Making work pay and making income support work

This report calls for a wide-ranging overhaul of income support, housing and employment services to create a system that can make the transition to work pay for some of the most disadvantaged members of our community. With the Henry Tax Review in mind, this research began with the modest aim of documenting ways in which the tax and transfer system has created barriers against labour market entry for some unemployed people and sole parents through high effective marginal tax rates (EMTRs). What we found, however, through our in-depth interviews with 44 such people, was a far more complex, sometimes chaotic, pattern of incentives and disincentives which often fails to serve the best interests of these citizens. Our report calls for a wide-ranging overhaul of income support, housing and employment services to create a system that can indeed make the transition to work pay for some of the most disadvantaged members of our community. The report exposes some serious structural flaws at the heart of Australia’s income support system. It reveals a system still grounded in a false assumption of a labour market which effectively offers people a choice between unemployment and a full-time job, in which the latter is a guarantee of social inclusion. This world, however, vanished with globalisation and labour market deregulation. Today low-paid workers must deal with a labour market characterised more by job insecurity, high rates of casualisation and truncated career structures (Pocock 2009). Our welfare system has failed to adapt to this new economic environment. Moreover, it has failed to equip our most disadvantaged citizens to manage the manifold risks they face in engaging with these insecure forms of paid work. We believe that this research is particularly significant for policy makers because it takes us behind many of the myths which have been created around the behaviours of our citizens on welfare. For example, why do many of the more disadvantaged income support recipients remain ‘on the system’ rather than taking on paid work? It is partly because if they take on work which is short-term or insecure they will likely face the penalty of ‘falling off the system’ and being forced to undergo the arduous process of reapplying for income support. Instead, they choose to stay on income support, despite this guaranteeing their ongoing poverty. In general, the research shows us a system in which inflexible rules surrounding income support, tax and public housing interact to create perverse outcomes, making paid work not only unattractive but simply not an option for many income support recipients. Overwhelmingly the research reveals that people on income support have the same aspirations and goals in life as countless other Australians. What our study participants need and want is an income support system (and broader employment services) which can work with them towards these longer term goals and aspirations rather than just push them into dead-end work. Their goals include a desire for secure, ongoing work and for jobs ‘with a future’. The study also shows that the current system inadequately recognises the care responsibilities and obligations of many, including single mothers, who are forced to manage care for their children around the demands of their paid work and the inflexible obligations of the income support system. The research shows more generally that many recipients navigate the contradictions of an outdated income support system and attempt to make the best possible decisions about paid work in light of these contradictions. Indeed, in the current policy context, and given their personal circumstances, income support recipients are shown to make sensible and realistic decisions regarding engagement with paid work. These findings are in stark contrast with the stereotypes of welfare recipients as ‘dependent on welfare’ or incapable of making ‘responsible’ decisions, stereotypes which shape both public opinion and government policy. Furthermore, many income support recipients are engaged in paid work, and those who are not want to work, but they also want paid work to be ‘worthwhile’ and, like most Australians, to enable them to ‘get ahead’. The Making Work Pay study builds on previous research which identifies that single parents and Newstart Allowance recipients are affected by high effective marginal tax rates, which are thought to act as a powerful disincentive to return to work or increase hours of paid work, through the withdrawal of income support payments, concessions and rebates such as rebated public rents (Harding 2008). The present study provides a deeper understanding of the ways in which these financial incentives or disincentives are experienced by income support recipients and, importantly, the extent to which these factors and the other non-financial considerations influence actual decisions about paid work. The report also provides real examples of the effects of ‘welfare locks’ for individuals and families on public housing waiting lists. Research by the Australian Housing and Urban Research Institute has found that welfare locks are created by the eligibility requirements for public housing, which require applicants to maintain their low incomes and income support recipient status in order to stay on the waiting list, thereby providing another powerful disincentive to look for or accept paid work during the waiting period (Dockery et al. 2008). The report includes stories from participants who are frustrated to find themselves trapped in such a way, wanting to work, but needing to house themselves and their family