Social Welfare in New Zealand

  • Steve Maharey
Social Development and Employment

Address by the Minister of Social Services and Employment to the RNZAF Command and Staff College, No 41 Staff Course. RNZAF Whenuapai, Auckland.

‘From passive to positive welfare’: Social Welfare in New Zealand

Thank you for this opportunity to speak to you today about social welfare in New Zealand.

The original vision of social security was to grant not only freedom from poverty, but also dignity and a sense of citizenship. It is vitally related to ideas of community and the practice of community, for it reinforces the interdependence of its members.

Although in many ways social security has symbolised the country’s vision of community, it has also at different times revealed important divisions within the nation.

Certainly social security law has been essential to ensure a sense of reciprocity in the community was put into practice, but it has also tested ideals of community by examining the extent of state obligation in providing assistance.

Today I intend to talk about three broad stages in the history of the welfare state in New Zealand:
 The birth of social welfare in the late 19th century;
 The development of the comprehensive welfare state in the 1930's; and
 The threats to the welfare state in the1990's.

And finally, I will outline our policies to build a new approach consistent with the opportunities and demands of the 21st century.

Part one: The birth of social security

New Zealand was the first country in the English speaking world to provide a state-funded old age pension. The old age pension replaced the haphazard, humiliating experience of applying for charitable aid. Premier Richard Seddon saw this legislation as the beginning of a scheme with the potential to extend ‘from the cradle to the grave’.

Not that the new pension was generous or even available to all those in need. Its rate was only 18 pounds a year and it was subject to a stiff means test and 20 years residence in New Zealand. As a young immigrant country this was certainly a hard criterion.

It also strongly discriminated against those considered to be ‘the undeserving poor’. For example, anyone who had been convicted of criminal or drunken offences more than twice within the seven years before applying for the pension were not eligible.

The pension applicant had to present their case to a magistrate in an open court and prove their age, length of residence and their good character.

Neighbours would be asked to attest to a persons sobriety and character - a test which must have put quite a premium on good neighbourly relations. Pity the prospective pensioner who had plucked an apple or two from their neighbours tree over the years.

Mäori had great difficulty qualifying because of difficulty proving their age and due to their interest in ancestral communally owned land – even though often they did not earn an income from this land.

Many Mäori lucky enough to get a pension at all were granted only 12 pounds per annum – two thirds of the European rate.

Statements made by the New Plymouth magistrate in 1900 sum up the attitude towards Mäori pensioners:
"The amount of 18 pounds which is a mere subsistence to an aged European is far too large a revenue for an aged Mäori."

Asian residents faired even worse as the rules prohibited them being paid a pension at all.

Despite all these shortcomings, the introduction of the old age pension marked the beginning of social security as we know it today. This was the first tangible recognition of the principle of State responsibility for the relief of poverty in our society. From these seeds the welfare state grew.

Expanding provision

The early 20th century saw progressive moves to extend the coverage of state pensions beyond older people to other needy groups.

The first groups to come under this coverage were those considered to be the ‘worthy’ poor, whose straitened circumstances were regarded as no fault of their own.

Widows were clearly a deserving group – at least those with children – who were provided for under the means tested Widows Pension Act 1911.

The first provisions for invalidity were made for specific groups who were incapacitated by particular disabling conditions. Interestingly, the Miners Phthisis Act 1915 was not means tested, perhaps attesting to the considerable level of industrial clout they carried especially in a time of war.

In 1924, pensions were instituted for the blind. At first coverage was restricted to those who became blind in New Zealand, but this was soon extended to those who lost their sight in other countries, subject to means and residence tests.

The 1930s depression led to a rethink of State support.

With mass unemployment, poverty was widely experienced and gained public recognition. Long queues forming outside charitable aid offies and city mission halls were a visible reminder of a failure to adequately support the poor.

Small outbursts of violence suggested that the unemployed would not always quietly accept their fate.

In Dunedin, where the Lady Mayoress wore gloves to distribute charity, her taxi was overturned, and a drawing of gallows posted to the Mayor.

As the 1935 election loomed, the Labour party allied itself with the mood of public discontent, and was swept to power with a substantial majority.

Part Two: The Welfare State

With the country behind it, the Labour government quickly began a process of social and workplace reform. A five-day, 40-hour week was introduced for workers, minimum wages were set for farm labourers, and previous wage cuts were reversed. Pensions were increased and previous restrictions that prohibited Asian residents gaining the pension were removed.

The welfare reform process culminated in the passing of the Social Security Act in 1938 – really the cornerstone of today’s social security system.

The Act introduced a range of new benefits, including provisions for sickness, unemployment, orphans and emergency coverage, placing social security on a more systematic footing and establishing a framework that survives to the present day. So what are the basic aspects of our social welfare system?

Targeted, as opposed to the universal provision of social assistance has long been the dominant model of social security in New Zealand. It operates within a framework of an income-tested system of non-contributory benefits and pensions funded from general taxation. I other words social security benefits bore no relation relationship to the amount an individual had paid in tax or the length of a person's time in employment.

The period from 1939 to 1990 saw a steady growth in the number of people receiving social security.

And new post war provisions such as universal family benefit to support the education and maintenance of children in 1945 were widely welcomed but added significantly to the cost of social support

During the prosperous 1950s, 60s and early 70s this growth did not present major problems.

Unemployment was almost non-existent and the concept of state funded benefits to those in financial need was widely accepted.

The principles and expectations of the existing social security scheme were subject by an independent review by the 1969/72 Royal Commission on Social Security.

After three years of hearing public submissions, the Royal Commission reaffirmed the role of means-tested social security in an affluent society and called on the government to renew and enlarge its commitment.

In response family benefit was doubled and other benefit levels slightly increased.

One of the most pressing concerns addressed by the Commission was the plight of sole mothers.

This led to the introduction of the Domestic Purposes Benefit for sole parents in 1973.

Social Security spending increased further in 1977 with the introduction of the National Superannuation scheme to replace the means tested Age Pension and Universal Superannuation Benefit.

But the late 1970's also brought a diminution in New Zealand's wealth and power. The oil price shock of the mid 1970's and the entry of our strongest trading partner England into the European Common Market had a significant effect on the economy and unemployment grew strongly.

The rise of spending on the welfare state and the decline in the economy during the late 1970s and 80s provides the background to the welfare changes that occurred over the last decade.

Governments became increasingly concerned to contain the demands that the welfare system made on the economy.

As unemployment rose, people remained on benefits for longer periods and sections of the population were particularly badly effected. Those with few qualifications or marketable skills bore the brunt of unemployment, Mäori and Pacific people were disproportionately effected along with certain regions of the country. The numbers receiving other benefits also grew especially those for people suffering sickness, invalids, and sole parents.

However, the costliest social security provision of all was universal Superannuation and the growth projections were alarming. In 1985 the recently elected Labour government attempted to refocus Superannuation on those in greatest need by introducing a surtax on other income earned by Superannuitants. But although most pensioners were unaffected, the move was highly unpopular.

Nevertheless, Labour was determined to shift the focus of social security spending towards where needs were greatest: poor families, including low income working families.

In 1989 the Labour government further angered Superannuitants by repealing the legislation that which guaranteed the married rate at 80 per cent of the net average wage. Instead Super was to be increased by the movement in wages or consumer prices, whichever was the lesser.

In 1990 labour lost the election and the reins passed to National.

Along with National came new language in the Welfare debate: commentators began to discuss the "corrosive" effects of benefit receipt. It was suggested that benefit receipt robbed people of their motivation to find work. Politicians spoke of "welfare dependency", benefit fraud, loss of the work ethic, and encouragement for single mothers to have more and more children.

In response, a number of changes were made.

Part Three: Challenges to the Welfare State

The most contentious change to the social security system was the 1991 cuts to basic benefit rates.

Those on the unemployment, widows, and domestic purpose benefits were hardest hit, while rates of sickness benefits were reduced by lesser amounts.

This was the age of the "modest safety net". Alongside the cuts to base benefits, universal assistance was either abolished or modified.

The effect of these cuts was to reorient the system towards tightly targeted regime, by altering the balance between the basic benefit and the supplementary assistance tier.

In essence it signalled the development of a comprehensive system of targeting of access to social assistance, including housing and health.

Because less assistance was now available through the basic benefit, more beneficiaries needed to apply for additional support through various supplementary assistance programmes.

The Government introduced the Community Services Card, the Accommodation Supplement, targeted disability support services and increased Family Support to supplement benefits and assist people on low incomes.

However, the benefit cuts meant that beneficiaries were placed under additional financial pressure. One result of this was an explosion in demand for assistance from voluntary social service agencies, particularly food banks, and the special needs grant.

In response the Government progressively tightened supplementary assistance provisions throughout the 1990's.

The second fundamental change in the 1990's was the introduction of the Community Wage. This was in essence a 'work-for-the-dole' scheme where unemployed people could be compelled to undertake work in their community for an additional payment of $21 a week.

Government advisers warned against instituting a large scale scheme of this type as it would displace real jobs, but the government proceeded anyway.

The End of the Department of Social Welfare

The early ninety’s also saw radical changes occur within the Department of Social Welfare – the Government agency concerned with the delivery of income support, the provision of social services to children and youth, the funding of community services and the provision of social policy advice.

During the 1980s the Department had sustained a tidal wave of criticism that it was unresponsive and insensitive to the needs of Mäori. Further the Department was perceived as unclear in its purpose and unable to meet the needs of New Zealanders.

This instigated a series of changes that saw the Department reorganised into three separate operational business units, the Income Support Service that paid benefits, child protection and a community funding service, all of which were overseen by a corporate office and policy group.

These changes eventually culminated in the establishment of three independent organisations:
 the Ministry of Social Policy,
 the Department of Child, Youth and Family Services, and
 the Department of Work and Income which integrated the New Zealand Employment Service, bringing together both income support and employment service functions.

This evolution fundamentally changed the way income support, employment, and social services are delivered in New Zealand.

Growing disquiet

In the last decade the political landscape has been dominated by a concern with economic policy with little or no focus on balancing social policy objectives.

The market model with its mantra of 'individual success and personal responsibility' saw some people grow very rich indeed, while the majority stood still or went backwards.

The language of the day suggested 'level playing fields' – where everyone was supposed to start with the same opportunities and the outcome was up to the individual.

This might be a fine theory if everyone really did start off at the same point – but of course they did not.

So in the 1990's wealth accumulated wealth and the standard of living of the poor slipped ever further behind.

And the market model told them they had no one to blame but themselves.

The preoccupation with economic policy alone has been to the detriment of large sections of the population who have become alienated and marginalised from full participation in our society. Interestingly the same concerns raised by the Royal Commission of 1972.

Income inequalities in New Zealand have grown at an unprecedented rate over the last fifteen years to the point where the life experiences of the rich and poor have very little in common.

Social participation is inhibited by such factors as long term unemployment, discrimination, sickness, disability, education failure and illiteracy. In essence sections of the population are excluded within their own society.

Leaving large sections of the population marginalised or excluded from mainstream institutions has a disastrous effect on social cohesion and in the longer term on economic prosperity.

Part Four: Charting a new course

I think this presentation demonstrates that the New Zealand social security system is like a venerable ocean liner – a ship of state that has received nothing more than a new coat of paint now and again over the years.

The social assistance system we have today can be traced back to the system developed by the first Labour government of the 1930's.

And the more we have tinkered with the system over the years the more complex and impenetrable it has become.

We now have a myriad of rules, and a towering stack of amendments and policy manuals to try to explain what it all means.

So with the advent of the new millennium it is time to look again at the balance of economic and social objectives and to renew the social contract.
The welfare state in New Zealand has gone through three broad stages.

The first began at the end of the 19th century and involved policies focused on the needs of specific parts of the population.

In the 1930's the first labour Government began the development of the comprehensive modern welfare state in order to protect New Zealanders against a series of relatively predictable risks.

In the 1990's the National Government attempted to break with the post-war consensus around welfare arguing that the creation of individual wealth must take precedent. As a consequence policy imperatives included lower taxes for those on high incomes and the downsizing of the public institutions such as the welfare state.

In the 21st century the Labour/Alliance Government is beginning on a new approach consistent with the needs of the times.

Labour does not accept that that we should simply defend the old welfare state. Nor do we think it should be done away with.

Instead we think that the welfare state must still provide security, but that (for the most part) this will come from a more proactive state which prevents problems and actively assists people through them when they occur.

It also means focusing on lifting the capacity of people to participate, ensuring they have opportunity, and by doing this, ensuring they are capable of getting on with their lives.

So what are we doing?

Ours is a social investment model. It involves community, strong institutions and a dynamic market economy. It is about extending economic opportunity. And it is built on security not fear.

Our programme goes by the broad title 'New Opportunities'.

First, we are changing the social assistance system so it provides security for those who need it and opens opportunities for those who can take them. We are in the first stages but it is clear we want a simple benefit and fair system, comprehensible to recipients and the general public. And one which supports people to gain new skills required in the modern economy. In other words, we want a benefit system that is part of overall economic policy.

Second, we are changing the delivery system. In essence we want to move decision making to the frontline. The centrally driven model of employment services that has developed over the last few years has failed to recognise the regional nature of labour markets. We need to give regional managers much more authority to decide what will work best for people in their area. Devolution through regionalisation is at the heart of this as are changes in delivery technology.

Third, we are introducing a wide range of policies designed to lift peoples' capacity and take on paid employment which is sustainable. This is what we call making work pay. We think extending economic opportunity is at the heart of the modern welfare system.

Fourth, we are involving communities. We want communities involved in social welfare issues to ensure that what we do is tied to their aspirations for a better life. Hence we are working with local government through initiatives such as the 'Mayors taskforce for jobs', and working with Mäori and Pacific organisations and communities.

Finally, we are seeking to contribute to closing the gaps that have developed for Mäori and Pacific people. This means looking at the way mainstream policies and institutions can make a better contribution to their wellbeing, and examining how these communities can be involved in delivering resources and services to their members.

Overall, this is a welfare system for the 21st century. It is active in ensuring that New Zealanders can be part of the new economy and society that is taking shape. We call it positive welfare.

Social Security Amendment Bill

The first stage of the reforms to the social security system have begun with the Social Security Amendment Bill now before Parliament.

The underlying premise of the bill is that it is the job of the social security and employment system to provide security for those who need it, opportunities for those who can take them and to not waste precious resources policing make-work schemes like Community Work.

With that in mind, the Bill proposes that from 1 December 2000 community work will no longer be mandatory and the sanctions associated with community work will be removed.

At the same time, voluntary work in the community will become a recognised activity for work-tested beneficiaries.

From 1 July 2001 the community wage is replaced with a separate unemployment benefit and a separate non-work tested sickness benefit. The current work-test is refocussed and a revised and simplified sanction regime for work-tested beneficiaries comes into effect.

In addition, when the Bill comes into force (anticipated to be in November 2000) the work capacity assessment for applicants and beneficiaries with a sickness, disability or injury will formally end. This was a scheme designed by the last Government to test the work capacity of sick and injured claimants – unfortunately it didn't work and no two testers could agree exactly what a persons capacities were. Again, our resources are too precious to waste on politicians' pet schemes that do nothing to assist people to find sustainable work.

In summary, the bill in general places less emphasis on compulsion and more on obtaining sustainable results through working with beneficiaries to make the most of personal and work opportunities.

And it promotes the broader goals of encouraging people to participate in the economic and social life of their communities through voluntary community activity.

It is the first steps of what I have flagged is a longer term look at the wider social assistance system and an investigation of ways it might be able to be simplified.

This is the potential to look into, for example, the possibilities of a system of a core benefit with various “add-ons” and incentives to cater for individual circumstances and progress.

At the end of June this year, we estimate that 17 percent of the working age population are receiving benefits, with 10 per cent having been in receipt of benefits for at least two years continuously.

Many are re-cycling through the benefit system, having difficulty staying in paid employment.

This is why we are currently looking at how we can more effectively support people to stay in work once they have found it. Ideally a welfare system should ensure that a person is always better off if they are working than if they are not.

During the 1990's government tried to achieve this objective by lowing benefits – at best a short term solution where the unemployed are joined by the working poor. Instead we should focus on increasing peoples earning power by assisting them to progress in their employment and gain transferable skills.

For the goal of welfare reform is not simply reducing the numbers on benefits, but improving the lives of all New Zealanders.

And we must also look at the supply side, growing jobs, not just in the cities but in the regions too.

That is why we have initiatives such as the Community Employment Organisations scheme designed to assist the development of community based organisations providing employment for disadvantaged individuals.

And an increased focus on helping those who have experienced barriers to employment, such as people with disabilities, recent migrants, and the long-term unemployed.

Young New Zealanders need a multitude of skills to adapt to a changing and complex world. It is our responsibility to assist them meet this challenge through employment initiatives that nurture their potential.

Training subsidies, modern apprenticeships, industry-based training and mentoring schemes will enable our young people to embrace work opportunities with confidence and skill.

Overall, we want to address the barriers to participation in the economy and society rather than add to them.

Closing the Gaps

One of the key barriers to progress that has developed over the last decade is the growing divide between the haves and the have nots in our society. This is seen most starkly in the gaps that have emerged between the experiences and outcomes of Mäori and Pacific people and their fellow New Zealanders.

Left unchecked, social disparity has grown and become entrenched.

Social inequality is one of the most important issues facing us because our actions today are going to determine our future tomorrow. Mäori and Pacific people as a proportion of the population are increasing day by day. In 1996, 24% of children were Mäori, 10% Pacific. In 2016 these figures are predicted to grow to 28% Mäori and 13% Pacific.

As a nation we will never achieve our full potential if a significant proportion of our people get left behind, trapped in poverty, long term unemployment, poor educational achievement, ill health and rotten housing.

Mäori and Pacific communities have high aspirations, they also have the closest understanding of their members needs and abilities. However, too few Mäori or Pacific communities or groups have the resources to develop the types of programmes and services they know will make a difference.

If we are to Close the Gaps our social security system must be able to strengthen the capacity of Mäori and Pacific people and organisations to devise their own economic and social strategies.

Instead of focusing on Mäori and Pacific people as "clients' and therefore as "part of the problem", our new approach is turning this around and aims to empower and enable them to be drivers of the solutions.

This means giving Mäori and Pacific communities the practical support they need to get local solutions working in areas such as health, education, housing, employment and economic development.

It is only through working with the communities themselves that the gaps that have divided this country can be closed.

Joined-up solutions

Traditionally the approach to social assistance has been somewhat fragmented.

This has often meant that the relationships between the different aspects of social exclusion have been ignored.

For example policies designed to improve health focused on the health system, rather than other contributing factors such as unemployment, or poor housing.

Recognition of the interconnected nature of social problems requires a new approach for the welfare state.

It requires greater collaboration between government departments and it also requires giving communities greater control over the nature and means of delivery of government services and ensuring that welfare promotes social and economic participation.

Already significant moves are underway in developing a social welfare system that is fully informed of the needs of the community.

In August the members of a new working group which will develop the framework for an agreement between the Government and the community and voluntary sector was announced.

The community and voluntary sector in New Zealand is growing rapidly and it is now heavily involved in delivering health and social services in many of our communities.

In many ways we are witnessing a sea-change in the social services which this Government is fully supportive of. People don't want big government any longer. They want to be much more involved designing and delivering tailored solutions to meet the needs in their communities with the active support of the Government.

The contribution already made by business and local government also has the potential to increase exponentially.

Spending on service delivery within the voluntary sector is estimated to be worth over $1.3 billion annually, involving over a million New Zealanders contributing millions of hours of paid and unpaid work.

In recent times Government relationships with community and voluntary sector have been characterised by mistrust and insecurity. We want to move past the narrow focus on what is in the contract and develop strong relationships that ensure the provision of effective programmes meeting real needs.


Social security was conceived in reaction to poverty, and just as clearly, in reaction to the separation of the poor from the rest of the community. It rested on a vision of a unified community and an ethos that saw citizens sharing the same lifetime risks, each ready to accept that ‘there but for the grace of god go I’.

However, over the last century it has been beset by tensions and subject to ideologies shaped by questions such as should the state be permissive or authoritarian in its attitude to those whom it supports? Should social security be a free gift or should it involve mutual or reciprocal obligation.

At the heart of the debate are people. How governments provide for and deal with people is how ultimately they will be judged by history.

An Australian reference group on welfare reform recently commented:

“Central to our vision is a belief that a nation’s social support system must be judged by its capacity to help people participate economically and socially, as well as by the adequacy of its income support arrangements.”

That’s a vision very much in line with our thinking.

How we fulfil that vision is the challenge ahead of us all.