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Welfare to work: creating the economically disabled?
With the release this week of the 688 pages of the Workplace Relations Amendment (Work Choices) Bill 2005, the gloves are off and the debate is on over so-called work choices.
Another round of social engineering from the Federal Government is the Welfare to Work changes to be introduced on July 1, 2006. (A quick world-wide google of "welfare to work" is interesting - WelfaretoWork.org recently changed its name to Business Interface, Inc. to: better communicate its role as a demand-side workforce intermediary whose primary focus is to help businesses fill critical workforce gaps by employing the economically disabled).
Marie Coleman has been getting traction in the Welfare to Work debate for sole parents and people with disabilities in Australia. She has reported on the work of the National Foundation for Australian Women and the National Centre for Economic and Social Modelling for Webdiary, looking at rural communities at risk under Welfare to Work policies, and considering our Prime Minister's next exciting adventure.
NATSEM and NFAW have released their third report into the Welfare to Work changes. Marie introduces the report and Webdiary has published the Introduction and the Conclusion below.
Welfare to Work - new data
by Marie Coleman, NFAW
New authoritative modelling in the third report from the National Centre for Economic and Social Modelling (NATSEM) shows that nothing can stop the current Government proposals from creating the perfect poverty trap.
The essential problem lies in the rigid Cabinet thinking which insists that all persons of workforce age, regardless of their special circumstances, ought to be on Newstart Allowance (unemployment benefit) - a payment initially designed for short-term unemployment relief.
The NATSEM modelling demonstrates that without significant change to aspects of Newstart, such as to the income test, or to taxation treatment of additional earned income or to the activity test, individuals with a disability and women and men supporting children who attempt to improve their circumstances by entering the workforce, face shocking Government imposed income losses.
The Prime Ministerial statements about the Industrial relations legislation make it clear that people who are 'unemployed' - which means people such as a sole parent claiming Newstart, or people with a disability claiming Newstart, or for that matter a sole parent whose youngest child turns six and is exiting welfare support - must accept whatever work conditions an employer is prepared to offer them - or lose any entitlements to Newstart.
They'll not be able to pay the rent, put food on the table, and if they are on a part-allowance, they'll lose up to 75 cents in each dollar earned.
Sole parents with a child aged 6 or over who are not in a position to work, for example because the child has a disability, or the parent does, or the parent is caring for an aged relative as well, or home schooling, will be on Newstart but may be temporarily exempt from having to look for work.
Even though the Government recognises that these families cannot be expected to take on paid work, when they are moved from the pension to Newstart, they will lose $29 a week, 11% of their basic payment. As well, the temporary exemption is less secure than their current rights.
These are the things which the Government must examine. NATSEM demonstrates there are realistic change options.
Options for reducing the adverse impact of the proposed Welfare-to-Work reforms upon people with disabilities and sole parents
by Ann Harding, Quoc Ngu Vu and Richard Percival
Report to the National Foundation for Australian Women, 3 November 2005
In the May 2005 Budget the Federal Government announced a range of proposed welfare to work measures, to take effect from 1 July 2006. Among the numerous measures announced in the Budget were significant changes in the income support policies for sole parents and people with disabilities. Currently, sole parents with a qualifying child aged less than 16 years who meet various income and asset tests can receive Parenting Payment Single (PPS), which is subject to the pension income test and payment rate rules. Those sole parents who are in receipt of PPS prior to 1 July 2006 will continue to remain on that payment and be subject to the 'pension' income test (which is more generous than the 'allowance' income test), until their youngest child turns 16. However, new compulsory work obligations will be imposed on this group from the later of 1 July 2007 or when their youngest child turns six. These new obligations will be satisfied by working part time for a minimum of 15 hours a week or by searching for part-time work and participating in Job Network or other services.1
The major changes are for those sole parents who apply for income support after 1 July 2006. Those who have a child aged less than six years will still be eligible to receive PPS. However, as soon as their youngest child turns six, they will be transferred to Newstart Allowance (NSA) and be subject to an obligation to seek part-time work of at least 15 hours per week. Those whose youngest child is aged six years or more at the time of application will be placed straight onto Newstart and be obliged to seek part-time work of at least 15 hours a week. 2
Moving to people with disabilities, under the current system those with physical, intellectual or psychiatric impairment at a sufficient level to make them unable to work for at least 30 hours a week (or undertake training that would equip them for work) for at least the next two years are able to receive Disability Support Pension (DSP). DSP is also subject to the pension income test and payment rate rules. Under the proposals, those people with disabilities who are in receipt of DSP prior to 1 July 2006 will generally continue to remain on that payment and be subject to the 'pension' income test.3 Current DSP recipients who give work a go will have a right to return to DSP within two years if they start a job but are unable to sustain it for any reason (Dutton, 2005a). Those people with disabilities who apply for income support after 1 July 2006 who are assessed by the new 'comprehensive work capacity assessment' as being able to work 15 to 29 hours per week at award wages in the open labour market will be required to seek 15 hours or more of part-time work a week and will be placed on NSA or Youth Allowance.
While the 'grandfathering' provisions mean that sole parents or people with disabilities who are currently on pensions will remain on them, the proposed changes will have a significant impact on those sole parents and people with disabilities who apply for income support after 1 July 2006. NSA provides a lower payment rate than PPS and DSP, has a much harsher income test, and is associated with much less generous income tax concessions. As a result, many sole parents with school age children and many people with disabilities will receive much lower incomes than under the current rules. Our previous reports suggested that sole parents will be up to around $100 a week worse off and people with disabilities up to around $120 a week worse off under the proposed changes relative to the current system (Harding et al, 2005a, 2005b, 2005c, 2005d). In addition, most of those affected will face much higher effective marginal tax rates under the proposed new system than under the current system.
Since the publication of our earlier reports, many parliamentarians and numerous organisations involved in public policy have contacted us requesting information about possible policy options to reduce the adverse impacts of the proposed reforms upon the incomes and effective tax rates of affected sole parents and people with disabilities. This paper canvasses a limited number of possible options for change.
Section 2 of this paper analyses the impact upon people with disabilities of the proposed reforms and some possible amendments to those reforms. Section 3 repeats the analysis for sole parents, while Section 4 concludes.
1. The Government also announced new spending of $390 million over four years to help increase employment amongst parents of school aged children, including a new Employment Preparation service.
2.There is now one major exception to this. Family and Community Services Minister Kay Patterson announced on 12 September that parents of children with profound disabilities would become newly eligible for Carer Payment. This is a 'pension', which means it has a higher payment rate and more liberal income test than Newstart Allowance. This is effectively the only group that the government has so far exempted from the move to Newstart from pension.
3.The exception is people applying for DSP between 11 May 2005 and 30 June 2006, who will be assessed for DSP under the existing 30 hours test but be reassessed in periodic reviews against the 15-29 hours test after 1 July 2006. Those able to work 15 to 29 hours per week will be shifted to Newstart and be required to seek work.
2. People with disabilities
2.1 The DSP and NSA programs
3. Sole parents
3.1 The PPS and NSA programs
Since publication of our earlier reports highlighting the substantial cuts in disposable income and the higher effective marginal tax rates resulting from the Government's proposed welfare to work reforms, many have contacted us asking about whether there are feasible options to ameliorate these adverse impacts. For people with disabilities placed on Newstart Allowance, we have modelled three illustrative possible options in this paper:
Option 3 would reduce the high effective marginal tax rates faced by people with disabilities placed on NSA and would also reduce their losses relative to the current DSP system. There would still, however, be major losses in income for those placed on NSA rather than on the existing DSP.
We have also modelled the impact of Option 2 for sole parents with one child aged six years and over. Other possible options for sole parents that we have not modelled here include:
The Government has recently announced a series of circumstances that might qualify parents for temporary exemption from the 15 hours per week minimum participation requirement. Primary carer parents who are foster carers, distance educators, home schoolers, parents with large families or who care for a child with an illness or disability may be eligible to seek temporary exemption (Andrews, 2005c). In addition, parents who have been subjected to domestic violence will continue to be temporarily exempted from participation requirements. It is also clearer that primary carer parents will not be expected to take-up work if that work is to occur outside school hours, if no suitable child care is available, or if the cost of care would result in a very low or negative financial gain from working. However, it is important to note that all such parents will still be placed on Newstart Allowance, rather than PPS or DSP. Thus, if they have no private income, they will still be at least $29 a week worse off in 2006-07 relative to remaining on pension - even for long periods of 'temporary exemption'. Another possible option would be to allow affected parents to return to PPS, perhaps with re-assessment on an annual basis, if their 'temporary exemption' appeared to involve a set of circumstances that were unlikely to change for many months.
A final issue is that the relative losses experienced by sole parents and people with disabilities placed on NSA rather than pension will increase over time. The maximum payment rate for Newstart is indexed by the CPI, whereas the pension rate is indexed by the higher of AWE or the CPI. As a result, by 2008-9, for example, the maximum payment rate for Newstart Allowance will be about $42 a week lower than that for Parenting Payment Single (rather than the $29 a week apparent for 2006-07.) In addition, while the pension 'free-area' is indexed to the CPI, the allowance free-area is not indexed, so that the relative losses for those with private incomes will grow further through time. Indexation of the two allowance threshold parameters would resolve this latter issue.