Youth Allowance reform

Though the Bradley report fails on the key funding issue, not all of it is bad.

Earlier in the year, we debated the ‘independence’ test for Youth Allowance. I thought it should be tightened to exclude those satisfying a soft work test, but really still living at home dependent on their affluent parents.

The report provides new information on this issue. It shows (p.52) that ‘independent at home’ has been the only growing class of YA recipients over the last few years, though there was a small lift in other categories over 2006-07. Work Bruce Chapman carried out for the review using HILDA data found that 36% of Youth Allowance recipients were in households earning more than $100,000 a year. By contrast, only 32% of recipients were in households earning less than $50,000 a year. It’s quite a small sample (136 students), but supports other evidence that YA has turned into middle-class welfare rather than a program that assists genuinely needy people to attend university.

Sensibly, the Bradley report recommends abolishing these ‘independence’ categories, but lowering the age of automatic independence from 25 to 22. Money would be diverted to increasing how much parents can earn from $31,400 to $42,500, increasing the amount students can earn, and increasing benefits by an unspecified amount. Existing rorters of YA can, however, rest easy – current recipients will be ‘grandfathered’ out.

29 Responses to “Youth Allowance reform

  • 1
    conrad
    December 18th, 2008 17:22

    I think my opinion hasn’t changed. They should just turn into a loan, and allow anyone that wants to claim it to claim it as long as they are over 18. All these weird rules for people who are legally adults, can drink, get paid to shoot people in foreign countries, go on the dole, and so on is just government social engineering, and in this case, it is engineering against people getting educated.

  • 2
    derrida derider
    December 18th, 2008 17:42

    I agree with conrad that we need to acknowledge that we’re talking about adults here, and forcing them to be dependent on their parents is not really good policy. Certainly the restructure and liberalisation of the YA parental income test is a couple of decades overdue – as I’ve said in the past, it is a spectacularly poorly designed means tests, so it is not surprising people have found artificial ways around its inadequacies (simply labelling all such people “rorters”, BTW, is evading the issues).

    The big disappointment for me is Bradley’s failure to look hard at the effects of the very low payment rate of YA. This also causes all sorts of perverse behaviour and really duds those who cannot call on parents for support.

  • 3
    Andrew Norton
    December 19th, 2008 06:42

    Conrad is right in the sense that there is no long-term justification for welfare for uni students. All they have is a cash flow problem, and loans are the solution to cash flow issues.

    However given the political reality that these loans, like the HELP schemes, would be soft loans I’d want to see the comparative cost of a general loan scheme compared to targeted welfare.

  • 4
    conrad
    December 19th, 2008 09:23

    “I’d want to see the comparative cost of a general loan scheme compared to targeted welfare”
    .
    I imagine that it wouldn’t be too hard to calculate simplistically, ignoring the cost differentials between administering them both and other potential losses (or gains) on the loans. If 50% of people take out loans and have a 10% default rate, then that would cost the equivalent of simply giving 5% of people the same amount on welfare. I note that in the US, even these soft loans come with conditions — so, unlike housing, you still have to pay them back, even after bankruptcy, so lower levels of defaults than things like HECS are probably not too unrealistic.
    .
    So, assuming you can target people (which is hard, as witnessed by the current mess), then I guess the question is whether more than 5% of people need targeted welfare to study. My guess is that the answer to this is probably yes, especially if the job market for part-time work collapses, which would mean studying part-time and working part-time would become far less viable. I imagine this latter scenario is in fact a bonus of not using straight-out welfare, since if you have to pay it back, I assume there would less incentive for people studying part-time and working part-time (and not collecting anything) to change to studying full-time whilst collecting welfare.

  • 5
    Andrew Norton
    December 19th, 2008 09:50

    Potential losses on loans – both in write-offs and interest rate subsidies – are the big issue. If we add them to existing debt, on average it will be 7+ years before repayments start. Even conservatively assuming an interest subsidy of 3% a year the costs will mount up. On the other hand, we are spending about $1 billion a year on YA.

  • 6
    Mitch
    December 19th, 2008 13:38

    God knows why someone living at home with parents who earn that much needs $118/week from the government. By the same reasoning, they don’t really need to work (or work as much) as those with less affluent parents. Which explains why they’re such a significant proportion of total recipients.
    My parents would probably be described as lower middle class if over $100,000 is considered middle class. As such, I do have to work quite a bit to have any sort of social life, health insurance, savings, pay board, and so on. And since this doesn’t really seem to impact on my study (I’ve actually gotten better results since ending my stint of unemployment: I suspect having a job has forced me to improve my time management), I don’t see any good reason not to. But that also means the YA I had when I was unemployed was very quickly brought to nothing the majority of the year. So I got rid of it.

  • 7
    charles
    December 20th, 2008 22:01

    Don’t see the problem, if education is a investment that returns, then the government will get a percentage of the return. Tax is like that. The return will be independent of the parents wealth so what exactly is the great problem. Why add a great bureaucracy.

    Just make the bloody investment and get on with it.

  • 8
    Andrew Norton
    December 21st, 2008 06:28

    Youth Allowance is not an investment; it is to finance immediate consumption. For most students, this immediate consumption can be (and is) financed by parents and the student working. The argument here is that it may be cheaper to give direct grants to the relatively small number of people who may struggle to finance their immediate consumption from the usual sources than to set up a loan scheme that everyone could use.

  • 9
    charles
    December 21st, 2008 07:31

    Andrew

    People have to live. If you want them educated you have to provide the schools and you have to support them. I don’t think starving un-housed students is a positive policy aim.

    If the investment is worthwhile (as you have pointed out it is) make it.

    You could argue the state wants people educated so it can collect the additional tax, but wants to do it at the lowest cost to maximize the return to the state and minimize the return to the person; fair enough; be blunt stop trying to dress it up.

  • 10
    Andrew Norton
    December 21st, 2008 08:18

    I’m not accused of dressing things up every often. Too blunt, people say. What I am saying is that on the whole there is no need for the state to finance ordinary consumption of students -it doesn’t happen now in most cases, and I am not convinced that there are genuine unmet needs as a result. Therefore extending a soft loan scheme like HELP to income support would result in more regressive income redistribution to university students.

  • 11
    Sinclair Davidson
    December 21st, 2008 08:38

    I don’t think starving un-housed students is a positive policy aim.

    Yes, Andrew – stop hamming it up. There are highly intelligent, able bodied people, with plenty of spare time out there in need of a hand-out.

  • 12
    conrad
    December 21st, 2008 10:08

    Call me a bastard if you will, but I don’t even see why it needs to be especially soft. In the US, there are loan schemes where the main soft part about them is that they will give them to you without collateral, but as payback, you can’t get out of them by going bankrupt.

  • 13
    derrida derider
    December 22nd, 2008 09:58

    Yep, conrad, and look at the lack of intergenerational mobility and the huge poverty rates in the US that result from that sort of policy. And equity aside, think of the loss to GDP from that huge waste of talent. Of course, there is alway the option for bright but poor kids of joining the military – if you survive they’ll pay for your education. Over a third of US military recruits say that was their main motivation for joining.

    charles is dead right. On current rates of return and tax rates student grants pay for themselves as far as the government goes, so we ought to focus closely on ensuring that the barriers to success in higher education are academic, not financial. I don’t think that’s currently so, and I don’t think Bradley will make it so.

  • 14
    Andrew Norton
    December 22nd, 2008 10:09

    Though even though the US has no national student income support system and a much inferior system of student loans, it was well ahead of us in creating a mass higher education system. There as here, the main issue remains low school achievement. Their public schools make ours look good.

  • 15
    conrad
    December 22nd, 2008 11:21

    “and look at the lack of intergenerational mobility and the huge poverty rates in the US”

    And what proportion of this do you think university loans schemes for living (which essentially anyone can get) are responsible for? Might bet is a negative amount — since if there were no loans schemes and you were poor, you would have even less chance of going to university. In addition, what we are talking about here in Australia is a loans scheme so a small proportion of people that for some reason or other can’t study part-time and don’t have the money to be full-time can have their living expenses paid. I really don’t see that is unreasonable — if you just want to dish free money out for living, it is going to cost you billions more (not even considering the fact that people would drop their part time jobs).

    In any case, I’m with Andrew in that the big problem in the US starts in the school system (even moreso than Australia), not the university system. If you want to worry about equity and universities in Australia, you are best off worrying about why the primary and high school system, which no doubt excludes oodles more people from going to uni (and prospering) than possible loans for living that someone might need to pay back in the future.

  • 16
    conrad
    December 22nd, 2008 11:38

    Actually DD,

    just to show that I’m not someone that whinges about all possible taxes and expenses, here’s my suggestion for spending some money on education, of which I have no direct benefit but have some experience with seeing the negative outcomes of: Let’s pay all the primary school teachers in Australia a lot more. Since there is no great free market for primary schools that can solve this problem (and I know of no great suggestions) then this is going to have to come out of tax revenue (yours, mine). However, IMHO, it’s one of the most undervalued jobs in Australia, and the long term benefit would be huge if all our primary school teachers were intelligent, were good at picking up early learning problems and so on — This benefit would be far more than spending huge amounts picking at the absolute edges in terms of getting people into university.

  • 17
    charles
    December 22nd, 2008 22:47

    Andrew if education gives a net return on investment we already have a method of undoing the personal gain, it’s called the progressive taxation system.

    If the return is positive why argue if there is a need, why invest in a bureaucracy to limit the investment, let the state make the investment and collect the reward, is it any skin off your nose.

    As an aside all investment is about spending today ( consumption) to collect a future reward. Be it a teachers salary spent on a banana or the student spending it on a banana, it’s all consumption.

  • 18
    charles
    December 22nd, 2008 22:58

    The interesting point is about half way in.

    “Colleges trumpet the statistic that, over their lifetimes, college graduates earn more than nongraduates, but that’s terribly misleading. You could lock the collegebound in a closet for four years, and they’d still go on to earn more than the pool of non-collegebound — they’re brighter, more motivated, and have better family connections.”

  • 19
    Andrew Norton
    December 23rd, 2008 05:58

    Point 18 is true and some studies of return to education discount by some semi-arbitrary amount to try to account for this. But many courses do provide specific skills and knowledge that are rewarded in the labour market.

    On point 17, I am going to write a paper prompted by Bradley that deals with all the arguments against charging fees.

  • 20
    charles
    December 24th, 2008 07:21

    When writing your opinion could you address the question, should the state make long term investments in human capital? The social justice angle really has been done to death.

  • 21
    charles
    December 24th, 2008 07:34

    And had an interesting conversation with a girl younger than my daughter wrapping gifts in a jewelery shop last night.

    Girl: Got a score of 85.
    Congratulation, What are you going to do.
    Girl: Architecture
    Going to do it at Melbourne Uni?
    Girl: No this is the first year of the Melb Uni model they don’t offer it.
    Other girl: I think they offer it as a post graduate or something.
    Girl: Yes they might, going to do it at Deakin.

    It is going to be interesting to see how it works out for Melbourne University if the students arn’t even consider the combinations.

  • 22
    Andrew Norton
    December 24th, 2008 07:41

    “The social justice angle really has been done to death.”

    I agree, but while policy keeps being made or proposed on this basis I will keep writing about it.

    If an investment generates a positive private return sufficient that tax on it will cover the cost of education, then there is no need for state investment. Cut out the middle man.

    This argument only works if you can show that private returns are low but social returns high.

  • 23
    Andrew Norton
    December 24th, 2008 08:05

    Charles – The cut-off for the architecture feeder course was 85.15 last year, so this girl would be a borderline contender anyway. The U of M has alway said that this is not for everyone, it is intended to be part of a more diverse system.

    The main concern is not filling the places, but what the 95+ applicants are doing. Last year there was no change, but fewer u/g courses are on offer for 2009. We’ll see early next year what effect that will have.

  • 24
    charles
    December 26th, 2008 07:36

    Andrew not all investors take the long term view. It’s the reason why the state has to plant forests until the returns become obvious, install telephone systems until the business works etc.

    Ports, roads, airports, schools, hospitals, your argument is very hollow.

  • 25
    charles
    December 26th, 2008 07:41

    Given the complete mess the financial markets have got themselves into, the trillions of dollars the states are spending to try and sort it out, and the continual nationalization of our banks, I’m impressed you still have blind faith in markets.

  • 26
    Andrew Norton
    December 26th, 2008 07:52

    Charles – I am not entirely clear what installing telephone systems has to do with a public university’s course offerings. And I thought it was the politicians who were also being accused of looking no further than the next morning’s headlines?

  • 27
    charles
    December 28th, 2008 09:04

    I know, I am trying to think about the forests.

    The Government had to make the initial Investment to build the required infrastructure (Universities and telephone systems). In Australia I think it would be hard to argue that either would have been created by free market forces ( as is the case for most of our infrastructure) . When it comes to politics it goes deeper, capitalism depend on property rights enforced by the state. Any political philosophy that tries to write the state out of the equation is doomed to self contradictions. A problem I see with extreme individualistic ideas.

    The question is, why does the state make these investments, are they made for social justice or for economic reasons. If you believe people work for self interest ( and I do), then a government bureaucracy will invest to improve it’s lot, that is it will invest to increase the tax collection. Tax aligns all our interests ( if we want more money) with the interest of the bureaucracy ( if it wants more money and power). Direct control of universities is power, but does that power come at a risk to revenue?

    I think economic activity and tax revenue is improved by education, one only has to look at the employment prospects and salaries offered to engineers and tradesman ( tertiary education is more than just universities ). The question is how do you arrange the system to maximize future state revenue and gives all a solid economic outcome. I would suggest creating a system that was self funding ( HEX) would not be a good place to start, as the output no longer needs to contribute to the economy.

    Social Justice pfff, tax revenue is increased by having every one working to the best of there ability. Bradley may or may not have come to the right conclusion, but in my view to argue the case using a social justice framework is to muddle the issue.

  • 28
    Maryanne
    December 28th, 2008 15:46

    My comments relate to the Independent Youth Allowance: This allowance has made it possible for many students who live on rural and often remote properties to attend university. What happens is that after Y 12 ( or equivalent in other states) students take one year off and work on the home property. For this period of time, about 15 months their gross wages exceed the cut off for Independent Youth allowance and they are therefore able to apply for same 18 months after finishing school. I know that this allowance is critical to students. Without it they cannot afford to live away from home.It is a fact that many/ the great majority of people from farming families cannot afford the $17000.00per year needed to pay for accommodation, transport, books etc. These student’s needs are different entirely from someone who can live at home. Without Independent Youth allowance the number of students form remote/rural areas will decline. And please be aware that these same families often have other children at boarding school.

  • 29
    Andrew Norton
    December 28th, 2008 16:13

    Maryanne – I think it is pretty clear that the independent at home classification should be abolished. I have some sympathy for the independent away from home classification, which you are referring to here. The Bradley report mentions the situation of region and remote students, but doesn’t deal with it satisfactorily.