30
July 2020
PDF version [354KB]
Michael
Klapdor
Social Policy Section
Executive
summary
- On 21 July 2020 the Government announced changes to the income
support measures introduced in response to COVID-19, including:
- a
reduction in the Coronavirus Supplement amount from $550 to $250 per fortnight
- changes
to the JobSeeker Payment and Youth Allowance (Other) income tests and
- the
end to some temporary eligibility changes.
- Lowering the Coronavirus Supplement rate will reduce the level of
assistance available to several million income support recipients and will take
effect during the final quarter of 2020. Based on Government estimates, there
is a risk that this may coincide with a peak in unemployment levels.
- The lower rate of the supplement will reduce the work
disincentive arising from the design of the payment.
- The new income test will allow JobSeeker Payment and Youth
Allowance (Other) recipients to earn more income before their payment rate is
reduced under the income test.
Contents
Executive summary
Introduction
Background to the COVID-19 Economic
Response social security measures
Proposed changes
Changes to the income test
Impact on payment rates
Impact on disposable income
Will the changes require legislation?
Cost of the measures
Impact of the changes
Introduction
On 21 July 2020 Prime Minister Scott
Morrison and Treasurer Josh Frydenberg announced changes to the income support
measures introduced in response to COVID-19.[1]
This Research Paper examines the announced changes to the social security
measures, which include a reduction in the Coronavirus Supplement amount from
$550 to $250 per fortnight, changes to the JobSeeker Payment and Youth
Allowance (Other) income tests, and the end to some temporary eligibility
changes. The changes will have the effect of both reducing the level of
assistance available to several million income support recipients, as well as
reducing some of the current work disincentives arising from the design of the
measures introduced in response to COVID-19.
Background
to the COVID-19 Economic Response social security measures
In March 2020 the Government announced two packages of
measures as part of its response to the COVID-19 pandemic. The social security
measures included in these packages included:
- two $750 lump sum payments to some social security and veterans’
payment recipients[2]
- a Coronavirus Supplement of $550 per fortnight to recipients of
JobSeeker Payment, Parenting Payment, Youth Allowance, Farm Household
Allowance, Special Benefit, Partner Allowance, Widow Allowance and student
payments and[3]
- improved access to income support through changed eligibility
criteria for JobSeeker Payment and Youth Allowance; and the waiver of the
assets tests and some waiting periods for certain payments.[4]
On 30 March the Government also announced a relaxation of
the partner income test, lowering the rate at which payment rates are reduced
due to partner income.[5]
In response to the pandemic, the Government suspended mutual
obligation requirements, such as job search requirements, for certain payment recipients
until 8 June 2020.[6]
The economic impact of COVID-19, combined with the measures
to expand eligibility to social security, saw the number of people in receipt
of the main income support payments for the unemployed (JobSeeker Payment and
Youth Allowance (Other)) double from around 820,000 in December 2019 to
1,640,000 at the end of May 2020.[7]
At the end of June 2020, a total of around 2.2 million social security payment
recipients were receiving the Coronavirus Supplement.[8]
Proposed
changes
Table 1 sets outs the measures announced in the previous
packages and the changes to these measures announced on 21 July 2020.
Table 1: changes
to COVID-19 Economic Response social security measures
| COVID-19 Economic Response social security measures |
Changes announced 21 July 2020 |
| $550 per fortnight Coronavirus Supplement for selected
payment recipients paid from 27 April to 24 September. |
Reduced to $250 per fortnight from 25 September until
31 December 2020. |
| Expanded eligibility criteria for JobSeeker Payment and
Youth Allowance (Other) to allow stood-down permanent employees and sole
traders, casuals and contract workers with reduced work to qualify. Criteria
apply from 23 March to 24 September. |
Will remain in place until 31 December 2020. |
| Waiver of the assets test for JobSeeker Payment, Parenting
Payment, Youth Allowance, Austudy and ABSTUDY Living Allowance from 23 March
to 24 September. |
Reinstated from 25 September 2020. |
| Waiver of the Liquid Assets Waiting Period for JobSeeker
Payment, Youth Allowance and Austudy from 23 March to 24 September. |
Reinstated from 25 September 2020. Those in receipt of a payment prior to 25 September will
not have to serve any potential waiting period when it is reinstated—only new
claimants from 25 September. |
| Waiver of the one-week Ordinary Waiting Period from 12
March to 24 September. |
Will remain in place until 31 December 2020. |
| Reduction in the amount by which payment rates are reduced
(the taper rate) for partner income from 23 March to 24 September. |
Will remain in place until 31 December 2020, but taper
rate will increase from 25 September 2020: from 25 cents for each dollar of
partner income over $996 per fortnight, to 27 cents for each dollar of income
over $1,165 per fortnight. |
| Waiver of the Newly Arrived Residents Waiting Period for
JobSeeker Payment, Youth Allowance, Austudy, Parenting Payment, Special
Benefit and Farm Household Allowance (the waiting period is usually four
years for these payments) from 23 March to 24 September. |
Will remain in place until 31 December 2020. |
| Waiver of the Seasonal Worker Preclusion Period from 23
March to 24 September. |
Will remain in place until 31 December 2020. |
| Suspension of mutual obligation requirements from 24 March
to 8 June. |
Modified requirements were reintroduced from 9 June 2020. From 4 August 2020 jobseekers will be required to
participate in appointments with jobactive providers, agree to a Job
Plan, undertake job search and other activities if safe to do so. However,
payment suspensions and financial penalties will not apply except where a jobseeker
refuses an offer of suitable employment (in which case their payment will be
cancelled). |
Sources: Department of Social
Services (DSS), ‘Coronavirus (COVID-19) information and support’, DSS website, last updated 21 July 2020; Australian
Government, Extension of additional income support for individuals, Fact sheet, The Treasury, last updated 21 July 2020;
S Morrison (Prime Minister), J Frydenberg (Treasurer) and A Ruston (Minister
for Families and Social Services), JobKeeper payment and income support extended, media release, 21 July 2020; Australian Government,
‘Advice about COVID-19 coronavirus’, JobSearch website, last updated 24 July 2020; M
Cash (Minister for Employment, Skills, Small and Family Business) and A Ruston
(Minister for Families and Social Services), Gradual return of mutual obligation requirements, media release, 31 May 2020.
Changes to
the income test
Further to these changes, the Government announced a new
measure to allow recipients of JobSeeker Payment and Youth Allowance (Other) to
earn more private income before their payment rate is reduced under the income
test. From 25 September to 31 December 2020, the income-free area (the amount
of income a person can earn before their payment rate is reduced) will increase
from $106 per fortnight for JobSeeker Payment and $143 for Youth Allowance
(Other) to $300 per fortnight. A person’s fortnightly payment rate will be
reduced by 60 cents for each dollar of income over $300.[9]
The change will allow these payment recipients to earn more
income before having their payment rate reduced and will increase the income
cut-off point at which a person’s JobSeeker Payment or Youth Allowance (Other)
rate reaches zero under the income test. This is significant because the
Coronavirus Supplement is not included in the income-tested rate—an individual
can receive the full supplement amount as long as they receive even a small
amount of the qualifying payment.
Impact on
payment rates
Figure 1 compares the current income test arrangement with
the model proposed to take effect from 25 September 2020. It shows the
total amount of income support payable to a single JobSeeker Payment recipient
with no dependent children at different levels of private income.
Figure 1 shows that the current model provides a higher
level of support until the income test reduces the payment rate to zero (when
private income is just under $1,100 per fortnight) but the proposed model will
allow for a higher level of private income before the person loses eligibility
for JobSeeker Payment.
Figure 1:
JobSeeker Payment rate under the current and proposed income tests and
Coronavirus Supplement rates (single, no dependent children)
Notes: Based on payment rates as at July 2020. Rate includes
Energy Supplement and applicable Coronavirus Supplement rate (but excludes Rent
Assistance and other supplementary payments payable in some circumstances).
Source: Parliamentary Library
estimates.
Impact on
disposable income
Figure 2 shows the estimated effect of the proposed income
test on a single JobSeeker Payment recipient’s net disposable income at
different levels of private income (including the impact of tax and the income
test). It shows that the current design of the Coronavirus Supplement creates
significant disincentives to earn private income beyond the point at which no
JobSeeker Payment rate is payable—an individual would have a much lower
disposable income overall if they earned $1,100 in private income than they
would if they only earned $1,000 in private income. This is not due to the high
rate of the supplement, but the fact it is excluded from the income test and
does not gradually taper off as private income increases.
Figure 2 shows that the proposed model still maintains this
disincentive but that there is a less dramatic drop in income due to the
proposed lower rate of the supplement. The proposed model also allows for a
slightly higher level of private income before a person loses eligibility for
JobSeeker Payment.
Figure 2:
net disposable income under current and proposed JobSeeker Payment income test
and Coronavirus Supplement rates (single, no dependent children, no private
health cover)
Notes: Based on payment rates as at July 2020. Rate
includes Energy Supplement and applicable Coronavirus Supplement rate (but excludes
Rent Assistance and other supplementary payments payable in some
circumstances).
Source: Parliamentary Library
estimates.
Will the
changes require legislation?
The changes may be implemented through legislation or
through legislative instruments made by the Minister for Families and Social
Services. Changes made via legislative instrument do not have to be passed
directly by both Houses of the Parliament but they can be vetoed (disallowed)
by the House of Representatives or the Senate.[10]
The Coronavirus
Economic Response Package Omnibus Act 2020 included amendments to allow
the Minister to make certain changes to the Coronavirus Supplement via
legislative instrument. Changes that can be made without legislation include setting
a different rate for the supplement and extending the period the supplement is
paid—by up to three months at a time.
Separate provisions in the Coronavirus Economic
Response Package Omnibus Act 2020 provided broad powers to the Minister for
Families and Social Services to change any qualification criteria and any
payment rate for any social security payment via a legislative instrument.[11]
These powers will expire on 31 December 2020. The proposed changes to the
income test and to the partner income test could be implemented using these
powers.
Cost of the
measures
In the Economic and Fiscal Update released on 23 July 2020,
the Government set out the total cost of all the social security measures
announced in response to COVID-19, including the changes described in Table 1
and the new income test arrangements: $18.8 billion.[12]
The two lump-sum payments of $750 to certain payment recipients are estimated
to cost an additional $9.4 billion.[13]
Impact of
the changes
The Prime Minister, Treasurer and Minister for Families and
Social Services stated in a joint media release that the extended and reduced
Coronavirus Supplement ‘reflects the gradually improving economic and labour
market conditions and is designed to ensure there are appropriate incentives
for all payment recipients to seek out employment or study opportunities’.[14]
The $300 per fortnight rate reduction for the Coronavirus
Supplement will reduce payments to more than 2.2 million recipients who are
currently benefiting from the extra assistance.[15]
The reduction will occur in the December quarter of 2020 when the Government
expects the unemployment rate to peak.[16]
However, the supplement still offers a much higher level of assistance than the
standard rate of the qualifying payments.
The adequacy of the standard rate of JobSeeker Payment and
other allowance payments has been an issue of concern for policy experts,
community sector advocates and business groups for over a decade and the
COVID-19 pandemic has seen a renewed push from these advocates for a permanent
increase.[17]
The Australian Council of Social Service called for the full $550 supplement
amount to be maintained until ‘it is replaced with a permanent, adequate
increase’.[18]
The proposed changes to the income test allow for a higher
level of income to be earned by JobSeeker Payment and Youth Allowance (Other)
recipients, but the design of the Coronavirus Supplement continues to offer a
significant disincentive to increase earnings for those near the cut-off point.
The income test changes, combined with a proposed reduction in the rate of the
JobKeeper Payment, will likely see more individuals eligible to receive both a
social security payment and JobKeeper Payment at the same time.
The reinstatement of the assets test and liquid assets
waiting period on 25 September may see a reduction in the number of income support
recipients as those with significant assets become ineligible. However, no data
is currently available as to how many individuals have benefited from these
waivers.
[1]. S Morrison
(Prime Minister) and J Frydenberg (Treasurer), Transcript
of press conference: Australian Parliament House, media release, 21
July 2020.
[2]. M Klapdor, ‘COVID-19
Economic response—social security measures part 2: $750 lump sum payments’,
FlagPost, Parliamentary Library blog, 23 March 2020.
[3]. M Klapdor, ‘COVID-19
Economic response—social security measures part 1: temporary supplement and
improved access to income support’, FlagPost, Parliamentary Library blog,
23 March 2020.
[4]. Ibid.
[5]. S Morrison
(Prime Minister) and J Frydenberg (Treasurer), $130
billion JobKeeper Payment to keep Australians in a job, media release,
30 March 2020.
[6]. M Cash
(Minister for Employment, Skills, Small and Family Business) and A Ruston
(Minister for Families and Social Services), COVID-19
mutual obligation arrangements extended, media release, 27 March 2020;
M Cash (Minister for Employment, Skills, Small and Family Business) and A
Ruston (Minister for Families and Social Services), Gradual
return of mutual obligation requirements, media release, 31 May 2020.
[7]. M Klapdor and C
Giuliano, The
impact of COVID-19 on JobSeeker Payment recipient numbers by electorate,
Research paper series, 2020–21, Parliamentary Library, Canberra, 14 July 2020,
p. 6.
[8]. Senate Select
Committee on COVID-19, Answers to written Questions on Notice by the Department
of Social Services, Question
reference number SQ20-000498.
[9]. S Morrison
(Prime Minister), J Frydenberg (Treasurer) and A Ruston (Minister for Families
and Social Services), JobKeeper
payment and income support extended, media release, 21 July 2020.
[10]. The Senate, ‘19:
Disallowance’, Guides to Senate Procedure, The Senate, Canberra,
last reviewed June 2019.
[11]. M Klapdor, ‘COVID-19
Economic response—social security measures part 1: temporary supplement and
improved access to income support’, op. cit.
[12]. J Frydenberg
(Treasurer) and M Cormann (Minister for Finance), Economic and fiscal
update: July 2020, pp. 160–162.
[13]. Ibid., p. 163.
[14]. Morrison,
Frydenberg, and Ruston, op. cit.
[15]. In June 2020,
the Department of Social Services estimated there would be around
2.3 million Coronavirus Supplement recipients in September 2020. Senate
Select Committee on COVID-19, Answers to written Questions on Notice by the
Department of Social Services, Question
reference number SQ20-000443.
[16]. Frydenberg and
Cormann, op. cit., p. 2.
[17]. D Arthur, ‘The
adequacy of jobseeker payments’, Parliamentary Library briefing book:
key issues for the 46th Parliament, Parliamentary Library, Canberra, 2 July
2019, pp. 138–141.
[18]. Australian
Council of Social Service, Millions
face income losses as JobSeeker supplement reduced and anxiety about future
remains, media release, 21 July 2020.
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