Legal Beagle by Graeme Edgeler


The inflation adjustment of benefits; or a bill for Keith

A little while back on Twitter, I got sucked into a thread on inflation. Someone argued that the general consumer price index was a poor estimate of the effect of inflation on lower income households. Several of us argued back and forth, until someone new chimed in and pointed out that Statistics New Zealand now publishes a range of measures of increase in the cost of living, for different households.

And at least in recent years, the effects of inflation are greater on those who are in the lowest-spending households and households with beneficiaries (their annual inflation was 1.4%, while the annual inflation of the highest-spending households was 0.6%).

The recent numbers, pointed out to me by Keith Ng last week got me thinking about benefit levels. Every year, benefit levels are automatically increased by inflation, but the inflation measure used is overall inflation, not the inflation actually experienced by households with beneficiaries.

We inflation-index benefits because they're supposed to be set at a minimum level to ensure people can continue living, and if we didn't increase benefit levels with inflation, they would fall below the level where people could survive.

Whether they are set at the right level is debateable, but thanks to Statistics New Zealand's new range of inflation indexes, we know that we haven't quite got the details right. The inflation experiences by households with beneficiaries is slowly undermining the buying power of benefits.

Indexing benefits to overall inflation made sense when we didn't have research showing the actual inflation rate for beneficiary households. Now that we know what this is, we should clearly update our laws in light of this new information.

To help see if that can happen, I have drafted a bill to amend the bits on Social Security Act that relate to the inflation adjustment of benefits. It's neutral, so that, if in future, beneficiary households experience lower than average inflation, benefits will increase by less than overall inflation, but it provides for benefit rates (and certain asset thresholds) to be adjusted according to the Household Living-costs Price index - beneficiaries, instead of the overall consumer price index.

I don't know if the Labour Party, or the Green Party will ever get around to promising to reverse Ruth Richardson's benefit cuts. That's a bigger debate about priorities, but perhaps there's an MP willing to pick this up. If our MPs think that benefits are set at the right level, it shouldn't be too hard to get them to agree to keep them at that level, something Statistic New Zealand now tells us is not happening.

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