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...