11 March 2014

March 20 Newstart changes- more than just a rate increase

The rate of Newstart allowance (NSA) is adjusted twice a year - on 20 March and 20 September - in line with upward movements in the consumer price index (CPI).  This time round, the various NSA rates (and some associated payments) will increase by 1.9%.  Coinciding with these changes, the amount of private income a person can have before NSA is reduced under the income test is also being increased, from $62 a fortnight to $100 a fortnight.  This will be the first increase in the "income free area" or "allowable income" since 1 July 2000 when it was increased by $2 a fortnight as part of a range of measures intended to compensate for the introduction of the goods and services tax.
While the CPI based rate increases have received some coverage (go here for the press release and here for a detailed list of the changes), the increase in the income free area hasn't had much at all.  So, herewith, a few charts showing the combined effect of the CPI rate increases and the changed income test free area!

25 January 2014

And that was Parliament 43...

Note: I edited this post on 19 February 2014 to replace Chart 5 with the correct chart (mistakenly, the original was for the yet to be completed Parliament 44).

A little over a year ago I wrote a post about how tax-transfer system changes made by Parliament 43 had affected 9 different household types.  At the time Parliament 43 was still a going concern, making the picture I painted incomplete.   We are now well into Parliament 44 so it’s possible to redo the Parliament 43 post with results for the entire period.  I’ve also been giving some attention to 5 additional household types since the original post, so this one will cover 14 in total.

07 November 2013

Spiky EMTRs can also be prickly - how to really stick it to students

A little over 18 months ago I wrote a post about the way in which the Austudy income test seemed to me to be only half-built, causing substantial financial losses for some couples.  I finished it with a comment that the problem would only get worse over time.  There will be a few changes to Austudy payment from 1 January 2014, so with that earlier comment in mind I thought it might be interesting to see how the problem looks once these are in place.  And here’s a spoiler – it isn’t pretty.

22 August 2013

4 Parliament comparison - single earner couple with an invalid partner

This is another in my occasional multi-Parliament comparison series.  This time the subject is single income couples where one is unable to work due to a disability – an invalid spouse as the tax law puts it.  I’ve been meaning to do this one for a while because the combination brings up quite a few interesting issues around policy and system design. 

08 July 2013

A tail's tale

The maximum rate of Newstart allowance (NSA) has been the subject of much debate recently, but it’s not the only contentious aspect of that payment.  Another commonly raised issue is the effective marginal tax rates (EMTR) faced by NSA recipients (and those on payments with related income tests, such as partnered parenting payment) who have some private income, particularly earnings.  In truth, in most cases the EMTRs are actually quite a bit lower than they used to be – NSA once had an income test with a 100% withdrawal rate, whereas the highest taper these days is 60%.   There are, however, some persistent problem areas and one of these lies at the tail end of the income test for couples.  There, EMTRs remain stubbornly high and the reasons underlying this raise interesting issues involving differences in the fundamental basis of assessment between the tax system and the transfer system, and also the flow on effects of tinkering in different parts of the system.

21 May 2013

Climb every mountain...

This outing is to explain a type of chart I’m thinking of using in later posts.  It’s intended as something I can link back to as background material if and when I do.  Pending inspiration for a better name, I call it a hill-climb or effort chart.  I’ve not seen one used before, but given I’ve never had an original thought in my life I suspect I must have come across something like it in the distant past.

13 April 2013

The price of love

Back in July 2006, parenting payment rules were changed so that new applicants could only be paid if their youngest child was under 6 years (for partnered parents) or 8 years (for single parents).  At the time I remember a friend suggesting that every cloud has a silver lining, insofar as the change would at least have a positive impact on the partnering penalty.
The partnering penalty is a murky subject that seems to have an almost “dare not speak its name” air about it.  In an earlier form it was described by its reverse – a financial incentive to separate – a concept almost too ugly to consider, at least publicly.  The basic idea was that if the financial assistance for low income single parents was too generous compared to the entitlements for low income couple parents it might provide an inducement of sorts for relationship breakdown.  These days if the idea is discussed at all it’s usually in terms of whether differences in the assistance packages between singles and couples might be a barrier to the reconciliation of estranged couples or the formation of new cohabiting couple relationships – a partnering penalty.

I was reminded of the partnering penalty issue by the repeated demands to undo the changes to single parents introduced this year.  Those changes abolished the special rules for parenting payment that had applied to people who had been getting it since before the July 2006 rule changes.  But a change that is only applied to single parents will almost inevitably alter the relativities between them and partnered parents and hence affect the partnering penalty.
So, do we have a partnering penalty under the current arrangements, and if so, how big is it?