We need action on child poverty now

With recession looming, Honorary Associate Professor Susan St John says urgent changes are needed to support already struggling families.

Opinion: Instead of fanciful social insurance schemes that will add to our tax problems, the government should be making sure we have adequate automatic protections for families and children as we head into an inevitable recession with house prices collapsing, mortgage interest rates rising, cost of living increases and yet more covid infections.

Let us not allow our politicians to use inflation as an excuse for keeping families desperately poor.

The ongoing tragedy of family poverty in New Zealand is witnessed every day at seriously overstretched food banks, schools and budgeting services. We need to wake up and listen when KidsCan, a major charity supplying basic items for children, say they have never seen such high levels of need.

Since the neoliberal reforms of the early 1990s, Child Poverty Action Group (CPAG) has raised alarm bells about the direction we were heading. Now we are seeing the cumulative effects of years in which low-income people have lost ground. Their debts have increased, and their housing and other assets have depleted each year they have not been able to make ends meet.

It is not just a matter of an income gap, there is a mighty wealth chasm. The wealthy are in a different stratosphere, unaffected by rising interest rates and shortages that beset the other half, that is, until they need to be serviced. The lifestyles of the rich are increasingly impacted as restaurants lose staff, cleaners and carers are impossible to find or are sick or spending too much time at food banks and unable to work full time.

Susan St John
Susan St John Honorary Associate Professor, Pensions and Intergenerational Equity Hub, Economic Policy Centre, University of Auckland Business School.

The latest Ministry of Social Development report on child poverty points to at least 60,000 children in severe deprivation. That’s hovering on third-world conditions and will have severe social consequences. And these figures underestimate the scale of the problem as they don’t take into account the events of the last two years, nor does the survey on which the figures are based include families living in motels or garages.

Our tax policies are some of the most extreme in the world. GST on absolutely everything, including the basics, is extraordinarily harsh on low-income people. But it is a very good revenue raiser, it captures the spending of the better off and it is a very efficient tax. If we reduced GST to 10 percent, the major beneficiaries would be the top-end spenders, and roughly another $9 billion would have to be sourced by higher taxes elsewhere. Reducing GST on food or a tax-free bottom tax bracket are populist policies that likewise advantage the rich and may do little for those who need the most.

The government is sitting under urgency, but there is nothing for low-income families as Christmas approaches. All we have seen is an attempt to get parents to work more hours with extended child-care subsidies to help alleviate the labour shortage.

We can’t have our cake and eat it too. A 15 percent GST on everything requires adequate compensation for those on low incomes. Our Working For Families (WFF) tax credits, for example, need to be far more generous. In the absence of the promised review of WFF and the tough times approaching, urgent changes are needed so that when low-income parents lose work, there is a security cushion for their children.

Currently, we don’t have a cushion that can be relied on. Our failed ideology demands those families who have to go on a benefit lose at least $72.50 a week of WFF to provide an ‘incentive to work’. That injustice should be fixed immediately and would benefit just the worst-off children.

It is not just those on benefits but low-income families on $40-70,000 per annum who face unaffordable rentals or mortgage costs and are now needing food banks. Every extra dollar over $48,000 is taxed at 30 per cent and sees WFF reduce by a whopping 27 percent.

When ACC and KiwiSaver are deducted and repayment of a student loan at 12 per cent, an extra dollar produces less than 27 cents in the hand. And that 27 cents buys less than before because inflation is running so high.

The government is sitting under urgency, but there is nothing for low-income families as Christmas approaches. All we have seen is an attempt to get parents to work more hours with extended child-care subsidies to help alleviate the labour shortage.

There is also a half-hearted attempt to take the credit for the fact that children’s tax credits will increase next April when this adjustment is required by law when inflation is over 5 percent.

Susan St John is an Honorary Associate Professor at the University of Auckland Business School. She is also a member of Child Poverty Action Group.

This article reflects the opinion of the author and not necessarily the views of Waipapa Taumata Rau University of Auckland.

This article was first published in the New Zealand Herald, on 29 November 2022.

/University of Auckland Public Release. This material from the originating organization/author(s) may be of a point-in-time nature, edited for clarity, style and length. The views and opinions expressed are those of the author(s).View in full here.