A simpler welfare system

Budget Review 2017–18 Index

Don Arthur

From 20 March 2020, the Government will introduce a new JobSeeker Payment to replace seven existing working age payments. These are Newstart Allowance, Sickness Allowance, Wife Pension, Partner Allowance, Bereavement Allowance, Widow B Pension, and Widow Allowance. The cost of this measure combined with measures to strengthen participation requirements for job seekers is $84.1 million over five years.[1]

According to the Department of Social Services: ‘These measures reflect the Government’s commitment to reforming Australia’s welfare system, using the recommendations from the 2015 McClure Review as an essential blueprint.’[2]

The problem of complexity

Australia’s social security system is made up of around 20 income support payments and 55 supplementary payments. Each payment has its own eligibility rules and the way income and assets tests work can vary between payments.

The way that payments like Newstart Allowance and Family Tax Benefits interact with each other and with the tax system is so complex that policy experts need sophisticated software to work out how much better off an individual would be if they earned an extra dollar from work.[3]

The 2015 report of the Reference Group on Welfare Reform (the McClure review) described the system as an inequitable and incoherent ‘patchwork quilt’.[4] According to the review, the lack of coherence can undermine the system’s ability to help people into paid work.[5]

One of the most significant problems is the gap between Newstart Allowance and the Disability Support Pension (DSP). For a person with some level of disability, minor differences in impairment can translate into major differences in the amount of money they get, the amount of income they get to keep if they work part time, and the mutual obligation activities in which they are expected to take part. A single adult DSP recipient can get around $888 a fortnight while a Newstart allowee will only get around $544.[6]

While the budget changes do not address the complexities that have the most serious impact on work incentives, they do remove some unnecessary payment categories from the system. The changes tidy up the system rather than reform it.

Payments to be replaced

This budget measure replaces Newstart Allowance with a new JobSeeker Payment and closes off a number of existing payments that have already been closed to new entrants or restricted. It also replaces Bereavement Allowance. According to the Department of Social Services: ‘For the first time, there will be one set of rules for working age income support payments.’[7]

The new JobSeeker Payment stops short of being a single payment for people of working age. Disability Support Pension, Carer Payment, Parenting Payment, Youth Allowance, the Farm Household Allowance, and Special Benefit will continue to be available to people of working age.

JobSeeker Payment will not be restricted to people who are required to look for work. For example, some students who are temporarily unable to continue their studies because of illness or injury will be able to claim the payment. For most recipients, the new payment will share the same rates of payment and mutual obligation requirements with the current Newstart Allowance.

Table 1: How the changes affect recipients of existing payments

Existing payment Destination payment Number of
recipients
Is recipient better or worse off?
Newstart Allowance JobSeeker Payment 800,000 Same
Sickness Allowance JobSeeker Payment 8,400 Same
Wife Pension JobSeeker Payment 2,900 JobSeeker Payment lower than Wife
Pension but existing recipients will
have their payment rate
grandfathered to ensure they are
not worse off
Age Pension 2,250 Same
Carer Payment 2,400 Same
Partner Allowance Age Pension
(when recipients reach
qualifying age)
Not available Same
Bereavement Allowance Bereavement Allowance
(existing recipients)
Not available Same
(existing recipients will finish their
14 week period without change)
Widow B Pension Age Pension 323 Same
Widow Allowance Age Pension
(when recipients reach
qualifying age)
Not available Same

Source: Department of Social Services (DSS), Welfare reform—2017 Budget, fact sheet, DSS, Canberra, May 2017, pp. 1–2.

According to the Department of Social Services more than 99 per cent of people affected by the changes will receive the same rate of payment or a higher rate.[8]

Newstart Allowance

While Newstart Allowance was created as a payment for people who were unemployed and looking for full-time work, it now includes a much broader group. According to the McClure review:

There are now people receiving Newstart Allowance with little or no capacity to work full time, following the inclusion of people with disability with partial capacity to work and principal carer parents who are no longer eligible for Parenting Payment.[9]

Around 40 per cent of recipients do not have job search as their main activity.[10] Some of these recipients are undertaking training or other activities, while others are temporarily incapacitated due to illness or injury or have some other exemption from the activity test (for example, a major personal crisis).[11] There are a small number of people on Newstart Allowance with serious medical conditions, such as cancer or acquired brain injury.[12]

Sickness Allowance—restricted since 1996

The budget measure affects around 8,400 current recipients of Sickness Allowance.[13]

Sickness Allowance was created for people who were temporarily unable to work due to illness or injury. Before 1996, Newstart allowees would transfer to Sickness Allowance if their inability to work was likely to last more than 13 weeks. New claimants in the same situation could also claim Sickness Allowance until they recovered.[14]

After 20 March 1996 the rules changed so that the only people who could get Sickness Allowance were new claimants who have a job or course of study to return to once they recovered. Replacing Sickness Allowance with JobSeeker Payment will mean current recipients move to the new payment. This will have no significant impact on their rate of payment or obligations.[15]

‘Dependency’ payments for women

Until relatively recently, the income support system reflected an expectation that women would depend on a male breadwinner for support. A number of payments were created to support women whose husbands or partners were absent (due to separation, imprisonment or death) or who were unable to earn an income.[16] These payments include Wife Pension, Partner Allowance, Widow B Pension and Widow Allowance.

As social norms about women’s participation in work changed, policymakers closed off or restricted access to these payments. For example, the Widow B Pension and Wife Pension were closed off to new entrants in the 1990s while access to Partner Allowance and Widow Allowance has been restricted to women born on or before 1 July 1955 (under the budget changes it will close to new entrants on 1 January 2018).[17]

Most of the women affected by these changes will move to the Age Pension rather than the new JobSeeker Payment. However, around 2,900 Wife Pension recipients will transfer to JobSeeker Payment but will receive their existing rate of payment (which is higher than the normal JobSeeker Payment).[18]

Bereavement Allowance

Bereavement Allowance has its origins in a temporary allowance paid to widows. From 1947 to 1989 this was known as the Widow C Pension. It was replaced by a Widowed Person’s Allowance in 1989 and eligibility was extended to both men and women. In 1995 it was renamed Bereavement Allowance.[19] It is paid at the Age Pension rate (which is higher than Newstart Allowance).

Under the changes announced in the Budget, newly bereaved people will receive the new JobSeeker Payment with ‘a triple fortnights pay in the first fortnight to reflect the fact that newly bereaved people have higher upfront costs such as medical bills and funeral expenses’.[20]



[1].          Australian Government, Budget measures: budget paper no. 2: 2017–18, p. 168.

[2].          Department of Social Services (DSS), Welfare reform—2017 Budget, Fact sheet, DSS, Canberra, May 2017, p. 1.

[3].          D Arthur, ‘Why can’t we have a simple welfare system?’, Australian Review of Public Affairs, September 2014.

[4].          Reference Group on Welfare Reform, A new system for better employment and social outcomes, DSS, Canberra, 2015, p. 10.

[5].          Ibid., p. 10.

[6].          Problems caused by the large gap between Newstart and DSP were discussed by the McClure review. See: Reference Group on Welfare Reform, A new system for better employment and social outcomes: interim report, DSS, Canberra, 2014, p. 47.

[7].          DSS, op cit., p. 1.

[8].          DSS, op cit., p. 1.

[9].          Reference Group on Welfare Reform, A new system for better employment and social outcomes, DSS, Canberra, 2015, p. 57.

[10].       DSS, Newstart Allowance payment trends and profile report, data.gov.au website, 18 January 2017.

[11].       Ibid.

[12].       DSS, ‘Mutual Obligation requirements for NSA/YA Job Seekers/YA Students - Exemptions - Temporary Incapacity’, Guide to social security law, 8 May 2017.

[13].       DSS, Welfare reform—2017 Budget, op. cit., p. 1.

[14].       DSS, ‘Sickness Allowance (SA) - Description’, Guide to social security law, 3 January 2017.

[15].       Ibid.

[16].       P Whiteford, ‘Is welfare sustainable?’, Inside Story, 26 November 2015.

[17].       Department of Human Services (DHS), A guide to Australian Government payments:20 March–30 June 2017, DHS, Canberra, 2017.

[18].       DSS, Welfare reform—2017 Budget, op. cit.

[19].       C Ey, Social security payments for the unemployed, the sick and those in special circumstances, 1942 to 2012: a chronology, Background note, Parliamentary Library, Canberra, 4 December 2012.

[20].        DSS, Welfare reform—2017 Budget, op. cit., p. 2.

 

All online articles accessed May 2017. 

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