Redesigning the Welfare State

rethinking the indexation of cash and non-cash assistance

Abstract

Since the beginnings of the welfare state, Aotearoa New Zealand has lacked a principled, comprehensive and consistent system for indexing social assistance to movements in consumer prices and/or wages. This deficiency applies not only to cash transfers but also to in-kind benefits. The absence of a robust and durable indexation regime is no accident. It reflects, among other things, an unwillingness of governments to determine an acceptable minimum standard of living for citizens and then protect, if not enhance, this standard over time. No doubt, the fiscal implications of a more consistent approach to indexation have loomed large in the political calculus. Yet if the current and future governments are to meet ambitious child poverty reduction targets and ensure greater distributional fairness, a new framework for indexation is essential. This article discusses the nature and purpose of indexation, the principles and other considerations that should inform the design of an indexation regime, the policy options available, and how a durable and defensible policy framework might be secured.