More working solo parents trims long-term welfare cost by $1.7b in 2016

An increase in the number of sole parents shifting into work from a benefit is behind the bulk of a $1.7 billion reduction in the theoretical long-term cost of New Zealand's welfare bill, the latest actuarial valuation shows.

The annual valuation puts the long-term liability at $76 billion as at June 30, 2016, with 547,538 people collecting a benefit at the valuation date at an average 7.7 future years on main benefits. That headline liability was $7.6 billion higher than the year-earlier valuation of $69.8 billion, when 559,392 people were on a benefit with an average 8 future years on main benefits. Of that, low inflation and the accompanying flat interest rate track accounted for $7.2 billion of the increased liability and a further $1.5 billion is from the government's increase to benefit rates announced in the 2015 budget. That offset the gains from the Ministry of Social Development's programs under its control to reduce the welfare bill.

The ministry prefers to look through those effects outside its control, instead highlighting the $1.7 billion reduction in liabilities in each of the past two years, which the report, prepared by actuary Taylor Fry, said could largely "be explained by sustained exit rates amongst sole parent support clients and lower re-entry rates into main benefits from recent exits previously assumed". The number collecting sole parent benefits dropped to 67,732 in the 2016 financial year from 71,750 a year earlier.

"With the number of sole parents on a benefit decreasing 32 percent since 2012 and nearly 60,000 fewer children living in benefit dependent households than in 2011, it's clear this investment is helping break the cycle of inter-generational welfare dependence," Social Development Minister Anne Tolley said in a statement. "Supporting these two groups has been a priority for us because we know helping them off benefits will transform their and their families' lives."

Government data show the unemployment rate fell to 4.9 percent in the first three months of this year as firms continued to create jobs at a faster pace than population growth, with labour force participation rate at a record 70.6 percent. The figures showed part-time employment rose an annual 4.9 percent in the March quarter, lagging behind a 6 percent annual pace for full-timers.

Over the past five years, the MSD report says various reforms are estimated to have cut the forward liability by $13.7 billion, or the equivalent of 1.3 million main benefit years. Introducing an actuarial assessment of benefits was hotly contested by the opposition, who claimed it would be used to justify welfare cuts. The baseline valuation in 2011 was put at $78.1 billion when about 675,000 people were collecting a benefit across a broader array of categories.

The government spent $8.51 billion on social transfers, excluding superannuation, Working for Families tax credits and student allowances, or 11.5 percent of core crown spending, in the year ended June 30, 2016, compared to $8.46 billion, or 12 percent, five years earlier.

The use of actuarial valuation was dubbed an 'investment' approach by the government in that interventions would be targeted to the most at-risk groups, increasing spending up front on the idea that the long-term cost to the taxpayer would be lower.

The latest valuation predicts beneficiary numbers will be stable for the next five years, with a slow decrease in jobseeker - work-ready and supplementary only beneficiaries, reflecting a falling unemployment rate. By June 2021, the future liability is seen falling gradually each year to $67.8 billion, by which time the supported living payment (formerly the invalid's benefit and domestic purposes benefit care of the sick and infirm) is expected to account for a third of all payments, up from 26 percent in 2011.

Earlier this month, Prime Minister Bill English flagged $321 million of new spending on social investment programmes and updated the government's 10 Better Public Service policy targets, an area that's been mooted as one of four key planks to next week's budget.

Finance Minister Steven Joyce today announced the government's response to a 2015 Productivity Commission report on 'More Effective Social Services', which recommended a move to 'client-based' funding of social services backed by the investment approach.

On specific recommendations to refine MSD's future welfare liability, the government's view was that the model was adequate in pursuing its goals and that recent initiatives including the social housing and vulnerable children valuations will span a wider range of costs and benefits of interventions.

(BusinessDesk)