Solutions to Child Poverty:Our Initial Proposals

Income and Employment

Jonathan Boston

Co-Chair, Expert Advisory Group

19 September 2012

1. Child poverty rates are particularly high in:– Families with young children and larger families (50% of

children in poverty were in families with 3 or more children)– The families of beneficiaries: the rate is 6-7x higher than for

families where at least one adult is in FT employment (but over a 1/3 of children living in poverty are in families where one adult is in FT employment)

2. About 50% of poor children are in sole parent families; NZ has a high prevalence of sole-parent households

3. There are close to 180,000 children living in households where no adult is in paid work, and a further 64,000 in households with only PT work

The nature of the problem

Proportion of children below selected thresholds (AHC):fixed line (CV) and moving line (REL) approaches compared

(Perry 2012)

0%

10%

20%

30%

40%

50%

60%

1980 85 90 95 00 05 10 2015

HES year

Pro

po

rtio

n o

f ch

ildre

n in

low

-in

com

e H

Hs

Constant value (CV) or 'fixed line' thresholds are based on the BHC median in a reference year. The

current reference year is 2007. Up to 2007, the reference year was 1998.

60% REL

50% REL

60% 98 CV60% 07 CV

Deprivation Rates: 3+ enforced lacks, using 9 item EU index (%)

Children 0-17 Aged 65+ Total Population

New Zealand 18 3 13

UK 15 5 10

Ireland 14 4 11

Germany 13 7 13

Sweden 7 3 6

Netherlands 6 3 6

Spain 9 11 11

Italy 18 14 14

Czech 20 17 20

Proximate causes of child poverty:1.Parental unemployment or under-employment:

– Overall labour market conditions– Mismatches of supply and demand -- relative lack of jobs for those with

limited skills or qualifications– Family break-ups, dysfunction and social hazards

2.Low incomes– Most low-skill jobs are relatively poorly paid

3.Policy design issues– The structure, level and complexity of family assistance– Low take-up rates for some child-related benefits– Child support arrangements– Employment and training policies– Childcare, ECE, OSCAR and related policies

The nature of the problem

1. Acknowledge policy complexity, trade-offs and tensions2. Aim to reduce child poverty rates by 30-40% and severe and

persistent poverty by well over 50%– Implies a need to raise the disposable incomes of many low-income

households by at least $100 per week (or more)

3. Build on current government policy initiatives to enhance employment opportunities, improve the quality of childcare/ECE, encourage beneficiaries into the workforce, set targets, take an investment approach, etc.

4. Draw on the best available international evidence regarding what works

5. Draw on a range of principles and considerations to guide policy development

Income and Employment:The EAG Approach

Principles for policy design

The following principles and considerations should guide policies:1. The rights enunciated in the UN Convention on the Rights of the Child2. The best interests of the child, including the child’s developmental needs3. The provisions and principles of the Treaty of Waitangi4. A ‘social contract’ that recognizes:

The mutual responsibilities of parents, the community and the wider society for the care and wellbeing of children

The requirement to provide social assistance to those unable to work or secure paid employment sufficient to meet the basic needs of children

The importance of parental employment in reducing child poverty, but in a context where the developmental needs of children are protected (e.g. through accessible, affordable, high-quality childcare, ECE, etc.)

The vital role of housing, high-quality education, and equitable access to health care

5. The desirability of a strong future focus, and hence an investment approach6. The desirability of selecting policy measures that are simply, effective,

efficient and fair7. The need for fiscal responsibility

Main Implications

1. Focus on assisting younger children and larger families

2. Encourage and support child-age appropriate employment by parents

3. Acknowledge and address the challenges facing sole-parent families

Specific Proposals:Income and Employment

Short- term proposals:1.Improve tax/welfare system:

Rebalance Family Tax Credits to favour young children and larger familieso Lift all payments to rate of eldest child aged 16+ ($101.98 per week);

implies an increase of about $10 per week for eldest child under 16, and close to $40 per week for additional children under 13

o Subsequently, raise rates incrementally for children aged 0-6

Index all child-related benefits annually Monitor and publish annual take-up rates Establish performance incentives to encourage high take-up rates Appoint a person to the Work and Income Board with child well-

being and development expertise

Specific Proposals:Income and Employment

Short- term proposals:

2. Amend the Child Support Act to require: Pass on a proportion of payments to custodial

parents who receive a sole-parent benefit Government underwriting of payments

oThese changes would benefit over 130,000 children, close to 90,000 of whom live in povertyo$159m was withheld from these children in 2011 by IRD; if all this were passed on, the average per child benefit would be $1,200 per annum or $23 per weekoThe proposed changes would have many other benefits

Specific proposals:Income and Employment

Longer-term policy framework:

1.Focus on children’s developmental needs, tilt assistance to young children, and incentivize paid employment that is appropriate to age of child2.Establish a Child Payment – universal for the first 6 years, targeted thereafter; higher rate during infancy and declining gradually in steps3.Undertake an independent review of all child-related benefits, including In-Work Tax Credit4.EAG doing further work on income support regime for our Final Report

Specific proposals:Income and Employment

Rationale for universal element to the proposed child payment:

1.Need a pragmatic approach to the debate over universality versus targeting; various criteria need consideration2.There is a good case for universal funding under certain conditions3.NZ has universal funding of ECE, compulsory education, aspects of tertiary education, most of health care, old age pension, etc.4.21 of 34 OECD countries have a universal child payment as part of their child assistance policies

Specific proposals:Income and Employment

Rationale for universal element to the proposed child payment:

1.Reduce labour market disincentives (by reducing EMTRs)2.Recognize the wider social benefits of raising children and the high costs of younger children3.Simpler and more transparent, with lower transaction & compliance costs4.Ensure high take-up rates 5.Potentially provide an alternative to more extensive paid parental leave, and would be fairer than current paid parent leave arrangements6.Support a parent to stay at home during infancy (with positive child development impacts)7.Provide a population database (for use by health and social service agencies)8.Provide a symmetry with the universal nature of National Superannuation9.Enhance political commitment for, and long-term stability of, the policy (political economy reasons)

Specific proposals:Income and Employment

Employment policies:

1.Weak case for raising the minimum wage2.Little scope for further reduction in employment regulation3.Job subsidy schemes may have merit, but only under strict conditions4.Need to ensure adequate incentives for paid employment and support for parents of younger children via subsidies, accessible and good quality child care, ECE, OSCAR, holiday programmes etc.5.Need appropriate support for training/up-skilling/tertiary education for parents, especially beneficiaries6.Need to encourage child-friendly workplaces 7.Need strong incentives for welfare agencies to place parents with children into sustainable, child-appropriate forms of employment

Key questions for feedback

We are particularly interested to know your views on:

1.Which proposals will be effective in reducing child poverty?2.Which proposals are less likely to be effective?3.What are the most important proposals to reduce child poverty? (i.e. what should the main priorities be?)4.What needs to be done first and why?5.What is missing from our proposed package of proposals?