Welfare Rights Review

No ‘pot of gold’ at the end of New Zealand welfare rainbow

The major report to the Federal Government by Patrick McClure into reform of Australia’s social security system suggests that Australia follow an “investment” approach to welfare, modelled on changes that took place in New Zealand in 2011. McClure is quoted as saying that the New Zealand model was “very successful…in getting people into jobs, but also in making considerable savings over the longer term”. Welfare Rights Review finds that the evidence for such claims do not add up.

After its own major review in 2011, the New Zealand promised the long-term management of its welfare system by using actuarial modelling (currently used by insurance companies and the National Disability Insurance Scheme).  Analysis of demographic and geographic data is used to identify groups at high risk of ending up on long-term income support such as young parents, young unemployed people and single parents.

Specific programs and support were specifically targeted at these groups through a "flexible funding pool”.

The McClure review cites New Zealand Ministry of Social Development data that the "current liability" (lifetime cost of income support for existing clients) of its welfare system, fell from $NZ86.8 billion as of June 2012 to $NZ76.5 billion a year later.  Savings from the social security budget amounted $NZ7.4 billion?.

On the ground these savings translated into a five per cent reduction in the number of job seekers and single parents receiving income support.

The Minister for Social Services, Scott Morrison, said in a recent speech to the Press Club that the Australian Government was of the view that the New Zealand model was relevant to addressing what he termed as the “youth challenge”. Minister Morrison said:  "The New Zealand investment system has shown that intervening and investing early…helps prevent debilitating cycles of intergeneration welfare dependence”.

Not everyone is convinced, however. Michael Fletcher, from the Institute of Public Policy at Auckland University says the results in New Zealand are not as rosy as some have painted it. He argues that the New Zealand model saved money by creating barriers to claiming benefits, and success was measured in how many people failed to claim benefits – not by a measurement of, for instance, how many were in work, or how many were earning a decent income.

The ANU’s Crawford Public Policy School Professor Peter Whiteford cautions that New Zealand's figures are not as promising as they seem. The forecasts about how much New Zealand's social security is likely to cost are actually very "long-range forecasts”.

About $3 billion of the reported NZ savings from 2012 to 2013 were a result of changes in assumptions around the unemployment, inflation and discount rate. A further $1.8 billion was due to people coming off social security – who had been targeted by harsher policy measures, while forecasting changes accounted for a further $2.6 billion.

Another important perspective comes from the University of Auckland’s Michael O'Brien, who chaired an independent welfare review into the NZ reforms. O’Brien was critical of the claims about moving people into employment, describing it as a "head counting" exercise. Like the Australian employment system, there was a “significant amount of churn”, where people cycle-on-and-off payments. His blunt assessment of the NZ welfare experiment: "They are at best dubious, and at worst, have no solid base to them".

The National Welfare Rights Network (NWRN) had sought a briefing from the previous Minister for Social Services’ office on the experiences of welfare changes in New Zealand, and “it's fair to say that we were underwhelmed by the response,” commented NWRN President Maree O’Halloran.

"However, we sought feedback from our New Zealand peers who advised that there has not been a comprehensive assessment of the impacts of welfare reform to date, and that it was too early to make claims as to its success or failure.

"What we do know is that, just like here in Australia, there is growing evidence of deepening poverty among single parent families raising children. New Zealand, like Australia, is also rolling out a local version of Income Management, where young people are subjected having a portion of their income support payments quarantined.

"The final McClure report endorses an individualised, case management approach, with 'wrap around services'. This approach is currently used by many non-government organisations in Australia, and it is a proven and cost-effective pathway to building skills and resilience among highly disadvantaged groups. This approach has a lot of potential and is definitely worth investing in.

"As the Government appears wedded to social welfare policies being trailed in New Zealand, it makes sense for the Department to provide the community sector with comprehensive briefings about the model, and its strengths and weaknesses.

“It would be useful to hear firsthand from critics of the New Zealand changes as well," O’Halloran concluded.

The Australian Council of Social Service echoes these concerns, noting that its counterparts across the Tasman were concerned and unconvinced about the investment approach.

"We need more information," Dr Cassandra Goldie added, warning that there has been no independent evaluation of the New Zealand model.

Back in New Zealand, critics argue that it is difficult to attribute the positive figures to the investment model, especially as a more punitive policy approach to people claiming social security payments was introduced at the same time. These include requiring job seekers to reapply for unemployment benefits every 52 weeks and new part-time work obligations on single parents with a youngest child over five years of age.

"The poverty numbers, those remain pretty solid," said O’Brien, noting that the pressures on community agencies for financial support have increased.

Unfortunately, the promise of a golden age of welfare reform in New Zealand seems tarnished, and there is no pot of gold at the end of this rainbow.