5 Conclusions
The current financial incentives to work contained in the social assistance system reflect efforts to tailor different financial incentives to different groups in the population. No single structure of financial incentives is appropriate for all people and at all times. It is therefore necessary from time to time to consider whether existing financial incentives continue to meet government objectives, such as encouraging work among different groups in the population. Improving the structure of financial incentives, however, defies simple solutions and requires trade-offs between competing and conflicting objectives to be made.
To illustrate the broad variety of financial incentives facing different groups in the population the financial incentives facing various groups of people are discussed below. These financial incentives reflect the proportions by which increases in gross income are reduced by taxes and the abatement of social assistance benefits. Note that due to the difficulty of accurately modelling accommodation and childcare assistance the financial incentives created by these forms of assistance are discussed separately below.
The distribution of financial incentives to work over the total population is shown with the distribution of individuals by EMTRs and benefit receipt. For the majority of the population the EMTRs created by the interaction of the personal income tax and social assistance systems are less than 48%. There are, however, a small number of demographic groups at certain income levels who face EMTRs of 48% or above. These groups include a number of people who receive income-tested main benefits, the Accommodation Supplement, the Family Assistance programmes, or some combination of all of these programmes.
The distribution of incentives among different family types is shown with the EMTR profiles, budget constraints, and frequency distribution of hours of work of different family types at different hourly wage rates. For all family types the lower the hourly wage the greater the significance of the abatement of the benefit and the abatement-free zone for financial incentives.
For single people without children the social assistance system provides relatively few disincentives for increases in hours of work above 30 hours per week at $10 per hour (or 20 hours per week at $15 per week). There are greater disincentives for small increases in hours of work at hours below this level due to the abatement of the Unemployment Benefit.
For sole parents with one child the social assistance system provides relatively few disincentives for small increases in hours of work for people when they first begin to work in the labour market. However, due to the abatement of the Domestic Purposes Benefit these disincentives increase so that by about 18 hours of work at $10 per hour (or 12 hours at $15 per hour) there is little incentive to work increased hours unless it is possible to work for more than 46 hours per week at $10 per hour (or 30 hours at $15 per hour). These disincentives are reduced when the Domestic Purposes Benefit is fully abated and the Child Tax Credit is received.
A person in a couple with two children (under 13) and a non-working spouse receiving the Unemployment Benefit has little incentive to undertake more than around 8 hours of work at $10 per hour (or around 5 hours of work at $15 per hour). It is not until around 49 hours of work at a wage rate of $10 per hour (or at 32 hours at a wage rate of $15 per hour) that the benefit is fully abated. There is thus a reduction in the disincentive to supply labour only above this point.
For people with working partners (with fixed incomes of $11,500) and without children the social assistance system provides relatively large disincentives for small increases in hours of work once they begin working in the labour market. However, there are relatively few disincentives for increases in hours of work above the point at which the family’s Unemployment Benefit is fully abated (around 24 hours of work at a wage rate of $10 per hour or 16 hours at a wage rate of $15 per hour).
The disincentives facing people with working partners (with fixed incomes of $11,500) and children are similar to those facing people with working partners (with fixed incomes of $11,500) and without children. These people face relatively large disincentives for small increases in hours of work once they begin working in the labour market, but these disincentives fall once abatement of the Unemployment Benefit ceases and the Child Tax Credit is received (at around 26 hours of work at a wage rate of $10 per hour or 17 hours at a wage rate of $15 per hour).
The discussion of financial incentives above did not include the incentives created by the receipt of accommodation and childcare assistance. As a result disincentives for small increases in hours of work facing recipients of main social welfare benefits would have been underestimated. This is because the disincentives associated with the receipt of the Accommodation Supplement and Income Related Rentals mostly face recipients of main social welfare benefits, as the majority of expenditure on these programmes goes to these people. Likewise, any disincentives associated with the receipt of the Childcare and OSCAR Subsidies also mostly face recipients of main social welfare benefits, as the majority of expenditure on these programmes also goes to these people (particularly Domestic Purposes Benefit recipients). Overall the disincentives associated with the Accommodation Supplement are likely to mostly face childless recipients of main social welfare benefits but a significant proportion of these recipients are also sole parents (particularly Domestic Purposes Benefit recipients), who are the group that account for the majority of (and thus may mostly face any disincentives associated with) childcare assistance.
The financial incentives present in the social assistance system, particularly as they relate to recipients of main social welfare benefits, are also reflected in the length time for which beneficiaries receive social assistance. Sole parents, incapacitated people, and widows tend to have the longest durations on social assistance benefits. The unemployed are the most likely to move off a benefit. Receipt of the Unemployment Benefit is highly cyclical, however. The social assistance system thus both supports people deemed as largely unable to work and provides temporary relief for people capable of working but unable to do so for short-periods. The challenge is to develop initiatives that reconcile these potentially conflicting objectives.
