CHAPTER 2

CHAPTER 2

Key issues

Overview

2.1        The key issues discussed in submissions and during the hearing relate to Schedule 1 of the bill – the proposal to remove the grandfathering provisions. The committee heard that under the proposed changes, families transitioned to Newstart Allowance would suffer financially and lose incentives to work. The timing of the measure was problematic, particularly in light of the Senate Education, Employment and Workplace Relations References Committee's concurrent inquiry into, among other matters, the adequacy of Newstart Allowance.

2.2        The Department of Education, Employment and Workplace Relations (the department) submitted that the changes to eligibility would encourage workforce participation and achieve fairness by ensuring parents in like circumstances have access to the same support.[1]

Schedule 1

Background

2.3        Schedule 1 of the bill seeks to remove 'grandfathering' provisions established on 1 July 2006 and would supersede transitional amendments passed in 2011 and earlier this year.[2] If the bill is passed, from 1 January 2013:  

2.4        Abolition of the grandfathering clause is expected to save $727.9 million over four years.[4] The proposed amendment would impact one third of current recipients, all of whom began claiming parenting payment before 1 July 2006, who currently remain eligible until their youngest child turns 12 (even if that child is born after 2006). If passed, just under 63 000 recipients would be affected on the commencement date of 1 January 2013. This proposal would eventually affect all 147 000 grandfathered parenting payment recipients, the majority of whom are single parents.[5]

2.5        Parents no longer eligible for parenting payment would be eligible to apply for Newstart Allowance.[6] For those coming from Parenting Payment Single this means a lower rate of payment and, in some instances, earlier activity requirements. (Parenting Payment Partnered is the same payment rate as Newstart). Those who were in receipt of Parenting Payment Single, who have participation requirements and earn more than $36,000 a year, would not be eligible for Newstart Allowance.[7]

2.6        Schedule 1 amendments did not go through a detailed consultation process. Ms Terese Edwards, Chief Executive Officer, National Council for Single Mothers and their Children, described her disappointment:

First of all, apart from us talking about the flawed assumptions, it also prevents us from providing information about what actually does work. When we have information from women who have been able to fulfil various goals and aspirations, and they are faring well and supporting their family, those questions of what actually worked, what they had in play and whether they think it could be replicated for others represents a whole lot of mislearnings. We believe policy formation without the voices of those it is going to impact upon is flawed from the start.[8]

Financial impact

2.7        Many submitters and witnesses expressed concern that the move from Parenting Payment to Newstart Allowance would have a significant financial impact on families, particularly those led by a single parent. During the hearing the department made it clear that despite the 'range of supports and assistance available' in addition to Newstart Allowance, it did not assert that parents who lost their grandfathered status and were moved to Newstart would be 'financially better off'.[9]

2.8        In general terms, parents transferring from Parenting Payment Single to the maximum Newstart Allowance rate for single principal carers would lose $118.70 a fortnight.[10] With the exception of the pensioner education supplement, the same supplementary payments and services are available on Parenting Payment Single and Newstart Allowance, as detailed in Appendix 3.

2.9        Newstart Allowance also has a stricter 'income free area', the amount of money that may be earned without impacting the a recipient's payment. Whereas on Parenting Payment, single parents may earn $174 a fortnight, plus an additional $24.60 for each additional child, before being penalised, parents transitioned to Newstart would start to see a reduction in payments after they earn more than $62 a fortnight.[11] During the Melbourne hearing Ms Maree O'Halloran, President of the National Welfare Rights Network, explained the practical difference between the income free threshold on the two payment types:

It would take less than two hours at the minimum wage before [single parents] would start to lose their Newstart allowance, whereas for the parenting payment single they can have a shift of four hours before they start to lose.[12]

2.10      The strict earning threshold described above is still more generous for single parents than other Newstart recipients who are not principal carers of children. During the hearing the committee asked about the cost implications of retaining the larger 'income free' threshold for single parents on Newstart Allowance. The department advised that such a measure 'would reduce the savings over the forward estimates by approximately $491 million'.[13]

2.11      At the committee's request the department provided two case studies to illustrate the financial impact of the proposed changes.[14]

2.12      The first example describes the circumstances of a grandfathered single parent on Parenting Payment Single with a nine year old child. The parent satisfies their participation requirement of 30 hours per fortnight, earns $500 per fortnight, and pays $350 per week in rent. This recipient would receive $140.79 less per fortnight were the bill to pass.[15]

2.13      The second example describes the circumstances of a grandfathered single parent on Parenting Payment Single with two children aged nine and 14. The parent satisfies their participation requirement of 30 hours per fortnight, earns $500 per fortnight, and pays $350 per week in rent. This recipient would receive $139.77 less per fortnight were the bill to pass. [16]

Adequacy of Newstart Allowance

2.14      As discussed in the previous section, the bill would see grandfathered recipients of Parenting Payment transitioned to Newstart Allowance. Much of the evidence received by the committee focused on the inadequacy of Newstart Allowance, particularly for single parents with dependents.[17]

2.15      The Australian Council of Social Service (ACOSS) advised there is agreement amongst a range of peak organisations that Newstart Allowance is so low that it is causing entrenched poverty and acting as a barrier to people who are looking for work. During the Melbourne hearing Dr Cassandra Goldie, Chief Executive Officer, explained how widespread this view is:

The consensus that the Newstart allowance is now operating as a barrier to participation is held by the Business Council of Australia, the Australian Industry Group, the OECD and the Henry tax panel, which recommended that Newstart allowance be increased. Also, experts from Professor Whiteford to Judith Sloan have made it clear that in their view the Newstart allowance as the base payment to be out looking for paid work is now operating as a disincentive and a barrier.[18]

2.16      Dr Goldie also cited research that parenting payment recipients are ten per cent below the poverty line and those on Newstart are thirty per cent below the poverty line.[19]

2.17      The Salvation Army submitted that Newstart allowance is inequitable and inadequate as it is lower than pensions for retirees, below the poverty line, and has a more restricted earning threshold compared to the Parenting Payment.[20] Mission Australia referred the committee to the conclusions of the Henry Tax Review about the inadequacy of Newstart, especially in contrast to other OECD countries.[21]

2.18      The National Council of Single Mothers and their Children submitted that Newstart Allowance is not suited to single parents as it is an unemployment benefit that is structured primarily for job seekers, as opposed to parents and carers. Further, Newstart provides an inadequate level of support for families, has limited study support and the low allowable earnings creates a disincentive to work. The Council expressed concern that single mothers pushed onto Newstart would not have sufficient disposable income to become work ready and participate in the job market.[22] This view was also broadly supported by the National Welfare Rights Network.[23]

2.19      During the hearing in Canberra the committee heard that many concerns about the Schedule 1 would be ameliorated if Newstart Allowance was paid at a higher rate, although there would also need to be 'proactive and incentive-based assistance for getting some of these groups of people back into the workforce'[24] with more targeted employment support services,[25] and an increase the income free area.[26]

2.20      The committee heard of a range of other financial assistance payments and concessions available to parents receiving Newstart. However, the majority of these payments are already received by parents on Parenting Payment.[27] The department did not comment on the adequacy or otherwise of Newstart Allowance. However, the department did note the current inquiry being conducted by the References Committee and observed in its submission that:

The level of social security welfare support is a matter for the Government however, the Government has been clear that it considers the breadth of financial assistance with employment and other service provides adequate support for recipients while also providing appropriate incentives to work.[28]

Quality of employment support services for parents on Newstart

2.21      Many submitters and witnesses emphasised their support for activity requirements under Parenting Payment and Newstart. However, the committee heard that the current level of employment services support for parents could be improved.[29]

2.22      For example, Mission Australia submitted that single parents would be better supported if they were immediately placed on Stream 2, rather than Stream 1, job support services. Stream 2 provides intensive case management and is not ordinarily available until a recipient has spent 26 weeks on Stream 1.[30] At the public hearing in Melbourne Dr Prins Ralston, Mission Australia, explained why immediate access to Stream 2 services should be provided to parents moved from Parenting Payment to Newstart:

Stream 1 servicing in the Job Services Australia contract, as a result of the Newstart allowance, provides a very limited set of services. The service level there is intended for people who have recently fallen out of work and are classified as 'job ready'. The department has actually identified that these people are very far away from the job market in general. So if you think about somebody who has been out of work for possibly eight years since the birth of their child that is a significant period to be out of the job market. We are basically classifying those people as job ready. That, in our view, is a nonsense.[31]

2.23      The Salvation Army, among others, also called for measures to better support the transition to employment by parents and ensure that employment results in an improved financial situation for families.[32]

2.24      The department advised that a number of programs provide employment services and promote workforce participation, and that parents who moved to Newstart Allowance would still be able to access these services.[33] This includes assistance through Job Services Australia and Disability Employment Services to find and retain employment. Additional services such as the Employment Pathway Fund and the Employment Assistance Fund are also intended to help job seekers. Further, special participation requirements have been developed for single parents. [34]

2.25      Parents who were grandfathered and transition to Newstart Allowance would also have access to two additional services that were announced in the 2011–2012 budget and received additional funding in the 2012–13 budget:

2.26      The department also advised that parents are not required to accept or continue working in a job that does not render them financially better off (and accounting for factors like childcare and transport costs).[36]

The policy rationale for grandfathering

2.27      The department argued that the proposed measure is fair because it would see all parents treated equally once their youngest child reaches six years old for partnered parents or eight years old for single parents.[37]

2.28      A number of submitters disagree with this assessment, arguing that bringing all parents down to the same level does not promote fairness, especially if vulnerable families would suffer financially. For example, the Salvation Army expressed the following concerns:

The broad premise for us is that we are worried that the parents who are going to get a reduction in their income through schedule 1 will be more disadvantaged. We are also saying that, of that group, many of those people are likely to be at the lower end of the likelihood of gaining employment, so we are worried about the impact on them and their children.

...

The group of people we see [who will be impacted by the grandfathering clause] are disadvantaged for a range of reasons...and we are very concerned about the impact of a reduction in their rate of pay, should they then be required to transfer to Newstart and have an even more serious impact than their low income already has.[38]

2.29      The committee asked witnesses to comment on the policy rationale for the grandfathering clauses.  The Salvation Army inferred that: 'perhaps it was considered too harsh to make those changes to people currently in receipt of those payments'. The only reason it could see why grandfathering clause was being removed now was because of 'a fiscal imperative to save money'.[39]

2.30      During the Melbourne hearing Mr Peter Davidson, Senior Policy Officer, ACOSS, explained that:

The logic of grandfathering was that it was considered too harsh for people already on an income-support payment, whether it was PPS [Parenting Payment Single] or the DSP [Disability Support Payment], to be bumped down to a lower payment and suffer that loss of income.[40]

2.31      In the lead up to the 2012–13 budget ACOSS prepared a paper identifying possible cost savings that in their view would not unduly impact upon vulnerable Australians.[41] ACOSS identified $8 billion that could be saved by cutting:

2.32      While the government has implemented some of these cost savings, ACOSS expressed disappointment that other remaining opportunities were not pursued before taking the drastic decision to cut support for vulnerable single parents. During the Melbourne hearing Dr Cassandra Goldie, Chief Executive Officer, ACOSS, was unable to identify a policy justification for removing the grandfathering clause, and submitted that this measure was not necessary or appropriate given the other areas where savings could be made:

In our view, it is at its heart simply—but, with respect, cruelly—a cost-saving measure. We were one of the strong supporters of the federal government's effort to return to overall surplus in the May budget. We presented to the government and talked in the public arena about a range of ways that we could roll back unfair tax breaks and start to cut some of the rebate arrangements that were not fairly targeted...Some of those measures were taken up, but clearly there is more work we could do to find the savings in the budget that we need to cover requirements for infrastructure, social services and all those pressures that we know are on the federal budget. But this is not the way to find those savings.[45]

2.33      In a response to a question taken on notice, the department was unable to advise the policy reasons behind the decision to introduce the grandfathering clause in 2006, explaining that:

The introduction of these transitional arrangements in 2006 was a decision taken by the Government of the day. The second reading speech and explanatory memorandum relating to the Parenting Payment transitional arrangement do not indicate a rationale for the provisions.[46]

Is a lower payment an incentive to work?

2.34      The Department has asserted that the proposed changes would remove disincentives for parents to return to the workforce.[47] However, the National Welfare Rights Network and a number of other organisations argued that the proposed lower income free thresholds on Newstart, outlined earlier, would discourage parents from working.[48]

2.35      ACOSS submitted that the proposed change would be negative rather than incentivising, as the vast majority of parents affected by the proposals are already required to seek part time employment and would face no additional job seeking requirements.[49] Further, in its view, the bill represents 'a cost saving measure that was not needed to improve employment outcomes'.[50]

2.36      The department referred the committee to studies supporting the Welfare to Work reforms. For example:

2.37      During the public hearings the committee asked witnesses to comment on the statistical data provided by the department to support its assertion that the bill would provide an incentive for recipients to work.

2.38      The Salvation Army expressed doubt that the department's figures represented people over the full range of abilities and employment histories, noting that some of its clients have difficulty finding employment, even where there is a financial incentive.[52]

2.39      Mission Australia advised that, while it had not conducted an empirical study, anecdotal evidence did not support the department's assertions. Dr Prins Ralston, Acting Chief Executive Officer, observed that single parents may have casual work but that he could cite no evidence to support the proposition that parents who moved from Parenting Payment to Newstart Allowance were more likely to obtain 'sustainable work'.[53]

2.40      The National Welfare Rights Network pointed out that any increase in participation rates could not necessarily be attributed to reduced payment rates, but rather to the activity requirements and increased support to obtain employment. In the Melbourne hearing Mr Gerard Thomas, Policy and Media Officer, provided an assessment of the data, observing that:

[It] was the activation and the supports which increased the level of parents' engagement in employment. The department has not released any data showing that it was the cut in payment that did that. Certainly, that may have pushed some people into employment who may not otherwise have been in employment, but there is the other question... of the tighter income test. That would certainly have pushed many people off...the Newstart allowance, where they would have remained on the higher parenting payment at that time. It is a lot more complex a story than just the percentages that DEEWR is talking about. The analysis also does not tell us whether these parents were financially better off. It does not look at the differences between what people can earn and keep on Newstart and parenting payment.[54]

2.41      ACOSS queried some of the assumptions inherent in the conclusions reached by the department, in particular noting that the 2006 reforms and increased participation requirements were also accompanied by increased support services for job seekers, and other measures. During the Melbourne hearing Mr Peter Davidson, Senior Policy Officer, explained that a complex range of factors should be considered when interpreting the statistical data provided by the department. Once this is done the 'effect on off-benefit rates six months after claiming is about the same for the two groups—11 to 12 percentage points'.[55]

2.42      The committee asked the department to explain whether the data it had provided accounted for differences between the Newstart and Parenting Payment cohorts. In particular, whether factors such as the length of time people had been on income support, and whether the Newstart cohort included the recently unemployed who were job ready. The department confirmed that these other factors had not been taken into account.[56]

Timing of the measure

2.43      A number of submitters and witnesses expressed concern about the commencement date of 1 January 2013 for a range of reasons.

2.44      Some submitters considered that it would be premature for the Senate to consider the bill without the benefit of the References Committee's findings in relation to the adequacy of Newstart Allowance.[57]

2.45      ACOSS urged the committee to consider the bill along with the findings of the References Committee's inquiry into the adequacy of income support payments and other matters. During the Melbourne hearing Mr Peter Davidson, Senior Policy Officer, explained that:

[If] we were to consider this measure as part of a wider reform of income support arrangements then the way to do that is to consider them all together, and not to pass this one now on the promise that there might be an increase in the Newstart next year, for example. The system needs to be considered as a whole in order to protect people from poverty and achieve the best outcomes for people.[58]

2.46      Mission Australia agreed, submitting that the committee should postpone any action in relation to the proposed amendment, at least until after the references inquiry is completed.[59] During the Melbourne hearing Dr Prins Ralston, Acting Chief Executive Officer, advised that:

Our view would be that in terms of both inquiries adopting a separate or an individualised approach, as opposed to them acting in concert, one might have a detrimental effect on the other. So we would rather see both inquiries actually acting in concert and taking input from the other.[60]

2.47      Similarly, the National Welfare Rights Network argued that given the 'direct relevance' of the bill to the reference inquiry:

We recommend and urge that any further action on the Social Security Legislation Amendment (Fair Incentives to Work) Bill 2012 be postponed in relation to the proposed amendment to remove the grandfathering arrangement at least until such time as the outcome of the inquiry is known.[61]

2.48      Concerns were also expressed that the measures would commence in January, which was widely described as a time when families are more likely to experience financial stress and find it difficult to obtain or maintain employment. ACOSS submitted that while 'it is never a good time to cut payments to people who are struggling', January is especially difficult because it is:

[A] time when many clients will be difficult to contact. It is also well established that the post-Christmas period is the time when parents on income support are under the greatest financial stress, when debts accumulate, and when demand for relief services reaches its peak.[62]

2.49      Mission Australia and the National Welfare Rights Network reported that January is a particularly difficult time for families and is a month when there is a surge in requests for assistance due to financial pressures coinciding with a period when rates of unemployment peak.[63]

2.50      The department advised that moving the implementation date to 1 March 2013 would 'reduce the savings over four financial years by approximately $51 million'.[64]

2.51      Some submitters also expressed concern that parents impacted by the bill would not receive adequate notice and counselling prior to the commencement date.[65] The department advised that it would advise parents of any changes that affected them if and when the legislation was passed. Ms Marsha Milliken, Group Manager, assured the committee that:

The Department of Human Services, Centrelink...will be writing immediately the legislation is passed, and inviting them to come into an interview with DHS so that they can talk with DHS about their family circumstances—the ages of their children, the change to the income support that will occur on 1 January... There will be a range of information sources as well through DHS as well as the opportunity for a face-to-face meeting.[66]

Schedules 2 and 3

2.52      Schedules 2 and 3 received general support. Some submitters called for minor amendments. For example, the National Welfare Rights Network supports Schedule 2 of the bill with amendment, calling for the Liquid Waiting Periods threshold amount to be indexed annually to the Consumer Price Index, to ensure it keeps pace with inflation.[67]

Committee view

2.53      The committee agrees that it is important to support parents to participate meaningfully in the workforce, particularly as their children get older and their capacity to work increases.

2.54      The committee has considered the evidence that moving grandfathered recipients from Parenting Payment Single to Newstart Allowance would result in a reduction in support for vulnerable families, while also failing to provide recipients with an incentive to obtain work, or increase the amount of work they undertake. The committee notes, but is not convinced by, the department's assertion that this measure is fair and would promote workforce participation.

2.55      The Senate Education, Employment and Workplace Relations References Committee is currently inquiring into the adequacy of Newstart Allowance (and a number of other matters). The committee notes the direct link between that inquiry and this bill. Depending on the outcome of that inquiry, and any subsequent government consideration of any recommendations made, some of the concerns about the impact of the bill may be ameliorated.

Recommendation 1

2.56      The committee recommends that the Senate defer consideration of the bill until the Parliamentary Joint Committee on Human Rights has concluded its inquiry and the committee's report has been considered.

Recommendation 2

2.57      The committee recommends that the government consider deferral of Schedule 1 of the bill until the Senate Education, Employment and Workplace Relations References Committee completes its inquiry into the adequacy of Newstart Allowance and other payments, and the government has had an opportunity to respond to any recommendations that might be forthcoming.

 

Senator Gavin Marshall

Chair

Navigation: Previous Page | Contents | Next Page