Cross-Examination: Measuring Child Poverty

This is the first of two articles on the Child Poverty Reduction Bill, which is presently before Parliament. EJP contributor James Adams will discuss the technical side of the Bill: how it proposes to measure child poverty in New Zealand. Are the Government’s targets both ambitious and achievable?

The public became increasingly concerned about child poverty in the last years of the previous government. Facing an imminent election, Prime Minister Bill English made a surprisingly specific commitment to reduce the number of children living in poverty by 50,000 over the next three years.[1] The election result, however, elevated Labour leader Jacinda Ardern to the Ninth Floor of the Beehive, and in her Speech from the Throne, this Government was clear that:[2]

In our society today, no one should have to live in a car or on the street. No one should have to beg for their next meal. No child should be experiencing poverty. That kind of inequality is degrading to us all.

For that reason, the Right Honourable Prime Minister has introduced a Bill, which she wrote when she was an Opposition MP. It is currently being considered by the Social Services & Community Select Committee. Because this Government has made poverty reduction a key priority, the final version of this Bill may be epoch-defining: in years to come, historians may look back on the Sixth Labour government and say that this was the legislation that showed what sort of government this was. So what can we learn from the Bill in its current form?

At its heart, the Child Poverty Reduction Bill does not exist to fix the problem. It exists to measure it.[3] If passed in its current form, the Bill would establish four statistical indicators as New Zealand’s official measures of child poverty.[4] The Government would also be required to set three-year and ten-year targets for child poverty reduction, and to report on progress towards those targets on Budget Day each year. Hence, this article focuses on how we measure poverty, and whether the Government’s indicators are appropriate.

Absolute Income Measures

This is perhaps the simplest method for measuring poverty, for according to this view, people are considered to be poor when their incomes fall below a specific dollar amount. The World Bank, for example, defines poverty as having an income less than $1.90 USD per day, which is a very low threshold.[5] It is well recognised that absolute income measures are largely meaningless unless they are regularly adjusted for inflation and differences in purchasing power. There is much less agreement as to how to define the threshold, and perhaps for this reason, none of the four Primary Measures in this Bill rely on this method. Simplicity is evidently not a priority.

Absolute Non-income Measures

Another way to look at poverty is to assess whether people have the goods and services that are necessary to live a decent life in this country. For example, most New Zealanders would likely recognise that a person who owns neither shoes nor a raincoat is a person who lives in poverty, although people disagree about what exactly counts as ‘necessary.’ The Child Poverty Monitor has developed a list of seventeen criteria, and it considers a child to be living in material deprivation if seven or more are present; a child is considered to be in severe material deprivation is nine or more of the criteria are present.[6] A similar set of criteria is used by the European Union in its reporting, and one of the four Primary Measures (known as the material hardship indicator) will use this criterion.[7]

Non-income data often provides a more accurate picture of people’s living standards. For example, imagine a household which collectively earns enough money for all of its members to lead good lives. However, one member of this hypothetical household squanders that money to the extent that some members of the household must go without the basic necessities. In this case, these people could appropriately be described as living in poverty, even though their household’s income may be above the income poverty line. On the other hand, non-income data is more expensive to collect and may be more affected by respondents’ subjective perceptions of their lives.

Relative Non-Income Measures

These measures differ only from the absolute, non-income measures in that the bundle of goods and services that are deemed to be necessary can change over time. For example, access to the internet was seen as a luxury two decades ago, but today, not having internet access at home might be an indicator of poverty. The more that the criteria changes, however, the harder it is to make comparisons over time. For this reason, none of the four Primary Measures in the Bill rely on this method, although there is some flexibility for the Chief Statistician to redefine the material hardship indicator.[8]

Relative Income Measures

This is perhaps the most common approach taken in New Zealand, and its use stems from a principle expressed in the Report of the Royal Commission on Social Security in 1972:[9]

The community is responsible for giving dependent people a standard of living consistent with human dignity and approaching that enjoyed by the majority, irrespective of the cause of dependency.

This encapsulates the idea that people are poor when they lack the resources to participate in society, and that, as wages grow, so too should the poverty threshold. Hence, poverty lines are frequently expressed in terms of the median: according to the New Zealand Child Poverty Monitor, a child lives in income poverty when their household earns less than 60% of the median household income.[10] In this formulation, the size of the household is taken into account, but housing costs are not; it is not uncommon to see poverty figures quoted as “AHC” which means ‘after housing costs.’

Two of the four Primary Measures in Part Two of this Bill adopt this approach. These are collectively known as low income indicators, although the two are more different than they may first appear. The first threshold is the number of children in households whose incomes are less than 50% of the median household income for that financial year;[11] a lower threshold than the one used by the Child Poverty Monitor, but consistent with the reporting already carried out by the Ministry of Social Development. The second threshold is AHC, and assesses household whose incomes are less than 50% of a fixed median income.[12] As the Prime Minister described it, the measure “enables us to unambiguously show how incomes have changed year to year, but, importantly, also to show the impact of housing costs, which is a particular issue for New Zealand at present.”[13] The fixed median income will be rebased (reset) at the discretion of the Chief Statistician, most likely every ten years, although some submitters to the Select Committee have petitioned for more regular rebasing.[14] This would make it harder to draw reliable comparisons of between living standards across different decades, but it would make comparisons within a decade more reliable.

The use of relative measures of poverty was also criticised in this Bill’s First Reading. David Seymour commented that “the difficulty with [these measures] is [that] even if everybody gets richer, we end up with the same level of poverty.”[15] Strictly, this is true: if everyone’s income doubled overnight, New Zealand would have the same level of relative income poverty. On the other hand, this is probably appropriate, for if incomes were to double, prices would very likely double as well, so no-one would actually be better off. Relative income poverty falls only when those with incomes substantially lower than the median rise faster than the median, as was the case from 2004-2007 as a result of the Working For Families package.[16]

A Persistence Measure?

Three of the four Primary Measures set out in this Bill adopt a conventional threshold approach. The remaining measure is known as the persistence indicator, and it is something of a mystery. The definition of persistent poverty is not included in the Bill, for the Chief Statistician has until 2025 to define it (unless the Minister responsible orders the definition to be prepared sooner than that).[17] Measuring how long people experience poverty for would be useful, because if people are routinely getting themselves out of poverty after only a short time below the threshold, then the Government has less cause for concern. This point was not discussed on its First Reading, but submitters were rightly perplexed by it, and called for the indicator to be used as soon as possible.

Other Measures

Many submitters to the Select Committee were disappointed that this Bill remains fairly narrow in its scope. For a start, it considers only poverty, not wellbeing, or the factors that produce poverty. As Paula Bennett claimed in Parliament:[18]

Poverty is just one problem that these children face. They face such a range of issues that have often been intergenerational and over a long period of time —and this Bill does nothing to address the needs of those children in that way —family violence, drug and alcohol abuse, mental health problems, untreated health problems, and poor housing, to name a few.

To this end, the National Party have threatened not to support this legislation unless the Better Public Service targets that the previous Government pioneered are re-instituted. Ms. Bennett is of course correct that households in poverty frequently face a variety of other challenges, and that these can sometimes cause poverty. However, these other issues are themselves sometimes caused by living in poverty: for example, if New Zealand’s poorest households had higher incomes, they would be more likely to be able to afford to heat their homes or visit a doctor. In other words, very low incomes remain an appropriate proxy, but only a proxy, for assessing poor living standards.

That said, other groups similarly called for a wider array of measures. Notable among them was the Office of the Children’s Commissioner (OCC), who argued that the Bill needs to define exactly what is meant by “child poverty,” which it presently does not do. The following definition was suggested:[19]

Children living in poverty are those who experience deprivation of the material resources and income that is required for them to develop and thrive, leaving such children unable to enjoy their rights, achieve their full potential and participate as equal members of New Zealand society.”

The parallels between this definition and that of the Royal Commission of 1972 are clear: both adopt a holistic perspective that is concerned with the right to participate in society in addition to material sufficiency. The OCC has therefore called for the quantitative measures to be supplemented by qualitative studies, including interviewing children as to how they perceive their wellbeing. This would certainly be a novel approach. However, this Bill has so far instead attempted to appear in the same mould as the Public Finance Act 1989, with its emphasis on government accountability through specific reporting requirements. Having taken this approach, it is unlikely that the Government will be inclined to accept the OCC’s advice –although it remains to be seen what recommendations the Select Committee make.

This article has focused on some of the perspectives as to whether the criteria for measuring child poverty in the Child Poverty Reduction Bill are appropriate. The Bill introduces four Primary Measures of child poverty: one that is concerned with material deprivation, two that assess relative income poverty, and a fourth that will measure poverty’s persistence (although it remains undefined at present). Although the measures are fairly conventional, they have been criticised from a variety of perspectives, including by Opposition MPs and in public submissions to Select Committee.

In the words the Ministry of Social Development’s expert on income poverty, Bryan Perry, “there is no clear delineation between the poor and the non-poor that science can identify independent of judgment.”[20] In my view, if this Bill included a properly-defined persistence measure, it would be a commendable but not transformative piece of legislation. Once indicators have been approved and targets have been set, the real challenge begins: actually helping people out of poverty.

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Featured image source: http://www.2oceansvibe.com/2016/06/29/sad-experiment-look-what-happens-when-strangers-deal-with-a-poor-child-vs-a-rich-child-video/

[1] Emma Hurley “Newshub Leaders Debate: Bill English commits to poverty target” (4 September 2017) Newshub New Zealand <https://www.newshub.co.nz/>.

[2] Jacinda Ardern “Speech from the Throne” (delivered by the Governor General, 8 November 2017) <https://www.beehive.govt.nz/speech/speech-throne-2017>.

[3] Child Poverty Reduction Bill 2018 (14-1).

[4] In addition to six ‘supplementary measures.’

[5] Francisco Ferreira & Carolina Sanchez “A richer array of international poverty lines”  (13 October 2017) World Bank Blogs  <http://blogs.worldbank.org/developmenttalk/>.

[6] M Duncanson, G Oben,  A Wicken, S Morris, M A McGee, and  J Simpson Child Poverty Monitor: Technical Report 2017 (New Zealand Child and Youth Epidemiology Service, Dunedin, 2017) at 15.

[7] Child Poverty Reduction Bill 2018, cl 12.

[8] Child Poverty Reduction Bill 2018, cl 5.

[9] T P McCarthy “Final Report” (Royal Commission to Inquire Into and Report on Social Security, 1972).

[10] M Duncanson, G Oben,  A Wicken, S Morris, M A McGee, and  J Simpson Child Poverty Monitor: Technical Report 2017 (New Zealand Child and Youth Epidemiology Service, Dunedin, 2017) at 8.

[11] Child Poverty Reduction Bill 2018, cl 10.

[12] Child Poverty Reduction Bill 2018, cl 11.

[13] (13 February 2018) 727 NZPD 1697.

[14] Child Poverty Action Group Submission on the Child Poverty Reduction Bill (Auckland, 2018) at 2.

[15] (13 February 2018) 727 NZPD 1715-1716.

[16] Bryan Perry Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2016 (Ministry of Social Development, Wellington, 2017) at 101.

[17] Child Poverty Reduction Bill 2018, Schedule 1, cl 1.

[18] (13 February 2018) 727 NZPD 1699.

[19] Office of the Children’s Commissioner Moving From Child Poverty To Child Wellbeing: Submission on the Child Reduction Bill (Wellington, 2018) at 5.

[20] Bryan Perry Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2014 (Ministry of Social Development, Wellington, 2015) at 78.