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.  

The new rates, etc, are available on the website of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin, MP, here.  One of the many numbers therein is the so-called partner income free area (PIFA).  This is the amount of income one partner can have before it begins to reduce the entitlement of the other partner, and it lies at the heart of the problem.

In most cases, the PIFA equals the amount of income needed to reduce one partner’s Newstart allowance to zero.  The idea is that Partner 1’s private income is first used to reduce their own Newstart allowance.  Once it has reduced it to zero, any extra income then “flows over” to Partner 2 and starts to reduce their payment.  This type of arrangement – where one partner is reduced and then the other – is referred to as sequential income testing.  I have a slightly more detailed account of how this works - with pictures - here.

As a result of the latest round of indexation increases (which incorporate the new clean energy supplement as described here), the income at which one member of a couple’s Newstart allowance reaches zero – the cutout - is $853.84 a fortnight.  That number is plainly stated in the Macklin release.  Consequently, the PIFA should be $854 (it’s always rounded up to the nearest dollar).  Alas, it’s not.  Instead, the only reference to the PIFA amount shows it as $842.

The reason it’s $842 and not $854 appears to be because the clean energy supplement hasn’t been included when calculating this particular cutout.  Just why this was done is hard to fathom.  Apart from being completely contrary to the policy rationale for setting PIFA amounts, it’s also highly discriminatory as it has been included when calculating the cutouts for single people or other couples.

Making matters worse is the fact that the creation of the clean energy supplement as a separate component of income support rates is actually little more than an advertising campaign.  The extra assistance could have been delivered as a straightforward rate increase and there would then have been no doubt about its impact on the PIFA.  Instead, affected couples are effectively paying for the decision to highlight the existence of household compensation amounts, and, in aggregate, quite substantially too. 

Quite apart from the rip-off this change has produced it’s worth noting that it also “breaks” the last functional sequential income test.  That test doesn’t work properly in cases where the payment made to the non-working partner has a different income test to Newstart allowance (see for example the problem with Austudy couples here), but it’s been okay otherwise.   Now the Austudy type problem will now feature in all couples.  But who knows, maybe breaking the test in all cases is an attempt at equity?

I'm charitable enough to think/hope that this is actually just an error on the part of the Departments involved (DEEWR and DHS/Centrelink) rather than an actual policy decision of the Government.  It's hard to imagine the Government deliberately short changing low income people this way (although some sole parents may feel differently), especially in the politically sensitive carbon tax/cost of living area.  Another reason to hope it's just an error is that there's then some chance of fixing it. 

Sans a fix, one course of action open to affected couples is to appeal against the rate of payment from 20 March.  The basis for the appeal would be that in calculating the rate of payment, Centrelink is incorrectly working out the amount of "partner income excess" because its PIFA is wrong.  If there's any interest in fleshing this out leave me a note in the comments and I'll see if I can get some suitable words together (no promises mind!).

 

Addendum - 25 March 2013

After discussions with a few people it's evident that my attempts to explain this problem have failed the plain English test.  After casting around for alternative ways to show the issue it has occurred to me that a comparison of the proposed compensation amounts with those actually delivered could be done via a simple chart.  So at last this post will get a picture.

Here's that chart:

 

And there it is, a substantial fall in the compensation provided at incomes above roughly $22,500.  Note that the first two small declines in the actual result trace are due to indexation effects (actually the lack thereof) in the NSA income test.  You can ignore them for all practical purposes - it's the big drop that matters.

The data for the proposed compensation amounts comes from this publication (page 23).  I hope this makes the effect of the problem clearer, even if the mechanism by which it arises remains obscure.  

This household compensation stuff is quite sensitive, so I presume the relevant departments must have run this departure from the (published) proposed outcome past their Ministers.  I wonder how they justified (and explained the mechanism of) the policy change!