Disposable incomes of low-income families were overstated due to 'human error'

The Treasury and Statistics New Zealand have owned up to a series of errors, which have seen the disposable incomes of poor New Zealanders overstated in official statistics.

Some figures were miscalculated by, in total, billions of dollars.

The issue relates to co-production of economic data by Treasury and Stats NZ.

Apparently the problem emerged on December 10 last year when it was discovered that the accommodation supplement was double-counted - that is counted by both Treasury and by Stats NZ - in the formulation of disposable income data.

Labour's Finance spokesperson David Parker termed the issue "a Government stuff-up", which he said had overstated the incomes of 300,000 low income New Zealand households by thousands of dollars each "and shows National's record on inequality and poverty is even worse than they have pretended".

Green Party co-leader Metiria Turei said the Government was continuing to fail children in poverty "by not even measuring the size of the problem correctly".

A statement from Treasury chief economist Girol Karacaoglu and Statistics New Zealand deputy government statistician Vince Galvin said the two organisations were now "improving their quality assurance processes after data miscalculations affected estimates of disposable income".

The statement and supporting material says that the main difference as a result of the errors is that the Global Financial Crisis is "now seen to have had a greater impact in 2009 on the incomes of lower-income households than the original data indicated".

A "key points" document on the Ministry of Social Development's website highlights revisions to its 2013 Household Incomes Report.

It says that in the wake of the GFC the reported "income poverty rates" are higher using the revised data than the original data. In other words more people were living in poverty than recorded in official statistics.

It said the poverty rates were "typically 2 to 3 percentage points [higher] for children and 1 percentage point for older New Zealanders (aged 65+), depending on the measure used". 

For example using the OECD’s "50% of median measure", the revised 2011/12 child poverty rate in New Zealand was 14% rather than the originally measured 12%. In actual numbers this means 150,000 children rather than 125,000 as previously thought.

Using another measure, the "60% of median after housing costs measure", this gives a revised 2011/12 child poverty rate of 27% rather than 25% as previously thought. In numbers this means 285,000 rather than 265,000.

The material goes on to say that the error reported income in the datasets. "It has no impact on real-world incomes for households - no one actually gets more or less."

And Treasury said it had looked at the impact of the errors and concluded that the policy advice it gave at the time would not have been altered as the miscalculations were too small to have affected its judgement.

Specific errors included:

• Accommodation Supplement was double-counted in estimates of disposable income for 2009/10, 2010/11 and 2011/12, with a total impact of $1.2 billion
• Working for Families payments were overestimated in Treasury estimates of disposable income in 2007/08 with a total impact of  $900 million.
• Accommodation Supplement payments were underestimated in Treasury estimates of disposable income in 2007/08, with a total impact of $650 million.

"The Treasury and Statistics New Zealand hold themselves to very high standards. We are deeply disappointed to have failed to meet those standards with these data calculation errors," Karacaoglu said.

Galvin said: "The miscalculations were human error. But the main problem was that communication protocols between the Treasury and Statistics New Zealand were inadequate for this data and neither agency had an overview of the complete process to ensure the anomalies, once identified, were properly explained. Both agencies are determined to fix that.

"Statistics New Zealand and the Treasury have changed their quality assurance and communications processes to ensure this problem doesn't happen again. These new processes will be in place for the next round of estimates for 2013, which begin in March."

The statement said that estimates of household disposable income (income from all sources after deducting income tax and adding tax credits) were miscalculated for 2007/08 and for 2009/10 to 2011/12 "in a way that tended to overestimate the disposable incomes of households on low to middle incomes".

"The problem is limited to this particular area of work and has no bearing on other Treasury or Statistics New Zealand work streams or data. Policy advice to the government is unchanged, and there has been no impact on benefit payments or taxation for individuals or households."

The statement said the impact on two major pieces of work was assessed in detail:

1. In the Ministry of Social Development's Household Incomes Report, the trends and most of the findings remain broadly valid. The main difference is that the revised figures show that the global financial crisis had a greater one-off impact on household incomes in 2009 than the original data showed. This was especially the case for lower-income households with children in private rental accommodation.
2. Estimates used by the Tax Working Group in 2009 and by the Treasury in Budget 2010 are unchanged within statistical margins of error. The main impact is that corrected estimates show the increase in the number of children in households with less than 50% of median income after the Budget 2010 tax changes is less than previously advised.

"We recognise that issues of estimates of household disposable income are important and we considered carefully what impact the corrected data may have had on the Treasury's policy advice," Karacaoglu said.

"We concluded that that advice would not have changed, as the effects of the miscalculations on the data we used are too small to have altered our judgements. We consulted with the chair of the Tax Working Group, Professor Bob Buckle, who agreed that the impacts were not material and would have been most unlikely to have changed the Tax Working Group's findings.

"It is also important to note that there are no 'real world' impacts on New Zealanders from the miscalculations. There is zero effect on the individual or household benefit payments and tax credits people get, or the tax they pay," Karacaoglu said.

This is the full statement from David Parker:

A Government stuff-up overstated the incomes of 300,000 low income New Zealand households by thousands of dollars each and shows National's record on inequality and poverty is even worse than they have pretended, said Labour’s Finance spokesperson David Parker.

“Treasury has now admitted that for three years the Government has double counted the accommodation supplement which inflated the incomes of low and middle income New Zealand households by thousands of dollars on average.

“Such a massive miscalculation has forced Government to admit that the number of Kiwi kids living in poverty is 20,000 more than National said it was.

“This is a billion dollar bungle - $1.2 billion to be precise. That is massive. The most concerning thing is that Bill English has known about this for three months but has kept it quiet.

“National has spent the past three years pretending that trickle-down economics is helping working Kiwis, while in fact income and wealth is even more concentrated amongst the top few per cent.

“Most Kiwis knew they weren’t getting ahead but now it turns out many more were falling behind.

“Bill English must apologise for this serious error,” says David Parker.

And here is Metiria Turei's statement:

The Government is continuing to fail our kids who are in poverty by not even measuring the size of the problem correctly, the Green Party said today.

The Government has today admitted that it got its calculations wrong when measuring child poverty and inequality. The new figures show that there are 285,000 children living in poverty, not 265,000 as previously claimed, and that the GINI inequality index is not improving.

“There is no reason that 285,000 children should be living in poverty in New Zealand. This Government has failed to even measure the problem correctly, let alone do anything to fix it,” Green Party Co-leader Metiria Turei said today.

“National has been trumpeting its supposed progress on child poverty but it turns out that was all due to the Government doing its sums wrong. It’s not the first time that National’s numbers have turned out to be dodgy, and it makes you wonder what else they’ve got wrong.

“It’s past time for National to wake up to the tragedy of child poverty that is playing out in homes all across our country. Child poverty has gotten worse under National, rising from 240,000 in 2007 to 285,000 in 2012.

“There is no excuse for 285,000 kids to be living in poverty in a modern, wealthy country like New Zealand. Those 285,000 kids are victims of the choices that governments make – like National’s decision to borrow for tax cuts for the rich at the same time as cutting Working for Families payments.

“The Greens will do better for our kids. We will extend Working for Families, we will invest in nurses in schools, we will set standards for warm, healthy housing, and we will raise the minimum wage towards a living wage for all workers,” said Mrs Turei.