Social Security Act

Until 1938 New Zealand's pensions were confined to the aged, invalids, the blind, widows and miners, with a limited system of family allowances; the first of them, the old-age pension, dated from 1898 (see Old-age pensions introduced). Most people paid for all their own health care. Poor people were treated free at public hospitals, general practitioners set their own fees, and friendly societies subsidised care for members who paid regular subscriptions. The 1966 Encyclopaedia of New Zealand noted that free treatment was not available as of right, and that many poorer people, too proud to disclose their poverty or accept charity, went without adequate medical care. After the high unemployment, grim work camps and soup-kitchen queues of the Depression, Labour won the 1935 election on a platform that every New Zealander had a right to a reasonable standard of living (see The first Labour government).

As an opposition MP, Michael Joseph Savage had argued that everyone was entitled, as a right of citizenship, to 'a reasonable standard of living in the days when they are unable to look after themselves'. His biographer Barry Gustafson writes that other MPs and public servants did most of the detailed negotiating and drafting, but that Savage decided on the basic scheme, helped resolve deep divisions in caucus, and cut through opposition from the Treasury, the New Zealand Branch of the British Medical Association (BMA) and the National Party. In April 1938 Savage outlined the proposals and, at the suggestion of the Reverend W. H. A. Vickery, mayor of Kaiapoi, began calling the scheme 'applied Christianity'. The bill was introduced to Parliament on 12 August 1938. A week later Savage collapsed in Auckland and was found to have colon cancer, but he put off surgery until after the coming election. The Act was assented to on 14 September 1938. Savage insisted that it should not come into force until 1 April 1939, which gave National the chance to revoke it if it won the election, and Labour's share of the vote rose from 46 to 56%.

The Act's long title promised benefits 'designed to safeguard the People of New Zealand from Disabilities arising from Age, Sickness, Widowhood, Orphanhood, Unemployment, or other Exceptional Conditions', and a system to make medical and hospital treatment available to those who needed it. 'Pensions' became 'benefits', because many people had come to feel that pensions were a form of charity. A means-tested age benefit of £78 a year, or 30 shillings a week, was paid from age 60, and a universal superannuation at 65 was to start at £10 a year in 1940 and rise by £2 10s a year until it reached the same level. There were also benefits for widows, orphans, families, invalids, miners, the sick and the unemployed, and an emergency benefit for people who fitted no other category. The scheme rejected the insurance principle, so benefits did not depend on contributions. NZHistory says it was paid for by a tax surcharge of one shilling in the pound, or 5%, and that supporters envisaged it protecting New Zealanders 'from the cradle to the grave'. The Act did not explicitly discriminate against Māori, but Te Ara notes that a provision for paying less 'if the maximum benefit is not necessary for the maintenance of the beneficiary' allowed officials to pay Māori less than Pākehā.

Early on 2 February 1939 fire broke out in the nearly completed wooden Social Security building in Wellington, driving Thorndon residents from their homes, and 43 properties were destroyed or badly damaged. More than 400 tradesmen built a replacement beside Aotea Quay in seven weeks, Savage opened it on 27 March, and the new benefits began smoothly. Health benefits followed in stages: free treatment in mental hospitals from 1 April 1939, maternity care from 15 May, free inpatient treatment in public hospitals from 1 July, and outpatient treatment and free prescription medicines in 1941. The BMA bitterly opposed the new health service. Fraser's biographer, Tim Beaglehole, credits Peter Fraser, the minister of health, with finally bringing the doctors into the scheme, while Gustafson writes that Savage, before his death on 27 March 1940, issued an ultimatum to the doctors that broke the resistance a more cautious Fraser had been unable to overcome. Under the General Medical Services scheme, which began on 1 November 1941, the state paid doctors a set fee for each consultation, which they could top up by charging patients.

National, which had opposed the bill, kept the scheme when it won power in 1949; NZHistory says Sidney Holland ensured that his party preserved 'Labour's social security'. In 1946 the means-tested allowance for children was converted into a universal family benefit. The government subsidy for doctors' visits did not keep pace with inflation, so patients' fees rose over time, and prescription charges were reintroduced in 1985, although public hospital care stayed free. The 1966 Encyclopaedia of New Zealand judged that the Act 'introduced no new philosophy into the New Zealand way of life', since it built on schemes developed over the previous 40 years. In Te Ara's account, Labour's welfare state was not seriously challenged until the 1980s, and the National government of 1990–99 mounted a more sustained attack on it, most obviously by cutting benefits.