28 November 2012

January changes for single parents

Soon it will be 1 January 2013, with its attendant changes to some of the arrangements for single parents.  I've done quite a few posts on this over the last year but I thought it was worth updating the figures using the rates, etc, that will actually apply on that date.

The changes I'll be focusing on are:
  • the removal of the "grandfathering" provisions that have so far prevented single parents who have been on parenting payment (PPS) since before 1 July 2006 from being subject to the so-called age-8 transition; and
  • the relaxation of the Newstart allowance income test for single parents with the principal care of at least one child aged under 16.
Handily, both of these can be looked at in the context of the age-8 transition.

The age-8 transition refers to the rule that's been in place since 1 July 2006 - PPS is only payable to a person who has the care of a qualifying child aged less than 8 years.  When that child turns 8 entitlement to PPS is lost and the person will need to take up some other type of income support payment, typically Newstart allowance (NSA).  Depending on the individual's circumstances NSA may not be the only option - other possibilities include Austudy payment, disability support pension or carer payment.

With the exception of the grandfathered group referred to above, single parents have been undergoing this transition from one type of income support to another when their youngest child turned 8 for over six years now.  The typical PPS to NSA transition involves a significant reduction in the single parent's disposable income because (a) the maximum rates of payment are lower and (b) the NSA income test is rather tighter than the PPS one.  The combination of these two elements means that the reduction depends on the amount of the single parent's private income.

Here's a fairly bare-bones chart that shows the amount of the reduction under the current rules.  I say bare-bones because there are many other factors that can affect the outcome, including the person's accommodation arrangements, child care arrangements, child support payments and the extent to which the person makes use of pensioner concessions.  I've not included those.

The chart shows the total reduction and also the bits of the tax-transfer system that make it up.

Chart 1

This example is a two child single parent.  You can see that the maximum loss of around $9,600 a year (about $184 a week) is experienced by those parents earning a little over $25,000 a year.  Those parents who weren't working at transition have a loss of around $3,450 a year (approx $66 a week), reflecting the difference in the maximum rates of the assistance package.

The 2006 changes to PPS eligibility that resulted in this transition were intended to increase the workforce participation of single parents.  It seems odd then (to put it mildly) that the way they were implemented actually delivers greater financial losses to those parents who work.

From 1 January 2013 the age-8 transition will also start to apply to the previously exempted grandfathered group.  Quite a few of those have youngest children aged 8 or more so there will be a large block of parents subject to the transition in addition to the usual rate of movement between the payments.  However, the transition from PPS to NSA will be made a little easier for working parents due to the relaxation of the NSA income test.

At present, once the NSA income test starts to bite it reduces payment at a rate of 50 cents for each dollar, increasing to 60 cents in the dollar for income in excess of $250 a fortnight.  Under the new arrangement both these taper rates will be replaced by a 40 cents in the dollar regime.   This has two effects:
My next chart shows how the age-8 PPS to NSA transition looks once the new income test is taken into account.

Chart 2

Here we can see the relaxation in the NSA income test taper rate has reduced the maximum yearly loss from around $9,600 (as per Chart 1) to around $6,200 (obviously, there's no change for those not working).  Interestingly (in a perverse kind of way), in private income range of approximately $15,000 to $35,000, the almost $5,000 reduction in income support is nonetheless associated with an increase in tax liability.  That's because PPS recipients have access to the senior Australian and pensioner tax offset (SAPTO) which reduces their tax liability.  No more PPS means no more SAPTO which means a bigger tax liablity.

The increased medicare levy at higher incomes is a result of the loss of a similar concession in the medicare system.

I mentioned earlier that the rationale in 2006 for the introduction of the age-8 transition was to increase workforce participation.   That same rationale is being used for the removal of the grandfathering provisions today.  The loss of income at the transition supposedly provides a bit of stimulus or incentive to increase hours worked in order to make up that loss.  However, the problem in the 2006 arrangement - that it penalises most heavily those who are already working - is present in the January 2013 system.   This means that in order to recover their financial loss, those who are working at the transition have to earn more than those who weren't.

Just how much extra is needed is the subject of the next chart.

Chart 3

This one might need a bit of explanation.  It's showing how much private income PPS and NSA recipients must have in order to acheive equal disposable incomes.  For example, if we look at a PPS recipient earning $10,000 a year we can see that under the current (September 2012) arrangements, the NSA recipient has to be earning about $27,000 a year to get the same final income.  Come January the NSA recipient needs to earn about $20,000 to match a $10,000 earner on PPS, or in other words, they have to double their working hours to stay where they were.

The dotted reference line is what would be required if both the PPS and NSA schemes were the same.  It's only there to make it easier to see how much extra has to be earned to achieve "parity" - it's the amount by which the September and January traces exceed the reference.

This chart is focusing on the private income levels, however, it's perhaps a bit scarier if this changes to hours worked.   The next chart considers people earning the National Minimum Wage (NMW).

Chart 4

If we look at a PPS recipient working 15 hours at the NMW we can see that, post-transition, they currently need to work about 35 hours a week to keep the same level of disposable income.  With the relaxed NSA income test, from January this falls to about 28 hours - still nearly double.  Even with the relaxed income test, PPS recipients working 23 or more hours per week at the NMW will have to work full-time and add a second job to stand still financially - they have to work more than 38 hours a week.  A full-time NMW PPS recipient will need to up their hours from 38 to 50 a week.

In contrast, a non-working PPS recipient can maintain their income post transition by working around 6 hours a week.   Again, working PPS recipients are really copping the brunt of this change.

Earlier I mentioned that these results were for a bare-bones case.  However, it's difficult to ignore the fact that many single parents will need to make use of childcare, so my final chart is an attempt to bring in that element.  In this case I've assumed that both the PPS and the NSA recipient are making use of outside-school-hours-care (OSHC). 

I confess I've cheated though, because I've calculated it as if each hour of employment was associated with a childcare requirement.  I'm assuming that a person working full-time would use the maximum allowable OSHC of 25 hours a week, and less hours worked is proportionally less hours of OSHC, down to zero usage at zero hours worked.  The reality is rather different, particularly given the sessional nature of childcare provision.

Chart 5

This chart is just looking at the January situation, with and without childcare factored in.  For the childcare I've assumed an OSHC cost of $6.50 per hour.  The main point is that over much of the range covered here, factoring in childcare adds around another 4 hours a week of employment to cover the loss of income.  So, for example, a PPS recipient working 15 hours a week and not using childcare would need to work about 28 hours a week post-transition.  If they were a child care user, they'd need to work about 32 hours a week (more than double).

Ultimately, the chart gets a bit silly, because there's no extra childcare provided once the 25 hour limit is reached, at least in my modelling.  However, the single parent working more than full-time is still going to need some kind of child care, particularly as we get up toward the 50 hours a week employment at NMW needed to replace 38 hours of pre-transition income. 

One of the (many) perplexing elements of this set of policies is the fact that although the transition occurs at age 8, PPS recipients are required to look for work, etc, when their youngest turns 6.  This "activation" strategy is apparently pretty successful and as a result many PPS recipients are in employment by the time their child turns 8.  On the face of it that might seem a good result, but when combined with the PPS-NSA transition it can be argued that all the system has done is set these people up for a giant fall due to a design that appears to punish workers.

As I tried to point out in an earlier post (here), transitions are inevitable given that children eventually grow up.  But surely we can design them better than this.


  1. Thankyou for posting all this David, it shows pretty clearly how mean the whole thing is. It makes no sense at all that PPS recipients who are already working are going to be penalised so harshly. The majority will have few means to remedy the situation as they will already have assessed how much care their children need for them and be working hours to suit - in other words, I believe if they could be working more hours then they would already be doing so.

  2. This is all on the presumption that the part-time jobs will be there for the PPS parents to get. Total Job losses for 2012 is around 72,000 to dat and thats what I saw a ABS statistics (I could be wrong of course because figures like that are always fudged by governments) on those same ABS figures I think its was somewhere around 22,000 jobs supposedly created by the government ( they take credit but its the pvt sector) That said the shortfall is 50,000 added people on Newstart this year alone.

    The percentage of jobs that will fall within school hours and suit single parents will make up a very small part of the jobs needed. It is illegal to leave children of 8 years at home alons so we have to assume that child care will be needed for the full hours worked and as wee know these centers do not generally run after 7 pm at night what does a single parent do if their job requires work hours after that time.

    The other factor that will come into play is that once the initial part time jobs that do fit school hours, those parents looking for jobs will be forced to take what jobs they can making life even worse as so many companies now require staff to work a 7 day roster, ruling out weekends with the kids in many many cases. The choice will no longer be with the parent simply because centerlink will require you to work or be looking for work you will have to take a job that will not suit your parenting roll.

    To cap this off many parents currently have 6, 8 and 10 hour jobs that suit perfectly their life style, income requirements and hours they can obtain from their bosses. These people are constantly harassed by centerlink to look fo jobs which total 15 to 30 hours dependent on their situation. Once a person enters part time work there should be no requirement to do minimum hours that would eleveate the stress of being hounded to get a second job or get another job to fit centerlinks inflexible 15 hour requirement.

    As a last word I would like to say that there has been no real system for this change. Facts and graphs sort it out for those who understand them but mean nothing when you open your wallet at the check out and there is not enough in it to pay for what you need. all grand fathered PPS recipients should have been offered retraining, courses and additional job search assistance in the 6 months before their change to newstart. That would have been a true assist back to work for every person on PPS before the change over, this would have allowed thes epeople time to transition properly and gain gainful employment. Thank you for your time

  3. There are a number of single parents who are pursuing university degrees, who are going to suffer as a result of the transfer from PPS to NSA. Some are opting to abandon their studies at this point, in order to find jobs. This almost certainly means the HECS-HELP debts already incurred will not be paid back, as it is unlikely many of these single parents will be able to find work that pays well enough to reach the limit at which repayment of HECS-HELP starts.

    Those who opt to struggle through to the end will be living (as will their children) in extreme poverty, as no allowance is made for exempting those in full-time study, and they will suffer roughly $140 per fortnight loss of income support. And studying full-time, as well as raising children, makes it almost impossible to find any kind of part-time work to supplement income. Particularly given the hours required as has been examined in the above article.

    Many of these parents are studying in areas such as education and health; both because there are good employment prospects at the end, and likelihood of above average incomes. This means they are far more likely to have no need of income support at all once they graduate and enter employment (unlike those parents on fairly low incomes), and of course, will earn enough to repay their tuition debts.

    In addition to the financial aspect, these parents are setting an excellent example to their children of hard work, determination, and perseverance in the face of almost overwhelming difficulties, in order to achieve the goal of not merely employment, but employment that will be of benefit not just to themselves, or their children, but also to the wider community. And yet, the current government believes that any parent who is not engaged in employment at present is setting a bad example to their children? Surely, parents who are seeking to improve their employment prospects through higher education should be lauded, and given assistance to achieve those goals, both for the benefit of themselves, and in time, that of the wider community.

    1. This is my situation exactly, I could not have explained it any better! Thank you for so articulately outlining the situation of a sole parent studying at university and the effect it has on our families.

      I was transferred from Parenting Payment Single to Newstart in July 2008 and have struggled immensely since then. However, I am proud that I am showing my boys that you can achieve anything, even against the greatest odds.

  4. I had a bit of a look at the student issue in an earlier posting (see http://ravebydave.blogspot.com.au/2012/09/what-choice-single-parent-students.html ). The choices are certainly complicated, even without the added stress of financial loss.

  5. I am a part-time single working parent of one child,( I HAD WORKED 16 YEARS FULL TIME PRIOR TO THE BIRTH OF MY LOVELY SON) it is already a struggle paying private rent and getting myself deeper into debt but this government cut will really put us in poverty. Why the government want to hurt the parent who works and takes care of the child I do not know. What I would suggest is that the government chases the other parent who works self employed , cash in hand jobs, does not pay their taxes and does not pay child support. My ex husband is one of these tax and child support dodgers. The government would be chasing the right people then instead of the ones doing the right thing by their children and society. While I work and take care of our son my ex earns less than me ON PAPER and works six days a week on $50 per hour and kept the marital home why because he can because the government allows this behaviour.......THIS GOES ON MORE THAN THE GOVERNMENT WANT TO ADMIT....ITS EASIER TO REMOVE THE BENEFIT FROM THE CARER THAN TO CHASE THE TAX AND CHILD SUPPORT DODGERS.......UUUMMMM

  6. I am a single working mother who has just experienced the transition from PPS and onto Newstart. I have been working 54 hours per fortnight for the last 5 years and have been paying off a mortgage and solely supporting my 3 children still at home. I receive no maintenance as the father (ex) is on a disability support pension due to an acquired brain injury.
    I have 2 children that have special needs. One is older but needs to be at home due to mental health issues and this is ongoing and heartbreaking as a mother. I also have a 16 year old daughter who was diagnosed with attention deficit disorder with a background of learning difficulties and as a result of surgery to one of her eyes which was meant to make life a little easier for her has been left with permanent double vision. This cannot be corrected as they had "missed the fact that she had only a single range of vision", she is adorable but extremely difficult to manage at times due to her impulsivity, poor processing of information, poor concentration etc, also heartbreaking for a mother.
    I also have another older son who is a productive worker holding down two jobs and a 12 year old daughter who has just started high school. I work in a community service role and love my job and give 100% both at home and at work.
    Often times it is a struggle on your own and you come home from work at times so exhausted but just have to switch into your other role as homemaker and carer. Life has been tough at times but I have always been resilient and managed up until now. The added stress of losing over $4500 per year on an already minimal income, rising bills and the inability to work any extra hours due to the demanding dual roles that I have is enough to make our world unravel entirely. The home I have worked so hard to provide and give us all that bit of security, sense of pride and achievement, the home that I have hung on tightly to and has been an example to show my children what can be achieved if you have a dream and work hard, our home is at risk of being lost. If I had another 4 years as I thought I had until my youngest turns 16, we may have had the time to reduce the mortgage some, slowly do some of those repairs that are required to make it more marketable to sell and downsize if necessary to keep our own roof over our head. I have been punished for being a hard worker and the amount of hours required to work to make up the shortfall would be an impossibility in my situation. I have gone from being a proud hard working mother to one that is having difficulty sleeping at night, increasing anxiety levels and feeling totally defeated as I cannot see a way clear of our predicament.