What choice single-parent students?

Under the ordinary rules applying to parenting payment for single people, eligibility is lost when the youngest child turns 8 years old.  At that point the parent must seek another type of income support payment.  Much recent discussion has focused on single parents who take up Newstart allowance and the resulting reduction in disposable income that occurs as a result of that transition.  (I've done a couple of posts related to that subject, here and here.)

However,  depending on the circumstances of the single parent, a transition to Newstart allowance might not be the only choice.  A good example is single parents who are studying.  While the youngest child is under 8 years old they can study and receive parenting payment.  They also receive an additional payment to assist with or encourage their continued education, the pensioner education supplement (PES).  So what happens when that youngest child has the dreaded 8th birthday?

There are two main options here: Austudy payment and, perhaps surprisingly, Newstart allowance.  I say surprisingly because there's a general rule that full-time students can't get Newstart allowance.  But general rules are alway waiting to be put aside for a special rule, and in the case of studious single parenting payment recipients there's one that can let them not only keep studying, but also continue to receive PES.

So, given there's a choice between Austudy payment and Newstart allowance, which is "better"?  Both these payments have undergone, or are about to undergo, changes that mean this choice needs to be reappraised.  Both of them involve the income test.

For Austudy, the amount students can earn before it's reduced was significantly increased in July this year (for more on that change, see here).  For Newstart the rate at which payments are reduced by income is being reduced from 50 or 60 cents in the dollar (depending on the income level) to a flat 40 cents in the dollar.  This only applies to single parent Newstart recipients who are classed as "principal carers", but given they are the topic of this post, that requirement is met.  That change will come into effect from 1 January 2013.

We can't get this far into a post without a chart, so here's one that compares the disposable incomes in three cases: the income as a parenting payment (PPS) recipient (ie, the pre-8th birthday case); the income as a Newstart (NSA) recipient; the income as an Austudy payment (AUS) recipient.

Chart 1

(click to enlarge)

Before anything else I have to say that I haven't started the scale on the disposable income axis (the vertical) at 0.  This is so the differences in outcomes are easier to see, but bear it in mind when comparing the above chart with subsequent ones that do include 0.

On the results themselves, the obvious point is that no matter how you look at it, the reduction in income when the child turns 8 years old is significant.  However, without wishing to diminish the importance of that element, it's not really the subject of this post.  Instead, the focus is on the difference in the disposable incomes available under the NSA and AUS options - and it would seem that over most of the private income range shown here, Austudy payment gives more money.

Unfortunately, it's rarely that simple in tax-transfer world.

To get a better understanding of what's going on here it helps to consider all the different tax-transfer system elements that are at work, particularly the differences between the two options.  First up, the Austudy payment, and yes, another chart.

Chart 2: tax-transfer components - Austudy case

(click to enlarge)

The grey line is the same as the Austudy payment line in Chart 1, although looking a little flatter because of the difference in scale.  Below that are the tax-transfer elements in play, showing how they change as private income increases.  You can see Austudy payment starting out at a little under $14,000 a year ($13,878 is my estimate of the rate for a single parent at January 2013) and then declining in value once private income exceeds roughly $10,500 a year.  On top of that are the standard family tax benefit payments - Part A and Part B.  Next is the school bonus payment and the Clean Energy Advance.  Finally there's a scholarship payment that tertiary Austudy students may attract.  On the negative side the bright red amounts are income tax, with a little bit of medicare levy.

An important element of this chart is the lilac background(s) - two shades representing eligibility for a concession card.  In this case we can see the student attracts a health care card until private income exceeds around $47,500.  Keep the concession cards in mind as we switch to the Newstart example.

Chart 3: tax-transfer components - NSA case

(click to enlarge)

Like chart 2, this shows the disposable income (grey line) and the contribution from income support (in this case NSA) and family tax benefit.  It also has the school bonus and the Clean Energy Advance.  However, this case has a pensioner education supplement, not the scholarship, and a telephone allowance that is not available to the Austudy recipient.  Perhaps most importantly we can see that until private income exceeds roughly $36,000 (where NSA stops) the NSA recipient attracts a pensioner concession card instead of the health care card that the Austudy case was entitled to hold.

Pensioner Concession Cards can be worth a considerable amount, certainly more than the health care card in the majority of cases.  It is the gateway to a number of state government and local council concessions that the health care card just doesn't attract.  Private businesses are also more likely to offer concessions to pension card holders.

So, if we look back at Chart 1 we will need to reduce the apparent financial advantage of the Austudy scheme to take account of the lesser value concessions this package attracts.  Unfortunately for those trying to work out which is the best option to take there's no standard value for a pensioner concession card.  It depends where the single parent lives and what services they are likely to use.

To make matters even harder, it appears that getting the pensioner education supplement as part of the NSA package is not available if the person first tries out Austudy and then tries NSA.  To retain the pension supplement the option seems to be limited to going directly from parenting payment to NSA.  Once there I suppose it would be possible to work out whether there's any advantage to going to Austudy, based on the level of one's private income and the value of pension card concessions.

I guess the take-away message in this is that while there's a choice to be had for those single parent students who lose entitlement to parenting payment, it's not an easy one to make!  And of course, the perennial question - why are the supplementary payments and concessions for these otherwise identical cases so different?