Sunday, June 11, 2006



Erosion

A couple of months ago, I ran a progressive bills thinktank to solicit ideas for legislation to push at MPs. One of the proposals was for a bill to update benefit income test thresholds and index them to the CPI. While I thought that such a bill would be justified simply on fairness grounds, I thought I'd do some research first - if only to gather ammunition to push for change. So I sent in an OIA request asking when the income tests were last updated. Today, I received the response:

the five current income test thresholds (called "Income Tests")... were inserted into section 3 of the Social Security Act by section 2(2) of the Social Security Amendment Act 1996 (on 1 July 1996). The current Income tests have not been amended by Order in Council since they were introduced in 1996.

1996 was ten years ago. In that time, we've had significant wage growth, and significant inflation. But over that time, the ability of beneficiaries to both supplement their income and move towards full-time work through part-time employment has been significantly eroded.

How significantly? Here's an example. According to Schedule 9 of the Social Security Act, the rate of the unemployment benefit for a single adult with no dependent children to be "$173.92 a week, subject to Income Test 3". Income Test 3 is defined in s3 of the Act as a 70% clawback on every dollar earned above $80 a week. $80 a week in 1996 is now equivalent to:

  • $96.44, if adjusted for changes in the CPI since June 1996; or
  • $128.63, if adjusted for changes in the minimum wage ($6.375 / hour in 1996; $10.25 / hour now).

The latter is probably more relevant, as it shows the level of growth in wages at the bottom end of the labour market. But beneficiaries have been effectively excluded from that growth; any pay rise must be balanced with a cut in hours, or you end up paying an effective 90%+ tax-rate.

(Actually, it's worse than that. The 1996 amendments replaced a two-step abatement regime, with 30% abatement kicking in at $50 or $60 a week (depending on children), and 70% abatement at $80 a week. So the $80 a week threshold goes back even further. Unfortunately, I'm not sure how far yet...)

A cabinet paper received with the response ("Hand-Up Strategy Supplementary Paper Two: Abatement of Benefits and Incentives to Work", 7th September 1995) noted that the pre-1996 regime acted as a disincentive to part-time work. This is likely to be even truer today. It also contained some discussion of the level at which abatement thresholds should be set. The primary concern here was to ensure equity with full-time workers and ensure that there was an incentive to move into even a minimum-wage job. This was judged by comparing the net income from a benefit and part-time work at the top of the threshold ($201/week for a single unemployed adult earning the maximum) with that from a full-time minimum-wage job ($207/week). Today, those numbers are $238.32 and $330.05 - and if the government goes ahead with its plan to raise the minimum wage to $12 / hour, the latter figure will jump by $50 / week. Clearly there's a lot of space to increase the threshold while still maintaining incentives to work. And given that there is currently a labour shortage, I'd have thought it would be a no-brainer.

What this also tells us is how far benefit values have eroded. In 1996, a single adult unemployment benefit paid about 70% of a full-time, minimum wage job. Now it pays just over 50%. There's been a similar erosion in other benefit levels. No wonder things are so fucking miserable at the bottom end of our society...

Since this was done as part of the progressive bills thinktank, the next step is to start waving these figures at MPs to see if we can prod any into action. The first target is probably Sue Bradford - this sort of thing is right up her alley...

9 comments:

How about arguing increasing the the income tax thresholds, how long has it been since they were adjusted. Funny how the party that has substantially increased the number of beneficiarys also does nothing to get them out of that trap

Posted by Anonymous : 6/11/2006 08:59:00 AM

This comment has been removed by a blog administrator. Posted by Dave : 6/11/2006 10:10:00 AM

Back in 1996, there wasnt so much reliance on benefits such as the specical benefit (now TAS). I would also like to bet that there wasnt the same reliances on things like advances and food agrants like there is today.

Did you look into that?

I think beneficaries, if they are accessing all their entitlements, are getting more in relative terms than they did in 1996.

Posted by Dave : 6/11/2006 10:12:00 AM

Dave: No. I was looking solely at thresholds. There's also far great access to the accomodation supplement; it used to disappear if you earned anything at all, wheras now the abatement threshold is set well above benefit levels. But I'm primarily interested in the way the ability of beneficiaries to help themselves with part-time work has been eroded over the 90's.

Posted by Idiot/Savant : 6/11/2006 11:48:00 AM

Dave,

Isn't is possible that there is the reliance on special benefits and food grants because benefit levels are so low that our poorest families are really struggling to survive on them?

I think there's a flaw in suggesting that including the sum spent on food grants and advances bring benefit levels up to the same as they were in 1996. First, the grants are reliant on a person being able to access WINZ to apply for them. Second, there are limts to the number of times you can receive them. Third, advances need to be paid back and the repayment of them serves to affect the amount available to the family until it is repaid.

Posted by strong light : 6/11/2006 04:47:00 PM

"Funny how the party that has substantially increased the number of beneficiarys also does nothing to get them out of that trap"

Possibly that could be because the party that substantially increased the number of beneficiaries (sic) has been out of power since 1999, and therefore in no position to do anything about the situation...

Posted by Anonymous : 6/11/2006 07:53:00 PM

Rent subsidies do nothing but increase rents, which increases house prices as landlords take over from personal ownership (which drags along middle-income owners into too much debt).

Abatements to encourage work? Ha! Those orchidists that always want fruit pickers? Last person I knew tried it couldn't even pay for their trip with the earnings, and they weren't even suffering abatements. There's a hint for all involved.

My experience is that trying to get an extra $5/week "entitlement" from WINZ involves being treated like a criminal for several hours in a process that must cost the government several hundread dollars in wages and bookkeeping, and is repeated every few weeks just for fun.


Universal benefit, say no more.

Posted by tussock : 6/12/2006 01:17:00 AM

because it wasn't Labour that achieved to get tree-quarters of families on welfare? then with a 70% abatement, 20% to 39% income tax plus gst,petrol doesn't leave much incentive to work more and get out of dependency

Posted by Anonymous : 6/12/2006 01:32:00 PM

I/S fyi I was just looking at the Work and Income site and I see they are currently looking for submissions on a single core benefit including on abatement issues. Might be worth biffing something in...

Posted by Make Tea Not War : 6/13/2006 11:58:00 AM