4  Trade-Offs Between Outcomes

Social assistance programmes are often designed to pursue a broad range of outcomes, such as increasing the reward from working for low-income people, controlling the fiscal burden of programmes on taxpayers, ensuring that families have adequate incomes, controlling the costs facing recipients and their employers of complying with programmes, reducing the costs to the government of administering programmes, redistributing income throughout recipients’ lifecycles, supporting parenting and strengthening families, and supporting the operation of private charitable organisations.

It is seldom possible to develop reforms that improve all the outcomes of social assistance programmes. For instance, an objective for increasing labour supply could be satisfied by redesigning programmes in order to create an incentive structure that encourages parents to increase their participation in the labour market. To the extent that this incentive structure encourages long-term investments (such as human capital acquisition) that create future gains, the need to make trade-offs between public policy outcomes may be reduced [Blank, 2002, p. 2]. For instance, evidence suggests that as well as increasing labour supply this incentive structure could improve outcomes for the children in these families in later life through increasing family incomes (poverty is associated with poor outcomes for children) and the labour market participation of mothers with older children (which is associated with positive outcomes for these children). Yet there is, however, remaining potential for conflict between public policy outcomes, as evidence also suggests that if the policy change also increases the labour market participation of mothers with young children the benefits from the reform may not be unambiguously positive as their labour market participation could lead to poor outcomes in later life for the children in their families [Jacobsen et al, 2002, pp. 23-24].

The discussion of financial incentives to work in this paper illustrated a number of tensions that arise when designing social policy initiatives. For instance, as shown by the abatement of the Domestic Purposes Benefit, lowering abatement at low hours of work in order to encourage participation in the labour market comes at the economic cost of increasing abatement rates further up the distribution of hours of work (thus potentially discouraging advancement within the labour market). If an objective of policy was to increase the financial incentives to enter the labour market facing low-wage single people (possibly in response to labour shortages) this would be likely to come at the economic cost of increasing the abatement of assistance further up the income distribution and thus potentially decreasing these people’s financial incentives for full-time work.

In the design of social policy initiatives tensions may also arise between government objectives for improving financial incentives to work and other government objectives, such as ensuring income adequacy (which could be indicated by poverty reduction effectiveness) and controlling the fiscal costs of programmes (which could be indicated by targeting efficiency).[18] For instance, poverty reduction effectiveness could be increased by raising the level of an income transfer to people below a poverty threshold. However, if the rate at which the transfer abates does not change, targeting efficiency could decline because of greater spillover to the non-poor. In contrast, targeting efficiency could increase if the spillover of benefits to the non-poor was reduced through a reduction in the transfer payment. Yet this could lead to an increase in the incidence of poverty and thus reduce poverty reduction effectiveness. Targeting efficiency and poverty reduction effectiveness could, however, both be maximised if the level of the transfer was set as equal to the poverty threshold and there was a 100% EMTR on additional earnings. Yet this EMTR results in disincentives for labour supply for those in poverty before transfers (a poverty trap) [Stephens et al, 2001, p. 86].

Tensions in the design of social policy initiatives could be mediated through introducing administrative requirements, such as work testing, in programmes. Yet these administrative requirements are themselves subject to tensions in their design. For instance, increasing the intensity of administration (and consequently increasing administration and compliance costs) can encourage recipients’ labour supply (and also reduce fraud and opportunities for moral hazard) but may also reduce rates of take-up and the effectiveness of programmes at reducing poverty. To some degree these tensions reflect the administrative vehicle chosen to deliver assistance, as tax-based and social welfare-based social assistance programmes differ in the extent to which they can accurately assess entitlement, respond to recipients’ changing circumstances, and ensure compliance and participation in programmes [Alstott, 1995].

As a consequence of these tensions decisions about particular social assistance initiatives should be placed within the context of a government’s wider economic and social agenda, such as developing a more inclusive and growing economy [Treasury, 2001]. Priority should also be accorded to developing initiatives that would lead to general improvements in the social assistance system. When large structural problems are not dealt with, smaller but significant and time-consuming problems arise frequently.