Welfare double dipping

Should welfare recipients be able to claim the expenses of making themselves eligible for welfare? That’s the policy question facing the federal government after a High Court decision last week.

The case flowed from a dispute between Symone Anstis, a former Australian Catholic University teaching student, and the Australian Taxation Office. In the tax year in dispute, Anstis earned about $15,000 working for the Katies retail chain and about $3,600 from Youth Allowance, an income support payment for students. In her tax return, Anstis claimed expenses of $920 relating to her teaching course, including depreciation on her computer, textbooks and supplies for the children she taught on her teaching rounds. She argued that, in the words of the Income Tax Assessment Act 1997, these were expenses ‘incurred in gaining or producing your assessable income’ – in this case, the Youth Allowance.

After lengthy legal dispute – first the Administrative Appeals Tribunal, then the Federal Court, and finally the High Court – it is now established that under current law, Anstis could claim these expenses. To maintain eligibility for Youth Allowance, she needed to stay enrolled as a student and make satisfactory progress towards completing her course. The expenses she incurred meeting the study conditions of Youth Allowance were therefore deductible.

Though this case was about Youth Allowance, it will be a precedent that recipients of other taxable government benefits can use. For example, people on unemployment benefits must meet ‘activity tests,’ such as applying for jobs or taking courses. The costs of these are presumably now deductible.

The policy problem is that tax deductions for welfare are double dipping. The purpose of Youth Allowance is to help students meet the costs of study; the deduction gives them a second round of taxpayer-funded benefits. There are similar issues with other benefits. Exacerbating the problem, the second benefit will only go the least needy benefit recipients. With the low income tax offset, only those with annual incomes over $16,000 will pay any tax to claim against.

While the total cost of this decision may not be large in the scheme of total tax collections – estimates of $80 million a year were reported in the media – the government should as a matter of principle close this loophole.

Andrew Norton is a Research Fellow at The Centre for Independent Studies.