Posted 06/09/2022 by Michael Klapdor
Most social security payment rates will be increased on 20 September as part of the regular, twice yearly indexation process. The Minister for Social Services Amanda Rishworth stated that the September increase is ‘the largest indexation increase to payments in more than 30 years for allowances and 12 years for pensions’. Prime Minister Anthony Albanese tweeted that ‘millions of Australians will see the biggest increase to their pension in 30 years’. This FlagPost explains what an ‘indexation increase’ is and why this 30-year record works to maintain rather than increase the real value of these payments.
Social security payment adjustments
On 20 March and 20 September of each year, the rates of most social security payments are usually increased to maintain their real value over time—this process is known as indexation. Pensions, unlike other payments, can also be adjusted to maintain their rate relative to average earnings. Indexation occurs automatically, according to a method set out in legislation (see Part 3.16 of the Social Security Act 1991).
Payment rates are indexed to maintain their real value so they have the same purchasing power as costs of living increase (p. 518). For most payments, this is done by adjusting payments in line with movements in the Consumer Price Index (CPI)—a measure of changes in the price of a fixed basket of goods and services. If the CPI remains static or decreases, payment rates are not adjusted—this occurred in September 2020.
Since 2009, pension rates have also been adjusted using a different measure: the Pensioner and Beneficiary Living Cost Index (PBLCI). The PBLCI measures the effect of price changes on the out-of-pocket living expenses experienced by households whose main source of income is government payments.
Pensions are also adjusted to ensure rates do not fall behind community living standards. This is done through a benchmark—a minimum level for pension rates. The benchmark used since the Hawke Government is a percentage of Male Total Average Weekly Earnings (MTAWE, using the original, male, all employees average weekly total earnings measure).
Payment rates can also be increased in other ways—via ad hoc increases to the base payment or via the introduction of supplements. For example, the single pension rate was increased by $30 per week in September 2009 and the JobSeeker Payment and other non-pension payments were increased by $25 per week in April 2021. Some payment recipients received a boost in support via the COVID-19 Supplement from April 2020 to March 2021 while all income support recipients were compensated for the introduction of the carbon price via the introduction of an Energy Supplement in 2013.
Pension indexation
Pensions (including the Age Pension, Service Pension, Disability Support Pension and Carer Payment) are adjusted on 20 March and 20 September by the greater of the movements in the CPI or the PBLCI over a six-month period. After this indexation occurs, the combined couple rate is benchmarked to 41.76% of MTAWE. The single rate of pension is set at 66.33% of the combined couple rate (which is equal to around 27.7% of MTAWE). If the combined couple rate is lower than 41.76% of MTAWE, the rates are increased to the benchmark level.
Indexation for other payments
JobSeeker Payment, Parenting Payment Partnered and Special Benefit rates are usually adjusted on 20 March and 20 September each year in line with CPI movements over the preceding 6 month period.
Youth Allowance and Austudy rates are only adjusted once a year, on 1 January, in line with CPI movements over a 12 month period.
Parenting Payment Single is adjusted in line with CPI movements in the same way as JobSeeker Payment but is also benchmarked to 25% of MTAWE (this was the same benchmark used for pension payments prior to changes in 2009).
What are the September 2022 adjustments
The CPI, increased by 6.1% from June 2021 to June 2022—the biggest increase between corresponding quarters since June 2001 (following the introduction of the Goods and Services Tax in July 2000) (Tables 1 and 2). This steep rise in prices means a bigger increase in payment rates compared to other indexation adjustments. As payments are indexed twice a year, the September increase is based on the 6-monthly CPI change from December 2021 to June 2022: 3.96%. The rate increases are set out in Table 1 (rate adjustments are rounded according to a method set out in the Social Security Act 1991).
Table 1 Social security payment rate increases on 20 September 2022, per fortnight
|
Payment
|
Current rate
|
Rate from 20/9/22
|
Increase $
|
Increase %
|
|
Single pension
|
$900.80
|
$936.80
|
$36.00
|
4.0
|
|
Partnered pension (each)
|
$679.00
|
$706.20
|
$27.20
|
4.0
|
|
Single JobSeeker Payment, no children
|
$642.70
|
$668.40
|
$25.70
|
4.0
|
|
Partnered JobSeeker Payment (each)
|
$585.30
|
$608.70
|
$23.40
|
4.0
|
|
Parenting Payment Single
|
$855.00
|
$889.20
|
$34.20
|
4.0
|
Source: Department of Social Services (DSS), Indexation Rates September 2022, (Canberra: DSS, 2022).
Are the September 2022 increases historic?
The September 2022 increases maintain the real value of these payments. They do not provide an increase in the purchasing power of households reliant on these payments. While high compared to recent CPI-driven payment increases, the September 2022 rate changes are not historically noteworthy in terms of their impact on payment recipients’ living standards.
It is worth noting that the indexation method results in a delay between price impacts on households and any rate adjustment. Further, the inflation experience of low-income households is different from households on higher incomes so CPI movements do not always accurately reflect changes in the costs of living experienced by households reliant on social security.
In nominal dollar terms, the 20 September 2022 increase will be the biggest indexation-driven adjustment for these payments (see the Social security guide for historical rates). In percentage terms, the increase will be the biggest normal indexation-driven increase for pensions since March 2010. For unemployment benefits (JobSeeker Payment) it is the biggest indexation-driven percentage increase since April 1990.
Ad hoc increases have been bigger than these indexation-driven adjustments. In April 2021, the single rate of JobSeeker Payment was increased by 8.1% and the partnered rate by 9.7% on top of the March 2021 indexation. The September 2009 increase in the single pension rate was equivalent to an 11.9% increase. The COVID-19 Supplement rate paid from April to September 2020 ($550 per fortnight) was equivalent to a 197% increase in the single rate of JobSeeker Payment.