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:
-
eligibility for parenting payment for partnered recipients would
cease when the youngest child under their care turns 6 years old, or when the youngest
child of a single parent turns 8 years old.
-
all grandfathered recipients would have participation
requirements when their youngest child turns 6 (currently this is not until that
child turns 7).[3]
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:
-
Career Advice for Parents (a free telephone service which
provides career advice).
-
Access to Training Places for Single Parents (with guaranteed
places assured for grandfathered parents transitioning to Newstart to attain
accredited training and support services for single and teenage parents).[35]
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:
-
Poorly targeted subsidies for 'gap fees' or other private
expenditure for health and community services ($3.4 billion)[42];
-
Poorly targeted tax concessions ($3.6 billion)[43];
and
-
Tax shelters that enable people on high incomes to avoid their
income tax obligations ($1 billion).[44]
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:
-
Only 50 per cent of single parents work, compared to the OECD
average of 60 per cent;
-
Single parents comprise 70 per cent of jobless families;
-
Parenting payment recipients tend to receive the payment for 5–7
years on average;
-
The changes to the eligibility of parenting payment in 2006
resulted in much higher parent participation rates in the workforce; and
-
Single parents receiving Newstart Allowance have a higher
placement rate (65 per cent) than parents receiving grandfathered parenting
payment (57 per cent).[51]
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
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