sign up log in
Want to go ad-free? Find out how, here.

Debate rages over income inequality and child poverty after MSD issues annual report; Labour wants Insurance Commissioner; Your view?

Debate rages over income inequality and child poverty after MSD issues annual report; Labour wants Insurance Commissioner; Your view?

By Bernard Hickey

With 72 days left until the September 20 election, here's my daily round-up of the political and governmental news from in and around Wellington on Wednesday July 9, including a fresh burst of debate over the issue of income inequality and child poverty after the release of an annual official report on the topic.

The National Government has repeatedly used the report to argue that income inequality is not getting worse in New Zealand, despite claims to the contrary from the Labour/Green Opposition and evidence of widening inequality in America and Europe.

The Ministry of Social Development released  its annual Inequality and Hardship report on household incomes by Bryan Perry late on Tuesday, sparking a fresh round of debate.

The 84 page report is comprehensive and nuanced. The actual findings are not revealed until page 10 of the overview and summary.

Perry found the recent recession reduced incomes for the lower six deciles by 3-5%, but that there was little change for the top four deciles. The gains in the recovery have been more evenly spread, he found.

Perry concluded that income inequality was similar in 2013 to what it was in the mid-1990s, although much higher than it was in the late 1980s.

He also noted the widening gap between New Zealand Superannuation and the main benefits because the universal pension is linked to after tax average wages, rather than inflation.

"While there is no evidence of growing income inequality in the population overall or between high income households and the rest in the last two decades or so, there is evidence here that there is a growing gap between the incomes of those heavily reliant on the safety net provided by main working-age benefits, and the rest," he said.

Labour Deputy Leader David Parker said the report showed the Government was in denial over income inequality and that the Gini figures used in the report did not include the effects of capital gains.

"The Gini data used excludes capital gains on the likes of investment housing, which is also a significant contribution to inequality in this country," Parker said.

“Inequality makes things worse for everyone, creating a dangerously unbalanced economy and slowing wage and jobs growth," he said.

Labour's Childrens' spokeswoman Jacinda Ardern said the report showed the number of children in severe poverty had reached a record high, although the overall number of children in poverty had fallen.

"While there has been a small drop in the number of children in poverty overall, more than half of them  - 135,000 - are considered to be living in severe poverty, their families trying to get by on 40 per cent or less of the median household income," Ardern said.

“This country has never before seen such a high proportion of its children at the severe end of poverty. That is nothing to be proud of," she said.

National welcomes report

Social Development Minister Paula Bennett welcomed the report as proof the Government was reducing child poverty, citing a three percent reduction in child poverty and the report's comment that trendline inequality remained flat.

"In the past year 84,000 more jobs have been added to the New Zealand economy, 8,600 sole parents have come off benefit in the past year and there are nearly 30,000 fewer children in benefit dependent households compared to two years ago," Bennett said.

“Nevertheless the Government recognises more needs to be done to support our most vulnerable families," she said.

Bennett pointed to the Government's moves to help provide free breakfasts in schools, extend the paid parental leavel scheme, extend free doctors' visits to 13 year olds and spending NZ$500 million over four years for services and support for families.

She also pointed to the Government's plan to spend NZ$95.7 million over four years on social housing.

"There’s more financial assistance to help people into private rentals to free up social housing for those who need it most, there’s new funding to grow more social housing in partnership with NGOs, and easier social housing assessment processes with the transfer of responsibility to Work and Income," she said.

Insurance commissioner and EQC rates?

Meanwhile, Labour's EQC spokesman Clayton Cosgrove said a Labour Government would create an Insurance Commissioner's position paid for by a levy on insurers to oversee the industry. Labour also proposed such a commissioner before the 2011 election.

Cosgrove said the Christchurch earthquakes had exposed serious shortfalls in the industry, including lengthy and stressful claims processes.

“The Commissioner’s first task will be to review and make follow-up recommendations on the actions of EQC and the insurance companies in the wake of the earthquakes," Cosgrove said.

“Based on what has been learned from Canterbury, Labour will also move to have EQC levies collected through rates rather than through home insurance, with the levy proportional to the value of the home. This fixes the problem of uninsured properties not being eligible for EQC payouts," he said.

Labour would also increase the current NZ$100,000 cap on EQC payouts, insure EQC payouts cover the costs of temporary accommodation and make EQC pay for work to protect against flood and other geological risks after an earthquake.

Insurers respond

The Insurance Council rejected Labour's proposal for another regulator on top of the Reserve Bank and the Financial Markets Authority, but supported the plan to shift EQC levies from insurance premiums to property rates.

Council Chief Executive Tim Grafton said the Canterbury earthquakes had triggered one of the world's most complex series of insurance claims with few international benchmarks.

“Yes lessons have been learned but insurers have done extraordinarily well in progressing claims given the complexities," Grafton said.

“Progress for insurers has been dependent on multiple organisations and issues beyond insurers’ control, so if there were an independent review we would welcome the cold light of objectivity being shone on every nook and cranny of the recovery because I am confident that we would not be found wanting,” he said.

The Council also called on Labour to also remove the Fire Service Levy from insurance premiums, "as this would address the free-rider problem where people who don’t insure enjoy the benefits of the public good the Fire Service brings."

Grafton also agreed the EQC cap of NZ$100,000 needed to be lifted.

Brownlee responds

EQC Minister Gerry Brownlee said Labour had not done its homework as many of its ideas were already underway.

Brownlee said the Government was already reviewing the Earthquake Commission Act and the Government had been open about potentially increasing the NZ$100,000 cap. It had also made a Temporary Accommodation Allowance available to homeowners once their private cover expired.

"In addition, EQC already recognises increased risk of damage from liquefaction and flooding in Canterbury as a result of the earthquakes. This raises complex legal issues which are being tested via a declaratory judgment in October, though Mr Cosgrove seems blissfully unaware of this fact," Brownlee said.

"A pattern is certainly emerging of Labour being caught napping rather than coming up with new policy. This highlights their lack of understanding of Earthquake Recovery issues and absence of new ideas for Christchurch," he said.

(Updated with reaction to Labour's EQC policy)

I'll keep updating this through the day.

See all my previous election diaries here.

See the index for Interest.co.nz's special election policy comparison pages here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

3 Comments

The idea of EQC payments being attached to rates not insurance is a good proposal. The problem is that insurance doesn't deal with damaged land very well.

 

Insurance is premised on the idea that an insured property, damaged by some insured event can be rebuilt to the same standard on undamaged land. Land by itself cannot be privately insured -it is covered by EQC only, so in our existing insurance system, land owners are only covered once they build on the land and insure the building. It is in this process they get EQC coverage, changing this to rates allows all property owners to get EQC coverage.

 

So the proposal is a good one but it scirts around the bigger problem of how does a society react to abandoning -temporilay or permanently a residential area. Should residents be offered new residential land in exchange to the damaged land? Or be paid out in cash? How does residential zoning (and the payout) cope with a massive increase in demand? Should a buyout or land swap or some combination be voluntary or compulsory? If it is voluntary should existing services be maintained -roads, footpaths 3 waters etc to the land owners who opt not to take the buyout/land swap? If residential land is not serviced can land owners sue the council/government for loss of value due to non delivery of services?

 

In Christchurch the loss of residential land was due to liquidification but if predicted sea level rises occur this century then many cities will be retreating from existing built up areas. What happened in Christchurch should be of interest nationally and globally because this problem will reoccur.

Up
0

Agree.

Also if you are not insured you are not covered, so, yes rates seems logical.

"how does a society react"

Agree on your points to be addressed, pollies (and especially right wing ones) wont however if it looks like a huge potential cost and no vote wins. 

"if predicted sea level rises occur this century"  The problem I have with this is ppl knowingly buy in a risky coastal area so,

a) moral hazard springs to mind (If the Govn bails them out)

b) Problem - scale of the payouts, frankly i think the problem simply wont be economically adressable.

 

regards

 

Up
0

"The Council also called on Labour to also remove the Fire Service Levy from insurance premiums, "as this would address the free-rider problem where people who don’t insure enjoy the benefits of the public good the Fire Service brings.""

Agree, it should be collected with rates IMHO (but the sum seperated out).

regards

Up
0