Getting working sole parents off benefits: who is really ‘better off’?

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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?

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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.

 

13 COMMENTS

  1. Sadly, none of this surprises me anymore. I should be flabbergasted and angry, but now I’m numb and apathetic. In a 2 income family with 1.3 children, I find it hard to make ends meet and get almost no help(My WFF tax credit was just chopped by 2/3). I’m not surprised at all by any of this, and it’s very hard to feel sympathetic for others when I’m in their situation. I suppose I could work harder, more hours, spend less time with family, but I don’t want to “live to work.” 80 hours across a family per week should be enough to live on.

  2. The equations are depressing enough. Never mind the fact that Bennett and her accomplices continually ignore the elephant in the room (no, not the one from Sri Lanka). Its name is unemployment, and it is massive, and it has been shitting truckloads of excrement for several years now. If the self interested cabal currently bleeding the country had any humanity they would be addressing this mess rather than forcing already marginalised and vulnerable workers into looking for jobs that just do not exist in sufficient numbers to make a difference to a huge segment of the population.

  3. Do all the welfare numbers account for the fact that the benefit is taxed? (as is the student allowance! And I assume various other payments). Which is ridiculous – but might account for a real vs ‘allotted’ income gap.

  4. keep up the good work Susan. Raising important issues that underpin the wellbeing of our society and the well being of children and their care givers. Poverty is impacting the wellbeing of so many families and sole parent families are hardest hit, not just by financial deprivation that goes hand in hand with poverty, but also with harsh mis-informed judgements, social discrimination and sigma from the financially privileged yet ignorant members of our society that have no idea

  5. Paula Bennett must have written this to practice her ho ho ho for the coming festive season.

    Better off? Doubt it. The in-work sole parent is merely a transit point for money on the way to transport costs, clothes and shoes for work, childcare, quick food and the other ‘costs’ of being in work. There’ll be very little over to form a cushion for the inevitable ‘rainy day’ – particularly if the part time work dries up, and there’s the miserable wait to return to a ‘full’ benefit.

    Unfortunately, some people will believe her.

  6. The whole social security and benefit system in New Zealand needs a radical overhaul, and a guaranteed universal income may well be part of the answer.

    In any case, at least bring in a base benefit that actually covers true costs of living, and top it up according to needs (whether a person is a sole parent, sick or whatever). The benefits as they are paid now are made up of so many re-viewable components, which create not just endless pressures on the beneficiaries to prove yet again and again, they “deserve” what they get. It also creates unnecessarily high administrative costs and endless bureaucracy. Benefits have since the cuts in the early 1990s never been restored to what they once were (compared to incomes through work).

    The abatement regime is hard to work with, and as shown here, it does hardly offer much advantage, given extra costs associated with work. The tax credit and other band-aid solutions also need a review.

    But with the welfare policies we have now, and which were also followed to some degree under Labour, mean that the absolute emphasis is on work, work and that means paid work in open employment. The push is to get people off benefits, no matter what, and the following presentation is just one of many I have seen, which make clear what the direction and intention behind it is:

    ‘Shifting Your Primary Focus to Health and Capacity – A New Paradigm’, Dr David Bratt, Prof. Mansel Aylward, June 2013:

    http://www.gpcme.co.nz/pdf/WS%20142%20Bratt%20-%20Shifting%20Your%20Primary%20Focus%20to%20Health%20and%20Capacity.pdf

    (see especially pages 16 to 18, 20 and 21, 25 to 31, 42, and his recommendation to female beneficiaries on page 45 – for some of the claims Dr Bratt regularly makes, and of which some are absolutely over the top and exaggerated)

    “Work: most effective means to improve well-being of individuals, their families and their communities (Waddell & Burton 2008)”

    Bratt is the Principal Health Advisor for WINZ, and he holds such presentations to doctors all over the place, every year in and out. He advises Bennett, same as UK professor (former Unum Provident paid “researcher”) Aylward.

    Their ideology is that many illnesses are simply “attitude problems” or “illness belief”. Bratt uses selective information to justify the relentless push to get people off benefits and into work, claiming it is “therapeutic” and “beneficial” for persons’ health. This includes in their view sole parents AND now also sick and disabled, who are all getting pressured to take on any kind of supposedly “suitable” work.

    It is though truly criminal, what happens in some cases, and this I read not long ago in the NZ Herald:

    ‘Winz apologises to sick woman placed on wrong benefit’

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11158863

    This story does though only scratch the very tip of an iceberg, of what is going on out there. It is also criminal in my view, to force sole parents to look for work, when they have another child while on a benefit, and then get forced to look for work when the youngest child is only 1 year old.

    With all this talk about the new “investment approach”, are MSD and WiNZ including into their calculations the potential earnings, contributions in whatever form, and possible later tax gathered, when laying it onto sole parents and putting them under all this pressure? The children raised will certainly in the vast majority end up contributing to society, so why put on the thumb screws, pressures and punitive sanctions, making life an endless painful and scary journey for so many on benefits?

    Shame on you Paula Bennett, pushing the rungs of the ladder you once used to climb up the ranks in society!

    Also worth a read:
    http://accforum.org/forums/index.php?/topic/15264-welfare-reform-the-health-and-disability-panel-msd-the-truth-behind-the-agenda/

    The truth is not wanted by such paid medical mercenaries to serve the cause of WINZ and Bennett and the right wing politicians ruling us. Is it not poverty that is the root of many problems, not so much this supposed “worklessness” Bratt loves to lament about?!

  7. Ms Bennett is really bad at maths. The same applies for Sickness / JobSeeker benefit (which are now one). WINZ tout the fact that a person can earn up to $80 before the benefit is affected. What they omit to say is that once a person starts working part time this $80 sees the cancellation of one’s Temporary Additional Support, and then there’s tax deducted from the $80. In all a person can lose up to $80 for earning the same amount, plus have additional employee costs on top of that. When a person has been on a benefit long-term, or has lost their job unexpectedly no benefit will cover existing costs, and working for additional costs is an extra burden. Getting back onto the treadmill can be very costly.

  8. Yes, it is very tough for those feeling trapped in a situation with little hope of escape. I have utmost compassion for parents who, even though they have not planned to be in this situation, find themselves there. However, I do wonder why so many young women are still embarking upon a journey of multiple babies with no posssible means of ever supporting them. If life on a benefit is sheer hell, the word does not seem to be filtering through to the next generation. Maybe the take home message of welfare reforms is this: hard working taxpayers (who must seriously restrict the size of their own families) simply cannot afford to fund large families born to women (and men of course) who show little care for their reproductive capacity. The DPB was originally introduced as a means of support for women who were previously unable to exit destructive relationships. (It) has evolved into an intergenerational way of life. It may take another 3-4 generaions before the penny drops that unconditional welfare support across a lifetime will not be a possibility. Maybe this is the core message the Government is trying to convey by introducing welfare reforms.

  9. I remember being congratulated when I told the disembodied voice on the phone my partner found work. My partner, not me – but of course, as she had been added to my Invalid’s Bene, her new job was now my sole income; so congrats! With In Work Tax payments and the minimum WFFTC we are a bit better off, no doubt about it – but…

    I felt this massive lift, when she told me she got the job. We were so happy – they even said it would pay above minimum wage. I have struggled with my health for years and working has always been difficult – work from home was carefully tailored so I didn’t exceed the WINZ thresholds which, from time to time, disrupted my families’ week-to-week budget. But now, I thought, I can work! The threat of losing income while I laboured away had gone. Our daughter is at school, perhaps I could find a few hours a week? A place I can walk to maybe, as busses are so expensive – somewhere I can help people? Then I found out my wonderful wife-to-be’s take home pay. A little under $430 dollars. 25 cents an hour above minimum. Our rent is $460. We can’t live without tax credits, supplements and other government support.

    Far from being out from under the thumb of the threshold, the dollar-for-dollar loss gives me almost no incentive to work at all. If I made the leap from not having worked full time in nearly 6 years to 40+ hours, we’d be almost out of the WFFTC umbrella, but that’s a big leap. I am educated, but unqualified – and even if I was, in this market I would receive minimum wage and be thankful. My daughter has special needs, and while she would cope with after school care, I know her health overall would suffer from the long hours.

    But I digress – unlike solo parents (which I once was) I have a partner in work, so this is the ideal, really, isn’t it? A stay-at-home Mum, happily cleaning and mending till the kids come home and we all bake a pie?

    Well, one added pressure is my partner herself. When she discovered I would be removed from the ‘Supported Living Payment’ as it’s now called, simply said “I didn’t know it would be like this. You have to get a job now, you get that right? This just isn’t enough.” So I rang, and I rang, and I asked people – why is it, that as someone once on the Invalid’s Bene, I can’t get extra help? And I was told ‘Of course you can! But, your partner is linked to you and at WINZ, we treat you as one. So her income would be taxed at a higher, secondary rate and she’ll lose her in-work tax credit because the benefit would become your primary income.’ “Wait,” I said. “That doesn’t make sense. But she’s in work? Will that happen if I work?” ‘No! Of course not!’ says disembodied voice. ‘The IRD treats you like the individuals you are, who are together as a family. Only we treat you as one, inseparable unit. Any benefit becomes primary income for both people. We’d pay half your supported living payment to her, you see?’ No, I don’t, WINZ. I really really don’t.

    The underlying issue isn’t unemployment, or weird WINZ policies or any of that – for me it’s wages. Pure and simple. You add up those working numbers above – you add up my partner’s wages + supplements – and you know what it comes to per hour? The Living Wage. That’s all that we need. If she was paid her due, a living wage of say $18ph, we would not need any extra support or help. The government would save millions – even if they gave Living Wage NZ companies tax breaks. I could work the few hours that I could, and I would feel happy, proud and safe working those hours. I would not stress or worry, I could enjoy the income I knew I had generated. My partner would feel pride in her work, and know she was valued by her employers. And it matters. It matters so much, because now my daughter says to me, every now and then – “I didn’t know it would be like this.”

    TL/DR? – It’s hard for couples too, especially ones with health issues. Increase wages by supporting the Living Wage. Kids are suffering.

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