Michael Klapdor, Social Policy

Key issue

The government response to COVID-19 saw unprecedented levels of income support provided to Australians including increased rates, new payments, and expanded eligibility. The use of ad hoc, temporary changes suggests the design of the social security safety net may need to be reconsidered to ensure it can withstand future economic shocks. Long-standing concerns with the adequacy of some payment rates and eligibility criteria have also re-emerged as COVID-19 supports were withdrawn. Addressing these issues at a time when the Government is looking to restrain expenditure will be difficult.

The level and accessibility of Australia’s social security and family assistance support systems will persist as key issues for the 47th Parliament. Around 9.4 million Australians accessed payments or concession cards from Centrelink in 2020–21 (p. xiii). Social security, veterans and family assistance payments make up around 25% of government expenditure- estimated at around $155 billion in 2021–22 (based on Budget strategy and outlook: budget paper no. 1: 2022–23, pp. 144; 154–158).

This article examines trends, issues and election commitments in 3 key areas: income support for working-age people, the Age Pension and family assistance.

Working-age income support

In 2019, the proportion of the population aged 15–64 receiving means-tested income support payments had reached 13.2%- its lowest level in 40 years (Figure 1). By June 2020, following the arrival of COVID-19 in Australia and the implementation of policies aimed at containing the virus and supporting those affected by the resulting economic downturn, the proportion of the working-age population receiving payments had reached 18.6%.

Figure 1 shows that while high, the 2020 level did not reach the high point achieved following the early-1990s recession when almost a quarter of this age group received government income support. However, the 2020 numbers would have been much higher were it not for enacted policy measures, particularly the JobKeeper wage subsidy paid to employers. Around 3.6 million individuals were subsidised through JobKeeper in June 2020. If those aged 65 and over (around 230,000 people) and those receiving another income support payment (around 130,000 people) are excluded, JobKeeper recipients represented around 20.1% of the working age population. In total, an estimated 38.7% of the population aged 15–64 was receiving government income support in mid-2020.

Figure 1          Income support recipients as a % of estimated resident population aged 15–64

Notes: Data is at June unless point-in-time data unavailable in source. Excludes JobKeeper and disaster payments. ‘Low workforce attachment’ includes female Age Pension recipients aged under 65 years, payments for widows, Bereavement Allowance (merged into JobSeeker Payment from March 2020), Mature Age Allowance, Partner Allowance from 1996 and a percentage of estimated dependent partners of allowance payment recipients 1978–94. ‘Veterans’ includes Service Pension and Income Support Supplement. Estimates for some populations follow methodology used in sources.

Sources: Parliamentary Library calculations based on Department of Social Services (DSS), ‘DSS Demographics’, and predecessor departments’ statistical papers, Department of Veterans’ Affairs, ‘Pensioner summary statistics’, from 2000 onwards; and Department of Education annual reports. Latest source available assumed to be most accurate where published data varies. Population data from Australian Bureau of Statistics (ABS), National, State and Territory Population, (ABS: Canberra, September 2021), Table 59.

The pre-COVID low point in income support receipt arose from improvements in the labour market and policy decisions under consecutive governments (pp. 56–57), including:

• an increase in the Age Pension qualifying age for women
• the phasing-out of payments primarily aimed at dependent partners such as widow and wife pensions
• restricting eligibility for the Parenting Payment to those with younger children and introducing activity requirements for recipients of this payment
• new qualification requirements for the Disability Support Pension and a changed method for assessing impairment levels.

In June 2021, while social security payment recipient numbers declined, the Government introduced a new COVID-19 Disaster Payment to support those affected by state and territory government COVID-19 lockdowns. By December 2021, around 2.4 million individuals had received the COVID-19 Disaster Payment. Factoring in this payment (but excluding the 180,000 recipients receiving the COVID-19 Disaster Payment and another income support payment from Centrelink, p. 18) indicates close to 28.7% of the working-age population were receiving income support in the second half of 2021.

Does the safety net need a rethink?

The use of ad hoc, temporary income support changes in response to COVID-19 suggests the design of the social security safety net may need to be reconsidered to ensure it can withstand future economic shocks. These temporary changes included (pp. 5–13):

• the effective doubling of unemployment benefit payment rates
• newly created payments
• expanded eligibility conditions
• eased claim requirements to minimise wait-times and administrative burdens
• multiple lump-sum payments to boost other income support recipients’ rates.

Underlying this response to COVID-19 was a lack of any permanent job retention scheme in Australia and long-standing issues with the adequacy of existing payments and their eligibility conditions.

Some researchers have suggested the government response to COVID-19 has ‘opened up the policy space for a more detailed consideration of innovative reform’ such as universal basic income and unemployment insurance. The Australian Green’s 2022 election platform included a significant lift in social security payment rates with reduced conditionality as part of its ‘liveable income guarantee’ policy. In 2021, the New Zealand Government announced it would develop a ‘social unemployment insurance scheme’. New Zealand and Australia currently stand apart internationally by relying entirely on flat-rate means-tested systems of unemployment payments rather than contribution-based insurance systems. Neither the Coalition nor the ALP proposed major changes to working-age income support policy at the 2022 election.

Many of the COVID-19 response measures were delivered outside of legislated frameworks. The COVID-19 Disaster Payment and Pandemic Leave Disaster Payment were authorised as grant payments through legislative instruments rather than via legislation (pp. 8–10). Around $14.5 billion was delivered through these programs but eligibility criteria and payment rate details were left to outdated grant guidelines that did not reflect policy changes. Similarly, additional payments to people affected by the early 2022 NSW floods were delivered as grant programs rather than disaster payments provided for in the Social Security Act 1991. Not addressing issues with the existing safety net through Parliament risks the Executive turning to similar ad hoc, unscrutinised measures during future crises or disasters.

Age Pension

Income support for the aged is the largest component of social security spending, representing over a third of payments in 2022–23 at $54.2 billion. In December 2021, a total of 2,556,063 people received the Age Pension and around 110,000 people aged over 65 received the Service Pension or other means-tested pensions paid by the Department of Veterans’ Affairs (DVA).

COVID-19 response measures for pension recipients included 4 lump-sum payments (p. 131) followed by a $250 ‘Cost of Living Payment’ in the 2022–23 Budget. There were few significant changes to the Age Pension in the 46th Parliament, although the Morrison Government attempted to change the residency requirements for pensions and stop supplement payments for pensioners temporarily travelling overseas for 6 weeks.

Since 2011 the proportion of Australians aged 65 years and over receiving the Age Pension has dropped significantly, from around 70% to around 60% in 2021 (Figure 2). This is a result of policy changes including the gradual increase in the Age Pension age (increasing from 65 in 2017 to 67 by 2023); asset test changes which commenced in 2017; and increased superannuation balances and other investments reducing the number of people eligible under the pension means tests.

Figure 2          Income support recipients aged 65+ as a % of estimated resident population aged 65+

Notes: Other income support includes Disability Support Pension, Carer Payment, Service Pension and Income Support Supplement and closed payments such as Wife Pension but excludes Widow Allowance due to lack of data for 1990–99. Data is for June of each year. March 2000 data used for veterans’ payments.

Sources: Parliamentary Library calculations based on DSS and DVA statistical publications, and ABS, National, State and Territory Population, (ABS: Canberra, September 2021), Table 59.

Retirement Income Review

Age Pension policy was considered as part of the Treasury’s Retirement income review. The Review’s final report, released on 20 November 2020, observed:

The Age Pension, combined with other support provided to retirees, is effective in ensuring most Australians achieve a minimum standard of living in retirement in line with community standards. (p. 18)

However, a significant number of retirees struggle financially- particularly those renting in the private market, and early retirees who live on lower-rate payments before qualifying for the Age Pension. The Treasury report found that around 60% of single retirees who are renting are living in poverty (p. 32) but determined that increased Rent Assistance would not have a meaningful impact on income poverty rates. It did not offer an alternative proposal.

The report found that homeowners could significantly boost their retirement incomes by drawing on home equity through reverse mortgages such as the Home Equity Access Scheme. However, the review found the current pension asset test exemption for the family home acted as a disincentive for retirees to draw on this equity (p. 19).

Election commitments

The Coalition made 2 election commitments affecting Age Pension recipients:

• providing incentives for homeowners to downsize by extending the assets test exemption for proceeds from a pensioner’s principal home from 12 to 24 months and assessing a lower rate of ‘deemed income’ from the proceeds under the income test.
• freezing the deeming rates used to assess income from financial investments for 2 years. This will mean pensioners are likely to have less income assessed than what they are earning on their investments.

The ALP committed to implementing the same policies (p. 12).

The Coalition also committed to increasing the income limits to access the Commonwealth Seniors Health Card. The concession card is for those ineligible for the Age Pension, usually due to the assets test. Labor also committed to the same policy (p. 12).

The Greens’ ‘liveable income guarantee’ election policy proposed lifting pension and other income support rates. The Greens also announced a policy to return the pension qualifying age to 65.

Family assistance

Broadly, family assistance includes the Family Tax Benefit (FTB) program, Paid Parental Leave and the Child Care Subsidy. The largest component is FTB with an estimated $17.9 billion in payments budgeted for 2022–23 (p. 31). The Government expected to spend $10.7 billion on the Child Care Subsidy in 2022–23 (p. 28) and around $2.7 billion on Paid Parental Leave (p. 31).

Election commitments

A major ALP election policy was increased Child Care Subsidy rates and changes to the income test- estimated to cost $5.1 billion over the forward estimates. Modelling by Australian National University researcher Ben Phillips estimated that families using child care would, on average, gain around $1,600 per year under Labor’s proposed changes (p. 6). The Greens proposed spending $19.0 billion, making child care free for all families.

The Coalition’s last Budget included a $346.1 million proposal to merge the current Paid Parental Leave payments available to principal carers and to fathers and partners so that new parents and carers could choose how they shared a 20-week payment entitlement. Labor did not indicate its position on this proposal prior to the election. The Greens proposed a 26-week Paid Parental Leave scheme paid at pro rata the parent’s existing wage, up to $100,000 per annum. The policy would also provide for superannuation contributions to be paid for the leave period and was estimated to cost $24.5 billion over 10 years.

None of the parties included FTB changes in their election policies.

Family Tax Benefit no longer for the middle class

The Howard Government established FTB in 2000, merging a range of different family payments into FTB Part A and Part B. Part A is paid per eligible child- it is income-tested and rates vary by the child’s age. Part B is paid primarily to single parents and to couples with young children where one partner has low or no income. It is paid per eligible family and is income-tested with rates based on the age of the youngest eligible child. In December 2021, around 1.4 million families received FTB for around 2.7 million children. Around 43% of families receiving FTB were also receiving an income support payment such as Parenting Payment or JobSeeker Payment. These figures do not include around 4–5% of recipients who are paid FTB as an end-of-financial-year lump-sum.

Initially, most families with dependent children received FTB (p. 17); however, this almost-universality has eroded via income limits and indexation freezes. In 2007–08 around 75% of families with children under 16 received FTB. By 2017–18, only around 53% of families received FTB Part A and 45% received FTB Part B (Figure 3). The Department of Social Services (DSS) ceased publishing this measure in its annual report in 2020–21, but based on the trend it is likely that fewer than half of families with dependent children now receive FTB.

DSS has recently changed the FTB program’s performance measure to explicitly state it is targeted at low-income families (p. 48). The program now aims to have at least 67% of FTB paid to families whose income is under the ‘FTB Part A lower income free area’. For 2021–22, this means 67% of FTB being paid to families with a combined income of under $56,137.

Figure 3          Proportion of families with children under 16 years of age receiving Family Tax Benefit

Notes: DSS calculations based on estimates of families with children under 16 years using ABS Survey of Income and Housing data (excludes families with shared care arrangements). FTB data is based on reconciled entitlements so 2017–18 data was published in June 2020.

Sources: DSS and predecessor agencies’ annual reports.

The ALP and Coalition government’s policies have limited FTB growth despite population and rate increases. The ALP’s savings measures included freezing the annual adjustment of some income test thresholds and the rate of end-of-year supplements; changing the way adjustments are made to FTB Part A rates; and introducing an income limit for FTB Part B. These measures were partly offset by increasing rates of FTB Part A for older children and an additional ‘Schoolkids Bonus’ payment.

Under the Coalition Government, real FTB expenditure (adjusted for inflation) has fallen to an estimated equivalent of 2000–01 levels (Figure 4). Measures contributing to this include:

• tightening the income limit for FTB Part B eligibility (Schedule 9)
• introducing a new income limit for FTB Part A end-of-year supplement eligibility (Schedule 21A)
• removing FTB Part B eligibility for couples with older children
• freezing the payment rate and income test threshold indexation
• abolishing the Schoolkids Bonus (Schedule 9) and Large Family Supplement
• introducing a waiting period for new migrants to claim FTB Part A (Schedule 3)
• ceasing Energy Supplement indexation (Schedule 1) and stopping new claimants from receiving this supplement (Schedule 21).

Figure 4          Family Tax Benefit expenses, nominal and real ($ June 2021)

Notes: 2000–01 to 2020–21 are actual expenses. 2021–22 is estimated actual. 2022–23 onwards are estimates. 2021 dollars calculated using CPI for June quarter at the end of the relevant financial year. Expenditure over the forward estimates converted to 2021 dollarsusing the estimated changes to the CPI published in Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2022–23, 6.

Sources: Parliamentary Library calculations based on DSS and predecessor agencies’ Portfolio Additional Estimates Statements and Portfolio Budget Statements.

Through making the FTB program more targeted, consecutive governments have achieved significant budget savings. However, previous savings measures primarily affected high- and middle-income families, and any further savings measures are more likely to affect low-income families.

Further reading

Michael Klapdor, ‘Social security’, Budget Review 2022–23, Research paper, 2021–22, (Canberra: Parliamentary Library, 2022).

Senate Community Affairs References Committee, Adequacy of Newstart and Related Payments and Alternative Mechanisms to Determine the Level of Income Support Payments in Australia (Canberra: The Senate, 2020).

Retirement Income Review, Retirement Income Review: Final Report, (Canberra: The Treasury, 2020).

 

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