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Progressives have been hoping that Jacinda Ardern would address a worsening crisis in inequality and poverty, especially because a housing crisis and pandemic have been making life a misery for those at the bottom of society. On Thursday her government delivered a significant answer to this, with a big increase in the budget for welfare benefit rates.
According to the finance minister Grant Robertson, after the new programme of increases is rolled out, the main benefit rates will be between $32 and $55 per adult higher. This, together with increases of $25 a week in student allowances, involves a substantial budget increase of nearly $1bn a year.
This change comes on top of some earlier increases to benefits – they were raised by $25 by the National government in 2015 and again last year by the same amount by Labour under the justification of the Covid crisis. But generally, benefits are viewed by poverty advocates and an increasing proportion of the public, as being far too low.
The idea of an “inequality crisis” has started to take hold amongst the wider public, and the notion has only accelerated as another crisis – that of housing affordability – has affected the poor the most.
Labour came to power in 2017 promising to fix these problems, but the past four years have disappointed progressives. In fact, according to some, inequality has actually worsened considerably under Ardern. The commentator Bernard Hickey estimates that since Covid hit, government actions have enriched the wealthy by about $400bn, producing a K-shaped economic recovery.
The result is that Labour’s own support base has started to lose faith and patience. The demands for government to increase welfare payments significantly have therefore taken off. This is in part because the government’s own welfare expert advisory group recommended large increases. This has resonated with the public – an opinion poll published on Wednesday asked, “Should the government follow the recommendation to raise the unemployment benefit?”, with about 55% in favour, and only 35% against.
The budget’s benefit boost is likely to be popular. Even conservatives are starting to see the advantages of fixing poverty, and so there’s unlikely to be much backlash. In fact, Robertson is very keen to sell their newfound generosity as being underpinned not just by a progressive morality – he said today it’s about “doing the right thing” – but also because of the advantageous fiscal stimulus effect from beneficiaries spending more money in their communities.
Robertson is also selling the benefit boost as a historic “righting of wrongs” – pointing to the fact that it’s now 30 years since a National government slashed benefit rates in Ruth Richardson’s self-named “mother of all budgets”. He argues that his government is finally returning welfare rates to the levels prior to those cruel cuts. It’s a powerful narrative about a “transformative change” by a truly leftwing government.
Some on the left might well ask why Labour hasn’t done this before now – especially since they’ve been in power for 12 of the past 30 years, since the savage cuts were made. Furthermore, although the newly elevated benefit levels have returned to the equivalent 1990 levels, beneficiaries are essentially denied the decent increases that would have occurred if they had also been annually indexed to wage increases over the past 30 years.
By comparison, the superannuation retirement payments have been indexed in this way, and the total spent on them in this budget alone has increased by much more than the benefit rise – by about $1bn.
As a result of Thursday’s benefit boost, the government is forecasting that child poverty rates will drop by a few percentage points over the next couple of years, but are likely to just plateau after that unless further action is taken. Based on the government’s own forecasts, it appears that it would take another six years of similar measures announced on Thursday to in order to get rid of all child poverty.
Nonetheless, progressives will largely be buoyed by Labour’s big benefit boost. Poverty advocates will celebrate the impact that they’ve had in lobbying for such a significant change. Many will be thankful that this government is finally acting in a truly progressive way. However, critics will take the alternative lesson that the rising anger and concern about inequality and poverty was eventually just too great for Labour to ignore.