10 Reasons why the time is right for the entitlemate project

The tax system has a flip side - it is called the transfer system and it is getting harder to follow

The Government has always redistributed tax revenue back to Australians in a whole range of ways. This is not a new story. The new story is the increasing complexity of this system of transfer and with governments looking for ways to balance budgets, the story is also about constant change.

Australians live with a system that is based on legacy design, overlaid with policy tinkering and occasionally largely overhauled with a barrage of new ideas that flow through the media and parliament.

The Productivity Commission report on childcare and early learning is a great example. The report weighs in at more than 1000 pages, and so it should - child care subsidies and the range of related family payments are not just an important part of family budgets, but they feed back into a complex array of government objectives for what these payments may achieve, including issues of fairness and motivation for families to become productive.

Unfortunately, this complexity bites. In all the finessing, one important aspect gets lost - and that is the ability for Australians to make informed decisions with so many factors to consider.

So if the government is changing an already complex system, how do Australians easily assess how these rule changes impact their budget? 

It is time to solve this complexity.

It has to be complex

Here is the thing. Governments want to be very specific about how their programs are applied. They want to make sure people with different financial situations are treated in a consistent way. 

Meanwhile, no two families are going to be the same, nor age pensioners or first home buyers. This means the number of rules multiplies and always will - just so they are comprehensive.

For the consumer there are 3 courses of action available: 1. Read all the rules and try and work out what rules apply to them, 2. Call government lines and seek information, or 3. Apply and hope for the best.

This is not good enough.

The government doesn’t have the systems anyway

Centrelink is spending more than $1bn over 7 years to upgrade their systems managing $100bn of payments to 7.3 million Australians. This is a platform that was built in the 1980’s, and currently requires 100 public servants and 6 months work, and $500k, just to change a social security letter. Do you think it is a priority for the government to help the consumer work out the lay of the land? They have bigger fish to fry.

Australians spent 867 years on hold to Centrelink in 2012

Yes - that’s right. According to the Community and Public Sector Union report on Centrelink Call Sector services in August 2012, Australians made 38 Million Calls to Centrelink with an average wait time of 12 minutes. That is 867 years on hold. This does not include time wasted searching for information on the web, and the uncertainty of making a claim with no idea of the outcome.

This is not just time wasted by Australians, but what of the cost to the Government in staffing these call centres?

Because there is no competition

Want to get a start in getting to know the system? Have a look here . Still confused? Why not call Centrelink? Prepare to wait.

Because 1000 Australians turned 65 this week, 800 of them will end up with an age pension, and there are 49 related payments and entitlements to consider

49 payments? Yes. That is what Joe Hockey, the former Treasurer of Australia, found out after he had 4 treasury officials work it out for him. And it took them weeks. 1000 Australians will turn 65 this week and not have the benefit of 4 treasury officials helping them over coming weeks to work things out for them.

Or maybe the entitlemate project could be the help they need? 

Because financial services providers really couldn’t be bothered….

Have you asked your financial advisor to consider the cost and income support eligibility when planning retirement spending and investment? Have you got a satisfactory answer? Or have they been in a hurry to sign you up to a product?

22 partners from Deloitte published a report in 2013 claiming that any Australian without $330k in retirement savings at age 65 would not be able to support themselves at the level of a modest income in retirement. Did they forget to look at the maximum pension available to these Australians with low levels of savings was just under this minimum level? 

Maybe more people in the financial services industry should try and understand the system that Australians have to deal with, and take this into account when providing advice?

With the help of the entitlemate project, they just may be able to have the edge in client engagement.

…..but they SHOULD be.

Retirees have a lot of money. A couple with their own house can have almost $1.175m in the bank before they lose age pension eligibility (and 49 other entitlements).

However, from Jan 1 2017 the rules change. This is going to be very tricky for many older Australians to work out. 

Retirees are the fastest growing demographic. Helping these Australians understand their place in the system may be a worthy pursuit for an organisation or company trying to get their attention. Are retiree deposits, investments and service seeking dollars of any interest? We think so.

Meanwhile, families buy a lot of stuff. They take out home loans, need insurance, they are deciding which brands to be loyal to, which services to seek. Surely they would be attracted to a group or organisation that helped them make more informed decisions? With 1.3 million children in registered child care, the system of child care help is a big deal. Who is going to be the first to help?

Robo-advice + a solve to information asymmetry = ?

Imagine if you could save enormous complexity and also eliminate a bunch of margins paid to banks and other service providers. Could this be the pairing the consumer has been waiting for? It's down the track, but exciting.

Because the care industry in Australia is a big deal

More than a 1.3 million children are in registered care. 54% of this is funded by the government. There are almost 200 000 aged care beds, and this is 74% funded by the government. Yet still, nobody can easily work out the cost of these services - and they take a huge chunk out of family budgets and scare families working out aged care options for a parent. How can this still be the case?

Child care costs are just one part of the puzzle of getting back to work

Amongst all the talk of simplicity, flexibility and affordability of the new Child Care Assistance package is an expectation that 240,000 families will be encouraged to increase their involvement in paid employment.

 

How and why this is the case is worth looking at more closely, and in doing so reveals a deeper challenge for the government, and for families: the complex puzzle of family assistance payments and unusual way that they come together to impact family budgets.

 

In 2012, 660,000 families received child care assistance and at least one other payment - the most common being the Family Tax Benefit Part A.

 

For these families, the financial impact of common family decisions around work and child care is still a mystery until after decisions have been made because getting the the bottom of the net financial impact of these government tax and transfer programs is so incredibly difficult.

 

For those that make it to the Appendix of the Productivity Commission report on Child Care and Early Childhood Learning, they will find out just how complex the decision making for families really is.

 

This section demonstrates very clearly that the decision to increase involvement in paid employment is not just a case of child care support outcomes.

 

It is far more complex. There are several other payments to consider, such as Family Tax Benefit Part A & B, parenting payments, paid parental leave and of course income tax. And each of these components have their own unique criteria.

 

Understanding how they are expected to work together for a unique family situation (and decision), is beyond even the most astute and well resourced decision maker - however those folks at the Productivity Commission are all over it - demonstrating over 10 unique situations just how inconsistent and unpredictable the outcomes can be. 

 

Changes to the way child care payments work will go some of the way to smooth the combined impact of the government tax and transfer system on family budgets across a range of situations. However the result is anything but uniform.

 

What this analysis clearly shows is that for different families and for different situations, the final impact of the various tapers, thresholds and eligibility criteria for these payments is difficult to calculate and inconsistent in its impact.

 

The results are still confusing, and the decisions families face are difficult to consider with clarity around all the financial detail.

 

So where does that leave families after the new Child Care Assistance changes come in?

 

It will still be incredibly difficult to quantify the real financial outcome of returning to work, placing a child in care, or getting a pay rise. 

 

With child care costs a huge impost on family budgets, these changes will do little to provide clear answers - more likely the fact that they are changing will cause anxiety.

 

Probably a reasonable story for the Government Budget, however for the family budget, the story is as confusing as it has ever been - and the ability to make a decision with all the right information is still a way off.

Starting with childcare

With 1.3 million Australian children in registered child care, and the government providing support of almost $5 billion this year, we thought child care a good place to start.

We have built a beta site therealcostofchildcare.com.au to demonstrate and test our technology in taking user data and generating a calculated result.

The legislation covering the calculation of child care entitlements is quite short, but dense, and the government calculator is clunky, times out and limited in its scope.

The actual calculation is a challenge. This calculation involves 17 variables (each mandated by the government), and a circuitous pathway that has variations based on what type of childcare is used, and how many children concurrently use that type of care. Meanwhile, the data that a family needs to provide is simple.

There is a test applied to the activity of the parent/s that is very hard to understand.  This test, known as the Work, training, study test has been distilled to a simple drop down menu. This is a good start to the journey of improving the way this data is collected.

Even with considerable support available, Australian families are not understanding eligibility, meaning many Australian families are not making a claim. In 2011, MP Kate Ellis even publicly announced that more than 100,000 families were missing out on what was theirs.

Meanwhile, families are concerned about child care costs, and justifiably so. A Commonwealth Bank study found a 13% increase in the cost of childcare amongst its credit card users. They found child care costs spend via credit card growing 50% faster than other spending, and that a quarter of parents spend as much on child care as the parent returning to work earns.

Choice Magazine found that 47% of parents are concerned about child care fees, and for those with kids under age 5, the number is 67%.

When we spoke to child care providers, we found frustration with the lack of resources available to help families make informed decisions around child care costs.

We also found that most providers were considering building resources to help, but progress has been slow. In the meantime, even providers looking after thousands of children simply point families to the government websites for help.

We found that key friction points for child care providers centred around the following:

  1. An inability to help families clarify a final “cost” of care when taking into account government support.
  2. A poor understanding of the ability of the family to channel child care support payments direct to the provider (thus improving cash flow outcomes for families AND providers).
  3. Frustration felt by families as support reaches cap (in the case of the Child Care Rebate) unexpectedly.

We also found childcare providers were very interested in building resources to offer a differentiated service to their competitors.

Our calculator is the result of Innovate NSW support, and many, many hours getting to the bottom of Legislation. We have the functionality to calculate Family Tax Benefit entitlements, and we have started on help for families sharing custody of children – these will all be coming to the website soon.

This is only a first step. The real cost of childcare is not just measured by the impact of childcare rebate and child care benefit support. There is also a complex interplay between Family Tax Benefit eligibility, parenting payments, rent assistance and of course tax. It is only when a family can easily understand the combined result of decisions in all of these calculations that a family can make an informed decision on childcare and work decisions.

This is covered in depth in the recent productivity commission report into child care and early learning . Wouldn't it be great if we good bring this expertise to the kitchen table? We think so.

We seek to become the trusted name in eligibilty. Independent, intelligent and with a single focus on improving the way we help our users.

Stay tuned!