The people working for $10 - and less - an hour
New Zealand needs to rethink how the welfare system interacts with tax - and how we approach "punishing" people who are on the benefit, a prominent economist says.
Ganesh Ahirao said the marginal tax rates that people were earning when they shifted off income support, or took on more work at middle incomes, were much higher than those paid by higher-income people.
He looked at a number of household scenarios to illustrate the point and said even with living wage employment opportunities available, people were only earning between $8.78 and $10.65 an hour for additional hours worked. Someone on a minimum wage would earn even less.
The Living Wage is currently set at $27.80 per hour.
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In one case, a single person whom he referred to as Manaia, with no children, no student loan and paying rent of $415 a week for a one-bedroom flat in Wellington would receive the Jobseeker Support (JS) payment alongside Winter Energy Payment (WEP) and Accommodation Supplement (ASUP) totalling in the hand $592 per week.
Six hours' work at the living wage would take income to just over $700 with those supports.
"But thereafter, the reduction of JobSeeker - at the gut-punching rate of 70 cents for every extra dollar earned - slows in-the-hand increases to a snail's pace. Consequently, the effective marginal tax rate (EMTR) faced by Manaia soars into 80 percent-plus stratospheric territory," Ahirao said.
In another case, a sole parent of two children paying $600 a week would receive the Sole Parent (SP) payment alongside WEP, the Family Tax Credit (FTC) component of Working for Families, and ASUP totalling $1047 per week.
With six hours work at the living wage, the person's income would rise to nearly $1200.
"But then the reductions in support payments brutally cut in. Firstly, the SP declines by 30 cents for every extra dollar earned and then after 10 hours per week by 70 cents per extra dollar earned. The resulting EMTR of 89.2 percent is pushed to 93.3 percent (after 14 hours per week) as FTC payments begin to decline at 27 cents for every dollar of other income. Another hit (at 24 hours per week) pushes the EMTR to 95 percent, as the ASUP also begins to decline (25 cents for every dollar of other income)," Ahirao said.
If the person worked 40 hours a week they would receive $352 more than if they did not work at all.
Ahirao said the tax and welfare systems needed to work together.
"MSD does benefits and IRD does Working for Families and student loans… they have this separation there that needs opt brought together.
"Abatement rates in the welfare system are not seen by the tax system. That's one element.
"We also need to think seriously about our perspective on penalising people. It's a punitive-first approach welfare system. There is a belief out there that everyone should work, should be able to go to work and should take up work whenever they can. To a degree that's ok but then it goes to those who don't work are somehow at fault and should be penalised. That is the perspective to get past."
He said many people out of work were not jobless by choice.
There was little encouragement to work when the benefit was clawed back so quickly, he said. "You take away 70c in the dollar - there's a perspective that if we add on to their part-time income with jobseeker they're going to get too much, it's going to be too generous so we've got to claw it back… do we want to encourage people into the workforce or penalise people for not being in the workforce?
"That's the mindset we need to get over before setting any other policies. That's a big shift in our thinking across the whole political spectrum."
A universal basic income could be part of the conversation, he said.
"I'm comfortable saying you have aright to an adequate income and that involves an obligation to contribute in society, make yourself available for work. You don't go from there to we're going to bash you with a whole lot of sanctions. You tweak the settings to make it as attractive as possible to contribute. A carrot rather than a stick approach."
Ministry of Social Development general manager of welfare system and income support Fiona Carter-Giddings said the ministry's priority was getting people into work.
"Between June 2024 and June 2025, 86,000 benefits were cancelled because the person found a job.
"We're pleased New Zealanders continue to move off benefit and into work, despite challenging economic circumstances. When people are employed they have a higher income and more opportunities to improve their quality of life.
"Government financial assistance generally reduces as other income increases, because New Zealand's welfare system targets support to people who need it the most. This is a long-standing principle of social security.
"The ideal rate at which support should reduce involves trade-offs between income adequacy, incentives to work, and maintaining appropriate costs to the taxpayer. The welfare system is designed to balance these objectives, and it is an area of ongoing debate."
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Poll: 🗑️ Would you be keen to switch to a fortnightly rubbish collection, or do you prefer things as they are?
Aucklanders, our weekly rubbish collections are staying after councillors voted to scrap a proposed trial of fortnightly pick-ups.
We want to hear from you: would you be keen to switch to a fortnightly rubbish collection, or do you prefer things as they are?
Keen for the details? Read up about the scrapped collection trial here.
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83.1% Same!
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16.9% Would have liked to try something different
Why we need cash to stick around----Cash is king – Using notes and coins to pay for everyday goods and services is quickly becoming obsolete. When will cash disappear from our lives? And who'll miss out when it does?
Every March, the New Zealand Red Cross sends out teams of street volunteers across the country. With their white buckets and red vests, they're instantly recognisable. The idea, says philanthropy director Jasmine Edwards, is to raise awareness for Red Cross’ work and hopefully get some donations in the process. “It’s part of our largest fundraising event of the year,” she says.
But, over the past five years, the amount the street appeal brings in has been trending down. Edwards describes a combination of contributing factors: COVID, the ongoing cost-of-living crisis and a lack of cash. “We’ve seen a pretty steady decline in people carrying cash, and that’s had a big impact on our street appeals,” she says. “It’s really affected what we’re able to raise.” That, in turn, affects how much aid work the Red Cross can do.
Edwards and the teams she co-ordinates have pivoted to other fundraising methods. They’ve trialled EFTPOS, tap-and-go donation machines and even QR codes. Each has downsides, says Edwards. EFTPOS isn’t quick, and QR codes often rely on the person taking a photo and remembering to donate later. “The tap-and-go machines are quicker because you just pop your card on, but they’re quite costly. You could never afford to have one of those at every site.”
So far, the cashless options haven’t worked as well as people reaching into their pockets and grabbing a couple of notes or a handful of coins to throw into the Red Cross buckets. However, those days, it seems, are over. In 2023, Stats NZ reported just 7% of transactions were made in cash. Everyone is using alternative methods to pay for goods and services these days, from EFTPOS and apps like Afterpay to swiping their phones and watches loaded with their credit cards.
Edwards wonders how long Red Cross has got until it needs to make more changes to its street appeals. “Our volunteers have amazing conversations with people on the street,” she says. “It’s a real moment of human connection. You can’t quite replicate that with online donations.”
Cash is king – until it’s not
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Cash use is declining – rapidly. In its 2023 Cash Use Survey, the Reserve Bank of New Zealand found cash usage for everyday purchases had decreased from 95.8% in 2019 to 60.4% in 2021 and just 57.2% in 2023. The bank says 15% of New Zealanders prefer to use cash for everyday payments, but only 8% are regular or daily cash users.
Despite this decline, cash remains important, according to the Reserve Bank: it all depends on the situation. “Research establishes that New Zealanders place a high value on having access to cash,” a spokesperson told Consumer NZ. They cited short-lived personal emergencies, long-term complex personal challenges, community-level emergencies and digital payment outages as reasons for cash’s importance.
In December 2024, the Australian government announced it would mandate businesses selling essential goods and services in that country to accept cash from 2026. “For many Australians, cash is more than a payment method, it’s a lifeline,” officials said. Australians support this, with a survey by Australia’s consumer watchdog Choice showing 97% of respondents think stores shouldn’t be able to turn down cash for essentials.
But that’s not the case in New Zealand, where there are no rules to protect cash. If a business doesn’t want to accept cash, it just has to put up a sign saying so. The only rules limit how much a consumer can pay in coins. “The Reserve Bank is currently considering further changes to the law to support the cash system and ensure New Zealanders can access and use cash as desired,” the Reserve Bank spokesperson said.
How cash can help you spend less
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Tom Hartmann, the personal finance lead at New Zealand’s independent money guide Sorted, says cash can be used as an important tool for some people to make better budgetary choices. He says credit cards or apps like Afterpay removes a buffer and encourage consumers to spend more. “You go up to the till; you get what you want; you pay, wave, swipe, whatever you do ...,” he says. “It’s all pleasure because you’re getting the thing, and any pain is sort of reserved for the future, when you get the bill.”
Cash, he says, helps those who may be struggling with their budgets get their spending under control. “With cash, it’s a different experience. You’re holding cash in one hand, and you receive the goods in the other. So, your brain is processing the trade-off right in that moment – is this worth the pain of letting go of this cash for what I’m getting?”
Carrying cash, he admits, is becoming an antiquated notion. It depends on your personality. When he’s got cash, he’s more likely to spend it faster. But Hartmann recalls a conversation he recently had with his 17-year-old son, who has an entirely different attitude. “He sold something on Trade Me recently, and he wanted to be paid in cash, because he holds on to [cash] better,” Hartmann says.
How small businesses are coping
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Every Sunday, Carol Gunn opens the Grey Lynn community centre early to let in stall-holders. By 8am, the markets are humming with customers grabbing freshly-baked pastries, recently picked vegetables, hot drinks, cheese, eggs and more. Gunn has noticed more stall-holders offering EFTPOS and credit card facilities, and fewer customers taking cash.
But she also recognises the issues, saying operating EFTPOS machines can be pricey for stall-holders, especially when they’re just getting going. “At this time of the year, we get lots of NCEA students trying out business ideas as part of their course assessments – they can only use cash,” she says. “We get community fundraisers who can only use cash. Getting rid of cash could disenfranchise the grass-roots activities in society.”
Frank Argent, the owner of Barefoot Gardens, a small produce farm in Kumeu, Auckland, agreed. While bagging up my potatoes and chillis recently, he told me about 40% of his customers paid in cash, which he encouraged. Why? “Every time you swipe your card, the bank takes a sizable chunk,” he said. “For a small business like ours, it adds up to a reasonable amount over a week.”
Other factors to consider in the death of cash
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There are still many elderly people who cannot use, or forget how to use, tech. Cash, therefore, remains very important to them for everyday items like groceries. “A cashless society makes things very difficult for older [generations],” one financial advisor told me.
Natural disasters or emergencies can affect internet networks, shutting down EFTPOS and credit capabilities. “Cash is often the only option at that time,” an advisor said. “Everyone should have a small amount of cash put aside.” How much is a personal decision, but the National Emergency Management Agency suggests it’s logical to have enough for three days’ worth of food and petrol. It also says small denominations, like $5 notes, are useful because some businesses may not be able to offer change.
Putting coins into a piggy bank is often a child’s first interaction with money. An advisor said the process can teach children important financial basics about saving money from an early age.
The king is dead; long live the king!
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Claire Matthews, an associate professor at Massey University’s business school, says it’s too soon to say we’re on the brink of becoming a cashless society. “We have already moved a long way towards it, but I think cash transactions will be difficult to eliminate,” she says. “I think probably most of us are ready to move to a cashless society. But there are a few who aren’t and will likely find it very hard.”
But my own experiences suggest the shift could be happening faster than anyone thinks. While researching this piece, I found a sign at my local Pak’nSave declaring the store’s self-service check-outs would soon stop accepting cash. “Cashless,” warned a printed sign in red.
Then, at a recent Auckland Football Club match, I approached a cashier while balancing drinks and hot chips. When I handed her a $50 note, she turned it away, saying, presciently, “We don’t accept cash here”. I smiled and waved my phone over the terminal. That $50 will have to wait for another day.
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Poll: Is it ok to regift something that you have been given?
🎁 Holiday Gift Chat!
Do you ever regift?
What’s your take on asking for a receipt if a gift doesn’t fit?
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79.3% Yes! It's better to regift what I don't need
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20.7% No. It's the thought and effort that matters
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