Paltry allowance gives jobless no hope of paying the bills

Further evidence has emerged this week of the urgent need for reform of Australia’s social security payments system to deal with the growing disparity that could see single unemployed people on the Newstart allowance receive just one third of the age and the disability pensions by the middle of the century.

The calculation by the University of NSW's Social Policy Research Centre comes as the Organisation for Economic Co-operation and Development warns that the Newstart allowance is already so low as to raise “issues about its effectiveness” in providing a basic level of financial security for people who are not able to find paid work.

The expert OECD’s unprecedented call for an increase in unemployment benefits and the removal of “inactivity traps” through social security and tax reforms to improve work incentives, shows something is seriously wrong.

The OECD findings are similar to the measures recommended in the Henry Tax Review that would substantially improve fairness and incentives for people to return to paid work. Henry argued for structural reform, pointing out that the gap between payments for people who are not able to find paid work, and people eligible for the age pension was more than $120 per week and growing each year. Today, the difference is $135 per week.

If you are currently unemployed, you will be trying to live on just $33 a day. And, if you are a single parent with two children at home, your income only rises to about $70 per day.

Yet, of course, there is no difference for people trying to meet basic costs whilst living on social security payments. Whether you are unemployed, a single parent or receiving the age or disability pension, you will be faced with major increases in housing, electricity and other essentials. For instance, in the last decade, housing costs have increased by 57.6 per cent, and electricity costs have gone up by 91 per cent. Yet, there has been no real increase in the unemployment payment for almost two decades.

Since many people move between payments (for example, unemployment and disability payments) this leads to inequities in the treatment of people in similar circumstances and discourages those already on the pension payments from seeking employment. For example, sole parent families automatically lose part of their income support for no other reason than the fact that their youngest child reaches their 8th and 16th birthdays, yet the costs of children rise with age.

ACOSS has consistently advocated major reform of payments for people of working age. Recipients of social security payments need an adequate income. We also need to remove the division between “pension” and “allowance” a payment that lead to inequity and discourages employment among those on pension payments. In essence, we propose that there should be a single base rate of payment which enables a person to live with basic human dignity, and meet essential needs. In addition, a person should be eligible for additional financial supports, if for example, you have dependent children, or are living with a disability.

We support the Henry Review’s proposals that the base Newstart allowance for single people be lifted by around $45 per week, at least as a first step. This would still only amount to about half of the minimum wage, but would provide financial incentive to finding paid work. And we want a social security system that supports and encourage people into paid work where this is possible.

We know the path back to paid work is not always easy with over half the 680,000 recipients of Newstart Allowance being unemployed for more than a year and more than 60 per cent have not completed 12 years of schooling. So, people seeking paid work need well-targeted supports to overcome barriers to paid work such as low skills and lack of work experience.

It is simply no longer possible for people who are unemployed, or living on the single parent payments, to manage increasing costs of living. If we are a nation that is truly founded on values of fairness and equality, are we happy to have tax reform which does not address the increasing number of people living in poverty simply because they are unable to be in paid work?

The Government has not yet committed to reform in this area, apart from a welcome increase in family payments for teenagers announced during the elections. Social security increases and adequate protections from poverty should be a key plank of the tax-transfer reforms in this term of government, not an appendage to a debate on tax.

ACOSS has been involved in the tax reform debate for many years. One thing we’ve learnt is that it is hard to achieve reform in this area without a degree of community consensus. The best place to start would be for the key stakeholders to discuss their respective priorities for reform, based on the Henry Report’s proposals. The Report represents the fruits of two year’s work among people with solid expertise in tax policy. As such, it brings an essential discipline to the process of reconciling different interests in the community - provided we don’t duck the hard issues and difficult trade-offs contained within it. That includes a concerted effort to close off income tax shelters and loopholes that undermine fairness and distort decisions to earn or invest.

We should seize this rare opportunity to reform the tax and social security systems to build a more efficient economy and a fairer and more equal Australia where no one is left behind.