by Metiria Turei
The Welfare Working Group wants to force beneficiaries to work, but proposes to pay them less if they do so.
At page 107 of the Welfare Working Group’s report (PDF) the Group proposes changes to benefit abatement – i.e. the way benefits are reduced in response to income earned by the beneficiary.
Currently there are two separate abatement regimes. So-called short term benefits such as Sickness and Unemployment benefits are reduced by 70 cents for every dollar of weekly income in excess of $80. Longer term benefits such as Domestic Purposes Benefit and Invalid’s benefit are reduced by 30 cents for every dollar of weekly income between $100 and $200, and then by 70 cents for every dollar of weekly income in excess of $200.
The Welfare Working Group is advocating a single abatement rate for the Jobseeker Support it proposes to replace all these benefits – a reduction in benefit of 55 cents for every dollar of weekly income earned in excess of $20.
I have graphed how that would affect someone meeting the current qualifications for Domestic Purposes Benefit (post 1 April 2011 benefit and tax rates and assuming an ‘S’ tax code):
The blue line is before-tax weekly income earned in addition to benefit, the red line is what the beneficiary is currently left with in-the-hand each week, and the green line is what the beneficiary would be left with in-the-hand if the Welfare Working Group’s proposals were implemented.
Every sole parent beneficiary earning more than $20 a week would be worse off under the Welfare Working Group’s proposal. And, of course, most sole parent beneficiaries will be required to seek work. The proposal is effectively a benefit cut by stealth.
Other types of beneficiary don’t fare much better. Here’s how the Welfare Working Group’s regime would affect a single person aged over 25 without dependent children who currently qualifies for Sickness Benefit (again using post 1 April 2011 benefit and tax rates and assuming an ‘S’ tax code):
Under Jobseeker Support, this beneficiary would be worse off at all weekly income levels between $20 and $300. Of course, many and possibly most people who meet the current qualifications for Sickness Benefit do not have sufficient capacity for work to earn $300 a week, so they will be worse off whatever they do.
The Welfare Working Group’s report is an extremist beneficiary-bashers’ wish list and should be promptly consigned to Paula Bennett’s rubbish bin.
Published in Economy, Work, & Welfare | Featured by Metiria Turei on Sat, March 12th, 2011
Tags: benefit abatement, benefit cuts, Domestic Purposes Benefit, Jobseeker Support, sickness benefit, Welfare working group
More posts by Metiria Turei | more about Metiria Turei
on the trolls and those who are unable to keep on topic
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FFS when is the current govt going to stop blaming the unemployed for unemployment?? this is just the stupidest thing, i am heartily disappointed at the narrow mindedness of our politicians, they are no longer intouch with people because they are spending to much time fondling the money and feeding their greed based world view.
it makes me ashamed that our government has gone this way
a question though.. what are the other parities doing to counter act this greed based policy that the current ruling govt are creating by the truckload?
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It’s become clear to me how many people aren’t well informed about the actual details of proposals and legislation, and just believe the headline spin put on it. We need to show the concrete effects on people in ways that they can understand, without overstating the case and thus allowing spin rebuttals.
This does it for me. This is the opposition the county needs. Keep it up.
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http://www.verify.co.nz/news-theftnz.php
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Two points,
As rimu says, without a data legend for both axis, the graphs are meaningless.
Where is the Greens proposal and revenue budget to enable current levels of welfare to continue?
One thing to shout about the problem, quite another to present answers that the voters can get their heads around as being sustainable and fair.
Looking forward to what the Green’s answer is to maintaining a sustainable welfare budget.
Rabbiting on about what is wrong is not going to get anyone to vote Green.
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X axis doesn’t need to be labelled to be understood.
But as shown by the 45 degree nature of the gross income earned in addition to the benefit line (blue), the scale is the same as the y axis.
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I assume the y axis is dollars earned per week, fortnight or monthly?
Sloppy reporting if the graphs are not fully labelled. Leaves it fully open to misinterpretation. Would never pass an exam.
Ad your interpretaion of what the Greens policy should be for sustainable welfare?
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Leaves it open to willful misinterpretation, I’ll grant you.
This article points out the effects of one of the recommendations in the WWG report. Do you disagree that it is a correct interpretation of this recommendation? If so, state your position.
Trying to change the subject when someone points out an unpleasant implication of one of your arguments is the sign of someone who is arguing from a position that isn’t supported by the facts. And is a common tactic used by trolls. I’m sure you don’t wish to be considered either.
In the context of the article I had no trouble understanding the graph. If you do, you may want to consider – am I that much more intelligent than you, did you have a temporary moment of miscomprehension, or are you trolling?
Also, it’s not up to me to make Greens policy.
I won’t be commenting again on this thread as I have no wish to engage you futher on this matter.
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Some ideas here about how we can cut billions from the welfare budget.
http://kjt-kt.blogspot.com/2011/03/kia-ora-yeah-we-should-be-doing.html
Our current welfare budget is easily affordable by minor taxation of some of the bludgers at the top end.
Removing the loop holes that allow 50% of the most wealthy to avoid tax would be a good start.
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@Gerrit 1:35 PM
The commentary below the first graph makes it clear it is dollars weekly that is being graphed, but might have been clearer if the axis was labeled as such. Sure, the blue line could have been left out and the x-axis numbered and labeled “gross weekly earning in addition to benefit”. But I think that Metiria’s approach here better graphically displays how money in-the-hand compares with gross earnings.
One of the common “tricks” with graphs is to expand or contract one of the axes or to have a non-zero starting point for one of the axes, which gives a misleading view to the casual viewer of the extent of the correlation. When all statistics being graphed are in the same units (in this case NZ$), I think the way Metiria has done it here is a better way of displaying the correlation.
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Ben,
Nice meeting you, bye. Trolls win another?
——————————-
Kerry,
So when will we see a Greens shadow budget with the higher tax rates and an indication of the volume levels that money will be collected at.
Followe by how much will be allocated to welfare and all other social programmes.
Have no trouble with your proposals but we need to see some sort of spreadsheet that shows income verus expenditure.
Something lacking in the Greens manifesto for the last election that hopefully will be rectified.
As a previous business owner, you will no doubt be acutely aware for long term strategic planning what the tax liability is going to be.
So after November 2011 how much will the new Greens led government be increasing corporate taxes?
What changes will they bring into the taxation regime?
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Gerrit
Metiria is saying that what is proposed is wrong.
If you read the post it is clear what time frame we’re talking about. Try applying some common sense. The dollar amounts also clearly show that it is weekly.
Frog, could you please ban Gerrit for being a troll?
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I agree. All political parties should show full costings and researched cost/benefit analysis for any legislation and policies.. Including invisible’s such as job losses, reduction in future dividends, environmental damage, the effect on peoples quality of life and other trade-offs.
We may then have properly researched and proven policies rather than ideological knee jerks such as national standards.
Tax cuts to date have simply meant that we are paying more for private provision of services than we used to pay when the State either provided of regulated them.
Our real disposable income has not been increased by tax cuts as we always end up paying more for the same services.
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Now, let’s get back to the substantive issue, rather than its graphical display.
The reality is that people on benefits are already subjected to effective marginal tax rates that provide them no real incentive to undertake more work. So the government proposes to apply the big stick of making the vast majority of beneficiaries seek work for fear of loss of their benefit.
But the beneficiaries don’t receive much, if any, financial reward for their efforts if they manage to find part time work.
That is what the graphs show. We have a system that provides little financial incentive for beneficiaries to move progressively increase their hours of work and off benefit, and the WWG is proposing one that has even less incentive.
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@Gerrit 11:45 AM
How about a Universal Basic Income, such as Gareth Morgan and Keith Rankin advocate. The Greens want to explore that – it look like a good idea.
Every NZ resident gets a tax credit of somewhere around the current single invalid’s benefit rate. But they get taxed on earned (other than the tax credit) income at around $0.40 in the dollar.
Essentially, a flat tax (the Actoids would love that), but a guarantee that every New Zealander will have enough to subside on, unless they make some seriously bad decisions as to how they spend their Universal Basic Income.
And, apart from those who are self-employed who might have to estimate their income (which is really no different from provisional tax), everyone should be able to have an individual tax code re PAYE on which they base their claim for Universal Basic Income.
That way, we would largely eliminate the bureaucratic problem we currently have with Working for Families – money being taken off families by tax and then returned through separately paid tax credits.
Wherever possible – with wage and salary earners, but I suspect may be too difficult with self-employed contractors – offsetting through an individual tax code would eliminate a huge amount of bureaucracy.
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All in favour of a Universal Basic Income.
Self employed are not really an issue as they would be treated like any other business that returns money to the shareholder in the form of a monthly wage.
We manage provisional tax now and dont pay the final until a year later. We can manage that though we have the time lag with one year being a good year and paying very little tax due to the previous year being not so good to the reverse when a bad year follows a good and we have a large tax bill to find money for.
For those of us self employed it is the biggest bugbear to managing this cashflow. I religiously put 30% in a seperate account too pay the taxes and GST so it is a matter of self discipline.
I can see a problem for us self employed during low business income periods when I cant pay myself very much and would become eligable for UBI welfare. How and when to kick that in. How to manage that through low and high income cycles.
As an aside, it is this time lag to paying taxes a year after the reporting period ends (usually 1st April) that people, when looking at company tax paid versus income received, often get a conflict on the actual tax rate business pay. You need to look at a minimum three year reporting period to measure business tax paid versus income.
Hopefully the Greens will spell out andf cost this proposal of a universal income accurately in their election campaign.
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We have been discussing this for some time now.
It is a good idea in many ways.
Removes excessive abatement rates.
Cuts administration costs.
Entrenches the right of everyone to a reasonable amount of societies food and shelter regardless of circumstances.
Simplifies the tax and benefit system.
No more begging to WINZ to survive on a benefit.
Supplies a backstop so people are more likely to take entrepreneurial risks. Can start a business knowing your family will not starve while you get it up and running.
Automatically progressive.
The ACTors could have their flat tax on incomes.
I don’t see any particular difficulty with self employment beyound what we have now. Like Gerrit I remember well having to pay taxes for good years during a bad year. Even worse when I went back to Uni paying the previous years business tax.
I can see it as part of a package of tax reform and simplification which also shifts company and personal taxes away from sustainable productivity to charge activities such as financial gambling.
It is not hard to see how we could gain support from right across the political spectrum.
The disagreement would be on the amount.
ACT would set it to just enough to buy baked beans and share a garage. We may think people should have enough to buy their kids shoes and pay for the Doctor.
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Would like to see provisional tax done away with and business taxes put on a PAYE basis.
Have no idea why business has to guess provisional tax based on projected earnings (and if you get it wrong dont you half get an earful from the IRD) and then a final depending on the years earnings.
Why cant the small business be on PAYE system at least? This would tie in nicely with a UBI.
The Greens have an MP responsible for promoting small business. Who is the member and what is their thinking about helping SME’s?
Especially the tax situation and a preference to PAYE.
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Small business PAYE could be on actual cash flows for each month, with an annual adjustment for things such as depreciation. Just as we have employee income PAYE with annual adjustments for family support and part year earnings. Anyone who does not work out their monthly cashflow should not be in business.
Over a period of time, overpayments in one month and underpayments in another, will average out to close to the correct figure.
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Yep, Kerry, the technology now exist that we don’t have to do it the slow and expensive old way. Pity IRD can’t catch up.
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NZ’s welfare ‘system’ is just one big fat bad joke – aimed at disenfranchising each and every one. A desperate proposition – from those who are not desperate – call it anonymous murder… the Nazification of NZ is well underway.
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The Business Roundtable was advocating a reduction in the exemption from abatement to zero in their submission. The reason is that this reduces pressure to keep raising the minimum wage – caters for a lower minimum wage as per the relationship to those on benefits working part-time.
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Glad to see some of you find the News upsetting (as well it should)
Now come out from under that bush and tell me what proof you need
How much evidence til your mind goes swimmy
Huh?
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Hi SPC – Yes, we have noted that and it is the topic of an upcoming post here. There are so many really awful outcomes that would flow from the Welfare Working Group’s recommendations that Green MPs are dealing with them one by one in blog posts here over a couple of weeks.
Very few readers would be willing to wade through the 6,000 word blog post to cover all the negative consequences of what the WWG is proposing. And those who do would probably make the comments thread a nightmare for me to moderate.
Cheers. We’re onto it!
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Hmmm – you’ve heard the term ‘hoisted by their own petard’ frog….
I’d tend to let ‘em go
Even though it’s an election year
And you’d prefer to have all those ducks in a row
Don’t sweat the Rowdy’s (including me)
In a land where moral censorship and gossip carries the day (if you dare)You have the Keys to a certain Kingdom.
Ow ! I take your point = feel your headache coming on
(virtually)
But censorship never did anyone favours – except to disguise the implanted, conceited, moneyed class.
They are the biggest anti-social clique we face – as a civilized society.
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The above proves to me that I totally wasted my time putting in a submission to the Welfare Working Group !!!!!!
I think I know where they filed it; don’t you?
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While I accept the reality behind Met’s graphs I actually think changing the abtement rate as suggested by Rebstock’s group has merit because the current 70 cents after $80 kills incentives also. The 55 cent abatement rate after $20 (unsure why not the first dollar)….. gets us closer to a UBI than 70 cents after $80.
There is also the riddle/complexity of annual income measurement (for DPB and IB) compared to weekly (SB and UB etc).
Of wider interest is the fact wages for low paid in NZ are too low, thus if you believe the ‘political messaging’ believed by Govts for some time benefits have to be lower to avoid the latter being better off….. Result is deepening poverty…..
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The annual versus weekly assessment periods problem means that countless people receiving the DPB and invalid’s benefit are being grossly underpaid. This is because in practice income for this group is almost invariably calculated on a weekly basis despite the statute allowing an annual assessment. For example, if a person works for three months (or any period less than 52 weeks) and receives less than $4160 the person’s DPB or invalid’s benefit should not be reduced because it’s less than the annual exemption. In reality, and more often than not, assessment will be weekly and result in what can be horrendously large, not to mention unlawful, reductions in payment. When challenged Work and Income of course capitulate, usually without argument, or at least after someone explains things to the clerk, but this doesn’t stop the unlawful practice continuing everywhere else – it’s widespread and entrenched. There needs to something done to sort out payment of arrears to the thousands of people who’ve had entitlement wrongly assessed in the past, and to make sure things are done properly in the future.
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Wise words Mr McG, we could construct an OIA, or get a PQ to find out as I suspect there could well be many poor made poorer by in-ept b/crats.
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