CHAPTER 3
The adequacy of Newstart Allowance and related issues
3.1
The committee received and considered a large body of evidence
concerning the adequacy of the allowance payment system, much of it focused and
unambiguous in its criticism of Newstart Allowance. Very early on in this
inquiry, it became clear that this payment was the main point of stakeholder concern.
3.2
This chapter looks at arguments presented by submitters challenging the
adequacy of allowance payments and examines whether the Newstart Allowance payment
is fit for purpose.
3.3
The second part of the chapter examines the budgetary implications of
raising the allowance and identifies ways in which the resulting concerns could
be addressed.
Measuring adequacy
3.4
At its core this inquiry relates to whether a person dependent on income
support can meet their basic, everyday living costs in a manner acceptable in
the Australian context. Adequacy is, therefore, about more than the ability to simply
pay for food and shelter. As put by the Business Council of Australia:
Adequacy refers to the minimum standards required to meet
basic needs and sustain some level of social engagement.[1]
3.5
The overwhelming majority of submissions expressed the view that the
current rate of payment was inadequate, impeding recipients' ability to meet
their basic costs of living in an acceptable manner.
3.6
The scope of this report being too limited to do every submission
justice, a few examples are cited below. These reflect the flavour and
unanimity of the large number of submissions received.
3.7
The Salvation Army summed up its views thus:
The Salvation Army...asserts that the current payment system
does not provide recipients with adequate income, as defined by internationally
recognised human rights standards, to meet even the most basic of underlying
essential guarantees for social support systems.
The Salvation Army believes that significant inequity has
developed between Australian receiving different forms of income support
allowances, and that this has resulted in unacceptable levels of disadvantage
and further entrenched individuals and families in poverty.[2]
3.8
Mission Australia pointed to the maximum fortnightly rate of Newstart
Allowance for a single person being less than half the Australian minimum wage.
Research cited by the submission estimates that, after rent, the average single
Newstart recipient living in Sydney is left with approximately $16.50 per day
to cover all other costs of living.[3]
3.9
ANGLICARE Sydney not only considered the allowance inadequate, but went
so far as to call Newstart 'the most significant barrier to assisting long-term
unemployed people return to meaningful employment.'[4]
3.10
In a joint submission, Community Information and Support Victoria and
Good Shepherd Youth and Family Service came to the stark conclusion that
Newstart Allowance was now so low that it has become a pathway to poverty
instead of to employment.[5]
3.11
The views above were by no means unique. Submission after submission
stated that allowance payments were inadequate, and many supported calls from welfare
agencies such as the Australian Council of Social Service and UnitingCare
Australia for allowance payments for single people to be increased by $50 per
week.[6]
3.12
However, the needs and realities facing people living on income support
are many and varied.
3.13
The committee is cognisant of the fact that the allowance payment system
interacts with and supports many different groups of people. When thinking of
Newstart Allowance, it is easy to think of people of working age who are
unemployed. However, it is important to remember that Newstart recipients
include older Australians, people who were formerly on different pensions,
single parents with children and families with two unemployed adults. Newstart
recipients can be people on the fringes of society, who need tremendous support
to reintegrate into the community:
Jesuit Social Services works with people involved in the
justice system, individuals with drug and alcohol problems, those affected by
mental illness, young people at risk of homelessness, as well as refugee and
newly arrived migrants. Many of these individuals are recipients of allowance
payments. The inadequacy of allowances often presents a barrier which hinders
the ability of our clients to realise their aspirations and more fully participate
in the life of the community.[7]
3.14
As put by Jesuit Social Services, the allowance payment system is part
of a 'broader framework of institutions and support services that promote a
more inclusive society by providing a basic safety net for members of our
community.'[8]
Singles
3.15
Many submissions argued that single recipients of Newstart Allowance,
both with and without dependents, were the group in greatest financial
hardship, as they receive the lowest rate of payment and least additional
assistance.[9]
The Australian Council of Social Service (ACOSS) pointed out that the maximum
single rate for Newstart was $245 in March 2012, or $133 less per week than the
rate of payment for singles on the age and disability pensions.[10]
3.16
Single parents also receive less on Newstart Allowance than on the
Parenting Payment Single (PPS). This last point is of particular concern given
the government's introduction of the Social Security Legislation Amendment
(Fair Incentives to Work) Bill 2012 in June of this year. This legislation
changed eligibility requirements for Parenting Payment (PP) from 1 January
2013, with parents who no longer qualify for PP to be moved onto Newstart
Allowance instead. For parents coming to Newstart Allowance from PPS, this will
mean a lower rate of payment.
3.17
The joint submission described how the income required by various types
of households may be determined:
A commonly cited approach to determining the amount of income
that different households require to attain the same living standard is the OECD
Modified Equivalence Scale. The scale is calculated by adding together a factor
of 1 for the first adult and a factor of 0.5 for each subsequent person aged 14
and over and 0.3 for each child under 14 for a particular household. Once this sum
has been calculated, a household’s disposable income can then be divided by the
scale, providing an equivalent to a single person’s income, facilitating
comparison between different household types.[11]
3.18
The difference in rates of payment for single and partnered recipients
reflects the economies of scale that are achieved by sharing living costs with
another person. The OECD modified equivalence scale described above suggests
that:
...an appropriate relativity for the single rate of allowances
would be approximately two-thirds of the combined couple rate.[12]
3.19
This is the relativity settled on for single and partnered pension rates
settled on following the Harmer Review. However, the agencies explained, a set
relativity between single and partnered Newstart Allowance rates does not
exist. The committee understands that this relativity currently sits at
approximately 55 per cent and that its alternation would require a change in
policy.[13]
Older Australians on Newstart
Allowance
3.20
Australia has an ageing labour market. Whereas in 1983 approximately 56
per cent of 45–64 year olds were in the labour force, by 2003 that percentage
had risen to 69 per cent. We are now, therefore, seeing the emergence of a
growing and vulnerable group of older people seeking employment.[14]
3.21
This cohort faces unique obstacles:
Age discrimination and disability discrimination is rife in
Australia, and is acknowledged as a major barrier to the employment of people
in mature age. Once unemployed, older people find it very difficult to find
work again. Their average time spent on NSA is 70 weeks; double that of their
younger peers.[15]
3.22
Given that the qualifying age for receipt of the Age Pension is set to
increase to age 67 by 2023, the number of older Australians in the labour
market will continue to expand.
3.23
Australia's ratification of the International Covenant on Economic
Social and Cultural Rights (ICESCR) carries obligations to provide all
citizens the right to social security, work, and technical and vocational
training.[16]
These rights are echoed in the United Nations Principles for Older Persons, which
Australia supports and which promotes the rights of the older person:
-
to work or access other income-generating opportunities;
-
to participate in determining when, and at what pace, to withdraw
from the labour force; and
-
to access educational and training opportunities.[17]
3.24
Older workers, the AHRC advised, face particular obstacles to finding
employment. These obstacles are such that older Australians in the labour force
are far more likely to be long-term unemployed than their younger counterparts,
with 33 per cent of unemployed 55–64 year olds being long-term unemployed in
2010–11. This percentage fell to 22 for unemployed people aged 35–44, and to 13
per cent for unemployed 15–24 year olds.[18]
3.25
Mr Dennis Trewin, Chair of the Academy of Social Sciences in Australia,
provided the committee with the following table, depicting a breakdown of
Newstart recipients by age and gender:[19]
JOB SEEKERS RECEIVING
NEWSTART ALLOWANCE AND YOUTH ALLOWANCE (OTHER) BY AGE AND SEX, AS AT MAY
2012
|
Age
|
Short-term job seekers
|
Long-term job seekers
|
Total job seekers
|
Number
|
Per Cent
|
Number
|
Per Cent
|
Number
|
Per Cent
|
|
|
|
|
|
|
|
MALES
|
|
|
|
|
|
|
Less than 18 years
|
1,150
|
1.2
|
1,087
|
1.0
|
2,237
|
1.1
|
18 - 20 years
|
6,183
|
6.3
|
9,805
|
9.1
|
15,988
|
7.8
|
21 - 24 years
|
18,107
|
18.4
|
17,440
|
16.1
|
35,547
|
17.2
|
25 - 29 years
|
16,483
|
16.8
|
16,382
|
15.2
|
32,865
|
15.9
|
30 - 39 years
|
23,698
|
24.1
|
24,753
|
22.9
|
48,451
|
23.5
|
40 - 49 years
|
17,383
|
17.7
|
19,848
|
18.4
|
37,231
|
18.0
|
50 - 59 years
|
11,373
|
11.6
|
13,676
|
12.7
|
25,049
|
12.1
|
60 years and over
|
3,868
|
3.9
|
5,048
|
4.7
|
8,916
|
4.3
|
Total
|
98,245
|
100.0
|
108,039
|
100.0
|
206,284
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FEMALES
|
|
|
|
|
|
|
Less than 18 years
|
1,098
|
2.2
|
1,282
|
1.7
|
2,380
|
1.9
|
18 - 20 years
|
5,074
|
10.2
|
9,726
|
13.0
|
14,800
|
11.9
|
21 - 24 years
|
9,801
|
19.7
|
11,656
|
15.6
|
21,457
|
17.2
|
25 - 29 years
|
6,288
|
12.6
|
7,717
|
10.3
|
14,005
|
11.3
|
30 - 39 years
|
8,082
|
16.2
|
12,816
|
17.2
|
20,898
|
16.8
|
40 - 49 years
|
9,814
|
19.7
|
16,722
|
22.4
|
26,536
|
21.3
|
50 - 59 years
|
7,552
|
15.2
|
12,053
|
16.2
|
19,605
|
15.8
|
60 years and over
|
2,078
|
4.2
|
2,643
|
3.5
|
4,721
|
3.8
|
Total
|
49,787
|
100.0
|
74,615
|
100.0
|
124,402
|
100.0
|
|
|
|
|
|
|
|
PERSONS
|
|
|
|
|
|
|
Less than 18 years
|
2,248
|
1.5
|
2,369
|
1.3
|
4,617
|
1.4
|
18 - 20 years
|
11,257
|
7.6
|
19,531
|
10.7
|
30,788
|
9.3
|
21 - 24 years
|
27,908
|
18.9
|
29,096
|
15.9
|
57,004
|
17.2
|
25 - 29 years
|
22,771
|
15.4
|
24,099
|
13.2
|
46,870
|
14.2
|
30 - 39 years
|
31,780
|
21.5
|
37,569
|
20.6
|
69,349
|
21.0
|
40 - 49 years
|
27,197
|
18.4
|
36,570
|
20.0
|
63,767
|
19.3
|
50 - 59 years
|
18,925
|
12.8
|
25,729
|
14.1
|
44,654
|
13.5
|
60 years and over
|
5,946
|
4.0
|
7,691
|
4.2
|
13,637
|
4.1
|
Total
|
148,032
|
100.0
|
182,654
|
100.0
|
330,686
|
100.0
|
3.26
The committee received a great deal of evidence on programs available to
assist people in finding employment, as well as on how older workers can
benefit from these. This is discussed in the next chapter.
People with dependents
3.27
The committee received disturbing evidence concerning children living in
poverty in Australia:
It has been estimated that 12% to 15% of all children in
Australia are living in income poverty (UNICEF, 2007; Whiteford and Adema,
2007). Further to this, Abello and Harding (2006) estimated in their three-year
Australian study of income mobility transitions that around 12% of children experienced
persistent financial disadvantage for three years and that another 28% of
children experienced financial disadvantage for at least one year. Of those
children born into the lowest quintile of income, only one in four transitioned
to higher income quintiles over the three-year period. This lack of mobility
for some children appears to be directly related to the wage and educational
outcomes of their parents (Cassells et al, 2011).[20]
3.28
Many Newstart Allowance recipients have at least one dependent child in
their household.[21]
Given the difficult circumstances many people face when reliant on Newstart
Allowance as their primary source of income, and the potential consequences on
their children, the committee is particularly concerned about the need to help
parents make the transition from welfare to work.
3.29
Further to this is the generational effect of long term unemployment.
The committee is aware that relatively little research exists in Australia on
intergenerational unemployment. What is clear, however, is that a positive
correlation does exist between labour market outcomes of parents and their
children.[22]
3.30
The committee was very pleased to learn that payments are determined
with a view to ensuring that households with dependent children receive higher
overall rates of payment.
The real value of Newstart Allowance
3.31
To better understand cost of living pressures faced by Newstart
Allowance recipients, the committee considered evidence on the real value of
the payment.
3.32
The Australian Council of Trade Unions (ACTU) pointed out to the
committee that the real, Consumer Price Index (CPI)-adjusted value of Newstart
has remained almost constant for the past two decades:
In constant 2011 dollars, the unemployment benefit was around
$188 per week in March 1982, compared with $244.85 in 2012. When the
unemployment benefit became Newstart Allowance in July 1991, it was worth $233.80
in 2011 dollars. Eighty per cent of the real increase in the payment rate
therefore occurred in the 1980s; the payment has remained more or less constant
in real (CPI-adjusted) terms for the past two decades.[23]
3.33
To illustrate the point, the ACTU provided the following graph[24]
showing that the real value of Newstart Allowance has remained more or less
constant in CPI-adjusted terms since 1982:
3.34
ACOSS added:
Since 1994, the single rate of NSA has fallen from 92% to 72%
of the poverty line and from 26% to 21% of the fulltime median wage. Its
purchasing power has declined by $8 a week since the cost of essential goods
and services such as rent and utilities has risen more quickly than the CPI.[25]
Financial pressures on welfare recipients
3.35
A number of submissions discussed the unique financial pressures faced
by Newstart Allowance recipients.
3.36
Submissions posited that welfare recipients not only have to make their
payments stretch to meet the basic costs of living, such as food and housing,
but also need to spend a substantial portion of their welfare income on the not
inconsiderable cost of job hunting. As put by the St Vincent de Paul Society,
Newstart recipients are caught in a 'poverty trap' whereby they often pay more
for basic needs precisely because of their circumstances:
For example, if public transport is available where people
live, then it usually costs more (as they typically live further out from the
cities), and is much sparser and less frequent. If indeed, Newstart recipients
run a car, it will usually be older and is likely to cost more to run. Credit
costs more, in particular small amount short-term credit contracts where the
interest payable may sometimes be in excess of 50%. They cannot lower their
bills by taking advantage of government assistance for things like solar panels
or water tanks, because they don't run their own house.[26]
3.37
The committee heard from ACOSS that welfare recipients face a large
amount of financial stress, which is different to and comes on top of their
deprivation. Surveys looking at whether respondents suffered financial stress
over a particular period consider whether respondents:
- could not pay household bills on time;
- could not pay the rent or mortgage on time;
- had to pawn or sell belongings for cash;
- had to go without meals;
- were not able to heat the home in cold weather;
- had to seek financial assistance from family and friends; and
- had to seek assistance from welfare organisations.[27]
3.38
ACOSS provided the following Australian Bureau of Statistics (ABS) table
showing how financial stress is experienced by households:
3.39
The Joint Agency Submission also discussed financial stress experienced
by allowance payment recipients, citing ABS research:
Analysis by the ABS (2011b) shows that households who rely on
government pensions and other benefits as their main source of income
experience higher levels of financial stress than the general population.
Around forty-eight per cent of these households reported experiencing three or
more indicators of financial stress in the previous twelve months, which was
more than double the rate of financial stress for all households (22.1 per
cent). For people receiving allowance payments such as Newstart Allowance,
Youth Allowance, Austudy and ABSTUDY, the rate of reported financial stress was
higher, at around 79 per cent.[28]
3.40
The departmental submission noted, however, that financial stress
indicators must be used with caution when determining whether a person has
adequate income or is in poverty:
Some people on low incomes do not report any financial
stress, while others with moderate to high incomes report problems meeting
expenses. New Newstart Allowance recipients could also be expected to have
difficulties adjusting to lower incomes following a job loss. Certain factors
not directly related to income, such as consumption patterns, debt levels,
budgeting and money management skills, or certain life events (e.g. loss of
employment or death of a spouse) may also contribute to a person’s likelihood
of experiencing financial stress.[29]
3.41
The departments also outlined how payment arrangements are made more
flexible for people having difficulty managing on low incomes. To demonstrate
this flexibility, the joint submission described how allowance payments may be
made weekly, instead of fortnightly, to 'alleviate the hardships faced by the
most vulnerable people.' This flexibility in how payments are made:
...does not change entitlements but helps people to stabilise
their circumstances, meet their expenses more readily and reduce their risk of
financial crises and homelessness.[30]
Cost of job hunting
3.42
Submissions pointed in particular to the costs unemployed people faced
when looking for work, concluding that many struggle to meet those costs after
paying for essential living costs:
Many of these [unemployed] people find it difficult to pay
rent, buy food and meet other essential costs. The costs of job hunting (making
phone calls, travelling to and from interviews, and buying suitable interview
clothes) are, for some people, simply untenable. The point is that finding a
job requires resources, and these resources are not available to people who
rely on Newstart for their income.[31]
3.43
The Business Council of Australia (BCA), for example, argued that the
low payment rate of Newstart Allowance had in itself become a barrier to
employment:
Trying to survive on $35 a day is likely to erode the
capacity of individuals to present themselves well or maintain their readiness
to work.[32]
3.44
The BCA explained that people spending longer periods of time unemployed
faced greater risks of homelessness, which in turn entrenches their poverty and
unemployment:
While the combined Newstart and rental allowance may tide
people through relatively short periods of unemployment, for those out of work
for long periods of time, such low levels of support greatly increase the risk
of homelessness. Once homeless, job seekers are severely disadvantaged in their
ability to maintain active job search and present themselves decently for job
interviews.[33]
3.45
The committee was interested to hear about the additional financial support
available to allowance recipients for the purposes of seeking work. This is
discussed in the next chapter.
Housing affordability
3.46
A common conclusion among submitters was that, at its present rate of
payment, Newstart Allowance did not enable people to house themselves in a manner
conducive to finding employment:
[Newstart Allowance] does not permit people to establish a
sufficiently adequate or stable home as a base from which to engage in paid
employment, associated vocational training, or other steps toward gaining
employment.[34]
3.47
This, Homelessness Australia contended, places people in housing crisis –
even at risk of homelessness.[35]
3.48
Most people on Newstart Allowance are people who do not own their own
homes. Renters as a group are particularly vulnerable to sudden loss of income
due to unemployment. As pointed out by ACOSS:
Only 18% of people on NSA own or are purchasing their home.
Half rent privately and they have faced sharp increases in rents over the last
five years. A single person on NSA receives up to $60 a week in Rent Allowance,
or $71 per week of they have children, but this covers only a fraction of
market rents. For example, the median rent for a two bedroom flat in Sydney is
$450 and that in Melbourne is $295.[36]
3.49
The committee heard that housing affordability had decreased in recent
years. VincentCare Australia provided the following graph[37]
reflecting rental affordability in Melbourne to illustrate the point:
3.50
Mr Dennis Trewin, discussing the conclusions of a 2011 expert roundtable
looking at social security, suggested that raising the amount of rental
assistance would be a good way of improving housing affordability:
Increasing the rent allowance especially for those renting
privately might be an effective way of reducing the gap, as it ensures that
additional money is actually spent on housing, which is of course an area of
real need. All participants agreed that any revision of the arrangements for
the Newstart allowance should not reduce the incentive to find work, and this
has to be a special consideration in any redesign work on the scheme. The most
common argument for keeping the Newstart allowance low is to increase
incentives to find work, but there is no evidence that lowering of the real
value of the allowance is resulting in a significant decrease in those seeking
Newstart allowance.[38]
3.51
The joint submission addressed the standard of living of allowance
recipients in detail, pointing out from the outset that judgements are
inherently subjective:
Assessing living standards is highly complex and there is no
agreed way to accurately quantify and compare living standards between
individuals and households. The concept of ‘adequacy’ is problematic in that it
relies on subjective judgements on an appropriate living standard and there is
no conclusive measure of adequacy. It is also inappropriate to consider
allowance payment rates in isolation as they are one component of a broader
package of assistance that is targeted to the needs of the recipients.[39]
3.52
To explain how payment rates interact with changing living costs and
specific concerns around housing affordability, the agencies described how
payment levels differ between household types by offering four different
figures. The first of these[40]
compares household types without any earned income.
3.53
The second figure[41]
compares allowance payment rates for households with $450 in earnings per
fortnight:
3.54
The final figure shows the package of assistance by type of household
where income is $900 per fortnight:
3.55
What the figures above illustrate is that different types of households
have different living costs. So, for example, a household with dependent
children has higher costs than a household without children. Similarly, 'a
single person living alone cannot achieve the same economies of scale as a
couple household, a sharer household of a family with children might.'[42]
Food insecurity
3.56
Food insecurity was described to the committee in the following way:
The experience of food insecurity involves not being able to
afford enough food, and enough of the right kinds of food, which can be
obtained in ways that are considered socially acceptable. It may involve
worrying about food running out, cutting meal sizes, and going without meals.[43]
3.57
The committee was struck by the fact that, as of June 2012,
approximately 50 per cent of Newstart recipients were receiving some form of
food assistance from emergency relief centres run by Anglicare Sydney.[44]
The same organisation completed a pilot study of 117 clients at its emergency
relief centre in Wollongong, approximately a third of whom received Newstart
Allowance as their principal source of income. The study revealed that 95 per
cent of respondents were 'food insecure':
Outlining the experience of food insecurity in households
revealed that 80% cut the size of their meals, 74% skipped meals, and 52% did
not eat for a whole day. Amongst households with children, 67% of respondents
could not afford to feed their children the variety of food they thought their
children needed. Parents were forced to cut the size of their child's meal in
35% of cases and 14% of children skipped meals.[45]
3.58
A further study involving fifteen different Anglicare agencies was
conducted in early 2012 and looked at 590 emergency relief clients from all
states and territories. The final report, 2012 State of the Family: When
there's not enough to eat, was released in October 2012 and found that:
- 96% of respondents were food insecure with 3 in 4 (76%)
experiencing severe insecurity.
- 3 out of 4 adults regularly ran out of food in the last three
months and could not afford to buy more. 73% of adults were cutting the size of
meals and 62% were regularly skipping meals altogether.
- 1 in 3 adults regularly did not eat for an entire day.
- Living in a food insecure household did not necessarily mean that
children were food insecure.
- 79% of children presented in the sample experienced some level of
insecurity however more than 1 in 3 were severely food insecure.
- Surveyed adults appear to build in protection for children in
those same households from the effect of food insecurity: 97% of adults living
in households with children fell into either a more severe category than
children in the household (55%) or the same (43%) food insecurity category.
- 65% of households with children said they regularly could not
provide enough variety of food for their children,
- 38% said their children were regularly not eating enough and 29%
of cases they said children were regularly going hungry.
- In 7% of households children did not eat for a whole day either
weekly or some weeks.
- Children have been described as being ‘grumpy’, ‘upset’,
‘embarrassed’ and exhibiting behavioural problems.[46]
3.59
The committee received the following table from Jesuit Social Services,[47]
showing how much individuals and families spend on food:
Average fortnightly
cost of a Victorian Healthy Food Basket
|
Family of 2 adults
and children
|
Single parent family
with 2 Children aged 5-12 years
|
Single adult
|
Elderly adult
|
Disadvantaged areas
(mean cost)
|
$448.5
|
$307.5
|
$141
|
$108
|
Comparatively
advantaged areas (mean cost)
|
$429.5
|
$295
|
$135
|
$103.5
|
Disadvantaged areas –
Major City
|
$422.5
|
$289.5
|
$133.5
|
$101.5
|
Disadvantaged areas –
Inner Regional
|
$457.5
|
$313
|
$144.5
|
$110
|
Disadvantaged areas –
Outer Regional
|
$484.5
|
$333
|
$151
|
$117.5
|
3.60
The table below, also from Jesuit Social Services,[48]
depicts typical allowance payment rates and the percentage of these payments
taken up by the average cost of purchasing healthy food:
Percentage of
fortnightly income support to afford the Victorian Healthy Food Basket
|
Family of adults and
2 children aged 5 – 12 years
|
Single parent family
with 2 children aged 5 – 12 years
|
Single adult
|
Single person
receiving aged pension
|
Income from allowance
payments (net of Rent Assistance)
|
$1,418
|
$1022.76
|
$489.70
|
$695.30
|
Disadvantaged areas
(mean cost)
|
31.6%
|
30%
|
28.7%
|
15.5%
|
Comparatively
advantaged areas (mean cost)
|
30.3%
|
28.8%
|
27.6%
|
14.9%
|
Disadvantaged areas –
Major City
|
29.8%
|
28.3%
|
27.3%
|
14.6%
|
Disadvantaged areas –
Inner Regional
|
32.3%
|
30.6%
|
29.5%
|
15.8%
|
Disadvantaged areas –
Outer Regional
|
34.1%
|
32.6%
|
30.8%
|
16.9%
|
Measuring changes in the cost of
living
3.61
The most commonly employed methods of measuring living costs were
outlined in the Joint Agency submission. These include the Analytical Living
Cost Indexes (ALCI), which reflects changes over time in household after-tax
income purchasing power, and the Pensioner and Beneficiary Living Cost Index
(PBLCI), which is a combination of the age pensioner and 'other government
transfer recipient' indexes.[49]
3.62
ALCIs are produced by the Australian Bureau of Statistics. One
particular index specifically measures cost of living changes for households
whose principal source of income is a government payment (other than Age or
Veterans' Affairs Pension). The difference between this ABS index and the CPI
is twofold:
- ALCI is calculated by looking at a basket of goods reflecting
typical spending patterns of allowance recipient households; and
- Since 1998 CPI has been based on goods acquired by households,
while ALCI is based on households' actual outlays.[50]
3.63
The ACTU advised that allowance recipients' ALCI rose in line with the
CPI between 1998 and 2005. In total, CPI has risen by 48.3 per cent since 1998,
while the ALCI has grown by 55.4 per cent. CPI therefore, is not a good measure
of the change in recipient households' cost of living. The ACTU concluded that
the living standards of Newstart recipients have worsened over time despite the
real, CPI-adjusted value of the allowance remaining constant:
When Newstart is adjusted for price changes over time by
using a cost of living index based on the expenditure patterns or income
support recipients rather than the CPI, it is apparent that the real purchasing
power of the allowance has fallen over time. The absolute living standards of
Newstart recipients have thus fallen.[51]
3.64
ACOSS provided the graph below, which adjusts trends in the single rate
of Newstart Allowance to movements in the ALCI since 1998:
3.65
The graph shows that the purchasing power of recipients of the single
rate of Newstart Allowance has fallen by $8 per week since 1998. This, ACOSS
stated, effectively means that 'the living standards of people receiving NSA
payments are likely to be lower now that those of their counterparts 15 years
ago.'[52]
Committee view
3.66
On the weight of evidence, the committee questions whether Newstart
Allowance provides recipients a standard of living that is acceptable in the
Australian context for anything but the shortest period of time. This being the
case, the only conclusion the committee could reach was that one of two
possible solutions must be pursued: either Newstart Allowance should be
increased to raise the standard of living available to recipients, or more
careful thought needs to be applied to how best to ensure that people spend as
little time as possible on welfare in between jobs. For this reason, the
committee sought evidence on both the cost of raising Newstart Allowance, which
is covered later in this chapter, and on how policymakers can improve job
services, a topic to which Chapter four of this report is devoted.
Indexing Newstart
3.67
One method of raising the amount of money recipients of Newstart
Allowance receive would be to change how the allowance is indexed. There was a
great deal of support for this among submitters.
3.68
Pensions are indexed twice per year 'by the greater of the movement in
CPI and the PBLCI'.[53]
Furthermore, the combined couple pension rate is also benchmarked to 41.76 per
cent of Male Total Average Weekly Earnings (MTAWE).[54]
This approach ensures that people reliant on pensions have their payments
increased in line with current living costs.
3.69
As noted in Chapter 2, most allowances are increased on 20 March and 20
September in order to maintain the real value of payments over time. Unlike
pensions, allowance increases occur each year in line with movements in only the
CPI.[55]
By comparison, people who rely on allowances as their sole
source of income live below the poverty line and are often unable to afford
basic necessities such as accommodation, food and healthcare.[56]
3.70
This divergence in indexation methods between pensions and allowances can
be traced back to 1997. From that point on, while allowances continued to be
indexed to the CPI, 'pensions were indexed to CPI and benchmarked to 25 per
cent of MTAWE.'[57]
3.71
Many submissions argued that the indexation of Newstart Allowance
compounded its inadequacy, with some calling for the allowance to be indexed to
the average male wage rather than CPI.[58]
3.72
ACOSS pointed out that wages had risen more than inflation over the past
two decades. Given that allowance payments have been indexed to CPI over this
same period, their value has fallen further behind other household incomes.
ACOSS added:
From the time of the last increase in NSA in 1994 up to 2011,
the single rate of NSA has fallen from 43% to 41% of the fulltime minimum wage,
before tax. Over the same period, it fell from 26% to 21% of the fulltime
median wage.
If the single NSA rate had been consistently indexed over
that period to movements in median fulltime earnings, it would now be
approximately $45 per week higher.[59]
3.73
The committee discussed the issue of indexation with the departments,
however notes that indexation methods can only be changed by a change in government
policy.
The cost of raising Newstart
3.74
Having considered arguments from welfare agencies calling for the base
rate of Newstart Allowance to be increased by $50 per week, the committee
examined the budgetary implications of such a move.
3.75
Giving a broad initial indication, representatives of the Department of
Education, Employment and Workplace Relations (DEEWR) put the estimated cost
of such an increase at $2 billion over a full year.[60]
3.76
Offering to provide the committee with more detail, DEEWR looked at the
cost of increasing the single rate of allowances by $50 per week, starting from
March 2014 and indexing payments to growth in MTAWE. That cost, DEEWR
estimated, would approach approximately $8 billion over four years.[61]
That estimate, DEEWR added, includes:
- a rate increase for around 670,000 single recipients of Newstart
Allowance, Youth Allowance (Other, Student and Apprentice), Sickness Allowance,
Special Benefit, ABSTUDY, Austudy, Parenting Payment Partnered, Disability
Support Pension (DSP) under 21 without children, Widow Allowance and Partner
Allowance each year;
- a change in indexation arrangements for around 1.2 million partnered
and single recipients of the same payments;
- approximately 54,000 additional recipients each year receiving a
part-rate of payment due to the increased income test cut-off points;
- costs for Job Services Australia, Disability Employment Services
and Remote Jobs and Community Programs; and
- approximate costs associated with implementation by the
Department of Human Services.[62]
3.77
The estimate does not include costs associated with changes to
Department of Veterans' Affairs payments, nor does it include around '500,000
recipients each year who are predominantly partnered recipients for all
payments', young people receiving Youth Allowance or ABSTUDY who are living at
home, and DSP recipients under the age of 21 who do not have children and who are
dependent. If DEEWR's estimates for increasing allowances by $50 per week were
expanded to include the abovementioned groups, the cost of the increase would
blow out to $15 billion over four years.[63]
3.78
The committee sought to establish where the required savings for such an
increase in expenditure on Newstart Allowance could be found.
3.79
The committee started by looking at projected expenditure in 2012–13,[64]
illustrated in Budget Paper no. 1:
3.80
The chart above shows that approximately 35 per cent of the budget is
already allocated towards social security. Given that the defence budget has
been reduced in 2012 and will have to increase in following years, that
improving the education system will also require growing expenditure, that
health costs will continue to be pushed up by an ageing population, the
committee struggled to identify where extra billions could be found to be put
towards an increase in allowance payments.
3.81
In its efforts to determine where and how savings could be made in the
social security sector, the committee approached a number of witnesses with
this question, but was unable to find a satisfactory answer that did not
involve raising the percentage of the national budget allocated to social
security even higher.
3.82
Instead, the committee heard that improvements could be made to how
existing money is utilised within the sector. As put by Jesuit Social Services:
I think maybe not savings, but I think definitely the money
that is in there could probably be used to greater effect. The classic example
is the JSA and the amount of time and resources that are put towards compliance
and enforcing the rules. If there were more freedom and flexibility for those
organisations that are delivering those services to put the time aside to work
and work through the issues, then definitely—and, yes, I think within
cross-working and partnerships. A big issue with the group of people that we
work with is that their involvement is not just with the Commonwealth allowance
payment system; it is with a range of services that are usually funded and
delivered at a state level. There, as well, clearly duplication of processes
and different points can result in costs such that probably, if you looked at
more efficient ways of working in partnership, you could produce savings and
then use the funding that is already there more effectively.[65]
Committee view
3.83
The committee considered a great deal of evidence on the adequacy of
allowance payments, most of which focused on Newstart Allowance.
Understandably, submitters and witnesses turned their attention largely to the
areas that were lacking, convincingly exposing how difficult it is to eke out
an existence and secure paid employment while living on Newstart Allowance.
3.84
The committee agrees that Newstart Allowance does not allow people to
live at an acceptable standard in the long term. It is important, however, to
note that the allowance was never intended to be a long term solution to
unemployment. The allowance has a strong history of directing available
resources to the most needy. For this reason, the committee is forced to focus
on how policymakers can best use the resources available to help move people
from Newstart and into paid employment. The committee believes that in the long
run, for both the individual and society, the best form of welfare is a job.
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.
3.85
The current allowance payment system is, nevertheless, a system that can
be improved, specifically through better, stronger investment in employment
assistance. As noted by the Salvation Army, which called for an increase in
Newstart Allowance, an increase alone is not a panacea:
The danger is that that will just be absorbed in the general
depression and 'overwhelmingness' of the situation.
We certainly believe that alongside of that assistance has to
come a rethinking and a retailoring and a recommitment to what will work best
for people who are long-term unemployed, who have lived in this lifestyle and
this sense of almost helplessness for so long.[66]
3.86
Helping people get on their own two feet is the committee's preferred
means of poverty alleviation, and the subject of the next chapter of this
report.
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