How to dismantle a welfare state

WHITEHALL reshuffles notwithstanding, Michael Portillo, Chief Secretary to the Treasury, spent much of last week pondering his options for benefit cuts in preparation for the autumn budget. Seasoned observers thought he would be wise to include the so-called New Zealand option.

Based on the attempts of two Wellington administrations to roll back the welfare state, it is packed with political peril. A Labour government which began the process - imposing a surtax on pensions, introducing prescription charges, and means-testing student allowances - was rewarded, in 1990, with the heaviest defeat of any government in New Zealand history.

The conservative National Party government, which has since launched the most radical reshaping of the system in half a century, faces, most opinion polls show, a trouncing of equal proportions in November's general election.

The government has cut welfare benefits, frozen pensions and raised the qualifying age from 60 to 65. It has abolished family allowances, introduced hospital charges, and imposed means-testing on all health, housing and education assistance.

The reforms reflect a marked change in the political philosophy of New Zealand, summed up by ministerial statements such as: 'The government will provide a modest safety net which offers adequate standards below which people will not be allowed to fall provided they demonstrate that they are prepared to help themselves.'

This theme of self-reliance was behind moves to cut the dole by 25 per cent for under-25s and subject allowances for university students in the same age group to parental means-tests. The dollars NZ6 (pounds 2.08) a week universal tax-free child benefit was abolished, its effects surviving only as part of a means-tested, taxed family assistance for the poor.

Government spokesmen gave these benefit cuts, including those to single mothers and widows, a firm moral justification. In 1990, the New Zealand Minister of Social Welfare, Jenny Shipley, said: 'These measures are essential if we are to encourage people to accept work.' Unemployment pay was suspended for six months for those who voluntarily left a job, received redundancy pay or refused another job offer.

Social engineering of this kind was behind the introduction of public hospital charges in February 1992. The government said: 'There is overwhelming evidence that user charges play a vital role in encouraging consumers to consider the costs of health services.'

Means-and asset-testing is being introduced for long-stay geriatric patients in public hospitals. And the government retains a dollars NZ31 (pounds 10.76) outpatients' visit fee, arguing that lifting it would encourage people to go to a hospital instead of their GP.

Market forces are also being brought to bear on state housing. Rents are rising to market levels and from July needy families will be given cash grants to rent either a state or private house. There is no tax relief on mortgage repayments or state cover for the mortgages of the unemployed.

The health reforms are not yet over. Public hospitals will be restructured into 'profit-making centres' on 1 July and made to compete with private hospitals for government funds for the services they provide. The government says competition will improve efficiency. 'Marketing managers' have been appointed to the hospitals, which are to be rechristened 'Crown Health Enterprises'.

Despite the optimistic rhetoric, however, it is apparent that the success of the reforms has been patchy. In some spheres, ministers put on a brave face; in others, they have accepted humiliating reversals and U-turns.

The cutbacks to single parents, for instance, are hailed as a success. The number of lone single-mother beneficiaries, which rose for 18 years, is now static. Mrs Shipley says more are taking jobs and single women are being more careful about getting pregnant.

On the other hand, health boards had to spend dollars NZ9m (pounds 3.125m) collecting dollars NZ12m (pounds 4.17m) in hospital fees in the first year of the scheme. Reports of debt collectors hounding the sick created public uproar and led to the dismissal of the minister of health, whose successor abolished the fees altogether.

It was not the first climbdown. Backbenchers and a 'grey power' revolt forced withdrawal of a plan to impose a 90 per cent means test on pensioners' income over dollars NZ80 (pounds 27.78) a week in 1990, although the surtax was raised to 25 per cent and pensions frozen for three years. Those under 45 have been warned to start saving for retirement although there is no tax relief on pension payments.

The changes have hurt the middle classes. While the government said initially that the top third of income earners should pay their own way, about half the population turns out to be classified as wealthy when it comes to doctors' and hospital charges.

Reports from around the country suggest that the social effects, combined with 10 per cent unemployment as economic restructuring continues, have been dramatic. Crime has risen, charities report record demand for food parcels, families are turning up at soup kitchens for tramps and children are going to school hungry.

Auckland University economist Susan St John talks of the 'enormous economic and social costs of rampant child poverty' and says: 'Today's welfare state perpetuates poverty, because it requires people to be poor before they get anything.'

The government has recently acknowledged that it might have gone too far. Eyeing the opinion polls, last month it abolished the dollars NZ50 (pounds 17.36) a night hospital bed charge introduced 14 months ago. Last week it cut the cost of medical fees for low and middle-income earners.

The Prime Minister, Jim Bolger, assured church leaders recently that his government would now focus on the and needy. He conceded: 'It's fair to observe that with the changes that have occurred, many New Zealanders feel they've been left out.

'It certainly wasn't the intent of my government's policy.'