Benefit reforms - arguably worse than the status quo

Paula Bennett has just announced Future Focus, National's much vaunted welfare reforms designed to "break the cycle of welfare dependency".

Summarised;

Unemployment benefit

Continues to be work-tested but instead of 100 percent loss of benefit for non-compliance with work requirements, only 50 percent of the benefit will be lost at first failure.

All UB beneficiaries will have to re-apply after one year and undergo a comprehensive work assessment.

Invalid's benefit

The medical certificate is being re-designed to provide case managers with more information about the beneficiary's capacity to work.

Anyone deemed able to work in the next two years will be sent to the sickness benefit instead.

Sickness benefit

Again, redesigned medical certificate and a new requirement that a second certificate is issued at 8 instead of 13 weeks.

Like UB, a compulsory review after 1 year.

From May next year, where assessed capable of working part-time, will be work-tested like unemployed beneficiaries. Sanctions for non- compliance same as UB.

DPB

From September beneficiaries with youngest child aged 6 will be part-time work-tested. Some exemptions for parents of special needs children or those studying at level 4 or above. Same sanctions as unemployment benefit.

Sanctions

Staggered instead of 100 percent at first failure. Single beneficiaries more likely to be sanctioned than couples with children.

Hardship payments

Easier to get a small number over a year - harder to get large number

Abatement

The $80 threshold (how much a beneficiary can earn before their benefit income is reduced by 30 cents in the dollar) is raised to $100.

My response;

The Unemployment benefit.

Why reduce the sanction for failure to comply with a work-test? This weakens the effectiveness of sanctions. It seems that National wants one sanction regime so eased it in advance of extending the scheme to the sickness and domestic purpose's benefit. I note they explicitly state, "single beneficiaries with no children are more likely to be sanctioned than couples with children." There is a incentive here to make sure you have a child dependent on you.

Invalid's and sickness benefits.

MSD had already introduced a redesigned medical certificate in 2007 and the effectiveness was called into question in a recent Auditor General's report. In any event, numbers on IB and SB continued to grow.

The reforms to sickness benefits will emulate what Australia did with their disability support pensions in 2006 by introducing part-time work obligations on those assessed as able to work.

The result there?

The Sydney Morning Herald reports earlier this month;

The reforms introduced a much tougher social security regime that aimed to end long-term welfare dependency and cut the growth in welfare rolls.

But the evaluation shows the changes failed to put a brake on the high numbers joining disability pension rolls, made little progress in moving people with disabilities off benefits and into work, and made only ''modest'' gains in the work participation of the very long-term unemployed and mature-age job-seekers...

The evaluation shows that in the year after the reforms the same numbers were added to the disability pension rolls as in previous years. These rose from 712,000 in July 2006 to 757,118 three years later.

However, there was also progress with 10 per cent of new disability pension applicants on Newstart leaving income support after six months. In previous years, only 4 per cent of a similar group moved off the pension.

Clare Martin, the chief executive of the Australian Council of Social Service, said: ''Although the figures show there was a small rise in people with disabilities moving into work, the policy actually left thousands of people worse off because they were diverted onto lower levels of payments. It was simply problem-shifting.''

DPB

The introduction of a work-test when the youngest child turns 6 will encourage the beneficiary to make sure their youngest child is never older than six. National says that when they previously introduced a work test on the DPB (1997-2003) the full-time employment rates of sole mothers climbed rapidly. But the number on the DPB dropped by only 3,000 or 2.7% percent. This policy could be significantly strengthened by adding a cap on the number of children allowed while on a benefit. Currently about 5,000 children are added to an existing benefit every year.

The figure the Ministry has provided for a typical DPB parent renting in Auckland is $580 per week or $30,160 per annum after tax. A full-time job on the minimum wage would pay $26,520 before tax.

That's another big incentive to keep growing a family and stay on the benefit.

Lifting earning capacity for people who are part employed and part benefit dependent seems like a good idea but may simply lead to more people staying in that position than moving into full-time work.

The reforms will enhance the motivation of those people who want to work. But are they the problem?

The Minister says they are aimed at reducing the cycle of dependency but they may well do the very opposite by increasing the benefit-dependent birthrate. Children born onto a benefit are far more likely to become adult beneficiaries.

The most pressing problem inherent in the welfare system - making children guarantors of a no-obligation benefit income - just got worse.