Incentives to work

Press, 3 December 1987, Page 16

Incentives to work

The claim that aspects of the social welfare system actively discourage people from working has been sounded often. The distortions in the welfare system and the damage that they are doing have been mentioned here before. The message is at last being heard in the right places; not only heard, it seems, but embraced. The Minister of Finance, Mr Douglas, took the “absurd situation” to task this week in a speech to open a canning plant near Auckland. According to Mr Douglas, a “meaningful gap” must be created between those earning wages and those receiving benefits. Mr Douglas provided examples of his own, similar to those offered before, to show how some wage-earners are worse off, or at least no better off, than some beneficiaries. He agreed that the present system can encourage dependency, and lead to lower economic performance, higher taxes, greater social problems, and fewer resources for other social needs. This is hardly new; but when Mr Douglas, the architect of the Rogemomics approach to Government spending, champions a change, there is at least hope for some remedy. Few would disagree with the premise that people whose circumstances do not allow them to work deserve the support of the State, especially when the State so orders events that jobs are lost and when they want to work. When that support discourages people from wanting to work because a job would be a net financial disadvantage, the system indeed has stopped working properly. Mr Douglas lays a large part of the blame on the wage-price freeze of the National Government, contending that, during the freeze, wages rose by only 4 per cent but benefits, which were pegged to inflation, rose

by 20 per cent. This might be so; also to be taken into account are the market restraints on wages over the last four years. Even so, the question is: how will the discrepancy be rectified? According to Mr Douglas, some incentives to work must be injected into the present system. He urges a “fundamental review of the wage and benefit structures.” On the Government’s present course this can mean only one thing: a downwards adjustment to benefits or at least an interruption to the automatic ratchetting upwards of benefits in line with inflation. The Government has refused steadfastly to interfere with the wage-fixing procedure, but has warned consistently against high settlements. There is little willingness on the Government’s part, and little scope if its warnings are heeded, to create a meaningful gap at the wages end. Applying the necessary adjustments at the benefits end of the scale will not make Mr Douglas or his Cabinet colleagues any more popular with some elements of their party and probably will earn them disfavour in the eyes of most beneficiaries. These considerations have not swayed Mr Douglas from his path before. He should not be swayed now. The provision of incentives to work is every bit as important for the future of New Zealand as any other measure Mr Douglas has promoted so far. He must, however, allow a further qualification: people who are more urgently induced to seek work should stand a fair chance of getting it. Otherwise, his argument will be seen as just another cost-cutting exercise by the Government and one that leads to more hardship for unemployed people and nothing else gained. _____