Recent media reports have suggested the Government may drop or modify legislation to close-off the Energy Supplement payment to new welfare recipients, in order to secure crossbench support for separate company tax measures. A Bill to close the Energy Supplement to all new income support recipients—including pensioners, allowance recipients and veterans’ payment recipients—has been before the House of Representatives since May 2017 but is yet to be debated.

What is the Energy Supplement?

The Gillard Labor Government introduced the Clean Energy Supplement in 2013 to reassure pensioners and other income support recipients that they would not be worse off as a result of the carbon price (it was renamed the ‘Energy Supplement’ in 2014).

The Energy Supplement is paid to all recipients of social security income support payments (such as the Age Pension and Newstart Allowance), to recipients of veterans’ payments (such as the Service Pension, Disability Pension and War Widow/Widower’s Pension), to recipients of the Farm Household Support Allowance and some holders of a Department of Veterans’ Affairs (DVA) Repatriation Health Card—For All Conditions (Gold Card). Those who were Family Tax Benefit recipients or Commonwealth Seniors Health Card holders before September 2016 and who have not lost eligibility since can also receive the Energy Supplement.

Rates of the Energy Supplement are based on the payment to which it is attached and range from $91.25 per annum for Family Tax Benefit Part A (child under 13 years) to $559.00 per annum for veterans receiving the Special Rate of Disability Pension.

Abbott Government wound back carbon price compensation

During the 2013 Election, the Coalition committed to abolishing the carbon price but keeping the previous Government’s compensation measures. In April 2014 the then Prime Minister, Tony Abbott, repeated this commitment stating: ‘the reassurance that I want to give to pensioners is that you will lose the carbon tax but keep the compensation’.

Although the Coalition Government did not abolish the clean Energy Supplement it did change it. When it was introduced, the Clean Energy Supplement was indexed in the same way as payments such as Newstart Allowance—twice yearly according to movements in the Consumer Price Index (CPI). In June 2014 the Government introduced a Bill to cease indexation on the Clean Energy Supplement and to rename it the ‘Energy Supplement’. This Bill failed to pass the Senate but the measure was reintroduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Bill 2014, which was passed in November 2014.

Turnbull Government announces policy to close Energy Supplement to new recipients

In the 2016–17 Budget, the Coalition Government announced that it would close ‘unnecessary carbon tax compensation to new recipients of government welfare benefits’ with $1.4 billion of savings over five years being credited to a National Disability Insurance Scheme Savings Fund Special Account. This included closing the Energy Supplement and a separate payment, the Single Income Family Supplement, to new recipients. In September 2016 the Government succeeded in passing legislation to close the Energy Supplement to new recipients of Family Tax Benefit Part A and Family Tax Benefit B; and to new recipients of the Commonwealth Seniors Health Card.

The measure initially introduced in the Budget Savings (Omnibus) Bill 2016 would have closed the Energy Supplement to all new recipients. Under the measure, income support recipients who were already receiving the supplement would keep it while others would lose it. A recipient’s treatment would depend on when they started receiving payment:

• recipients who began receiving the payment before 20 September 2016 would continue to receive the Energy Supplement
• recipients who began receiving the payment on or after 20 September 2016 would lose the Energy Supplement (from 20 March 2017)
• recipients who started receiving income support payments from 20 March 2017 would not receive the Energy Supplement.

The Government tried again to introduce this measure in the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017. However, this Bill did not pass the Parliament and was discharged from the Notice Paper in the Senate on 23 March 2017. A new Bill containing the amendments relating to the Energy Supplement, the Social Services Legislation Amendment (Ending Carbon Tax Compensation) Bill 2017, was introduced to the Parliament in May 2017.

Impact of the measure

According to the Department of Social Services, around 2 million people receiving social security payments will be affected by the proposed closure of the Energy Supplement to 2020–21 (this number excludes veterans’ payment recipients).

Former Minister for Social Services, Christian Porter, explained the rationale for the measure stating that the Government ‘does not consider it appropriate to continue to compensate people for a tax that no longer exists’.

Interest groups such as the Australian Council of Social Service have criticised the measure as unfair because income support recipients in similar circumstances would receive different rates of payment depending on when they commenced receiving support, and because other parts of the carbon price compensation package, tax cuts, would persist.

If the measure currently before Parliament is passed, some income support recipients will receive a lower rate of payment than they would have if the supplement had never been introduced. This is because payment rates were adjusted at the time the Energy Supplement was introduced so that recipients would not be compensated twice through the supplement and normal CPI indexation (see this Bills Digest for an explanation of how this worked). The issue primarily affects allowance payments and not pensions which have their rates adjusted in a different way.

Figure 1 tracks the maximum basic rate of Newstart Allowance had the carbon price compensation package never been introduced and normal CPI indexation occurred. It compares this to the actual maximum basic rate and the actual rate combined with Energy Supplement.

Figure 1: Newstart Allowance maximum basic rate (single, no children), $ per fortnight, with and without the Energy Supplement 

Source: Parliamentary Library estimates.

If the measure to close-off the Energy Supplement is dropped, the Government will lose around $1 billion in estimated savings over the forward estimates.