Whiteboard Friday. How NZ’s welfare system traps people in poverty

Gareth MorganTax and Welfare

This Whiteboard Friday looks at how our current benefit system traps people in poverty, which is another reason we need to replace it with an Unconditional Basic Income.

This week has been a big week for the Unconditional Basic Income. The new Labour leader Andrew Little has been talking about how our benefit system can’t keep up with modern life. He points out that we are facing radical change and need radical solutions – such as an Unconditional Basic Income.

Yesterday we saw the moving story of Darryn (‘D’) and how the stigma caused by the benefit system has impacted his life. This stigma is just one of the many problems our current benefit system creates.

Another problem is the poverty trap. As people on benefits begin to earn, they not only pay tax but their benefits also ‘abate’ – which is a fancy way of saying their benefit gets taken off them. This abatement works just like a tax, and if you add tax and abatements together, sometimes people on benefits are no better off than they were without working.

This complex system also creates a lot of headaches and paperwork – so the real winners are the bureaucrats.

These problems are only getting bigger with the rise of low hour contracts. As a result some people avoid work in case they lose their benefits, and others don’t bother to claim the benefits they need because there is just too much paperwork.

All these problems would all be removed if we had an Unconditional Basic Income.


Whiteboard Friday. How NZ’s welfare system traps people in poverty was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.