Your taxes at play

Yesterday The Australian added anecdotal evidence to the statistical evidence that Youth Allowance is middle-class welfare.

STA Travel has also released sales to entice students to splash their stimulus cash offshore.

The company’s product and marketing director, Basil Hyman, said anecdotal evidence suggested inquiries for travel to short-haul destinations such as Bali, Fiji and Vietnam had shot up since the handouts had begun reaching bank accounts. “I think it has helped to stimulate overseas travel,” he said.

We are still waiting to see if Gillard will, as the Bradley report suggested, make YA a less rortable scheme.

26 thoughts on “Your taxes at play

  1. One thing I don’t understand with Youth Allowance, is why if you earn a certain amount of money in I think it is 18 months, then you are “independent” and your parents income doesn’t count when they assess you eligibility for the benefit. You may be “indpendent”, but I find it bizarre to think that because of that you should have recourse to the public purse first rather than your parent’s purse even if your parents are rich and could easily afford to support you. I reckon that if your parents earn a decent income, there should be a presumption that they support you irrespective of how much you have earned in how many months, unless there is convincing evidence that you are estranged from them or something like that.

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  2. because it proves your independence. why would you work for 18 months in the first place if your parents could/would support you?

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  3. These are the two big rort provisions:

    # you have worked part-time (at least 15 hours a week) for at least 2 years since leaving school, or
    # you have been out of school for at least 18 months and have earned at least 75% of the maximum rate of pay under Wage Level A of the Australian Pay and Classification Scale in an 18 month period, [ie $18,850]

    So you don’t have to work full-time; part-time work or summer work will get you there.

    So parents give you free or cheap room and food, government gives you spending money.

    Chapman’s research suggests that there are more YA recipients in household over $100,000 a year than under $50,000 a year, strongly suggesting to me that the program has lost sight of its original purpose of helping people from lower income families attend university.

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  4. are you suggesting that we increase the YA payment for kids from lower income families?

    but by your logic, shouldn’t that kid also miss out if he gets cheap/free room and food also?

    the maximum payment for a student living at home is $244 per fortnight. it’s hardly spending money when you factor in the cost of going to uni – public transport, textbooks, stationery etc.

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  5. I would see YA as assisting the household via the student. Upper income households don’t need the assistance (though many are getting it via FTB A anyway). As you imply, there is a lower rate for people living at home, given the economies involved in that.

    As with most things in government the $244 a fortnight is not likely to be based on careful thought or research, so it probably needs revising.

    However I think the rates should assume that students work.

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  6. It is because if your from a poor family as a young person you can’t really afford to work below even the point where Youth Allowance totally cuts out (quite low, but for a good reason), whilst those with wealthier and therefore more generous parents can.

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  7. To lazy to actually provide research, no problem, use the standard phase “anecdotal evidence”. Personally I prefer to call it for what it is, “old wives tale” or “gut feeling”.

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  8. Charles – Actually, I am one of the few people who has researched this subject, using the limited available Centrelink data to show that growth in YA has been in the ‘independent’ category and using census data to highlight suspicious increases in university enrolments among older teenagers in high income groups compared to low income groups immediately entitled to YA.

    The Bradley report (some data in the link, for those prepared to put in the effort to click) confirmed my inference from limited data by showing that growth in independence was driven by the soft work tests and HILDA data to show, as I noted in comment 4, that YA is paid to more high-income than low-income households.

    So far as I am aware, there is no evidence supporting the proposition that YA is well targeted, though there are some people (like Greta) who impliedly favour a universal student entitlement.

    The Australian’s story is exactly what you would expect if you give money to people who don’t need it.

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  9. “there are some people (like Greta) who impliedly favour a universal student entitlement”
    .
    I favor a universal entitlement too — why does YA get special rules and not the dole etc.? This is completely inconsistent across hand-outs (and social situations for that matter, like getting sent to Iraq). In addition, it seems to me that people complain about young adults never taking responsibility for themselves, but then implement rules to make sure that they don’t. Perhaps if YA was turned into a government guaranteed loan, we wouldn’t need to argue about who should and shouldn’t get it, excluding the cost of the initial implementation and the rather small number of defaults such a loan would cause.

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  10. YA applies to young jobseekers. So the main difference is that at 21 jobseekers go to Newstart where they are regarded as independent, while students are not deemed independent until they are 25.

    backgroom girl knows the detailed history of this, though unfortunately she does not seem to comment anymore.

    Though I agree there are anomalies, I think we can offer sociological and fiscal reasons for the distinction.

    Sociologically, unemployed people are likely to come from poor families and students from affluent families. So in a broadly needs based system, there is logic to the distinction though it will collapse in individual cases.

    Unemployment benefits are intended to be short-term, while student benefits are medium term. For example this 2005 data reports that young people were on unemployment benefits for an average of 14 weeks. So the fiscal implications of a weaker independence test are less serious for Newstart than for student YA.

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  11. Those in a position to travel and getting a handout will be getting it because they paid tax last year, not because they’re getting YA. Plus of course those taking an overseas holiday this time of year are not likely to be current students (STA has a vested interest in not inquiring too closely as to their customers’ educational status).

    It is absurd to denounce YA as “middle class welfare” as it has the lowest payment rates of any income support and one of the tightest (hence most distorting and arbitrary) of all means tests. It is really hard to think of any payment that could be less “middle class” in design.

    Andrew, why do you so often talk sense when it comes to regulatory policy and nonsense when it comes to welfare policy? I fear that you have fallen into bad company at the CIS 🙂

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  12. “there is no evidence supporting the proposition that YA is well targeted” – as distinct from your highly reliable third hand anecdote that shows it is not well targeted. /sarcasm

    Yes, large numbers of people go to considerable lengths and inconvenience to qualify as independent. But far from this being evidence they don’t need the money, it is surely evidence that they do, else they wouldn’t jump through these difficult hoops. Because of the ridiculously designed Parental Income Test for YA it’s the only way they can get to study full time. And even then they have to have a job while they study (too bad if they can’t, as some can’t – poor local labour markets, disability, etc).

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  13. DD -This will be paid to large numbers of people because both YA recipients and FTB A recipients with students are eligible. Whether the parents pass on the FTB A cash is of course another matter. I’m not sure how many students will get the tax handout because the low-income tax offset will have reduced the number who actually pay tax, but presumably reasonably large numbers will get it. Some will get both handouts.

    Simply because people are paying air fares now does not mean they are travelling now.

    Whether or not welfare is middle class has nothing to do with payment levels, and everything to do with who gets it.

    And it isn’t hard to qualify for YA – a slightly above minimum wage job on the average 15 hours a week students work will get you there by early in second year. While the enrolment data suggests gap years have risen significantly, it isn’t vital unless savings need to be built up.

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  14. I know someone, working full time but gets the stimulus, who will be spending most of their stimulus on an overseas return flight. I’ve no problem with that per se, as once they have the money it’s their right to spend it however they see fit – though I strongly object to the ‘stimulus’ idea in the first place – as, for one thing, it encourages people to make frivolous payments with their cash bonuses, as in the example given above.
    .
    I’d rather like to spend my own stimulus – which apparently I’m eligible for – on infrastructure, since that’s where I believe the money should have been spent in the first place, but am at a loss as to a philanthropic institution that accepts these sort of donations. Does anyone have any suggestions?

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  15. Once someone qualified as independent, is there any cap on what income they can earn from continued work before forfeiting their right to YA?

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  16. Tim – Private schools are the only organisations I know of who regularly fundraise for infrastructure, but I doubt this is what you have in mind. Major economic infrastructure is not financed this way, given the large sums needed.

    DC – Yes, $118 a week to maintain full YA, then dropping by 50c in the dollar for a while, then 60c in the dollar. Even I would concede that this is a bit tough.

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  17. It used to be tougher, too. Until a couple of years ago the taper rate was 70c in the dollar. When combined with the (then) lowest marginal rate of 17%, the total EMTR was 87%. In other words, a student working for $15/hour would receive a net increase in income of $1.95 per hour for each hour worked about a certain (low) threshold.

    The EMTR is now 75% (if you disregard LITO), which means that my example student would keep a net of $3.75 per hour worked about the threshold. Still a strong disincentive to work, and it makes it virtually impossible for a low-income YA recipient to earn enough to support themselves without resorting to cash-in-hand work or deception of Centrelink.

    I agree that the eligibility criteria should be tightened. I knew many students with wealthy parents who lived at home and qualified for YA by virtue of their supposed ‘independence’. However, the withdrawal rates for those students who remain eligible (ie. those from lower income households) must come down.

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  18. Andrew I’m not disputing your conclusions. My gut feeling is middle class kids work hard to be independent of their parents. Seen it many a time, including one of mine.

    My problem is with the phrase “anecdotal evidence”, it’s several steps below dam lies, with statistic proof being in between.

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  19. Charles:

    Did you read what you wrote?

    To lazy to actually provide research, no problem, use the standard phase “anecdotal evidence”. Personally I prefer to call it for what it is, “old wives tale” or “gut feeling”.

    My gut feeling is middle class kids…..

    Anecdotal evidence is an ” old wives tale”, however your gut feeling is errr scientific evidence? Interesting.

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  20. I think a universal student entitlement is ridiculous. There is no reason why I should’ve received government support in the form of YA whilst studying (and indeed I didn’t), nor is there a reason for the many other middle class kids whom I know received YA when I know there parents could’ve easily supported them. YA should only be there for kids from poorer socio-economic backgrounds and the key test should be that if they don’t receive the YA, then there is no other possible and reasonable source of funding (other than unreasonable work) that they would be able to access in order to be able to study (and hence they would not be able to study). I don’t think it is appropriate to expect the State to step in and support middle class kids when their parents have the money to do it. I actually think its part of a broader change in society (call it a “breakdown” if you like) – When my aunties and uncles studied in communist Poland, they had extended family members supporting them and offering them free rent and food in Krakow to study. And now people in rich countries like Australia expect the State to support middle class kids…

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  21. “the key test should be that if they don’t receive the YA, then there is no other possible and reasonable source of funding” – Krystian

    But my contention is that some kids are in precisely that position do not get YA (mainly because of the PIT).

    When your aunties and uncles studied in communist Poland, Krystian, they got free tuition (no HECS there) and a non-means tested student grant (admittedly a grant low enough that they benefited from extra support, but then Poland was a poor country). Such policies are why education was one island of real success in a vast sea of communist failure.

    On means tests generally, Andrew, those on the right are quick to see that poorly designed tax systems with high tax rates, widely perceived as unfair, will always foster tax evasion of many forms. Yet they refuse to see that the same applies to means tests.

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  22. Well if their parents have a decent income, then they do have a reasonable source of income – Their parents. They should be providing them with support and not the State. I don’t think it’s appropriate for Australian taxpayers to support students just so they can feel good about being independent from their parents, but dependent on the State.
    Yes in Poland they didn’t have HECS – But you don’t have to pay HECS upfront so it isn’t something you would factor in into your current living expenses as a student (only your future expenses when you start working). And that student grant you mention actually was dependent on your income and socio-economic background and/or your academic performance. If you were a normal student, not from a particularly poor background (in relative terms), then your grant amount was negligible. My anecdotal evidence for this is my Dad sitting next to me telling me his experiences (he was a gifted student so got more than the standard grant but it wasn’t enough to live off)…

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  23. Andrew,

    Obviously it is a rort. If your Mum and Dad own a business, they “pay” you, both parties send of a tax cheque and both profit (the payback period is within a few weeks) from the taxes of investors and wage earners.

    It is nearly a zany scheme as the Job Network.

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  24. On the assumption it is a rort, how about we shift it back to 21 and under, not the ridiculous 25 and under. (assuming I’ve got the right payment scheme)

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