I don’t know whether anyone has done a study here, but I would suspect that the incidence of termination in Australia is positively correlated with SES – I suspect that not too many teenage pregnancies in middle class families proceed to term here.

And while I’m sure that it’s probably not all that much fun thinking that Centrelink is looking over your shoulder and analysing the status of your relationship, I was interested to discover once that of all the ‘overpayments’ raised by Centrelink because of marriage-like relationships, the average was around a year’s worth of income support. This suggested two things to me:

* first, that if left to their own devices most people take a long time to get around to telling Centrelink that their relationship status has changed; and
* second, that Centrelink don’t pursue these cases unless it’s pretty clear that the new partner has ample resources to provide support (if the new partner is also on income support, for example, the overpayment is only the difference between the single pension rate and the partnered allowance rate – so unlikely to give rise to such a large overpayment).

The other thing that would likely give Centrelink pause is that it is really pretty difficult to win ‘marriage-like relationship’ cases if the customer decides to contest them in the tribunals and/or courts.

Re reporting vs forming: it’s hard not to wonder whether Centrelink’s recent advertising blitz on the evils of not being entirely truthful when claiming benefits has led to otherwise happily cohabiting couples splitting up on the basis that the risk of being caught and the downside to reduced payments outweighed the pros of cohabitation.

I agree with you that I don’t think most poor teenagers (for whom you could imagine the idea of an extra $5000 might be pretty alluring) would have a baby just for the money. But on the other hand, if you were a poor young woman with few other prospects in life and you accidentally got pregnant, I could imagine that the prospect of the baby bonus and much more generous income support than you could otherwise look forward to might help to sway your decision about whether to continue with the pregnancy.

Patrick – as far as I know US Welfare Reform did significantly increase the employment rate of single parents but didn’t have any affect on rates of marriage (which was a subsidiary objective). But the US case is another one where the financial incentives in favour of single parenthood are fairly clear cut. Their official attitude to de facto relationships is a bit like ours to same-sex relationships – if you’re not married the relationship doesn’t exist.

Australia does have a lot more single parents than many other countries and I think Peter Whiteford would be able to confirm that we have more generous ’social assistance’ type income support for single parents than most other countries.

And behaviour can be affected in more ways than one. There is evidence from AIFS research, for example, that lower income people are less likely than those from higher-income groups to form co-resident partnerships after divorce. That is, they do form new relationships, but are less likely to move in together.

And I think that anyone who works with low-income people on a regular basis would be able to give you any number of anecdotal examples of people reacting to financial incentives. It stands to reason that if you need to be in particular category or do some particular thing in order to get income support and you need the money, people will find a way to do that. I’m not judging, just observing.

(FWIW, as an example of the sort of mean-spiritedness that the current welfare system can exhibit – many years ago when my mother was singlehandedly responsible for raising me and my two younger sisters, when it was determined that one of my sisters was overseas for a 3 week period, the family assistance office demanded that 3 week’s worth of benefits should be repaid – as though somehow having my sister out of the house for 3 weeks suddenly meant there were no expenses involved in maintaining a family of 3 children).

The main compensatory element of Parenting Payment (single) is that it is a pension, rather than an allowance, which means that it is paid at a higher rate and with a more generous income test. That, of course, goes back to the days when it was a widow’s pension. I think the latest moves under Welfare to Work (WtW) are just the inevitable consequence of women’s increased engagement in the workforce, such that we are more inclined to think of jobless mothers as unemployed now, rather than just mothers (as if the two are somehow mutually exclusive).

The other ‘good’ side-effect of WtW is that single parents with older children now have less financial disincentive to repartner formally. The moral hazard associated with Parenting Payment Single has more to do with disincentive to repartner (or even to reconcile) than with incentive to split up in the first place. For many low-income single parents it just doesn’t pay to repartner (or even to reconcile) with a low-income man because the income support deal that you get is so much less generous. So it’s not really their fault, it’s the fault of the system.

Lest NPOV think I’m being mean to single parents again, I hasten to point out that I’m not arguing against single parent payments because they contain a degree of moral hazard. Moral hazard is a feature of any income support system, whether funded by insurance or public revenue. It’s better, I think, to be honest about it and try to design the system in such a way as to minimise its effects than to just close your eyes to it and hope it will go away.

By the way, my mis-spelling ‘government’ in my last post as ‘givernment’ in a thread on welfare apyments seems a slip of an exquisitely freudian type.

Parenting payment is paid to a principal carer based on the fact they have young children. Like “unemployment benefit”, if you’re a member of a couple both incomes are counted; if you aren’t, only your own is used.

If the kids are older (eg, 8+ years), it’s “unemployment benefit” (Newstart Allowance) regardless.

In contrast, if you’re part of a couple with kids and you split up and become the primary carer for the kids, then the government’s created a special income support category just for you.

My comment was a response to BG’s comment that the government shouldn’t compensate people for the adverse financial efffects of their decisions to split up. I pointed out the givernment, through sole parents payment, was trying to compensate kids for the adverse financial consequences of their parents’ decision to split up.

But, you’re right, how people decide to construct households will effect their entitlement to any given category of income support. It’s another moral hazard problem: does the means test (never mind sole parent payments) encourage couples to split up and form individual households?

I’m not sure I understand what you mean by the Gov’t will compensate people with kids for splitting up, but not those without.

People without kids who split up can get income support in the same way as people with kids. If you equivalise it, at maximum rates it’s probably roughly comparable in amount as well. Or did you mean something else?

But maybe people’s conception of fair reward has more to do with effort, rather than the type of job you or someone else does. I’m sure that many people in jobs with regulated wages have the experience of looking at the person in the desk next to them who doesn’t put in anywhere near the effort that they do but still gets paid the same. It’s pretty damn hard to be fair to all of the people, all of the time – all you can ever hope to achieve is something that most people think is reasonably fair most of the time, I reckon.

But I think a really useful observation of Peter Whiteford’s was that income inequality in Australia is probably just as much, if not more, a function of household joblessness as it is of CEO salaries. While the mnumber of jobless couple families has been falling here for quite some time, the number of jobless single parent families has only really begun to fall more recently. But he’s also right to observe that household joblessness here is in part evidence of the adequacy of our income support payments, rather than the reverse.

I suspect there’s an element of truth in this. ‘Policy wonks’ presume that as long as people are having their household incomes somewhat equalised, it doesnt matter where the money comes from. Yet is it really true that people value all money flowing into the household in the same way and that they make no distinction between earned income, a fathers tax credit and a mothers family payment? The fairness of earned income in particular is likely to be evaluated differently because it is a reward for individual effort. Adequacy is one thing, but arguably there exist important social norms of wage justice that link reward with effort, skill, training, and responsibility in a job. Unsurprisingly fairness of pay is often assessed by looking at the rewards given to people doing similar types of work. Accordingly, changes in wage relativities based on either the vagaries of the market or a workers bargaining power will typically be considered ‘unfair’, regardless of what the tax-transfer system does to equalise outcomes in terms of household disposable income

At the moment, the bottom 50% of the Australian households receive 80% of the cash transfers (this doesn’t include health and education), so it can be conveniently calculated that if you wanted to redistribute within the existing welfare budget alone you would probably need to get rid of all payments to people above the median household income which in 2003-04 was les than $30,000 (equivalised)

My other comments are a bit of a ramble across the issues raised by you and others. First, like a number of others, it is not clear to me that the divergence in patterns of family work that you describe – among two-earner families – are necessarily one of the major causes of trends in inequality. I think it very likely that they have contributed to some of the widening, but I dont know how much.

Bettina Cass and Mary-Anne OLoughlin did a paper a long time ago about the rise in the number of two-earner families and its implications for income distribution. They pointed out that if you move from a world of single earner couples to one of two-earners, if there is assortative mating you should end up with the same level of inequality as you started with, assuming that wives all earn the same percentage of their husbands incomes be that 40, 50, 90 or 120% of the husbands income. But as you point out this is not what has actually happened. What we have is an incomplete process.

However, to me it seems that the rise in lone parenthood and also in the share of completely jobless households with and without children) is likely to have been more important as drivers of inequality.

There is a question of interpretation that you referred to. In the past, a lot of inequality may have been hidden within households, but now it is more out in the open. In addition, Australia has a relatively high aggregate employment rate but also one of the highest shares of completely jobless households. My interpretation of this is that we have a system that financially allows people to live in jobless households. If you compare Australia with Southern Europe in particular there are many more multi-generation households, so the jobless live with their parents or grand-parents. This narrows the distribution of household income but also makes the transfer system look less progressive!

Finally, it is worth noting that it appears that since the 1980s Australia has experienced a large increase in inequality of market incomes of the order of 4-5 percentage points, or about 10% relatively, but little change in disposable income inequality your welfare state at work.

Having said this even though all policy wonks concur that it is disposable income inequality that counts, maybe a lot of the population think it is market income inequality that is most important. What we are doing is saying that an increase in the real value of the age pension or in family payments offsets changes in the share of jobless households or in the number of lone parents. Strictly speaking they do, but someone who is single long-term unemployed may not feel the improvements.

Thanks also for reminding people that we already have a very progressive tax/transfer system.

Like Anthony I initially thought that I wouldnt have the slightest idea about how much you would need to spend to get the Gini coefficient down to 0.28, but then I realised that I do have some numbers that might help. This is based on the 2003-04 SIH, so it will have changed a bit, but not much.

On OECD calculations the Australian welfare state reduced the Gini coefficient from market to disposable income from 0.458 to 0.301 (or multiplying by 100) by 15.7 percentage points. About 2/3rds of this was through transfers and the reminder through taxes. Transfers amounted to 14.3% of household disposable income, so it can be calculated that for each one percentage point of household income spent currently on cash benefits, the Gini coefficient is reduced by 0.68 percentage points, while for each one per cent of household taxes the Gini is reduced by 0.19 percentage points.

(As an aside the Australian system is the most efficient in this sense in the OECD, but not the most effective, since many other countries spend more than Australia, but at the other extreme is Austria where each one percentage point of transfers reduces the Gini by 0.14 percentage points or by about one-fifth the Australian level.)

This implies if you believe all these numbers that if you didnt change the distribution of benefits (and Australia already has the most progressive distribution of cash benefits in the OECD by a wide margin), that if you increased transfers all around and the taxes to pay for them by roughly 3 percentage points of household income, that the Gini coefficient for disposable income would be reduced from 0.301 to 0.28.

Initially this might not sound like a lot but this would mean raising transfers from 14 to 17 per cent of household income (or by a bit more than 20% of their current level) and taxes from 23 to 26% of household income (or by a bit more than 12% of their current level).

This of course disregards any behavioural or political responses!

So yes, it is possible to come up with spuriously precise answers to difficult questions!

I have some other comments, but will post them separately.