Spiky EMTRs can also be prickly - how to really stick it to students

A little over 18 months ago I wrote a post about the way in which the Austudy income test seemed to me to be only half-built, causing substantial financial losses for some couples.  I finished it with a comment that the problem would only get worse over time.  There will be a few changes to Austudy payment from 1 January 2014, so with that earlier comment in mind I thought it might be interesting to see how the problem looks once these are in place.  And here’s a spoiler – it isn’t pretty.

4 Parliament comparison - single earner couple with an invalid partner

This is another in my occasional multi-Parliament comparison series.  This time the subject is single income couples where one is unable to work due to a disability – an invalid spouse as the tax law puts it.  I’ve been meaning to do this one for a while because the combination brings up quite a few interesting issues around policy and system design. 

A tail's tale

The maximum rate of Newstart allowance (NSA) has been the subject of much debate recently, but it’s not the only contentious aspect of that payment.  Another commonly raised issue is the effective marginal tax rates (EMTR) faced by NSA recipients (and those on payments with related income tests, such as partnered parenting payment) who have some private income, particularly earnings.  In truth, in most cases the EMTRs are actually quite a bit lower than they used to be – NSA once had an income test with a 100% withdrawal rate, whereas the highest taper these days is 60%.   There are, however, some persistent problem areas and one of these lies at the tail end of the income test for couples.  There, EMTRs remain stubbornly high and the reasons underlying this raise interesting issues involving differences in the fundamental basis of assessment between the tax system and the transfer system, and also the flow on effects of tinkering in different parts of the system.

Climb every mountain...

This outing is to explain a type of chart I’m thinking of using in later posts.  It’s intended as something I can link back to as background material if and when I do.  Pending inspiration for a better name, I call it a hill-climb or effort chart.  I’ve not seen one used before, but given I’ve never had an original thought in my life I suspect I must have come across something like it in the distant past.

The price of love

Back in July 2006, parenting payment rules were changed so that new applicants could only be paid if their youngest child was under 6 years (for partnered parents) or 8 years (for single parents).  At the time I remember a friend suggesting that every cloud has a silver lining, insofar as the change would at least have a positive impact on the partnering penalty.

The partnering penalty is a murky subject that seems to have an almost “dare not speak its name” air about it.  In an earlier form it was described by its reverse – a financial incentive to separate – a concept almost too ugly to consider, at least publicly.  The basic idea was that if the financial assistance for low income single parents was too generous compared to the entitlements for low income couple parents it might provide an inducement of sorts for relationship breakdown.  These days if the idea is discussed at all it’s usually in terms of whether differences in the assistance packages between singles and couples might be a barrier to the reconciliation of estranged couples or the formation of new cohabiting couple relationships – a partnering penalty.

I was reminded of the partnering penalty issue by the repeated demands to undo the changes to single parents introduced this year.  Those changes abolished the special rules for parenting payment that had applied to people who had been getting it since before the July 2006 rule changes.  But a change that is only applied to single parents will almost inevitably alter the relativities between them and partnered parents and hence affect the partnering penalty.
So, do we have a partnering penalty under the current arrangements, and if so, how big is it?

Newstart allowance and the vanishing cost of living increase

Note: This has been amended from the version I originally posted on 29 March 2013.  There was an error in the original, making a bad story even worse.

In an earlier post I wrote about what I thought was an error in the way the Government’s new Clean Energy Supplement (CES) had been put in place.  My contention was (and still is) that as a result of a wrongly implemented income test change, the promised level of carbon pricing related compensation has not been delivered to some couples.
It subsequently occurred to me see whether the impact of this was so significant it compromised not just the overall level of compensation, but also the basic CPI increases that were implemented on 20 March.  It appears (fortunately) that this isn’t the case, although the implementation does seem to have eaten away much of the 1% cost of living adjustment.

Low-income couples and the carbon-compensation rip-off

No pictures in this post I'm afraid.  I'm not really sure how to draw a rip-off...

If the Government persists with the new rates and income test thresholds it announced on 2 March it looks to me like some couples are going to be getting $7.20 a fortnight less than they should, and less than they were led to believe in the Government’s Household Compensation information packages of a couple of years ago.  Affected couples are those where one partner is getting a social security benefit (eg, Newstart allowance or Austudy payment) and the other has a low income which prevents them from getting a benefit.

I don’t have access to stats detailed enough to say exactly how many couples are in this position, but if it’s in the order of 100,000, that amounts to almost $19 million a year that these couples are losing.  

Tax thresholds - so tasty you can't stop at one

How exciting can a tax threshold get!  Over the last few weeks I've come across a few "discussions" on the subject, largely driven by speculation about what will happen to the tax scales if the Coalition wins September's federal election. 

Last year the Government increased the tax threshold from $6,000 to $18,200 as part of a package of measures associated with putting a price on carbon pollution.  The Coalition is intent on abolishing the "carbon tax" and, apparently, the household compensation measures that went with it, including the tax changes.  This obviously provides much scope for polite discourse on how people would be affected by winding back the changes.  I've even read some entertaining stuff questioning whether the Government's changes really did much at all, or in fact made people worse off.

None of this is made easier by the fact that tax-threshold apparently means different things to different people and is also rather dependent on the context in which it's used.  So, let's have a look at tax thresholds and how they've changed over the last 4 Parliaments.  A chart first, and if that makes no sense to you an explanation follows.

A new rate component is born

In an earlier series of posts I wrote about how income support payment rates are indexed, using the September 2012 indexation round as an example.  Calculations for the next round of increases will kick off on 23 January when the Australian Bureau of Statistics (the ABS) releases the CPI figure for the December 2012 quarter.  This is the starting point for working out the rates that will apply from 20 March 2013.

However, this time round the indexation process will differ from the standard arrangement described in my earlier posts.  That’s because part of the rate increase that would usually flow from increases in the CPI (and also the pensioner and beneficiary living cost index – PBLCI - for most pensioners) is going to be siphoned off to help form a new income support rate component – the clean energy supplement.