Briefing: Raising the Rate of Newstart

The prior rates of Newstart Allowance and student payments fell well below the poverty line and were not enough to cover the cost of essentials. These payments did not keep pace with rising living expenses and, unless they are permanently increased and properly indexed, will slide even further behind.

We cannot go back to the brutality of people struggling to survive on $40 a day. This is not enough to live on, let alone to cover the basics, such as housing, food, bills, and transport.

St Vincent de Paul Society National Council supports ACOSS’ Raise the Rate for Good campaign. ACOSS resources and further information on the campaign are available here.

What we’re asking Government to do:

1.       Increase JobSeeker, Youth Allowance and other income support payments permanently and to a level that ensures people can cover their basic living needs, including housing.

2.       Establish an income floor that keeps everyone out of poverty. There must be additional support for people with housing costs, people with disability or illness and people with family caring responsibilities.

3.       Index payments properly (to wages and price increases) to ensure they maintain their real value over time and keep up with community standards and the costs of living.

4        Establish an independent commission or tribunal to regularly review the adequacy of income support payments and recommend income benchmarks.

 

Newstart Allowance was inadequate

Prior to JobSeeker, a single unemployed person on Newstart received as little as $277.85 a week, or just $39.70 a day.

This was not enough to meet day-to-day living costs, such as rent, food, transport, healthcare and utilities. The inadequacy of Newstart pushed many recipients into poverty[1] and contributed to financial stress, housing insecurity, and diminished health and wellbeing.

The rates of Newstart and Youth Allowance fell well-below standard benchmarks for income adequacy and poverty – even when additional supplement payments (such as rent assistance or the energy supplement) were factored in.

 

COVID-19 health and economic crisis

As we handle the COVID-19 health crisis and confront the economic crisis, more people than ever before will struggle to find paid work. At July 2020, there was only one job vacancy available for every 13 people on JobSeeker or Youth Allowance.[2] Unemployment increased 85,700 to 927,600 people. The unemployment rate increased to 7.1 percent and the underemployment rate to 13.1 percent.[3]

We know that many people who used to be on the old, low rate of Newstart and are now on the increased JobSeeker payment have finally been able to access the essentials, like prescription glasses, a fridge, warm jumpers and school supplies for their children.[4],[5]

This is because the base rate of Newstart had not increased in real terms since 1994 – a quarter of a century.

In fact, the value of the old Newstart had gone backwards in real terms because of the way it was calculated. Payments were adjusted each year according to the Consumer Price Index (CPI). But the cost of essentials such as housing, utilities, healthcare, transport, education and food increased much more rapidly than CPI. Low-income households spend the vast bulk of their income on these essentials.

Because CPI is lower than the growth in average wages, the gap between what an unemployed person receives and what the average worker earns has grown, as has the gap between the old Newstart and pensions.

As we rebuild after the crisis, we cannot turn our back on those who are at risk of being left behind.

Studies show the daily struggle to survive on meagre benefits has a range of damaging social, emotional and health consequences.[6] Whether it is the emotional harm of being disconnected from friends and family, and excluded from community life because you cannot afford to drive or catch public transport. Or having to skip meals, or being unable to afford nutritious food, dental care or medicines.[7],[8] Or the fatigue and ill-health that comes from constant stress about one’s finances.[9] Or being unable to heat or cool your home during hot or cold weather.[10]

Insufficient payments also contribute to housing insecurity and homelessness. According to Anglicare’s 2020 Rental Affordability Snapshot, just three percent of all properties for rent were affordable and appropriate for households on government income support payments. For single people on Youth Allowance, just three properties out of the more than 69,000 were affordable and suitable. For those on Newstart, only nine properties were available.[11] Even with the doubling of the JobSeeker rate, Anglicare has found only 1.5% of rental properties are affordable nationally. Further, the number of Australians who are unable to meet their regular housing costs has more than doubled, from 6.9% in April to 15.1% in May 2020.[12]

It is not only individual recipients who are hurt by the abysmal rate of Newstart. It hurts their families too. Children with parents on Newstart are much more likely to be living in poverty.[13] For charities and community organisations, the inadequacy of the old Newstart adds to the demand on frontline services. And for the wider community, low unemployment benefits contribute to economic inequality and social division, undermining social cohesion and eroding trust.

Without government action to increase the old rate of Newstart, everyone loses: governments, the community, front-line services and, most of all, people receiving Newstart and their families.

 

Low payments make hunting for jobs harder

There is a lack of evidence to support the notion that poverty-level payments are necessary to ‘incentivise’ people to take up paid work. Research has shown that inadequate income support payments don’t increase labour force participation and, by pushing people into poverty, can act as a barrier to securing employment.[14],[15]

 

The benefits of raising the rate

Everyone benefits when we have a strong social security safety net.

Raising the rate of the old Newstart and related payments will:

  • lift hundreds of thousands of people on the lowest incomes out of poverty
  • improve people’s prospects of finding decent paid work
  • increase social and economic participation
  • strengthen local communities
  • reduce the pressure on charities and other front-line services that deal with the flow-on effects of poverty and financial hardship, and
  • boost the overall economy by increasing consumer spending.

Raising the rate will have a positive effect on the economy, contributing to job creation, helping to raise wages and boosting regional economies. These positive economic effects will arise largely because every spare dollar received by someone on a low income goes back into the economy through increased consumer spending.

Since the COVID-19 stimulus payment was made, lower income shoppers spent 14 percent more than usual. Working age people, compared to those aged over 65, were also more likely to have spent the supplement (71 percent compared with 37 percent)..[16]

Critically, increasing Newstart and rebuilding our social safety net will strengthen communities and improve the fairness of our society.

A strong social safety net is key to a just and inclusive society. It is about individuals and families having security in the face of vulnerabilities and contingencies – by providing an adequate income that enables them to live with dignity.

As one of the wealthiest nations in the world, none of us should accept that Australia cannot afford an adequate social security safety net.

Raising the rate of the old Newstart and related payments is the single biggest thing government could do to repair our social safety net and reduce entrenched poverty and disadvantage.

 

REFERENCES


[4]Maley, J. 27 May 2020. Families headed by single mothers twice as likely to be battling poverty. The Age.  https://www.theage.com.au/politics/federal/families-headed-by-single-mothers-twice-as-likely-to-be-battlingpoverty-says-new-research-20200526-p54wm2.html

[5]Hermant. N. 28 May 2020. Coronavirus supplement rollback could be devastating for women. ABC News. https://www.abc.net.au/news/2020-05-28/coronavirus-supplement-rollback-could-be-devastating-for-women/12290540

[6]Lindberg, R, et al., (2015). Food insecurity in Australia: Implications for general practitioners. Australian Family Physician 44(11):859-862.

[7]McKenzie, H, & McKay, F, (2017). Food as a discretionary item: the impact of welfare payment changes on low-income single mother's food choices and strategies. Journal of Poverty and Social Justice 25(1):35-48.

[8]Kiely, K, & Butterworth, P, (2013). The contribution of financial hardship, socio-economic position and physical health to mental health problems among welfare recipients. Australian & New Zealand Journal of Public Health 37(6):589-590.

[9] Kiely, K., et al., (2015). How financial hardship is associated with the onset of mental health problems over time. Social Psychiatry and Psychiatric Epidemiology 50(6):909-99.

[10] ACOSS & Brotherhood of St Laurence, (2018). Energy stressed in Australia.https://bit.ly/2OPprpp

[12] ANU.30 June 2020. Number of Australians facing housing stress doubles. https://www.anu.edu.au/news/all-news/number-of-australians-facing-housing-stress-doubles

[13] ACOSS and UNSW. Poverty in Australia 2020: Part 2 who is affected?

[14] Mesén Vargas, J, & Van der Linden, B, (2018). Is there always a trade-off between insurance and incentives? The case of unemployment with subsistence constraints. Discussion Paper, IZA DP No. 11034. http://ftp.iza.org/dp11034.pdf

[15] . O'Campo, P, et al., (2015). Social welfare matters: A realist review of when, how, and why unemployment insurance impacts poverty and health. Social Science & Medicine 132:88-94.

[16]  ABS 4940.0 – Households Impacts of COVID-19 Survey, 14-17 April 2020. https://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/86FF043DD0C1A1B8CA25856B0081D6F7?opendocument