-
Abatement Rates
- Abatement rates refer to the amount of money deducted from a benefit payment when a beneficiary also earns money from a job. At present, abatement rates represent a high effective tax rate on beneficiaries, and they make it difficult for beneficiaries who begin to work part-time to ease back into the workforce. There is a single abatement system for all groups receiving income support, although it is complicated by a further abatement (of 25%) on those beneficiaries who are also receiving the accommodation supplement.
- Examples : An unemployed beneficiary can earn $50 a week before their benefit is
effected. Between $50-$80 income their benefit abates at 30c in the dollar, while the rate rises to 70c
for income over $80 per week. If you add the tax rate of 24c in the dollar on money earned, then
this brings them an effective tax rate of 94c in the dollar - a major disincentive for people on
the benefit to get off them and into full-time work.
Treasury estimates (quoted in the Dominion) suggest that a young unemployed person would stand to gain only $108 a week from working 40 hours at the minimum wageThey would make only $2.70 an hour more than if they did no work at all.
- Instead of dealing decisively to the abatement rate question, Bill Birch has lumped
the whole question into a wider programme of `tax cuts' and a restructuring of the tax system.
Mr Birch is quick to point out that the abatement question is a complex one that successive
governments have failed to solve. Its complexity means that the other benefits like family support,
the low income earner's rebate, and the accommodation supplement also need to be taken into
account.
- The complexity is deepened by the need to design a system that has different types of incentives for different groups of beneficiaries. The unemployed are required to be fully work-ready, yet other beneficiaries such as people on the DPB will want to ease back into the workforce more slowly. Back in 1991, the government looked at simplifying beneficiaries into three streams - work-ready, ready for part-time work, and work exempt - and having their abatement rates set accordingly. Bill Birch's new proposals may be looking at this streaming of beneficiaries again.
- The Employment Taskforce has looked at the figures and recommended that the government introduce a dual abatement system which differentiates between work-tested and non-work tested beneficiaries. In both cases an income exemption of $80 would apply. Their proposals would mean that people on the Unemployment Benefit would receive more from working up to around two days a week ($130 before tax at $8 per hour), than they do now under the present regime.
- TASK FORCE PROPOSALS:
WORK TESTED
BENEFIT
eg unemploymentNON-WORK TESTED
BENEFIT
eg the DPBup to $80
no abatementup to $80
no abatement$80-$130
50% abatement$80-$200
30% abatementover $130
70% abatementover $200
70% abatement
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Action overdue?
from The Jobs Letter No.19 / 17 June 1995
Concrete measures to change the benefit abatement rates for beneficiaries never surfaced in the Budget. Our Media Watch surveyed an almost universal prediction amongst commentators that announcements would be made for the rates to be changed. But no show. This is not only a pity for the beneficiaries who want a better financial incentive to return to work, but a disappointment to members of the Employment Taskforce which recommended clear guidelines on how the abatement rates should be changed.