Want to lift welfare? Start with a house

Last Thursday Paula Bennett was pleased with herself for getting her you-must-work welfare bill through Parliament and Bill English was pleased to confirm that you-the-taxpayer are still on course to get him a budget surplus.

The two are linked. And both are linked to a two-dimensional housing tangle.

Bennett’s line: work is good for the soul and self-worth which leads to a better life, initially qualitatively (earning your income gives a sense of control of your life) and eventually quantitatively (once in work, there is a prospect of getting higher wages).

Bennett backers believe this improvement trickles down qualitatively and quantitatively to the children of those “encouraged” into work. Bennett says any work at any legal wage meets her criteria.

So she has imposed sanctions on those required to work who don’t work or don’t look hard enough for work.

English backs Bennett — in fact, is a prime driver and overseer of the policy shift — for two conservative reasons, one moral, one fiscal.

Labour’s Jacinda Ardern (who comes from a conservative moral background as does English and talks of the “dignity of work”) says Bennett has broken a “social contract”. That contract said “those who use” “social security” (note, “security”, not “welfare”) “are expected to look for work, while the government focuses on job creation, training and placing job seekers into employment”.

She says sanctions will force those sanctioned on to charity. She didn’t add, but might have, that that is a cost on society, as taxes are. The only difference is the way the cost is paid. Costs squeezed out of one corner of an economy often turn up in another.

That fits the conservative argument on child poverty (conservative, in the Burkean sense of valuing community, as distinct from Margaret Thatcher’s famous libertarian “there is no such thing as society”): that not investing in those children dumps costs on the health and education systems and eventually the benefit system and in some cases the “justice” system — and deprives businesses of future able workers.

Ardern has yet to offer an “instead” in place of her “against”. Some on her side of the argument despair of her but they might be premature. Ardern is aiming her substantive response for the end of the year.

Meantime, English is talking up the fiscal outlook, which is the envy of most rich countries. But that is only part of his economic story.

Take this statement in Thursday’s speech: “We have reduced tax on work, savings and company profits, while increasing taxes on property investment and consumption.”

Actually, raising GST is a one-off tax on savings, since from that point on what you have saved will buy you less than it would have before the tax went up. English thumped up GST from 12.5 per cent to 15 per cent in 2010. After that your savings buy you 2.22 per cent less.

That is encouragement to save? Small wonder households have reverted from a brief period of just-and-no-more saving to spending more than they are earning.

And small wonder they are putting savings into houses. English and John Key make much of low interest rates. One benefit is that businesses can borrow to invest more cheaply. A disbenefit is that savers get less from banks and bonds — rentable houses are a better bet.

Surprise, surprise, house prices are back up above the 2007 bubble peak. It is not a bubble — yet. But it has got the Reserve Bank’s Graeme Wheeler edgy: he is not ruling out regulating banks’ house lending ratios.

The government’s response to the house shortage and especially to a shortage of “affordable” houses is to hammer local councils to release more green land to developers.

Small problem: developers aren’t going to build “affordable” houses. The margins are smaller than for houses for the affluent and the middle classes.

Still, there is a kernel in the government’s argument. Economists say that even through the boom years there was a shortage of supply, which has worsened since 2007. That accounts for the lack of a price collapse, as in overbuilt Ireland and Spain.

So there may be a case for some government involvement to get more affordable houses and rental houses built, as once governments of both stripes did, to better match supply and need. A likely spinoff would be less child poverty — and more money to go round to pay for the jobs Bennett wants her beneficiaries into.

Meantime, soaring house costs eat up incomes. Households have reverted to spending more than they are earning. This is a long way from the sound economy English insists he is building. We are still one of the most indebted countries on earth. The economy is still badly distorted.

So, while Bennett and English might get the government books nicely in order in May 2014 in time for re-election six months later, that is only part of the story. English will need the whole of a third term to demonstrate the real economic change he said he was aiming for at the start of his first term.