Opinion & Commentary
Time to care for ourselves: Instead of a welfare state, it would be cheaper and more efficient if we each made our own arrangements
The welfare state has developed over a hundred years. In this time, increasing numbers of people have become dependent upon it, not just as consumers but also as producers and managers of its services. The result is a huge, expensive system of bureaucratic service delivery which soaks up a quarter of all the wealth created by New Zealanders every year.
The bigger the welfare system has become, the more difficult it has been to cut it back. Too many people have a vested interest in maintaining and expanding it. Yet the need for it has been shrinking. The welfare state has outlived its usefulness.
The welfare system does two things. First, it provides universal services such as education, health care and retirement pensions. These account for about 18% of GDP. Secondly, it provides mean-tested payments targeted at those with little or no income. Unemployment, sickness, domestic purposes and other benefits account for another 6% of GDP.
The first set of services is no longer necessary. A century ago, few people earned enough to purchase good quality health care while also paying for their children to be educated and putting savings aside for their old age. But times have changed.
Real incomes have been doubling every 30 years or so, which means that items that were out of reach just a generation or two back are now easily affordable. This is obvious when we think of cars, foreign holidays and white goods for the home. But it is no less true of services like health care, education and retirement pensions.
The reason most of us still do not buy these services is that the government takes the money off us in taxes and uses it to buy them on our behalf. We have become so used to this that we rarely question it, but most of us are paying for most or all of what we receive.
Much of what the welfare state does involves reallocating people’s own incomes across their lifetimes. Research in several western countries shows that more than three-quarters of government spending on social provisions simply takes money from individuals at one point in time and gives it back to them at another.
New Zealand is no exception. Some 40% of all government social expenditure goes to people in the top 60% of incomes. They get 68% of the education budget and 53% of all health spending.
This means that for most of us, the welfare state is little more than a system of compulsory saving. But it would be cheaper, more efficient and more empowering if the government left us to make our own arrangements.
If we did not have to pay all those taxes, we could save for our own retirement in superannuation schemes of our own choice (Australians are doing it, so why not New Zealanders?). And as Singapore has shown, personal savings accounts could be extended beyond superannuation to cover health, unemployment and sickness insurance, house purchase, further education and training—perhaps even school fees. If the government stopped recycling our money we could decide for ourselves how it should be used.
But what about the minority of New Zealanders who cannot afford to pay for these things? Don’t they still need a welfare state?
Most people who are working full-time do not. They could afford to provide for themselves if only they were not taxed so highly. And where people’s wages really are inadequate, they could be boosted by tax credits, or their savings could be supplemented by matching contributions (something similar has just been introduced in Britain).
The real problem is with those who are not working, for ‘relative poverty’ is concentrated among the workless. Some people may be incapable of earning a wage and they, of course, will always need to be helped. But most of those who currently rely on benefits could and should be gainfully employed.
In 1975, only 5% of New Zealand’s working age population was state dependent. Today it is 21%. The number of claimants has quadrupled as the national wealth has doubled. There is something wrong here.
In the USA, the welfare rolls halved when the government introduced time limits on benefits and insisted that claimants find work. The New Zealand government could do the same—although any move in this direction would have to ensure that the jobs are there for people to do.
We do not need the government to spend our money for us. Social policy in the twenty-first century should be about requiring people to make adequate provision for themselves, first by working, then by saving.
To Top
About the Author:
Peter Saunders is Director of Social Policy Research at The Centre for Independent Studies. This is based on a talk he delivered to a meeting of CIS in Wellington on 26 March.
