Social Security (Fraud Measures and Debt Recovery) Amendment Bill

Thank you for the opportunity to speak on Part 2, “Consequential amendments, and application, savings, and transitional provisions”. The intent of this part, of course, is to go about the implementation of the clauses that we have just been debating. So this is the part of the Social Security (Fraud Measures and Debt Recovery) Amendment Bill that will bring about what we on this side of the Chamber think is quite a precedent-setting issue around not having that high bar of proving criminal liability when it comes to being involved in social security fraud or being involved in the part payment of debt that has come about from someone being in receipt of a benefit.

I think, as some of my colleagues quite rightly pointed out, that actually the fraud and the debt parts should be treated quite separately. I thank Jan Logie for raising that in the Part 1 discussion. Obviously, when it comes to social security, debt can actually, and often does—and this is something I am hearing about on a daily basis now—come about because of a mistake that has been made by the department itself, by Work and Income. Quite frequently that is the case that I am certainly hearing about on a daily basis now in my role as the spokesperson for social development for the Labour Party.

So these consequential amendments and the transitional provisions are actually very important, because we are transitioning to a situation that is unprecedented. I heard what the Associate Minister for Social Development Chester Borrows said in his contribution to the Part 1 debate. He does not believe that there is a great precedent being set here, but that certainly was not the view of the New Zealand Law Society. I think it was quite right in bringing forward its concerns about how these amendments to a range of other Acts of Parliament, and these transitional provisions, are actually a departure from what we have had before. Its concern in particular was the departure brought about in these consequential amendments to other Acts of Parliament that will, for the first time—so the society thought, and we agreed with it—lower the bar of proof that a person was actively engaged in committing the fraud or accumulating the debt, because, remember, this bill deals with both.

When Work and Income does overpay someone, that person may not know about it. Can we really expect the person in a relationship with them to know about a mistake made by the department? That is what this bill is actually saying we ought to transition to under Part 2. The transitional provisions will actually transition to a place where the partner of the person who has been overpaid because of a mistake made by Work and Income does not even have to know. We would not even have to prove that they knew there had been an overpayment, as the fact that they have benefited from that overpayment would be enough with regard to their criminal liability. That, I think, is quite a departure.

So we are transitioning in Part 2 to deal with issues of welfare fraud and welfare debt, but the Government, despite its protestations, is not taking a consistent approach when it comes to tax fraud. I think that is completely wrong. It is completely wrong that we have got a Government that is prepared to—

💬 Hon Paula Bennett: You can’t keep saying that.

Well, Minister, I can keep saying it because it is the truth. The truth is that these measures here in this bill are not being taken with regard to tax.

💬 Hon Paula Bennett: That’s not the truth.

Where is the bill? Where is the bill that actually takes these same measures against people who commit corporate tax fraud?

💬 Hon Paula Bennett: Considerably more is spent collecting tax than it is doing this.

Well, all the Minister can talk about is how much this Government spends. I would rather that Minister spoke about how much work this Government is doing on finding jobs for these beneficiaries, instead of actually attacking them all the time. That is what the Government should be spending its time doing and should actually be focusing on. I would welcome much more transitional provisions that were actually transitioning beneficiaries into jobs. That would be real relief, actually. Unfortunately, what is happening is the opposite. This Government, instead of focusing on getting people off benefits and into jobs and actually helping to create those jobs, is instead putting all its energy into trying to deal with welfare fraud, as if that is the big issue—as if that is the big issue.

Of course, none of us accept any level of fraud, particularly when it is fraud that is against the taxpayer—and that is both tax fraud and welfare fraud, by the way. Both of those measures are fraud against the taxpayer. No one in this House accepts that that is OK. But I would much rather that this Government and that Minister put their energy into actual social development, because that is what the name of the portfolio is, and into developing people’s opportunity to be socially engaged, and were not spending all their energy on this area here, which is all about proving that people who are welfare dependent are actually the bad guys—that they are the bad guys, and the job of the Government is to catch them out. Well, look, that is a small part of what the Government should be doing, but the big part of what the Government should be doing is actually helping people get off benefits and into work. Sadly, not enough effort is being put into that area, but an awful lot of effort is being put into blaming beneficiaries, and an awful lot of effort is being put into trying to make it seem as if welfare fraud is the big bogey that this country faces. This is not the big bogey that this country faces.

However, I want to put it on record again that the Labour Party is supporting this bill because we do not accept that fraud against the taxpayer at any level is acceptable, whether it be tax fraud or whether it be welfare fraud. So we are supporting it on that basis. We were also very much swayed, as I said when I spoke on Part 1, by what women’s organisations had to say about the gender impacts of welfare fraud. Having heard the submissions, we think and we do strongly believe that this will actually make it more equitable where there is relationship fraud that is being committed. Part 2 deals with the amendments to other legislation that will help to bring this about. It should be that if two people have been benefiting from that fraud, then there should be more equality in what they pay in restitution towards that. So we absolutely agree with that. We think that that should be more equitable. We believe that women who are in these situations—which, as we said before, could very well be violent situations—should be protected as well. That is important, and this bill does go some way towards that.

But let us not imagine for a minute that this bill addresses the big problems that this country faces, the big problems that could have been resolved if this Government had been working in the interests of beneficiaries, rather than just trying to trip them up and attack them at every opportunity.

If this Government really had the interests of beneficiaries at heart, then we would not have largely immigrant labour rebuilding Christchurch at the moment, for example. That is something that the Government should have had its eye on. It should have been training people and it did not. It failed to do that. It would rather focus on the fraud measures in debt recovery from beneficiaries instead.

I am going to conclude this speech by saying that the Labour Party will support the provisions in Part 2, as we did in Part 1, but we urge the Government to not just take the simple way out with this. The Government may feel that it is OK to attack beneficiaries and actually put these measures on them, but we want to see some equity in this. We want to see the provisions in Part 2 and Part 1 applied to tax fraud, and particularly to corporate tax fraud, as well. Thank you.

There is considerable debate in this Committee on the Social Security (Fraud Measures and Debt Recovery) Amendment Bill as to whether or not more resource is applied in the recovery of tax fraud or even debt versus welfare fraud or debt. Of course, the scale of one is significant versus the scale of the other. Anyone who is in employment is covered by PAYE. People have more contact with tax requirements than with welfare payments. But, even taking that into account, scale in and of itself actually justifies why we should be putting significant resource into ensuring that everyone is paying their dues when it comes to tax. The point has even been made by Dr Marriott at Victoria University that “More resources were applied to collecting welfare debt than tax debt”. Here is that statement again. After the comparative work that she has done between the two, she says: “More resources were applied to collecting welfare debt than tax debt”. As much as the Government wants to claim that that is not the case, that is what was produced by the work of Victoria University. So not only do we know that the scale is larger; we also know that the penalties you are likely to incur are going to be higher.

For instance, you are more likely to get a custodial sentence if you are convicted of welfare fraud than if you are convicted of tax fraud, even though, on average, tax fraud where a custodial sentence is being applied amounts to roughly $800,000 versus $67,000 when it comes to welfare. There is inequity in our system right down to the amount of resource applied in recovering debt, and we should all be interested and concerned by that. All fraud is wrong. All fraud in some way affects taxpayers because it is all coming from the collective pie. All of it should be pursued. That is what we are highlighting—that it should be that all of it is pursued and with equal vigour. Our point is that it appears that not only is there a disparity but actually the penalties that apply are different. The degree to which you will get some kind of discounting on arrears is likely to be different, and none of that strikes us as being fair. We are discussing in Part 2 some of the ways in which the Ministry of Social Development has the ability to recover debt.

We know, though, that a taxpayer can apply for financial relief via the Inland Revenue Department. You will find that that is rarely the case when it comes to welfare. And I want to add overpayment—not just fraud but overpayment—because that is a frequent occurrence in our system. The ability to seek financial relief is somewhat limited. You will be paying down regardless of the amount that you owe. There will be a deduction applied, almost always if there is an overpayment, directly from the next benefit payment you receive. When your discretionary income is incredibly low, that has a significant impact. I am not just talking about fraud here; I am talking about the recovery sometimes of the Ministry of Social Development’s own mistakes. As my colleagues from the Green Party have pointed out, overpayment often occurs without any mischievousness on the part of the beneficiary. It occurs simply because of the way our system works.

Let me talk to that point briefly. We know that many of the recipients of welfare payments in this country are working but that they simply do not earn enough to survive. They might be in precarious work, working a few hours a week, which is then topped up by the Ministry of Social Development. They might have a job where one week there is work and another week there is not. Many of us will have seen cases like this before. In those cases an individual is required at the end of the week, on a Friday, to call Work and Income on the phone line and report in how many hours they have worked. Obviously, to anyone who has worked on a payslip system—like when I was back in the old supermarket—there are delays. You would not get your payslip with how many hours you had worked that week and what your pay was until some time after. So we are requiring Work and Income clients to make a best guess of the hours that they perceive that they worked, and they call that into Work and Income.

That does, as you can imagine, lead to some potential discrepancy, and it was, I believe, the reason that when the Inland Revenue Department and the Ministry of Social Development recently started sharing information, you suddenly saw this increase in what they determined to be discrepancies. “Discrepancies” is a word I want to highlight. It was at that time presented by the Government as the Government having discovered all of this new fraud in the system—not so. Simply, what it had discovered was the inefficiency of our own systems. It discovered that someone who calls through and says: “I believe I worked 6 hours.” actually may have worked 7 hours. They may have worked 5 hours, but that extra hour was not counted, not registered, over time. Discrepancies like that are not an uncommon thing. They are not deliberately fraudulent. They are just different errors, perhaps even on the part of payrolls. But it all shows up as something that the recipient then needs to be, if a calculation is based on those hours, either topped up if there was an inaccuracy or something paid back—and it happens. When that, however, is calculated, it gets lumped into overpayment and is then deducted from the beneficiary’s future payment.

You can see how this occurs. It all gets lumped in together. When that happens, people pay it back. That is how the system works, but there is often little relief when, through no fault of their own, they are having these deductions made from what is a very small discretionary income. If we jump then to their paying it back where it might have been more deliberate, there was some discussion at the Social Services Committee, as I said earlier, over the consideration that the chief executive makes when determining the level at which someone is paying it back or determining whether or not there are any special circumstances involved. They are required to determine the payment rate and whether or not any financial hardship will result, but there is still very little leeway there. That is not to say the debt should not be recovered; it is simply that we think common sense should apply and that if someone in the process of paying back their debt is left in a position where they cannot survive, well, that serves no one at the end of the day.

We do have some differences in the level of discretion—the quite liberal way the Inland Revenue Department is able to determine leniency in that regard compared with the much more rigid approach the Ministry of Social Development is required to take. That probably explains why you are seeing a greater write-off of arrears in our Inland Revenue Department system than you are seeing in our Ministry of Social Development system.

One last thing that I want to come to, and I also want to touch on Part 2 equally, and this was pointed out in Victoria University’s research as well, is that the Ministry of Social Development can recover debt from delayed redundancy, retirement payments, compensation, and damages—from, basically, anything. If you get any form of income, even if the ministry has to wait a number of years, it will then be able to recover the debt from that place. We can debate whether or not that is right or wrong. My question simply is this: does the Inland Revenue Department have that same power? It is a simple question, because if we are doing it here, it should apply to that system as well.

One final point I wish to make. We have not discussed this in great detail, but this bill also changes the ability of the Ministry of Social Development in its investigations to conduct a thorough investigation without first informing the accused.

That might seem like a strange thing to do. Why would the Ministry of Social Development tell someone they were being investigated? Well, for the very simple reason that some people sometimes report beneficiaries for vexatious reasons, for mischievous reasons. We know it happens. That probably explains why in 2010, of the 16,000 allegations of benefit fraud, 2,000 resulted in a debt and 14 percent of those were found to have warranted prosecution—quite small proportions, when you look at how many allegations are being made. Why would we want to then remove one of our mechanisms to determine whether or not something mischievous is occurring? If you ask the questions of the individuals, sometimes there are entirely plausible explanations and that is where it ends. Instead, we are allowing resources to go into an investigation that actually may not be required, not to mention the privacy issues that come with that and the ability to undermine someone’s employment by going straight to an employer in an investigation rather than to the individual accused.

Kia ora, Mr Chair. Thank you very much for the opportunity to contribute to this Committee stage of the Social Security (Fraud Measures and Debt Recovery) Amendment Bill. We are speaking on Part 2 of the bill, which very much focuses on the debt recovery part. Part 1 is about the fraud measures; Part 2 really is about the amendments and provisions to enact those fraud measures.

What I specifically want to focus on—and I do have a couple of questions for the Minister in the chair, Associate Minister for Social Development Borrows—is, I guess, the integrity of a social security system that contains our most vulnerable societal members. That is the context of this piece of legislation. It is a context where the most vulnerable New Zealanders seek help from the Government. The Government helps those members of our society. Within the context of this bill, we are talking about $23 million worth of fraud that is perpetrated within our social security system. There are approximately 700 fraud cases every year. Within that context, 200 of them are specific to relationship fraud, which is the whole focus of this piece of legislation.

The question I had for the Minister came after reading the regulatory impact statement, dated 8 November 2012, which essentially outlines a problem definition and the intervention logic. What I found really interesting within that paper was that in 2012 there was a $485 million debt to the Ministry of Social Development. In context, of that amount of money, $106 million was due to fraud, which was 22 percent of the overall amount that was owed to the Ministry of Social Development. The actual percentage of relationship fraud I have got no idea of. There was $176 million worth of overpayments, which actually is about the administration by the Ministry of Social Development. So it is actually the ministry’s internal processors who overpay people, and then beneficiaries who have been identified as getting too much money have to enter into a repayment scheme with the ministry. Then there was also $203 million worth of advances, which was the bulk of the provision. These are beneficiaries who have requested assistance from the Ministry of Social Development. They want assistance.

The reason I bring these issues up is that it seems to me that we have gone down a really punitive path in terms of relationship fraud specifically, and that we are wanting to criminalise a group of people. The punishment contained within Part 2 of the legislation is very much about fining people who are beneficiaries and then actually saying that if they have not got the money, the worst case scenario is that we are going to send them to jail, which actually does not make sense to me. What would have been maybe a more pragmatic response is sharing the debt. I believe that there are women, particularly and specifically, who end up in debt through relationship fraud and who end up having the whole of the liability of that debt that the Government says it is owed because they are in a relationship where their spouse is earning too much money, they have got an accommodation supplement they were not entitled to, or they have got a whole lot of entitlements they were not entitled to. This piece of legislation is saying: “OK, we’re going to share the burden. Their partners have enjoyed the Government’s money and we believe that a fraud has been perpetrated, so they must pay.” My question to the Minister would have been around the fact that there is an administrative cost in terms of now creating a new regime around dealing with fraud, and I just wonder why we could not have treated—for the women, and for the men, actually—aspects of this particular legislation as advances, and then just integrated the $106 million worth of fraud into existing systems. Why are we creating a whole new system when, in fact, we could have just added value to what was already there?

I am particularly passionate about this area as a member of the Social Services Committee because whom we are dealing with are, as I said before, our most vulnerable members of society. Many people have talked about the context of relationship fraud. It is mostly women who are getting the DPB. What I found staggering, actually, in this regulatory impact statement is that there was not a gender analysis, because I think that what we are actually talking about is debt that women have. There was not an ethnic analysis. We do not actually know how many Māori or Pacific or other New Zealanders are affected by this particular issue.

You know, frankly, what we have tried to highlight tonight is the prioritisation by this Government of trying to recover what amounts to a very small amount of money that beneficiaries owe. What we have said is that the opportunity cost for that time, in terms of a bill, would have been much better spent looking at the up to $6 billion worth of tax evasion that occurs in the country. The whole reason and rationale for highlighting that to New Zealanders, some of whom will be watching tonight, really is trying to underline the prioritisation of this Government of making sure that beneficiaries pay back money that they supposedly have defrauded our Government of. As I said before, these are New Zealanders who would have got too much accommodation allowance or too much other support, which actually has enabled them to survive and live in this country within the context of no work or the work that they do have actually not paying them enough to live on.

Another question I have for the Minister is around the commencement date, because that has changed. This Act was supposed to come into force on 4 November 2013—

The CHAIRPERSON (Lindsay Tisch): Part 2. We are on Part 2.

Sorry, Mr Chair. The question really is about communicating this piece of legislation, if the House consents to it being passed, to the social security community, so that it understands the implications of this bill. The only thing I can see out of it that could be positive is that the ministry is going to engage with people—I would target those on the DPB—to make sure that they know that there are new requirements within the context of this legislation that could have huge implications for their relationships. It obviously has huge implications for how they live their lives. It is just to make sure that they are fully informed and can make an informed decision about how they live and how they meet the requirements of being a recipient of the Ministry of Social Development support. Lest we forget, the people we are talking about are those who are unemployed. They are those who, in most cases, have children, so they have dependants. They are people who, without the State’s support, actually have not got a home and have not got food on the table. Fundamentally, at the end of the day, it means that our children do not have a solid base from which to be able to go to their local school to learn and be the productive members of society that we all want them to be.

My challenge really to the Minister in the implementation of this legislation is that hopefully there will be some empowerment in the process, because I do see aspects of this that are really positive. Leaving women in debt and having to pay off $5 a week for the rest of their lives, with it actually compounding if they owe and take advances because they need other forms of support, just means that the poorest and most vulnerable end up being revictimised and stigmatised to a point where life is too tough and where even getting out of bed and making sure their kids get to school is a struggle. So Labour is supporting this piece of legislation. Obviously, we do have reservations. The big question we would ask this Government is why it has prioritised this when there is a whole lot of other income that the Government could be getting. From our perspective, this is a perpetuation of the stigmatisation of beneficiaries, which appals us. Kia ora.

Part 2 agreed to.

Clause 1 agreed to.

Clause 2 agreed to.

Clause 3 agreed to.

Bill to be reported without amendment presently.