John Key is wrong on Green plan to end child poverty

On Wednesday Green Co-Leader Metiria Turei launched the Green Party’s plan to bring 100,000 children out of poverty within three years:

1. Make Working for Families work for every low-income family

Children have the same needs, whether their parents are in paid work or not. Working for Families helps low-income families make ends meet, but it doesn’t provide the same help to kids whose parents receive a benefit. We’d extend Working for Families to provide an extra $60 per week for 140,000 of the poorest households in New Zealand.

2. Provide better study support for sole parents and beneficiaries

Kids do better when their parents have access to education. There used to be support for sole parents to study at university, and it worked: parents moved off the benefit six months earlier and went into higher paying jobs. We’d reinstate and extend this support to help 10,000 people get a higher education and take better care of their kids.

3. Raise the minimum wage to help working parents

275,000 people work for minimum wage, and many of them take care of dependent children. It’s almost impossible to make ends meet on such low wages. We’d raise the minimum wage to $15 immediately to help working parents provide the basics for their kids. This is worth about $60 more per week for someone working full time on the minimum wage.

4. Make sure rental properties are warm and healthy for kids

375,000 kids live in cold, damp houses which make them sick. Most of these houses are rental properties. We’d create minimum performance standards for rental properties which would ensure warm, healthy, homes for thousands of children.

John Key poured cold water on the Greens’ Working for Families and minimum wage proposals:

“The way the system was designed by Michael Cullen under the previous Labour Government was … to ensure there was a real incentive to work. We wouldn’t want to undercut that.” He also indicated any swift move to a $15 an hour minimum wage was unlikely because it could threaten jobs.

Key is wrong on both counts.

Someone working 40 hours a week on the minimum wage at tax code M would have a take-home pay of $501.61 under the Greens’ proposal.  Compare that with the couple rate of unemployment benefit ($335.66) or single parent rate of DPB ($330.70) and it’s easy to see that the minimum wage increase alone provides a considerable financial advantage in moving off benefit into employment.  Even given the additional $60 a week that beneficiary families would receive from WFF under the Greens’ package, they would be more than $100 a week better off if they were to move into employment.

The financial incentive to move off benefit into work is actually stronger under the Greens’ proposal than under National’s (and Labour’s) current discriminatory WFF approach which provides the least assistance to the children who most need it.  The difference is that the Greens provide the incentive by increasing wages at the lower end of the scale, rather than by providing a lower level of support to children of beneficiaries.

Key is on no stronger ground when he says increasing the minimum wage could cost jobs.  The majority of minimum wage workers work for large corporations – mainly in the hospitality, fast food and retail industries.  Studies such as this one show that large corporations do not respond to increases in the minimum wage by slashing jobs.  Their more likely response will be to improve productivity (which to some extent flows from a better paid workforce anyway) and/or to increase prices slightly.

Few small and medium sized employers hire minimum wage workers.  However, the Greens acknowledge that a significant increase in the minimum wage may have adverse employment effects on employment levels in such businesses that do.  For that reason, the Greens’ proposal includes a $20 million a year targeted subsidy to assist SMEs through the transition.   John Key seems to have conveniently ignored that.

24 thoughts on “John Key is wrong on Green plan to end child poverty

  1. All these payments and comparisons are becoming more and more of a mess aren’t they?

    Gareth Morgan’s proposal of a simple universal basic income makes a lot more sense to me. And is dignified. With it we can move away from this WFF and multiple benefit shambles — and sorry, but “extending working for families to beneficiaries” is an awful campaign slogan to have bandied about during the election campaign.

  2. Russel says “Even given the additional $60 a week that beneficiary families would receive from WFF under the Greens’ package, they would be more than $100 a week better off if they were to move into employment.”

    So for five days work they get $100 – that’s $20 per day, or $2.50 per hour (out of $15, or 85% effective tax rate), for doing a full 40 hour week.

    Take off expenses of getting to work, clothing etc, and there’s not a lot of point in working.

    That’s a big incentive to stay at home on a benefit.

  3. decanker, you are right that a universal basic income would be much simpler, and Green policy supports moving in that direction. However, it is not a practical solution because it is not something we would have any chance of getting a confidence and supply partner agreeing to implement within a three year timeframe.

    photonz1, I’ve just done some work on the figures. Under the current regime a 2 parent family with one parent working on the minimum wage is $161.58 a week better off than if they were on unemployment benefit. Under the Green proposal they would be $165.95 better off than if on the unemployment benefit. So the level of financial incentive is pretty much the same.

  4. I applaud the greens for targetting support for those families at the lower end of the wealth ladder.. as opposed to giving tax cuts to the richest (Nats).
    When I hear MPs & members of BRT etc. saying “$15/hr is not workable or will cause job cuts etc.” I just wonder how long since they earned or tried to thrive/survive on $13/hr ? Maybe they should take a good hard look in their BMW rear vision mirror & see ‘a bit of reality’ ! Kia-ora

  5. “So for five days work they get $100 – that’s $20 per day, or $2.50 per hour (out of $15, or 85% effective tax rate), for doing a full 40 hour week. Take off expenses of getting to work, clothing etc, and there’s not a lot of point in working.”

    …which is a damn good argument for raising the minimum wage.

  6. Sam says “…which is a damn good argument for raising the minimum wage.”

    I agree. But if you jump it up but 15% in one go you’ll cuase job loses and slow job growth.

    Russel says “The majority of minimum wage workers work for large corporations..”

    Is there any proof of this, or is it an empty claim? When I look around, I see minimum wage workers mainly at small and medium businesses (95% of NZ business is small or medium)

    All the local shops have minimum wage shop assistants, same with cleaning companies, petrol stations, restaurants, cafes, retirement homes, moving companies, labourers for forestry companies and builders, and furniture removals and grass cutting companies, and takaways – even MacDonalds are small privately owned franchises.

    Our largest corporations – Telecom, Fletchers, Contact Energy etc – don’t employ many minimum wage people.

  7. So what happens to those already on $15 an hour when the minimum wage rises, presumably they will want a pay rise too? Where is this money going to come from? Probably higher prices… Which means your $15 isn’t worth $15 anymore and we’re right back to square one.

  8. So Hemi.
    What is driving the 25% rise in basic food prices this year in Northland. Obviously not wage rises.

    We are continually told that it is international prices that set the price we pay for produce.
    If that is the case why should wage rises have any effect. When prices are already increasing many times faster than wages.

  9. @photonz1 5:52 PM

    Our largest corporations – Telecom, Fletchers, Contact Energy etc – don’t employ many minimum wage people.

    Yep, but Burger King, Micky D’s do, and KFC doesn’t do much better. The minimum wage is also paid by Progressive Enterprises and Foodfuffs (ie all the supermarkets), and most places you may drop into for an after-work drink if you are that way inclined.

    As for your franchise argument about Micky D’s, you are right, but wrong. Sure, the franchisees can pay better wages, but if they do they could well be cut loose by the franchise-holders. So they don’t, and pay still their workers $13 an hour.

  10. toad says “..but if they do they could well be cut loose by the franchise-holders…”

    So do you have any evidence that if the local McDonalds owners pay $14 /hr instead of $13, they’ll lose their franchise…..or did you completely make that up?

  11. Kerry says “What is driving the 25% rise in basic food prices this year in Northland.”

    Have you ever asked why Northland prices have gone up over ten times more than the rest of the country – 25% this year when the Food CPI for all of NZ for the first half of 2011 is only 2%.

    (is your figure is correct – where did you get it from?)

  12. My own grocery bill for one.

    The local radio station have been doing the same thing for some time now also.

    We have been buying pretty much the same items from the same places for the last 14 years.

    The Saturday market and the bulk barn as well as the supermarket.

    If you think the price of standard food items in New Zealand have only risen 2% this year then you must be living in a different country from the rest of us. Mind you I have always suspected the right wing inhabit a parallel universe.

    Northland produce prices tend to be higher because of a the shortage of good soil here for market gardening.
    Cheaper veges mean paying $70 in gas to go to the market stalls in North Auckland.

  13. There are 49,000 fewer jobs today than 2008, Key has been advised there might be up to 5000 jobs at risk if the minimum wage was at $15. The irony is that new fast food franchises are still arriving in New Zealand (and paying minimum wage) – and the existing ones were able to continue to operate every time the minimum wage was increased (from $9 to $12 in 3 years 2005-2008). There is no evidence of cleaners being laid off (and hiring of carers is increasing as more people get old) with wage increases and the only risk is apparently supermarkets reducing hours or using self-serve tech (but the take-up rate does not encourage them to take this too far).

    Greens should emphasise the policy on rental upgrade AND add food in schools to this list and the minimum wage increase as they impact favourably on all those on low incomes.

    As for beneficiaries, propose restoring the TIA and access to course costs to part-time students on benefits and look at ways to improve emergency support to those in need (sustain and enhance the food in school programme and then add other ways to get direct support to children) that do not provoke from the public excuses about the undeserving who neglect children etc, then focus on after school care/holiday school programmes (another way of providing opportunities to disdadvantaged children) that also enables parents to be available for work.

  14. A minimum wage is self defeating. Why not set the minimum wage at 40 or 100 $ an hour, if your claims are correct we all will be rich but of course it’s all bullshit.Following your faulty logic I will tell Fonterra that I now want $10 a milksolid to cover my costs. Do you think this will work? Get with reality. I can’t get what I want for my produce, why the hell do you think you can pull a figure out of the air and expect that some miracle will produce the income to meet that figure. I respect what you are trying to do but you fail to see reality. I would go further and say a minimum wage actually holds wages down as it sets a level where those that would seek to screw the down trodden only have to pay to a certain level. And I know what your reply will be to that. All I can say, every time the minimum wage has been lifted has the plight of the poor been improved, I would say no, as costs go up straight away to take this rise away, back to square one again.

  15. What a load of bollocks.
    If you apply the same reductio the other way then we will all become rich if the minimum wage is zero.
    The wages should be set at a level that gives reasonable living to workers. Otherwise the rest of the economy is subsidising employers whose business should fail. They are wasting resources that could be used by one who pays decent wages.

  16. The fact is bob, every time the minimum wage has been increased it impacts on more and more workers paid above the minimum wage – this places upwards pressure on the wages of these workers. These are jobs where the employer seeks to obtain a higher quality of worker by offering more than the minimum wage. The wage levels here have been depressed by the collapse of collective agreements.

    And wage increases reduce the cost of WFF (and the accommodation supplement) and thus will ease pressure on the government budget improving our fiscal position.

    While there is some inflationary impact this is much less than the minimum wage increase, so in that sense there is a reduction in poverty for the low waged at the cost of a slight increase in costs for higher paid workers or businesses (should they absorb the cost increase).

  17. Bob

    It is simple, and observable in the real world. The best places on the planet, the best economies and the best conditions for the bulk of their people, are the ones that balance capitalism and socialism and don’t GO to extremes the way you just did.

    BJ

  18. If the wages go up the capitalists have a choice (1) to carry that wage increase or (2) add the wage increase onto the price their product.

    They nearly always adopt option 2 when they could very well carry that very small expense, BUT that is often undermined by the demand of the shareholders profits.

    If the basic wage is totally eliminated, then how near to zero would an employer want to pay? That seems to be a recipe for wage slavery!!!

    Also compare the increase in the basic wage for the last ten years to the salary increase of our dentists!

    No it’s not much of an incentive to work you should all stay in bed!!!

  19. The argument that poor people shouldn’t be paid more because it just causes inflation and reduces the number of jobs, and they end up no better off, surely applies to rich people too.

    Shouldn’t we then have a maximum wage to ensure that high wages don’t increase, which reduces the number of highly-paid people companies can hire, and forces up inflation?

    Or is it only poor people who have to suffer for the collective good?

  20. @Sam.. The fact that very rich people have had a 20% increase in wealth, and top wage earners had a 14% increase, has nothing to do with inflation.

    It is only inflationary when ordinary wage earners and beneficiaries get a rise.

    Only middle class and below have to tighten their belts.

    Can’t possibly cut the income of those who spend it in Hawaii, instead of here.

  21. Research shows, as a general rule, that the greater the gap in wages between ordinary workers in a company and management the worse the company does.

    Germany and Japan seem to be able to get competent management with 1/11 the of the difference between top managers and the lowest paid workers we have here.

  22. Yes. Must be a very talented and brilliant man to be worth that much to society.

    The Philipines must be doing well also. Average wage $10 day.
    I am amazed that they want to come here from such a successful economy.

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