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.
This is a step in the right direction. Thank you Graeme.
Auckland • Since Dec 2015 • 3 posts Report
Economic jargon has always been a bit over my head but I get the general gist and also agree a step in the right direction. As someone on the receiving end of this particular policy it's been obvious for a long time now the "inflation adjustment" system as been deliberately rigged against us. I see my mother's Super increased yearly (indexed to the average wage or something like that?), yet I can confirm that the Invalids Benefit has literally increased by 0c for the last 3 years, and all of 56c/week the year before that- no doubt because of the current alleged low inflation which of course doesn't translate to reality. None of us are expecting an increase this coming April Fool's Day, ie another cut in real terms.
As for any political party reversing the Ruthenasia cuts? Yeah, right. Labour made their position on that perfectly clear during their last reign and have done nothing in the last 8 years to speak up for beneficiaries. Sadly the Greens have gone very quiet on the subject recently; one can only assume they too are now too scared to show any outward sign of being "soft" because the "B" word is now so toxic in this country that politicians can't fix the damage they've done for fear of losing votes.
Wellington • Since Apr 2014 • 10 posts Report
Graeme, I note that HLPI Table 1.01 is not set out the way the CPI (3.01, etc.) tables are. Therefore, the HLPI - beneficiaries group is just that. There is no "All groups less cigarettes and tobacco subgroup" (CPI 3.01, line 28), etc.
That being the case, I wonder if you should amend clauses 4 (61HA(3)) and 5(2A) of your draft bill, to remove the references to "excluding cigarettes and other tobacco products". (In any event, what about alcoholic beverages (CPI 3.01, line 27)?)
Thank you for bringing the NZ Progressive Bills Project to my attention. I've already started thinking about the bill I'm going to draft. <g>
Wellington • Since Jul 2013 • 125 posts Report
The CPI increase during 2016 for all groups was 1.3% – 1214 / 1198, so actually 1.34%.
The Household Price Increase for beneficiary households during 2016 was 1.4% – 1021 / 1007, so actually 1.39%. For the highest income households it was not 0.6%, but 0.7% – 1019 / 1012, so actually 0.69%.
So, officially, the difference between overall inflation and price increases for beneficiary households during the 2016 year was + 0.1% (but actually only + 0.05%). Still, beneficiaries would no doubt consider that 0.1% to be worth having.
For the record, I agree with the premise of your blog, Graeme. If the government has the data to enable it to act more fairly towards beneficiaries, it should use it.
Wellington • Since Jul 2013 • 125 posts Report
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Scrapping GST would be good too. It's a disgusting regressive tax.
Auckland • Since Jun 2013 • 119 posts Report