Is ‘unsustainable’ welfare growth really being driven by Newstart?

Moving some sole parents onto the lower Newstart payments has pushed up the numbers. Alan Porritt/AAPIMAGE

Social services minister Kevin Andrews has targeted the Disability Support Pension and Newstart, the main payment for the unemployed, for reform, branding the current level of welfare as unsustainable.

But the idea that growing numbers on Newstart are providing relentless pressure on the federal budget is not supported by the data in the annual Statistical Report that Andrews referred to when calling for reform.

In fact, the number of people receiving unemployment payments (Newstart for people aged 22 years and over and Youth Allowance (other) for people aged 16 to 21) was a little lower in 2012 than in 2002 (633,000 in 2012 compared to 645,000 in 2002).

Adjusting for growing population size also shows the proportion of working-age Australians receiving unemployment payments actually fell from around 5.0% to 4.2% between 2002 and 2012.

Complicated picture

Social services minister Kevin Andrews wants to review welfare. AAP

However, looking at more recent trends, the picture becomes more complicated. Following the onset of the global financial crisis, the number of people on unemployment payments jumped from a low point of 3.3% of the working age population in 2008 to 4.2% in mid-2009 and 4.4% in 2010.

After 2010 the numbers started to fall. But more recent figures from the government’s monthly statistics on labour force payments show another large jump from 4.2% to 5.3% of the working-age population between mid-2012 and mid-2013. This was an increase from around 633,000 people to just over 800,000. It should be noted, however, that the numbers in the annual publication and the monthly publications do not exactly align.

So why has there been such a large increase in the number of people receiving unemployment payments since 2012? According to the ABS, since June 2012 the unemployment rate has increased from around 5.0% to 5.5%, and in Australia the number of people receiving unemployment benefits fairly closely tracks broader trends in the labour market.

Sole parents swapped over

A more important factor, however, appears to be government policy changes in other parts of the welfare system. From January 1, 2013, parents have no longer been eligible for the Parenting Payment when their youngest child turns six years of age if receiving Parenting Payment (Partnered), or eight years old for those receiving Parenting Payment (Single).

The then-Gillard government estimated that around 75,000 parents would be transferred from Parenting Payments to Newstart, and another 10,000 would lose all benefit entitlements because of their income from work.

The Greens and social groups protested against changes to parenting payments last year. AAP

The monthly statistics on labour force payments shows that between December 2012 and February 2013 the number of people on unemployment payments jumped from around 700,000 to 796,000, an increase around four times as great as the corresponding periods for the previous two years.

Also, around 83% of the increase in the number of recipients were women, suggesting that this very large jump is likely to be explained mainly by parents being transferred from Parenting Payments.

The monthly figures do not identify whether beneficiaries have children or not, while the annual statistics will not show the effect of this policy change on the number of people receiving parenting payment until next year. Nevertheless, it seems very likely much of this recent increase will be offset by reductions in numbers on other payments.

This substitution between payments also explains a good part of the longer-term increase in numbers of people receiving the Disability Support Pension (DSP).

This also raises the problem that if the welfare review foreshadowed by Andrews does only look at Newstart and DSP, then it will inevitably miss part of the explanation for the trends that appear to be of concern.

Moving people into work

There is much to agree with Andrews’ argument that the “best form of welfare is work”, a proposal in accord with the previous government’s rationale for moving people from the Parenting Payment to Newstart. The problems that some people on welfare face in moving into work require a comprehensive analysis, however.

Not all the problems that people on welfare face are caused by the welfare system, with barriers to work including labour market programs that are not equally effective for all, the level of job opportunities in the regions in which people live, the availability of public transport, the availability and affordability of childcare, and the level of skills of individuals, as well as employer attitudes to people disadvantaged in the labour market.

Incentives in the welfare system are only one part of these potential barriers.

Having said this, the wide and growing gap between the level of Newstart benefits and the level of DSP is certainly an issue that needs to be urgently reviewed. If, as suggested by Fairfax’s Peter Martin, this is one of the objectives of the review, real progress could be made in helping the unemployed.