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Carrot and stick budget measures for low income families

Carrot and stick budget measures for low income families

By Pattrick Smellie

May 21 (BusinessDesk) - The budget targets an additional $240 million a year to low income families on benefits and in work, but makes new demands of sole parents, including that they be work-ready by the time their youngest child turns three, rather than five years old.

Childcare allowances increase slightly to assist with that new expectation and requirements to work longer part-time hours, but higher entitlements also reduce the level of Accommodation Supplement support available to both working and beneficiary families.

The changes take effect from April 1 next year and will add $25 a week to benefit rates for families with children, the first increase beyond adjustment for inflation in 42 years.

Working for Families tax rebates will also increase and are skewed to the lowest income families, with some families with household incomes of more than $88,000 a year set to lose small amounts of their current entitlements.

The cost of the measures over the next four years is $790 million, with ongoing annual costs of $240 million.

“Beneficiary families who pay income-related rents for social housing will pay slightly more in rent than they otherwise would,” say fact sheets accompanying the budget. “Their rent is set at 25 percent of their income, so a benefit increase of $25 a week means their rent will go up by $6.25 a week.”

Families on benefits who rent privately would expect to lose around $4 a week in Accommodation Supplement support.

“These flow-on effects mean beneficiary families will receive, on average, an in-the-hand income gain of just over $23 a week.”

Working families earning between $36,350 and $88,000 a year will get up to an additional $12.50 a week through Working for Families tax credits, while around 4,000 very low income families will receive an additional $24.50 a week. Around 50,000 families will receive the full $12.50 uplift, with the tax credit changes affecting some 200,000 families and 380,000 children.

For families earning more than $88,000 a year, reductions of around $3 a week in WFF payments can be expected as the increase in the weekly in-work tax credit from $60 to $72.50 is offset by an increase in the abatement rate for the credit from 21.5 cent to 22.5 cents in the dollar.

Some 110,000 families and 190,000 children will see increased income through the benefit system changes.

Offsetting these increases are an annual evaluation of eligibility for sole parent support, the same as the jobseeker (unemployment) benefit, while parents will be required to find part-time work of up to 20 hours a week (currently 15 hours a week) and to be available for work when their youngest child is three (currently five).

Childcare subsidies will rise from $4 to $5 an hour for up to 50 hours of childcare a week.

Meanwhile, the government has decided to write off as much as $1.7 billion of outstanding child support payments and penalty fines revenue, reasoning that forgiving past debt will encourage non-compliant parents to meet their obligations in the future.

Some $3.2 billion of child support debt is outstanding, of which $2.5 billion is accumulated penalties for late payment, and reflected an “overly punitive” system, said Revenue Minister Todd McClay in a statement.

“If maximum discretion is applied, this will result in $1.7 billion of penalties being forgiven over four years,” he said, of which $1.6 billion was already recorded in the government’s books as an impairment, meaning it is not expected to be recovered.

The fiscal impact over the next four years is only a reduction of $47.1 million in government revenue.

A new, two-stage penalty system will apply in future.


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