By Sarah Martin The Australian 28 October 2016
Thousands of parents claiming government benefits are financially better off not getting a job, with new figures showing they receive at least $45,000 a year tax-free, more than the take-home pay of most Australian workers.
As the Coalition embarks on an overhaul of the welfare sector, new government data obtained by The Australian reveals that the top 10 per cent of those on parenting benefits, about 43,200 people, received at least $45,032 in 2014-15.
The amount is boosted when families have multiple children and claim a range of government benefits, such as family tax payments and childcare rebates.
Social Services Minister Christian Porter said the new data showed that taxpayer-funded benefits could be providing a disincentive to work — a systemic flaw that required government attention. “Among the many areas that require attention to system design is the fact that the broad generosity of the Australian welfare system manifests more often than people might expect in circumstances where the money people receive in welfare payments is comparable to being employed,” Mr Porter said.
“What is not in any recipients’ best interest is to be deprived of the incentives to reduce income from welfare with income from work.”
The minister, who recently announced that the Coalition will reshape the welfare sector to encourage people into work, said the government had a “moral” responsibility to address welfare dependency.
Under the current system, a single parent with four children who did not work and was not receiving child support income could receive more than $50,000 a year from the government, the equivalent of someone earning $65,000 a year before tax, such as a full-time teacher, nurse or entry-level public servant.
A single parent with four children aged 13, 10, seven and four years, who paid $400 a week in rent without any employment income or child support, would receive a basic parenting payment of $738.50 a fortnight, along with an energy supplement of $12 a fortnight and a pharmaceutical allowance of $6.20 fortnight.
This provides a base payment of $19,728 a year, which would then be augmented by family tax benefits A and B, further supplements for each child and rent assistance, which would pay an extra $32,331 a year.
Finally, energy supplements for each child receiving family tax benefits would total an additional $463 a year, bringing the total take-home pay to $52,523.
According to figures from the Australian National University, the median full-time wage for 2014-15 was $61,300 a year. After tax, this leaves the median wage at $49,831. However, the median overall wage — including part-time workers — was $46,500, which equates to $39,841 as take-home pay after tax.
One of the government’s first steps as it seeks to overhaul the welfare system has been to announce the $96 million “Try, Test, Learn” fund for trials of intervention programs for welfare-dependent young parents, the young unemployed and young carers.
Parents younger than 18 are deemed to be particularly vulnerable to the risk of long-term welfare dependency, with 70 per cent of the 4370 young parents receiving the Parenting Payment in 2014-15 expected still to be on income support in 10 years.
Taxpayers will spend an estimated $191 billion on future welfare payments for all people currently receiving the Parenting Payment, with current recipients having the highest average future lifetime cost of all payment groups, at $441,000 per person.
Young parents are expected to have a higher average future lifetime cost at $547,000 per person.
Mr Porter said the data being collected by the government showed that there must be “better ways” to encourage parents back into the workforce and off government payments.
“It is morally incumbent upon us in that in developing policy … and in making the welfare system fairer we look at mutual obligation and the requirement to prepare for, search for and accept work,” Mr Porter told The Australian.
“We need to find better ways to ensure parents retain current, work-ready skills or develop them even when receiving welfare so they are prepared for and able to accept work when it becomes appropriate for them to do so.”
Government attempts to scale back family tax benefit payments have been largely resisted by Labor and the Senate.
A compromise in the government’s omnibus savings bill this year preserved the energy supplement for current recipients, but reached agreement on a new schedule that limited access to the FTB Part A supplement to those earning less than $80,000 a year.
A Priority Investment report released last month showed that in 2014-15 there were 432,000 people receiving the Parenting Payment, of whom it is estimated that about half will remain on income support after 10 years, and only 22 per cent will have left the welfare system.
The average Parenting Payment in Australia is $29,100, and people can qualify if they have a child younger than six when partnered, or a child younger than eight if single. It is only paid to one member of a couple.
In a speech at the National Press Club last month, Mr Porter warned that without further action Australia’s annual $160 billion welfare bill would top $4.8 trillion for those presently on welfare.
Warning that the system faced having more households drawing income from the national purse, than contributing to it, Mr Porter said it was “like a snake eating its own tail”. “That is to say that it does not work so well after about halfway,” he said.
Original article here
Economists call it the impact of high effective marginal tax rates. It’s a fancy way of saying that, for some welfare recipients, work doesn’t pay.
The combination of relatively generous welfare payments (particularly if there are several dependent children), the withdrawal of payments if work is undertaken and the payment of tax means that adults in some families, particularly single parent ones, are better off staying on welfare than getting a job.
Ten per cent of people on parenting benefits, more than 400,000 people, each received more than $45,000 in benefits in 2014-15. This is well above the fulltime minimum wage, which is $35,000. Throw in receipt of the childcare subsidy for which no activity test applies and these parents don’t even have to spend much of their time looking after the children.
Many of those on single parenting benefits, particularly if they are accessed from a young age, will be in receipt of welfare payments even after their children have grown up.
The truth is that being out of the workforce does them no favours, nor their children. There is clear evidence of intergenerational transmission of disadvantage. The government is right to try to break this cycle, including assisting welfare recipients to become job-ready.
There are lessons the government could learn from Britain and New Zealand. In Britain, one principle is that no one can be better off on welfare compared with having a fulltime low wage job. There are limits on the number of children for whom benefits are paid.
New Zealand policy has a mixture of carrots and sticks. Early intervention in cases known to be associated with long-term welfare dependence is a hallmark of the policy.
For Australia, this is not just an economic imperative, it is also a moral one. Redesigning welfare payments is complex but the key is to ensure that work, not welfare, pays.
Original article here