Child poverty costs economy $17.7b a year

The cost of child poverty in New Zealand is estimated to be at 4.27 percent of GDP – or $17.7 billion each year – according to new analysis from an economist.
That means New Zealand could be missing out on $5.1b in extra tax revenue each year (based on the GDP core Crown revenue ratio of 28.8 percent) – money that could be invested into schools, hospitals, and other things that help prevent child poverty in the first place.
Over the 10-year forecast period – using Treasury’s fiscal strategy model – the cost to GDP could be $229b, representing $66b in lost revenue.
Craig Renney, a Council of Trade Unions economist and former adviser to former finance minister Grant Robertson, told the Poverty by Design conference that while the Government knew the cost of tackling child poverty, there was no government measure of how much it cost not to address child poverty.
“One of the big problems we have in New Zealand is we know the cost of everything and the value of nothing.”
He was unable to find any studies that measured the private cost of poverty, or the private benefits that were not accruing because of that poverty.
To that point, he quoted his mother, Elizabeth Renney: “It costs a lot of money to be poor.”
In order to get to the $17.7b figure, Renney took the mean average figures from a range of non-government, New Zealand-based studies that looked at the financial cost of child poverty.
Those studies came from Analytica Auckland (3.5 percent to 9 percent of GDP), independent researcher John Pearce (5.15 percent), Child Poverty Expert Advisory Group (2.8 percent to 3.7 percent), Infometrics (3 percent) and the Child Poverty Action Group (3.8 percent to 4.6 percent).
Other studies from a range of European countries put the cost of child poverty between 1.4 percent and 6.1 percent of the respective countries’ GDP.

When measuring the cost of child poverty, it was usually done by measuring four key elements: lower employment rates and earnings; lower productivity; higher welfare payments and financial support; and government spending on health, housing support and crime.
The economist did caution that most of the New Zealand research was from the period from 2010 to 2012, and the number of children in poverty had dropped since then. However, the cost of child poverty would still be significant, he said.
“We’re losing billions of dollars, minimum, every day, as a consequence of child poverty in the economy, in productivity that translates into fewer jobs, that translates into fewer positive outcomes, and in itself, actually creates child poverty.”
During his presentation, Renney quoted Salvation Army director of social policy and Parliamentary unit Dr Bonnie Robinson who last month said: “Some problems we face as a society are so important, that the only ethical thing to do is resolve them, even if that seems impossible.”
Robinson said the child poverty target should be zero: no children living in poverty or material hardship.
“There is no other target that is acceptable in a Western developed nation. Because if the target is more than zero, then as a society what we are really saying is that it is okay for children, who are vulnerable and have no choice about their socio-economic circumstances, to live with a level of material hardship that we know from evidence can blight the rest of their lives.”
Earlier this year, the Government downgraded the child poverty reduction targets it inherited from Labour. And in September, Newstalk ZB reported that officials from the Department of Prime Minister and Cabinet advised Child Poverty Reduction Minister Louise Upston that it would cost $3b a year for the Government to deliver on the targets set by the previous Labour Government.
Last week, Upston said the Government was putting a deliberate focus on material hardship through early intervention, or targeted social investment.
The Government has committed to lifting about 17,000 more children out of material hardship by 2027.
The comments from Upston came as she released her new Child and Youth Strategy, which set out three priorities:
The strategy also included a refreshed set of child poverty-related indicators that aimed to measure long-term disadvantage: children in benefit-dependent households; housing affordability; student attendance; educational achievement; and potentially avoidable hospitalisations.
Upston said the indicators were designed to focus on the areas that would “make a meaningful difference to the lives of children, and drive accountability for improvement”.
Upston, who is also the Minister for Social Development, mentioned her focus on breaking “intergenerational benefit dependency”.
And while experts have praised the Government’s recognition of the first 2000 days, some worried that may detract from other opportunities to invest in children, such as during adolescence.
Meanwhile, the Child Poverty Action Group said they were concerned about some key changes in the strategy.
Food security – the percentage of children living in households reporting that food runs out often or sometimes – had been downgraded from a child poverty indicator to a “supplementary indicator”.
The demotion of food insecurity is particularly concerning given the latest New Zealand Health Survey results for 2023-24 showed one in four of our children (27 percent) lived in households that did not have enough food on a regular basis, the group said. This was an increase from 21.3 percent the previous year.
Meanwhile, the group noted that housing quality had been dropped as an indicator entirely, and raised concern that the top indicator that measured how many children were living in benefit-dependent households could be impacted by the introduction of barriers to people seeking or receiving benefits.
Renney told the conference that while there was a strong financial case to eradicate child poverty, “as a human being, I don’t need one”.
In response to the Government’s focus on getting people off benefits and into work, he noted that the 2024 household incomes report from the Ministry of Social Development’s Brian Perry found 61 percent of households with children living in material poverty were in some form of work. 
And 54 percent of children who live in households that live in poverty said that work was the main form of income for their household. 
In the 2022 edition of this report, Perry found that full-time, paid employment on its own did not provide enough for the household, even at a very basic level, especially where there were children.
“Work shouldn’t lead to poverty,” Renney said.
The Poverty by Design conference included a range of community workers, advocates, a developmental paediatrician, economists and academics with an interest in addressing poverty in New Zealand.
Later in the day, academic and commentator Max Rashbrooke, a senior research associate in the Institute for Governance and Policy Studies at Victoria University of Wellington, talked about how the Government could pay to address poverty.
Rashbrooke and his colleague Lisa Marriott made the case that there was enough money to invest in eradicating child poverty, and it came down to political choice.
“We do not have a spending crisis,” he began.
Rashbrooke acknowledged that poverty could not be solved through public spending alone, but that it was part of the solution.
“You’ll be hearing a lot about government debt at the moment, and this idea that we are terrifically, catastrophically, horrendously indebted as a nation, and this is simply not true,” he said.
Rashbrooke pointed out that net general government liabilities as a percentage of GDP remained well below the OECD average.
He also noted that New Zealand Government spending remained around 30 percent of GDP – more or less where it had stayed for the past 55 years.
“We don’t raise enough revenue to tackle poverty through public spending,” he said. “But we do underfund public services.”
Rashbrooke argued New Zealand was in a position to either (or both) borrow more money, or tax more, and then spend more of it on public services to help lift people out of poverty.
Rashbrooke and Marriott both looked at New Zealand’s tax system compared to other countries, and found if the Government taxed like Germany, there would be an additional $20b in tax revenue each year. If the Government taxed the same way Austria did, then there would be a further $43b a year.
While the Government was elected after running a campaign focused on tax cuts (or a change to the tax thresholds), the pair made an argument for introducing a tax-free category for those of the lowest incomes, while also increasing the top tax bracket and considering additional taxes like a capital gains tax, wealth tax, and inheritance or gift taxes.
The speakers acknowledged it was politically difficult to build support for next taxes – something Labour had long grappled with, and would continue to do so heading into this weekend’s annual conference.
Rashbrooke said there were several million adults in New Zealand unconvinced about the merits of tackling poverty to the extent needed.
“There is a very urgent task, fundamentally, to reconnect middle New Zealand – emotionally and through storytelling – with the real experience of people who are experiencing hardship. 
“Because I think that connection is profoundly missing, and that explains a lot of the political resistance; lack of public will to really tackle this issue.”