Jane Silloway Smith

By Jane Silloway Smith - 01/08/2010

Jane Silloway Smith

By Jane Silloway Smith -

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Looking Back to Look Forward: How welfare in New Zealand has evolved

This working paper was presented at the Reviewing Welfare and Social Sector Policy and Reform Conference in June 2010. The paper reflects Maxim Institute’s preliminary survey of New Zealand’s welfare history. With the growing interest in the future of welfare in New Zealand brought about by the launch of both the Government’s Welfare Working Group and Sue Bradford’s Alternative Welfare Working Group, it is crucial that we begin to understand the history of welfare policies and their evolution up to the present day. This brief sketch of the history of welfare in New Zealand is a first step towards understanding this important topic.

From practically the moment European settlers arrived, the state has played an active role in providing for the well-being of the people of New Zealand. Early settlers were promised land, employment and a cleaner more wholesome environment than was to be found in Industrial Britain. When the companies and social engineers who promised such things were unable to deliver on those promises, the colonial government stepped in to ensure the survival and prosperity of this South Pacific venture.[i] New Zealand in this colonial era thus became a virtual social laboratory, a place to experiment with state provision of security and welfare.[ii]

By 1898, the First Liberal Government under Richard Seddon had codified the state’s role as a provider of welfare with the institution of an Old Age Pension, one of the first in the world,[iii] and the establishment of a bureaucracy to administer this pension. The Old Age Pension Department granted pensions to New Zealanders—men and women, Pakeha and Maori—over the age of 65 who both were morally deserving and whose means from income and property fell below a level considered necessary for maintaining one’s dignity.[iv] Unlike some other states that had set up similar pension systems, the New Zealand Old Age Pension was paid for out of regular state revenue and did not require a person to have paid in to receive a pension.

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State provision for the welfare of the people of New Zealand expanded throughout the first decades of the 20th century: the state subsidised workers’ dwellings from 1905, pensions were granted to widows in 1911 and to the blind in 1924, and a small family allowance was introduced in 1926. When the Great Depression reached New Zealand’s shores as the 1920s bled into the 1930s, the United and Liberal-Reform Coalition Governments attempted to salvage the economy and protect the people of New Zealand from degradation by trialling a number of state initiatives, most famously the “make work” schemes, whereby unemployed men were put to work on government projects throughout the country.

The Depression seemed to demonstrate to many New Zealanders the limits both of the economy and of the country’s patchwork of charitable organisations in providing for their material well-being,[v] leading the people to elect the First Labour Government under Michael Joseph Savage in 1935. The Labour Party, begun as a militantly socialist party in 1916, had by the 1930s evolved into a party of social liberalism, with a policy platform that called for the state to provide such things as free education, a salaried medical service, a free public hospital system, adequate standards of housing, a basic minimum wage and full employment.[vi] Within the space of their first term in office, the Labour Government had not only expanded upon the particular provisions of their predecessors, with such initiatives as free milk for all school children, but they had also set up one of the first social security systems in the world.[vii]

At Wellington Town Hall in April 1938, Savage proclaimed to a cheering crowd, “I can promise the people of this country that before very long they will have reached a condition of social security unsurpassed in any other country of the world.”[viii] With the Social Security Act, passed on 14 September 1938, the state took onto itself the responsibility of ensuring every New Zealand family at least a minimum standard of living.[ix] The Government had already taken control of the national economy, fostering secondary industry to prime production and guaranteeing full employment for male citizens of working age.[x] Now, for those who were not able to take part fully in this controlled economy and reap the benefits of their own labour, the Government offered measures of security: superannuation to all over the age of 65 regardless of means (to be paid out at a lower rate than the Old Age Pension, which was means-tested and paid out at 60); invalid’s and sickness benefits for the incapacitated; and maintenance on a means-tested basis from an emergency benefit for all others who would otherwise fall through the cracks. In addition, despite the strong objections of the New Zealand branch of the British Medical Association, the state nationalised health care, incrementally adding additional services to the universal health plan from 1938 through the 1940s.[xi] The cost of all of these new benefits and services was to come out of a special tax of initially one shilling in the pound, and they were to be administered by the Social Security Department, an amalgam of the Old Age Pensions Department and a major portion of the Employment Division of the Department of Labour. Savage called his new system “applied Christianity.”[xii]

Though there was some concern in the late 1930s over whether or not New Zealand could afford such a welfare state, the vast majority of the population of the country supported the Labour Government and its innovations, and Labour was returned to office for five additional terms. With the support of the people behind them, and with an economy booming from exporting to the Allies in the Second World War, the Government expanded upon their nascent system. By 1942, the Government had noted that inflation was outstripping the rates set for social security benefits, and so they increased the rates paid for means-tested benefits with a five percent cost of living bonus. In 1945, Maori and their distinct needs and social structures were accounted for in the passage of the Maori Social and Economic Advancement Act, and women working as carers in the home were provided with support in the form of the Universal Family Benefit from 1946. The Universal Family Benefit, which paid out to mothers for each child under the age of first 16 then 18, replaced all previous allowances for dependent children except for the widow’s benefit.[xiii] To pay for these extensions, the Government released funds out of general government revenue, and raised the social security tax by six pence in the pound.

When the First National Government under Sidney Holland came into office in 1949, it had no intention of seriously altering the welfare system that the previous Labour Government had created—the existence and shape of social security in New Zealand was not considered to be a political issue.[xiv] Both Parties at that time recognised that their political existence relied on their professed adherence to the New Zealand model of social welfare, a model that historian Alexander Davidson has characterised as an “Anglo-Saxon lower-middle-class dream of Utopia.”[xv] Such a Utopia was centred on the ideal of a secure nuclear family, and promised a decent standard of living for all, with high wage levels but a low degree of income inequality, enabled by a progressive tax system that redistributed income and helped to pay for selective benefits for those who were unable to take advantage of the country’s full employment.[xvi]

Working within the context of general economic prosperity and a rising birth rate, the First National Government spent much of its time in office from 1949 to 1957 further expanding the provisions of the welfare state.[xvii] Once again inflation and rising prices were lowering the standard of living of beneficiaries in relation to wage earners. To address this inequality, the Government introduced a supplementary assistance scheme in 1952 to allocate additional payments to beneficiaries on a means-tested basis.[xviii] This was followed by benefits targeted to deserted wives in 1954 and to women over 55 the following year.[xix] Levels of selective benefits in general rose under the First National Government, though as a proportion to the average weekly wage of the 1950s they declined slightly.[xx]

By the time the Second Labour Government under Walter Nash entered office in 1957, New Zealand was faced with a slowing economy. External debt was growing rapidly, brought on by falling overseas prices and an increasing level of imports. In order to maintain the status quo of nearly full male employment and social security, the Government reintroduced blanket import controls, increased taxes, raised loans in Britain, Australia and the United States, and attempted to bring about greater industrialisation in New Zealand.[xxi]

Despite such straits, Labour continued to push forward with the extension of New Zealand’s welfare state. Most significantly, in 1958, the Government amended the 1946 Universal Family Benefit to allow New Zealand families to capitalise their future benefit payments so that they could put down a deposit on a new home. They also raised the amount offered through the Family Benefit. Both of these measures were the result of the Government’s recognition of the strains that raising children could put on any family’s finances, as well as its desire to be involved with the upbringing of future generations.[xxii] Alongside this extension of Family Benefits, the Government also abolished the property test, but not the income test, on Old Age Pensions in 1959, extending those benefits to more people. By the end of Labour’s term in 1960, New Zealand was spending 36 percent of total government expenditure on welfare programmes—the highest rate of any other country in the world at the time.[xxiii]

When the Second National Government under Keith Holyoake took over in 1960, it curtailed Labour’s efforts at industrialising New Zealand’s economy, but it continued borrowing from abroad to fund the state and lifestyles to which New Zealanders had grown accustomed.[xxiv] Most New Zealanders, thus, in the early 1960s, were able to maintain a relatively uniform and, in relation to much of the rest of the world, high standard of living, but they were increasingly doing it through debt. Throughout the 1960s, New Zealand’s trading relationship with Britain, which had been a mainstay of the economy, slowly withered away as Britain was absorbed into the European Economic Community. The sheltered economy that had protected New Zealand’s welfare state seemed to be slipping away, and the country slumped into a recession in the late 1960s, pushing the Holyoake Government in 1969 to appoint a Royal Commission of Inquiry to investigate the state of social security in New Zealand.

The Royal Commission reported back in 1972, presenting first to the National Government and then to the Third Labour Government under Norman Kirk a radically new vision of social welfare for New Zealand. On the social and cultural front, the 1960s and early 1970s had witnessed the rise of the individual, with his or her distinct rights and needs being emphasised over and above the family and the collective community. Women and young people had begun to speak out against patriarchy and the perceived social constraints of the traditional family, and many people were questioning the collective moral values upon which the welfare state was founded.[xxv] Responding and working out of this emerging social and cultural milieu, the Royal Commission made several recommendations that it believed would make New Zealand’s social welfare system more amenable to the country’s current circumstances. Such recommendations included: removing all mention of morality from codes regulating benefits; tying means-tested benefit rates to a fixed percentage of a designated earning level so adjustments would become automatic; introducing a domestic purposes benefit for solo parents; maintaining a greater degree of consistency across benefits; and extending a number of benefits in scope.[xxvi]

With what proved to be a brief economic recovery underway in 1972, the Third Labour Government implemented many of the Commission’s recommendations, rolling them out over the course of its term to 1975. In 1973, the Domestic Purposes Benefit (DPB) was introduced, offering income support to three categories of beneficiary: unsupported single parents over the age of 16; women, with no other means of support, deemed unable to support themselves; and those over 16 years of age who are required to give full-time care to a person who would otherwise be hospitalised.[xxvii] These categories of people had previously been able to receive benefits for domestic purposes via emergency benefits, but the establishment of the DPB attempted to remove the “moral stigma” attached to certain life circumstances—especially single-parenthood—singling out domestic carers outside the traditional family for special care. Labour also further divorced entitlement from morality with the introduction of the Accident Compensation Corporation in 1974, offering care and wage-related compensation to those who had been incapacitated in an accident, regardless of fault.[xxviii]

Alongside the Commission’s recommendations for expanding the existing welfare structure, the Labour Party also had a pet project of its own that it wished to implement: a contributory system of national superannuation. The Party contended that there was a need for the state to go beyond providing a basic minimum income for retirement to ensuring that people had a sufficient income at retirement. To this end, MP Roger Douglas devised a scheme whereby employers, employees and the state made contributions to an interest-bearing fund to be saved for retirement, thus ultimately doing away with the need for social security age and superannuation benefits.[xxix] The New Zealand Superannuation Act passed in August 1974, and payments into the corporation began early in 1975.

Public confusion over Labour’s Superannuation Act, occurring as it did within a wider context of high inflation, an oil crisis, a worsening trade deficit and rising levels of unemployment, contributed to the election in 1975 of the Third National Government under Robert Muldoon.[xxx] Muldoon’s Government quickly repealed Labour’s Superannuation Act of 1974 and introduced its own, offering all New Zealanders a flat-rate pension from the age of 60 without the need for contributions, a special fund, or even an additional tax.[xxxi] In addition to the more generous superannuation, National also made slight tweaks to other areas of the welfare state, extending provision to more categories of people and aligning all future benefit increases to the cost-price index to ensure that those on benefits did not unduly suffer through the inflationary devaluing of their income.[xxxii]

Government expenditure rose exponentially into the 1980s, and New Zealand’s economic growth was not able to keep up with the costs.[xxxiii] Muldoon’s Government increased taxes, but the rising tax rates acted to decrease the general public’s commitment to what it was increasingly seeing as overly expensive social services.[xxxiv] Cuts to benefits, wage, price and rent freezes, and freezes on interest rates, dividend payments, directors’ payments and professional charges were not enough to lift the New Zealand economy out of a tailspin.[xxxv]

David Lange’s Fourth Labour Government entered office in 1984 confronted with the need to salvage and modernise the New Zealand economy. Government regulation and subsidies were loosened, state-owned enterprises were privatised and a new course of welfare reform based on individual choice and self-sufficiency was embarked upon.[xxxvi] The historian Michael Belgrave contends that in this era of reform the Government began to see the people of New Zealand primarily as consumers—individuals with varied and particular needs that could best be met by allowing them to exercise freedom of choice in an open market.[xxxvii] In terms of welfare provision this meant that the Government felt compelled to de-institutionalise welfare services, handing over responsibility for these services to the community in order to make a more diverse marketplace for welfare provision.[xxxviii] Governmental moves to relocate the locus of welfare in the community were met with cautious support by many Maori, who had been making demands since the 1970s for recognition of iwi, hapu and whanau as providers of well-being services.[xxxix]

Efforts to privatise welfare went along with the Government’s desire to encourage self-sufficiency amongst the populace. Reports issued in the mid-to-late 1980s warned of the potential for the welfare state to create dependency.[xl] In 1986, Minister of Finance Roger Douglas announced that the state needed to be giving beneficiaries incentives to get off welfare and back to work. To this end, the abatement level for most benefits was raised so that beneficiaries could ease their way into the workforce without losing their benefit until they were more established.[xli] And Family Care was introduced (to be replaced by Family Support in 1986) to provide a direct wage supplement to lend support to those parents who were working but who had low incomes.[xlii]

The Fourth National Government under Jim Bolger, who took office in 1990, continued with the reforms begun by the previous Labour Government and took them further. Coloured by a concern with New Zealand’s high deficit, the Government’s Budget of 1991 abolished the Family Benefit, slashed benefit rates, tightened conditionality for means-tested benefits so that they would be more targeted at those in real need, and introduced a system of contracts between government and the voluntary sector, with the voluntary sector taking on responsibility for many of the services that were once offered by the state.[xliii] A concurrent desire to avoid dependency (to give “a hand up, not a hand out” as Department of Social Welfare literature expressed it in 1994) saw the Government institute in 1996 both the Community Wage—tying beneficiaries into their communities rather than have them rely on the state—and the Independent Family Tax Credit (later the Child Tax Credit)—supporting parents who were self-sufficient—as well as undertake comprehensive reviews of social security in 1997 and 1998. These reviews identified as their outcomes an improvement in beneficiaries’ labour market participation, a reduction in long-term benefit receipt, a reduction in the numbers of children of sole parents raised in long-term dependent families, and an overall reduction in costs over time.[xliv]

Such themes of breaking dependency and encouraging work would continue to crop up in the reforms of welfare undertaken by the Labour coalition governments under Helen Clark from 1999 to 2008. Labour’s election manifesto of 1999 had declared that the welfare state model of the First Labour Government—with its reliance on an economy that offered full employment, its focus on the traditional Pakeha family and its moral tone—was inadequate for the turn of the millennium. Changing patterns of family, changes in employment, and a new-found recognition of the Treaty of Waitangi necessitated a new direction for the welfare state in the 21st century.[xlv] This new direction would be one that would not simply provide income support to those of inadequate means, but would encourage the growth and social development of all New Zealanders.

To these ends, Labour worked to create a social policy that was fully integrated and not solely focused on income. In 2001, it merged the ministries that handled work and income with those that did social policy to create a new Ministry of Social Development. It encouraged work for its social goods by introducing both an In Work Payment to replace the Child Tax Credit and Working for Families in 2004 to extend the level of support for families, particularly those in work.[xlvi] And in the Social Security Amendment Act of 2006, Labour created three streams for reintegrating beneficiaries into the larger community: a work support stream for those unemployed; a work support development stream for most other beneficiaries; and, a community support stream for a small group to be exempted from work, training or planning requirements.[xlvii]

As the Government, the voluntary sector, policy analysts, academics, and interested citizens explore potential avenues of reform today, it is instructive to look back upon the evolution of New Zealand’s welfare system both to see where it has come from and to plan well where it may be going. The state’s involvement in providing for the well-being of its people began even before the Treaty of Waitangi was signed. From 1898, the New Zealand state offered pensions to those whose moral rectitude and material need in old age made them worthy of care. In the mid-1930s, the state expanded its role as provider of well-being, instituting one of the first social security systems in the world. This welfare system was one based around the ideal of the nuclear family, with a father in guaranteed work and a mother at home with the children. As social and cultural changes in the early second half of the century started to critique this seemingly antiquated notion of society, the spectre of the individual rose, demanding recognition of its rights and the addressing of its needs in an amoral manner. Efforts to meet the needs of so many disparate individuals in a time of economic decline added to the social and financial pressures that eventually caused the welfare state to falter in the mid-1980s. From there, subsequent governments looked upon the citizens of New Zealand as consumers, contracting out many welfare services and increasingly focussing on deterring welfare dependency by trumpeting the benefits of work.

In each successive stage of the evolution of the New Zealand welfare system we can see how the exigencies of politics, the health of the economy, society’s ideas of the individual in relation to the community, and the presence of particular people in positions of power have wrought the evolution we have seen. These same forces, along with the particular history of New Zealand’s welfare system, continue to shape the scope and the potential for any and all future reform. This history must be recognised and carefully understood as we progress with any future reforms.

ENDNOTES

[i] M. Basset, The State in New Zealand, 1840-1984: Socialism without doctrines? (Auckland: Auckland University Press, 1998), 1-31.
[ii] B. Porter, The Lion’s Share: A short history of British imperialism, 1850-1970 (London: Longman, 1975).
[iii] Germany was first when Otto von Bismarck introduced social insurance in 1883.
[iv] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments (Auckland: Auckland University Press and Oxford University Press, 1980), 23; D. Thomson, A World Without Welfare: New Zealand’s colonial experiment (Auckland: Auckland University
Press, 1998).
[v] M. Tennant, “Mixed Economy or Moving Frontier? Welfare, the Voluntary Sector and Government,” in B. Dalley and M. Tennant, Past Judgement: Social policy in New Zealand history (Dunedin: University of Otago Press, 2004), 39-55, 49.]
[vi] I. Shirley, “Social Policy,” in P. Spoonley, D. Pearson and I. Shirley, eds., New Zealand Society: A sociological introduction, Second Edition (Palmerston North: The Dunmore Press, 1994), 130-145, 137.
[vii] The United States had passed a Social Security Act in 1935.
[viii] Quoted in E. Hanson, The Politics of Social Security: The 1938 Act and some later developments (Auckland: Auckland University Press and Oxford University Press, 1908), 81.
[ix] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 11.
[x] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988 (Uppsala: Almqvist and Wiksell International, 1989), 86-87, 133.
[xi] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 98.
[xii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 96.
[xiii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 164; M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” in B. Dalley and M. Tennant, Past Judgement: Social policy in New Zealand history (Dunedin:
University of Otago Press, 2004), 23-38, 30-31.
[xiv] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 117.
[xv] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 249.
[xvi] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 249.
[xvii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 131; M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 33.
[xviii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 129-30.
[xix] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 128.
[xx] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 129.
[xxi] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 209-210.
[xxii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 127-128.
[xxiii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 131; A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 1-2.
[xxiv] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 211.
[xxv] M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 34.
[xxvi] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 134-135.
[xxvii] A. Woodfield, “Private versus Public Provision of Social Welfare Services in New Zealand,” in M. James, ed., The Welfare State: Foundations and Alternatives: The proceedings of CIS conferences held in Wellington and Sydney, November 1987 (Sydney: Centre fo
Independent Studies, 1989), 113-154, 123.
[xxviii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 135, 140-142; M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 34.
[xxix] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 144-147.
[xxx] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 308-309; E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 147.
[xxxi] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 148; A. Davidson, , 307.
[xxxii] E. Hanson, The Politics of Social Security: The 1938 Act and some later developments, 136-138.
[xxxiii] A. Woodfield, “Private versus Public Provision of Social Welfare Services in New Zealand,” 116.
[xxxiv] M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 35.
[xxxv] M. O’Brien, Poverty, Policy and the State: The changing face of social security (Bristol: The Policy Press, 2008), 148.
[xxxvi] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 317-318.
[xxxvii] M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 36.
[xxxviii] M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 35-36.
[xxxix] M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 36.
[xl] A. Woodfield, “Private versus Public Provision of Social Welfare Services in New Zealand,” 145.
[xli] A. Davidson, Two Models of Welfare: The origins and development of the welfare state in Sweden and New Zealand, 1888-1988, 322-323.
[xlii] M. O’Brien, Poverty, Policy and the State: The changing face of social security, 157.
[xliii] M. Tennant, “Mixed Economy or Moving Frontier? Welfare, the Voluntary Sector and Government,” 48-53; M.l. O’Brien, Poverty, Policy and the State: The changing face of social security, 180-183; M. Belgrave, “Needs and the State: Evolving social policy in New Zealand history,” 37.
[xliv] M. O’Brien, Poverty, Policy and the State: The changing face of social security, 179-188.
[xlv] M. O’Brien, Poverty, Policy and the State: The changing face of social security, 210.
[xlvi] M. O’Brien, Poverty, Policy and the State: The changing face of social security, 215.[xlvii] M.O’Brien, Poverty, Policy and the State: The changing face of social security, 218.

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