The adequacy of jobseeker payments

Don Arthur, Social Policy

Key issue
Newstart Allowance and other allowance payments are falling further behind pensions and wages.
There is an ongoing debate about whether or not the base rate of these allowances should be increased.

Newstart Allowance is the main payment for unemployed people aged 22 and over. Those aged 21 and under can apply for Youth Allowance.

For most single Newstart Allowance recipients without children, the maximum payment is around $278 per week, significantly below the Disability Support Pension and Age Pension at $422 and the national minimum wage at $719. Over the past two decades, pensions and wages have increased faster than inflation while Newstart Allowance has remained more or less the same in real terms. As Newstart Allowance has fallen further behind incomes in the broader community, there has been increasing pressure on the Government to increase the payment.

For over a decade, policy experts, social services sector advocates and business groups have voiced concern over the low level of payments for jobseekers. In 2010, Peter Whiteford (then of the University of NSW Social Policy Research Centre (SPRC)) argued that Newstart should be increased and cited arguments from the OECD and the 2009 Tax System Review (Henry Review). Since around 2009 the Australian Council of Social Service (ACOSS) has been campaigning to increase the base rate of Newstart. The Business Council of Australia has also been calling for an increase in the payment since 2011. Before the election, the Australian Labor Party made a commitment to review the adequacy of Newstart payments.

The root of the problem is the way Newstart and other allowances are indexed. Rather than being benchmarked against a measure that rises with living standards in the broader community, allowances are adjusted using the Consumer Price Index (CPI) so that, theoretically, they maintain the same purchasing power over time. Another way of saying this is that the payments keep pace with inflation and maintain the same real value over time.
In periods when wages rise faster than prices payments indexed against CPI alone will fall further behind incomes in the broader community. When unemployment benefits were created in 1945, a single adult received £1 5s per week (the equivalent of $2.50 ). If this amount had been increased only in line with inflation, today’s recipients would receive around $90 per week instead of the $278 per week they receive today (calculated using the Reserve Bank’s pre-decimal inflation calculator).

Aside from some minor adjustments associated with the introduction of the goods and services tax and carbon pricing, the basic rate of Newstart has not increased in real terms since the Keating Government made an above inflation increase for some recipients in 1994 (this was an increase of $3 a week).

Pensions, along with some other payments such as parenting payment single, are adjusted in line with prices, but they are also benchmarked against a measure that captures increases in wages—male total average weekly earnings (MTAWE). In addition to this, single pensioners received a $30 per week increase in 2009.

Newstart Allowance is one of a number of allowances that are indexed using CPI without any benchmark that is linked to wages. Youth Allowance for jobseekers, Youth Allowance for students and apprentices, and Austudy are also indexed in this way.

From 20 March 2020, Newstart Allowance will be replaced by a new JobSeeker Payment. Over time a number of other working age payments such as Sickness Allowance and Widow Allowance will end and recipients will also move to the JobSeeker Payment. The new payment will have the same payment rates and indexation arrangements as Newstart Allowance. This is part of a 2017–18 budget measure that aims to simplify the income support system.

Debate over the adequacy of jobseeker payments

Much of the concern over payment rates is driven by evidence of hardship and suffering among recipients. Many media reports on Newstart Allowance include stories of recipients going without meals, struggling to afford heating, and facing the prospect of homelessness. While there are individuals and groups who argue against an increase in Newstart Allowance, few claim that the payment is adequate for long-term recipients.

Arguments both for and against an increase in payment rates also draw on ideas of fairness or equity. These can focus on concerns about need, deservingness and equality.

Arguments for an increase

The major argument for an increase in payment rates is that payments to jobseekers do not cover the cost of basic essentials and leave many recipients in poverty. ACOSS makes this claim as part of its Raise the Rate campaign, as does the Brotherhood of St Laurence in its Share the Pie campaign.

Advocates for an increase in payments also argue that the low level of payments to jobseekers not only leaves recipients in poverty but also prevents them from finding work. For example, KPMG Chief Economist Brendan Rynne argues: ‘The low level of Newstart is actually forming a barrier to employment, as it is insufficient to allow unemployed people to actively conduct job search.’

To gather evidence about the adequacy of Newstart, Catholic Social Services Australia, United Voice and ACOSS supported a research project by the SPRC. The researchers looked at the cost of items a family would need in order to achieve a minimum healthy living standard. They concluded that ‘Newstart Allowance does not provide an adequate safety net for the unemployed, whatever their family status'.

Advocates, such as ACOSS and the Brotherhood of St Laurence, have also argued that increasing the rate of jobseeker payments will reduce inequality.

Another argument is that the widening gap between jobseeker payments and pensions is unfair and counterproductive. In a 2010 paper ACOSS argued that the gaps between payment rates were arbitrary and unfair. And, in 2014, the Government's Reference Group on Welfare Reform (McClure Review) reported that the widening gap in payment rates was causing problems:

People with similar basic living costs and similar capacities to work may receive very different levels of financial support, and have different participation requirements.

These differences significantly reduce the effectiveness of the system and lead to incentives for people to try and qualify for higher income support payments, rather than building their capacity and aiming for greater self-reliance through employment.

The large difference between the two payments raises issues of fairness. A single Disability Support Pensioner aged 21 or over receives a maximum basic rate of $844 per fortnight. A single Newstart Allowance recipient receives only $556. This is a large gap considering the difference in work capacity between individuals in the two groups is often only a matter of degree. For most applicants, eligibility for Disability Support Pension depends on an assessment of their impairment using a set of tables, which allocate points for various impairments, and an assessment of their ability to work. Applicants need to score at least 20 points on the impairment tables to be eligible for the pension. Around 28 per cent of Newstart recipients have a degree of impairment that means they are unable to work 30 or more hours a week but not severe enough to make them eligible for Disability Support Pension. These recipients are classified as having a partial capacity to work. Some of these recipients are not required to search for work.

The McClure Review rejected the idea that adjusting jobseeker payments for inflation was sufficient and suggested that the Government should consider adjusting payments in line with changing community standards as well. It recommended that a panel of experts conduct community living standards reviews every four years and make recommendations to the Government.

Arguments against an increase

Few opponents of an increase to jobseeker payments claim that they are adequate for long-term recipients. Most acknowledge that many recipients experience hardship but argue that there are better ways of dealing with the problem.

One argument against increasing payment rates is that adequacy is only one of a number of considerations. As well as adequacy, policymakers need to consider the effect of rate changes on work incentives and affordability.

In 2012, a submission by a number of government departments to a Senate committee inquiry on the adequacy of allowances argued that an increase in payment rates would not only be expensive but would also reduce the incentive for some recipients to move into paid work.

Some opponents of an increase have argued that the root cause of the problem is lack of employment and that government should do more to help people into paid work rather than increase payments. For example, a 2012 Senate committee report stated: ‘Pouring money into policies which leave people floundering on prohibitively low welfare incomes instead of helping them stand on their own two feet would be a disgrace.’ The committee argued that the Government should direct resources into employment measures instead.

The 2012 Senate committee report stressed that jobseeker payments were intended to be short-term payments and suggested that the problem of adequacy was concentrated among long-term recipients. Similarly, in 2019 Centre for Independent Studies (CIS) researcher Simon Cowan argued that there was no pressing need to increase the payment rate for short-term recipients. However, of the 723,000 people receiving Newstart Allowance in December 2018, more than 551,000 had received an income support payment for a year or more.

Another concern stems from the belief that many Newstart recipients do not need to rely on income support and could find a job if they really wanted to. This draws on the idea that it is unfair to force taxpayers to support people who are not in genuine need. Cowan argues that ‘voters believe—whether true or not—that rorting of Newstart is widespread’, and that they are less supportive of payments to people who are unemployed than they are of pensioners. He suggests this lack of support is one of the reasons ACOSS’s campaign has received little support from political leaders.

Proposed responses

Supporters of higher rates of jobseeker payments have made a number of proposals. These include an immediate one-off increase in payment rates, a change in the way payments are indexed, and the creation of a new authority or expert group which could periodically review payment rates and recommend increases.

ACOSS proposes raising the single rate of Newstart and other allowances by at least $75 per week as well as indexing the payment to wages rather than CPI alone. ACOSS’s proposal draws on research by the SPRC.

A number of groups have proposed periodic reviews of payment rates. For example, the 2014 McClure Review proposed periodic reviews ‘undertaken by a panel of experts should advise Government on what adjustments should be made to payments to reflect changing community living standards’. More recently, independent MP Cathy McGowan put forward a Bill to establish a Social Security Commission that would review the adequacy of all social security payments. Catholic Social Service Australia, ACOSS and a number of other groups have made similar proposals.

If the Australian Government wanted to improve the adequacy of payments to jobseekers, policymakers would need to consider knock-on effects such as the need to increase other payments such as Youth Allowance for students to avoid creating perverse incentives.

If cost was a major consideration, the Government might look at alternatives to an increase in payments to all jobseekers. For example, Cowan has suggested introducing a supplement targeted to the long-term unemployed.

Another option is to increase Commonwealth Rent Assistance. According to the Grattan Institute, a 40 per cent increase in the maximum rate of Rent Assistance would ‘provide the same real level of assistance to low-income earners as it did 15 years ago, taking into account the rising cost of their rent.’ However this option is not exclusively targeted at people who were unemployed.

The adequacy of jobseeker payments

Debate over the adequacy of jobseeker payments

Arguments for an increase

Arguments against an increase

Proposed responses

Further reading