Welfare Reform in New Zealand

Moving to a Work-based Welfare System

David Knutson is a Senior Research Analyst in the Washington State House of Representatives. "My fellowship focused on the direction of welfare reform in New Zealand, comparing their approach with recent welfare-to-work initiatives in the United States. My work at the Social Policy Agency in Wellington allowed me to observe the interplay between New Zealand's government and Parliament, and to explore how another nation addresses issues related to poverty and welfare dependence. It was interesting to witness the New Zealand government's ability to radically change national policies and programs overnight. The processes for changing public policy were very different from what I had observed in the United States. The New Zealand government introduced and passed welfare reform through Parliament in a single day with little opportunity for public input into the process. In addition, the weakness of New Zealand's economy at the time and lack of available jobs provided a glimpse of how difficult it would be to operate a welfare-to-work approach in the United States in the event of an economic slowdown. Before returning to the United States, I had the great opportunity to discuss my findings with Prime Minister Jenny Shipley, several Cabinet Ministers, and members of Parliament. Since my return, I have presented the results of my work to members of the Children and Family Services Committee of the Washington State House of Representatives, Governor Gary Locke, and other parties interested in welfare reform. The ability to engage in a policy debate on both sides of the Pacific and witness how differently another country grapples with similar issues has the potential to benefit both New Zealand and the United States and has thoroughly enriched my career as a policymaker. I highly recommend it to anyone interested in an international perspective on public policy."

Executive summary

Beginning with the passage of the Old Age Pension in 1898, New Zealand has developed an international reputation for progressive social policy. The Social Security Act of 1938 was the policy framework for a comprehensive, modern welfare state that provided social security and protection for generations of New Zealanders. The ability to afford a comprehensive set of social and health services was assured by the Government's active role in the nations economy. An extensive set of tariffs, import licenses, and subsidies for domestic industries and producers provided full employment for generations of New Zealanders and ensured that New Zealanders who were unable to work because of infirmity or circumstance were provided for through the welfare state.

Prior to the passage of the Domestic Purposes Benefit in 1973, widows and sole mothers who worked were provided financial assistance by the Government to supplement their wages and support their families. With the passage of the DPB, the Government set the benefit level sufficiently high that sole mothers were able to stay home to care for their children without engaging in paid employment. This was consistent with the recommendations of the 1972 Royal Commission on Social Security, that DPB beneficiaries should have a benefit sufficient to enable them to "belong and participate" as full members of society.

The economic formula of full employment and a comprehensive welfare state began to unravel in the 1970s as New Zealand lost its economic market for exports to the United Kingdom when Britain joined the European Economic Union. The actions of the Organization of Petroleum Exporting Countries to reduce oil production and increase the cost of petroleum also caused a significant impact on New Zealand's economy. Massive overseas borrowing to finance new energy projects and maintain domestic spending on a comprehensive welfare state compounded the financial difficulties facing New Zealand.

In the economic reforms undertaken by the Government beginning in 1984, New Zealand has seen a virtual transformation of its economy. To address the changing international economic situation, New Zealand went from a protected, state-directed economy to a transparent, free-market approach with an extremely limited role for the Government.

Slow economic and job growth and demographic changes, including a significant increase in sole parents and teenage parents, caused caseloads for unemployment and the DPB to grow steadily through the 1980s and into the early 1990s. With the economy experiencing little or no growth for much of this period, the extensive services and benefits available through the welfare state became more and more difficult to maintain.

To reverse the trend toward higher DPB caseloads, the Government's 1998 welfare reforms require beneficiaries with children over age fourteen to look for full time work. Beneficiaries with children between seven and fourteen are required to look for part-time work, and those with children younger than seven will be required to attend an annual planning meeting to discuss their prospects for future employment.

The Government also will require certain DPB beneficiaries to take part in the Community Wage, a workfare program that requires beneficiaries to engage in unpaid community activities in exchange for their income assistance check.

The Government's 1998 welfare reform proposals have been considered by Parliament during a period of serious economic uncertainty and political instability. The substance of the reforms, particularly the Community Wage, and the process used to implement them has generated questions about the ability of the Government's welfare reform scheme to move beneficiaries currently receiving assistance through the Domestic Purposes Benefit from welfare to work.

Table of contents

Figures and tables
Preface

Executive summary

Introduction

Welfare in New Zealand

The early development of the welfare state
State provision of benefits to the poor
The Oldage Act, 1898
The Widows Pension Act, 1911
The Miners Phthisis Act, 1915
Pensions for the Blind, 1924
The Family Allowance Act, 1926
The Social Security Act, 1938
The Domestic Purposes Benefit, 1973

Economic reforms of the 1980s and 90s

Background to the economic reforms
Summary of the economic reforms

Labour market policy and the welfare state

Full employment and the welfare state
Employment for New Zealand parents
Parents' education and employment levels
Domestic Purposes Benefit and work incentives
Employment rates for single mothers
Work incentives for single mothers
Why are so few single mothers working?

Trends and characteristics of New Zealand's welfare caseload

Caseload growth trends
Factors affecting caseload growth
Length of stay on the benefit
Age of DPB beneficiaries

The call for "welfare reform" in New Zealand

What is the problem?
Policy development in New Zealand
The 1991 budget
The 1996 coalition government
1998 government welfare reform plan

Welfare reform lessons from the United States

The Personal Responsibility and Work Opportunity Act of 1996
Work First programs
Work First program goals and related program features
Work for the dole experience in the United States

The prospects for welfare reform

The economic context
The political context

Conclusion

Acknowledgements
Bibliography

Figures and tables

Figure 1: Unemployment Benefit Caseload Over Time
Figure 2: Proportion of Parents Employed 1976 to 1996
Table 1: Highest Educational Level of Single Mothers by Labour Force Status 1996
Figure 3: Real Net Benefit Rates for a Sole Parent on Benefit 1950 to 1997
Table 2: Employment Rates Among Mothers in Industrialized Countries
Figure 4: Ratio of Income Exemption to the Benefit Rate for a Sole Parent 1950 to 1997
Figure 5: Unemployment and Domestic Purposes Benefit Caseloads Over Time
Figure 6: Real Net Benefit Rates and Real Minimum Wages Since 1981
Table 3: 1 April 1991 Benefit Reductions to Selected Programs
Table 4: Selected Characteristics of Five Work First States
Table 5: Sample Work First Goals and Program Components

Welfare Reform in New Zealand:

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