Opinion: Smart moves in Budget 2023 but no transformation for poorer families

By Max Rashbrooke*

Opinion - It is, as has often been observed, very expensive to be poor. It is expensive for the country: the cost of wasted talent and worse health is immense. But it is also expensive for the families themselves: they often face higher prices than others do, because - for instance - they cannot afford to buy in bulk. And even small, basic costs take a big chunk out of their budgets. Low income, high costs.

Whereas Labour's previous capital-B Budgets have focused on the first part of that equation, increasing benefits and Working for Families payments by billions of dollars, the Budget announced on Thursday emphasises the second part. All its meaningful initiatives are about bringing down the costs faced by poorer - and middle-income - families.

Front and centre is the extension of 20 hours free early childhood education (ECE) to cover two year olds, in addition to the three to five-year-olds already covered. (Although many parents will question whether the existing deal really constitutes 'free' care.) Saving families up to $130 a week from next year onwards, this initiative will cost the government $1.2 billion over four years, and will make the biggest difference to those on the lowest incomes.

Even more relevant to struggling families is the removal of the $5 prescription fee, which health researchers have shown is a major barrier to care for families where every cent is already budgeted. Social media users have been sharing their joy at the removal of a fee that served little apparent purpose, and which the government estimates led to 130,000 or so people a year not picking up medicines they needed.

Such moves, though costly (about $619 million over four years), should be seen as investments in our future wellbeing: If they lead to more people getting the treatment they need, the country - and our public finances - will benefit in the long run. Free public transport for the under-13s, and action to reduce home heating bills through insulation, both fall into the same category.

All this makes sense, and is hardly radical. Indeed by helping families access services, these policies could be seen as less left-wing than giving them cash in the hand, which conservatives can claim (mostly unjustly) is "wasted" on luxuries.

Read more on Budget 2023:

• Keep up with RNZ's full coverage of the 2023 Budget
• Budget 2023 at a glance: What you need to know
• Free public transport for children under 12 among climate highlights
• Cost-of-living Budget centres on cheaper childcare
• Govt to remove funded prescription cost and aims to cut surgery waitlists

The big problem for Labour is that, with no further action to directly boost family incomes, it risks falling further and further behind on its mission to slash poverty. It has, admittedly, poured something like $14b into the welfare system, and is seeing the results: Material poverty, as measured by the number of households with children saying they cannot afford basic things, has fallen from 13 percent of the population in 2018 to 10 percent last year, despite the pandemic.

But under Labour's self-imposed targets, that rate needs to fall to 6 percent by 2028. Overall, according to Budget projections, the government will miss some of its targets by a country mile.

To get back on track, it would need to not just keep pumping money into the benefit system - at least another $1b a year - but also further lift wages for the lowest-paid workers, turbo-charge social house building, and do something about poorer families' appalling debt levels. It could also go beyond free prescriptions and create a fully free healthcare system - though that would cost about $3b a year. For all its rhetoric, this is an incrementalist not a transformational government.

On the wages front, much hinges on Fair Pay Agreements, but the government has been so slow to get them going that, at best, it appears only one might be signed before the election. On social housing, the Budget promises another 3000. But Gareth Kiernan, of economics consultancy Infometrics, estimates we need another 38,000 state houses if we are to restore the proportion of the total housing stock - 5.3 percent - that state houses made up in 1991. The government's ambitions are out by a factor of 10.

Of course, there are not enough builders in the country to erect 38,000 state houses in short order, owing to this country's extraordinary failure to do anything resembling long-term workforce planning or properly value vocational education.

But it is also not clear where the government would find the money even if it did have more tradies on hand. While it is raising more in taxes than National did, its spending is trending down to the long-term New Zealand average of 30 percent of GDP, and much of the spending increases to date are simply about making up for previous under-funding, raising New Zealand Super in line with wages, and dealing with inflationary cost pressures.

The only notable revenue-raising measure in the Budget is the raising of the tax rate for trustees taking income from trusts, currently 33 percent, to 39 percent, in line with the rate on other income. As people were dodging the 39 percent rate by funnelling income through trusts. Although that is useful, it is hardly enough to fund a meaningful anti-poverty drive.

*Max Rashbrooke is a senior associate of the Institute for Governance and Policy Studies at Victoria University of Wellington.