Minimum Income Support
The more price support is removed from the agricultural sector, the more governments are likely to be engaged in welfare schemes for the poor and disadvantaged in the sector. As discussed below, price support mechanisms tend to disguise the welfare problem by over-adequate compensation to all producers with the result that income distributions within farming become more highly distorted. Some support systems favour small and remote farmers specifically. If the movement to decoupling continues, governments will have to pay greater attention to minimum income considerations as a result.
Minimum income support schemes need to be designed to provide people with a minimum level of family income (OECD 1990, p52). The ideal is to ensure equality of treatment to farmers in similar circumstances to those in the rest of the community. GATT-compatible characteristics of such schemes might be:
- payments are independent of agricultural production and inputs;
- eligibility should be determined by the criteria established for such payments in the rest of the community;
- payments should be made when the farm family income from all sources falls below the levels established;
- participation should be voluntary but available to all eligible farmers.
The OECD observes that only in a few countries are there direct income measures which are generally unrelated to outputs or inputs in production (ibid, p67). These are the BC's programme of direct aids, the Swiss allowance for farm families and workers scheme, and the NZ adverse events family income support scheme. These include lump sum income payments, farm family income support schemes, and special social security arrangements for farmers. There is no a priori incentive to vary the level of production with the amount of assistance and there is no distortion on the consumption side, There are no effects on the marginal revenues and costs for specific commodities and any trade effects would be minimal. It may be, however, that such schemes back up resources in agriculture when they should be encouraged to move out.
Income Support in New Zealand
The approach behind New Zealand's submission to the OECD at the time of preparation of the referenced document was to review all the welfare schemes available to the general community and establish whether there were examples of coupling between production and support.2 Table 1. summarises the information gathered and Annex 2 gives some descriptive information about the welfare schemes discussed.
Table 1: Welfare Schemes Currently Operational in Rural Areas in New Zealand
Welfare Scheme |
Full-time Employee |
Unemployed/ unable to work |
Individuals/ |
|||
Non-Farm |
Farm |
Disaster
|
||||
1 |
Family Support |
. |
. |
. |
. |
. |
2 |
Guaranteed Minimum Family Income |
. |
||||
3 |
Unemployment Benefit |
. |
||||
4 |
Domestic Purposes Benefit |
. |
||||
5 |
Special Needs Grant for Financial |
. |
. |
. |
. |
|
6 |
Special Assistance Farming Sector |
. |
||||
7 |
Adverse Events Family Income Support |
. |
||||
8 |
Exit Grants |
. |
. |
|||
9 |
National Superannuation |
. |
. |
. |
. |
|
The table shows that family support is the only benefit payable to families irrespective of occupational groups. All other schemes have criteria which target the particular group they are meant to serve. The guaranteed minimum family income is only available to employees as a tax credit. The self-employed are not eligible for the unemployment benefit which is confined to those capable and willing to undertake full-time work. The domestic purposes benefit is for persons caring for children without the support of a partner; these can be found in both urban and rural situations. Special needs grants for financial hardship (emergency one-off payments) apply across the board, and particularly apply in disaster situations. The special assistance programme was an emergency income guarantee plan introduced in 1986, and has since been phased out. Adverse events family income support and exit grants were introduced in 1989 as emergency measures (drought); short run family assistance for disasters can be re-introduced at any time under the emergency provisions of the Social Welfare Act 1964. Superannuation is available to all on reaching the qualifying age; it is, however, subject to a surtax on other income received above a certain level.
Comparisons of urban and rural recipients of welfare benefits do not show a bias one way or the other (Fairweather and Gilmour 1993). These comparisons show that superannuation is received by 18.7 percent of the rural population compared with 14.5 percent urban, The domestic purpose benefit is received by 3 percent of the rural population compared with 2.8 percent urban. The unemployment benefit is received by 5.2 percent of the rural population compared with 4.2 percent urban. The authors define rural as centres with lower than 1000 population plus non-centre population.
These data can be interpreted to show, especially in the case of superannuation, that the residential location of the recipients is important. The survey indicates that superannuitants tend to be concentrated in small centres rather than being located in farm areas per se. For the remaining two benefits, the difference between urban and rural does not appear to be significant.
The aims or social objectives of these programmes can be set out as:
- prevention of financial hardship;
- protection of the sick, disabled, etc.; protection of the aged;
- assistance in emergencies, including climatic emergencies and recovery; assistance for economic disasters and recovery.
In New Zealand, there do not appear to be explicit policies for rural people in terms of rural population goals or maintaining the countryside in its present form. There is no clearly identified welfare policy specifically for rural communities apart from disaster relief. The concept is essentially one of a welfare safety net for protection of all people at some minimum standard.
The welfare safety net is necessary, in part, because earlier social and economic goals of full employment and balance of payments surpluses have been replaced by market and efficiency goals. In a full employment society, the minimum standard of living can be delivered by minimum wages and job spreading, with less emphasis on delivery by welfare payments. Similarly, agricultural assistance directed towards increasing exports assisted marginal farmers to stay in fanning, and also kept people in agriculture and rural communities at levels higher than were warranted by undistorted market prices and economic necessity. In turn, such assistance kept more schools open in rural areas, maintained small businesses in rural communities, and maintained levels of services such as health and roading at higher than otherwise levels. It is doubtful if these were the explicit goals of such programmes,
Welfare assistance in the form of direct income support to the rural sector in New Zealand has increased since 1984 following the dismantling of the investment incentives and minimum prices schemes of the previous period, and the general decline in the profitability of farming. The unemployment rate in rural areas has risen from 2.7 percent of the population in 1986 to 5.2 percent in 1991. Universal benefits were available before these changes and have continued since. Income smoothing and loss write-offs through the tax system have been preserved as well. However, as farming profitability declined in the mid 80s and support was removed it became apparent that the weak, the marginal and the non-viable farm units were not protected by the existing social welfare provisions. As a result, the special assistance scheme was devised to meet the situation.
This was the only mechanism whereby farm owners and their families could receive a full welfare benefit equivalent to the unemployment rate, apart from special disaster schemes. Family support is based on the number of children in a family and is not designed to maintain the whole family. Guaranteed family income is restricted to families on low wages and is not available to farmers as self-employed. However, for declared disaster situations it is now accepted that normal social welfare emergency provisions are available.
At present, government support to the rural sector in New Zealand is limited to these welfare measures and certain cross-subsidies that arise in the education, postal services, roading services and electricity areas (Harris and Scrimgeour 1992, Scrimgeour 1994). These infrastructural transfers are common to most countries, and are specifically exempt from the Aggregate Method of Support calculation agreed to in the GATT negotiation (Annex 2 of the
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