It’s not often that a classical liberal unites with a Labor government in support of a more egalitarian income distribution. But that is what I am doing in the current controversy over changes to the ‘independence’ criteria for Youth Allowance.
What ‘independence’ means in this context is that Youth Allowance applicants are assessed only against their personal income, rather than against personal and parental income. In the budget, the government announced that it was abolishing the two softest work tests of ‘independence’. These were working 15 hours a week for 2 years (so that undergaduates working median part-time student hours would qualify automatically for their last period of study) and earning just under $20,000 over an 18 month period since leaving school (which effectively permitted anyone taking a gap year to qualify, though the YA cash would not start to flow immediately in their first uni year).
Like the government, I believe that this was turning YA not just into middle class welfare, but upper middle class welfare. Bruce Chapman’s study, though on a limited sample, found that there were more YA recipients in $100K+ households than <$50K households. My own work on the 2006 census found evidence of behaviour consistent with teenagers from higher-income households making themselves eligible. While there was only a 5% increase in uni enrolments between ages 18 and 19 for households likely to be fully eligible for YA support, and 13% for partly eligible households, in $100K+ households the increase was 29%.
The money the government expects to save by tightening the test – $1.8 billion over four years – is going to be redirected so that (among other things) more students from lower income families get YA benefits based on parental income. While I am a little sceptical that there will be $1.8 billion in savings – whatever behaviour is rewarded by the welfare system will increase substantially, and working 30 hours or more a week for 18 months, the remaining work test, is not that onerous – it is undoubtedly a move in the right direction.
Two issues have arisen in the last few days. The first is that the sudden change in the system (from 1 January 2010) disadvantages current gap year students, who have taken a year off to qualify for YA and will now not do so. This is the kind of problem that often arises in reform – ordinary people who have made decisions based on the expectation that certain government policies will continue. An article in The Age yesterday called for implementation to be delayed until 2011 because of this.
While there may be some tough cases as the margins, I think there should be no delay in implementation. People making some at least semi-genuine effort to become independent of their parents, ie by working full-time, will still be on-track for YA eligibility by mid-2010. The change catches those only working part-time, working full-time but only for a limited period (and spending the rest on holiday), and those rorting the system by ‘working’ for family-owned businesses. Presumably many are also already at uni, at least part-time. They will just have to keep going on a mix of part-time income, parental support, and the reduced YA benefits to which many of them will still be entitled under the new parental income test.
Delaying the scheme would lock the government into full YA payments for several years for many thousands more students than they had budgeted for, wiping out much of the cash they want to redirect to lower income groups. Given the budgetary cupboard is worse than bare, it is hard to argue that people who are not needy by any reasonable definition should be given, by a delay, one last chance to take taxapayers’ cash.
The other more reasonable objection to the change is that it will particularly affect rural students who need to move to study, and therefore will both be independent of their parents in a practical sense and have greater expenses than students who can live at home. Obviously a delay in implementation is not the solution to an on-going problem.
While needing to move to study is a possible new ‘independence’ criterion, it has problems of its own. Students will invent ‘needs’ to get the money. Some semi-arbitrary and complicated geographical distance between the student’s home and the intended place of study will need to be set to decide who needs to move and who does not. From the government’s perspective, already facing some political worries about regional campuses as they move to a demand-driven system, it will further advantage metropolitan universities in the new more competitive system.
The practical difficulties in designing a new ‘independence’ test may defeat this idea, leaving the 18 month work requirement as the best alternative. If they are prepared to do this, it is probably a good proxy test as to whether the student really needs to move. With mid-year entry now quite common, students would not lose the full two years that some are worried about.