Govt should defuse NZ’s social timebomb, but won't

Analysis: As the coalition Government’s second Budget approaches, we should question where New Zealand is heading. The 2024 Budget laid out the strategy. Tax cuts and landlord subsidies were prioritised with a focus on cuts to social and infrastructure spending. Most of the tax package went to the well-off, while many low-income households got nothing, or very little.

Even the tiny bit of the tax package directed to low-income people fell flat. Family Boost has significantly helped only a handful of families, while the increase of $25 per week (In Work Tax Credit) was denied all families on benefits, affecting about 200,000 of the very poorest children. In the recession, families that lost paid work also lost access to full Working for Families, an income cut for their children of about $100 per week.   

No one worked out how the many spending cuts would be distributed, but they have hurt the poor the most. These changes are too numerous to itemise but include increased transport costs; the reintroduction of prescription charges; a disastrous school lunch system; rising rents, rates and insurance; fewer budget advisory services; cuts to foodbank funding and hardship grants; stripping away support programmes for the disabled; inadequately adjusted benefits and minimum wage; and reduced support for pay equity and the living wage.

The objective is to save money while ignoring the human cost. For example, a scathing report of the Auditor General confirms that Oranga Tamariki took a bulldozer to obeying the call for a 6.5 percent cut in existing social services with no regard to the extreme hurt caused to children and struggling parents. Budget 2025 has already indicated that Working for Families will continue to go backwards with not even inflation adjustments. The 2025 child and youth strategy report shows that over the year to June 2024 the number of children in material poverty continued to increase, there were more avoidable hospitalisations, immunisation rates for babies declined, and there was more food insecurity.

We can see the human costs all around us in homelessness, food insecurity, and ill health. Already we know we rank at the bottom among developed counties for child wellbeing and suicide rates. Abject distress existing alongside where homes sell for $20m-$40m is no longer uncommon, and neither are $6m helicopters of the very rich.

At the start of the year, Helen Robinson, CEO of the Auckland City Mission, had a clear warning: “I am pleading with government for more support, otherwise what we and other food relief agencies in Auckland can provide, will dramatically decrease. This leaves more of Auckland hungry and those already there become more desperate. It is the total antithesis of a thriving city.”

The theory held by this Government is that by reducing the role of government and taxes, the private sector will flourish, and secure well-paid jobs will be created. Instead, as basic economic theory would predict, we have been handed a long and protracted recession with few signs of growth and prosperity. Budget 2025 signals more of the same.

It would be a mistake to wait for simplistic official inequality statistics before we act. Our current destination is a sharply divided country of extreme wealth and extreme poverty with an insecure middle class.

Underfunded and swamped social agencies cannot remove the relentless stress on the people who are invisible in the ‘fiscally responsible’ economic narrative. The fabricated bogeyman of outsized net government debt is at the core, as the Government pursues balanced budgets and small government-size targets.

A stage one economics student would know the deficit increases automatically in a recession to cushion the decline and stop the economy spiralling into something that looks more like a depression. But our safety nets of social welfare are performing very badly.

Rising unemployment has exposed the inadequacy of social protections. Working for Families, for instance, provides a very poor cushion for children. Many ‘working’ families do not have enough hours of work and face crippling poverty traps. Future security is undermined as more KiwiSavers cash in for hardship reasons. A record number of the talented young we need to drive the recovery and repair the frayed social fabric have already fled the country.

The Government is fond of comparing its Budget to that of a household. But what prudent household would deliberately undermine the earning capacity of family members?

The primary task for the Budget should be to look after people first, to allow them to meet their food, dental and health needs, education, housing and travel costs, to have a buffer of savings to cushion unexpected shocks and to prepare for old age.

In the social security part of the Budget, NZ Super for all at 65, no matter how rich or whether still in full-time well-paid work, dominates (gross $25 billion). It’s a sore thumb standing out alongside much less generous, highly targeted benefits and working for families, paid parental leave, family boost, hardship provisions, accommodation supplement, winter energy and other payments and subsidies. Given the political will, research shows we can easily redirect at least $3b from very wealthy superannuitants to fixing other payments to greatly improve the wellbeing of the young. This will not be enough but it could be a first step to the wide rebalancing needed.

New Zealand has become a country of two halves whose paths rarely cross: a social time bomb with unimaginable consequences. It is a country beguiled by an egalitarian past that is no more.