Submission on Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014

CPSA's submission to the Senate Standing Committee on Community Affairs on the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014

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Summary

CPSA proposes that the following aspects of the Bill be removed:

  • Changes to the indexation of pensions;
  • Tightening of the portability of the Disability Support Pension;
  • Cessation of the Pensioner Education Supplement and Education Entry Payment;
  • Changes to age requirements for accessing Newstart and Sickness Allowance;
  • Exclusion periods for accessing social security for people under the age of 30;
  • Increasing the Age Pension qualification age.

Schedule 1 - Indexation of Pensions

CPSA is strongly against indexing pensions to the Consumer Price Index (CPI) alone and the removal of benchmarking against Male Total Average Weekly Earnings (MATAWE) and the Pensioner and Beneficiary Living Cost Index (PBLCI) from 20 September 2017. This will reduce the value of all Centrelink pensions in real terms and will see pensioner incomes fall back below the poverty line. Over the last ten bi-annual pension increases, which currently look at all three measures and use whichever will result in a higher increase to the pension, six increases have been the result of increases in wages, three have been the result of the PBLCI and only one has been the result of changes to CPI.

This Budget measure is expected to achieve a relatively modest saving of $449 million over the forward estimates. This change however, will be far from modest for pensioners. The greatest impact will be felt by the 2,170,292 full-rate pensioners (65.4% of all Age, Disability Support and Carer pensioners) whose incomes will fall behind community living standards.

Indexing pensions by CPI alone is expected to reduce the relative value of both the single and couple pensions by 21 per cent over ten years.[1]  Modelling done by CPSA shows that in dollar terms, this equates to a $100 per week drop in the single pension and a $150 per week drop in the couple pension. Parenting Payment (Single) is expected to reduce in value by $75 per week over ten years.[2]

Historically, CPI has increased at a rate below that of both MATAWE and the PBLCI and is not reflective of the increases in goods and services which pensioners spend their money on. The CPI measures price movements of a basket of goods for the Australian population as a whole: it does not recognise the different purchasing patterns of low-income households compared with high-income households, which is why the Pensioner and Beneficiary Living Cost Index was introduced in 2009.

Removing the wage benchmark will see pensions fall below the poverty line as it had before the 2009 pension reforms (single pensions currently sit at $13 per week above the Henderson Poverty Line[3]). The Male Total Average Weekly Earnings (MTAWE) benchmark was legislated in 1997 by the Howard Government to help these pensions maintain pace with community living standards. The wage benchmark is important because it counters shortfalls in the CPI index in terms of ensuring that payments keep up with living standards. On its own, CPI indexation will only see pensions maintain their real value according to their purchasing power at one point in time. This is an inadequate way of indexing payments, as exemplified by the decline of the Newstart Allowance compared with the incomes of the rest of the community.

Recommendation 1:  That Pension indexation continue to be based on three measures – MATAWE, PBLCI and CPI.

Schedule 2 - Portability of Disability Support Pension

CPSA is concerned about the reduction of the overseas portability for Disability Support Pensioners to 28 days over a 12 month period from 1 January 2015. This penalises pensioners who wish or need to be overseas for more extended periods of time, for family engagements, or care. This move will particularly negatively affect migrant DSP recipients who may wish to be overseas in their country of origin for longer periods of time. Pensioners who are overseas for extended periods already provide savings to the Australian Government as they cease receiving the Pension Supplements and do not access Medicare. Disability pensioners should be able to be absent from Australia for longer periods without losing their pension.

CPSA is also concerned with the compulsory participation requirements for DSP recipients under the age of 35.  CPSA supports measures to increase the employment rate of people with a disability. However, these measures must provide people with disability real opportunities to get into the workforce. CPSA remains unconvinced that a vague participation plan (accompanied by a threat of sanctions for non-compliance) will help DSP recipients get work. It assumes an individual’s joblessness is a lifestyle choice rather than recognising the barriers faced by DSP recipients to get work. According to the ABS, Australia has one of the highest unemployment rates of people with disabilities in the OECD, falling behind the US, the UK and Mexico. Only 54 per cent of people with a disability aged between 15 and 64 are in the workforce.[4] It is not that people with disability in Australia have an aversion to work; Australia has a structural problem within its labour market. Something similar to the ‘Restart’ program for people with a disability would be a better alternative.

Recommendation 2: That Schedule 2 be removed.

Schedule 4 – Commonwealth Seniors Health Card

CPSA supports the inclusion of untaxed superannuation income in the income test for the Commonwealth Seniors Health Card (CSHC). This measure closes a loophole that should have never been allowed to exist in the first place.

Schedule 6 - Pensioner Education Supplement and Education Entry Payment

CPSA is against the ceasing of both the Pensioner Education Supplement and the Education Entry Payment from 1 January 2015. These payments are important additions to pension payments which enable people to fund some of the ongoing costs associated with study.

Over 41,000 people will lose between $811 and $1,622 per year (depending on their study load) from the cessation of the Pensioner Education Supplement resulting in people currently receiving this payment being unable to pay education and other related costs. In addition, Education Entry Payment recipients will be worse off by $208 per year.

Eighty four per cent of people receiving the Pensioner Education Supplement have no additional income other than their Centrelink payment[5]. Nine out of every ten people affected are either Disability Support Pensioners or sole parents:  two groups which the Government wishes to be “job ready”. Ceasing the Pensioner Education Supplement will be a barrier to pensioners taking up training and education opportunities, something which is counter to the Government’s “earn or learn” rhetoric. CPSA envisages that Centrelink recipients will either have to make trade-offs on essentials such as food, medications and housing in order to purchase required equipment and text books or alternatively will either have to give up studying or not undertake training due to the costs which prohibit them from doing so.

Recommendation 3: That Schedule 6 be removed.

Schedule 8 – Age requirements for Newstart Allowance and Sickness Allowance

CPSA remains unconvinced that reducing a young person’s already inadequate income further will incentivise them to “obtain relevant education and training to increase employability”.[6] This proposal, ostensibly driven by high youth unemployment rates, will do very little to address the structural reasons behind unemployment as it ties the ‘problem’ to the individual. As such, reducing the young person’s income will further entrench them in poverty and make furthering their education and obtaining work more difficult.

Young people engaged in part-time work may benefit from this measure because of the more generous income test available under Youth Allowance. However, this measure will reduce income support to young people by $48 per week (Youth Allowance recipients living away from home receive $207 per week). Many in this group will be placed in severe financial hardship if they cannot supplement their income with adequate part-time employment. It is also highly unlikely that they would find affordable rental accommodation.

Recommendation 4: That Schedule 8 be removed.

Schedule 9 – Exclusion periods

This measure will exclude young people from accessing social security payments and it cannot be supported. Far from making the system ‘fairer and more sustainable’, this measure will have enormous knock-on effects that will cost State and Federal Governments dearly. It is difficult to see how this measure will not increase homelessness and entrench poverty. It assumes that all young people have sufficiently wealthy families to turn to for help, right up until they are 30 years old. It will make job hunting near impossible because they have no income to pay for transport, a telephone, internet access, newspapers, or clothing for job interviews. This is not to mention the difficulties of finding a job when you do not have an income for food, clothing, shelter, or healthcare. 

As ACOSS has stated, this measure will singlehandedly undo 70 years of social security policy in Australia by removing the safety net for young, unemployed people. It is expected that 100,000 young people will be affected by this measure each year. The Australian Government will set aside $230 million for emergency relief as a result of this measure. The Australian Government therefore acknowledges that this measure will throw young people without work into poverty so much so that they will have to go cap in hand to already stretched charities for food and shelter.

This measure will force young people to undertake education and training that have no relevance to their career prospects or interests. Such education and training may present a substantial cost to the young person or place them in further debt. It can also be difficult to access education and training and it is probable that this measure will make entry into courses more difficult because of an increase in demand. This measure will be unfairly detrimental to people aged under 25 who have not had time to accrue an employment history and therefore have little chance of reducing the exclusion period.

Recommendation 5: That Schedule 9 be removed.

Schedule 11 – Age Pension qualification age

CPSA opposes the increasing of the Age Pension qualification age to 70. This measure will extend the former government’s increase to the Age Pension qualification age from 65 to 67. The pension age should remain at 65. 

Australians may be living longer but that does not mean that most can work for longer. Increasing the Age Pension qualification age to 70 will place older people who cannot find work in poverty. This measure is also unlikely to produce the savings which the Government intended because many people who cannot find work up to the age of 70 will be forced on to another payment such as the Newstart Allowance or the Disability Support Pension (which is paid at the same rate as the Age Pension and would therefore deliver no savings).

Increasing the Age Pension qualification age disadvantages the most the least well-off. Older people with healthy superannuation balances or other assets will not be affected by this change. However, low-income people will have to slog it out for another three years until the age of 70 before they can retire.

Lifting the Age Pension qualification age would not be so bad if Australia has a decent safety net for the unemployed to support them if they cannot find work. But Australia does not. Newstart is one of the lowest unemployment benefits in the OECD. The OECD has recommended that Australia addresses the inadequacy of Newstart as part of better tackling poverty.[7]  Newstart has a 39 per cent net replacement rate for an income earner earning 67 per cent of average earnings (including Commonwealth Rent Assistance).[8]  It is little wonder that long-term unemployed people have poorer health outcomes, experience severe housing stress or homelessness, social isolation, and find getting work difficult. However, by 2035, a 68-year-old unemployed person would be condemned to etching out a living on Newstart for another two years if they could not find work.

Although the Restart program is a welcome initiative to address the problem of long-term unemployment of people aged 50 and over, funding is insufficient to seriously tackle the problem. A rough calculation shows that approximately 30,000 older unemployed people would be helped by Restart (assuming all employers employ the older person for two years and receive the full $10,000 available). However as at June 2012, there were 102,634 long-term unemployed people aged 50 or over receiving Newstart.  Restart is a good move to address ageism in the workplace, but it is only a down-payment on addressing structural problems in the labour market which contribute to long-term unemployment among older people.

Recommendation 6:  That Schedule 11 should be removed.


[1] CPSA modelling – available upon request

[2] ACOSS (2014) ‘A Budget to divide the nation; ACOSS 2014/15 Budget Analysis’ 22 May, p.11

[3] Melbourne Institute of Applied Economic & Social Research (2014) ‘Poverty Lines, Australia: December Quarter 2013’, University of Melbourne. The Henderson Poverty Line is currently $408.44 per week, the Pension (including Supplements) is $421.40 per week.

[5] Question Number 655, Questions on notice, Senate Community Affairs Committee, Social Services Portfolio, Additional Estimates Hearings, 2013-14, Available: http://www.aph.gov.au/Parliamentary_Business/Senate_Estimates/clacctte/estimates/add1314/Social_Services/index

[6]Explanatory Memorandum p.28

[7] OECD (2012) ‘Activating jobseekers: How Australia does it’, Available:  http://www.oecd-ilibrary.org/employment/activating-jobseekers_9789264185920-en 

[8] OECD (2012) ‘Net replacement rates – long-term unemployment: 2001-2012’, Available:  www.oecd.org/els/social/workincentives