A leading economist warns there are tough times ahead for Kiwis, with up to 400,000 New Zealanders potentially ending up on a benefit as the cost of living crisis continues to bite.
A new weekly report from the Ministry of Social Development shows 564 more people are receiving a benefit. It increased from 352,944 on July 7 to 353,508 on July 14.
The JobSeeker Support benefit also saw an increase from 99,822 on July 7 to 100,302 on July 14 - an increase of 498 people.
It comes as New Zealand's gross domestic product (GDP) contracted by 0.1 percent this quarter, according to data from Statistics NZ, as rising interest rates continued to weigh in on the economy. It was the second-consecutive quarterly contraction, placing the country in a technical recession.
Independent economist Cameron Bagrie told AM on Tuesday the latest figures from the Ministry of Social Development are grim reading.
While the figures show a slight increase in people going on a benefit over the last week, Bagrie told AM co-host Laura Tupou they have been rapidly increasing since the start of the year.
"If you look at the headline numbers, we've seen a 9000 increase in the number of people on a welfare benefit since the start of May. The rolling average over the past four weeks is about a thousand additions," he said.
Bagrie warns if the trend continues, New Zealand could end up with 400,000 people on a benefit.
"If you scroll that forward over the next sort of 12 months, there are 354,000 people on a benefit today," he said.
"That's 11.3 percent of the working-age population, so one person in nine, if that run rate continues, we are likely to see 400,000 people on a welfare benefit a year down the track and that's both an economic and quite frankly a social failure."
While more and more Kiwis are getting on a benefit, New Zealand's unemployment rate dropped to a record low of 3.2 percent in the first quarter of 2022 - the lowest it has been since 1986. It's currently at 3.4 percent.
Bagire told AM with more and more Kiwis getting a benefit and the unemployment rate being so low, it shows there is a structural issue with the economy.
"If we go back and have a look at the last five years, there have been 75,000 more people getting on a benefit at a time the unemployment rate has gone from 4.6 percent down to 3.4 percent," he said.
"So we have some of the strongest labour market conditions we've ever seen and we're still seeing welfare dependency rise, so there is a structural issue that needs to be looked at down the track."
Bagrie warns this will see job losses as we get into the "hard yard stage" of the economic cycle.
"We are obviously moving into tougher economic times and unfortunately to tame or get rid of one economic evil, which is inflation and getting rid of inflation means, you need to dish out economic hits," Bagrie said.
"So the Reserve Bank is engineering an across-the-board economic slowdown. I'm not calling it a recession, I'm calling it a reset. But we're going to go through a period of underachievement for a couple of years.
"Unfortunately, that period of underachievement means unemployment is going to be moving up and that's going to create both economic tensions and it's going to create social problems down the track."
Bagrie told AM in a magical situation, lots of people would be in jobs, so New Zealand has low unemployment and inflation.
The key to getting to that point is having a more dynamic labour force.
"You've got to get migration settings right, you've got to get the education sector right," he said.
"What we know is the Reserve Bank is saying we are at what's called exceeding maximum sustainable employment, which is a fancy way of saying unemployment is too low, i.e. the labour market is too tight, which is adding to wage pressure that's adding to inflation pressure."
Inflation is hitting Kiwis hard, which has skyrocketed from 4.9 percent in the September 2021 quarter compared to a whopping 7.2 percent at the beginning of this year. It is currently sitting at 6 percent, which comes after years of low inflation.
Bagrie said there are two ways to get inflation down to a low level.
"We can get rid of inflation by plunging the barn from the top down by beating up the economy and forcing more people out of jobs or we can focus on the bottom up," Bagire explained.
"The bottom-up is the supply cycle capacity. This is making the labour market a lot more dynamic, a lot more efficient and that's the more appealing way to get rid of inflation because you have less job disruption and social disruption on the other side."
Watch the full interview with Cameron Bagrie in the video above.