Calculating new pension rates - step 3 of 3

Pension rates are reset every six months using a 3 step process.  Last week's publication of the Average Weekly Wage figures by the ABS (here) provides the final ingredient for the calculation of the pension rates to apply from 20 September 2012. 
To recap the process so far, the first step was to adjust the rate using the change in the consumer price index (CPI), giving us the CPI rate.  The second was to adjust the rate using the pensioner and beneficiary living cost index (PBLCI), giving us the PBLCI rate.  Each of these steps was discussed in more detail in earlier posts (step one is here and step two is here).

Now we can calculate the rate based on Male Total Average Weekly Earnings (MTAWE).  Whichever of these 3 rates - CPI, PBLCI or MTAWE - is highest becomes the new rate.  The new MTAWE figure is $1285.10 a week, or $2570.20 a fortnight.  The combined couple rate of pension is 41.76% of this, and the single rate of pension is a shade under 2/3 of the combined couple rate.  The rate for single parenting payment (PPS) recipients is 25% of MTAWE.  After the requisite rounding required by the Social Security Act 1991 the resulting MTAWE based rates are as per the table below.

Something for "The Kouk"?

The economist Stephen Koukoulos has an article in today's Business Spectator on living costs (it's here but might be hiding behind a [free] registration requirement).  Essentially, it says that, on average, living standards have increased over Labor's period in office and so, on average, whinges about increases in the cost of living and falling living standards are misplaced (to say the least).

One of the key elements in his argument is that wage increases (along with tax cuts and interest rate reductions, etc) have helped ensure this upward movement.  Now, if you've read my other posts you'll know that I don't think that over the period of the current government (Parliament 43) the tax-transfer system (tax cuts, welfare changes and the like) have actually done this, except at low incomes.  If you look at the 4 Parliament comparison posts you can see this effect and where it comes from.

4 Parliaments - single income couple edition

This is the third episode of my 4 Parliaments series, comparing the tax-transfer system changes for different household types across the last 4 governments.  The first looked at single people aged under 55 years, the second, single parents.  This one features single income couples, and while I've already looked at them in a few earlier posts, none covered the 4 Parliaments thing.  So while this post might be single income couple overkill, it will enable comparisons with the other households should you feel so inclined.

In the following charts, both members of the single income couple are aged under 55 and there are no children involved. If this is your first foray into my 4 Parliaments posts, the idea is that you can look at a particular private income and see how the household type's disposable (after tax and transfer payment adjustments) changed from the beginning to the end of the government term of interest.

Calculating new pension rates - step 2

Today's release by the ABS of the pensioner and beneficiary living cost index (PBLCI) for the June quarter allows for part 2 of the 3 part pension rate indexation process to be completed (Part 1 was covered in this earlier post).

The index number for the quarter was 117.4 and the previous highest June or December quarter figure was 116.7.  As with the earlier CPI result, after the required level of rounding, this is an increase over the period of 0.6%, so the CPI and PBLCI adjustments both produce the same result.  That certainly makes updating the table I started in the last post easy!

This is how the rates stand so far...

Payment	Current rate	CPI rate	PBLCI rate	MTAWE rate	Final rate	change
partnered pension	$ 524.10	$ 527.20	$527.20	?	?	?
single pension	$ 695.30	$ 699.40	$699.40	?	?	?
PPS	$ 627.50	$ 631.30	n/a	?	?	?
single NSA (lower)	$ 489.70	$ 492.60	n/a	n/a	$ 492.60	$ 2.90
single NSA (higher)	$ 529.80	$ 533.00	n/a	n/a	$ 533.00	$ 3.20
partnered NSA	$ 442.00	$ 444.70	n/a	n/a	$ 444.70	$ 2.70

Now we have to wait until 16 August for the last piece of the puzzle - the release of the Average Weekly Earnings figures.  Given the low CPI/PBLICI results, I suspect it's fairly safe to assume that it will be the benchmarking of pension rates against the MTAWE figure that will drive the pension increase this time round.

Interestingly, if wages have grown enough it looks like either this time round, or maybe next time (March 2013) the base partnered rate of pension (as shown above) will exceed the higher single rate of Newstart allowance, not just the lower one (which it passed quite a while back).

DSP - to tax or not to tax; that is the question.

A couple of weeks ago, Don Arthur (a regular ClubTroppo blogger) mentioned via Twitter this CIS article about the way blind people are treated for the purposes of disability support pension (DSP) and age pension.  Blind recipients of those payments are not subject to the same means testing arrangements as non-blind folk - for the most part the payments are made free of any means test at all, something the article's author saw as somewhat inequitable. 

It reminded me of another difference between some DSP recipients and the rest of the pensioner population - DSP paid to people under age-pension age is not assessable income for income tax purposes - it's a tax free payment.  This has been the rule for as long as I can remember (I'm too slack to chase up the detailed dates). 

It's a rule that is intended to advantage DSP recipients.  After all, getting a swag of money, tax-free, must be a plus.  Indeed, it used to be.  But not anymore.

Low CPI means low Newstart increase

Yesterday's CPI release prompted quite a bit of commentary about its possible implications for broader economic issues - for example, does it give the Reserve Bank sufficient impetus for another interest rate cut?  But the CPI is used for a whole lot more and in the tax-transfer system it's often used to reset things like rates and thresholds.  Income support rates are among those affected, and this (June quarter) CPI release is particularly important in that context because it's used to set the rates that will apply from 20 September.
In the light of the ongoing controversy over the rates of Newstart allowance and similar payments I thought it would be interesting to look at how the rates will be affected by this low CPI figure.

4 Parliaments - single parent edition

In my last post I looked at how single people had fared under the tax-transfer system changes that have occurred over the lives of 4 successive Parliaments, ending with the current Gillard goverment  in Parliament 43.  This time I thought I'd take the same approach, but for single parents.

I can't think of a way to show what's happened to all the possible single parent household types, so instead this post will focus on a single parent with 2 children, aged 8 and 10.  I've picked this family because having the youngest child as an 8 year old brings to attention the significant change to single parent income support eligibility that occurred in Parliament 41 (the last Howard government).  That change involved lowering the age of the youngest "qualifying child" that could attract entitlement to parenting payment for a single parent (PPS) from 15 to 7.  Prior to the change, when the youngest child turned 16 the parent's entitlement to PPS was lost and some other income support - usually Newstart allowance (NSA) - had to be claimed if required.  Since July 2006 this change now occurs when the youngest child turns 8.

I'll use the same format as I did with the single person, and start with a "spaghetti" chart which compares the results for all 4 Parliaments at once.  And here it is: