioned.

Now let's look at social welfare reform. Since the early nineties there has been an emphasis on getting people into paid work, regardless often of the quality of that work or the ability of parents with children to perform it. Tax reductions have also been promoted to get us working harder, growing the GDP cake, with no mention of the impact on children at all. One of the implications of tax cuts is that interest rates end up being higher than otherwise as the Reserve Bank tries to contain the excess spending.

This framework lacks balance, such as might be provided if we had a Social Responsibility Act. Such an Act might force the Government to look at the social impacts of its policies and might even, if it was structured properly, make children more visible in our economic framework.

An outcome of adopting this very narrow economic framework has been growing inequality. About one half of children under 18 are in the bottom two quintiles and one third of children live below the unofficial poverty line developed by Paul Fraser and Robert Stevens. We have seen today that Pacific Island children and Maori children feature predominately in the bottom deciles.

Lets just remind ourselves about the concluding comments of the Committee on the Rights of the Child looking at the New Zealand situation in 1997:

The Committee made several recommendations: among these are the following three

• Budget allocations to implement the convention should be made to the maximum extent of the state parties available resources.
• Priority given to the realisation of the economic, social and cultural rights of children.
• Particular attention paid to children belonging to the most disadvantaged groups.

I would like to take ‘family financial assistance’ as an example of policy that has been driven by macroeconomic goals without attention to the way children are affected. It illustrates the point that we are not only driving our economic policy without reference to children, and even without reference to people, but we have also driven social policy that way as well.

Some of us remember the family benefit. In the past it was extremely important and I’m sure that many of us remember it with a great deal of affection. It was doubled in 1979 from $3.00 to $6.00 where it stayed, quite unsupported, until it was finally abolished in 1991.

In addition to the family benefit there were a variety of different tax rebates for families with children. In 1986 we made a really important decision to amalgamate all of those into one tax rebate of families called "Family Support" designed to augment the income of all low income families whether their income was from benefits or not. Those of us who had worked in this area started to relax, thinking that New Zealand had actually achieved the principle of non discrimination. Every child will be treated the same, regardless of the source of parental low income.

In 1991 New Zealand shifted to total targeting of family assistance, and the family benefit while not actually abolished, was amalgamated with family support. There were numerous advantages to having the family benefit, and its loss was significant. It was certain, it was immediate, you didn’t have to apply for it, you didn’t have to worry about what your husband or partner earned. I argue it fostered the sense of social cohesion as it was part of the culture, a symbol of the equality of all children with everyone included. It allowed for the possibility for a register of children to be kept so that children’s well being, such as health status could potentially be monitored. It didn’t matter if there was family breakdown, the family benefit kept rolling in every week because it wasn’t income tested. It could be argued that it was actually a policy that put children first.

To some extent we are always going to have to have some targeting but the problem is we’ve gone to such an extreme that everything is now in the targeting basket. Unfortunately, Family Support provides less certainty for families, it’s complicated, detailed applications may be involved, you have to know how much the joint income of the two parents actually is, it provides a disincentive to earn.

If a family earns over $27,000 which is not a huge amount when you’ve got one or two or three children, every extra dollar earned, is not only taxed, at say 21 cents but there is 30 cents less entitlement to family support. It means that you earn an extra dollar or your partner earns an extra dollar and you pay an effective tax on that of 51%. This rate is higher than the rate paid by our very highly paid executives who might earn over ten times more than the average family.

I won’t go into the other problems that some families might face with the loss of other benefits and supplementary assistance such as for the accommodation benefit, or the repayment of a student loan. It’s very difficult if families are not stable, if they are separating, or if they are blending, breaking up or melding with older children returning home. Whose income over what period should be counted?

Family support relies on income as an indicator of need but gross income can often be very misleading. A family might have what looks like quite a good income but might also have tremendously high demands on that income. There might be sick or a disabled child or parent for instance so that it is very crude yardstick. At the end of the year somebody might have earned too much money or more money than what was expected and repayments can be very distressing.

Family Support may not even go the caregiver weekly, it might be taken as an end of year tax credit by the principal taxpayer. When a family misses out on family support because their total income is too high it is assumed there will be adequate sharing from the earning partner to the one who has the primary caregiver’s role. You cannot always assume that. We don’t hear very much about these problems because most of our social policies are not evaluated.

Unfortunately, we have now taken that principle of targeting one step further. It is not enough for a family to simply have a low income. A new child tax credit, called the Independent Family Tax Credit (IFTC) when it was first introduced, introduces a new unwelcome principle. I counted up the number of changes to names that we had had in the last decade to family tax credits and I got to eleven without any trouble at all. It is part of the reason why people switch off the subject.

This new Child Tax Credit is quite significant it is a maximum of $15.00 a week per child. For that family unable to take a sick child to the doctor, fifteen dollars per week per child is significant. It only goes to those families where the parents are deserving. To qualify the family must be ‘independent from the state’. What we mean by independence from the state? Neither parent must be on any Social Welfare Benefit even where one parent is chronically ill and on an Invalids Benefit. It could be that one parent, maybe an older father is actually retired and drawing a state pension. It could be that one parent has had an accident and is seriously incapacitated. If they get ACC Earnings Related Compensation for more than three months their family is no longer entitled to the tax credit as they are deemed to be dependent on the state. If one parent has a student allowance it also make them dependent on the state, and the children miss out.

This is a very discriminatory tax credit indeed, the way that it operates is that it’s added on to family support. It is targeted in the same way as family support, bleeding out at 30 cents from $27,000 of gross family income. It is extremely difficult to administer because people go in and out of eligibility for it, half the time they don’t know they are even eligible for it and don’t know they should be applying for it and we find again we don’t know the take up rate, because there has been no evaluation.

When the family benefit was amalgamated with Family Support and the whole deal targeted, one of the fears that the Child Poverty Action had, was that it would take us further down the targeting path. We have now seen that with the Independent Family Tax Credit. Then our fear was that once you had the Independent Family Tax Credit instead of adjusting family support, government would adjust only the more ‘worthy’ Independent Family Tax Credit. We’ve essentially seen that happen in the budget of 1999 when there was some name changes. We’ve still got Family Support which goes to all families but the Independent Family Tax Credit goes as the child tax credit in a new package called Family Plus. Family Plus is an extension of the new principle and is aimed at working families. It includes a new parental tax credit of $150.00 a week for eight weeks following the birth of a child. But it is not actually designed to go to all babies and only a small fraction benefit. It is designed to be a reward for doing the ‘right’ thing and being independent from the state.

It’s a bit ridiculous ‘you are independent from the state so here’s a dollar of state money, for your reward!’. Lets look again at the Convention on the Rights of the Child

It is hard not to come to the conclusion that Family Plus is discriminatory and against the spirit of the convention. Economic goals have taken precedence over the rights of the child. What we are seeing is not even good economics. If you want to encourage people into paid work, doing it through the child tax credit is very crude, because it does not actually reward an extra hour’s work. If you or your partner are still on a part benefit then you don’t qualify. You either have the tax credit or you don’t, so it actually is a form of punishment for those families, where one of the parents loses their job and goes on to the Community Wage.

The costs of economic reform had disproportionately affected children. Fully targeted Family Support does not ensure every child benefits. Family Plus is even more discriminatory. In my view we are further away from the United Nations Convention than we were ten years ago and that I think is a tragedy.