Means testing: Beware!


Means testing does not work like universal benefits, it denies people entitlements they have contributed to and are eligible for

There are increasing calls for means testing more benefits. These are fertile times for such proposals and they are grabbing attention. It comes at a time when the government is cutting back on public spending in the name of reducing the deficit and when more and more people are feeling the pinch and are worried about money.

Means testing has always been around, the surtax of the 1990’s is one example, and the current call is means testing for a wider range of benefits, particularly for older people. High profile policy decisions like the winter fuel allowance, and universal NZ superannuation.  All older people are currently entitled to these.

The arguments offered for more means testing are invariably warm, positive and helpful ones. They tend to go something like this:

  • Many of the people who receive such payments don’t really need them. In fact, they often say so themselves. It is thus wasteful and inappropriate that they should be getting them.
  • It is especially unhelpful at a time of serious cuts in budgets, when it’s really important to focus what money there is, as wisely and carefully as possible to meet the greatest need.
  • It’s hardly fair to those who are really in want, if others who are far from that situation gets the same benefits. It’s unjust and means that what resources there are aren’t being properly targeted to those most in need. If that money wasn’t being wasted on those who don’t really need it, it would go to those who do.

The arguments given for means testing are always benign and generally reflect a concern with efficiency, the well-being of the most disadvantaged, and fairness.

 Means testing benefits will not be efficient or fair

But if society was a small family and politics like housekeeping, that might be enough said. But governments, politicians, political ideology and social policy, as we all know, just aren’t like that. So, it’s helpful to look at this issue of means testing versus universal benefits, not just from an economic commentator of divvying up domestic budgets, but from the real and very different perspective of how politics and policy actually work.

And what we actually know about means testing is that it tends not to be efficient, fair or in the interests of the most disadvantaged.

So many policy targets are often well meaning in intent but the reality is frequently different

One of the great strengths of universal benefits is that it is simple and economical to administer and operate. The opposite is true of means testing.

What means testing generally means is a lot more bureaucracy. This is quite likely to eat up any apparent savings that it is suggested it will make possible. Possible often means is huge IT-system bills that almost invariably end up unfit for purpose. In summary the administrative mechanism for measuring need, is costly and difficult

We also know New Zealand remains full of trusts and asset protection schemes. These are designed to camouflage income, and for means testing to be at effective, all such protection schemes must disappear so all income earned is transparent.  This is highly unlikely to occur.

Means tested benefits aren’t actually fair. It has long been known that large numbers of needy people tend to miss out on such benefits. Either they don’t know about them, they don’t realize they are eligible for them, or perhaps, particularly important, they are reluctant to claim them.

This is because they have increasingly been encouraged to think of receiving benefits as meaning being dependent and “not standing on their own two feet”. This is especially well known about older people and can result in them encountering health and other problems from under-claiming, which ultimately increases costs, as well as failing to ensure their access to entitlements.

When benefits have been universal, people have paid for them in their taxes. To change them into means tested benefits is quite simply a fraud, denying people entitlements they have contributed to and earned.

Means testing hurts those who are neither rich nor very poor

Means testing always hurts people who are neither rich nor very poor. Because there’s always a cutoff point, some who are far from well off and who would “genuinely” benefit from them are excluded.

There are also many people who may seem comfortable to the outside world, but who don’t necessarily feel so themselves. So, they are frugal for fear of rainy days, not realizing that the rain has already come.

Thus, older people who could afford an occasional taxi to make up for the inadequacy of public transport see it is a luxury they can’t afford. They increasingly stay at home. The resulting isolation is strongly associated with bigger physical and mental health problems. So, cutting travel pass concessions can actually end up causing greater public expense.

One of the great strengths of universal benefits is that they create a sense of solidarity and shared understanding. Means tested benefits create the opposite, divisions and misunderstanding. The them and us scenario is ever present. This specific point is inevitably overlooked by economists, who appear unaware of policy distortion and fail to remember that, not everything that counts can be counted, and not everything that should count can be measured.

When benefits are universal it means that there are better placed people concerned to fight for them. When benefits are means tested, they lose these advocates and the most disadvantaged, with much weaker voices, don’t have the political clout to ensure that they stay sufficiently resourced and constantly updated. It’s a vicious circle.

Of course, there’s the argument that getting rid of universal benefits means that the jam can be spread more fairly. Please show me one example where cuts made in one valued service ever resulted in politicians spending more on another valued service. That is the weakness of Susan St Johns paper on income allocation. New Zealand Superannuation is a great model, don’t remove foundation policy, in the context it might be used elsewhere for even better value.

Means tests are a good example of this very principle. On paper, they can provide significant budgetary savings while sparing the poor from benefit reductions. In practice, however, they can generate disincentives to work and to save, and do more harm than good.

Many of those who proclaim the alleged virtues of means testing, have nothing other than an ideological interest in the issue, some well-known New Zealand talk back hosts fit that definition, with their loose talk and low value opinions

Put another way, how many of them have ever had to rely for any length of time on such benefits or go through the process of getting them? Not many I would suggest. The rest of us should steer clear of them too

KASPANZ - be a wise owl!

* PETER BERESFORD supplied much of the content for this piece, reworked by the Kaspanz editor Alec Waugh for the NZ consumer.


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