New rules limit benefits for teenagers to those whose parents who earn less than $65,000 a year. Photo: 123rf.com
New rules that limit benefits for teenagers to those whose parents who earn less than $65,000 a year will create perverse disincentives to low-income families taking on more work, commentators say.
The government announced at the weekend that parents need to earn less than $65,529 for 18- and 19-year-olds to qualify for Jobseeker benefits.
The income limit would be set at the cut-out point for a couple with children receiving the Supported Living Payment and would be adjusted annually.
Craig Renney, policy director at the Council of Trade Unions - who is also on Labour's policy council and a former adviser to then-Finance Minister Grant Robertson - said that amount was equal to two parents working 27 hours a week at minimum wage.
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"That's around three days at work per week each. If the parents earn one dollar above the cap, then their child gets nothing. But if one parent works one hour less - giving up $23.50 a week, then their child now gets $261 a week. The household is much better off if the parents work less.
"In fact, the parents can work 11 hours a week less and the household would still be better off. With secondary benefits kicking in, such as Accommodation Supplement or Working for Families (WFF) - assuming they have other children - then this might even stretch further."
He said it would work out to be an effective marginal tax rate in the thousands of percent. "If you earn a dollar above this, you lose $14,000, if you earn a dollar less than this, you gain $14,000. You can imagine all the incentives in the world suddenly exist to go 'hang on, I'm just going to quit work', or 'I'm going to work a few fewer hours and the entire household is better off'."
Susan St John, associate professor at the University of Auckland, said deciding to work less would be a logical response for some parents.
"I think there are a lot of real complexities of the interactions that seem to have bypassed the government."
But she said there could also be problems for people with fluctuating income.
"In the case of two parents on a combined $65,529, while policy nerds can do the sums, and say to the couple make sure the total is at least $1 less - it requires an understanding and foresight and perfect knowledge of what the total gross of each is - very difficult when one or both are self employed. Will it be like WFF where parents - or in this case the young person - gets a bill if the current income exceeds the expected income?"
Green Party spokesperson Ricardo Menendez March said it was something the party was concerned about and was the result of poor policy design.
He said he was concerned some families might have to fabricate a breakdown in their relationship so that their children could access support.
He said the party's key criticism of the policy was that it did not meet the goal of supporting people into employment. "It's a really blunt instrument to meet the goal of having fewer people receiving income support."
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