Friday, July 10, 2015

Margin between benefit and work - take home incomes


The first thing this graph highlights is how WFF and other means-tested assistance (like the accommodation supplement) reduces the incentive to work longer hours. Look how close the minimum wage lines are at 30 and 40 hours. The  wage difference is $14.75 (minimum hourly wage) x 10 or $147.50. After the means-tested tax credits are applied, the gap closes to around maybe $30. The Left would cry blue murder over someone working for $3 an hour - slave rates. Yet the wage subsidies they support create just that situation.

Second thing. Someone working at the minimum wage with no children will be earning $472 weekly ($590 less 20% tax). If they lived in South Auckland and rented at $220 a week, they would be eligible for $47 weekly assistance (using the AS calculator). Their take-home income would therefore be $519 a week.

The sole parent with two children in South Auckland  has a 'take-home' income of $642 weekly. Yes, I am comparing apples and oranges. But here's why. Before she becomes a sole parent, a young woman working and earning $519 doesn't see $642 as such a bad deal. Stay home with the babies and get paid considerably more.

Finally, I am pleased to see the actual margins here for the first time. The difference the IWTC credit has made - on average -  has always been difficult to ascertain.

In this scenario it looks like around $200 weekly, even at full-time employment. Hopefully it is enough to cover the costs of working like transport, clothing, and childcare. Some indication of whether it is might come from the sole parent employment rate over the same period.


Very slow improvement (GFC effects aside). Lets hope the benefit increase doesn't alter this rather tenuous trend.

I guess the pertinent question is, for someone who moves in low income circles, would you be prepared to forgo quarter of your income if it meant staying home with the kids and not having to go to work every day?

1 comment:

Anonymous said...

What it shows is absolutely clear to anyone who understand basic mathematics:
- we need to get rid of the minimum wage completely
- we need to get benefits down, not up
- we need to get rid of all benefits for extra children
- we need to cap benefits across NZ - say around $10,000 seems about right
- we need to end in-work tax credits or other forms of subsidies that mitigate against work

We need to do all this as a matter of extreme urgency. David Cameron in the UK is doing all of this (except, sadly, the first).
Key is doing the absolute opposite.