Carbon Pricing Mechanism—assistance to welfare recipients

The Government has announced a package of measures aimed at providing assistance to households to compensate for the cost of living impact of the carbon price. It estimates that the carbon price will increase the cost of living by 0.7 per cent in 2012-13. On average, this equates to cost increases of $9.90 per household per week. The Government says that average household assistance will be $10.10 per week.

In its carbon price modelling document, the Government explains that:

Aggregate household consumption will continue to grow with carbon pricing. Households face higher prices for emission-intensive products, such as electricity and gas used for heating, but most other products, including food and clothing, will see only minimal price increases. Impacts on individual households will depend on the specific goods and services they typically consume and how easily they can change their consumption in response to price changes.

Further, the Government says that it’s modelling:

 ... overstates the effect of carbon pricing on the average level of consumer prices. It assumes emission costs to households are passed on fully, based on fixed consumption patterns. The true change in the average household cost of living is likely to be lower than the estimate here, as households substitute towards lower emission goods and services. Changes in consumption will start to have some effect immediately after the introduction of carbon pricing and become more important over time.

The Government has also announced funding for the Australian Competition and Consumer Commission to ‘crack down on any business that seeks to gouge its customers by making misleading claims about the impact of putting a price on carbon pollution’.

The Government plans to deliver assistance through permanent increases to Government welfare payments and tax cuts. This page focuses on the assistance provided to welfare recipients.

Increases in welfare payments

The centrepiece of the planned increases to welfare payments will be a new ‘Clean Energy Supplement’, which will equate to a 1.7 per cent increase in pensions, income support allowances and family payments.

This will result in increased payments of approximately:

  • $338 per year for single pensioners and up to $510 per year for pensioner couples combined (includes Age Pension, Disability Support Pension, Carer Payment, Parenting Payment-Single, Veterans’ Service Pension)
  • $338 per year for single self-funded retirees and up to $510 per year for couples combined (retirees must be eligible for a Commonwealth Seniors Health Card)
  • $110 per child for a family that receives Family Tax Benefit Part A
  • $69 extra for families that receive Family Tax Benefit Part B
  • $218 extra per year for single income support allowance recipients and $390 per year for couples combined (includes Newstart Allowance and Youth Allowance) and
  • $234 per year for single parents in addition to the increased family payments they receive.

The Clean Energy Supplement will be a more identifiable form of support than that envisaged under the Carbon Pollution Reduction Scheme (CPRS), where such support was to have been mainly provided through (and somewhat hidden within) increases in the rate of payments and bringing forward indexation.

Payment of the Clean Energy Supplement will begin prior to the introduction of the carbon price in the form of lump sums (known as the Clean Energy Advance) in May–June 2012. Thereafter, it will change to fortnightly payments from March 2013 for pensions and most allowances, July 2013 for family payments and January 2014 for students on Youth Allowance. The Clean Energy Advance is intended to ensure that people are already receiving compensation when prices start to rise.

For pensioners and most allowance recipients, the lump sum payment will be equivalent to nine months of the extra annual payment and for families the lump sum will be equivalent to a full year of the extra payment.

Other features of the household assistance paid through the welfare payments system include:

  • a new $300 annual Low Income Supplement will be available to households who do not receive enough assistance through tax cuts or government payments to offset their average expected cost impact under a carbon price
  • a new Single Income Family Supplement of up to $300 to assist single income families with incomes between $68 000 and $150 000—this is to compensate such families for the fact that unlike dual income families, these single income families only get one tax cut
  • aged care providers will receive around half of the additional assistance paid through the Age Pension in recognition of the additional costs (such as electricity costs) borne by providers
  • people who hold Commonwealth concession cards and who rely on certain medical equipment will  receive an annual cash payment of $140 a year in order to cover the average electricity price increase from the use of their medical equipment due to the carbon price.

The Government says that ‘assistance is not intended to be included in state government public housing rent setting calculations so that public housing residents get the full benefit of assistance’.

Comment

Perhaps the most important question to be asked about the above measures is whether they will adequately compensate for increases in the cost of living. The answer, according to the Government’s modelling, is yes. In fact, the modelling suggests that welfare recipients will be overcompensated by at least 20 per cent for the expected cost of living impact of the carbon price. For example:

  • a single pensioner will receive an increase of $338 per year even though the expected cost of living increase is $204 per year
  • a single parent with one child aged under five years will receive an increase of $446 per year for an expected cost of living increase of $284 and
  • a single unemployed person will receive an additional $218 per year to cover the expected cost of living increase of $117 per year.

It appears that welfare recipients will also effectively be compensated more than once. This is because any cost of living increases (with the possible exception of any early impacts which would most likely be ameliorated by the Clean Energy Advance) resulting from the carbon price would ultimately be expected to be reflected in the normal indexation increases. The result of this is that the Clean Energy Supplement would be a permanent, indexed payment that sits alongside ordinary indexation arrangements already applying to welfare payments.

It is also worth noting that, for pensioners, the Clean Energy Supplement will sit alongside another permanent, indexed Pension Supplement designed to assist with the cost of daily household living expenses. This is currently paid at a maximum rate of $58.40 per fortnight for singles and $88.00 per fortnight for couples combined. Similarly, retired holders of the Commonwealth Seniors Health Card and some holders of the Veterans’ Gold Card have access to a permanent, indexed, quarterly Seniors Supplement, currently worth $816.40 per year for single cardholders and $616.20 per year for a cardholder who is partnered.

Why, though, do some welfare recipients receive more assistance than others? For example, why does a single pensioner receive more than a single unemployed person? This may be justified to some extent by the fact that the Government estimates the cost of living impact to be greater for single pensioners than single unemployed people. The Government explains in its modelling document that it has used data from the Australian Bureau of Statistics Household Expenditure Survey 2003-04 to calculate probable impacts on various household types.

However, differences in the level of assistance provided are actually more a reflection of the existing differences in rates of payment between pensions and allowances in Australia’s welfare system. As discussed here, the 2010 Henry Review of Australia’s taxation system found significant inconsistencies in the relative payment rates for singles and couples within the different payment categories. It noted that those receiving the Newstart and Youth Allowances are in poverty and receive the equivalent of 31 per cent of net median income. Thus, the higher rates of assistance for some payments essentially reflect the fact that the Clean Energy Supplement is simply a 1.7 per cent increase on existing payments.


Last reviewed 19 July, 2011 by the Parliamentary Library Web Manager

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