Work and study incentives for the unemployed and single parents

Budget Review 2013–14 Index

Michael Klapdor

Raising the allowance income free area

Despite facing significant pressure to raise the payment rate of Newstart Allowance (NSA), the Government has chosen the more modest measure of permitting allowance payment recipients to earn a little bit more income before their welfare payment is affected by the income test.

Allowance recipients can earn more income

The income free area is currently set at $62 per fortnight (pf). Income over this amount begins to reduce a person’s payment rate in two stages: by 50 cents for every dollar earned between $62 and $250 pf and by 60 cents for every dollar earned over $250 until the person’s payment rate reaches zero.[1] This budget measure will see the income free area raised to $100 pf, allowing allowance payment recipients to earn an extra $38 pf before their payment is affected. Payments that will benefit from the measure include NSA, Sickness Allowance, Parenting Payment Partnered as well as the Widow and Partner Allowances. These payments are all paid at equivalent rates—$497.00 pf for a single person without children or $448.70 for a member of a couple—and are means tested in the same way. The Government states that 800,000 people could benefit from the measure, although only 150,000 of those on income support are currently earning more than the $62 free area.[2]

Limit has rarely changed but will now be automatically adjusted through indexation

The income free area for NSA has rarely changed since the unemployment benefit was introduced in 1945 and when it has been changed, it has been with the intention of encouraging jobseekers to take up part-time work and to help payment recipients overcome poverty traps.[3] The budget measure also proposes to index the income free area limit to the Consumer Price Index, the first time this limit will be subject to automatic adjustments. The current income free area dates back to May 1986 when it was set at $60 pf, though the Howard Government increased the limit by $2 pf in 2000, as part of the GST compensation package. If the 1986 limit (with the additional $2) had been indexed to inflation, as the current measure proposes to do, the income free area in 2012 would be around $146 pf.[4]

Measure will do little to address the problem of adequacy

Raising the income free area, expected to cost $258 million over four years, was a recommendation of the Senate Education, Employment and Workplace Relations Committee’s inquiry into the adequacy of allowance payments in 2012.[5] The inquiry, chaired by Coalition Senator Chris Back, concluded, ‘on the weight of evidence, the Committee questions whether Newstart Allowance provides recipients with a standard of living that is acceptable in the Australian context for anything but the shortest period of time’.[6] The Committee recommended greater incentives and assistance for allowance recipients to work but did not recommend an increase in the rate of payment. In their additional comments to the report, Labor senators and Greens Senator Rachel Siewert lent their support to an increase in the rate of payment.[7]

Increasing the income free area, does not address the fundamental issues of adequacy and the increasing disparity between pension and allowance rates. Faced with calls to increase the NSA rate in last year’s Budget, the Government introduced a small supplementary payment, the Income Support Bonus, paid as two instalments of $105 for singles and $87.50 for members of a couple. Lifting the income free area will provide an average benefit of $19 pf for those earning more than $62 pf.[8] This average increase, combined with the new Bonus and the Clean Energy Supplement, remains far short of the $100 per fortnight increase for single allowance recipients recommended by the Henry Review and called for by welfare groups, the Greens and some Labor backbenchers.[9] 

Small incentives for single parents to work and study

The Government also announced two small measures that will benefit single parents: extending eligibility for the Pensioner Education Supplement (PES) to all single parents on NSA and allowing some Parenting Payment recipients to keep their Pensioner Concession Card (PCC) for 12 weeks when they lose eligibility for income support once their children turn eight years old. These measures would appear to be in response to the outcry which followed the Government’s removal of transitional Parenting Payment rules on 1 January 2013, which saw many single parents moved onto the lower rate NSA or off income support altogether.[10] Extending the PES (worth $62.40 pf) to all single parents on NSA will provide a small incentive for them to take up any opportunities to study. Allowing some Parenting Payment recipients to keep their PCC from 1 January 2014 will be little comfort to those affected by the changes at the beginning of this year.

[1].       Single principal carers of dependent children currently have a more generous income test with a flat-rate 40 cent reduction for every dollar earned over $62 per fortnight.

[2].       B Shorten (Minister for Employment and Workplace Relations, Financial Services and Superannuation), Budget 2013–14: Better support to help more Australians enter the workforce, media release, 14 May 2013, accessed 15 May 2013.

[3].       See Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), ‘4.10.2 Historical Unemployment & Sickness Benefit Income Test’, Guide to Social Security Law, FaHCSIA website, accessed 14 May 2013.

[4].       Reserve Bank of Australia (RBA), ‘Inflation Calculator’, RBA website, accessed 14 May 2013.

[5].       B Shorten, op. cit.; Senate Standing Committee on Education, Employment and Workplace Relations, The adequacy of the allowance payment system for jobseekers and others, the appropriateness of the allowance payment system as a support into work and the impact of the changing nature of the labour market, The Senate, Canberra, 2012, p. 76, accessed 14 May 2013.

[6].       Ibid., p. 50.

[7].       Government Senators, ‘Additional Comments’, ibid., p. 81, and Australian Greens, ‘Additional Comments’, ibid., p. 91.

[8].       B Shorten, op. cit.

[9].       P Karvelas, ‘Labor’s welfare rebels hit out’, The Australian, 14 May 2013, accessed 14 May 2013.

[10].      M Klapdor, Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012, Bills digest, 64, 2011–12, Parliamentary Library, Canberra, 2012, accessed 15 May 2013.

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