It was disappointing to hear National Radio this morning summarise the recent debate over benefit levels as â€˜benefits are not keeping up with the cost of living’. Benefits are keeping up with the cost of living they are adjusted every year to keep them in line with the cost of living (that’s what the Consumer Price Index or â€˜inflation’ is). What benefits are not keeping up with is incomes, because wages are rising faster than the cost of living. In fact, real incomes are up 15% since Labour came to power. Beneficiaries are not worse off, but everyone else is better off.
That’s not an argument against raising benefits though. Benefit levels are shockingly low, $184 a week on the unemployment benefit is simply not enough to support a decent life for yourself, let alone a family, in most of New Zealand. The Government could and should increase benefits to a more decent level, say, the 28% of the average wage they were before the 1991 benefit cuts (they’re 21% now), and should be indexed to the average wage like superannuation is, rather than inflation. That would carry a cost but a relatively small one because so many people have come off benefits under Labour. The cost of the benefit system has fallen 36% under Labour because fewer people are using it, some of those savings should be directed towards remaining beneficiaries.
There is some basis to the idea that benefits can’t be too close to wage levels otherwise they will act as a disincentive to work but there’s a simple solution to that keep raising the minimum wage.