© 1998 Ken Mackinnon

(A version of this paper appeared under the title "No wonder social welfare system is unable to cope" in the New Zealand Herald, Thursday 24 Sept 1998 at p.A19)

The Parliament of 1898 might have expected us to be celebrating the centenary of social welfare provision in New Zealand rather than undertaking a hikoi which draws attention to its failings. For it was in November 1898, after nearly ninety hours and 1400 speeches, that Richard Seddon's Old-age Pensions Act was passed, the first piece of social security legislation in New Zealand and one of the first in the world. Following this statute, Parliament began to extend social security benefits to other groups, such as widows and families, until the system was consolidated by the first Labour Government into a comprehensive welfare state. An analysis of the distinctive New Zealand welfare model, shared only with Australia, may shed light on why it appears to be failing now.

There are three standard types of welfare state, each with its advantages and drawbacks. In the first type, a social insurance system, workers and employers are required to make regular payments into a national scheme of social insurance to cover such eventualities as sickness, unemployment and old age. Cover extends only to those who have contributed and the amount of payments tends to determine the level of benefits and the length of time for which they are paid out. Thus, although those who are covered receive non-means-tested benefits as of right, there may be some citizens who are uninsured.

The second type of system is a citizenship-based one, funded through general taxation and from which everyone who fulfils residency requirements receives universal benefits either in kind (free education, healthcare, etc) or in monetary form. This very inclusive approach is most commonly associated with Scandinavian countries, but can be seen in the current New Zealand Superannuation scheme. Critics point out that it does little to redistribute wealth since both rich and poor receive benefits.

The third approach is a targeted or residualist one in which benefits are means-tested and paid out to those who are not only unemployed or widowed or sick, but are also needy. Drawbacks include the high level of bureaucracy involved in identifying those in need, stigma attached to claiming, and disincentives for those on benefit because any increased income (or savings) reduces the benefit, making it not worthwhile to work (or save). In many western countries this approach is only used as a second-tier safety-net, a final resort if the market, the social insurance system and family structure all fail.

Over the years, elements of each approach have appeared in the New Zealand system. The Old-age Pensions Act 1898 itself appeared to be setting up a residualist system: the pensions were small, means-tested and only available to those of good character. To be eligible to receive a pension, a person had to have been resident for a number of years and fall within the appropriate category (in this case being over 65), but no contribution or work record was necessary. However what differentiated this from a pure residualist approach was that the emerging New Zealand social security system was part of a package of social legislation (for example, the Industrial Conciliation and Arbitration Act 1894, the Government Advances to Settlers Act 1894, the Workers' Dwellings Act 1905). When the benefit system came to maturity in the Social Security Act 1938 (enacted 60 years ago this month), it was fully integrated with welfare provisions which included public health services, public education, public housing and state intervention in trade and industry. Because of these other measures, few people needed to rely on the social security safety-net, and they could be provided for at relatively low cost.

What has happened now is that economic restructuring has left the benefit system high and dry: the supporting package that existed previously has virtually all gone. Since so many of the protections which used to exist - subsidised industries, collective pay awards, cheap state housing - have all but disappeared, the residual social security safety-net is trying to bear a weight that it was never designed to carry on its own - and, frankly, it's giving way. The increased numbers relying on benefits have put pressure on the welfare budget and the reaction of Government has been to reduce the fiscal pressure by narrowing eligibility, reducing the amounts paid out, and deterring applicants. That having had little effect, the Government is expressing concern at the degree of dependency on the benefit system.

However the Government's own policy of tightening the targeting of the benefit system has contributed to dependency and to the very poverty which it then must try to alleviate. If Government lengthens the time during which a beneficiary is disentitled to benefit after losing employment; if it increases the proportion of a benefit which is spent on housing costs; if it insists that beneficiaries use up their savings before receiving further assistance; if it deems young people to be dependent for longer on their parents, then Government should not be surprised if beneficiaries have no financial resources left through which they might gain independence from the benefit system. Sadly, there seems to be no realisation of the advantages both to the public purse and to beneficiaries of taking measures to prevent need, poverty and dependency. The system no longer tries to prevent poverty; but has returned to the early Victorian approach of merely "relieving" poverty.

The New Zealand welfare package, despite some defects, aimed at guaranteeing participation in society for all New Zealanders through the prevention of poverty. We now find that the cost of abandoning that approach is too high, whether it is measured in terms of the social security budget, of dependency, or of the suffering caused by poverty and ill-health. A tightly targeted benefit system, especially if tinkered with in isolation, will do nothing to prevent poverty. What is needed is a more positive investment in people and in the systems which sustain them. Without necessarily adopting one of the standard models from overseas or from New Zealand's past, Government must be open to alternative welfare policies involving Government leadership in the creation of strong, sustainable and inclusive communities. Mr Sowry's response to the Hikoi is that he is willing to listen to alternatives. If he listens and acts, perhaps he can join Seddon and Savage on the roll-call of those who have stepped out on the hundred years hikoi against poverty.

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