Case study & Unintended outcomes

Example 1: A single, 25 years old client is receiving Unemployment Benefit. He is also paying rent of $200 a week in Area 2 (Henderson). He receives supplementary assistance from Work and Income.

Benefit
Gross Net
Income
Benefit rate $229.01 $204.96
Accommodation Supplement $100 $100
Temporary Additional Support $14.70 $14.70
Total Income Support from Work and Income $343.71 $319.66

Example 2: A single, 25 years old client is receiving Unemployment Benefit. The client works 20 hours of part-time (minimum wage: $13.50 per hour) and is earning $270 gross a week on a regular basis. He is also paying rent of $200 a week in Area 2 (Henderson). He receives supplementary assistance from Work and Income as well.

Benefit Benefit + working Difference
Gross Net Gross Net Gross Net
Income $270.00 $218.16 $270.00 $218.16
Benefit rate $229.01 $204.96 $80.40 $71.96 -$148.61 -$133.00
Accommodation Supplement $100.00 $100.00 $100.00 $100.00
Temporary Additional Support $14.70 $14.70 $14.70 $14.70
Total Income Support from Work and Income $229.01 $204.96 $465.10 $404.82 $236.09 $199.86

Example 3:A single, 25 years old client works 20 hours of part-time (minimum wage: $13.50 per hour) and is earning $270 gross a week on a regular basis. He is also paying rent of $200 a week in Area 2 (Henderson). He receives supplementary assistance from Work and Income as well.

Benefit Benefit + working Difference
Gross Net Gross Net Gross Net
Income $270.00 $237.01 $270.00 $237.01
Benefit rate
Accommodation Supplement $100.00 $100.00 $100.00 $100.00
Temporary Additional Support $61.49 $61.49 $61.49 $61.49
Total Income Support from Work and Income $431.49 $398.50 $431.49 $398.50

 

Comparative analysis:

Beneficiary without work Beneficiary with work Non-beneficiary income
$319.66 $404.82 $398.50

 

The affect of the ‘charging income’ policy and the ‘secondary tax rates’ on additional incomes are that unemployment beneficiaries have little incentive to look for work unless they can find a secured full time job that substantially increases their income. Additionally, employment related expenses such as food and transportation are not subsidized by the government. As a result, unemployment beneficiaries are financially worse off if they have a part time job.

Therefore, for individuals, employment related expenses and the effort they put into work is intense and stressful, but the pay cheque they receive in hand (after tax) can barely cover their compulsory expenses such as rent, power, water, transport to work, and food. This is almost slave labour.  Therefore, unless an individual finds a full-time job for 40 hours a week at least at the rate of $13.50 per hour (minimum wages), they is better off  on the Unemployment Benefit (without work, employment related expenses, and free from physical and emotional distress), while they  wait for a full-time employment opportunity.

In April 2010, the New Zealand government established a group called ‘The Welfare Working Group’ to conduct a fundamental review of New Zealand’s welfare system and to make practical recommendations on how to improve economic and social outcomes for people on a benefit and for New Zealanders as a whole.[1] Their findings were that beneficiaries face a number of barriers to long-term employment due to character issues, qualifications and skills limitations. As a result, they use the benefit as a more secured and steady income. Based on these findings, The Ministry of Social Development  followed the suggestions by ‘The Welfare Working Group’ and increased job seeking obligations by means of a constant monitoring system, which  requires beneficiaries  to take up job offers whether it is part or full time. Character and behavior improvements and empowerment programs have also been developed. Under this new Welfare Reform, Unemployment Beneficiaries are required to reapply for the benefit after 52 weeks. Beneficiaries who fail to comply with these rules will face serious consequences such as strict sanctions e.g.  benefit reduction or suspension.

Unintended outcomes:

From the perspective of an unemployment beneficiary, this new system undermines an individual’s integrality, their self worth, and dignity. It punishes Unemployment Beneficiaries. Little recognition has been given to the employment related expenses which creates beneficiary hardship due to no extra assistance and the income abatement rate. It is a strong disincentive to take part-time employment while on the Unemployment benefit.

The income abatement rates and the new harsh sanctions on the unemployment beneficiaries may increase crime rates due to unemployment beneficiaries feeling hopeless and trapped.

The government has to focus on providing employment related expenses rather than targeting character, behavior, and lack of skill qualifications of the beneficiaries.


[1] The Welfare Working Group, ‘Long-Term Benefit Dependency:The Issues’, August 2010, p.i.