Reforming Youth Allowance

This weekend the Fairfax broadsheets have been pushing student welfare issues. The SMH focuses on the issue of accommodation:

HUNDREDS of university students are living in conditions so poor they are technically homeless, although they remain hidden in statistics on youth homelessness.

Though the reason they are not appearing in the homelessness statistics is that ‘technically’ there are not homeless at all, but instead lack a permanent home. It doesn’t make for quite as good a media beat-up, but a problem nonetheless.

The Age looks at some possible solutions to the issue of student income, including paying students the same as the unemployed, and HECS-like loan.

Having spent some time this week examining these issues, I agree entirely that the student income support system is a shambles. In fact, it is a far bigger mess than the media is reporting. There are at least five different programs supporting students: Youth Allowance, Austudy, Abstudy, FTB A and Commonwealth scholarships.

Youth Allowance and FTB A both provide welfare for families with full-time students aged 24 or under, with the student getting the entitlement under YA and the parents under FTB A. The same household cannot claim both. Though eligibility for YA stops at much lower household income than FTB A, for families earning $50-60,000 a year the student would be better off forfeiting his or her YA, and getting FTB A cash from his/her parents instead. This would also let them take advantage of the FTB A child earning threshold being much more generous than the YA personal income test, where effective marginal tax rates of at least 50% start at $118 a week.

As we have discussed before, many students by-pass the YA parental income test by qualifiying as ‘independent’, which can be done fairly easily. According to figures published in the DEST annual report, in 2006 68% of YA recipients were classed as ‘independent’.

This results in very anomalous outcomes. While students living with their genuinely poor parents start losing benefits when their folks earn about $700 a week, ‘independent’ students living at home get full YA benefits no matter how much their parents earn. I have census data showing very suspicious increases in university attendance rate between ages 18 and 19 in higher-income households.

Given varying family income and expense sharing there is no easy way to deal with this problem. However, I would suggest that in this case FTB A student support and independent living-at-home YA both be abolished, and replaced with a parental income means-tested YA that better supports young people in genuinely low income households.

Then there is the issue of the adequacy of benefits. I don’t agree with the suggestion in The Age that students be paid the equivalent of unemployment benefits. For a single person age 21 or unemployment benefits are worth about $40 a week more than YA. Most students are perfectly capable of working, and the benefits system should assume that they do. There is no convincing evidence that current average student working hours are causing too many academic problems.

However, $118 a week maximum earnings before losing benefits, a figure that is the same as it was in the early 1990s, is too low. That plus full YA and rent assistance still leaves students $35 a week short of the relevant Henderson poverty line. Yes, I know there are long debates about the meaning of ‘poverty’. But however we define it, someone receiving $378 a week isn’t going to be living it up.

Improving this system could be financed at least in part by abolishing the Commonwealth scholarships. While most of these are reasonably well targeted on poor people, they are not an entitlement. This means that receiving one is a lucky bonus, rather than an assumption young people can build in when they are deciding whether or not to go to university. If improving low SES university attendance is a goal, entitlement programs are more effective than bonus systems.

The idea of a loan is appealing, in principle. It recognises that most uni students don’t come from poor families, and even fewer of them will end up in poor families. In a lifetime sense, they don’t need welfare. Their problem is a temporary cash flow one.

But it’s not clear that an income support loan should be tacked on to the existing loan scheme. This could create another middle-class rort. The problem is that students aren’t charged real rates of interest on their debt. The temptation would be to borrow money they don’t need and invest it at a real rate of interest. If added to existing student tuition debt, it could easily be a decade or more before they repay it, by which time they could have made a considerable profit at taxpayer expense. So while I think cash flow smooothing is a good idea for students, it should be done on a commercial basis.

37 thoughts on “Reforming Youth Allowance

  1. However, $118 a week maximum earnings before losing benefits, a figure that is the same as it was in the early 1990s, is too low.

    By that do you mean that the figure hasn’t been indexed at all since the 1990s, or it’s just stayed in the same relative position? If it’s the former, that’s the worst form of bracket creep I’ve seen in a long time.

    From my experience, most students see Independent YA as something that they’ve ‘earned’, through a year of hard slog in various forms of menial work. It’s for this reason that people get so cranky when the punitive cutout rates kick in.
    By signing up for income support, students are effectively bonded to earnings below the poverty line. This is why it might even be fairer to lower the actual amount paid in income support, but drastically ease the cutout rates – perhaps even treat YA as a guaranteed minimum stipend.

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  2. My understanding is that most Australian university students live at home with their parents – uni eduction is basically free – so why should poverty be a problem? Why don’t these students get part-time jobs? The academic year last just over six months, what they are they doing the other half of the year? To the extent that student poverty is a problem it must be a very small problem.

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  3. I have a different opinion on this completely — once you are 18 you should be considered independent and if your parents are nice enough to give you their money, then lucky you (and lucky you if they give you their money when you are 30 too — something not uncommon in universities these days with the increasing number of people coming back to study). If this means the system is underfunded, then they should change benefits over to a loan instead, which is consistent with the idea that once you are 18 you are an adult and can make your own hard decisions.

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  4. Sinclair,
    Why don’t these students get part-time jobs?
    They do. But as discussed above, the punitive cutout rates mean that these students don’t get to keep the earnings from said part-time jobs.
    .
    While I recognise your point that many students live at home (things are a bit different here in Canberra), I think the point of the income support debate is how it affects those who don’t. And when your income is capped at around $300/wk, and most rents are over $150/wk, it does tend to get a bit tight.

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  5. ‘My understanding is that most Australian university students live at home with their parents – uni eduction is basically free – so why should poverty be a problem?’

    I think that’s the most compact expression of a normative social perspective that I’ve ever read.

    I guess if the parents are doing it tough they should just go and get some part-time jobs too. Hey, we just solved the problem of poverty!

    We used to read the same kinds of arguments about WorkChoices; to the extent that workers were exploited that must also have been a ‘very small problem’, because if they were rational economic actors they would have just gone and gotten other jobs. In fact if we engage in enough of this kind of deductive analysis and ignore reality, it’s clear there’s no need for welfare at all … but then I guess market fundies reached that conclusion a long time ago.

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  6. This may come as a shock to you Ken – getting a job has always been the solution to poverty. The problem tends to be impediments to getting jobs. I cannot imagine why young people who tend to be pretty smart, and who have lots of time on their hands should be unable to get a job.

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  7. Sinclair

    The real problem with assuming that kids living at home are not in poverty is the parental income test for YA which, as Andrew points out, is pretty punitive. This situation has got to the state where practically the only kids who qualify for maximum rate parentally-income-tested YA are kids whose parents are on welfare. Most low to middle income working households are “better off” getting FTBA than YA. But that’s not saying much, since the most FTBA you can get for a 16 year old is $47 a fortnight, compared with $190 odd for a 15 year old.

    There is a problem with the rates of YA, though more with the at-home rates than the away-from-home rates. The main problem is that these lower income households can qualify for significantly less money for their 16 year olds than they used to get for the same kids when they were 15. This can’t be justified on needs grounds (I’m fairly confident that 16 year olds don’t cost less to keep than 15 year olds) and I’m a bit wary of the principle of setting income support rates on the basis that everyone who receives them will be able to top them up through paid work. (Works fine now, but what about during the recession that might be just around the corner.)

    I have less sympathy with complaints about the lack of generosity of the personal income test. If you think that an income free area of $118 a week is mean, spare a thought for the other Youth Allowees (including part-time students) who get the same rate of payment as a full-time student but have an income free area of $31 a week.

    That said, my elder daughter managed quite well living out of home on a combination of part-time work and Youth Allowance (or, for most of her degree, the equivalent of Youth Allowance from her well-to-do parents).

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  8. bg – The other ‘Youth Allowees’ are unemployed, and there I think there is a public policy case for making their lives difficult to encourage them to get a job. For full-time students they are already engaged in constructive activity (in theory, anyway) and so there is no need for this stick. If have no objection to them living better than the unemployed, provided it is from their own earnings.

    Per student payment is $65 for 18-24 year olds under FTB A. I don’t know why it is only $48 for 16-17 year olds, after very generous payments for those 15 and under.

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  9. But Sinclair you don’t have to rely on your understanding or your imagination or your powers of deduction. The issues have actually been the subject of extensive research. Do you for example have any empirical basis for your ‘understanding’ that ‘most Australian university students live at home with their parents’? It’s certainly a wildly inaccurate description of the students where I teach.

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  10. “I have no objection to them living better than the unemployed, provided it is from their own earnings.”

    That’s OK, Andrew, but let’s not forget that we are talking, in the case of the unemployed here, about young people who are working (so not strictly-speaking unemployed), who may also, as I pointed out, be studying part-time. For mine, I think the current income test disparity in favour of the full-time students is quite big enough.

    If I had to choose, as you usually do when it comes to making policy decisions, I would much rather put any extra expenditure into sorting out (1) the parental income test and (2) the at-home rates of payment and (3) the whole interface between the YA and FTB systems. Making the student income test more generous would be a long way down my list.

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  11. I did like the following quote from the Age:

    “A Monash University survey released this week found that more than half of its students lived at home for financial reasons.”

    Well, heaven forbid – I guess that at least proves Sinclair is right about some people.

    As I said, I’m not that concerned about students who really do come from comfortable middle-class families. They have always done fine, regardless of student income support arrangements. I am more concerned about the kids from struggling families who miss out on financial support that they probably do need, particularly the 16-17 year olds who as a consequence might drop out of school or spend so much time working that they jeopardise the Y12 results that are their ticket to the middle class.

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  12. bg – Part time students are not eligible for YA on the basis of their studies, though perhaps they could get it on the basis of their unemployment while studying. But the assumption has to be that part-time students have time to work full-time, and therefore should not receive student income support.

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  13. Andrew – the two groups of YA recipients are YA (F/T student) and YA (other), which includes anyone who might be studying part-time. Under the activity test for YA, in theory at least you should be able to study part-time and look for part-time work (or indeed work part-time). In practice, I suspect that most P/T students are indeed expected to be available for full-time work.

    When assuming that full-time work pay sufficient for someone to live comfortably, it is also important to remember that many young people would not, in fact, earn very high incomes if working full-time since they would only earn age-related rates of pay.

    I must admit that I tend to think of YA for students as just another income support payment, which is why I would place more priority than some people on issues like adequacy, targeting to relative need (that’s what the income test is for) and indeed equity of treatment between different categories of recipient. I accept that other people regard it as just another subsidy to education, which is where calls to convert it to a loan or supplement it with a loan come from.

    On that last issue, though, I would point out that we did indeed have such an arrangement (still do, for some people) – it was called the Student Financial Supplement Scheme. The previous government abandoned it, primarily because of the extremely high levels of bad debt associated with it.

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  14. bg – Labor did promise to bring back the supplement loan scheme, though I could not find any evidence that they have done so. Only welfare beneficiaries were eligible, so perhaps a high credit risk group. A more general scheme as an alternative to working long hours might have better long-term repayment rates, but for the reasons stated above do not support a non-commercial scheme.

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  15. From 4102.0 – Australian Social Trends, 1994, ‘Living Arrangements: Living with parents’, (can’t find any more recent stats):

    ‘43% of full-time students aged 20-34 years lived with their parents in 1991 compared to 25% of part-time students and 17% of those not studying. Regardless of age, full-time students were more likely to live with their parents than other people. About half of young students (aged 20-24 years) lived with their parents compared to just over one-third of young people who were not studying.’

    It takes an extremely liberal approach to linguistics to interpret this as ‘most Australian university students live at home with their parents’.

    From 4102.0 – Australian Social Trends, 2001 ‘Living Arrangements: Future living arrangements’:

    ‘Living as a child in a family (with one or both parents) is projected to increase for 18-29 year olds as a whole, from 34% or about 1.1 million in 1996 to 36% or about 1.3 million in 2021.’

    I know it’s a startling idea but Monash might not actually be representative of the other 37 Australian universities or however many we’re up to now.

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  16. Andrew – I’m certainly not advocating the return of the SFSS. In my opinion, it was one of the worst designed social policies EVER, for reasons far too numerous to go into here.

    I’m not really in favour of giving anyone a loan rather than proper income support, though I agree that university students are perhaps one of the groups most likely to be able to pay back any such loan.

    So while I am perfectly happy with construing university students as a group of people worthy of supporting for a time through income support, I just don’t really go for the argument that they are somehow special and deserve more generous treatment than others in similar need. But both they and young unemployed probably deserve a better deal (at least at the lower end of the SES spectrum) than they get at the present.

    Ken – I think you are splitting hairs a bit with Sinclair. The data you quote say that about half of students aged 20-24 are living with their parents and the proportion of students under 20 in such a situation would be much higher. So Sinclair was quite correct to say that most uni students live at home. I just disagree that that fact proves anything about whether or not they are in poverty.

    You know in my day, either students lived with their parents or they lived out of home in a fair degree of poverty. I don’t really see that anything has changed all that much, except that a larger proportion probably has access to better living conditions at home than used to be the case.

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  17. BG – Ken feels deprived because he’s a level A academic so putting one past me makes him feel better. You know, the old working class idea that one elevates ones self by pulling down ones betters.

    Ken – why don’t you try the 2006 census data it is so much more current than, say, the 1994 data. It doesn’t tell the whole story but when

    In 2006, 59% of all 15–24 year olds lived with their parents. While the Census count of the population aged 15–34 years remained about the same between the 1996 and 2006 censuses, the number of young people living with their parents grew by 8%. The number of dependent students increased by 14%, while the number of non-dependent children increased by 3%.

    I think I’m on fairly safe grounds.

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  18. You flatter yourself Sinclair, I try to correct factual errors regardless of the author. Since you seem to think it’s relevant, I was never a member of the working class by anyone’s definition and I had a long career in the private sector – you know, where real men work according to conservatives – long before I started working as a casual academic. But your analysis of yourself as my better is revealing.

    According to the AVCC, 42% of students in 2003 were aged 25 or more, so why figures about 15-24 year olds (about a quarter of whom are still at school) are any guide to the characteristics of ‘most [university] students’ is beyond me.

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  19. Not that I think it matters much but even on the figures you guys are arguing about, most students are still under 25 (just correcting a factual error…)

    It’s easy to see, 58 – (.25 * 58) = 43.5% vs. the 42% 25 or over.

    On a more serious note, it would be good to see studies of the extent that this is really affecting students, vs. just being something to complain about. I’ll admit that when I went to uni, I had to live in poverty (a bit like a cross between the Young Ones and Dogs in Space) but it was also one of the best times of my life.

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  20. I try to correct factual errors

    Puhleeze – you qiuote 1994 data! Run along Level A and intimidate some 18 year olds. The adults are trying to have an intelligent discussion about alleged student poverty.

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  21. Not at all Ken, You chose to be snarky and got your head kicked in. Andrew’s place is normally a polite forum but I see no reason to be polite to snarks and trolls.

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  22. Good god, are there really circles where boasting about one’s superior award classification is regarded as head-kicking? It must be like living in a Kinglsey Amis novel.

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  23. “By signing up for income support, students are effectively bonded to earnings below the poverty line. This is why it might even be fairer to lower the actual amount paid in income support, but drastically ease the cutout rates”

    Seconded.

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  24. “‘43% of full-time students aged 20-34 years lived with their parents in 1991 compared to 25% of part-time students and 17% of those not studying. Regardless of age, full-time students were more likely to live with their parents than other people. About half of young students (aged 20-24 years) lived with their parents compared to just over one-third of young people who were not studying.’

    It takes an extremely liberal approach to linguistics to interpret this as ‘most Australian university students live at home with their parents’.”

    I think you’d have a much better point with the same ratio of, for example, 17-24yo students living out of home, rather than a sample group where about a third of the age range represented is over 30.

    According to Centrelink,

    “You may be eligible for Youth Allowance if you are:

    16–20 years old and
    studying or undertaking an Australian Apprenticeship full-time, or
    looking for full time work or undertaking a combination of approved activities, or have temporary exemption from the participation and activity test requirements.

    21–24 years old and studying or undertaking an Australian Apprenticeship full-time.
    If you turn 25 you can keep getting Youth Allowance until you finish your course or Apprenticeship. ”
    http://www.centrelink.gov.au/internet/internet.nsf/ea3b9a1335df87bcca2569890008040e/5b1906afea599318ca25747700808f46!OpenDocument
    So I somehow doubt too many individuals over 25 really have anything to do with this discussion.

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  25. Andrew, not sure where you get the figures for the point at which it’s better for families to be in the FTB system than the YA system. The crossover point is much lower than the $50-60K you mention. For a single income couple with one child on YA, the changeover point is about $41K, for a 2 income couple it’s around $43K, and for a single parent with 1 YA child, it’s about $32K.

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  26. Thanks Spog – I knew you would have the right numbers for that. I think that proves the point that I made somewhere in one of these discussions that practically the only kids on ‘dependent’ YA these days are the kids of income support recipients. And that’s part of the explanation for why independent YA recipients are becoming a larger proportion of the YA population as a whole – presumably increasing numbers are ending up in the FTB system.

    Now all we have to do is get a decent FTBA rate for those aged 16 plus – I’d be happy to start with giving them the same as 13-15 year olds.

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  27. Spog – I will double check my calculations, which were based on the family having one other dependent child. So far as I can see, it is household income that counts, not whether the parents are a one or two income couple.

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  28. The difference between your calculations and Spog’s (which are based on a one-child rather than two-child family) are an indication of just how complicated this whole area is. In reality, there will be a myriad of different break-even points, depending on how many children you have, how old they are, whether and how many student children are living away from home, etc. If families get it right, it will mainly be by a process of trial and error. However, I suspect that these days many just stay in the FTB system by default – ie they never even test their eligibility for YA (which on the face of it is a sensible (non-)decision for most).

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  29. Andrew, it is the couple’s combined income that counts, as you say. However, you need to take into account more than just the FTB A rate when comparing the outcomes. In a one child family (as I used), having the child transfer from YA to FTB brings with it an FTB Part B entitlement as well (assuming the child is 16 or 17). The YA rate has to be compared to the combined FTB A and FTB B result (but also to the dependent spouse tax offset that is lost when FTB B becomes payable).

    This is why the result is different for one versus two income couples – there is no FTB B to be gained in the two income household.

    There are other considerations in play as well, chief among them being that a person whose parents are on income support, or who are low income health care card holders, does not have a parental income test imposed.

    This whole calculation is ludicrously complicated. Add in the different treatment of YA versus FTB for the purposes of working out the level of rent rebate in public housing, and no-one is able to work out which is actually their best option!

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  30. Spog – I decided to leave FTB B out of the calculation. While about 7% of undergrads are aged under 18, this is at 31 December the previous year. I am presuming that most will turn 18 in their first year at uni so it is a temporary issue that is not a big concern in policy terms, but obviously one for those in this gap period to look at.

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  31. Just to add to the feeling of overwhelming confusion in this area, one scenario I find entertaining is where a couple have 2 children, one aged 16-17 and the other 18 or more.

    In that kind of case your intial comment about not being able to be in the YA and FTB systems simultaneously sort of doesn’t hold. Over some income ranges it works out better for the family to have the 16-17 year old tranfer into the FTB system, while the 18+ year old stays on YA. The one household is now grappling with the rococo intricacies of both systems. Mind you, if they’ve worked out that is their best option, they have a pretty good grasp of how the system works!

    I love the smell of complexity in the morning.

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