THE FAMILY CENTRE SOCIAL POLICY RESEARCH UNIT 6 May 2018 Submission to the Social Services and Community Select Committee on the Child Poverty Reduction Bill The Family Centre Social Policy Research Unit (FCSPRU) has been assessing and measuring poverty in Aotearoa New Zealand since the mid-1980s. Our first book Poor New Zealand: An Open Letter on Poverty was published in 1987 1. We then set up the New Zealand Poverty Measurement Project (NZPMP) with colleagues in 1992 which was led by Charles Waldegrave (FCSPRU), Bob Stephens (School of Government, Victoria University of Wellington) and Paul Frater from BERL (Business Economic Research Limited). NZPMP developed for NZ the most common methodology used today to measure income poverty. Prior to 1995, there was no agreed method, and action on poverty was severely constrained by those who said reports were anecdotal. There was a need for an agreed methodology that produced credible evidence. We developed our method based on an emerging international consensus at the time that income poverty measures needed to be relative to each country s income levels and internationally comparable. The Foundation for Research, Science and Technology (FRST) funded BERL initially, and then FCSPRU, for 15 continuous years to develop our work in NZPMP. It involved extensive analysis of successive years of the Household Economic Survey (HES) database and budget focus group sampling continuously throughout NZ with low income families. Data was disaggregated by family type, ethnicity, employment status and housing tenure. NZPMP developed for NZ the methodology (gaining the most international acceptance) of using 50 and 60 percent of median equivalised disposable household income before and after housing costs as a suite of measures for income poverty that could be internationally compared country by country. OECD had set its poverty threshold at the 50 percent mark and the EU through Eurostat At risk of poverty measure and the EU social exclusion threshold had used 60 percent. In 1995 and 1996, we published our first two papers outlining our method of poverty measurement and the results of our analysis applying 50 and 60 percent of median equivalised disposable household income without and after deducting housing costs as a suite of income poverty measures 2. We carried out continuous budget focus group sampling with low income 1 Waldegrave C. & Coventry R.(1987) Poor New Zealand: An Open Letter on Poverty. Wellington: Platform Publishing. 2 Stephens, R., Waldegrave, C., & Frater, P. (1995), 'Measuring poverty in New Zealand', Social Policy Journal of New Zealand (5) 88-112 and Waldegrave, C., Stuart, S. & Stephens, R. (1996) Participation in poverty research: drawing on the knowledge of low-income householders to establish an appropriate measure for monitoring social policy impacts, Social Policy Journal of New Zealand (7) 191-206. Social Policy Research, Family Therapy, Community Development, Education & Training PO Box 31-050, Lower Hutt, Wellington 5010, Aotearoa/New Zealand Phone: 64-4-569-7112 Fax: 64-4-569-7323 71 Woburn Road, Lower Hutt, Wellington 5010, Aotearoa/New Zealand www.familycentre.org.nz
householders throughout NZ over 15 years and the findings indicated that budgets for minimum adequate income that allow a household to live independently were around 60 percent of the median household income. MSD adopted the suite of four poverty thresholds developed by NZPMP in its annual Household Incomes in NZ reports, with a slight adjustment for housing costs and adding constant value thresholds 3. Along with MSD s Living Standards research, MSD and FRST identified NZPMP as providing the evidence base for the 2004 Working for Families package to reduce child poverty 4. Furthermore, six of the current thresholds set out in the Child Poverty Reduction Bill were introduced to NZ through NZPMP. NZPMP also developed the measurements required for setting the Living Wage in New Zealand 5. More recently we completed a five-year review updating certain measures in the light of more recent research that has become available 6. The Child Poverty Reduction Bill We commend the Prime Minister and her Coalition Government for introducing the Bill. It is very significant that when the Bill is finally enacted, New Zealand will be unique in being required by statute to formally report detailed measures on a key social indicator child poverty. This initiative to report on a key social target is comparable with statutory required economic and fiscal target setting and reporting. Along with others, we have called for this over many years. We recognise that the PM has chosen to place transparent pressure on herself and her government that she could have easily avoided. We consider the Bill to be an act of integrity and progressive democratic legislation. At FCSPRU, we have a particular interest in these measures because of our goal to develop evidence-based research for public policy. NZPMP began its research on poverty measurement 25 years ago. The research has impacted considerably on policy settings, including the return to income-related rents on state houses and the return to the higher level of superannuation, both in 2000 as well as providing a substantial part of the evidence base for the Working for Families policy 7. However, a primary goal for the poverty measurement research was for New Zealand governments of all types to take over the measurement as MSD has, and to use it statutorily for public reporting and accountability as this Bill does. 3 Perry, B. (2017) Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2016. Wellington: Ministry of Social Development 4 Gray, D. (2004) Research to Policy presentation at the MSD hosted Social Policy, Research and Evaluation Conference. Ministry of Social Development, Wellington, November 2004 5 King, P. & Waldegrave, C., (2013). Report of an investigation into defining a living wage for New Zealand. Wellington: Living Wage Aotearoa, New Zealand 6 Waldegrave, C., King, P. & Urbanova, M. (2018) Report of the Measurement Review for a New Zealand living wage, Wellington: Living Wage Aotearoa, New Zealand 7 Gray, D. Op. Cit. 2
The Primary Measures Our concern with the Bill is the choice of the first two primary measures using less than 50% of median equivalised DHI (disposable household income) without and after deducting housing costs, rather than 60 percent. In the view of NZPMP, the 50 percent threshold is inappropriate for New Zealand as a primary measure. It simply measures stringent hardship, and as such could be a secondary measure. Our continuous budget focus group sampling with Māori, Pacific, low-income Pakeha/European, Sole parents and Low-wage worker households over 15 years throughout urban and rural New Zealand showed budgets in urban areas over 60 percent of median equivalent DHI and in rural areas a little under. These budgets were very transparent because they set out estimates of the HES categories including food, housing, energy, transport etc., as set out in table 1. The table provides a sample of 1996 budget estimates comparing cultural groups in Wellington and Auckland. The similarities between focus groups in the same region in the same year are quite marked. No one in these groups had any contact with members of any of the other groups. Table 1 Weekly Expenditure Estimates, Wellington and Auckland, 1996: Estimates of Minimum Adequate Weekly Expenditure for Two Adults and Three Children, by Low-Income Panels Wellington Auckland Expenditure Category Māori Samoan Average Māori Samoan Pākehā Average Food $150 $120 $135 $180 $150 $150 $160 Household operations 25 25 25 10 30 40 27 Housing 210 165 188 300 275 280 285 Power/Heating 30 35 33 25 30 23 26 Phone 10 15 13 10 10 10 10 Transport 40 25 33 40 15 40 32 Activities/Recreation 30 40 35 10 - - 3 Insurances - - - - - - - Life Insurance/Super - - - - - - - Exceptional Emergency 10 30 20 20 50-23 Appliances 5 5 5 10 10 13 11 Furnishings 5 10 8 10 10 15 12 Medical 10 20 15 15 20 10 15 Clothing/Shoes 5 25 15 10 30 20 20 Education 7 15 11 10 15 20 15 TOTAL $537 $530 $534 $650 $645 $620 $638 The two Wellington budget totals were within $7 of each other, and the three Auckland ones within $30. The major distinctions between the two regions were housing costs, 3
which were around a $100 higher in Auckland. It is interesting to note that the averaged budget totals for the two regions were also around $100 apart. Given the well-publicised property boom in Auckland during 1996, this result exemplifies the up to date sensitivity this mode of investigation has to contemporary economic changes. Another difference was that food costs were higher in Auckland, while the Wellington groups budgeted more for activities and recreation. The results are quite transparent and can be independently tested. For example, $150 a week for food for a household of two adults and three children averaged $21.43 per day. This micro-level analysis was required to ensure that the poverty benchmark set at the macro-level was not arbitrarily chosen but based on the experiences of New Zealand households. The micro-level focus group data were linked to the macro-level HES data in the following manner. The weekly budgets were multiplied into annual incomes. They were then compared with HES data and plotted as a percentage of the New Zealand median equivalent disposable household income, using the Jensen equivalence scales 8. This produced a "relative poverty" measure. The percentage which resulted from this process is a mechanism which allows the budget-based estimate of minimum required expenditure, developed in the focus groups, to be translated into a poverty benchmark in the wider household income distribution. The benchmark is thus a relative measure, based on the absolute results of the focus groups. The focus group expenditure estimates become the basis for setting an informed contemporary income standard. As an example, the results for the 1993 Lower Hutt urban groups indicated that the average focus group-based estimate equated to 66.4% of median equivalent DHI as table 2 shows. Table 2 Estimated Minimum Adequate Household Expenditure as a Percentage of Median Income: Lower Hutt Low-Income Panels Estimating for a Household of Two Adult and Three Children, 1993 Weekly Equivalence Equivalent Equivalent Equivalent% Panel Type Expenditure Scale* Estimate Annual of Median Pākehā $458 1.314 $348 $18,105 64.7 Sole Parent $491 1.314 $374 $19,431 69.4 Wage Earning $442 1.314 $336 $17,492 62.5 Māori $475 1.314 $362 $18,808 67.2 Samoan $483 1.314 $368 $19,114 68.3 Average $470 $357 $18,605 66.4 The results for smaller centres and towns indicated a lower average of 55.8% of median equivalent disposable household income as table 3 shows. The findings reported here are 8 Jensen, J. (1988) "Income Equivalences and the Estimation of Family Expenditures on Children", mimeo, Department of Social Welfare, Wellington 4
indicative of the range of results obtained over this period. They confirmed our earlier view that a national poverty line in 1993 should be set conservatively at 60% of median equivalent DHI. Table 3 Estimated Minimum Adequate Household Expenditure for Two Adults and Three Children: Lower North Island Smaller Centres and Towns Low- Income Panels, 1995 Panel Type Masterton Parent Sole Weekly Expenditur e Equivalen ce Scale Equivalent Estimate CPI Adjustment Adjuste d Estimat e Annual Estimate % of Median $430 1.314 $327 0.95 $309 $16,082 57.9 Carterton Rural $421 1.314 $320 0.95 $303 $15,745 56.7 Otaki Rural $392 1.314 $298 0.95 $282 $14,659 52.8 Average $414 $315 $306 $15,495 55.8 There is no New Zealand research that provides robust evidence that 50 percent of median equivalised DHI provides incomes adequate to prevent household poverty. The evidence that does exist points to the 60 median equivalised DHI as an evidence-based poverty threshold. Unfortunately, there is no more direct up-to-date evidence, but as Perry notes in the most recent Household Incomes Report 9, the 50 percent mark is very low and close to current social assistance rates for which there is considerable current evidence that children are disadvantaged and families turning to foodbanks for assistance in greater numbers 10. Add to this the current rise in housing costs to gain a picture of just how stringent that threshold is. Conclusion As noted earlier we commend the Prime minister and her Government for the bold initiatives in the Poverty Reduction Bill. We are however, very concerned that the two income poverty thresholds in the primary measures are too stringent and quite unrealistic as poverty thresholds. If these measures are used, then they will in time lead to ridicule as researchers and community workers see how far below an evidence-based poverty threshold they are. It may seem attractive for a government to set a lower primary target in order to more easily meet the collective income deficit these households experience, so they can declare the numbers of households they have successfully lifted out of poverty at a lower 9 2017 Op. Cit. pp234-235 10 Dominion Post 6 November 2017 Rising living costs seeing more families turning to food banks 5
cost. However, this is a sham if large numbers of households above the line are still living in impoverished conditions. The integrity shown by the PM and her Government developing the progressive legislation set out in the purpose of the Bill, could be seriously undermined by a primary income measure below 60 percent of median equivalised DHI. It is essential there are income poverty measures alongside the material hardship and persistent poverty measures. It is also essential that when families are claimed to be out of poverty, they actually are. Anything less is a cynical. We therefore strongly recommend the current Bill be revised to remove the two current primary income poverty measures and replace them with 60 percent of median equivalised DHI without and after deducting housing costs. Charles Waldegrave Family Centre Social Policy Research Unit Mobile: 021 671673 Email: waldegrave.c@fc.org.nz 6