Economist says Govt wrong about savings

The Government's claim that its reform of the domestic purposes benefit will save up to $200 million is an "illusion", an economist says.

Susan St John, an associate professor of economics at Auckland University, says the savings are minimal when taking into account the cost to the Government of Working for Families (WFF) tax credits.

In an opinion piece in today's Herald, Professor St John says Prime Minister John Key's savings claim "is in fact an illusion".

The Government admitted yesterday its calculations do not factor in WFF tax credits.

This week, the Government unveiled Future Focus, its welfare reform package, aimed at giving long-term beneficiaries incentives to search for work and penalising them if they do not.

Those on the DPB - single parents with dependent children - will face work tests once their youngest child is 6 years old.

They will have to be available to work 15 hours a week, and failure to comply will see their benefit halved, though they will retain supplementary assistance.

Mr Key said that if 5 per cent of those on the DPB moved into jobs, it would save $200 million over 10 years. The figure is based on the cost of the DPB in June 2007, when the DPB was worth $9460 a year.

But Professor St John, who is also a spokeswoman for the Child Poverty Action Group, says the savings evaporate when taking into account WFF tax credits.

"Did [Mr] Key forget that when the 2150 people go back to work, instead of the benefit, the Government will have to pay the In-Work tax credit of at least $3000 a year?

"And if each sole parent works at least 20 hours at the minimum wage, they also qualify for an annual $9152 of the minimum family tax credit."

She used a timeframe of 6.5 years, which is how long it would take to save $200 million for 2150 DPB recipients using today's DPB rate. "The cost of these extra WFF payments for the 2150 sole-parents for 6.5 years is $170 million."

Social Development Minister Paula Bennett said this was a worst case scenario of a person on the minimum wage, working the minimum hours to get the In-Work credit, and receiving the maximum value of the minimum family tax credit.

Professor St John also criticised the reforms as mean-spirited. "If single people are squeezed out of the casual labour market to accommodate these extra sole parents, more unemployment benefits will be required.

"Raising happy and healthy kids is a parent's dream, but trying to do this as a sole parent is sheer hard work. They don't need it made into a nightmare by mean-spirited and so-last-century, visionless welfare reforms."

NUMBERS GAME

* 2150 single parents are 5 per cent of DPB claimants.
* Govt sums: DPB costs $9460 a year (2007 rates); if 2000 people move into work, savings are $200 million over 10 years.
* Taking today's DPB rate, annual cost is $14,180.40 net ($272.70 per week).
* 2150 parents moving into work would save $200 million in 6.5 years.

WORKING FOR FAMILIES TAX CREDITS

* In work $3000.
* Minimum Family Tax Credit: $9152.
* Cost for 2150 parents over 6.5 years: $169.8 million.
* Savings to the Government over 6.5 years: $30 million.