Setting Targets for Child Poverty

This is the second of two articles by James Adams on the Child Poverty Reduction Bill, which is presently before Parliament. The first article looked at how the Government proposes to measure child poverty, while this article assesses whether the targets to reduce child poverty are appropriate, ambitious and achievable.

In a perfect world, no child would grow up in poverty. However, thousands of New Zealand children live in low income families, a situation which is deeply unfair, for poverty hampers a child’s ability to enjoy the first part of their life, and can have detrimental effects in the long-term. In order to combat this issue, the Government has introduced the Child Poverty Reduction Bill,[1] which is presently at the Select Committee stage. If passed in its current form, this Bill would introduce four official measures of child poverty, require the Government to set targets for reducing the incidence of child poverty, and report of their progress each Budget Day. [2] This article looks at the targets which the Government has already announced; note that they are not strictly part of the Bill, but would be required if the Bill were passed into law, which looks likely.

The Targets

The Bill establishes four official measures of child poverty, although –apparently– data is not currently available for one of them.[3] Therefore, the Government has outlined a goal for each of the remaining three indicators:[4]

Reduce the proportion of children in low income households before housing costs… By 6% By 2020/21
Reduce the proportion of children in low income households after housing costs… By 4% By 2020/21
Reduce the proportion of children in material poverty… By 3% By 2020/21

 

These may not seem to be very large percentages, but they refer to a substantial number of young lives: a one percentage change lifts ten thousand children out of poverty.[5] It would also be correct to say that the first goal is the same as approximately halving the number of children in poverty before housing costs. However, the Government has not provided figures for exactly how many children they currently believe to be impoverished according to each of these three measures.[6] This creates a possibility for the goalposts to be shifted at a later stage, because the Government can use –within reason– whichever baseline suits it the best.

Currently, the Ministry of Social Development (“MSD”) produces a report each year on incomes in New Zealand, with data largely drawn from the previous year’s Household Economic Survey. The 2018 report has not yet been released, but it is likely that the figures from this report will be used to establish a baseline against which these targets can be assessed. In the meantime, the 2017 report is the best estimate of poverty in this country.

This report found that 13% of NZ children live in households whose income is less than half the median, before housing costs are taken into account. This is slightly higher than for New Zealand overall (10%) and above the OECD average (11%).[7] The targeted  reduction would take this rate to 7%, which would be one of the lowest child poverty rates in the world; only Denmark and Finland have rates below 5%, and three other countries (Korea, Norway & Iceland) have child poverty rates around the 7% mark.[8]

The second measure looks at the number of children who live in households whose income is less than half the median, after housing costs. Confusingly, this measure relies on a ‘fixed-median’ which is updated approximately every ten years. This means that the all-important statistic is that 14% of New Zealand children live in income poverty when the poverty line is anchored at the 2007 median.[9] The second target is to reduce this figure to 10%, which would be a substantial change. However, it is almost impossible to compare this sort of statistic with equivalent figures in other countries, as other countries use different base years and have different median incomes.

MSD’s report also contained statistics for the number of children living in material hardship according to the EU-13 criteria. 12% of New Zealand children live in material hardship, of which 6% live in ‘severe’ material poverty.[10] These figures are curious, because the Prime Minister has previous claimed that 13-15% of New Zealand children live in material hardship.[11] She could have been referring to the Child Poverty Monitor’s New Zealand-specific criteria, but their most recent report similarly identifies that 12% of New Zealand children live in material hardship, and 7% in severe poverty.[12] By way of comparison, the EU median for the standard measure is 16%, so if the Government successfully meets its targets, then New Zealand will be marginally better than the European average. This target is therefore less ambitious than the low-income targets –perhaps because it is easier to transfer money to low-income households than it is to ensure that every child has breakfast, a raincoat and a warm bedroom.

Ambitious?

While there remains a lack of clarity around the Government’s targets, the Opposition have alleged on multiple occasions that the Government is insufficiently ambitious. As Paula Bennett argued on the Bill’s First Reading:[13]

… actually, it was the National Party that was more ambitious in the number of children that we could remove out of child poverty. We proved you could do it, by seeing 85,000 fewer children in poverty, and yet all we’ve got so far is bluster, blunder, and the talk of what might happen… The targets are too low.

This calls for an examination of the historical record, which is somewhat complicated by the fact that the previous Government was in power during a international economic downturn, which can hardly be attributed to them. Nor were they entirely responsible for New Zealand’s recovery, for as the global economic situation improved, it was almost inevitable that employment and wages would rise.

Using the first of the Government’s four official measures, there were 135,000 children in poverty in 2008, when National came to power. This climbed to 145,000 in 2013, and has since fallen to 140,000. This could be seen as an improvement of five thousand or a increase of the same amount, but neither are close to Bennett’s claim that eighty-five thousand children were lifted out of poverty.

Using the second measure, there were 180,000 children in poverty in 2008, which rose to 200,000 in 2012. This fell to 155,000 in 2016: at best, an improvement of 45,000.

  Income Poverty BHC Income Poverty BHC Material Poverty
2008 135,000 180,000 220,000
2013 145,000 200,000 175,000
2016 140,000 155,000 135,000

N.B. Years are not evenly spaced

This leaves the third measure, which confirms Bennett’s claim. In 2011, 220,000 children were in material hardship; in 2016, only 135,000 children met this criteria, which is a reduction of 85,000 over five years. The message here is that the child poverty statistics can be used to suit a variety of narratives: it is equally valid to say that the previous Government lifted 85,000 children out of poverty as it is to say that, under their administration, child poverty rose by 30,000.

Using the Opposition’s preferred measure, the Government should aim to reducing material hardship to around 50,000 children by 2020/2021 rather than the current target, which is to reduce it to around 80,000. This would be ambitious, but it may not be achievable. For example, in 2011, New Zealand’s unemployment rate was 2% greater than it is today, and while more employment is commendable, further reductions may not be possible or desirable.[14] After all, Labour have only promised to reduce unemployment to 4%, so getting more parents into work is not likely to pull tens of thousands of children out of poverty by 2021.

Achievable?

On a typical year, Treasury releases a Half Year Economic and Fiscal Update in mid-December. HYEFU, as it is known, is not the sort of event that typically garners very much attention, but 2017 was not a typical year. The Government decided to use HYEFU-day to present a ‘mini-budget.’

Earlier in the year, Finance Minister Steven Joyce had used the traditional Budget Day in May to introduce a series of tax changes, which he called the Family Incomes Package. Seven months later, the new Government had cancelled these tax cuts, and were announcing what they were going to do with the money. The Labour-led Government even borrowed Joyce’s branding by calling their new spending commitments the Families Package. This consisted of a Best Start Payment, which is available to all families who have children born after 1 July this year. There is also the Winter Energy Payment, through which superannuitants and recipients of core benefits get weekly support to help them keep warm and well. Finally, various other benefit schemes are now more generous (notably Working For Families).[15] Although Opposition parties have criticised the changes as transferring money to people who might not need it (wealthy older people, for instance), the overall effect of the changes is that more money is going to the poorer members of society than would have been the case had Joyce’s tax cuts been implemented.

This was confirmed by Treasury modeling, which showed the effect that the two Packages would have on child poverty. This started with the assumption that, if no changes were made, there would be 154,000 children in poverty in 2021. To be consistent with the Government’s targets, the modeling also used one of the soon-to-be official poverty measurements: children were deemed to be poor when their household’s income was less than 50% of the median, before housing costs.[16]

  After Families Package (Lab.) Reduction Reduction (%)
number of children in poverty, 2021 99,000 54,000 35%
  After Family Incomes Package (Nat.) Reduction Reduction (%)[17]
number of children in poverty, 2021 127,000 27,000 17%

These are merely projections, and it is always difficult to accurately estimate household incomes years into the future off fairly small sample sizes. This is why, on a related note, it is good to see that the Government are putting more resources into the Household Economic Survey, as well as several other surveys, to ensure that there is better data available.[18]

Putting aside these qualms, there are two ways for the Government to respond to this data. Firstly, they could rest on their laurels. Within their first one hundred days, they have introduced legislation that reduces child poverty by twice as much as the Opposition were proposing. Moreover, the Families Package costs less than the Family Incomes Package ($5.53 billion over five years compared to $8.36 billion),[19] and it reduces child poverty by more than the 50,000 children that Bill English promised. Come the next election, the Government could simply rely on these talking points.

On the other hand, I hope that the Government takes the alternative approach, which is to look at these figures and worry. The Families Package reduces the number of children living in income poverty before housing costs by 54,000 kids, but to meet their target, they need to do the same for another 16,000. And that is only one of the measures. Come next election, if the Opposition has any sense, they will focus on the material poverty measurements, and there is no guarantee that the Government will have met its target in this area. The 384,000 families who will be better off by an average of $75 a week as a result of these changes will have to spend the extra money on their children, buying breakfast, raincoats and heat-pumps for the Government to meet their target. In short, the Government will need to do more if they wish to meet their targets.

This Government promised to be ‘transformational.’  To this end, they have introduced the Child Poverty Reduction Bill, which is expected to pass later this year. The Bill aims to ensure that everyone is aware how well the Government is doing in its initiatives to reduce the number of children in poverty. Already, the Government has drawn its lines in the sand, for the Prime Minister has told the nation how many children will be lifted out of poverty by 2021. These targets are achievable. The Families Package, which was introduced within the Government’s first 100 days in office, has already laid the groundwork. But more work will need to be done, especially to ensure that providing more money to families actual results in better outcomes for young people.

It is debatable whether the targets are ambitious enough, however. The Opposition will say that they would have done better, and advocates for children in poverty will say there is always more to be done. After all, any child whose life is blighted by poverty is one too many. But this Government is on track to improve the lives of 54,000 children, and it is well within their reach to make a similar difference to 16,000 more. If that’s not transformational, I don’t know what is.

The views expressed in the posts and comments of this blog do not necessarily reflect those of the Equal Justice Project. They should be understood as the personal opinions of the author. No information on this blog will be understood as official. The Equal Justice Project makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The Equal Justice Project will not be liable for any errors or omissions in this information nor for the availability of this information.

 Featured image source: https://www.huffingtonpost.com/marian-wright-edelman/helping-children-in-hidde_b_5813232.html

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

[2] See previous article in this series: Measuring Child Poverty

[3] Child Poverty Reduction Bill: Approval for Introduction (Department of Prime Minister and Cabinet, Cabinet Paper, proactively released March 2018).

[4] Jacinda Ardern “New targets begin historic path to poverty reduction” Beehive website

<https://www.beehive.govt.nz/>.

[5] Beehive, above n 4.

[6] In comments to the media, the Prime Minister did mention some approximate baseline figures, which are discussed in later in this article.

[7] Bryan Perry Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2016 (Ministry of Social Development, Wellington, 2017) at 154.

[8] “Poverty Rate” (2018, OECD Data) <https://data.oecd.org/inequality/poverty-rate.html>.

[9] 19% of New Zealand children are impoverished using a ‘moving line’ approach – see Perry, n 8 at 156.

[10] Perry, above n 8 at 157.

[11] Tracey Watkins “Government sets targets for reducing child poverty” (31 January 2018) Stuff.co.nz

<https://www.stuff.co.nz/>.

[12] 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).

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

[14] There are various reasons for this claim. One is that some ‘frictional’ unemployment is to be expected – people who are between jobs. Another is that, when the unemployment rate is low, the people who are unemployed tend to be harder to employ. A third is that very low unemployment may cause inflation.

[15] Grant Robertson The Families Package (Information Release, 14 December 2017)

<https://treasury.govt.nz/publications/information-release/families-package-december-2017>.

[16] The Treasury Corrected child poverty projections for the Families Package (TR2018/395)

<https://treasury.govt.nz/publications/media-statement/treasury-corrects-coding-error-child-poverty-projections>.

[17] Note that this is a reduction in the absolute figure, and these percentages should not be confused with the percentage reductions that constitute the targets.

[18] James Shaw “Biggest ever poverty survey gets underway” Beehive website

<https://www.beehive.govt.nz/>.

[19] Robertson, above n 15.