Unemployment, Family Benefits and the Tax Free Threshold

This page is from the 2016 election campaign. I am leaving it here as a record.

The current system of unemployment benefits has a number of problems:

The way family benefits are calculated also has problems.

I have a different proposal. With my proposal, based on family size, the income would be calculated that families need to live in reasonable conditions, in areas where house prices are not determined by land shortages (I am covering places like Sydney further down the page). This figure would be the family tax free threshold.

People who under the current system would be considered unemployed or underemployed, in other words unable to get enough work on the open market to reach their family tax-free threshold, work at minimum wage would be made available. I see this operating similarly to the current work-for-the-dole scheme. However as people are getting paid the minimum wage and not the dole, I am going to refer to the scheme I am proposing as the Non-Market Work Scheme.

If people do volunteer work in approved organisations that run emergency services, environmental programs, op shops, etc. those hours would count as having been worked in the Non-Market Work Scheme. Also, if people who have enough regular work also work in volunteer organisations (in which case the volunteer work is unpaid) and then lose their job, those hours would count retrospectively as having been worked under the Non-Market Work Scheme but only for three months into the non-market employment period.

Unemployed people who have high earning-partners would still be entitled to some work under the Non-Market Work Scheme, but maybe only for about a day a week.

I have crunched some numbers for a couple with one young child and one older child, to see if what I propose adds up. Why two children? Because two children seems like a prudent number of children to have for people on the minimum wage. Why a young and an old child? Because that's the least favourable assumption. The old child costs more and the young child makes it's hard for the primary carer to work. I have worked with the existing minimum wage and existing centrelink benefit rates, as coming up with and justifying different numbers is beyond my capabilities. Below are some numbers. Benefits are per week and include various supplements.

Minimum hourly wage $17.29 Fairwork link
Old age pension, couple $658.70 Human Services link
Family benefit, child aged 0-12 (including yearly supplement) $90.58 + $13.92 = $104.50 Human Services link
Family benefit, child aged 13-19 (including yearly supplement) $117.67 + $13.92 = $131.59
Rent Assistance, couple with one or two children $76.51 Human Services link

So the total amount that the family in the example needs to earn is $658.70 + $104.50 + $131.59 + $76.51 = $971.30. That amounts to about 56 hours per week on the minimum wage. It's not a mistake that I am using the old age pension for my calculation and not unemployment benefits (which are $476.40 pw for a couple and called Newstart allowance). The Newstart allowance is for people who are not working, except when they are on work for the dole and even then there is a small supplement. But I am assuming that people who are actually working should be able to earn as much as people who are not working are getting from government benefits. 56 hours per week is achievable with one parent working full-time and the other parent working part-time during school hours when the youngest child goes to school. If we assume that full-time work is 38 hours, that preschool is for three days a week and that on a preschool or school day, the primary carer is going to be able to work four hours, we are short 18 hours until the youngest child goes to preschool and short 6 hours while the youngest child is in preschool. I am assuming that holiday care for school children and preschoolers can be provided by people on the work scheme at no cost to the parents. I propose that the shortfall for cases where the youngest child is not yet in school is paid as a non-means-tested benefit.

What if people have so many children that they can't possibly work enough hours at the minimum wage to maintain them? There are different possibilities.

Let's cover the case where a family with two older children who are already in the Non-Market Work Scheme have an additional child.

Rent Assistance, couple with three children $86.45 Human Services link

The additional cost of the third child compared with the previous example is $131.59 + ($86.45 - $76.51) = $141.53. There are a number of ways to deal with this. One of them is for the government to lend parents the money. Once all children go to school, the primary carer can then be allocated extra hours to work off the debt.

What if the couple proceeds to have a fourth child? One unplanned child can easily happen. Having two unplanned children (other than twins) that you can't afford is irresponsible. The government would not hand over any extra money without parents having to work for it. However, the income calculation for a couple with three children with the parents on the pension rate actually produces a higher number than the income calculation for a couple with four children with the parents on the Newstart rate.

What about families that have a lot of children right now and rely on welfare? In the transition years all we can realistically do is require from the parents in those families a reasonable amount of work and to simply hand over the rest of the money. However, it would be reasonable to continue to base the income calculation for those families on the Newstart rate which is $476.40 per couple.

We have to allow for cases where families with parents in well-paying jobs have many children, their circumstances change and they become reliant on the Non-Market Work Scheme. Of course, the option where the government lends the people the money and they work it off later would also be there. But if the people were previously well-paid, they would have more accumulated superannuation than people who were on the minimum wage all along. So it would be an option to withdraw the additional funds from superannuation.

The centerlink figures on which I based my calculations of what people need to live on are probably inadequate for high-cost areas such as Sydney. But with the Non-Market Work Scheme, people would not be required to live in high cost areas to qualify. That may well impact the availability of low-cost labour in high-cost areas. But my view is that employers requiring a lot of low-cost labour should set up where people on low incomes can actually afford to live. That makes more economic sense than using public housing and other schemes to effectively subsidise a low-cost workforce for employers in high-cost areas.

Obviously it costs money to run the work scheme proposed here. On the other hand, it also costs money to case-manage unemployed people which with my scheme would no longer be necessary.