Will Budget 2017 really lift 50,000 children out of poverty?

One item in May’s Budget that slipped through without much discussion was the claim that the changes to income tax and Working for Families payments would lift 50,000 children out of poverty. At the time I was sceptical, and information released by the Treasury last month – some to the whole public and some to me under the Official Information Act – paints a mixed picture.

The documents show that the Treasury’s modelling predicts that substantial numbers will be lifted out of poverty. One key measure of poverty is how many people are living on less than half of the typical (median) income, for a household of their size. The Treasury modelling predicts that the changes will lift 22,000 households and 49,000 children over that line. That represents around 30% of all the children currently under the line (although Ministry of Social Development officials warned against treating the percentage figures as highly accurate), leaving another 109,000 children still in poverty, on that measure.

A more demanding measure is that people need a bit more – 60% of average income – to be out of poverty. (I tend to think that is the most useful poverty measure, because surveys of people’s actual budgets indicate that is about how much they need, but the 50% line is widely used internationally.) The Treasury modelling indicates 16,000 households, including 36,000 children, will be lifted over that line.

The chart below, although complex, essentially shows that there is a large group of households on low incomes (the peak of the solid line just to the left of the dotted lines representing the 50% and 60% poverty thresholds) who will get thousands of dollars extra a year (the black bars under that peak), pushing them over the poverty line.

While that doesn’t do enough to address the situation of the very poorest, it is obviously welcome, assuming the modelling is correct. What is puzzling is why the government didn’t make more fuss about that, given that child poverty is a major political issue and ministers are eager to look like they care on social issues.

One clue may come in the e-mail between Treasury analysts released to me under the OIA, in which one notes, “The level figures for number of households below the income threshold are likely to be highly contentious as they rely on modelling assumptions.” It is not clear what modelling assumptions were made, but unless I’ve badly misunderstood the figures, they represent how much money households will have in their pocket before they have to pay housing costs.

That is significant, because, as we all know, housing costs are spiralling at the moment, including for renters, which many poor families are. There is so little housing available that there is effectively not much competition among landlords: people are desperate for places, and take pretty much whatever they can get. That makes it very easy for landlords to raise rents to the highest amount they think their tenants can sustain.

That, in turn, implies that although more money is going into poor families’ pockets, there may be a lot of what is called ‘landlord capture’: landlords may capture much or most of that increased income by raising rents. Since the changes in income were heavily publicised in the Budget, landlords will have a good idea of how much they can do that.

As far as I know, Treasury doesn’t know how great that effect will be, and so they don’t know if all those households will actually be lifted out of poverty once housing costs are taken into account. It would be very interesting to try to estimate the scale of landlord capture in New Zealand, but until we can, I think we have to treat the 50,000 children figure with some scepticism – and assume that the above concerns may be part of the reason that ministers aren’t making as much of a song and dance about the claim as they would otherwise have done.