New Zealand's Financial Assistance for Poor Children: Are Work Incentives the Answer?

Abstract

European countries have been concerned with reforming the labour market and promoting ‘employability’ and are now being asked to set out plans to eliminate child poverty and social exclusion. The experience of New Zealand might well provide an interesting case study. Labour market flexibility was promoted in the early 1990s, assisted by welfare benefit cuts. Family assistance was allowed to fall in real terms, while becoming more tightly targeted and more selective. New Zealand's child poverty rate rose to unprecedented levels in the mid 1990s from which it abated only slowly as the economy improved. Under the Labour government from 1999, child poverty was at last acknowledged with promises to eliminate it, but spending on families was not increased significantly until 2005. Even then, work incentives were prioritised as the best way to address child poverty. Rather than treating all low income children the same, a significant part of child-related assistance depends on the work status of the parents, and none of the assistance is universal. Thus while the new spending will eventually significantly reduce the incidence of child poverty in working families, those children whose parents fail the qualifying criteria can be expected to slip further below the relative poverty line and experience increasing rather than decreasing social exclusion. Work-related child payments may prove difficult to administer and have low take-up rates, but in a conservative political climate they appear to be the preferred way to augment family incomes.