Newstart recipients and other Australians on benefits get their half-yearly pay rise today (and also on March 20). This one is vanishingly small.
Announced very quietly by Social Services Minister Anne Ruston earlier this week, it amounts to just A$3.30 per fortnight for someone on the Newstart unemployment benefit.
That’s $1.65 per week, less than 24 cents per day.
It’s enough to buy about 36 peanuts – or more if you buy them in bulk.
More galling still for Australians on Newstart, age and disability pensions will increase by twice as much – $6.80 per fortnight, an increase the government was keener to highlight in its press release than the increase in Newstart.
It is hard to comprehend how it could have come to this. Back in 1997 Newstart and the pension were about the same in dollar terms. Each was probably somewhat less than a single person needed to live on.
How did it come to this?
Then the Howard government effectively froze Newstart, forevermore increasing it only in line with inflation (which back then was typically 2.5% per year) while using a formula that lifted pensions in line with wage growth or inflation, whichever was the bigger (back then wages were growing by more than 3% per year).
The difference wasn’t big, but over the past two decades it has compounded. Prime Minister Kevin Rudd helped it along in 2009 by a one-off $64 per fortnight increase in the single pension, unmatched by an increase in Newstart.
It means that from today the single pension will be $850.40 per fortnight, while the single Newstart payment will be $559 – a mere two-thirds of the pension.
And it’ll get worse.
Because inflation is low, and each low increase is off what is now a much lower base than the pension, Newstart increases are small while pension increases are twice as big.
If prices and wages continue to grow at the rates they have over the past decade (2.1% per year for prices, 2.7% for wages) by 2070 Newstart will be just half of the pension. By the end of the century it’ll be just two fifths of the pension.
If it can’t continue, it won’t
Herbert Stein was an economic advisor to US presidents Nixon and Ford. These days he is best remembered among economists for Stein’s Law, which says pithily:
If something cannot go on forever, it will stop.
It’s a warning against the dangers of extrapolations of the kind I have just done, and also a guide to the future. A Newstart rate of just two fifths of the pension, way below everyone else’s standard of living, would be intolerable.
The formula will change well before it gets that bad. It’ll have to.
The Australian Council of Social Service wants the government to lift Newstart by $150 per fortnight to $709, still well short of the pension, and afterwards to lift it in line with the pension and wages, so that it never falls further behind.
It wants the same for Youth Allowance, Austudy, Abstudy, Sickness Allowance, Special Benefit, Widow Allowance and Crisis Payment, which all move in line with Newstart.
And it would get smaller. Deloitte Access Economics says that after some years about $1.5 billion per year would return to the budget in extra tax as Newstart recipients and the other beneficiaries spent what they were given and boosted economic growth.
The government has extended the energy payment to people on Newstart – after excluding them only days ago.
Treasurer Josh Frydenberg said the decision was made at a meeting on Tuesday night of Scott Morrison, Finance Minister Mathias Cormann and himself. He indicated it was about smoothing the passage of the measure through the parliament.
There was widespread criticism of the exclusion of Newstart recipients from the payment, which will be A$75 for a single person and $125 for a couple.
The money is due to go out very soon and the government needed the legislation to pass immediately. While Labor had flagged it would support the one-off payment, the legislation could have been amended, because the government is in a minority in the House of Representatives.
The payment was originally set to be confined to those on the age pension, disability support pension, carers payment, parenting payment single recipients, and veterans and their dependants receiving payments.
The extension, which will also cover those on Youth Allowance and other working age payments, bringing the number of recipients to five million, will add some $80 million to the original cost of $284.4 million.
Labor seized on the backdown, seeking to suspend standing orders to move a motion in the House saying the government’s backflip “has already blown an $80 million hole in the budget”, and showed the budget was “unravelling less than 24 hours after it was delivered”.
The motion condemned the government for “only looking after the top end of town and treating vulnerable Australians as an afterthought”. The attempt to suspend standing orders failed.
Frydenberg, speaking to the National Press Club, explained the original exclusion by saying three-quarters of people on Newstart moved off it within 12 months, and 99% of people on it received another payment.
“They get a parenting payment or they get a family tax benefit payment, whereas when you’re on the Disability Support Pension or on the aged pension, you tend to be on it for longer, and that seems to be – that is your principal form of payment”.
Frydenberg said the change “will secure the passage of the piece of legislation through the parliament”.
Appearing on the ABC Q&A on Monday, Liberal senator Arthur Sinodinos could not say why Newstart recipients had been excluded from the payment. “The short answer is I don’t know why,” he said. He also said he thought Newstart was too low.
The Government opposes it. Labor has opposed such proposals in the past. Prime Minister Scott Morrison has said he would like to increase payments, but they would be ones of his choosing – he would lift the pension before lifting Newstart.
But the pension is already much higher than Newstart, and other benefits have fallen behind by more.
In a report on Australia it suggested that not only it might be insufficient to live on, it also might be insufficient to enable those on it to look for work.
The relatively low net replacement rate in the first year of the unemployment spell raises issues about its effectiveness in providing sufficient support for those experiencing a job loss, or enabling someone to look for a suitable job.
The main reason why it is inadequate is that it hasn’t increased by much more than inflation since 1994. General living standards have soared during those two and a half decades, as has the pension which is linked to them by being set as proportion of male wages, and which was increased substantially in 2009.
Newstart is now only A$275.20 per week. The pension is A$417.20 per week (A$458.15 with the pension supplement and energy supplement).
Unless it is better indexed, Newstart will slide even further relative to other payments and living standards.
The relative decline in Newstart was the result of neglect. It was left indexed to the consumer price index when, over the long term, it should have been indexed to a measure that moves with community living standards.
But in other cases, governments under five prime ministers over the past twelve years have made explicit decisions to cut assistance, most severely for low income single parents.
In 2006 the Howard government made substantial changes to the Parenting Payment Single (PPS) and the Parenting Payment – Partnered (PPP) as part of what it called a welfare to work program.
Single parents claiming the PPS after July 1, 2006 would lose it when their youngest child turned eight. They would go onto the much lower Newstart unemployment benefit, and be expected to look for work.
Partnered parents claiming the PPP would lose it when their youngest child turned six, but for them it made little difference because their parenting payment and Newstart were about the same.
These changes have shrunk Family Tax Benefit payments per child from 16.6% – 21.6% of the married pension rate to 14.5% – 18.9%, a difference now of $13 per week for each younger child and $17 per week for each older child – with more shrinkage to come.
After a tough time in the Senate, several of his measures finally passed, under Prime Minister Malcolm Turnbull in 2016 and 2017.
Family Tax Benefit B has been closed to couple families with children aged 13 years or older and the Family Tax Benefit B income test tightened, the size of the payments to large families has been wound back, the Family Tax benefit A end of year supplement has been withdrawn from families earning over A$80,000 per annum and rates have pay have been temporarily frozen, so that they don’t even increase with inflation.
What’s been the total of cuts since 2006?
The cumulative effects of the policy choices since 2006 on the disposable incomes of single parent families are substantial.
We have compared how much low-income parents currently receive, compared to what they would be receiving if these changes had not been made.
Our calculations are conservative.
We have ignored a number of changes including payments that have come and gone such as the Schoolkid’s Bonus and the Energy Supplement or changes that affect high income families. Nor have we taken into account the loss of payments to families with with four or more children due to the phasing out of the Large Family Supplement from July 2016.
Single parents still on Parenting Payment Single with two younger children have lost nearly $85 per fortnight; about 6% of their disposable incomes. For families with older children, the loss is about $271 per fortnight; a cut in disposable income of nearly 19%.
In total there are around 360,000 families with children, Australia’s poorest, who are getting considerably less financial support.
It has happened as a result of actions by both sides of politics under prime ministers Howard, Rudd, Gillard, Abbott and Turnbull.
As with the decision to link Newstart to the consumer price index rather than wages, the effects of their decisions will widen over time. The poorest families, and their children, will increasingly fall behind the rest of the population.
And the proportion of single parents employed went backwards during the global financial crisis, sliding to 53% and only recovering to 55% in 2017, despite the move of families from Parenting Payment Single to Newstart.
It’s time for a proper review
The “root and branch review” promised by Bill Shorten and the ongoing commission proposed by crossbenchers are not mutually exclusive.
An immediate review could be used to increase payments in the shorter term, while an ongoing commission could examine longer-term priorities.
A comprehensive review of Australia’s social security system, undertaken in an integrated fashion and including tax as well as payments (including those for childcare and to support people who study and work) is overdue.
We need such a review to consider the design of our safety net in the light of economic, demographic, technological and social changes, and those to come.
It ought to be a key priority of Australia’s next government.
It ought to set up our support systems for the future.