Are unemployment Benefits Adequate in Australia?

Written by Kerri Tucker fro The Australia Institute

The Australia Institute recently released a Paper “Are unemployment Benefits Adequate in Australia” which makes a number of important points relevant to the plight of young people in Australia. While the current rate of unemployment is low at 5.2 per cent by historic and international standards and presents a positive picture the reality is that there is a high degree of volatility within this low rate.

That is a much higher percentage of individuals will be at risk of experiencing and this risk of unemployment is significantly greater for some demographic groups, especially for younger workers, those who live in regional areas and those with lower levels of education.For example, in March 2012 the unemployment rate in Tasmania was 7.0 per cent, nearly twice the 3.7 per cent rate in the Northern Territory. Similarly, in March 2012 the unemployment rate for those aged 15-19 is 18 per cent, more than three times the national average.

It is important to note that Australia does not have an independent mechanism through which income support payments can be assessed for their adequacy and to set payment levels. This is in stark contrast to the minimum wage, which is set by Fair Work Australia, through a process of assessing changes in the costs of living and the capacity of employers to meet increased wage costs.

The Australia Institute found that Australians consider the Newstart Allowance to be inadequate. Presently, a single adult on Newstart Allowance receives $245 per week for one adult, rising to $265 per week if they have dependent children. Recipients over 60 (unemployed for more than nine months) are also eligible for the higher rate of $265. Whereas, Australians surveyed about the adequacy of the Newstart Allowance believed that, on average, the amount required to meet the cost of living was $454. The average preferred Newstart Allowance from the survey was $329, requiring a weekly increase of $84.

There is a large disparity between Newstart Allowance and benefits such as Disability Support and Aged Pensions primarily due to the higher rate of indexation applied to the latter. Newstart payments have risen in line with the Consumer Price Index (CPI), since 1997 the Age Pension has risen in line with the higher of either the Male Total Average Weekly Earnings or the CPI.

In recent times there has been broad support for an increase in unemployment benefits from a number of community organisations including the Australian Council of Social Services, UnitingCare Australia and Business Council of Australia.  Chief Executive, Judith Sloan of the Business Council summed it up nicely when she said “People can’t live on $35 a day. Entrenching them (unemployed people) into poverty is not a pathway back into employment.”

This perspective was confirmed in the results of a survey conducted by the Australia Institute, when people were asked how their spending patterns would change if they were required to live on Newstart Allowance. A significant proportion (47%) said they would be less likely to participate in education or training. Other significant areas of cost reduction included driving their car less (83%), using less electricity, gas and heating (77%) buying less fresh food (63%) and putting off going to the doctor (45%).

It is disappointing to see that despite the benign economic conditions and broad support for an increase in unemployment benefits the Gillard Government continues to reject the evidence for increasing the level of benefit paid to Australian’s looking for work.

In the lead up to the 2012 budget the Government Minister Mr Bill Shorten said. “In the current economic climate, I believe we have got the balance about right. Particularly when delivering a surplus and continuing our strong economic management is an important part of this balance”.

Increasing the payment level for Newstart would significantly improve the equity of income distribution as, at present, Newstart recipients are among the lowest income earners in the country. To the extent that such an increase means that unemployed people do not have to cut back on their own participation in education and training or their family’s access to healthcare or consumption of fresh food there would be significant benefits to the Australian economy and the Commonwealth budget in future years. There would also be an opportunity to demonstrate that in the twenty-first century Australia can be a place where, in Treasurer Swan’s words everyone has the right to “a decent shot at a decent life.”

Click here for The Australia Institute’s full report.

AYAC will be undertaking research in 2012 on the needs of unemployed young people. For more information please contact us!