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Government intensifies poverty traps

6 May 2012: News from CPAG

Government intensifies poverty traps

Child Poverty Action Group says changes to the repayment of student loans announced this week will make a bad situation worse for many struggling young families.

The government has announced students will have to pay back their student loans at a faster rate of 12%, while the threshold for repayment remains frozen.

Spokesperson Susan St John says, “The threshold for repayment is already set far too low at an annual income of $19,080, and freezing it makes it bite more over time, increasingly affecting the low paid and those on benefits with loans. The repayment rate of 12% on income above that threshold is far too high and contrasts with Australia where there is proper indexation of thresholds and no loan repayment at all on incomes under $47,000.”

CPAG says welfare policies and student loan policies interact in absurd ways because the government has failed to look at the whole picture.

For example, under the latest welfare reforms many parents on benefits will be expected to work 15 hours.

The government wants them to work, but when they do work they retain very little after tax and other losses. When a sole parent earns over $100 their net benefit reduces sharply. For each extra dollar between $100 and $200 the net benefit is reduced by 30 cents and then by 70 cents for every dollar over $200. And many of those sole parents have student loans. In gross terms, the DPB is now very close to the threshold for repayment of a student loan.

Thus a sole parent with a student loan earning $200 gross a week, retains only $40 in the hand for the last $100 earned. If the sole parent works 15 hours at $15 an hour, earning $225 gross, the last $25 earned or nearly 2 hours of paid work gives her only a few cents in the hand.

When the rate of repayment increases to 12% then the last $25 earned will actually make the sole parent worse off. They will be effectively taxed more than they actually earn for the last 2 hours of work. Work cannot be the way out of poverty with such a vicious poverty trap.

CPAG says it is vital that the government consider the full impact of its policies on all those affected.


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