Austaxpolicy blog

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Does it pay to work? - The case of a single parent with 4 children
24 January 2017,by Miranda Stewart and David Ingles

Despite some analysis from the media suggesting single parents might find being on welfare more attractive than working, more than half of sole parents in Australia are in work and are better off as a result.

Australia’s tax and social security systems are designed to collect revenue on a fair basis, to provide a means tested safety net to protect people from poverty, to support the cost of raising children and to encourage work.

The Treasurer recently said that the, “ultimate test for any welfare system and any tax system [is that they are] well synchronised.” As the Treasurer went on to say, this means that “if you are of working age in this country and you are able to work that you are better off in work than you are on welfare.”

There has been recent public debate about whether Australia’s tax and social security systems do meet the goal of ensuring that welfare recipients have a financial incentive to seek work and, if they are working part time, to work more hours.

Does welfare for sole parents pay more than work?

We looked in detail at the case of a sole parent with four kids aged 13, 10, 7 and 4, proposed by Sarah Martin, “Parental Welfare Pays More than Work” in the Australian, 28 October 2016. Martin said that, “thousands of parents claiming government benefits are financially better off not getting a job,” and that 10% of parenting payment recipients, or about 43,200 people, were better off than a median wage earner. However, this view fails to take account of benefits paid in work, designed to ‘make work pay.’ It also overlooks the relative needs of such a family.

Further, as the Australian Council of Social Service observed, four kids and a single parent is a pretty unusual family structure these days.

Sole Parent Example: Jane

Let’s call our sole parent Jane, as more than 85% of sole parents are mothers. If Jane is not in the paid workforce, she would take home $52,469 in government benefits for the year to raise her family. We show later that this is close to the ‘Henderson poverty line’ for this family type. The Henderson poverty line benchmarks the basic income required to support different family units, and was originally set out in the 1973 Henderson Commission of Inquiry into Poverty. Jane does not face a simple choice between welfare and work. Our system is designed to encourage work, so Jane will continue to receive family benefits in work. When Jane’s youngest child turns six, Jane is required by law to seek work (or study) for at least 15 hours a week, to get the benefits.

Read the full article at Austaxpolicy blog.

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