Should welfare recipients get tax deductions for making themselves eligible for welfare?

As the media is reporting, the High Court has today ruled in favour of Symone Anstis in her claim to deduct from her taxable income expenses incurred in maintaining eligibility for Youth Allowance.

We have discussed this issue before.

My view on the substantive policy issues remains unchanged. The legal principle established by this case, that welfare recipients can claim as deductions expenses incurred to maintain their eligibility for their welfare payment, should be overturned by statute.

Ms Anstis claimed computer depreciation, textbooks, a student administration fee, and supplies for children taught during her teaching rounds. What claims would be allowed to maintain continuing unemployability or disability?

The expense to government of this decision may not be massive. Under the low-income tax offset many if not most welfare recipients won’t pay tax anyway. But the principle of no tax deductions for welfare eligibility should be established in law.


12/11: The Australian is reporting that

The decision …. overturns a long-standing ATO policy that self-education expenses to obtain a first qualification are not tax deductible…

This is incorrect. The deductions are not for self-education as such; they are for maintaining YA eligibility. People who don’t get YA can’t claim deductions.

25 Responses to “Should welfare recipients get tax deductions for making themselves eligible for welfare?

  • 1
    conrad
    November 11th, 2010 11:01

    Andrew,

    I’m with Sinclair’s first comment on the old thread — I really can’t see what’s wrong with it — you’re simply prioritizing one form of welfare under another, and making a defining line between what counts as welfare (e.g., YA, the dole) and what doesn’t, even though this line is exceedingly slim. In fact, I think giving money back to people on YA, who are inevitably poor, is far better than giving it back to people getting all the middle-class breaks (e.g., the FTA, baby bonus, all the weird things you can get back on the tax form, like that one relating to Australian TV expenses). I think with your logic, to be fair, you would need to trade off education expenses with these benefits, unless you don’t consider them welfare.

    I think the real problem is that the rate at which tax kicks in is simply too low in Australia. If it was higher, this problem would largely go away by itself.

  • 2
    Andrew Norton
    November 11th, 2010 11:29

    Conrad – Tax doesn’t kick in until $16,000 under the low income tax offset, hence my doubts about how big an expense this will be in practice (an expense, but perhaps not a massive one).

    YA and unemployment are welfare payments are unlike disability or widow or other taxable payments in that they are likely to be received by people whose circumstances change significantly in a tax year. So these will be the main deduction categories – the people who receive them are not ‘inevitably poor’ but temporarily poor.

    While as you know I think FTB etc should be scaled back, the program is intended as a payment on top of other earnings, rather than as a substitute for them as in YA and the dole.

  • 3
    Baz (da Ordinary Aussie)
    November 11th, 2010 11:34

    I would say that 95% of welfare receipients have an IQ of less than 75. i.e. borderline remos. Thus, should all things that make them stupid be tax deductable???? Should we make TV’s tax deducatble so that the swarthes of remos watching Kath and Kim can get their weekly IQ debasement hits? Unbelievable.

    Mind you, there is a simple solution – just stop paying welfare!

    If we can’t do that, we need a return to the old days whereby collecting welfare was a source of shame. For example, I really like that Russel Crowe movie ‘Cinderella Man’ where ole Jimmy did everything he could to avoid collecting the dole, and when he did make some dollars later on, he went back and repaid all that he was given plus interest. That’s the mark of a decent bloke.
    So how about it Brucey babes (Chapman) – HECS-style loans for welfare bums?

  • 4
    Baz (da Ordinary Aussie)
    November 11th, 2010 11:35

    I should also that the Cinderella Man moment, when he paid back the welfare, was a real tear jerker moment!

  • 5
    Sinclair Davidson
    November 11th, 2010 11:43

    I’m pleased to see that the court is upholding long established principles of taxation.

  • 6
    conrad
    November 11th, 2010 13:27

    “While as you know I think FTB etc should be scaled back, the program is intended as a payment on top of other earnings, rather than as a substitute for them as in YA and the dole.”
    .
    What your’e really saying here is that if you earn a reasonable amount and get paid even more in benefits, you deserve a tax break more than someone that is likely to earn far less than you do — that’s really regressive. Surely if people earn a lot and then get more in benefits (which I guess is often given as a substitute for earnings lost in doing something deemed socially productive — not unlike why YA is given), then they deserve further tax help less than someone than doesn’t earn lot since they have to study 6 months of the year and then go through the expense and time of searching for jobs for the other 6 months.

  • 7
    Andrew Norton
    November 11th, 2010 14:16

    No, I am trying to articulate coherent principles for the tax treatment of government benefits, rather than making ad hoc personal judgments about the financial position and worthiness of various recipients.

    Fairness and simplicity of administration (no keeping of receipts or complex judgments about what is deductible or not) both strongly favour the same effective benefit rates applying to all eligible beneficiaries.

    There is a case for family payments being made universal and then taxed (Patricia Apps makes it for instance). It would reduce EMTRs. But it would make no sense for the costs of children to then be deductible; it would be a double payment and encourage unecessary spending as deductions could be applied across all income.

  • 8
    Baz (da Ordinary Aussie)
    November 11th, 2010 14:24

    Here, here, Andrew.
    Except I’m for coherent principles and am happy to go after societies leeches.
    I mean this thing is a joke. Claiming deductions to earn youth allowance? What’s next, claiming viagra so that they can claim baby bonus?
    When I was at uni, which wasn’t that long ago, I put myself through working 35 hour weeks at Woolies. Yep, almost full time work and full time study. I had to make sacrifices, so I didn’t do any of that on college club stuff, etc. Still had time for gym and Uni bar nights though.
    They were good days, but also tough days. But I tell you what, they gave me steel, the resolve, the steel to survice the shark pool that is corporate life.
    Yet here we have these leeches wanting to get paid to have a good time at uni. Dispicable.

  • 9
    Sinclair Davidson
    November 11th, 2010 14:44

    Baz – don’t blame the students. The problem is with the legislation. The government chose to declare YA to be taxable income. Therefore they chose that expenses incurred in the production of that income is deductable.

  • 10
    Robert Wiblin
    November 11th, 2010 17:44

    Winners: Students who earn over $16,000 and spend money on study accouterments will see the effective price of those goods decline by 15% at the expense of government.
    Losers: Everyone else who has to pay more tax to make up for this new tax expenditure.
    Incentives: Students earning over $16,000 have a reason to buy more study supplies. Students earning just under $16,000 face a higher cut-in for income tax so might work more (subs effect) while those well above $16,000 might work less (income effect). Tertiary study and youth allowance become slightly more attractive options to people who expect to earn earn $16,000 or more.

    Have I missed anything? Overall it seems a fairly pointless redistribution.

  • 11
    Sinclair Davidson
    November 11th, 2010 18:28

    Robert – you’re assuming that everyone else will ahve to pay more tax. Will that happen? Maybe. But when they close loopholes and the like do our taxes go down?

  • 12
    Robert Wiblin
    November 11th, 2010 19:00

    You’ll know better than me whether government spending is limited when one source of revenue dries up. Seems like they should just be able to increase taxes on everyone else to meet their target level of expenditure.

  • 13
    Andrew Norton
    November 12th, 2010 03:50

    I think Sinc is right that revenue drives expenditure as much as expenditure needs driving tax rates. The cost of taxing welfare recipients less will initially probably be paid by other potential beneficiaries of government largesse.

    But also I think that there is little doubt that the sum effect of all the dubious deductions and special deals is that the tax cuts (to rates, anyway) that we have received over many years in the last decade would have been larger without them.

  • 14
    Sinclair Davidson
    November 12th, 2010 04:27

    Rather than changing long established principles of taxation to cover up what is a stuff-up on the part of politicians, this is an opportunity to revisit the whole of the YA and to rejig (or abolish) the whole program – right now it is a dog-breakfast.

  • 15
    Andrew Carr
    November 12th, 2010 05:35

    Sinc – ^ Yep. Our education support programs needs work. Who gets help, and who is excluded seems to have little connection to students actual finances. The assumption parents can or will fund students needs to be dropped, as it simply punishes the more independent individuals.

    Conrad -“I think the real problem is that the rate at which tax kicks in is simply too low in Australia. If it was higher, this problem would largely go away by itself.”

    Agreed. Another alternative is we allow people to put textbooks and some education supplies on their HECS debt. They still pay, but at a time when they are able to do so, rather than while cash strapped students.

  • 16
    Son of the Ratpack
    November 12th, 2010 06:32

    How can a student afford the cost of a High Court challenge? Just wondering.

  • 17
    Andrew Norton
    November 12th, 2010 07:00

    “Another alternative is we allow people to put textbooks and some education supplies on their HECS debt.”

    I’m against this on transaction costs grounds. But in a less regulated system there would be nothing stopping unis from bundling more into the tuition fee, so that they gave out relevant textbooks and other educational supplies as part of the price of tuition.

    SofR – Her father, a former lawyer, represented her.

  • 18
    KB Keynes
    November 12th, 2010 08:30

    A lot of us that went to University claimed deductions based on working part-time jobs and got benefits that Baz has described.

    I would like to know more about how a girl is eligible for the YA when her father can assist her winning a court case because of his legal experience

  • 19
    Andrew Norton
    November 12th, 2010 09:06

    Homer – Claiming expenses linked to your job is not in question. But yes, it would be interesting to know how she got YA in the first place. Presumably she was ‘independent’ of her parents.

  • 20
    KB Keynes
    November 12th, 2010 10:08

    Sorry Andrew I wasn’t attempting to argue against that merely stating a lot of students can get to claim their expenses.

    Independent of her parents getting her degree but not when making a court case?

  • 21
    Son of the Ratpack
    November 12th, 2010 10:21

    Andrew, I see. I thought she might have got Dennis Denuto to argue it was all in the vibe.

  • 22
    Robert Wiblin
    November 12th, 2010 10:26

    I think I might have asked this before, but how much of a HECS debt does the government ever (expect) to receive? How much of the cost is subsidised if we factor the government’s borrowing cost (~6%?)?

  • 23
    Andrew Norton
    November 12th, 2010 11:38

    Rob – The latest estimate is that 23% of the total HELP debt (which includes all the loan schemes, not just HECS) will not be repaid, or about $4.7 billion.

    The latest DEEWR Annual Report put the borrowing cost at 5.2% for 2009-10, which works out as an interest cost of around $700 million for the year (after deducting CPI indexation).

  • 24
    Jeremy
    November 14th, 2010 06:10

    My God, what a bunch of muppets we have on the High Court.

  • 25
    jc
    November 15th, 2010 20:42

    Just a few points
    – those who recieve assistance to study are subsequently taxed at an effective rate of 60-70% (once loss of assistance and tax from income are combined) for every dollar they earn over $230 a fortnight. That’s higher than the highest tax rate if you missed it
    – the rate of assistance is far below the definition of a poverty line in this country, forcing people to seek work (to clear shall we say $7hour based on a generous $20hour pay rate and the above mentioned point)
    – costs of living and these magic textbooks are rising dramatically (as I’m sure all of you find)
    – these days tuiton costs are borne by the student (not the government as for some of you who studied in the past, and undoubtedly make up a fair portion of those now crying foul), $60,000 will be my personal HECS/HELP debt for tuition fees once finished
    – assisting those who are studying now in order to achieve skills with which to earn money which will be taxed and to utilise those skills to contribute to societies advancement can only make sense (unless we would prefer not to have a society of skilled workers in the future)
    Perhaps the bigger picture should be considered and not just the short term numbers