Budget 2016: Proposed abolition of carbon compensation a cut to Newstart Allowance

The Government is proposing to abolish “carbon compensation” payments for new recipients, including the Energy Supplement for new recipients of social security and family payments.  It argues that these payments are no longer necessary, as the carbon price was abolished by the Abbott Government.  However, the truth is that for recipients of social security payments indexed to prices only, most importantly Newstart Allowance, this proposal would not simply take away additional compensation.  It is in fact a real cut to a payment that has not had a substantial real increase in 20 years.

This is a shocking and disgraceful decision, flying in the face of almost universal calls for an urgent and immediate increase to Newstart Allowance, and other allowances such as Youth Allowance.

Background

The Gillard Government introduced a set of measures, the Clean Energy Household Assistance package, to compensate low income households for the anticipated rise in prices following its introduction of carbon pricing.[1]

The Clean Energy Supplement (now called the Energy Supplement) was part of this package.  It is a supplementary payment to recipients of social security and family payments.  It was set at 1.7% of the basic rate of each payment, meaning that the amount of the supplement varies between payments.  The amount of the supplement was based on an anticipated price rise of 0.7% attributable to carbon pricing, plus a 1% buffer to ensure households with higher than average costs were not disadvantaged.[2]

Critically, instead of indexing the basic rate of Newstart Allowance according to the change in the Consumer Price Index (CPI) in 2013, the increase in costs attributed to carbon pricing was built into the supplementary payment (plus the buffer of 1%).

When the Abbott government was elected in 2013, its platform included the abolition of carbon pricing but also a commitment to keeping the compensation package.  However, it ceased indexation of the Clean Energy Supplement and changed its name to the Energy Supplement.[3]

The Energy Supplement is currently between $8.80 per fortnight for a single recipient of Newstart Allowance with no children and $14.10 per fortnight for a single pensioner.

Comment

The Budget proposes to close Energy Supplement to new recipients of social security and family assistance payments from 20 September 2016.  Along with the closure of other elements of the carbon compensation package to new entrants, the Budget anticipates total savings of $1.4 billion over five years.[4]

Existing recipients as at 20 September 2016 will be grandfathered and remain eligible for the supplement provided they remain eligible for a qualifying payment.  Although the argument that compensation is unnecessary applies equally to existing recipients, the Government apparently sees these grandfathering arrangements as honouring the Abbott government’s commitment to retaining the carbon compensation package.  This means that from 20 September 2016 new recipients will not receive the Energy Supplement and existing recipients who lose eligibility for a qualifying payment (because of a period of employment exceeding 12 weeks, for example) will also lose eligibility for payments if they begin to receive payments again in the future.

This will create two groups of recipients who, despite similar circumstances, will receive significantly different levels of payment, between about $200 and $350 difference per year at current (frozen) rates.

Shockingly, as the basic rate of payment was not subject to normal indexation in 2013, the end result is in fact a real cut to Newstart Allowance (as it in effect was not indexed normally in 2013).  It has been argued that this is a real cut to Newstart Allowance and other payments indexed to prices only of more than $90 per year. The end result is that the rate of Newstart Allowance has not had a substantial real increase in 20 years.

Coming on top of cuts to other supplementary payments, such as the Income Support Bonus and the Schoolkids Bonus which take effect this year,[5] this is a further cut to already inadequate levels of support for low income households.

What is more, this proposal will create increased complexity and unfairness in the system as a whole, with two levels of payment going to people in similar situations.  Its impact will extend more widely than new recipients, as existing recipients who exit from a payment to take up a job, for instance, are penalised if they return to the system.

The Government remains committed to cutting a number of supplementary payments, most significantly the end of year supplements for recipients of Family Tax Benefit.  It has frequently justified these proposals by saying that they will simplify the system by reducing the number of payments, often referring to the recent McClure report’s recommendation that the number of social security and family assistance payments be reduced.  However, the McClure report in fact recommended that the supplements be reviewed alongside a wider review of the payments system and that basic payment rates be adequate to meet recipients’ needs.  In line with the McClure report’s recommendations, the National Welfare Rights Network opposes any cuts to supplements until the inadequacy of Newstart Allowance and other allowance payments is urgently addressed and a wider review of payment adequacy and indexation is conducted.