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New Zealand's Long-Term Fiscal Position [June 2006]

9   Other Benefits

The Government currently spends about $7.5 billion in transfer payments and other benefits to New Zealanders.

From the 1846 Destitute Persons Ordinance, which required the near relatives of destitute persons to make provision for their up-keep, to today, New Zealand has developed an elaborate social welfare system. In March 2006, New Zealand had 283,584 people aged 18 to 64 years who were receiving an income-tested benefit.[52] A further 470,000 received New Zealand Superannuation, which is the subject of Chapter 8.

Main types of income support

The current system of social welfare benefits in New Zealand dates, in large measure, from the work of the 1972 Royal Commission on Social Welfare, although core elements do date back to earlier periods.

The current system comprises the following main income-tested benefits:

  • the Unemployment Benefit, for people who are able to work but do not have a job
  • the Domestic Purposes Benefit, paid to parents caring for children without the support of a partner
  • the Sickness Benefit, for those with short-term medical conditions that prevent them from working
  • the Invalid’s Benefit, paid to people with long-term disabilities that prevent them from working.

The number of working-age sickness and invalid beneficiaries has been increasing since the mid-1990s. In March 2006, 120,473 working-age people were receiving a Sickness Benefit or Invalid Benefit, compared with 116,075 in March 2005.

The number of people receiving the Domestic Purposes Benefit has decreased over the last eight years, after peaking at 114,665 in March 1998. In March 2006, figures show that 103,362 working-age clients were Domestic Purposes Benefit recipients.

The Government also operates a system of targeted financial assistance to working people with children, currently under the rubric of the Working for Families scheme.

Modelling welfare spending

Projections of spending on non-superannuation benefits are driven by beneficiary numbers, which are calculated from assumptions about unemployment and other benefit take-up rates, population growth and an indexation regime.

Spending on the Unemployment Benefit is given by the formula:

N = s x I x u,

where

N = numbers receiving Unemployment Benefits,

s = Unemployment Benefit recipients as a share of those seeking employment,

l = labour force, and

u = unemployment rate.

Here s is fixed at the last forecast rate (77.1%). If Et is spending on Unemployment Benefits in year t, then:

Et = Et-1 x (1+n) x (1+i) x (1+b),

where

n = growth of Unemployment Benefit numbers, N,

i = the inflation rate, and

b = real benefit growth.

In line with current policy, b is assumed to be zero, meaning that benefits are indexed only for increases in prices (via the CPI). Hence the growth of the Unemployment Benefit equals the growth of the labour force (as the other factors in the Unemployment Benefit equation are constant) plus inflation.

In the long run, this means that spending as a proportion of GDP steadily falls.

For other benefits such as the Domestic Purposes Benefit,

Et = Et-1 x (1+i) x (1+b) x (1+b),

where

Et = spending on benefits,

i = the inflation rate,

b = real benefit growth, and

c = growth of abenefit proportionsa x age groupsa.

This will tend to grow more slowly than nominal GDP, as the proportions of Domestic Purposes Benefit going to each age group are fixed and the population is ageing (proportionately fewer people require the Domestic Purposes Benefit).

Figure 9.1: Other benefits projections are generally shrinking as a share of GDP.

Source: The Treasury

Notes

  • [52]All figures on beneficiary numbers in this section are from the Ministry of Social Development’s 2006/07 Statement of Intent.
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