Chapter 5The relationship between income support payments and poverty
5.1As outlined in the previous chapter, there are a number of structural drivers behind poverty.
5.2The committee received evidence from manysubmitters arguing that of these structural drivers, insufficient income from income support was a significant determinant of poverty rates.
5.3This chapter begins with an explanation of Australia’s social security system and income support payments.
5.4It then examines the relationship between income support payments and poverty.
5.5It presents evidence received from submitters arguing that lifting the rate of income support payments would reduce poverty rates in Australia.
5.6It further presents evidence on the introduction of the $550 Coronavirus supplement during the early stage of the COVID-19 pandemic in 2020.
5.7The chapter concludes with the committee’s views and recommendation.
Australia’s social security system
5.8According to the Department of Social Services (DSS), Australia has an ‘extensive and targeted’ social security system which ‘plays a key role in reducing and alleviating poverty in Australia’. The system is non-contributory and ‘provides a strong safety net’ for individuals who are unable to fully support themselves due to age, disability, caring responsibilities or employment.
5.9DSS characterised the social security system as follows, highlighting the possible tensions between support and fiscal sustainability:
It is a system that reflects the development of social policy by many governments over time. As with any system, balances and choices are required: between degrees of support and fiscal sustainability; between individual needs and responsibilities; in treating many different people with different needs and circumstances in an equitable fashion; ensuring the system incentives are in place so that supports are available where needed while ensuring that people actively seek to support themselves where possible.
5.10It referenced the social security initiatives in place to support individuals and families in poverty:
The Australian Government has a large number of payments and programs in place to support individuals and families to find pathways out of poverty and broader disadvantage as well as preventing people falling into poverty. These payments and programs are designed to break the cycles of disadvantage, to collect the evidence on what works, and to support families and communities to build the opportunity, human capital (education and health), and capability (the skills and access to resources) to change children’s and families’ outcome trajectories and increase their capacity for self-reliance.
5.11It further advised that there were other initiatives outside of the social security system that were aimed at ‘improving the wellbeing of individuals and families’:
The Government is currently preparing an Employment White Paper to provide a roadmap for Australia to build a bigger, better-trained and more productive workforce – to boost incomes and living standards and create more opportunities for more Australians….The Government is also committed to measuring what matters to improve the lives of all Australians.
Australia’s income support payments
5.12Australia’s social security system includes income support payments. These payments, as described by DSS, aim to provide:
a ‘minimum adequate standard of living’ for the working age population; and
acceptable standards of living for pensioners and families, accounting for ‘prevailing community living standards’.
5.13It also includes supplementary payments that provide additional assistance to address specific costs (for example, the costs associated with raising children or renting privately).
5.14DSS informed the committee that income support payments were paid primarily to support individuals with limited or no private resources.
5.15The system has ‘categorical eligibility criteria’ with specific payments that target the needs of the following cohorts:
the unemployed;
the aged;
people with disability;
carers of people with disability and the frail aged;
principal carers of young children; and
full-time students.
Types of payments
5.16Income support payments include, but are not limited to:
JobSeeker Payment— an income support payment that provides financial assistance to people aged 22 years to Age Pension age, for people who have the capacity to work ‘now or in the future’.
Youth Allowance(job seekers) — a means-tested income support payment which provides assistance to job seekers aged 16 to 21 years. It is a separate payment to the Youth Allowance (students and apprentices) payment mentioned below.
Age Pension — a pension paid to people 66.5 years or over, who satisfy the residence requirements and meet the means test requirements.
Carer Payment — paid to individuals who, because of the demands of their caring role, are unable to participate in substantial paid employment.
Parenting Payment — the main income support payment for principal carers of young children. The individual must be the principal carer of a qualifying child aged under 6 if partnered, or aged under 8 if single.
Disability Support Pension — an income support payment for people who are unable to work for at least 15 hours per week at or above the relevant minimum wage, for at least the next two years, due to a permanent physical, intellectual or psychiatric impairment.
Student payments — a range of student payments to support people undertaking further education and training, including:
Youth Allowance (students and apprentices) — an income support payment for students and apprentices aged 16 to 24 years.
Austudy —an income support payment for students and apprentices aged 25 or over.
5.17Pensioners and working-age recipients may also be eligible to receive a range of supplementary payments and concessions. For example, Commonwealth Rent Assistance is available to assist income support recipients in private rental accommodation and community housing with the cost of rent.
5.18A full list of income support payments and their eligibility requirements can be found on the Services Australia website.
Indexation of payments
5.19DSS stated that the indexation of income support payments was designed to ‘ensure that payments maintain their purchasing power when the cost of living increases’.
5.20The schedule of indexation is as follows:
Adult allowance rates (such as the Jobseeker Payment and Parenting Payment Partnered) — rates indexed in March and September each year to increases in the Consumer Price Index (CPI).
Commonwealth Rent Assistance rates — rates and thresholds indexed in March and September each year to increases in the CPI.
Adult pension rates (such as the Age Pension and the Disability Support Pension) — rates indexed in March and September each year to the higher of the six month growth in CPI and the six month growth in the Pensioner and Beneficiary Living Cost Index (PBLCI), then benchmarked to Male Total Average Weekly Earnings (MTAWE).
Jobseeker Payment
5.21The JobSeeker Payment is an unemployment benefit and the main working age income support payment for people aged over 22 and under the Age Pension age who have the capacity to work ‘now or in the future’. The payment replaced the Newstart Allowance in March 2020. JobSeeker is for those in the specified age bracket who are unemployed (or regarded as unemployed), or who are sick or injured and cannot do their usual work or study for a short time. Unless exempt, claimants must meet mutual obligations and satisfy the ordinary waiting period and liquid assets waiting period, and residency requirements apply.
5.22The basic payment rates for the JobSeeker Payment at the time of writing (i.e. current for the time period 20 March 2023 to 30 June 2023) are as follows:
Table 5.1JobSeeker Payment basic rates — 20 March 2023 to June 2023
| |
Single | |
No dependent children | $693.10 |
With dependent children | $745.20 |
Principal carer of a dependent child | $745.20 |
Principal carer of a dependent child granted an exemption from mutual obligation requirements for foster caring, non‑parent relative caring under a court order, home schooling, distance education or large family | $949.30 |
Aged 60 or over, after 9 continuous months on payment | $745.20 |
Partnered | $631.20 |
Source: Services Australia, A guide to Australian Government payments: 20 March 2023 to 30 June 2023, 13 April 2023, www.servicesaustralia.gov.au/guide-to-australian-government-payments?context=1, p. 23 (accessed 14 April 2023).
5.23For comparison purposes, the basic rate per fortnight for a single person on the Aged Pension or Disability Support Pension is $971.50, and the basic rate perfortnight for a single person on the Parenting Payment is $922.10.
Numbers and demographics of income support recipients
5.24DSS advised that in September 2022, there were approximately 5 million people on income support payments, broken down as follows:
217 000 people receiving Student payments;
2.6 million people receiving the Age Pension;
766 000 people receiving the Disability Support Pension;
302 000 people receiving the Carer Payment;
839 000 people receiving unemployment benefit (comprising the JobSeeker Payment and Youth Allowance (job seeker) payment);
294 00 people receiving Parenting Payments; and
10 000 people receiving the Special Benefit (a payment for individuals in financial hardship outside of their control who are not eligible for any other income support).
5.25DSS further advised that the number of unemployment benefit recipients was around 827 000 as of 25 November 2022, a figure down from the peak of 1.6 million recipients in May 2020 during the COVID-19 pandemic, and less than the 882000 recipients recorded on 20 March 2022.
5.26In terms of a demographic breakdown of unemployment benefit recipients, DSS provided the following details for the November 2022 figure:
Of the almost 827,000 unemployment benefit recipients in November 2022, around 760,000 received JobSeeker Payment and around 66,000 received Youth Allowance (other) [for job seekers]. Of these recipients 183,000 (22.1per cent) reported earnings in the latest fortnight, with average earnings of $795.37 per fortnight. The average income support duration was 299 weeks (5.7 years) and 647,000 (78.2 per cent) had long-term income support durations (1 year or more on income support).
In November 2022, of the 827,000 unemployment benefit recipients, around:
415,000 (50.2 per cent) were female
411,000 (49.8 per cent) were male
676,000 (81.8 per cent) were single
114,000 (13.7 per cent) identified as First Nations Australians
99,000 (12.0 per cent) were principal carers of children, of these recipients 79,000 were single
225,000 (27.2 per cent) were mature age
350,000 (42.3 per cent) had a partial capacity to work.
A majority, 511,000 (61.8 per cent) unemployment benefit recipients lived in major cities; 274,000 (33.1 per cent) lived in regional Australia; 42,000 (5.1 per cent) lived in remote Australia.
Length of time receiving unemployment benefits
5.27In regard to the length of time spent on unemployment benefits, DSS advised that while the majority of JobSeeker Payment recipients transitioned off in less than 12 months, the number and proportion of long-term JobSeeker Payment (or equivalent) recipients had increased over time.
5.28DSS explained that the increase in long-term JobSeeker Payment recipients had been ‘gradual and sustained’ and coincided with growth in both the mature aged and Partial Capacity to Work cohorts.
5.29It acknowledged that this increase in long-term recipients was likely due to a range of factors, including:
economic shocks;
the evolution of the labour market;
an ageing population; and
policy changes that moved recipients from other payments onto the JobSeeker Payment.
5.30In regard to the last factor, DSS provided detail on the relevant policy changes which led to individuals being moved onto the JobSeeker Payment:
Changes to eligibility criteria for the Disability Support Pension (DSP).
From 1 July 2006, eligibility criteria for the DSP changed so that a person capable of working 15 hours or more per week no longer qualified.
From 1 January 2012, revised Impairment Tables were used to assess new DSP claims and reviews. This coincided with an increasing number of people receiving the JobSeeker Payment or Youth Allowance (job seeker) with an identified partial capacity to work.
A change restricting the age definition of a qualifying child for the Parenting Payment.
Individuals claiming the Parenting Payment on or after 1 July 2006 are only able to receive the payment until their youngest child turns 8 years old (for single recipients) or 6 years old (for partnered recipients). Before 1 July 2006, individuals could receive the payment until the child turned 16. The ‘grandfathering’ arrangements for individuals on the payment prior to 1 July 2006 ceased on 1 January 2013.
An increase in the age of qualification for the Age Pension.
Consistent with legislation passed in 2009, the Age Pension qualification age has been increasing by six months every two years until it reaches 67years on 1 July 2023. It is currently 66.5 years.
An increase to the basic rate and income free area of working age payments.
From April 2021, the basic rate was increased by $50 and the income-free area was increased to $150. These changes increased the income limits and enabled some recipients to earn more and still remain on income support.
5.31The Brotherhood of St Laurence informed the committee that its research had also shown that the tightened eligibility for the DSP and Parenting Payment had left people with a disability and/or chronic health conditions and single parents ‘stuck’ on the JobSeeker Payment long-term.
Submissions identifying income support payments as a structural driver of poverty in Australia
5.32Many submitters to the inquiry argued that the current levels of income support payments were inadequate and functioned as a structural driver of poverty.
5.33The Poverty and Inequality Partnership between the Australian Council of Social Service (ACOSS) and the University of New South Wales (UNSW) (the ACOSS & UNSW Partnership) emphasised that the social security system was not fit for purpose and was in fact a key driver of poverty:
Australia’s social security system should play a key role in the prevention of poverty. However, many income support payments are inadequate to prevent poverty. Consequently, where income support is the main source of income for a household, there is a high risk of that household living in poverty.
5.34Financial Counselling Victoria made a similar point, pointing out that a social security system was fundamentally unfit for purpose if it was difficult to access and put those relying on it below the poverty line. It elaborated:
At present, Australia’s social security system is falling short of providing social security to individuals and the community; instead of protecting and supporting the vulnerable it all too often traps them in poverty and debt.
5.35The Melbourne Institute also concluded that the level of income support ‘to a large degree’ determined the level of poverty in Australia.
5.36Professor John Quiggin, a prominent research economist based at the University of Queensland who provided evidence in his private capacity, echoed this point, stating:
The reason people are poor in Australia is primarily because income support is inadequate.
5.37As mentioned in Chapter 1 of this report, ACOSS identified that based on2019–20 data, people in households receiving income support faced the highest risk of poverty. Specifically, it found that:
60 per cent of people on the JobSeeker Payment (formerly Newstart Allowance) were in poverty;
72 per cent of people on the Parenting Payment were in poverty;
34 per cent of people on Youth Allowance were in poverty;
43 per cent of people on the Disability Support Pension were in poverty; and
39 per cent of people on the Carer Payment were in poverty.
5.38Based on information current in February 2023, ACOSS also pointed out that:
The base rate of JobSeeker was less than half the minimum wage (at 42 per cent).
The gap between JobSeeker and pensions was growing, having gone from 80 per cent of the pension in 1980 to 65 per cent of the pension.
Jobseeker was the second lowest unemployment payment in wealthy nations as a proportion of average earnings.
5.39The base rate of Youth Allowance was less than half the minimum wage (at 34per cent) and only 54 per cent of the pension.
The interaction between income support payments and poverty
5.40As mentioned above, a significant number of submitters identified the impact of income support payments on rates of poverty.
5.41For example, Dr Elise Klein OAM, an academic from the Australian National University (ANU) who submitted in her private capacity, stated:
While poverty cannot be attributed to one single factor, our research suggests that social security policy settings directly affect the prevalence of poverty in Australia.
5.42She informed the committee that it had been well established that people receiving working age payment types (such as JobSeeker) were highly likely to be living in poverty.
5.43At a public hearing in Canberra she outlined the concept of ‘policy-induced poverty’ as it applied to the current Australian social security policy settings:
…a lot of poverty in this country comes from policy by design—policy that induces poverty. We have a situation where the social security system, once set up to stop people falling through the cracks, has now been restructured to further entrench poverty.
5.44In particular, she drew attention to the impact of two particular features – the base rate of payments and mutual obligations:
Two particular features are important to note: the low base rate of payment, which contributes to material deprivation; and the use of mutual obligations and conditionalities that stigmatise and disempower and can lead to the withholding of income. Together they produce hostile conditions that are said to propel people into employment. However, this logic of deterrence completely overlooks that people cannot work, in that they have a disability or illness; that there are not enough jobs, particularly in remote regions of the country; or that people receiving payments are already working, undertaking the critical work of unpaid care, which is essential for the economy and society.
5.45Dr Klein elaborated on these impacts:
According to ACOSS, of the people receiving unemployed payments, 40 percent have a disability, 47 per cent are 45 years and older, 20 per cent are from culturally and linguistically diverse backgrounds, 10 per cent are FirstNations people and 13 per cent are raising a child alone. We see from these numbers the very real ableist, racist and gendered impacts of the government's policy approach on those it subjects to poverty. Critically, instead of understanding the important care obligations people have or the very real situations that stop people from working, people are subjected to payments well below the poverty line…. What is also deplorable is that children are punished through these policies. It is hard to think that this policy-induced poverty could be anything but state violence against our nation's children.
5.46The committee heard from inquiry participants — ranging across the spectrum of advocacy groups, community services and emergency relief providers, and individuals with lived experience — that Australia’s working-age income support payments were insufficient to meet the cost of essential, day-to-day goods and services, including food, rent and energy.
5.47ACOSS informed the committee that the base rates of JobSeeker, Youth Allowance and related payments were ‘too low’ to allow recipients to sustain an adequate standard of living. It remarked that the payments had fallen ‘well behind’ pensions, wages and community living standards, and reiterated that the practical result of the inadequate rates was that people went without basic goods and services every day.
5.48The St Vincent De Paul Society National Council stated that the base rate for income support payments was a structural driver of poverty, given it was well below the poverty line and meant that individuals and families struggled to afford necessities and were often forced into debt in order to survive.
5.49The Brotherhood of St Laurence observed that while Australia had a mechanism for setting minimum wages, there was no equivalent for the social wage and, consequently, the rate of working-age income support payments remained well below the various poverty lines. It further noted that even people on pensions, which were higher than JobSeeker Payment and notionally above the Henderson Poverty Line, experienced high rates of poverty due to inadequate income.
5.50Research by Dr Elise Klein and colleagues published by the Swinburne University of Technology and the Centre for Excellence in Child and Family Welfare highlighted that the impact of the low payments were contrary to the policy goals of social security:
…low payments and mutual obligations in current social security policy are functioning contrary to the outcomes government are trying to achieve by creating barriers to work, compromising physical and mental health, reducing self-worth and wellbeing, providing inadequate financial resources for basic living needs, reducing capacity to focus on anything other than survival, and disregarding people’s unpaid caring responsibilities, community contributions and long-term goals.
5.51ACOSS noted that based on 2022 research, it had found that 94 per cent of people surveyed on JobSeeker and related payments and living in private rental were paying more than 30 per cent of their income on rent. Half were in debt with their energy provider or expected to be once their next bill arrived because they couldn’t afford the cost. Additionally, 96 per cent of respondents in the research survey suffered poor mental and physical health because they did not have enough money to meet basic needs.
5.52Additionally, a March 2023 ACOSS report into the cost of living highlighted that large price increases over the previous 12 months had deepened the inadequacy of the payments, even with the routine CPI indexation that had been applied to the rates. The report found that based on research conducted in early 2023, people on the lowest incomes had ‘nothing left in their meagre budgets’ and were experiencing deprivation and financial stress on a large scale.
5.53As set out in Chapter 3, the committee heard numerous personal stories from individuals about the impact of current payment rates on their lives.
5.54For example, Ms Catherine Caine from the Australian Unemployed Workers’ Union outlined:
…when you're on income support, your housing is precarious, food is precarious and safety is precarious, and we register that state of precarious as a survival threat, just as if there were a tiger outside our door. But instead of lasting for 10 minutes, that threat can last for 10 months or even years—years of not being able to think of much other than the tiger. It's next to impossible to study when there's a tiger at the door. It's next to impossible to perform any of the tasks that we are supporting people for: raising a child, caring for a loved one or searching for employment. Then the system punishes people for any lapse, thereby making the tiger bigger.
5.55DSS stated that poverty was a ‘complex and multifaceted issue’, with dimensions such as material deprivation, intergenerational disadvantage, social isolation and poor family relationships needing to be considered alongside a persons or households income.
5.56It also stated that the level of government support was not the only factor at play in determining poverty levels and social outcomes more broadly:
There is also a temporal dimension, as outcomes and circumstances change over a person’s lifetime. Further, social outcomes are not purely a function of the level of government support, but also reflect decisions and capabilities at the individual, family and community level and the underlying strength and sustainability of the economic, social and physical environment.
Calls to raise income support payments
5.57Many inquiry participants called on the Commonwealth Government to raise the rate of working-age payments as an evidence-based, cost-effective policy lever.
5.58In making these calls, they emphasised the impact increased payments would have on poverty and broader outcomes across health, shelter and social and economic participation. Some submitters made suggestions as to what the increase should be and also drew the committee’s attention to expert modelling that demonstrated how the Government could achieve an increase while still being mindful of budgetary implications.
5.59For example, the Salvation Army stated:
The Salvation Army’s service delivery experience leads us to conclude that increasing welfare payments, including the JobSeeker Payment and Youth Allowance, remains the single most effective way to address poverty in Australia.
5.60The St Vincent de Paul Society National Council advised the committee that in April 2022 it had commissioned ANU Centre for Social Research and Methods to model reforms to the Australian tax and welfare system. The research came back with a variety of viable policy proposals to increase JobSeeker and other income support payments, which would in turn have a positive impact on the rate and severity of poverty in Australia. As the submission outlined:
These measures are backed by rigorous analysis and use a balanced budget approach for all its social policy recommendations. They do not involve a major overhaul of the tax or welfare systems and would reduce the inequality that exists between Australian households.
5.61Similarly, ACOSS drew attention to 2021 research from the ANU which showed that the best way to reduce poverty and financial stress among very low income householders would be to increase working-age payments, including JobSeeker.
5.62As noted earlier in this report, Professor Roger Wilkins, an academic economist from the University of Melbourne specialising in the incidence and determinants of poverty and social exclusion, provided evidence to the committee in his private capacity. He agreed with other submitters that it was a policy choice to leave people in poverty, given that it was definitively within the Government’s remit to set income support payment rates. He summarised:
…you can make sure that no-one, whether they're a child or an adult, is in poverty just by having adequate income support payments.
5.63While acknowledging that there were a range of other policy domains (apart from social security) that formed part of the solution to addressing broader disadvantage and improving life outcomes across the population, he made clear that if the Government chose to provide adequate income support payments, this would directly lower the rate of poverty in Australia. He explained:
We could give people enough money so that there weren't children growing up in poverty and there weren't adults living in poverty. It's totally within our power to do that, at least on a measure of poverty of the austere kind that I gave—50 per cent of median. We could pretty much drive that fairly close to zero, with the bonus benefit that, for many of the children growing up in these otherwise poor households, many of them will go on to be well above the poverty line and not depend on income support as the mechanism that lifts them out of poverty—as in they become gainfully employed in their adulthood, earning good money.
5.64Mr Greg Jericho, Policy Director (Labour Market and Fiscal) for the Centre for Future Work at the Australia Institute, outlined how additional revenue could be raised, enabling an increase in the rate of JobSeeker without any long-term impact on the budget deficit.
5.65In setting out the details of this modelling, he highlighted the nature of the policy choice before the Government:
People [the Government] have decided they want to bring in something [the Stage 3 tax cuts] that will give half of the benefit to four per cent of the people rather than lifting JobSeeker, which we know, from actual evidence during the pandemic, reduced poverty massively. To me it is a straightforward example—you can't hide behind the fact of saying, 'There will always be people in poverty and we can't do anything about it'. It's clear that something can be done.
5.66Other submitters contended that the need for reform of income support payments was not just about an increase in payments, but also about access. Ms Terese Edwards of the National Council of Single Mothers and their Children said:
We share all the calls to increase income support but we particularly want to talk about restoring access to the parenting payment single, because this is how we treat unpaid care. It's silence, and it manifests in a range of policies, and that's one of them.
5.67ACOSS provided the committee with a copy of its 2023–24 submission to the federal Budget. In it, ACOSS described the case for lifting JobSeeker as ‘compelling’, arguing that the level of financial stress experienced by people relying on income support payments was severe and causing unnecessary harm.
5.68In order to reform income support payments to reduce poverty, ACOSS made a number of recommendations. Principally, it recommended the Commonwealth Government lift the base rates of working-age income support payments (like JobSeeker, Youth Allowance, Austudy, ABSTUDY, Special Benefit, Parenting Payment and Crisis Payment) to the same level as the single Aged Pension (including the pension supplement). Additionally, it recommended that the Government index all working-age payments twice per year in line with CPI and wages.
5.69In putting forward the recommendation, ACOSS stated:
At a time of high inflation that is having the biggest effect on people on the lowest incomes, it is urgent that the Federal Government lift the base rates of these lowest income support payments. People receiving JobSeeker Payment, Youth Allowance, and Parenting Payment are going without essentials like food, appropriate housing, medication, and electricity because their meagre incomes simply do not cover the cost of living. Unless the government increases these income support payments, more than 1.4million people will continue to deprive themselves and their families of essentials because they have no other choice.
5.70ACOSS also recommended the creation of a Disability and Illness Supplement (of at least $55 a week), benchmarked to the additional living costs faced by people with a disability or illness. It proposed that the supplement should be provided to people in the income support system with disability (e.g. those on the DSP), as well as people with an illness that prevents them from undertaking full-time paid work.
5.71In a March 2023 research report, the ACOSS & UNSW Partnership echoed these suggestions, recommending that the Government lift the base rates of the lowest income support payments to ‘at least pension levels’ and introduce or improve supplements to cover essential costs above and beyond basic income support, in order to recognise the additional costs arising from sole parenthood, illness or disability. It noted that these actions would ‘shield’ people of working age and their families from poverty when they could not obtain adequate income from paid work.
Evidence related to the $550 COVID supplement
5.72During the 2020 COVID-19 wave, the Commonwealth Government at the time created a fortnightly Coronavirus supplement for people receiving certain income support payments and temporarily suspended mutual obligation requirements. The supplement was initially introduced at $550 per fortnight from 27 April 2020, effectively doubling the rate of the JobSeeker Payment. It was then reduced to $250 per fortnight from 25 September 2020 to 31December2020 and further reduced to $150 per fortnight from 1January 2021 to 31 March 2021, before being discontinued in its entirety.
5.73Some submitters to the inquiry stated that the $550 increase was pivotal to improving the lives of income support recipients and in many cases, lifted them out of poverty almost immediately.
5.74ACOSS cited analysis by the ANU Centre for Social Research and Methods that demonstrated that the $550 supplement sharply reduced poverty among people on income support. Specifically:
Poverty among people in households on the JobSeeker Payment fell from 76per cent in 2019 to 15 per cent in June 2020.
Poverty among people in sole parent families (both adults and children) was reduced by almost half, from 34 per cent to 19 per cent.
5.75Additionally, analysis by the Australia Institute in July 2020 found that the introduction of the $550 supplement in March 2020 lifted 425 000 people out of poverty, including 65 000 children aged 0 to 14 years.
5.76ACOSS also found that the initial reductions in poverty were partly reversed after the $550 supplement was reduced to $250 per fortnight from September to December 2020, with poverty among people in households on Jobseeker Payment rising to 48 per cent and among sole parent families rising to 31percent.
5.77Uniting Victoria Tasmania commented that the introduction of the $550 supplement meant that income support payments actually began to function as intended – namely as a safety net that successfully prevented people from living in poverty.
5.78Sacred Heart Mission informed the committee that with the additional money provided by the supplement, its clients could:
afford essential medication;
afford to run their refrigerators and heaters;
afford to purchase healthy fresh food, instead of canned and non-perishable goods;
afford three meals a day instead of skipping meals;
afford to replace worn out clothes and shoes; and
afford to purchase Christmas presents for their loved ones.
5.79In a similar vein, the St Vincent de Paul Society National Council observed:
The Australian Government has the means and mechanisms to alleviate current poverty levels and prevent others from falling below the poverty line. This was demonstrated by the economic response during the pandemic….During this period, the Society also experienced a significant reduction in the number of people seeking help, in some jurisdictions by up to 75 per cent. Each time the Government then subsequently reduced the Coronavirus supplement, more and more people ended up in poverty and demand for charitable assistance increased.
5.80Mr Jericho from the Centre for Future Work pointed out that it was rare for an economy to have a real-world test of what occurs when income support payments are increased. He observed that the temporary raising of the JobSeeker payment through the Coronavirus supplement and the easing of mutual obligations was ‘perhaps unintentionally a damning indictment on the performance of the unemployment benefits at that point’.
5.81He remarked:
The experience of the pandemic has revealed what has long been known but not always tested—that poverty is a policy choice.
5.82In commenting on the impact of the supplement, Mr Jericho advised the committee that unemployment benefits should have two main roles. The first of these is to ensure that those who are unemployed have sufficient money to survive while they look for work. As he detailed:
The payment and conditions should be at a level that does not limit their ability to seek work due to an inability to pay for services or equipment that are crucial for looking for work. Likewise, it should not be at the level that punishes people who find themselves without work, almost always through no fault of their own. This is especially important, given that the current macroeconomic policies in Australia determine that there needs to be a level of unemployment of approximately 4 per cent to 5 per cent.
5.83The second of these is to act as an ‘automatic stabiliser’. As Mr Jericho explained:
…such that when an economy experiences a downturn, the level of household income does not crater such that the conditions of that downturn are magnified and develop a cycle of lower incomes, leading to greater unemployment and lower incomes.
5.84Mr Jericho posited that as Australia entered the pandemic in early 2020, the level of unemployment benefits failed both of these roles, the fact of which the Government of the day was aware:
The level of Newstart at the time had recipients living in poverty, which made vital job-seeking activities such as travel, Internet and phone connection, let alone aspects such as deportment and clothing, extremely difficult. The level of the benefit was too low to sustain an economy about to see an effective doubling of unemployment. So it was not surprising that the government at the time sought to increase the level of the unemployment benefits.
5.85He observed that had the level of income support payments been already sufficient, there likely would have been no need for the introduction of the $550 supplement at all.
5.86Dr Klein characterised the $550 supplement as a ‘major natural experiment in poverty reduction’, given that the additional income had a demonstrable positive impact on poverty rates and the quality of recipient’s lives. She detailed:
People didn't have to ration medicine and food. People could afford to pay bills. People felt that they got their dignity back. People were able to undertake the important work of care without stigma. People were able to plan for their futures, including to prepare and work to get back into the workforce.
5.87She continued:
These dramatic changes enabled people to turn their attention away from day-to-day survival and towards envisioning and realising a more sustainable future for themselves and their dependents.
5.88Dr Klein provided the committee with an overview of her research that examined the impacts of the $550 Coronavirus supplement and temporary suspension of many mutual obligations during 2020. She explained that these temporary policy changes allowed her and colleagues to examine how social security recipients used not only the money, but also their time. She noted that the research was also able to compare whether these changes differed from people who did not receive the supplement, either because their payment was not included or because they do not rely on Centrelink payments.
5.89Dr Klein summarised her findings on the impacts of the policy changes as follows:
(1)The $550 Coronavirus Supplement was used for meeting basic needs, as well as other strategic expenditures to improve respondents’ economic futures.
(2)The $550 Coronavirus Supplement improved people’s physical and mental health and contributed to their overall wellbeing. These dramatic changes enabled people to turn their attention away from day-to-day survival and towards envisioning and working towards a more sustainable future for themselves and their dependents.
(3)The $550 Coronavirus Supplement and suspension of mutual obligations increased respondents’ engagement in labour market and other economic activities.
(4)The $550 Coronavirus Supplement and suspension of mutual obligations allowed people to better engage in other forms of productive work, including care work and community support.
(5)The reduction in the $550 Coronavirus Supplement to $250 per fortnight (paid between 25 September – 31 December 2020) eroded these physical and mental health and productivity gains, with many respondents expressing dread for further cuts and what they would mean for the security of their future.
Payment rates and employment
5.90The committee heard evidence from several witnesses that raising income support payments would not act as a disincentive to employment. For example, Mr Jericho from the Centre for Future Work responded that the debate around potential disincentives from increased income support seemed to be more often projected, rather than based in evidence. He elaborated:
I often feel there is a weird disconnect in the debates around disincentives and jobs. We often hear that the best form of welfare is a job, and the dignity of work is praised. Certainly the Australia Institute are very much in favour of employment growth and jobs—I work for the Centre for Future Work, not the Centre for Future Unemployment. You often hear talk that the benefits of work are great. They are. There is the ability, if you are of a certain generation, to pursue homeownership and so forth. But, on the other side, there is almost this sense that we need to make unemployment so bad that people won't stay there. If the benefits of work are so good, which I think they are, then what we should be thinking with income support is not punishment or trying to incentivise how great work is, but how to keep those people who happen to be unemployed at a comfortable standard of living.
5.91In discussing the issue, Professor Wilkins acknowledged that in very simple terms, there was likely to be a ‘trade-off’ between raising benefits and reducing incentives to work. However, he pointed out that in reality that was not the only consideration at play:
If you're raising benefits, you probably are reducing incentives to work. But if that was your only consideration, you wouldn't pay any benefits. That would optimise the incentive to look for work. It's not a complete response. You've got to think about: what are our objectives from a policy standpoint? Ensuring that people can live with dignity and at what we regard as an acceptable living standard is pretty much non-negotiable, I would have thought, in a modern, developed country. We should be prepared to accept what I would contend are fairly moderate disincentive effects.
5.92He further noted that there were policy options available (but not yet sufficiently explored by government) to increase the incentive to work from ‘a more positive perspective’ — that is, a ‘carrot’, rather than a ‘stick’ perspective.
5.93Professor Wilkins also submitted that while keeping an unemployment benefit at such a low level as to be unliveable might seem to incentivise people to work, practically speaking such a policy choice had counterproductive negative impacts on a recipient’s ability to seek work. He explained:
…when you do have an unemployment benefit low, sure you might incentivise people to work but you actually cut them off at the kneecaps in terms of their capacity to make themselves available for work. They don't have the resources needed to make themselves a good option for employers. They can't access transport, for example. They can't maintain good health. These sorts of factors will work against getting people in these situations into employment.
5.94He also put forward a further point for the committee’s consideration — that the JobSeeker Payment, by definition an unemployment benefit, was now paid to a large number of people who, due to their specific life circumstances, previously might not have been expected to work for significant periods of time, if at all. For example, people with significant disability, people with significant caring responsibilities and single parents. Professor Wilkins explained:
These are groups that have very constrained abilities to participate [in the labour market]. So worrying about the incentive effects is rather odd in that context. Part of the rationale given in the past for the low payment was that it's just a temporary support—it's only a short-term payment. We see now that a very high and growing proportion of unemployment benefit recipients and JobSeeker recipients are very long term. They don't have any reserves left to draw on as a way of getting through a temporary unemployment spell.
5.95Dr Klein also rebutted the disincentive claim with findings from her research:
Our findings also suggests that the longstanding view held by policy makers, that social security payments at a liveable level can be an impediment for people to find work, is a limited view. Indeed, our research found that people with financial security and time were able to engage further with the labour market, make strategic decisions about their economic futures, and were able to provide better care for their children.
5.96She informed the committee that there was a very strong evidence base that showed that a ‘punishment model’ which relied upon payments below the poverty line (and punitive mutual obligations) did not get people into employment, and effectively worked to reduce people's ability to work.
5.97Additionally, economist Dr John Quiggin flagged that there was some international evidence which indicated that the disincentive effects of unemployment benefits had been ‘significantly overstated’. He commented:
I think this is part of a general reckoning within the economics profession against the folk wisdom that minimum wage and unemployment benefits were bad for employment. As it turned out, much of that was based on faith ratherthanactualevidence.
Recent findings of the Interim Economic Inclusion Advisory Committee
5.98On 27 November 2022, the Commonwealth Government committed to establishing an Economic Inclusion Advisory Committee to provide non-binding advice to government on economic inclusion (including policy settings, systems and structures) and the adequacy, effectiveness and sustainability of income support payments ahead of every federal Budget. An Interim Advisory Committee was appointed in December 2022.
5.99DSS advised that the Advisory Committee would:
…look at options to reduce barriers and disincentives to work, including in relation to social security and employment services. Further, it will explore options for tailored responses to address barriers to economic inclusion for long-term unemployed and disadvantaged groups, including place-based approaches at the local level.
5.100On 18 April 2023, the Commonwealth Government released the first report of the Interim Advisory Committee. The report concluded that ‘all indicators available’ showed that the current rates of payment for JobSeeker and related working-age non-pension payments were ‘seriously inadequate’, regardless of whether measured relative against National Minimum Wages, in comparison with pensions, or against a range of income poverty measures.
5.101It further observed that people receiving the payments faced the highest levels of financial stress in the Australian community, and that:
Indexing JobSeeker Payment and related income supports only in line with the consumer price index has resulted in their relative base rates falling significantly below existing benchmarks such as the Age Pension. Increasing their rate to 90 per cent of the Age Pension would improve adequacy and return them to payment relativities of 1999.
5.102The report stated that income support should better value unpaid caring work and support those who cannot be in full-time paid employment, including due to illness, disability or partial capacity to participate. It also commented on the inadequacy of the current rate and indexation of Commonwealth Rental Assistance, as well as the ineffectiveness of the employment services system.
5.103The Interim Advisory Committee made four recommendations to Government in regard to the adequacy of working-age income support payments:
Recommendation 1
The Government commit to a substantial increase in the base rates of JobSeeker Payment and related working age payments as a first priority.
Recommendation 2
The Government commit to increase Commonwealth Rent Assistance and reform its indexation to better reflect rent paid.
Recommendation 3
The Government commit to a timeframe for the full increases to be implemented, if the increases are to be staged.
Recommendation 4
The Government consider an increase in income support be accompanied by, but not contingent upon, major reform of employment services to support people who have been on payments for an extended period, including exploring demand-led and place based approaches.
5.104It made clear that of all the recommendations put to the Government in the report, it was substantially lifting the base rates of JobSeeker and the related income support payments that needed to take ‘immediate priority’.
5.105In regard to Recommendation 1, the report also addressed the question of whether increasing unemployment payments would create disincentives to paid work. Based on the evidence it considered, the Interim Advisory Committee’s view was that current unemployment payments had fallen to such an inadequate level that they created a barrier to paid work. It further stated:
It is also our view that our income support system should prevent poverty and financial distress to ensure people looking for paid work are not placed at a greater disadvantage by virtue of not having enough money to meet the essentials of life.
5.106In releasing the report, the Government thanked the Interim Advisory Committee for its advice. It commented that it would look to provide support where it could to those most in need ‘where it is responsible and affordable to do so, and weighed up against other priorities and fiscal challenges’.
Committee view
5.107The committee acknowledges that there is significant evidence before it regarding the relationship between income support payments and poverty, as well as the need for reform.
5.108The committee heard that the daily struggle to survive and procure essentials with not enough money is dehumanising and demoralising for recipients and their families. The committee heard direct accounts of how lack of money denied them access to the basic goods and services needed to meet an adequate standard of living, and deprived them of meaningful opportunities, both social and economic, to participate and contribute to society.
5.109There have been unified and long-standing calls from across the Australian community, including from payment recipients, advocacy groups, community services and emergency relief providers, academic experts, industry and unions to increase income support payments.
5.110The committee also acknowledges the recent findings of the Interim Economic Inclusion Advisory Committee and its recommendation that as a first priority, the Government commit to a substantial increase in the base rates of the JobSeeker Payment and related working-age payments.Further, that an increase in income support must be accompanied by, but not contingent upon, a major reform of the employment services system.
5.111The committee believes that urgent action must be taken so that Australians are not living in poverty, and that such action must be prioritised in the upcoming Budget.
5.112The committee believes that these measures should specifically target rising inequality and entrenched disadvantage, including through the income support system.
5.113Moving forward, the committee remains cognisant that there are a range of policy domains which can address disadvantage and work to improve life outcomes for the community, and it will look to explore these further as the inquiry progresses.
5.114The committee recommends that the Australian Government take urgent action so that Australians are not living in poverty, and prioritise policy measures in the upcoming May Budget that specifically target rising inequality and entrenched disadvantage, including through the income support system.
Senator Janet Rice
Chair