THE NEW ZEALAND EXPERIMENT - NOT THE MAJOR SUCCESS THAT POLITICIANS CLAIM
PRUE HYMAN, ASSOCIATE PROFESSOR OF ECONOMICS, VICTORIA UNIVERSITY OF WELLINGTON
Two books have appeared in the last year with 'Experiment' in the title to describe the political transformation of New Zealand (and in the second case Australia as well) over the last twelve years.
What makes writers call this transformation an experiment is the purity of the model and policies based on neo-liberal economic theory.
The first part of New Zealand's structural adjustment programme was carried out by a supposedly leftish first world democratically elected government with scant regard for social or electoral consequences. The fundamentals of the policy revolution were taken as given, unchallengeable and to be embedded for the future.
They have moved New Zealand a substantial distance along a continuum away from social democratic ideals, community interdependence, and an interventionist liberal welfare state associated also with Scandinavian countries, towards one stressing individualism, self reliance, independence, and a reduced government role.
This article examines the claim that the experiment has been a brilliant success, considering briefly the philosophical basis, the macro and micro economic results, and the distributional impacts.
Jane Kelsey's book on the period challenges the myths being propogated by supporters about the startling success of this 'experiment'. The World Bank, the Economist, the OECD and others are hailing the country which has put into effect the most rapid and far-reaching programme of deregulation, privatisation, and cuts in tax rates and some categories of government expenditure as an example for the rest of the world.
Roger Douglas, the Labour Finance Minister who started the revolution, and Ruth Richardson, his National counterpart who took it further, are touring the world selling the New Zealand example. They have the media ear more than their opponents - money and power talk.
But many New Zealanders see the changes as having disastrous social consequences for little if any economic gain. They are making a previously fairly equal society, comparatively free of sharp class division and conflict, take on some of the worst features of the United States scene - dismantling an excellent public health system, raising the costs of higher education, and creating significant inequality, with increasing crime, domestic violence and alienated youth.
How and why could economic fundamentalism take over both major political parties and obtain majority support in a country where it was so foreign?
A complex mix of factors were responsible. Advocates of major change were well placed to take over power following economic stagnation and the exchange rate crisis which accompanied the 1984 election.
Assertions of lack of accountability and inefficiency in the public sector, distortions and lack of neutrality caused by intervention in the private sector, of government failure matching market failure, and of capture of social services by the middle class could be used to rationalise many of the changes.
Media discourse and major influence can be taken over in New Zealand by a small group, in this case some politicians, business leaders, bureaucrats, and economists. This takeover was able to succeed in the mid 1980s due to the poor economic situation and world trends, the recent history of band aid interventionism, and the structure of the New Zealand political system.
A small country in financial trouble was ripe for such a takeover, assisted by a non-federal structure, only one house of Parliament, and an incoming Minister of Finance with a very definite analysis and agenda. Roger Douglas had already undertaken the necessary planning, while the leaders of the dominant finance ministry in the bureacracy, Treasury, were totally in agreement with his proposed direction of change. By contrast, opponents and doubters within his cabinet, party and elsewhere were far less prepared with an alternative strategy.
In addition, many adherents of the new orthodoxy which underlay the policy directions sold it with considerable skill, even though their claims could be and were challenged.
The tactics included claiming the high ground of correctness of theory, prescription, and philosophical basis and, further, that there were no alternatives worthy of consideration.
The American economics profession, particularly the Chicago school, influenced its New Zealand orthodox counterpart through direct and indirect contact.
The revolution also involved a subtle takeover of ordinary language, coopting terms like 'community', 'choice', and 'incentives'.
The 'poverty trap' caused by an 'insufficient' gap between benefit levels and wage opportunities is said to encourage welfare dependency, to be cured by appropriate 'incentives', such as lower benefits. But this is a form of double speak.
Incentives to be in paid work in fact become punishments for failing to find full time employment.
The main reasons for sole parents to be on benefits are a shortage of jobs, a lack of suitable training, the unavailability or unaffordability of child care, discrimination against women with dependents, and/or very high effective marginal tax rates, not benefits that are too high.
Similarly 'fiscal responsibility' has meant cuts in income support and social services, and 'flexible wage rates' cuts in lower pay and conditions.
Deinstutionalisation is sold as empowerment when, unsupported by adequate resources, it means transfer of responsibility to the unpaid labour of female relatives and community volunteers. The word 'reform' is applied by supporters to all the changes, as with United States welfare reform, which is also likely to have negative results on many children of poor parents for uncertain gains.
Calling the changes reforms is another examples of use of persuasive language by proponents of the policy directions, prejudging the results which are negative for many people and perhaps society as a whole. My own book critiques the systematic gender and other biases in these uses of language, in orthodox economic theory and in recent New Zealand policies2.
In applying the policies, inconsistencies abound. Dismantling of all protections and fiscal savings are theoretically paramount. Hence the attempt to reduce benefit payments through cuts in rates, increases in standdown periods, and draconian policing of whether recipients are in a heterosexual couple relationship.
But while minor benefit overpayments receive substantial media coverage, the larger tax deductions, evasion and avoidance by high income individuals and companies are largely ignored.
Import protection and fiscal subsidies to business have supposedly almost entirely disappeared, yet the Bank of New Zealand was bailed out by government in the face of massive business defaults resulting from irresponsible loans prior to the 1987 stock market crash.
In terms of availability of individual, company and government information, new Privacy and Freedom of Information Acts appear to have partly conflicting aims, with data matching permitted to catch minor benefit while secrecy is protected in the private sector.
Management changes in the state sector were based on simplistic applications of principal agent/public choice theory and arguments of 'provider/bureaucratic capture' to support the notion that only generic management skills are necessary for efficiency.
Hence professionalism, the balancing of conflicting aims, including equity, and the giving of full and frank advice gave way to managerialism and contracts for what government ministers wanted to hear.
Alternative research and advice found it hard to obtain funding, and collection of statistics on outcomes were deliberately curtailed. Ironically, contestability and a more market approach was to apply to everything except the market place of economic ideas. With the media undereducated in economics and perhaps able to be bullied in a small society, critics do not receive the same hearing as orthodoxy.
Influential lobby groups such as the New Zealand Business Round Table (NZBRT), a group of top owners and managers from some of the largest companies in New Zealand, would like the revolution to reach its logical conclusion. Many of this group and others involved in the changes received direct benefits, at the same time as they discount the views of professionals with knowledge in the areas involved on the grounds of self interest and rent-seeking influences.
The NZBRT commissions and publishes light weight research from overseas free market advocates with little knowledge of New Zealand. Its publications have suggested the virtual abolition of all taxation, total privatisation of health and education, and pressure on single mothers to give up babies for adoption.
Government can use its extremism to make their measures appear comparatively mild. However, it is important to stress that self interest is not the sole driver of this extremism. Proponents have, or profess, a near religious belief in its underpinnings, seeing ethics and morality to be on their side. This makes their economic power and influence even more dangerous, in the view of those who believe their policies misguided. They see welfare cuts as potentially ending the cycle of poverty and welfare dependence, and resulting in a morally desirable state of self reliance for almost everyone.
For example, David Green's stark presentation of the libertarian case, sponsored by the NZBRT, envisages a society where you are on your own in looking after yourself and your dependents, with charities providing for those unable to do so.
Parents would assume almost total responsibility for their children's education, with government assisting only the poorest. Green argues that voluntary charity is worthy, while the welfare state is not. Further, he claims that his vision is not individualistic, but incorporates a rich view of community, with organised, non-political welfare in voluntary agencies better than state welfare which currently crowds it out.
However, the crowding out hypothesis is hardly sustainable. There are currently a myriad of voluntary agencies such as Rape Crisis, the Refuge movement, socities for every physical and mental problem, Citizens Advice Bureaus, religious organisations, providers of Meals on Wheels and foodbanks dealing with ever increasing needs. Charity and poor law in pre-welfare state days allowed even wider inequalities than today, and a partnership between voluntary agencies and government is inescapable. Nor does Green explain how enough private charity would emerge: if his view is that people only increase their paid work commitment when the financial incentives through low taxes are sufficient, why will they happily give away this extra money through charity, but not taxation, for the same ends?
In fact, the New Zealand evidence, such as the survey conducted for the 1987 Royal Commission on Social Policy, indicates that most people were perfectly willing to pay taxes for communal health, education and welfare provisions.
Many believe, for example, that bringing up the next generation in a joint parental/community responsibility in which the currently childless should be willing to pay taxes to help bring up children society collectively wants and needs.
Taxation was not generally viewed as coercive theft. Much of the redistribution was seen instead as reflecting differences in dependence and independence over the life cycle, together with variable needs due to chance rather than desert.
However, the current assumption and praise of total self reliance and independence, and the re-creation of the undeserving poor, can set one group against another and lead to the assumptions becoming self-fulfilling prophecy. Hence the huge increase in the private health insurance market.
Most of those who can find the money have reluctantly taken out such insurance in the face of a declining public system, which then becomes a residual for the poor and can be run down further. Many on high incomes would rather face a top tax rate of 50% and a properly maintained public health system.
Despite my negative overall assessment of New Zealand's direction since 1984, a balanced account must acknowledge the positive aspects, and the fact that a long history of economic decline and the immediate foreign exchange crisis made some change of direction essential.
Economic difficulties can be traced back as far as the 1950's, with slow economic growth meaning that per capita GDP fell from seventh highest in the OECD area in 1960 to fifteenth place in 1970, and eighteenth in 1984. During the decade to 1984 current account deficits and inflation both reached record levels. Excessive dependence on exports to Britain and on agricultural products in the face of declining terms of trade and restriction of these imports by the European Economic Community added to low productivity and to worldwide factors, including the oil crisis, as key problems.
Diversification of types of exports and geographic markets have reduced somewhat New Zealand's vulnerability. Agricultural exports are still 46% of the total, but in the past they have been as high as 80%. In the year to June 1994, only 6% of New Zealand's exports were to the United Kingdom, with 21% going to Australia, 11% to the United States, and 15% to Japan. Other Asian markets are also growing rapidly in importance.
The overall economic strategy since 1984 has focussed on reducing inflation, internal and overseas deficits and debt levels, dismantling protection and regulation in all areas, with the intention of increasing productivity and competitiveness in both the private and public sectors.
This involved higher unemployment in the short term, with the hope that faster growth would create new employment in the medium term, based on international competitiveness rather than government subsidies and protection. The means to these ends encompassed sweeping monetary, fiscal and regulatory changes. Monetary policy has been geared almost entirely at eliminating inflation, with the Reserve Bank Act giving this total priority and its Governor's contract dependent on the consumer price index rise staying below 2% per year. This has almost been achieved, thought it has required a new index of underlying inflation, eliminating interest rates and 'one-off factors' from the regimen and yielding a lower figure than the CPI - defended on theoretical grounds but looking suspiciously like statistical manipulation. Exchange and interest rates, like all market prices, have been allowed to set their own level - but real interest rates have been very high, penalising homeowners and other borrowers. Fiscal policy has successfully turned the government budget from deficit to surplus, with some expenditure cuts and switches in sources of revenue.
However, other claimed successes of the changes are dubious. On the macro side the economic recovery is very fragile, with growth only beginning to recover the lost ground from earlier stagnation/recession. That recession was the inevitable result of the restructuring programme, with its induced job losses. From 1984/5 to 1993/4, real GDP growth averaged less than 1% per year and was negative in per capita terms. The growth of 5.5% in the year to June 1995 was promising, but further signs of slowdown have appeared. Part of the improvement was due to maturing forests and horticultural planting dating from before the economic revolution, while part came from unusually good trading conditions, including falling oil prices and international interest rates, and increased prices for dairy and forest products.
Unemployment has declined from its peak, but remains high by New Zealand historical standards. The peak for official unemployment was 9.1% for females, 10.6% for males in June 1993, reducing to about 6% with the resumption of economic growth, but these significantly understate the reality, with tight definitions omitting many seeking work. The rates for the indigeneous Maori and largely immigrant Pacific Island peoples are very much higher, with as many as 40% of teenage Maori women being unemployed. Job losses from restructuring largely replaced earlier hidden underemployment, with low levels of productivity. However, even though one major aim of the programme of deregulation, corporatisation and government restructuring was the drive for efficiency, productivity growth has averaged only 1% per year.
Employment has, however, since 1993 shown a welcome increase, after several years of virtual stagnation and some of actual fall. However, most of the growth over the last fifteen years has been in part-time work.
The new part-time, casual and temporary jobs rarely have good pay, conditions or security. While part time work suits many married women given the current division of unpaid labour, the numbers wanting to work longer hours than available in their current job has risen sharply, three fold between 1987 and 1992. By 1993, 28% of women working part time wanted more hours, with 20% wanting to work full time, and two thirds of those wanting more hours were women.
Fiscal policy has involved a major shift from direct to indirect taxation, with the introduction of a goods and services (or value added) tax on all consumption, initially at 10%, later increased to 12.5%. Direct tax rates were slashed, on both business and household income, with the top rate being reduced from 60% (66% with a temporary surcharge) to 33%. Hence the system has become far less progressive than before. This is exacerbated by a tax structure with no personal income exemption. Allowing for a low earner income rebate, rates prior to July 1996 were 15% up to an income of $9,500, 28% from this figure to $30,875 and 33% on higher levels of income. Despite claims that closing loopholes, removing tax exemptions, and introducing a fringe benefit tax would mean that the better off still paid a fair share of total taxation, the top income brackets have substantially increased their share of disposable income. Further tax cuts took effect from lst July, with another round planned for 1997, dropping the middle rate to 24% now, up to $34,200, and 21% in 1997, up to $38,000, but not reducing the lowest rate. Hence welfare beneficiaries and the lowest wage earners are the only group to receive no benefit. The first round of this tax cut leaves an extra $22 per week in the pockets of those earning over $34,200 per year, the highest earning 45% of wage and salary earners, but is worth only $3 to those on the minimum wage of $13,260 ($255 per week) and $16 to those on the average wage.
On the expenditure side, cuts in entitlements and benefit levels, tougher targetting of state income support to families on the lowest incomes, and the drive for efficiency have not succeeded in reversing the rising levels of expenditure on social welfare, health, and education. While cuts to benefit levels in 1991 both caused hardship and put a brake on the increase, the increasing numbers drawing such unemployment, sickness, disabiity and sole parent benefits continued its rapid rise, due to job losses, largely policy induced, and social changes. Similarly, a gradual increase from 60 to 65 in the age of entitlement to national superannuation cut expenditure in this area, but demographic change increasing the elderly proportion of the population, ran in the opposite direction. Total government expenditure was fairly constant, with increased revenue from both direct and indirect taxation turning the deficit up to 1992/3 into surplus subsequently. The increasing surplus is the government's rationale for the tax cuts discussed above, although they should also be seen in the light of the forthcoming election.
The move for smaller government withdrawing from commercial activity was driven both by ideological beliefs and the drive for efficiency. Hence corporatisation of many areas of state activity proceeded fast, covering the energy, transport, banking, insurance, forestry, construction, property, communications and broadcasting sectors.
Privatisation, with the sale of state assets, was taken further by National governments since 1991, with Labour having been more cautious in this area due to ties to the trade union movement and concerns over selling off strategic interests largely to overseas buyers.
Twenty seven government businesses were sold between 1988 and 1995. Sale of companies such as New Zealand's sole airline and rail network, and its major bank, insurance and telephone operations, largely to overseas interests, caused disquiet in many quarters about a decreasing lack of local control over major elements of the economy and of the outflow of profits and dividends.
Further proposed overseas sales of forestry cutting rights have recently met strong resistance. The disquiet is exacerbated by concerns that many assets had been sold at too low a price, with the immediate one-off financial gain being overemphasised relative to the amount and destination of ongoing profits.
This has received some confirmation with recent balance of payments figures. A favourable export-import balance on merchandise, substantial in the early 1990s but since reduced, is more than swamped by a deficit on invisibles, giving a current account deficit which increased from 1.6% of GDP in 1993/4 to 3% in 1994/5, with signs of it increasing further. Treasury itself attributes this deterioration largely to strongly increasing profits accruing to foreign-owned firms operating in New Zealand.
Nor can the increased economic efficiency claimed for corporatised state owned enterprises be accepted totally at face value, since multiple aims, including some equity concerns, had been replaced by the single objective of the bottom line. A clause in the Act which established the SOEs allowed for unprofitable activities required by government on equity grounds to be provided with a tax subsidy. However, this was largely a political palliative, quietly dropped in practice. Examples abound of the resulting social costs falling on a variety of individuals and groups, through reduction in services arising from the elimination of equity based cross subsidies. Residents of rural areas saw their postal delivery and electricity service charges rise, while losing nearby post offices, banking and transport services. Subsidised forestry operations created in traditional Maori rural areas to draw unemployed young workers back from overcrowded Auckland ghettos were eliminated, with significant personal and social costs. Women tied by caring responsibilities to distant suburbs suffered cuts in services. There are pros and cons to the elimination of cross subsidies, but the overall calculations of the economic impact of corporatisation need to include these impacts.
In the labour market, deregulation at a time of high unemployment shifted the balance of power in bargaining away from employees and unions towards employers, with negative effects on wages and conditions of the lower paid.
Industrial relations decentralisation accelerated after the passage of the Employment Contracts Act, 1991, which encouraged a move from a centralised Australian-type bargaining system towards the United States enterprise based mode. The change was explicitly designed to encourage labour market flexibility and higher productivity by moving decisions and responsibility closer to the workface. It was sold as giving increased choice to individual employers and employees over bargaining structures and respresentation, and encouraging cooperation rather than conflict.
However, the theoretical symmetry of increased choice was spurious. Most employees had very little or no choice over whether to be covered by an individual or collective contract or who should represent them, particularly in firms, industries and occupations where bargaining power and ability to engage in industrial action is low and employer goodwill not guaranteed.
Employees with low bargaining power, including younger workers, had to accept any terms presented, particularly under the threat of a six months standdown period for the unemployment benefit. Small workplaces and lower paid groups were particularly vulnerable.
Less explicit, but equally clear, was the intention to reduce trade union power, widen pay differentials, cut average pay levels, and reduce add-ons such as penal and overtime rates - all of which have occurred. Average real wages have declined since the Employment Contracts Act, with price increases exceeding the nominal wage rise by some 4%.
The admittedly small productivity gains accrued largely to owners and top executives, rather than being shared with employees.
Overall, compensation of employees fell from 45.7 percent of GDP in 1990/1 to 43.4 percent in the 1995 financial year. The labour market flexibility enhancement purpose of the Act was claimed potentially to advantage employees. However, such flexibility is mainly at the behest of and for the benefit of employers. Only the small proportion of workers with particularly scarce skills are able to bargain any flexibility gains of their own. Labour market deregulation is oblivious to discrimination and the systemic differences in opportunities, resources, power and choice which operate against ethnic minorities, women, and lower socio economic groups.
One result is widespread dissatisfaction about conditions of work. Inevitably wider pay gaps, generally and between women and men, are resulting, with unionisation plumetting from its peak of nearly 60% of wage and salary earners to about half that level. Among female intensive areas, clerical unions lost about 45% of their members before disbanding, cleaners unions about 20% and the Service Workers and Distribution and General Workers Unions each around one third4. Parallel to decreasing unionisation is the reduction in the proportion of the labour force having their wage levels and conditions set collectively. Currently some 23 percent of wage earners are on collective contracts, down from over double that level on collective awards and agreements prior to the Employment Contracts Act.
Wage earners on both collective and individual contracts have experienced deteriorating conditions. Removal of penal rates and overtime, meaningless contracts with wages and hours cut and changed overnight without prior warning or consent, anti social hours of work, lack of career prospects, and poor treatment by management have been reported, with juvenalisation, casualisation and intensification common in the retail trades5. A 1993 survey of 962 women members of the Service Workers Union found that 40% had suffered a household income decline in the previous two years6. Thirty percent had lower take home pay, 47% the same, and only 20% higher than two years earlier, with a large part of this small improvement coming from longer hours, reported by 15% of respondents. With as many as 32% reporting higher basic pay than before, the lower incidence of higher take home pay was largely due to abolition or reduction of overtime, penal, unsocial hours or weekend rates. In a larger survey of employers in all sectors, 43% had reduced overtime rates and another 42% had frozen them for five years since the Employment Contracts Act, while 39% had cut and 44% frozen penal rates. The minimum wage was increased in 1996 by 12.5 cents an hour to $6.375 an hour or $255 a week, but it has fallen far behind its relativity to average earnings in earlier years.
Contracting out work, such as cleaning, to cut labour costs is a trend which has cut pay and conditions in New Zealand as in the United States and elsewhere. In New Zealand, unions and collective contracts survived contracting out. Multinational cleaning companies opted for a collective multi-employer contract covering 80% of contract cleaning in the private sector, fearing that competition in the tendering process could squeeze profit margins harder in the absence of a uniform pay structure. However, it was the interests of the employers which determined the bargaining and contract structures, with conditions deteriorating as much here as in areas where unions were squeezed out.
The distinction between employees, on contracts of service, and self employed, who contract for services, has been eroding through this contracting out process. Only employees are covered by most labour legislation, including minimum wages, annual and statutory holidays, and sick and parental leave. Those on contracts for service have no such protections, so there is an incentive for employers to transfer work to this group. This borderline has therefore become a legal battle ground. Recently, unions won a small victory, with a Court of Appeal decision to grant homecare workers the status of employees, rather than that of independent contractors. These 6,000 homecare workers, who care for the frail and elderly, had been working for wages as low as $3 or $4 per hour, as against the minimum wage of over $6. Paying starvation wages was one way for Regional Health Authorities who contract for the delivery of homecare services to the private sector, to try to reduce the government health budget. The Court of Appeal found that the workers were vulnerable and susceptible of manipulation if allowed to be treated as independent contractors.
Another contested area in interpretation of the Employment Contracts Act is the meaning of the requirement that employers recognise the authority of agents, normally unions, appointed by employees for the purposes of negotiating contracts. The meaning of the word 'recognise' has been the subject of a long and inconsistent set of Court judgments about what constitutes acceptable employer behaviour. The employer is ostensibly forbidden to undermine the authority of the bargaining agent, or to interfere in the exercise of that authority during bargaining. However, in a recent case one judge (Judge Thomas), dissented from the majority view that the conduct of an employer (the Fire Service Commission) was not inconsistent with these obligations. His interpretation of the majority view was that the employer may communicate direct with employees in furtherance of a strategy which will be likely to embarrass or disadvantage the bargaining agent in negotiations, distribute information which is not solely factual, and which will tend to persuade employees of the unreasonableness of the bargaining agent's stance, offer a monetary inducement to employees if they sign the collective contract by a date which has been fixed without reference to the bargaining agent, and act without good faith. This amounted in his view to making the requirement meaningless.
The majority decision is likely to reopen the complaint by the central union organisation (the Combined Trade Unions) to the International Labour Organisation that the Employment Contracts Act breaches ILO conventions 87 and 98 on freedom of association and the right to collective bargaining. The final ILO report was less condemnatory than its interim findings, but it expressed doubts over whether the Act was compatible with ILO principles on collective bargaining. It expressed the hope that the Government would initiate and pursue tripartite discussions as part of a process of ensuring that the provisions of the Act were fully consistent with those principles.
Another area of the labour market where progress has been eroded in recent years is that of gender pay equity and equal employment opportunity. Equal pay for equal work by women was implemented in the public sector in 1960 and in the private sector by the Equal Pay Act, 1972, which covered all remuneration, however determined. The Equal Pay Act provisions significantly narrowed the gender gap, with the female-male ratio for average ordinary time hourly earnings increasing from 72 to 78% by 1977. It has crept slowly up to 81% in the subsequent nineteen years. However, total weekly and annual earnings show wider gaps, with women's preponderance in part time work, and less access to overtime.
The slow progress after 1977 and narrow wording and interpretation of the Act led to demands for broader legislation encompassing equal pay for work of equal value. This concept, along the lines of comparable worth, suggests that work assessed as requiring similar overall levels of skill, responsibility, effort and working conditions (in total, not necessarily on each component separately) should be paid equally, irrespective of the predominant gender of its workforce. Its basis is the argument that skills/characteristics of female dominated work have been under valued by the market and/or in wage/salary negotiations, for a variety of historical and social reasons ranging from the family wage concept, through seeing such skills as 'natural' to women, to the male predominance among employer/employee decision makers looking after their own interests. Just before losing office in 1990, the Labour government passed an Employment Equity Act, the pay equity part of which was based on equal value principles. However, one of the first moves of the incoming National government was to repeal this legislation due to its greater committment to less intervention by third parties in the labour market. The earlier Labour government, while almost equally committed to deregulation, needed to balance this against its links to trade unions and women's organisations, and hence had somewhat contradictory policies in this area.
The extent to which women earn less than men is considerably less in New Zealand and Australia than in the United States, with the high levels of unionisation and centralised bargaining in Australia and, until recently, New Zealand, a major factor. The move towards systems more like those of the United States threatens this greater gender equity. Enforcement is not well suited to a climate of individual and small collective contracts, even though the Employment Contracts Act amended the Equal Pay Act to cover contracts. Deregulated labour markets with pay setting at firm and individual level make even the question of what is identical work uncertain and in this environment, the interpretation of the Equal Pay Act 1972 is clouded and its effectiveness in doubt. Many people do not know the salaries of their colleagues, so cannot assess if they are receiving equal pay. Only collective contracts covering 20 or more employees now have to be registered. Discrimination in individual cases is much harder to establish than separate rates in an award.
Direct discrimination in employment and other matters on the basis of gender and ethnicity has been illegal since 1977 under human rights legislation, although hard to police through complaints. Some successes have been achieved, however, towards equality for women workers in areas including firefighting, freezing works and aircraft cabin crew, but these largely occurred prior to 1984. Disability, age, health status, family status and sexual orientation were among grounds added in 1993, although the government exempted itself until 1999. More positive equal employment opportunity programmes for women, Maori, Pacific Island and other ethnic minorities, and for people with disabilities, are mandatory in the state sector with a state agency monitoring progress and reporting to Parliament. This was to be extended to the private sector under the Employment Equity Act, but its rapid repeal means that the existence of such policies are reliant on exortation and efficiency arguments, with New Zealand Employers Federation support. While women are moving up vertical hierarchies and some of those with the scarcest skill have benefitted from the freeing up of labour markets, glass ceilings still exist and horizontal occupational segregation is declining only very slowly.
It is clear from international comparisons that the economic situation, the structures of pay by occupation, industry and gender, industrial relations law and systems, and the political climate are more important causes of the size of the gender earnings gap and the realisation of any equity policies than specific pay equity and equal opportunity legislation and actions. More generally, overall economic policies, including fiscal, monetary, labour, industry, government sector and international trade policies, have far more impact on the economic and social status of most women than specific policies aimed to improve that status. Despite government rhetoric looking towards a high wage, high employment, high skill, high productivity labour economy, New Zealand appears in practise to be moving more towards a dual/segmented labour market. Price competition with high population, developing economies which can benefit from economies of scale and lower wage structures mean that the threat or reality of moving off shore puts downward pressure on wages in areas defined as lower skilled, where women and Maori are overrepresented.
The combination of labour market, tax, and welfare policies discussed above have increased income inequalities and measures of relative poverty. Associated social costs include increasing crime and violence, with alienation among those on the margins of society with less access to education particularly evident among the indigeneous Maori. However, it should also be recognised that a resurgence of Maori culture and pride, with many community and business initiatives, such as total immersion kindergartens (Kohanga Reo) form a contrast with this picture, while some government compensation for land grievances is also occurring. Moreover, community groups, including food banks, refuges, marae, and churches, fill some of the gaps, alleviating the resulting poverty and its impacts. Certainly homelessness and begging on the US scale is not seen, though there are fears that it could emerge.
Literature and data on poverty lines, levels, and gaps is comparatively limited in New Zealand, with controversy over definitions, notions of absolute and relative poverty, appropriate comparators and household equivalences. Nevertheless, it is clear that on any definition other than, perhaps, very severe hardship and starvation, poverty and hardship rose in the period under consideration, with real incomes at the bottom of the distribution falling. Taxation and benefit changes have had more impact on these trends than the widening of market incomes, although that could be changing more recently. The share of household equivalent disposable income accruing to the bottom 50% of households fell, on one estimat, from 30.9% to 27.7% between 1981/2 and 1992/3, with the top decile increasing its share from 20.1 to 25.1% and the bottom decile decreasing from 3.5% to 3.1%7. Various measures of poverty involve increases in the proportion over that period ranging from 26% (for a middle estimate of poverty, encompassing 16% of the population in 1992/3) to 55% for the lowest estimate of poverty of 9.5% in 1992/3. The highest estimate of poverty, 34.9%, involves an increase of 37.4% in this period.
Also clear is that low income families with two or more children, whether in two parent or sole parent households, have the highest incidence of poverty. The most detailed study in New Zealand uses official survey data to generate estimates of relative poverty, based on 50% and 60% of median equivalent disposable incomes, and also considering expenditure measures, before and after adjusting for housing costs. It combines this approach with the result of focus group interviews which assess expenditure needs for minimal and slightly better living standards, the results of which gave credence to the 60% of expenditure boundary8. Since median incomes and expenditures have themselves fallen between 1984 and 1993, a totally relative view yields a fall in poverty levels. However, the authors of the study more realistically compare numbers using the $16,032 income poverty measure at the 50% level in 1983/4 with those below the $16,366 measure at the 60% level in 1992/3. This gives a sharp increase in incidence of poverty from 4.3% of households to 10.8%, with an increase from 11.8% to 46.2% among sole parent households, and and from 14.0% to 24.1% for 2 adult/3 or more children households. With respect to distribution rather than incidence, the greatest numbers in poverty are in two adult households and up to one third of children are in poverty under the widest definitions. These include the children of low waged adults as well as beneficiary families. Maori and Pacific Island families are particularly subject to poverty, with about three and four times the rate for European (Pakeha) households.
In New Zealand as elsewhere government aims to solve the problem usually known as welfare dependence. Even the term and seeing it as a problem requires some examination. Community interdependence can be seen as inevitable and not undesirable, with children and many of the elderly, even if they have financial resources, dependent on the current production of the paid and unpaid workforce. Adults engaged in time-consuming unpaid caring work, looking after children or other dependents, are not unproductive. Not all can also be in paid work. As stated earlier, incentives for those in this group who are financially dependent on benefits to move into paid work are more realistically punishments for not doing so, when jobs, training and adequate affordable childcare are in short supply.
Nevertheless, in New Zealand the language and concept of improved incentives holds sway. It has taken the form of attempting to widening the income gap between benefits and paid work. But when lower paid work itself shows falling real earnings, this means ratcheting down the resources of both groups. Further, it is clear that most of those on benefits wish to be in paid work, with self esteem contrasting with the stigma of benefit receipt and low standard of living possible on benefits making this hardly suprising. Hence this incentive issue is overplayed, while the more serious one is that of the high effective marginal tax rates arising from the tax and benefit systems. The abatement systems on highly targeted family support, housing and health assistance combine with income tax and work expenses including child care so that both sole parents and second income earners in low paid two income households may find they get no benefit from increased hours of paid work. With low levels of exempt income, sole parents and unemployed people can only work a few hours per week or must jump to full time well paid jobs to be better off, which gives an incentive to fail to declare income. The option of combining reduced benefits and longer hours of part time work was not encouraged by these structures, at least until recent changes outlined below.
The problem of high effective marginal tax rates has long been recognised. It is not easy to solve, since lower rates of abatement would result in partial benefits still being paid at levels of income comparable with those of many in full time low paid work. This is often seen as politically unacceptable. Some amelioration of the problem has occurred in New Zealand with an increase from July 1996 from $50 (those without children) or $60 to $80 in the amount of weekly earnings allowed before abatement of benefits. Abatement used to be at 30% from $50/60 to $80 of other income and at the very high rate of 70% from $80 of other income. A further improvement is that for those on Domestic Purposes, Widows', and Invalids' Benefits, where part time work rather than full time is seen as the more feasible alternative for many, the abatement rate is now 30% from $80 to $180 per week, with 70% cutting in at $180. This will make part-time work substantially more worthwhile provided that inexpensive childcare is available, with an increase in net income of $46 per week at $180 other income. A $20 extra exemption is allowed, as before, for the childcare costs of Domestic Purposes and Widows' beneficiaries.
The abatement regime for other benefits, where full-time work is being encouraged to a greater extent, continues to involve a rate of 70% from $80 per week of other income. The lower rate of abatement does not apply, therefore, to unemployment benefit, where government argues that it would be unfair to allow those combining part time work and a part benefit to be better off than full time workers on low wages.
Another attempt to ensure that this is a rare phenomenon is the Guaranteed Minimum Family Income scheme. This provides a tax credit which tops up the income of low-wage working families to a fixed after-tax limit of $278 a week to July 1996, increased to $284 at that date, and by a further $6 weekly from 1 July 1997 (before adding family support). However, eligibility for this is low and takeup even lower, with the top up only applying to those not on benefits and whose family income is below this figure, which is not substantially above the minimum wage of $255 per week, even allowing for tax.
Despite the past reputation of New Zealand for generous welfare, family support to low income earners and beneficiaries has never been particularly great, and it is highly targetted, with the very small universal element abolished in 1990.
Both Australia and New Zealand have welfare and child support systems based on the categorical approach to entitlement, rather than the social insurance schemes common in Europe, which makes them more vulnerable. For example the dollar level was constant from 1986 to 1993, despite high inflation in the early years.
A study of child benefit packages in 18 OECD countries shows that New Zealand's targetting of assistance to the lowest income households is extreme, meaning that relative to most countries studied the extra costs involved in raising all children are not seen as a joint responsibility. With more support given for the first child than to subsequent children, New Zealand is even more ungenerous towards larger families and the vertical redistribution from family support is very slight.
Until July 1996 Family Support rates were $42 for the first child, and $27 for additional children aged 0-12 years, $35 for those over 12. It has been increased, in two steps in 1996/7 by $5 per child per week, with an additional $15 per child per week where there is an adult in paid work, through an Independent Family Tax Credit. The differential is part of the attempt to increase the gap between benefits and paid work - but at the expense of children in beneficiary families. Family Support reduces at the rate of 18 cents in the dollar of family income between $20,000 and $27,000, and by 30 cents in the dollar of family income above $27,000, so that it cuts out at an annual income of $33,547 for a family with one child, but not until $68,907 for the very few families with five children, if three are aged 13 to 15.
Overall, the gains from the tax cuts and family support range from nil to those with under $9,500 income and no children through weekly amounts of $7, $32, $52 and $72 for families with nil to three children and annual income of $15,000, to a peak of $38, $38, $77, and $98 weekly for similarly structured families on $35,000 per year, falling to $45 per week from the tax cut for all individuals or single income families on $55,000 per year or more. The gap between the net incomes of individuals or families on benefits and the corresponding minimum net income of those with one adult on minimum wage work widen in all cases. After the first of the two rounds of the changes, these gaps increase from a minimum of $5 per week to as much as $42 per week. For example, a couple with two children receiving the unemployment benefit is, from 1 July 1996, and making reasonable assumptions about eligibility for a housing benefit, receiving $381 per week, including family support, a $9 increase. If one of the couple moves into minimum wage work, the wage plus guaranteed minimum family income and family support would yield a post tax income of $456 per week, giving a gap of $75 per week, $42 more than before the changes. There are no formal time limits on the entitlement to a benefit in New Zealand, but as recession increased the average time unemployed, the pressure to reduce benefit expenditures has meant much greater policing of the requirement actively to be seeking work. Requirements for interviews, education and training, are increasing, possibly leading towards a workfare-type system.
Pressures are also increasing on sole parents, despite the fact that median periods on this benefit are only a little over two years and the arguments that parenting young children is real work. Domestic Purposes Benefits is available until the youngest child is 16 or leaves school. However, from 1997, recipients of this benefit or of Widows' benefit with a youngest child aged 14 or over (or in the case of Widows' benefit no dependent children) will be required actively to look for part-time work, or to undertake regular employment, education or training or a combination of employment, education and training for at least 15 hours per week. Those with a youngest child aged 7 to 13 years, and who have been on benefit for 12 months or more, will be required to attend an annual interview with the Government's Income Support Service with a view to signalling that they should be taking steps to move towards independence and employment and to providing appropriate advice. More positively, a pilot programme, Compass, based on a similar scheme in Austrlia has been moving towards a case management approach of assistance towards sole parents aimed at facilitating the move to training and paid work. An evaluation indicated that the voluntary programme cost-effectively increased the chances of going off benefit by 57% and of starting new education or training by 205%.
While government claims that the tax/welfare package was geared towards low and middle income earners, the benefits from the tax cuts are greatest in dollar terms (at $22 per week from each of the two rounds) to individuals with incomes over $34,200 per year. Government is inclined to present the gains in percentage terms, so that top earners do not appear to do as well. However, when the gains in weekly net income are calculated by household type and income quintile, using survey data, it is clear that the highest income 20% gain most, for all household types, even allowing for the improvements in targetted family support.
The low level of community support for child care outside the household, compared with the situation in most European countries, is another aspect of the emphasis on individual responsibility. While per child subsidies to approved child care centres increased in New Zealand during the 1980s, the levels of fees which are still necessary are too high for families where both parents are in low paid employment. The other area of government support, a payment to parents using such child care for up to 30 hours per week, is sharply income targeted. This means that many parents have to use less expensive family or informal care options, or take jobs with little overlap of hours. Parental leave is a statutory requirement, but it is a job preservation programme without payment, unlike the situation in many European countries. It allows for up to a year's leave just before and after the birth or adoption to be taken by either parent or both in combination up to the total. However, little is known about takeup with knowledge by the parties and enforcement low in this area. Some employers, particularly in the public sector, give better terms than the statutory minima, with twelve weeks pay common, usually on return to work.
Policies towards the elderly are a politically sensitive area in New
Zealand as elsewhere, with the structural ageing of the population and the emergence of Grey Power. An attempt at a cross-political party Accord on the area to ensure stability of policy has not been entirely successful. Currently there is a universal tax funded, pay-as-you-go scheme, although there was a short lived compulsory contribution scheme in the 1970s and the idea is again being floated with fears of the current scheme being too expensive and already subject to cuts. Poverty among the elderly was substantially reduced by the current National Superannuation scheme, introduced in 1976, which was at a higher level than previous state tax funded systems. The married couple rate was originally set at 80% of post-tax average ordinary time earnings, although this relativity has now been cut.
A tax surcharge for those with high outside income, has been highly controversial even though its structure is far more generous than that applying to abatement of benefits. It effectively abates the theoretically universal benefit for those with substantial other income. As it is structured with an income but not an assets test, it has been derided as a voluntary tax, with legal advice enabling many of the wealthy to use trusts or gifts legally to escape the surcharge. The thresholds of other weekly income allowed before it applies will increase to $100 for single people and $150 for married couples from 1 July 1977. Only half of any amount received from a New Zealand private superannuation sdcheme is counted as income for surcharge purposes, recognising that about half represents a repayment of individual contributions and tax-paid interest earned prior to retirement. Contributions are not tax deductible, while such pensions are paid tax free. Overall, the surcharge, which applies to only a small proportion of the elderly, receives more attention than it deserves relative to overall policy, including the level of the payment, particularly with general income tax levels in New Zealand now being low.
Families with children currently experience poverty to a greater extent than the elderly, with family assistance payments having fallen sharply relative to superannuation. However, if relative poverty trends were used to reduce further the level of superannuation, poverty among the elderly would re-emerge, with women particularly affected. About two thirds of those receiving the state pension have no other income, and women form a large majority of this group. The separate payment of National Superannuation to each spouse has been greatly appreciated by many women through providing a degree of independence or feeling of entitlement, which some of those with little time in paid work had not experienced earlier in life.
The recent increase in the age of entitlement to the state superannuation from 60, rising over a few years to 65, is also serious for some women. The accompanying exhortations to save for one's own retirement are not practical for those women who are out of the labour force for some years and often on low pay. The major form of saving for retirement in New Zealand is through the purchase of owner occupied housing. The home ownership rate of the over 60 population is high (73% unmortgaged, for over 65s), although less so for women living on their own. Data on other forms of savings is limited, but membership of formal retirement savings schemes, including those organised by employers, is low by international standards. By 1992, 44% of men, as against 29% of women, had some sort of contributory superannuation, although this included life insurance endowment policies. The female-male gap is narrowed somewhat by the fact that 47% can benefit from schemes in which they or their partners are members, as against 37% being members themselves. Problems over eligibility for schemes, portability, preservation and vesting rights further limit women's access, while their greater longevity than men reduces their annual payment for a given accumulated sum.
Another area where universal provisions have been eroded, possibly leading to the worst of all worlds, is that of compensation for accidents. A no-fault Accident Compensation Scheme was introduced in 1974. Eliminating the right to sue, and the need to do so, it provided payments to those having accidents, with revenue coming from a combination of general taxation to finance a large part of the costs of non-work accidents, a levy on employers (and later, employees), and contributions from petrol tax/car registration fees to cover driving accident costs. Payments included earnings-related compensation for any period when victims were unable to work, at 80% of previous earnings, beyond a short period covered by employers. Cost reimbursement covered medical expenses and lump sum payments for permanent disability, for specific costs, such as house alterations, and in some areas, including cases of family violence and sexual abuse, for pain and suffering. The scheme was financially viable until 1984, when employers successfully lobbied for levy reductions, which with cost increases put its finances into crisis. One problem was that Government set the levies, at times ignoring advice from the Corporation running the scheme, and essentially abandoning its full funding.
Successive governments have used this crisis to erode entitlements and shift the costs towards individuals, as consumers and employees, with an earmarked tax per dollar of earnings imposed to cover the cost of non-work accidents. This gave New Zealand possibly its first of several steps towards a social insurance system. Cuts to entitlement by the new National government in 1992 included abolition of all lump sum payments, with a small disability allowance introduced instead, but on very tight criteria, and a tough work capacity test replacing the more positive rehabilitation approach. Cuts were also made in the area of entitlements for surviving spouses and their children following death by accident. The new philosophy is that the scheme should move to a more clearly insurance basis, based on both equity and incentive rationales. This move from a no-fault comprehensive scheme to an insurance scheme, accompanied by tight limitations on coverage and benefits, is contrary to the original philosophy and has provoked calls for a return to the right to sue. Many entitlements now fall far short of those which would have been available under Common Law, which would, for example, have allowed bereaved spouses and dependents to sue for economic support, and emotional loss and suffering.
Other changes included a narrowing of the definition of accident, with uncertainty about whether repetitive strain injury and other progressive injuries would retain coverage. The definition of medical misadventure was also narrowed, with exclusion of wrong diagnosis, failure to give treatment, and injuries resulting from drug or clinical trials, The criteria for rarity of occurence and severity of consequences excluded a number of gynaecological medical misadventures previously covered. All these changes, together with the abilition of lump sums, were disproportionally adverse for women. The area of lump sum payments was the only one where women previously received a nearly equal proportion of compensation. With no allowance for loss of potential earnings, women's lower labour force participation, and lesser share of expensive sports accidents (the main area, interestingly, where the insurance principle does not apply) the proportion of claims made by women in a typical year was 29%, while their share of compensation was only 22.5%. For work related accidents, these proportions were as low as 19.8 and 16.6%.
Detailed treatment of the health and education sectors is beyond the scope of this article. Major reviews have been undertaken of health and education services with recommendations aimed at achieving greater cost-effectiveness in service delivery.
However, many consider the changes largely ideologically driven, including the separation of funders and providers of health services in the name of efficiency and competition. Greater secrecy in the resulting tendering process imposes difficulties in any attempt to assess efficiency gains. Waiting lists and times for operations in the public system have hardly changed, despite cosmetic differences in presentation, and many medical professionals consider the public system starved for funds as it becomes a safety net rather than a universal service. It does, however, continue to provide an excellent service in the areas of the most acute care, with public hospital care remaining free to the user after a brief period of targetted charging. Primary care is subsidised for all, but to a greater extent in low income households.
Increased fees, a grant system targetting assistance on the basis of parental income to age 25, and a loan system where interest conditions as well as income means that repayment terms favour the highest paid, could soon deter many from low and middle income families from entering tertiary education. Such measures were introduced on the arguments that higher socio economic groups are those that benefit from tertiary education, emphasising the private gains reflected in higher earnings as against the externalities and public benefit. The changes may simply exacerbate the lower take up in higher education of Maori, mature age women and other less advantaged groups
Not surprisingly, international capital backs the directions of change outlined above. There are only limited degrees of freedom available to a small debtor country like New Zealand in the face of international and credit rating agencies, and multinationals, pushing structural adjustment orthodoxy. New Zealand governments are unwilling to admit their impotence, except when like now they are nearing an election and can use the issue to scare-monger and deter support for other parties seeking change. Ultimately, judgements come down to values and objectives. Attempts to assess the outcomes to date are largely unsatisfactory. The increased economic efficiency claimed for corporatised former government enterprises cannot be accepted at face value, since multiple objectives, including some equity concerns, had been replaced by the single objective of the bottom line. Without agreed objectives and weightings for them, no final judgement is possible.10 On objectives, Kelsey, like many others, challenges growth as the major aim, and the values which underlie it, pointing to the well-known deficiencies of GDP as a measure of economic activity, let alone welfare, and to environmental concerns.
Where is New Zealand likely to go from here? A new electoral system, Multi Member Proportional will be used on October 12th 1996, to elect the single chamber parliament (with only 3.5 million people there are no states and no upper house). The size of Parliament will increase from 99 to 120, with half the seats chosen in electorates of larger size than at present, and the other half from party lists. The number of seats for each party will reflect the proportion of the total list vote obtained, with non electorate MPs coming from the top positions in the list to complete the total entitlement - a system similar to that of Germany. Representation will be more closely related to voting strength than in the past. With the present First Past the Post system, governments usually hold office on a minority vote. National, elected in 1993, was supported by only 35% of voters, but gained 50 out of 99 seats, while Labour also with 35%, won 45. Third parties gained few seats, well below their proportion of the vote (currently four, with two held by the Alliance, although they gained 18% of the vote, and two by New Zealand First, with 8% of the vote). The Alliance combines a number of parties, including the New Labour Party, which broke away on the left from Labour, Mana Motuhake, a Maori party, and the Greens. New Zealand First is a breakaway party from National, gaining support earlier this year, largely based on exploiting fears of too great an influx of Asian immigrants.
The mixed electorate and list system is more likely to lead to coalition governments, which could, but may not, mean less extreme policies and more sensitivity to gender and social issues. Parties are putting more women, Maori and other groups underrepresented in Parliament high on their lists, while new parties are emerging, as politicians wary of losing their seats, jockey for position. In the current parliament 21 women MPs were elected, an increase of six. Many of those opposed to orthodoxy economic policy support the Alliance, but some with a union or democratic socialist background stay with Labour, who have also had a somewhat greater leaning towards feminist policies in recent years than National - despite both parties embracing deregulation. The traditional left/right spectrum is now over simple, with both these parties effectively coalitions of very different views, and both leaderships committed to orthodox economic policies. National has a big lead in the polls and is likely to be able to form a coalition government to continue current policies. Despite considerable public concern about the effects of these directions, particularly in health and education, the alternatives have not made themselves appear sufficiently credible. The government has played on TINA, possible overseas reaction to any change of direction, and the disarray of opposition parties, and with the fragile economic recovery this appears sufficient to keep them in power.
New Zealand has changed beyond recognition in the process - and not, in the view of many, for the better as far as social cohesion and a good society is concerned.
1 The New Zealand Experiment - A World Model For Structural Adjustment? Jane Kelsey Auckland University Press/Bridget Williams Books, 1995
The Great Experiment - Labour Parties and Public Policy Transformation in Australia and New Zealand, Francis G. Castles, Rolf Gerritsen and Jack Vowles, (eds), Auckland University Press, 1996
2 Women and Economics - A New Zealand Feminist Perspective, Prue Hyman, Bridget Williams Books, 1994
3 From Welfare State to Civil Society: Towards Welfare that Works in New Zealand, D.G. Green, New Zealand Business Roundtable, 1996
4 Tracing the Similarities, Identifying the Differences: Women and the Employment Contracts Act , Linda Hill and Rosemary Du Plessis New Zealand Journal of Industrial Relations 18-1, 1993, pp 31-43
5 Women and Part Time Work in New Zealand - A Contemporary Insight, Carl Davidson and Marianne Bray, New Zealand Institute for Social Research and Development, 1994
6 Women Members Survey - Report, Ray Harbridge, Service Workers Union, Wellington, 1993
7 Poverty in New Zealand : 1981-1993, Brian Easton, New Zealand Sociology 10/2 November 1995, pp 182/213
8 Measuring Poverty in New Zealand, Robert Stephens and Charles Waldegrave, Social Policy Journal of New Zealand, 5, December 1995, pp 88-112
9 The Generosity of New Zealand's Assistance to Families with Dependent Children: An Eighteen Country Comparison, Robert Stephens and Jonathan Bradshaw, Social Policy Journal of New Zealand, 4, July 1995, pp 53-75
10 Economic and Other Ideas Behind the New Zealand Reforms, Brian Easton, Oxford Review of Economic Policy, 10/3, pp 78-95