A few weeks ago, the New Zealand Herald carried the story of a family of four having only $81.30 per week to pay for food after covering the cost of rent, power, phone, petrol, insurance, etc., and described the family’s plight as typical of many families in west Auckland. There is no way that a family of four can have a nutritious diet on $81 a week, and the story attracted a lot of donations to help ease the situation. What on earth has gone wrong?
When you look at the family’s budget, it is not easy to see what savings might be made on the spending side:
| Rent | $460.00 |
|---|---|
| Power/water | $80.00 |
| Phone/internet | $32.50 |
| Petrol | $100.00 |
| Car loan/expenses | $115.00 |
| Insurance | $85.00 |
| School | $15.00 |
| Total | $887.50 |
Yes, the weekly petrol bill looks a bit high, and perhaps it might have been better to save up to buy a second-hand car for cash rather than taking out a loan, but small savings on those accounts wouldn’t make a big dent on that budget.
What about the income side of the equation?
| Wages | $341.27 |
|---|---|
| Working for Families | $221.00 |
| Accomodation Supplement | $122.00 |
| Child support | $284.53 |
| Total | $968.80 |
To me, this is where the major problem lies. The solo mother in this example (she has three children) is earning a very modest income – if she is earning the minimum wage, she is working no more than about 20 hours per week. The father of the three children, far from covering the cost of bringing up his children, is contributing just $284.53 per week – possibly all he can afford to pay if he is in another relationship and has other children.
Other taxpayers are contributing substantially more than either parent to the weekly costs of this family – direct cash contributions totaling $343 per week through Working for Families and the Accommodation Supplement and the very substantial additional “non-cash” contributions through the provision of free or highly subsidized healthcare and education for the three children. Indeed, other taxpayers are probably contributing more than the two parents combined to support this family.
So what is to be done? Who is responsible for this very difficult situation? Although it is politically incorrect to say so, the primary responsibility for the family’s situation must rest with the parents of the children. They chose to have three children despite having pretty basic income-earning ability, and chose to separate. And if the Herald account of the family’s situation tells the whole story, they chose to have three children despite not having parents able to provide some support or back-up, either financially or by means of childcare. I confess I get tired of awful stories of “families” in dire financial circumstances when their predicament is very often the direct result of totally irresponsible decisions. (I put the word “families” in quotation marks because most often the stories involve not mum and dad and a few kids, but a solo mother with no stable dad within miles.)
But what about the government’s responsibility? On the positive side, other taxpayers are providing very substantial direct and indirect financial support, as I’ve noted – almost certainly more than that provided by both parents combined. In addition, inflation measured by the Consumer Price Index is currently running at a very low level – about the same rate at which wages generally are rising, and at a slower rate than recent increases in the minimum wage. Over the 12 months to June, food prices didn’t increase at all on average, and nor did prices in the health sector, while prices in what the Department of Statistics refers to as the Transport Group, the Communication Group, and the Recreation and culture Group actually fell on average over the 12 months. That will have been helpful.
I want to put some blame on government for creating a policy environment where real incomes are growing very slowly, and have been for many years. When this National Government came to office in 2008, they pledged to reduce the gap between real incomes in New Zealand and those in Australia, where incomes are about one-third higher than they are in New Zealand. Alas, the gap has barely changed over the last eight years – Aussie incomes remain, in real terms, about one-third higher than those in New Zealand. There is no single government policy to blame for this situation, but rather a multitude of policies, of which the Resource Management Act is my favourite bugbear.
I want to put a large part of the blame for the financial plight of many New Zealand families on local government planning rules – especially, but not exclusively, in Auckland. As I argued in my article last month, house prices in Auckland have now reached the utterly ridiculous level, and rents have been dragged up with them. If the family of four were paying $260 rent per week, rather than $460, their situation would be vastly better. There are plenty of cities in the US where homes can be bought for US$180,000, let’s say NZ$250,000. If a landlord was looking to make a gross yield from rent of, say, 5%, that would mean a weekly rental of roughly $240 per week.
As we approach local government elections, ask every candidate how they’re proposing to fix this situation. If they say “build more affordable houses”, they get a fail mark. If they say “build more apartments”, they get a fail mark – apartments cost much more to build, on a per square metre basis, than stand-alone houses. Only if they say they’re going to remove the Rural Urban Boundary so that the price of residential land falls sharply do they deserve your vote. Until homes become very much cheaper than they are now, we’re going to see more and more families living in very difficult financial circumstances – and more and more people reaching retirement without owning a home, with not the faintest prospect of living on New Zealand Superannuation.
Copyright © 2024 Don Brash.