Menu Close

Paltry Newstart Allowance is fast becoming a poverty trap

For the majority of Newstart Allowance recipients, payments barely cover the cost of rent - let alone other living expenses. AAP

Despite ongoing uncertainty about global economic conditions, prosperity in Australia remains both very high and relatively widespread. But there is one group in Australia who has not shared in our rising national prosperity at all: people receiving unemployment payments (Newstart Allowance).

People reliant on pensions and benefits are recognised as being amongst the poorest in our community. Age and disability pensioners have always received higher payment rates than the unemployed. But since 1997, when the Howard government started to index pensions to average weekly earnings but continued to index unemployment payments to the consumer price index, the gap has widened significantly.

Following the recommendations of the Harmer Review, in September 2009 the federal government increased the single rate of Age Pension by more than $35 per week – one of the largest pension increases in Australian history.

This was a welcome change that significantly reduced income poverty among the aged. However, this further widened the gap between Newstart and pensions to the point where the shortfall is now nearly $266 per fortnight. In 1997, a single unemployed person received 92% of what was paid to a pensioner; that ratio is now 65%.

It is not just that the unemployed are falling behind other social security recipients. They are falling behind every other group in the community on virtually any comparable measure.

Since 1996, payments for the single unemployed have fallen from 23.5% of the average wage for males to 19.5%. Furthermore, the level of Newstart for a single person has fallen from around 54% to 45% of the after-tax minimum wage. Newstart has fallen from 46% of median family income in 1996 to 36% in 2009-10 – or, from a little way below a standard relative income poverty line, to a long way below.

In 1996, a single unemployed person would have received an income that was about $14 a week (in 2010 values) less than a person in the 10th percentile of the overall income distribution. In 2009-10, they would have been $116 a week below a person in the 10th percentile.

Newstart recipients are falling into continuously deepening poverty.

Would raising benefits to a more adequate level keep the unemployed out of jobs or even cause low paid workers to give up jobs? Since 1996, the level of Newstart for a single person has fallen from 54% to 45% of the after-tax minimum wage.

It is difficult to see how going back to the 1996 relativities between Newstart and the minimum wage would pose serious disincentives to work. Do we really believe that people need to be impoverished in order to maintain incentives to work?

Currently, single unemployed adults receive $490 per fortnight in Newstart payments, or $35 per day. If they’re renting privately, they’re entitled to up to $120 per fortnight in rent assistance. But, to get that amount their rent has to be more than $267 per fortnight, leaving them with just $24.50 per day for everything else; and that assumes you can find somewhere to rent for $267 a fortnight.

The NSW government’s Rent and Sales Report found that in late 2011, the cheapest one-bedroom homes in Sydney’s outer ring were in Wyong – around 90 kilometres from the CBD. If you were on Newstart and paying rent for a one-bedroom property in Wyong, you would have just $17.15 a day left over for your food, clothing, transport and other bills.

If you were paying a typical rent for a one-bedroom flat in Liverpool, 40 kilometres from the CBD, you would have less than $10 a day for everything else. While nearly 30% of Newstart recipients are under 25 and may be able to live with their parents, 36% are over 40 years of age, and are not likely to have this option.

Data released earlier this week from the Tenants Union of Victoria shows that the Newstart unemployment benefit either just meets or fails to pay the median rent for a one-bedroom flat in all capital cities aside from Hobart and Adelaide. This week, as part of the Greens’ campaign for a $50 weekly increase to the allowance, Senator Rachel Siewert has pledged to live on $17 a day, which is what the Australian Council of Social Service (ACOSS) says people on Newstart have left for living expenses once rent has been accounted for.

The problems faced by the unemployed were recognised by the Henry Review of the tax system, which highlighted the need for a principles-based approach to setting payment levels: “Establishing adequacy benchmarks for transfer payments not considered in the Pension Review would make the system more robust, particularly if the benchmarks were preserved through a common but sustainable indexation arrangement.” This “would mean an increase to base rates for single income support recipients” on Newstart.

The Henry Review also recommended that the maximum rate of rent assistance should be increased and the rent maximum should be indexed by movements in national rents.

This problem is not going to go away. The continuing impoverishment of Newstart recipients is written into legislation and cannot be alleviated without deliberate government policy change.

Current policies are simply going to make the problem more difficult to deal with if decisions are postponed. It is worthwhile remembering that one of the first initiatives of the Hawke Government was to increase the rate of unemployment benefits, recognising that the lack of consistent indexation had made these payments inadequate.

It’s time the current government recognised that Newstart needs to be increased.

Want to write?

Write an article and join a growing community of more than 179,400 academics and researchers from 4,902 institutions.

Register now