Stuff: Sorry, homeowners — prices must fall

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Would you be willing to see your house value fall by 40 per cent if it helped restore affordability within a generation? That’s the question now facing homeowners. I hope their answer is yes.

As a congenital optimist, I react to something like a housing crisis by asking: how quickly could we solve it? So I ran the numbers, and discovered – surprise, surprise – that there is no easy solution.

Currently, the typical (median) house costs $820,000 (although I typed that sentence yesterday, so it may be higher now). The typical household income – if you assume one and a half earners in their 30s, as is standard – is $97,000.

That gives a typical house price-to-income ratio of 8.5. (Other calculations put it even higher.) It’s generally accepted that in an “affordable” housing market, one where prices are within reach of ordinary people, that ratio is 3:1.

If house prices plateau, and incomes grow at 2.5 per cent a year after inflation, as they have done in the last decade, want to guess how long it takes to get back to affordability? 42 years. We have to wait until 2063, a whole two generations away. (My calculations can be found at here.)

If you’re an aspirant homeowner, that seems … suboptimal. Income growth alone won’t do the job.

What would? We could assume incomes will grow more quickly than 2.5 per cent a year, but that seems risky, given the turbulent times ahead.

We could hope that house prices rise more slowly than inflation, as they have in 19 of the past 50 years, according to Selena and Shamubeel Eaqub’s Generation Rent. But we still wouldn’t return to affordability until 2051, an unacceptably long way off.

What if prices fell – say, 1 per cent a year? If inflation was 2 per cent a year, that would work out to a 3 per cent annual fall after inflation (relative to the increase in the price of everything else, in other words). And on that basis, we could restore the 3:1 ratio by 2040, one generation away.

Morally, I think that’s still too far off; but, pragmatically, it might be the best we can do. Bear in mind that the last time we had a 3:1 ratio was the 1990s: this is a crisis decades in the making. Bear in mind, too, that New Zealand house prices “have never really fallen sharply or for a sustained period”, the Eaqubs write.

Even getting homeowners to accept a 3 per cent a year decline, adding up to a 40 per cent real-terms fall over two decades, could be extraordinarily difficult.

In theory, of course, such a fall needn’t be catastrophic. People’s ability to repay their mortgage depends on their income, not the notional value of their house. Prices have risen 40 per cent in the last couple of years, so only the most recent buyers would lose out anyway.

A slow decline might give people time to adjust to the fact that their retirement-fund property would reap less than expected; ideally, they would make other savings plans. Those having to sell might be at least partially compensated by buying their next house more cheaply.

All that makes sense, in theory. In practice, people hate the idea of their house losing value. Even a gradual decline could provoke panic. It could also damage the economy: much consumer spending depends on sentiment, and owners feel more buoyant when their house value is too. (Hence politicians’ desire to keep prices up.)

That said, if the trade-off is that the next generation can actually afford a house, enough people might accept the idea to make it politically viable. And though it might take 20 years to reach 3:1, every year of gradual price decline would bring affordability closer. What’s more, a ratio higher than 3:1 might be manageable – for those with a deposit – if interest rates remain low.

More radical change, though, seems off the table. I understand why some commentators want the market to crash. But if prices suddenly fell 30 per cent, say, I think there’d be an outcry, and the government that allowed it would be rapidly replaced by one committed to reversing it.

Even a slow decline is hard to conceive. Most politicians have so far shown no interest whatsoever in reducing house prices. The prime minister’s position is that people expect single-digit annual increases, which would presumably mean homes remain unaffordable forever.

Politicians’ control over the housing market is partial, in any case, and engineering a perfectly gradual decline is probably beyond them. Still, we have to hope for something of this nature.

House-price growth is already slowing. And last year, for the first time in ages, more houses were consented than was needed to meet demand. If we keep that going, alongside other measures, a gradual decline might be achievable. It’s the least we owe to those looking to own the roof over their heads.

House price to income calculations

Today's Stuff column looks at different scenarios for returning New Zealand house prices to an affordable ratio of three times median incomes. The calculations underpinning these scenarios are here. The spreadsheet has five tabs representing five different scenarios for house prices: plateauing, rising more slowly than inflation, falling slowly, undergoing a sharp correction, and crashing. Each scenario makes assumptions about increases to median incomes, a possible one-year decrease in prices, and a possible gradual long-term decrease in prices. Users can enter their own assumptions to generate their own scenarios.

Guardian: ‘Can we opt out?’ — New Zealand benefit increases leave some worse off

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It feels like a broken promise,” says Bella*, a thirtysomething Auckland mother of one for whom this month’s ostensible benefit increases have turned into something quite different – a $75 a week loss of income.

On 1 July, New Zealand’s Labour government lifted weekly benefits by $20 per adult, the first instalment in a $32-55 increase in May’s budget that was the largest since the foundation of the modern welfare state in the 1930s.

But for some, the headline numbers don’t match the reality. The chief culprit is something known as clawback. In addition to their main benefit, many of the country’s 351,000 welfare recipients get supplementary payments that can be reduced (“clawed back”) if that benefit increases.

Most common are the accommodation supplement (AS), which defrays housing costs, and temporary additional support (TAS), originally intended to help beneficiaries with one-off exceptional costs. Both are now embedded as top-ups to what welfare experts describe as “inadequate” main benefits. In June this year, there were 354,000 people receiving AS and 82,000 TAS.

For some beneficiaries, the clawbacks have simply meant they get less than a $20 increase. A survey by Auckland’s St Vincent de Paul budgeting service showed just 12 of 91 beneficiary clients would get the full amount. Most would get $14-$15. (Some, confusingly, would get more.) Similar stories were collated on Twitter, under the tag #clawbacks, by the beneficiary and worker advocate Chloe Ann-King.

These situations can be disappointing enough. But others say they have found themselves in the bizarre scenario of actually being worse off.

‘Can we opt out?’

Bella lives with her partner, who is on Jobseeker Support but with a health certificate owing to a long-term condition. Bella is on the supported living payment as she is caring for a teenage daughter recovering from a serious car accident. Bella had to quit her studies to provide that care, and because she hadn’t completed enough of her course, the Ministry of Social Development (MSD) is requiring her to repay a large amount of her student allowance.

Once those repayments, other MSD debts, rent, and her partner’s child support payments were deducted from their benefits, Bella and her partner were receiving a combined $207 a week before 1 July. (Their daughter also received $99 a fortnight in disability allowance.) They were then horrified to discover that, as a result of the benefit “increase”, their payments had somehow fallen to a combined $132 a week – $75 less than they had been receiving. When she found out their incomes had fallen, Bella says, “I couldn’t believe it … It’s mind-boggling.”

A frontline MSD officer told Bella that, thanks to the benefit increase, they were deemed able to meet their basic living needs and would have their TAS payments reduced accordingly.

Although Bella has been promised a letter explaining the situation, nothing has arrived. She is now in the farcical situation of asking, “Can we opt out of having the ‘extra’ $20 a week? I feel like, thanks but no thanks.”

Fiona Carter-Giddings, MSD’s general manager for welfare systems and income support, says the ministry is “really concerned” to hear Bella’s situation, and has (via the Guardian) offered the family further assistance. But the ministry believes it “likely to be an isolated situation of some kind, or maybe due to an error”. She says that the ministry’s modelling shows that on average those on the main benefit will receive $19 a week more in assistance from the July 1 changes. “We’re not aware of any evidence that there are clients whose incomes have declined as a result of an increase to their benefit on 1 July.”

If there had been widespread reductions in income, the ministry would have expected “an immediate spike in calls and enquiries”, but that has not happened. “From what we’re seeing at our end, the benefit increases have gone smoothly.”

‘Weird dark arts calculations’

Bella is not the only person to report problems, however. In May, a supported living payment recipient, “Alex”, said their income had fallen $37 a week after changes in April designed to increase beneficiary incomes.

The same occurred to Annie Ross. A former Auckland council worker who is medically retired owing to a chronic illness, she has had no formal explanation for the decline, and has had to rely on food grants to make up the $37 shortfall.

The ministry acknowledges such situations can occur – but insists they are rare, and being addressed.

It estimates 125 people were initially worse off. These people normally receive “disability exception”, a special top-up payment to meet above-average disability costs, but an “unintentional anomaly” means the benefit increases pushed them over the income limit to be eligible for that top-up.

The ministry says it has advised those people that they will receive yet another top-up, a transitional assistance payment, to ensure they are at least no worse off.

Ross says the government has partially simplified the system but its “weird dark arts calculations” still make it “a nightmare” to deal with.

‘Something isn’t right’

Even if individual issues can be addressed, welfare experts say the clawbacks demonstrate the need for major reform. Michael Fletcher, a senior associate at Victoria University’s Institute for Governance and Policy Studies, says all targeted welfare systems suffer these problems. But New Zealand has “made ours rather a lot worse” through a long-term decline in the value of main benefits and a reliance on payments like AS and TAS to fill the gap.

This reliance generates enormous complexity for benefit recipients. The official documentation on who is eligible for TAS, for instance, runs to multiple pages and several layers of income and expense calculations.

This complexity also creates ample room for situations like the “unintentional anomalies” in disability payments. “Even if it’s only a small number of people, it says something isn’t right with the system,” Fletcher argues.

“The only solution to that problem is to raise benefit levels themselves so they are adequate for the vast majority of people, and the temporary payments go back to what they are supposed to be for, which is temporary, additional support – as the name suggests!”

Clawbacks also pose a problem for the government’s ambitious child poverty reduction targets, the most recent of which, announced last month, commit ministers to cutting the number of families in poverty by one-third by 2024 and two-thirds by 2028. Pre-Covid, the government was making progress on the existing targets, boosting the incomes of 100,000 families by an average of $175 each. But further benefit increases, widely seen as essential to meeting the new targets, may be blunted if substantial amounts are clawed back.

The government says it will review the way supplementary payments work as part of its ongoing “welfare overhaul”. Ross, meanwhile, just wants a more humane system. “If they [the government] truly cared about wellbeing for families,” she says, “they would move heaven and earth to get rid of whatever system they have in the background that’s doing these really unjust calculations.”

*Pseudonyms have been used to protect individuals’ privacy

Stuff: Supermarket prices — Politicians have dropped the ball

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The forensic evisceration on Thursday of our uncompetitive supermarket duopoly is a landmark moment, a sign of shifting attitudes towards capitalism – and a massive test for Commerce Minister David Clark.

The Commerce Commission’s draft report into competition – or rather, the lack thereof – in the supermarket sector is damning. New Zealanders face the sixth highest grocery prices in the developed world. Innovation is limited, and suppliers are beholden to retailers.

Why? In large part it’s because just two firms, Foodstuffs and the Countdown empire, utterly dominate the $22 billion grocery market.

Speaking on Thursday, the commission’s chair, Anna Rawlings, was suitably blunt. “Our preliminary view is that the core problem is the structure of the market,” she said. It’s uncompetitive, in short.

The minor players “are unable to compete with the major grocery retailers on price and product range”. Large firms find it hard to enter, because the wholesale market (where the big two supply groceries to other firms) is not competitively priced and sites for large stores are lacking.

Unsurprisingly, the duopoly make profits “consistently and materially” above what they should. Their profit margins are a staggering 50 per cent above the global norm.

These conclusions mount an assault on a form of entrenched market power that should have concerned politicians across the spectrum – but which has been tolerated for far too long.

One of the casualties of recent decades has been our vigilance against monopolies (the dominance of a market by one firm), duopolies (two firms) and oligopolies (a very small number of firms).

Influenced by laissez-faire thinking, politicians have told themselves comforting untruths. Even if there were no new entrants to a market, they said, the mere potential for someone to enter would keep big players honest.

The efficiency of larger firms would compensate for competitive shortfalls. And as a small country, New Zealand couldn’t expect that many competitors.

None of this was substantially true. Other countries don’t tolerate such uncompetitive markets. Similar-sized Denmark, for instance, has six major supermarket chains, four of them holding over 10 per cent of the market each.

Competition is essential because it is the only thing that makes capitalism work. Without the threat of going out of business, firms lack incentives to improve. Indeed, Countdown and Foodstuffs cosily divide up the market, appearing “to avoid competing strongly with each other”, Rawlings noted. We, as consumers, bear the cost in inflated prices and poor service.

This point has been forgotten globally, where the worst monopolists are of course Amazon, Facebook and Google. In the US, their home turf, the political mood has shifted sharply against these tech giants, albeit action remains limited.

We cannot affect that global picture, but we can clean up our own backyard. It’s not just supermarkets. A handful of electricity “gentailers’’, some of them state-owned, dominate their market, apparently able to exclude competitors.

The banking sector looks like an oligopoly, although Kiwibank and others may partially constrain the big Aussie-owned firms. Our petrol markets have already proven uncompetitive. Fletchers utterly dominates some building supplies markets.

These developments should concern National just as much as Labour, because conservatives need capitalism to work properly and retain the public’s support.

For now, of course, the ball is in the court of David Clark. And he cannot allow this moment to pass.

Some of the commission’s suggestions – like forcing the big players to supply other retailers with groceries on “fair and non-discriminatory terms” – could be useful in the short term. Ditto action against the literally hundreds of cases where the duopoly have – outrageously – signed land covenants that block competitors from setting up shop.

But the basic point remains: only a guaranteed increase in competition will fix the problem. Step forward, big government. “Without intervention,” Rawlings said on Thursday, “we currently see little prospect of a new or expanding rival being able to constrain the major retailers effectively”.

Her bombshell idea is to ensure another entrant – by forcing Foodstuffs and Countdown to sell some of their shops to a third outfit, or by government’s investing in a joint venture with a new player then exiting “once competition is established”.

Though I can’t see the state running a supermarket well in the long term, this could be the short-term circuit breaker we need. The risks would require careful assessment, but the benefits to consumers and suppliers would probably be substantial.

Clark will need to pursue these options vigorously, and resist what will undoubtedly be a determined lobbying campaign by the supermarket duo. Politically, he has a chance for redemption after his unhappiness in the health portfolio. Being the man “who broke up the big two” would be some legacy.

It would mark, too, a realisation that markets don’t “naturally” work: they have to be constantly shaped and guided by governments, if they are to deliver consumers their promised benefits.

Stuff: Higher wages, lower unemployment — What if we took this chance to build a trickle-up economy?

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They said the quiet bit out loud, didn’t they? Earlier this week, the Employers and Manufacturers Association argued that unemployment, currently at 4.7 per cent, would be “on the too-low side” if it fell to 3-4 per cent, and 4-5 per cent would be “better”.

Superficially, it’s startling that anyone could want more people out of work. But such assumptions have been quietly nestled in our ideological fabric for several decades.

In the 1980s and 90s, New Zealand governments took a hyper-individualist turn. They abandoned the pursuit of full employment; indeed higher unemployment was accepted as creating greater competition among workers, which suppressed wages and in turn kept inflation low.

In this top-down economy, wealth was supposed to “trickle” from rich to poor (though that word was seldom used). The workplace power balance was tilted against employees and towards employers, notably with the 1991 Employment Contracts Act, which made it much harder for unions to organise.

After it passed, pay for supermarket workers fell up to 44 per cent in eight years. A newly minted shop assistant in 1981 would have been paid $18.62, in today’s dollars; by 2019, the average entry-level retail job paid just $18.22.

During this time, union membership also plummeted. Firms shed apprentices, viewing investment in skills as the individual’s responsibility. Wages might be low, but it simply reflected the individual’s ability and the inevitable playing-out of “market forces”.

So New Zealand became a low-wage, low-skill economy; and employers looked to immigration to plug workforce gaps.

All this is now contested. With the economy booming, and post-Covid immigration slashed, firms are struggling to find staff. Job ads are at record highs.

And in some cases, wages are up. Trade Me says salaries on its hospitality and tourism listings have risen 12 per cent.

But many employers are displeased. Restaurants are turning the lights out in protest. Owners are happy to accept market forces when they keep the wage bill low, but not when they might drive it up.

Firms want ministers to restore high immigration and resume the old normal. But what if we seized this inflection point and created a new, bottom-up economy, one that uses training and wage rises to drive growth, manage inflation and ensure better lives?

First, we’d scale up skills training. While complaints about “unemployable” New Zealanders are overstated, businesses are right that many lack relevant skills, and we calamitously underinvest here. High-skilled, high-wage Denmark spends 1.6 per cent of its collective income on helping the unemployed find work; we spend just 0.2 per cent.

Labour has launched free trades training and the Mana in Mahi scheme, but much more is needed. It can’t all be public subsidies, either: firms must spend more to upskill their workforce.

Second, while people will always be out of work short-term as they change jobs and life situations, we could aim for zero long-term unemployment, implying an unemployment rate of just 2-3 per cent.

Would that turbocharge inflation? Well, in 1956, New Zealand had precisely five people drawing unemployment benefits, and almost zero unemployment – but inflation did not spiral out of control. (That came later.)

In general, wage rises shouldn’t be inflationary if they match productivity gains, because the extra productivity allows firms to sell more things with the same cost base. And on those grounds alone, workers are due a huge pay rise.

If the average wage had kept pace with productivity gains since 1989, by 2017 it would have been $38. Instead, thanks to the Employment Contracts Act and related reforms, it was $33. A catch-up is overdue. Since better-paid staff are more productive (up to a point), that could spark a virtuous spiral: trickle-up, not trickle-down.

Wage increases aren’t inflationary if, instead of putting up prices, company owners accept lower profits. Small cafes can’t always afford that, but big corporates can.

If that’s to happen, we’ll need to soften the assumption that what firms offer always matches people’s ability, and acknowledge that often it reflects a power imbalance. When employees have more bargaining power, they can negotiate wages that better match their worth, and get a larger slice of the pie.

That in turn will require something like the Government’s proposed Fair Pay Agreements, which aim to take good terms and conditions enjoyed at one firm and spread them across an industry. As employers point out, it’s hard being the first restaurant to pay staff $25, not $20. But if everyone must, there’s no competitive disadvantage. Dining out becomes slightly dearer, but benefits can be increased accordingly, and the middle classes can go less often but savour it more.

The wider prize here? Better-trained Kiwis available for better-paying jobs. Then there’d be no danger of anyone’s being undercut by a renewed openness to immigrants, who are after all an economic – and social – boon. And we’d have started reordering the economy’s vast forces – wages, training, profits, productivity, inflation – into a new world of work, built from the bottom up.

Stuff: Sound intentions, poor explanation — Why Labour needs to regroup on hate speech reforms

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When John Milton penned his seminal 1644​ defence of free speech, Areopagitica​, he asked: “Who ever knew Truth put to the worse, in a free and open encounter?” Vigorous debate, though, must not lead to “tolerated Popery”. No free speech for Catholics, then!

Milton’s inconsistencies prefigure the fraught nature of free speech reform, something the Government has just experienced since the publication of its proposals last week.

Already the debate is frenzied, and basic facts are being lost. Free speech is essential, but has never been absolute, though its benefits do now extend to Catholics. (Thank God, you might say.) It is often curbed to prevent harm: hence why we can’t make or share child pornography, or defame people.

We have also lived for more than 40 years with the Human Rights Act and its predecessors, which in one sense have set the bar lower than the Government’s proposed reforms. Since 1977, it has been an offence to say anything “likely to excite hostility or ill-will against, or bring into contempt or ridicule” groups based on their “colour, race, or ethnic or national origins”. Only one prosecution has ever been taken.

The Government’s proposal is to simultaneously narrow the kinds of speech that are targeted – only those that incite “hatred” – but extend the law’s protections to other groups, including those based on gender, religion, marital status, sexuality, disability, employment status and age.

The intentions here are sound. Hate speech can lead directly to harm, as when violence is urged. But it can also create an atmosphere which is itself threatening. As the Islamic Women’s Council spokesperson Anjum Rahman said recently, “We know that hate speech can turn into hateful actions.”

Legal philosopher Jeremy Waldron likens the public sphere of democracy to the physical public sphere of streets, plazas and libraries. Every group of people has the right to go into the public sphere and know it will be safe.

Every group has the right to participate without fear, and as an equal, in our democracy, secure in the knowledge it has “the same liberties, protections, and powers that everyone else has”. Speech that stirs up hatred – white supremacist posts, for instance – can destroy that assurance, creating fear and making people feel like lesser citizens.

So the Government is right to act. But the problems are already multiplying. Critics have seized on the fact that “insulting” speech would be caught by the proposed law.

This is slightly misleading, because speech would have to be not just insulting but also intended to incite hatred. Given the ordinary meaning of the word, though, and the frequency with which people insult each other in daily life, it may need to be dropped, if only to avoid scaremongering.

There are, moreover, real dangers in an overly wide wording. Critics have argued that the new law will invite a slew of bad-faith reporting to police as people seek to have their political adversaries convicted or at least intimidated.

Again, such logic can go too far: all laws can lead to vexatious complaints. But the critics are right that, even if false claims would ultimately be rebuffed, that is not a sufficient defence. Just being investigated or talked to by the police, let alone going through a court process, can be traumatic or have a chilling effect. The law must be worded as tightly as possible to minimise such threats.

It is also worrying that ministers appear unable to say what would or would not count as hate speech. Of course the courts will ultimately decide that, but only within a range of possible interpretations, and we need to know what the Government thinks that range is.

Equally, it is questionable whether we should, as the Government proposes, seek to protect such a vast range of groups, including those based on “political opinion”, a move that could threaten open political debate. Jacinda Ardern also needs to be clear that the law targets more than just direct calls to violence.

The debate has begun poorly, not helped by multiple bad-faith attacks, and the Government must regroup. Ministers would do well to convene something like a Te Tiriti-based citizens’ assembly, in which a perfectly representative group of ordinary people could discuss the issue deeply, hear from those affected by hate speech, and make recommendations that reflect the wider public’s considered view.

Most of all, the Government needs to be clearer about its intentions. The core problem, of course, is that hatred is difficult to define, and any law risks being either so broad as to be dangerous, or so narrow as to be unusable. But we cannot avoid striking a balance: there is already one in law, and I believe we can strike one still better, preserving the essence of free speech while protecting our most vulnerable groups from real harm.

Stuff: Worst-case scenario disastrous if proposed new education standards go ahead

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If you’re worried about our kids being sorted into winners and losers, you might want to take a close look at what the Ministry of Education is cooking up.

It has spent the last couple of years quietly working on compulsory literacy and numeracy standards – which sounds innocuous enough, until you realise it’s creating a test that four in 10 pupils might fail. And that, in turn, could derail the progress of more than 20,000 children a year, re-creating the strong pass-fail, winner-loser dynamic that NCEA was supposed to end.

The problem the ministry is trying to solve is real: government research suggests that up to four in 10 pupils are getting to NCEA level 2 – age 16, loosely speaking – not properly literate or numerate. And, superficially, the problem is NCEA. Rather than test those skills directly, it assumes that pupils will pick them up along the way, if they complete enough unit standards that apparently require strong reading, writing and maths. Unfortunately, and obviously, kids are finding ways around that.

This can’t continue. But is the answer really to introduce by 2023 a set of compulsory literacy and numeracy unit standards, without which students can’t get their NCEA qualification? Yes, they’ll be allowed multiple attempts to pass. But when I asked the ministry, it couldn’t or wouldn’t tell me how long this could delay children’s progress – and how many would fail altogether.

Since there are 280,000 secondary school pupils, 56,000 in each year on average, we are left to assume that up to 40 per cent of them – some 22,000 children – could, in the worst-case scenario, fail the standards each year and leave school with no NCEA qualification. That sounds disastrous.

No-one thinks literacy and numeracy are unimportant. But the rationale for the current system is that the old pass-fail exams – School Certificate and Bursary – were fine for high achievers but damaging for many. I remember the kids at my school who had to repeat seventh form. It was an awful situation. NCEA, in contrast, allows pupils to build up a qualification piece by piece, maximising the return on their scholastic efforts.

Not only do the compulsory standards risk reintroducing a strong pass-fail dynamic, they could badly narrow the curriculum and encourage teaching to the test, just as the failed National Standards did. Low-decile primary schools, if pressed to anticipate the test, might suffer the most, widening inequalities in schools’ ability to give kids a broad, holistic education.

Peter O’Connor, a professor of education at Auckland University, told me it was “absolutely bizarre” to abolish National Standards but then create a high-stakes test that could be even more harmful. He called the proposal “a madness, a retreat to the past … the most retrograde step in education in over a generation”. Another education expert, who wished to remain anonymous, was less trenchant but said they still feared “big casualties”.

The ministry doesn’t even know who will be most affected, but it will probably be Māori and Pasifika. A report last year showed that practices like streaming already hurt rangatahi Māori. Surely we shouldn’t be adding to this burden.

The problem, in any case, starts well before NCEA. Toddlers whose parents don’t read to them will hear hundreds of thousands of words fewer than those whose parents do. Maths gaps are obvious at primary school. Roughly 60 per cent of the variation in children’s achievement is down to socio-economic factors.

Now, we can’t change all those things overnight. But we could immediately pour resources into reading recovery and maths support programmes that have been proven to work. We could give low-decile schools extra resources and ensure smaller class sizes to allow more tailored teaching. We could narrow the list of unit standards that allow students to indirectly demonstrate literacy and numeracy, and strengthen their rigour.

We could, in short, focus on supporting children to improve, and think about compulsory tests much further down the track and only as a last resort, if the supportive approach completely fails. As it is, the ministry is ploughing ahead with the planned tests, and has set aside just $10 million, spread over four years, to help students through the changes – a derisory amount.

Whatever happens, the plans deserve a proper national debate. The ministry ran a consultation last year, but the plans have, bar one RNZ article, received almost no public scrutiny. Yet they represent a potentially seismic change.

The ministry is piloting the standards this year and next, with a view to introducing them in 2023 “as long as the sector is ready”, though it couldn’t tell me what that actually means. So there’s time to stop, or at least amend, the plan, and ensure we don’t take a step that is the wrong answer to an admittedly serious problem, and in so doing profoundly damage the prospects of so many young people.

Guardian: Public opinion supports action on inequality. Jacinda Ardern has no more excuses

Written with Peter Skilling. Read the original article in The Guardian

Jacinda Ardern can take heart: in the last decade, public attitudes have swung sharply against New Zealand’s persistently high levels of economic inequality. Space has opened up for her to pursue the egalitarian agenda she cherishes – although, conversely, her excuses for not acting have sharply diminished.

Public opinion surveys from the two decades after 1990 showed a consistent trend: decreasing concern over economic inequality, and decreasing support for government action to tackle it, especially through taxes. The pro-market ideas of New Zealand’s 1980s reforms seemed invulnerable.

But new data from last year’s International Social Survey Programme (ISSP) shows a marked shift.

Between 1992 and 2009, the belief that income differences are “too large” fell from 73% to 63%, but by 2020, it had rebounded to its 1992 level. Similarly, the proportion of people who believed government has “a responsibility” to do something about those differences fell from 53% in 1992 to 41% in 2009, but was back up to 51% by 2020. While we don’t know exactly why this shift has happened, we can make some educated guesses.

Inequalities are often sustained by a belief that our different outcomes in life are largely due to our different abilities, effort and contribution. From 1992 to 2009, New Zealanders increasingly believed that getting ahead in life was due to individual effort and hard work, seldom attributing it to the good luck of their upbringing or social connections.

The 2020 survey reverses those trends: while most people still believe that our outcomes reflect our individual merit, fewer people attribute getting ahead in life to hard work. Between 2009 and 2020, there were large increases in the proportion of people saying that your chance of getting ahead in life are importantly related to coming from a wealthy family (from 9% to 17%) or knowing the right people (29% to 41%).

The belief that there are fundamental conflicts between different social groups has also rebounded.

From 1992 to 2009, support fell precipitously for the claim that there is conflict between rich and poor people or between management and workers. But between 2009 and 2020, an increased number of New Zealanders perceived conflicts between rich and poor (from 33% to 37%), the working class and the middle class (11% to 19%), management and workers (34% to 42%), and young people and old people (23% to 33%).

In line with these trends, egalitarian policies are increasingly popular. Support for progressive taxation, under which those on higher incomes pay a higher rate of tax than those on lower incomes, fell significantly from 1992 to 2009, from 72% to 54%, but climbed again, to 68%, in 2020.

Why, though, have attitudes shifted in this way, when income inequality itself is not much changed from its early-2000s level?

For one thing, the effects of inequality are cumulative – and often delayed. In New Zealand, inequality rose more rapidly between the mid-1980s and the early 2000s than in any other developed country. The richest 10% went from earning 6 times as much as the poorest 10% to earning 9-10 times as much.

Such economic inequality can create multiple harms. By denying the poor the income they need to thrive, it can entrench poverty, worsen health and social problems, and lead to wasted talent. And by pushing rich and poor further apart, it can diminish trust, empathy and social cohesion. Even if the level of inequality does not increase, it exacerbates these problems every day it is allowed to persist. Metaphorically, it is like dumping toxic waste in a stream: the waste continues to leach out and damage the environment over time, even if the volume of waste stays the same. These effects can accumulate, but only become obvious with time.

Political decisions themselves can affect attitudes. The previous National-led government’s anti-egalitarian policies – cutting taxes for the highest earners and reducing union powers, for instance – may have heightened existing concern. In the mid-2010s, pollsters UMR found the vast majority of New Zealanders increasingly anxious about inequality. This will have been amplified by the recent prominence of inequality in global debates: just think Occupy Wall Street, the campaigns to get tech giants like Google to pay more tax, or the way Jeff Bezos’s Amazon fortune swelled during the pandemic even as hundreds of thousands of people lost their jobs and faced unsafe conditions.

All this is highly relevant to a New Zealand Labour government that has often ruled out egalitarian policies – notably a capital gains tax and sweeping benefit increases – on the grounds that they lack public support. Of course, concern about economic inequality may not translate into an endorsement of specific policies. The ISSP data shows that support for government action against inequality, although increasing, remains lower than concern about inequality itself, suggesting that not everyone sees government action as the best solution. Other research suggests that the middle classes are reluctant to address poverty if they perceive they will be burdened more than they will benefit.

These are all reservations, though, that can be at least partly addressed by politicians, especially those with the communication skills that Ardern possesses. What is now abundantly clear is that the New Zealand public is no longer operating on the assumptions of the 1980s. The ground of public opinion has been cleared for action against the country’s persistently high levels of economic inequality.

Stuff: Middle class parents, your kids will be fine at a lower-decile school

Read the original article on Stuff

It’s that time of the year when parents start putting their children’s name down for high school – and for all the middle-class mothers and fathers fretting over where their offspring end up, I have a simple message: relax, it’ll be fine.

Of course parents want the best for their children, and worry about the quality of their schooling.

But that can’t be the only thing that’s in play, because one of the most profound trends of the last few decades is white flight: the growing tendency for middle-class Pākehā parents to shun low-decile schools, even if they’re just down the road, and try instead to get their children into higher-decile establishments.

This shift can’t easily be justified on quality grounds, because, as the New Zealand Initiative think-tank found in a 2019 report, Tomorrow’s School, “there are no significant differences in school performance between schools of different deciles”.

If richer schools get better grades, it’s because they have richer students. So middle-class parents can send their kids to the local low-decile school knowing that the teaching will likely be as good there as anywhere else.

Easy for me to say, perhaps, because I’m not the one making that decision. But I went to precisely the kind of school that makes middle-class parents nervous: Petone College, a decile 3 high school in Lower Hutt with a majority Māori and Pasifika intake.

It was an unusual choice for a child from wealthy Eastbourne, and the pupils at my decile 10 primary school were quick to make that clear. I was going to a school “for cabbages”, I was warned, and the “Polynesian kids” would sell me drugs, or beat me up, or possibly both.

Since 12-year-olds have few original thoughts, these children were presumably just channelling their parents’ prejudices.

Either way, they were wrong. No-one beat me up, nor even tried to sell me drugs. My Bursary marks were more than good enough to get me into university. And I gained something just as valuable as university entrance: I learned a little about lives very different to mine.

I don’t mean that I suddenly “knew” what it was to be poor; you can’t know, really, unless you live it.

But my eyes were opened. I saw the toll taken on my peers by poverty, discrimination, dysfunctional families and the feeling that no brighter future awaited them.

I heard kids say it was going to be “great” to turn 16 and go on the dole, and rather than being enraged – as an outsider to the school might have been – I could see the hurt behind the statement, the desire to save face.

On the lighter side, I also learned something about a wide array of cultures – different foods, forms of art, ways of speaking, senses of humour – that I’d have missed at a more monocultural school.

All this made me a better-informed adult, a citizen better able to grasp what goes on in this country.

And in retrospect, I was always going to be fine academically, in part because well-off kids come with so many advantages. Children actually spend very little time at school: something like 900 hours a year, out of a possible 6000 waking hours.

In every one of those waking hours, well-off children are, for the most part, blessed by having less stressful home lives, quieter places to study, and parents who have the time, energy and confidence to readily help with homework.

Most education researchers, unsurprisingly, would say that a family’s background – its social and economic status – accounts for around two-thirds of the variation in kids’ marks, with schools determining as little as one-fifth.

Middle-class school choices clearly aren’t just about quality. Prejudice, alas, is real. On a Stuff story about white flight some years back, one parent anonymously commented, “Fair enough. I’m not putting my kids where they’re going to be spending all day with loser kids.”

The billionaire Bob Jones, who may unfortunately not be alone in his views, decries low-decile schools as “filled with low-decile people”.

Of course schools vary in their orientation and character, and so do kids. You want the two to match up. I get that. Still, it’s hard not to notice that the “loser kid” schools have a predominantly poor, Māori and Pasifika intake.

So I would urge all the middle-class parents shunning their local school to look deep into their hearts, and ask themselves whether it’s really about quality and character, or whether something less pleasant lies beneath.

And, above all, I’d ask them to remember that low-decile schools generally provide a good education, and that if they send their kids there, they will almost certainly be fine. I went to one of those schools, and I was fine. If you send young George there, he’ll be fine. Little Isla? She’ll be fine, too. I was fine. They’ll be fine. Everything will be fine.

Guardian: Jacinda Ardern’s budget made progress on poverty, but it’s not mission accomplished

Read the original article in The Guardian

Today, we close a chapter on our past.” So said New Zealand prime minister, Jacinda Ardern, on Thursday, as she launched a budget that included the largest increases to benefits since the 1940s. But although she should be congratulated for finally taking concrete steps to attack poverty and inequality, there is a real danger of celebrating too soon.

Child poverty is one of our much-lauded prime minister’s signature issues, and she has committed herself to ambitious targets that require hardship rates to be cut by as much as two-thirds by 2028. If achieved, this would be an exceptional feat, a rapid reduction that would place New Zealand among the world’s best performers.

But in her first term, Ardern’s only major move against child poverty was her $5.5bn Families Package, which increased tax-credit payments to households with children. This helped reduce the number of children in poverty by about 20,000-40,000.

It was a good start, and the government looked on track to meet its short-term 2021 targets. But the economic impact of coronavirus, combined with the need to help families in progressively deeper levels of poverty, meant far more would be needed in future. And it didn’t look like the prime minister’s cautious, softly-softly approach was going to get us there.

Thursday’s budget, though, set down a marker. Its headline move was an increase in benefits of between $32 and $55 a week, which is projected to lift a further 20,000-30,000 children out of poverty. This will include significant reductions in hardship for New Zealand’s indigenous Māori population and Pacific peoples, both overrepresented in the poverty statistics.

Does this put the government on track to meet its extremely ambitious targets? Not quite. And one of the budget’s central – but little-recognised – insights is that Ardern faces a nasty conundrum about how to handle the disparity between poor households and middle New Zealanders.

One of the key child poverty measures looks at how many families have been lifted over an income level that was fixed in 2018. This measures what’s known as absolute poverty: do poor families have more money than they had in the past? And indeed they do. The government is on track to meet its targets here.

One of the other key measures, though, looks at how many households have less than half the current income of the typical (median) family. This measures relative poverty, the extent to which poorer families are – or are not – keeping pace with mainstream New Zealanders.

While all the poverty measures are important, for me this matters most, because poverty is so inherently relative. Of course, people need basics like a roof over their head and food on the table. But poverty is also about not having the things that other people have: feeling like you cannot afford to be part of mainstream life, not feeling included in society, not feeling able to – for instance – let your kids attend birthday parties because you can’t afford presents for their friends.

On this measure, the government is not doing well. It has made some progress but will almost certainly miss its 2021 target, and is nowhere near being on track for 2028. In a sense, it’s a victim of its own success. It has ensured that middle incomes have increased reasonably rapidly, and cushioned the pandemic’s impact on them. This in turn increases the level which the worst-off families need to reach if they are to be deemed no longer poor.

There is only one way out of this conundrum, and that is to raise the bottom more rapidly than the middle. The government needs to tackle not just poverty but inequality. That is difficult politically, because many New Zealanders feel as if they are the “squeezed middle”, those most deserving of support, and are highly sensitive to the idea that those below them are getting more help than they are.

Ardern also faces a wider challenge. While she may have undone the widely-despised 1991 benefit cuts, poverty rates remain much higher than they were before the 1980s reforms. We also have a housing crisis, with catastrophically high rents, unlike anything faced in the 1990s.

On Thursday, I challenged social development minister Carmel Sepuloni on her boss’s claim that we could “close a chapter” on the past. “I think the prime minister would be the first to put up her hand and recognise that there’s a lot more work to do, and that we face challenges now that we didn’t face in the 1980s,” Sepuloni responded.

But, she added, the benefit boosts, plus moves to tie future increases to wage rises, were slowly shifting the dial. “When you add them all up, they do demonstrate significant traction in the welfare space.”

Bureaucratese aside, that’s a reasonable response – but one which still highlights the scale of the problem. Real progress is finally being made. But mission accomplished? Not yet.