A better return for spending on the less well-off
Fri 18 Nov 2011 by Infometrics Ltd.

My colleagues and I have mentioned in previous articles about the mess that is Working for Families. And now Labour proposes extending it to beneficiaries. Is this the best way to spend another dollar on the less well-off?

A large portion of my taxes go to finance spending on others, so as a tax payer I think that I should have some say over how my taxes are spent; in particular seeing that such spending is delivering the best value for money.   If I’m concerned about health, I don’t like seeing beneficiaries spending money on soft drinks and junk food while complaining that they don’t have enough money to buy their children healthy food.

On the other hand, as an economist I know that people’s satisfaction is generally maximised if they can spend their money however they want.   There might be some rare exceptions, but it’s a dangerous precedent to assume that you know what’s best for others.   So can we reconcile the sovereignty of individual choice while simultaneously ensuring value for money for the taxpayer?

Getting back to Working for Families and its proposed extension by Labour, presumably the justifications to improve the health and welfare of those on low incomes, particularly children. I hope most of us would support that objective, but are there better options than just presenting a more generous welfare cheque?

A few weeks ago my colleague David Grimmond wrote about the very complex relationship between household resources, child outcomes and later adult outcomes.   For example, poor nutrition during childhood can increase the risk of diabetes, which in turn exacerbates the risk of heart disease.

Poor nutrition also affects performance at school, something which I have seen much of during my years on school boards.   Impaired performance at school reduces the chances of securing a good job later.   So why not consider funding free school breakfasts to anyone who wants them.   There might be some economic inefficiency if the free breakfast are taken up by children whose parents could afford a good breakfast, but that needs to be assessed against both the considerable benefits and the inefficiencies in alternative measures of assistance.

Complementary interventions could involve nutritionists who work within lower socioeconomic areas, demonstrating what to buy and how to cook a healthy meal.

And when the children are nutritionally prepared for learning, let’s see additional funding for schools to support more resources for teaching English to the many New Zealand born children for whom English is not their first language.

The vast literature on educational achievement is quite unequivocal about the effect of parenting.   Some of the effect operates through parents’ education while other important factors are the degree of drug and alcohol dependence, and the amount of parental conflict.   These issues need to be addressed long before a solo mum appears on the DPB, although offering them programmes that teach the acquisition of social and workplace skills is still likely to be more useful than just telling them to get a job.   Reducing drug dependence produces a double benefit as it improves parenting skills and enhances employability.

Access to medical care is another crucial contribution to child welfare.     One has only to look at New Zealand’s reprehensible rate of  rheumatic fever amongst Maori and Pacific peoples.   Free visits to the doctor are a start, but this has to be augmented with the transport to get them there, as well as with early monitoring and inter-agency communication.   If this means some different forms of intervention that better suited to those ethnic groups, so be it.

Complementary to better medical care is a warmer and drier home. In this context the various insulation subsidies and grants that were promoted by the Greens (working both Labour and National government) have been extremely valuable.   These programmes are probably still at the stage where an extra dollar of expenditure produces more than a dollar of benefit.

Indeed that last point brings us back to where we began. If we want to spend another dollar to improve the welfare of people at the bottom of all of the social and economic indicators (and we should), how is that dollar best spent?   It’s unlikely to been Working for Families.   This is not saying that income is irrelevant, but rather that an extra dollar of government spending can be better directed elsewhere.   Extending Working for Families to beneficiaries may look like it gives more choice to individuals than the alternatives that I’ve outlined above.   However, with the high effective marginal tax rates on an additional earned dollar that often accompany Working for Families, the disincentives to seeking employment reduce not only the quantum of freedom it ostensibly provides, but also the longer run choices that are enabled by greater labour force participation.

Related Articles