The Government recognised in last week’s Budget that the gap between market and benefit incomes has become too wide.
We believe the addition of up to $25 a week for the poorest benefit-dependent families with children and up to $24.50 for very low-wage workers will be helpful for many families.
In the debate that followed, the Minister of Finance Bill English claimed that he will “never be able to satisfy” our advice to reduce relative poverty.
It is hard to believe that we’re still debating how to measure child poverty. We had hoped that the debate had moved beyond that. However, since we’ve been asked, let us explain.
Simply put, poverty means not having enough resources to live in dignity or meet basic needs. Inequality also matters but is different. No single measure of child poverty adequately captures the complexity of the issue. Any one measure can be misleading. This is why the Children’s Commissioner’s Expert Advisory Group recommended using a suite of measures to calculate rates of child poverty and monitor progress.
Child poverty can be measured as material deprivation (the number of children who lack certain essentials), constant value poverty (the number of children in families below a fixed poverty line) and relative poverty (the number of children in families below a proportion of the median income). All three are important for children, all can be measured and all can be changed by government policy.
People sometimes confuse median and average incomes. Consider the 11 households in the accompanying figure. The poorest household earns $400 a week and the wealthiest $3000. The median household is the middle, or 6th, household and earns $1000.The average—which is the sum of all incomes divided by the number of households—is $1273.The average is higher than the median because of the high incomes of the wealthiest households.
If we set the relative poverty line at 60 per cent of the median income of $1000, the poverty line is $600 and two households sit below that line, with incomes of $400 and $500.
Imagine if the incomes of the poorest two houses were raised just enough to be at the 60per cent level. Neither is now in poverty using the relative measure. Both are materially better off. The median household’s income has also not changed.
This is what Working for Families did for families in paid employment a decade ago. It raised incomes at the bottom, thereby reducing relative poverty rates. Last week’s Budget measures for beneficiaries and working families will have a similar effect, albeit smaller.
In our example, the income has been transferred (e.g. by taxation) by reducing the incomes of the three wealthiest households by $100, so the average income has also not changed. The difference to the wealthiest families is proportionately small but for the poorest families it is proportionately large. This is why reducing taxation for the wealthy makes little difference for them but the opportunity cost of not being able to increase the incomes of the poorest is large.
Being born into poverty greatly increases a child’s chances of getting sick, failing in education, and their long-term risks of physical and mental illness, addictions, crime and welfare dependency. This imposes large costs on the whole of society. Hence, investing wisely in our youngest and poorest citizens makes sense.
It’s time to focus on developing a plan to reduce child poverty in a significant and durable way. We could start by agreeing on what a reasonable standard of living for a child is and then having a plan to get there over time. The plan would need to be future-proofed, as we do for National Superannuation, by linking family assistance and benefit rates to prices and wages.
Wouldn’t that be great to see in next year’s Budget?
Figures used with permission from Jonathan Boston and Simon Chapple (2015) The Child Poverty Debate: Myths, Misconceptions and Misunderstandings. BWBTexts, Wellington.