Once again the Minister for Social Development is trumpeting the wonder of her welfare reforms.
Her recent press release Better off in work stated:
“An average sole parent with two children under thirteen, living in South Auckland would receive around $642 on benefit, including accommodation supplement and a minimal extra allowance for costs.
“If that sole parent works just 15 hours while receiving benefit, they would be $107 better off, taking home $750 a week.
“If they are able to go off benefit and by working just 20 hours a week on a minimum wage, they would be $171 better off each week at $814.” Going off benefit and working 40 hours a week on a minimum wage, that same sole parent would be $190 better off at $833 a week with the Family Tax Credit, Accommodation Supplement and In-Work tax credit.”
But what do these figures actually mean?
Let’s see: on a benefit, each hour of 15 hours of work for a sole parent in the press release is worth an average of $7. If she ( and it is usually a she) works 20 hours for the minimum wage, the extra 5 hours, after tax and loss of benefit, will give a princely total $9 in the hand or less than $2 per hour. Isn’t there a problem here, especially if part-time, low wage work is all she can manage?
Suppose she continues to work 20 hours but now goes off the benefit, it is true she is a lot better off. But this is not because she is working any harder. At the minimum wage, 20 hours at gives only a net $245.80 a week, and that is not enough to live on. So the government has to come along with a pot of money called the Minimum Family Tax Credit, worth an additional $191 a week in this case. At 20 hours she also qualifies for the In Work Tax Credit of $60 a week. Along with other Working for Family tax credits of $157, this comes to $654 a week. If we assume another $160 a week accommodation supplement, the total is the figure of $814 cited in the press release.
The Minister goes on to say:
“If they are able to go off benefit and by working just 20 hours a week on a minimum wage, they would be $171 better off each week at $814. Going off benefit and working 40 hours a week on a minimum wage, that same sole parent would be $190 better off at $833.”
What? This sole parent is only $19 better off a week for working that extra 20 hours? That sounds like a dollar an hour before any extra child care costs and travel are paid for.
The problem is that the Minimum Family Tax Credit of $191 disappears dollar for dollar as extra income is earned. The 100% rate of abatement of the Minimum Family Tax Credit is more draconian than even that of a benefit. So much for incentivizing work.
One of the biggest weaknesses of the Working for Families tax credits used to supplement sole parents’ low incomes is that not only must sole parents be off a benefit, but they must work at least 20 hours per week to sustain the In Work Tax Credit payment and the Minimum Family Tax Credit top up. Inland Revenue will aggressively pursue overpayments that arise if the hours of work fall for whatever reason, or if additional extra income earned. A sole parent in today’s casualised labour market has every right to fear for the security of her income and decide her children are better protected if she works part-time and stays on a part-benefit.
Paradoxically, it is this latter option that will actually save the government money. Leaving aside the Accommodation Supplement, the government actually pays the sole parent in the example working 20 hours on the part-benefit a net $325. When it has to pay the Minimum Family Tax Credit and In Work Tax Credit it pays a net $379. The state only saves money if she works more hours, but the design of the Minimum Family Tax Credit gives a zero return for the extra hours worked, and therefore a zero incentive to work more than 20 hours.
The Minister of Social Development has made much of her own experiences as a sole parent, saying in this press release:
“I know how hard it can be to make the move from welfare to work, but it makes such a difference to your state of mind, not to mention financially.”
Disturbingly, not only does she imply part-time work on a part-benefit is of no value to well-being at all, but she reveals that her department is so bad for your state of mind that getting into the clutches of the IRD is infinitely preferable.
It is time to acknowledge that the income support policies for sole parents are unfair and defective. It is worrying that a sole parent with two small children working 40 hours a week at the minimum wage is held up as some kind of ideal. Sole parents are likely to be carrying a huge and unsustainable load with the potential for ill-health of for themselves and their children: it takes very little to upset the house of cards. The Minister herself has admitted that she found it incredibly difficult to work with just one small child and had to go back on a benefit.
It is well past time for a thorough overhaul of welfare policies and in particular the treatment of sole parents.