Bolger's gamble hits NZ Welfare state

Wednesday, August 7, 1991

By David Robie

Middle-class supporters of New Zealand's ruling National Party were hit hard by last week's tough budget. But unemployment is expected to continue growing, and economists are divided as to the future. Already lagging in opinion polls, Prime Minister Jim Bolger's beleaguered government is worried about its future. The dismantling of the cradle-to-grave welfare state is giving rise to growing poverty, social and housing problems, and an increasing crime rate. Many New Zealanders now condemn what they regard as their slide to Third World status. DAVID ROBIE reports from Auckland.

Bolger's conservative government has taken a calculated gamble with its political future in its first budget. Finance minister Ruth Richardson unveiled a program which introduces:

  • charges for beds in state-run hospitals;

  • a three-year freeze on national superannuation;

  • a tough means test for pensioners;

  • an identity card for the nation's 300,000 welfare beneficiaries and low-income earners.

The government slashed $600 million from spending and introduced new user-pays revenue sources to produce an estimated deficit of more than $1.7 billion — a figure below financial market expectations.

However, the budget was less harsh than had been expected from Richardson, who is widely regarded as New Zealand's most unpopular politician and is nicknamed Ruthless Ruth.

Her economic statement was drafted after the biggest slump for more than a decade in real average incomes. It also followed 18 successive years in which New Zealand spent more than it earned. The current national debt is $44 billion.

After it was elected late last year, the government took its first steps towards balancing the books by slashing the income of welfare beneficiaries by an average 10%. Earlier this year, it introduced new industrial legislation which drastically curtailed the role of labour unions.

The government faced bitter demonstrations over its Employment Contracts Act, and the country has been hit by mounting unemployment, poverty and crime rates. Unemployment, already more than 250,000, is expected to rise to almost 13%.

Economists are divided as to whether the budget can restore prosperity, and many political commentators say the unpopular government is seriously at risk. Some predict the recession will worsen.

Opposition Labour Party leader Mike Moore has accused the government of "betraying every promise" and of committing "an act of treason" against elderly New Zealanders. Militant pensioner leaders have condemned the budget and threatened civil disobedience over the pension changes.

NewLabour Party leader Jim Anderton described the budget as "a long suicide note". He predicted that Richardson wouldn't last as finance minister until the next election, due in 1993.

Four rebel National backbenchers voted against the part of the bill cutting pensions for people earning more than $80 per week. Another government critic, former prime minister Sir Robert Muldoon, said the budget wasn't as bad as he expected but warned that Richardson faced serious problems next year.

Maori leaders said their people faced gloom and despair, and would be denied health care and education. More than half the Maori students at tertiary institutions are mature people who will now have to pay hefty fees.

A week before the budget, the government was embarrassed when deputy opposition leader Helen Clark claimed that 12 out of 20 Bolger cabinet ministers were millionaires. Clark said the cabinet was by far the wealthiest in New Zealand history and also "by far the most out of touch".

Although some ministers said they were mystified by the claim, none was able to counter it convincingly. Top of the so-called rich list is commerce minister Phillip Burdon, said to have assets totalling $40 million. Second-ranked is police minister John Banks, with $3.5 million. "Poorest" is Bolger, who just nudges in with $1 million.

Newspapers are divided about the political and economic future. The Auckland Star called for Richardson to have another go, saying the budget was neither far-sighted nor bold: "After all the hype about pain and austerity, Ruth Richardson's debut economic statement fell short of what she said would be the 'mother of all budgets'. It did not address the two major targets: unemployment and a rapid economic recovery.

"The document will prove too benevolent to satisfy the hard-eyed international financiers ..."

Radical changes to the public health system, probably the most controversial part of the budget, won support from many doctors.

Area health boards have been replaced by commissioners, and a new structure of four regions will be set up to control public health.

The biggest change for individuals and families — if they are classified as middle or high income earners — is that they will have to pay a contribution for medical treatment in a hospital, which has traditionally been free.

Low income earners — with a voluntary "Kiwicard" to establish their right to cheaper health care — will get higher subsidies for doctors' visits and free hospital care when the charges come into effect in February.

Lawyer Barry Wilson, chair of the Council for Civil Liberties, described the identity card as a major invasion of privacy: "It is a snooping system that Hitler and Stalin would have been proud of. Kiwicard is like pinning a star on foreheads and calling them the deserving poor." An estimated 53% of New Zealanders will qualify.

Middle income earners will have to pay part charges for hospital care, such as $50 a night for a hospital bed, according to a tiered scale. Hardest hit are supposedly high income earners: single adults earning more than $17,280 annually, people with children who are ineligible for family support and married superannuants with a private income of more than $23,741. A married couple, with two children, earning a combined income over $32,394, is classed as rich.

According to Helen Clark, health minister in the former Labour government, the universal public health system, which had been built up since the 1930s, is heading for destruction. "The government", she said, "has deliberately undermined one of the cornerstones of New Zealand society".

In an attempt to break the deadlock over state pensions, Richardson revived a two-tier superannuation scheme. But eventually, only people over 65 will be eligible. She has compromised by granting a universal state benefit for all aged over 70.

The proportion of retired people to New Zealand's total workforce (the dependency ratio) is expected to double from 15% in 1980 to 30% in 2030, as the so-called postwar baby boomers stop working. This is on top of the continuing high number of structurally unemployed. The combined figure could mean a dependency ratio as high as 45%.

New Zealanders realise that the welfare state can no longer pay the traditional living wage for every person from birth to death. Yet personal savings in the country have been falling in recent years — from nearly 9% of household income to less than 2% over the past decade.

A mood of public cynicism and desperation is now growing, and few people really care if Richardson manages to balance the financial books by 1993 as promised. They point to the devastating social cost.

Issue