Chapter Two

Discussion

Introduction

2.1        Contributors to the inquiry identified a range of issues in relation to the Bill, both in favour of and in opposition to its passage. This chapter addresses these arguments in the context of:

• Changes to age eligibility for Newstart Allowance (NSA);
• Changes to grandfathering arrangements for single parents;
• Changes to income threshold and taper rate arrangements;
• Changes to penalty rates for non-participation;
• The Bill's impact on vulnerable persons; and
• Transitional arrangements.

2.2        Many of the arguments presented are underpinned by the witness' opinion on the question of whether or not the reduction of welfare payments, in conjunction with training and support programs, provides an incentive for recipients to find employment.

Changes to age eligibility for NSA

2.3        In his second reading speech, the Minister for Employment and Workplace Relations argued that the changes to eligibility for Youth Allowance will 'provide greater incentives and support for young Australians to engage in education, training and employment'.[1] The Department's submission asserted that:

Young people who leave school early without adequate qualifications are at high risk of becoming disadvantaged and remaining out of the workforce for extended periods. The COAG National Education Agreement (2009) places considerable importance on Year 12 education and aims to lift the proportion of 20–24 year olds with Year 12 of a Certificate II to 90 per cent by 2015.

It is therefore important to create conditions that maximise the number of young people who remain in, or return to, education and training to get the qualifications and skills they need to be competitive in the labour market.[2]

2.4        The Department considered that the Bill would help to remove the disincentive to study caused by the increase in benefit when a recipient moves from Youth Allowance (other) (YA) to NSA.[3] However, other witnesses suggested that the Bill will not have this effect on all recipients. The Australian Council of Social Services (ACOSS) agreed with the Department that there should be no financial disincentive to study, but cited a Melbourne Institute Working Paper suggesting that:

[U]nemployed young people on income support are less likely to be supported by their parents than full-time students, and more likely to be socially and economically disadvantaged than young full-time students.[4]

2.5        ACOSS is therefore concerned that the Bill indiscriminately affects 21 year olds whether or not they can fall back on parental support. It suggested that rather than moving more recipients onto NSA, the 'pitifully low' YA of $201 per week payable to independent students should be increased to more closely correlate with NSA payment rates.

2.6        The Australian Youth Affairs Coalition (AYAC) agreed with ACOSS that decreasing payment rates for 21 year olds would not assist vulnerable young people to find employment:

AYAC asserts that the approach of cutting payments, even with the adjustment to the income free threshold and other measures, will in fact further entrench disadvantage for young people who are most vulnerable. In fact, the right encouragement and support needs to be a youth-friendly support process and a system that gives young people choice rather than limiting opportunity. AYAC believes this should include a reform to the Jobs Australia program to be more youth-centred and better supports to adequately meet the needs of young people facing multiple disadvantage...

The cut in payment will be counterproductive, particularly for those young people who are most disadvantaged and cannot find work due to education, circumstance or other barriers.[5]

2.7        The Department indicated that Year 12 attainment had increased, and the chance of youth unemployment had correspondingly decreased, following the introduction of the 'Earn or Learn' initiative in 2009. The Department subsequently provided further data to illustrate this statement:

The Department has conducted preliminary analysis of the impact of the Earn or Learn initiative and tracked early school leavers aged 16–20 years subject to the increased requirements for 18 months.  The initial analysis found that, in comparison to previous cohorts, after the 18 months period:

• more early school leavers had completed Year 12—the proportion of the 2009 early school leavers obtaining Year 12 was 16.9 per cent compared to 8.4 per cent for the 2008 cohort;
• more early school leavers were on student payments—the proportion of early school leavers who were on student payments increased by nearly 1 percent between the 2008 and 2009 cohorts; and
• there had been an increase in study for early school leavers while on income support—the proportion of 2009 early school leavers who had studied was 34.9 per cent compared to 24.4 per cent for the 2008 cohort.

There is a correlation between the completion of Year 12 or an equivalent qualification and the engagement of young people in education, employment or training. In May 2009 those young people with Year 12 or equivalent were four times less likely to be disengaged with education or employment – 8.6 per cent compared with 34.1 per cent for those without such qualifications. Also in May 2009:

• 62.6 per cent of young people who had completed Year 12 went on to further study compared to 33.4 per cent who had not completed Year 12; and
• 36.5 per cent of young people who had not completed Year 12 were unemployed, compared with 23 per cent for those with Year 12.[6]

2.8        The Department further stated that the agreed Council of Australian Governments' national target for Year 12 attainment (or a formal qualification at Certificate II or above) for 20–24 year olds has been steadily increasing; in 2011 it was 84.1 per cent.[7]

Changes to grandfathering arrangements for single parents

2.9        Witnesses had a range of concerns relating to the accelerated phase out of the grandfathering arrangements for single parents currently receiving Parenting Payment Single (PPS). The Department’s submission noted that the accelerated phase out of the grandfathering arrangements will encourage single parents who are long-term recipients of PPS to return to work.[8] However, ACOSS asserted that single parents are already required to seek employment of 15 hours per week under the existing Parenting Payment Single rules.[9] In addition, the National Council of Single Mothers and their Children (NCSMC) noted that 32 per cent of PPS recipients report earnings compared to 16 per cent of NSA recipients.[10] NCSMC suggested that such statistics would indicate that lower rates of payment do not correlate with increased participation in the workforce.[11]

2.10      A number of submitters suggested that the NSA—or indeed, the higher PPS—does not provide sufficient benefit to single parents.[12] A single mother currently receiving PPS provided the committee with a breakdown of her fortnightly budget to indicate the lack of scope she had to absorb the decrease that would eventuate as a result of being moved onto the NSA:

Even on this amount I am constantly making difficult financial decisions and always juggling the household budget, worrying about the future. I personally don’t know how single parents who cannot find work or who are unable to work can survive on what they receive now, let alone the loss of $58 per week when their youngest child turns 12.

I don’t know how I will survive on that loss...

As you will see from my budget below, my expenses outweigh my income. This is not taking into account the potential rise in the cost of living and makes no allowance for any education expenses for my son.[13]

2.11      Another single mother on PPS explained that she already faces significant challenges as a PPS recipient, balancing study, her involvement in the community sector and attention to her own and others' health issues:

I would like the committee to understand that I currently struggle on $321 per week. It is barely enough to live on, even with all the stringent cut backs I have personally made to the household budget. It is hard enough that my rent is $260 per week and due to rise. I cannot afford to lose $58 per week. That is the amount I spend at the supermarket each week. Without that we will be left with eating only the vegetables I grow that are in season. Or should we cut off the electricity supply instead?

I am juggling my time between study to improve my financial situation, being there for my child and my ageing mother, helping out at the school and other community care such as aiding others with knowledge of Bushfire safety and preparedness (I have expertise in this subject), supporting a close friend battling cancer and maintaining my own diet and health as a Type One Diabetic.[14]

2.12      ACOSS was in favour of continuing the current phase out arrangements for parents on PPS to move onto NSA. ACOSS suggested that if the Bill is passed, single parents who must move from the PPS to NSA when their child is 12 or 13 will experience particular difficulties associated with the increased costs of beginning high school.[15]

2.13      The Department responded to this suggestion indicating that the time at which a recipient's child begins high school also correlates with increased opportunities for parents to participate in work:

Ceasing Parenting Payment when a recipient’s youngest child turns 12 recognises the age when most children start high school is also the time when their parents’ capacity to undertake work or other activities also increases. It is important that income support payment arrangements recognise this increased capacity and provide incentives for parents to re-engage in work and present a positive working role model for their children.[16]

2.14      ACOSS further noted that the grandfathering arrangements affect a small group of sole parents and are already being phased out, and as such the grandfathering arrangements will have no impact on forward estimates savings in about a decade whether or not the Bill is passed.[17] However, the Department indicated that the accelerated phase out 'will result in estimated savings in outlays of income support of $152.2 million over the forward estimates period.'[18]

2.15      The committee received evidence as to the number of people who will be affected by the accelerated phase out of PPS grandfathering arrangements. The Department stated that in 2011 there were more than 640 000 families with dependent children receiving some income support.[19] The NCSMC estimated that there are presently 330 000 single parents receiving the PPS.[20] The National Welfare Rights Network estimated that 28 000 single parents will move from the PPS to NSA over the next four years.[21] Similarly, the Department estimated that 10 000 parents will no longer be eligible for PPS in the latter half of 2013–14, and 'a little less than 9 000' in each of the two subsequent financial years.[22]

2.16      The Department noted that moving PPS recipients onto NSA will promote fairness, both between single and partnered parents, and amongst single parents:

Over time the same arrangements will apply to all Parenting Payment recipients and for those that subsequently qualify for Newstart Allowance, all parents in similar circumstances will be treated consistently. By aligning the rules earlier, these changes will make the system fairer and more transparent.[23]

2.17      The Department noted that between 1000 and 1100 Parenting Payment Partnered (PPP) recipients each year will also move to NSA. However, the rate and payment conditions for PPP recipients and NSA for partnered recipients are the same.[24]

Changes to income threshold and taper rate arrangements

2.18      To understand witnesses' arguments in relation to the changed income test arrangements, it is useful to delineate first the effects of the changed threshold and taper rate arrangements on the relevant parties. These are set out in Figure 2.1 and Figure 2.2.

2.19      The rate at which employment income affects a welfare recipient's income support is calculated by Centrelink according to rules set out in the Social Security Administration) Act 1999. The basic premise is that the more employment income a person earns, the greater the rate at which their income support is reduced. People receiving income support may earn up to a certain amount, for example, $62 a fortnight, before their income support is reduced. This is called the 'income threshold'. Once a recipient's income reaches that threshold, income support is reduced by a certain percentage of the recipient's employment income, for example, 50 per cent. This is known as the 'lower range taper rate'. As a person receives more wages from employment, for example, $250 a fortnight, their income support is reduced by a higher percentage of that income from employment, for example, 60 per cent. This is known as the 'upper range taper rate'.

Figure 2.1—Centrelink income tests for unemployed young people

Current situation for young people	Changes if the Bill is passed
YA recipients aged 16–20 are able to earn $62 before their benefit is reduced.	YA recipients aged 16–­21 will be able to earn $143 before their benefit is reduced.
Current NSA recipients aged 21 are also able to earn $62 before their benefit is reduced.
Employment income over $62 affects YA income support payments at a rate of 50 per cent (for income between $62 and $250) or 60 per cent (income over $250) of that employment income.	Employment income over $143 will affect YA income support payments at a rate of 50 per cent (for income between $143 and $250) or 60 per cent (income over $250) of that employment income.
Employment income over $62 affects NSA income support payments at a rate of 50 per cent (for income between $62 and $250) or 60 per cent (income over $250) of that employment income.
The working credit balance[25] for YA recipients is 1000 credits.	The working credit balance for YA recipients will be 3500 credits.

Figure 2.2—Centrelink income tests for unemployed single primary carers

Current situation for single primary carers	Changes if the Bill is passed
Parents receiving (grandfathered) PPS payments can earn up to $174.60 per fortnight, plus $24.60 for each additional child, before their benefit is affected.	Single primary carers will move more quickly to NSA (than under current PPS phase out arrangements), which allows them to earn up to $62 per fortnight before their benefit is affected.
Parents receiving NSA payments (that is, not grandfathered) can earn up to $62 per fortnight before their benefit is affected.
Employment income over the relevant PPS amount (depending on the number of children) reduces the rate of the PPS at 40 per cent of that employment income.[26]	Employment income over $62 will reduce the NSA payment to single primary carers at a single rate of 40 per cent of the employment income.
Employment income over $62 affects income support payments at a rate of 50 per cent (for income between $62 and $250) or 60 per cent (income over $250) of that employment income.

Impact on YA recipients

2.20      AWRN welcomed the measure allowing YA recipients to earn $143 from wages before their benefit is affected but did not support the changed taper rate arrangements:

This measure, which enables a recipient to earn an additional $81 per fortnight before their rate of Youth Allowance is reduced, is welcome and long overdue.

On the other hand, the lowering of the threshold at which the taper rate increases from 50 per cent to 60 per cent (from $188 to $107) undermines the gains produced by the income free area changes for a person earning more than $107 per fortnight.

The increase in the Youth Allowance (other) withdrawal rates will be accompanied by an increase to the 'working credit', from $1,000 to $3,500 per annum. This will be of significant benefit for young people in supporting the transition from income support to employment, and it will help defray the initial costs of beginning a new job, such as buying new clothes, purchasing equipment, etc.[27]

2.21      ACOSS supported the extension of the income free threshold for young people, but suggested that the threshold and taper rate changes could be made without moving 21 year olds from NSA to YA.[28]

Impact on grandfathered PPS recipients

2.22      The Council of Single Mothers and their Children (Vic) (CSMC) provided evidence of single parents who are experiencing financial hardship due to the taper rates of NSA payments:

The women that we hear from at CSMC find it extraordinarily hard to survive on the Newstart Allowance. We hear daily from women having to resort to seeking the assistance of charities, food parcels and emergency relief payments, just to put food on their tables. Increasingly, these emergency relief requests are coming from women who are working, but struggling with the increasing costs of living, low wages and insecure employment, and the low level of part payment from Newstart allowance.[29]

2.23      While the above quote provides an argument in favour of the lower taper rate for single parents recipients of NSA, the committee notes that CSMC also expressed concern in relation to the point at which NSA recipients' benefit are reduced:

However, as outlined above, Newstart Allowance has a significantly lower threshold level at which payments are withdrawn as earnings increase. Payments start to reduce when earnings amount to $31 per week—or the equivalent of two hours work at the minimum wage. This threshold level is not indexed, and has remained constant for many years, eroding the real value of this amount. In contrast the threshold at which payments start to reduce under PPS is $87 per week, and is indexed. PPS thereby provides for much better returns from work. The lower threshold amount for Newstart will mean that much of the gain from lowering the taper rate for Newstart will be lost for single parents having to transfer from Parenting Payment Single to Newstart Allowance.[30]

2.24      The National Welfare Rights Network (NWRN) also argued that parents currently receiving PPS will be 'clear and unambiguous losers' when moved to the NSA:

For the group of parents who lose their 2006 grandfathered status, any claims of 'generous' treatment are not correct and these claims are highly misleading...

The implications for parents who are moved from Parenting Payment (Single) to Newstart Allowance (principal carer) is outlined below.

• they will face a payment cut, leaving them $58 a week worse off;
• they will start losing their social security payment earlier because their income free area will drop by $112 per fortnight (i.e. at $62 per fortnight on Newstart Allowance as opposed to $174.60 on Parenting Payment Single); and
• they will not be eligible for the extra child free income area of $24.60 per fortnight for each additional child.[31]

2.25      The NWRN continued to suggest that this 'will have a number of serious, unintended impacts on parents' behaviour'.[32] The NWRN considered that the changes would constitute a disincentive for single parents to work, especially those in government housing, and over time result in a reduction in living standards due to the lack of indexation of the NSA income free area.

2.26      However, the Department stated that Parenting Payment recipients benefit from such payments for an 'average of five to seven years'.[33] It continued that a key aim of the Bill was to encourage parents to 'engage with the workforce at the earliest opportunity':

Research has shown that long periods in receipt of income support are associated with high levels of disadvantage, and as recipients may have spent considerable time out of the workforce they also potentially face a loss of skills.

The Welfare to Work Evaluation Report released in 2010 shows that the introduction of participation requirements for parents with school age children increased workforce participation and reduced income support reliance for some parents. In particular the evaluation report shows that the percentage of single principal carer parents on Newstart Allowance with a youngest child between 8 and 15 years who had left income support after six months increased, compared to previous years.[34]

2.27      The Bill is designed to facilitate increased participation in the workforce while single parents continue to receive some income support.

Impact on single parents currently receiving NSA

2.28      Single parents already receiving the NSA will be able to earn more employment income before their income support is affected, as the Department explained:

Single principal carer parents on Newstart Allowance will see greater rewards for their participation and increased financial benefits of working. Changes to the Newstart Allowance income test for single principal carer parents, which are also contained in this Bill, will introduce more generous income testing arrangements for these single parents allowing them to earn up to $400 more per fortnight before they lose eligibility for payment.

This change will benefit all single principal carer parents on Newstart Allowance, 31 per cent of whom reported earnings in early 2012. It is anticipated that the financial incentives of participating and the additional supports being provided as part of the package will encourage participation and increase the percentage of recipients with earnings.[35]  

2.29      The NWRN commented positively on the change:

The clear and unambiguous winners from the 1 January 2013 changes to Parenting Payment Single are the estimated 32 000 single parents who since 2006 have already been moved onto Newstart Allowance (principal carer) under the former government’s ‘welfare to work’ changes. These parents have faced punishingly high losses when they earn income about $31 a week. This 'penalty' for working is a frequent complaint from parents who have contacted NWRN member organisations about the 2006 social security changes. The lower taper rates have been welcomed by the NWRN.[36]

2.30      The Council of Single Mothers and their Children (Vic) also welcomed the changed rates for single parents currently receiving NSA, while maintaining that the point at which benefit is affected—once a recipient earns $62 per fortnight—remains too low.[37]

Changes to penalty rates for non-participation

2.31      As mentioned in Chapter One, the Bill amends the Social Security (Administration) Act 1999 to align penalties applied for both the 'no show no pay' and reconnection failures to one-tenth of the recipient's fortnightly payment.[38] The 'no show no pay' failure is already penalised at a rate of one-tenth of the recipient's fortnightly payment, so this will remain unchanged if the Bill is passed. However, reconnection failures are currently penalised at a rate of one-fourteenth of the recipient's fortnightly payment. As such, if the Bill is passed, the penalty for a single Newstart Allowance recipient with no dependants will be increased from $34.77 to $48.58.[39]

2.32      The Department explained that:

Aligning the penalty rates for reconnection and no show no pay failures at one-tenth will simplify the compliance framework and make the system fairer for job seekers by not penalising them for days that fall on weekends. In these cases, through no fault of their own, job seekers may not be able to reconnect with providers who are closed for business.[40]

2.33      To illustrate its point, the Department provided an example of 'Ben', a single NSA recipient who has no dependants. The Department supposed that Ben failed to attend an appointment on a Thursday, was advised on a Friday and attended the earliest available rescheduled appointment on a Monday. The Department noted that under current legislation, Ben would incur a penalty of:

1/14 x 4 days (including penalty incurred over the weekend) = $139.08[41]

2.34      If the Bill is passed, the penalty will be:

1/10 x 2 days (no penalty over the weekend) = $97.36[42]

2.35      This penalty rate will be the same as that applied to a recipient who failed to attend an appointment scheduled for a Monday until Wednesday, two business days later. If the Bill is passed, the penalty will be:

1/10 x 2 days = $97.36

2.36      The committee also notes that this is higher than the penalty applied for the same offence under present legislation:

1/14 x 2 days = $69.54

2.37      The committee notes that the one-tenth penalty system is fairer for job seekers in the sense that the Bill will remove the discrepancy in the penalty incurred by people who fail to attend an appointment late in the working week as opposed to those who fail to attend an appointment scheduled for early in the working week. The committee considers that it would be useful to see how the application of this system works in practice; whether or not it will result in greater net penalties being withheld from job seekers' payments.

Recommendation 1

2.38      The committee recommends that the government, through the Department, monitor the implementation of the new calculation of penalty rates for reconnection failures to determine any change to the total amount withheld from Youth Allowance (other) recipients per annum.

Impact on vulnerable persons

2.39      A number of witnesses considered that the Bill may disproportionately affect vulnerable persons. The Australian Centre for Disability Law suggested that the new arrangements will adversely impact people with disability:

[T]he proposed new penalty for reconnection failures is regressive because it has the potential to deprive recipients of income necessary for their subsistence in situations, or during periods, of acute vulnerability.

Although the proposed measures are not population group specific, in our view they will have a disproportionate impact upon persons with disability who experience much higher rates of unemployment and underemployment than other segments of the population.

Additionally, the proposed new penalty for reconnection failure will have a disproportionate impact on persons with cognitive impairment (including those with psycho-social impairments) who may disconnect with employment service providers because of disability-related organisation and planning skills, or episodic acute periods of illness.[43]

2.40      However, the Department stated in its submission that there are already mechanisms in place to protect vulnerable persons from 'inadvertently incurring reconnection penalties.'[44]

2.41      The National Council of Single Mothers and their Children was concerned about the Bill's impact on single mothers, particularly those who are young, and their families:

The Bill and its ramification may occur despite the knowledge that the financial circumstances of single mother households and the increased risk of poverty and deprivation are well documented. The Social Policy Research Centre identified certain population groups that consistently face higher than average risk of poverty and stated that among family types, single people and lone parents were at the highest risk. ACOSS who completed research into deprivation and multiple deprivation stated that whilst 19 per cent of the Australian population experienced multiple deprivation, sole parents face a much higher risk of multiple deprivation with 49 per cent of all sole parents experiencing multiple deprivation. This level of deprivation was significantly higher for sole parents than any other family type. Furthermore, children residing in a household headed up by a mother are 25 to 30 per cent more at risk of child poverty signalling an entrenched level of disadvantage which requires a gendered and systemic solution and one that exceeds this narrow policy approach.[45]

2.42      Similarly, A similar concern was expressed by the Australian Youth Affairs Coalition, which was concerned that the Bill would impact vulnerable young people:

AYAC asserts that the most vulnerable groups of young people stand to lose the most from the proposed changes to Newstart Allowance. In a study on trans-generational income support recipients, it was found that ‘young people from low income working families were more than twice as likely to have received an unemployment payment as those from middle income families.’ There are other indicators that suggest a parents level of education impacts on the educational attainment of young people, so in effect young people affected by this policy are already those who are most disadvantaged by life circumstances. Young people need to be supported by measures that resource and empower young people to choose what is right for them. The Government approach needs to help not hinder young people’s opportunity to engage in employment.[46]

2.43      However, the Explanatory Memorandum to the Bill, which now includes a statement on human rights ramifications, noted that:

The justification for this is to accelerate the closing of the grandfathered conditions for parenting payments which will help to restore equity across the parenting payment population. This limitation is further justified because it will encourage parents with older children to re-enter the workforce earlier, thereby reducing long term welfare reliance and, over time, the prevalence of intergeneration welfare dependency. However, a person's access to social security is not impacted as recipients who are affected by this measure are entitled to apply for other income support payments, such as Newstart allowance.[47]

2.44      In addition, the Department's submission noted a range of transitional and support arrangements designed to assist affected parties.

Support arrangements

2.45      The Department's submission drew the committee's attention to support measures available to young people as part of the Building Australia's Future Workforce (BAFW) package:

[Y]oung people are being supported to take up career opportunities in the trades and assistance is also being provided to strengthen their foundation skills, through Transition Support for Early School Leavers and more places in the Language, Literacy and Numeracy Program.[48]

2.46      In addition, the BAFW package also includes measures specifically designed to assist vulnerable people and people 'at risk of disengagement':

The need for providers and the Department of Human Services (DHS) to be conscious of the difficulties faced by vulnerable job seekers also underpins two other compliance related measures that are to be introduced from 1 July 2012 as part of the BAFW package. These are the greater involvement of providers in Comprehensive Compliance Assessments and the increased use of face-to-face engagement when conducting Comprehensive Compliance Assessments for vulnerable job seekers. In addition, the BAFW reforms provide for joint interviews by the DHS and their Job Services Australia provider of job seekers at the risk of disengagement who have had multiple Participation Reports. There will also be improvements to the operation of compliance arrangements through improved exchange of information between providers and the DHS.[49]

2.47      The Department also stated that transitional measures will be put in place to assist single parents to transition to new arrangements:

To ensure that grandfathered Parenting Payment recipients have the support they need to re-engage in work and other activities, these parents are eligible for targeted assistance under initiatives in the BAFW package. This includes additional training places and community based support for single parents as well as access to professional career counselling through Job Services Australia providers. This targeted support commenced from 1 January 2012.[50]

2.48      In addition, as mentioned in Chapter One, parents moving from PPS to NSA will be able to lodge their NSA claim thirteen weeks before they lose their eligibility for PPS.[51]

Recommendation 2

2.49      The committee recommends the Bill be passed.

 

Senator Claire Moore

Chair

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