Welfare reform will only succeed if adequacy of payments is assured

NWRN responds to the recent welfare reform report “A New System for Better Employment and Social Outcomes” (the McClure Report). While the McClure Report recommended that there be no reduction in payments for current social security recipients, it contained no assurances about rates of payment for new entrants to the system or for the relative value of payments under future indexation arrangements.

The NWRN issued a press release as follows:

“Sustainable welfare reform requires secure jobs to be available for people able to undertake paid employment and a strong social security system. 

“Expenditure on the Disability Support Pension was only 18.7% of the welfare budget in 2013-14 whereas expenditure on the Age Pension was 38.47%.  It is therefore very surprising that the Age Pension was excluded from the remit of the Review.  The NWRN is now gravely concerned that some people with disabilities may pay the price for cuts to the welfare budget particularly when there are revenue and tax expenditures which have not been considered first.

 “The McClure Welfare Review has been released amidst a backdrop of fiscal constraint and Government cost cutting disproportionately affecting those people on the lowest incomes.  While there are many positive proposals in the report, the overall system architecture proposed will not be simple and will inevitably lead to some people with disabilities receiving less support. 

“NWRN supports genuine and beneficial reform. Unfortunately, successive governments have been pushing people with disabilities and single parents onto payments lower than the pension since 2005.  It is very likely that this blueprint for reform will do the same with a significant number of people, who would have qualified for a disability pension under the current system, and in the future will be on the ‘upper tier’ of a ‘Working Age Payment’.

“The critical issue will be the rates of payment for each of the three tiers of the Working Age Payment.  Welfare to Work reforms in 2005 saw the creation of what is effectively a second tier of Newstart Allowance for people with a ‘partial capacity to work’. The result is significant numbers of people with high levels of disability now living in poverty on the Newstart Allowance.  One positive aspect of the McClure Review is the potential for the over 144,000 people with partial incapacity now on the Newstart Allowance to have their social security payment increased.  However, many hundreds of thousands will receive a lesser payment or remain on the current rate of the Newstart Allowance.

“NWRN is concerned that, in implementing the recommendations of this report, more people with high levels of disability will be put onto an inferior payment and we call on the Government to ensure that the mistakes of the past are not repeated.”

Government must make further assurances that people will not be worse off

Welfare reform will only succeed if adequacy of payments is assured. NWRN welcomes findings that payments in the new system should be adequate enough to provide a basic acceptable standard of living and to cover the costs of participation and the recommendation that no person moving from a payment under the old system to a payment under the new system should have a reduction in their payment.

However, to ensure that people are not worse off under a new system, the Government needs to make two key assurances:

• that the real value of income support payments will not be undermined by changes to indexation; and
• that new people entering the system will not be receiving less than the current system provides.

The Report’s proposal to index income support payments to the Consumer Price Index (CPI) is a serious error.  Indexing to the CPI is the reason why Newstart Allowance is so inadequate. Pensions are benchmarked to the Pensioner and Beneficiary Living Cost Index (PBLCI), but the government has a bill stalled in the Senate which would remove benchmarking and index only to the CPI. Make no mistake, this will mean that over time pensions will become similarly inadequate. On current treasury projections a single pensioner is $10/fortnight worse off one year after the measure commences. The current indexation measures stalled in the Senate must therefore be abandoned and the Government must resist the temptation to fix the structural gap between allowances and pensions by removing benchmarks or freezing rates.

Means testing

NWRN supports changes to means testing that would increase incentives, reduce effective marginal tax rates,  create consistency across payments and that are easier for people to understand with the only caveat that no person under the current system, or entering a new system, should be disadvantaged by the reforms.  This means that we support increasing income-free area thresholds and reducing taper rates to bring the payments most affected by low income free areas and high taper rates into line with more generously income tested payments.

Young people

The report proposes that current Youth Allowance and Family Payments would be rolled into a new Child and Youth Payment. Closing off direct access to income support to most 18 to 22 year olds is a radical change, and needs careful consideration of its impact.  It is especially important to consider its impact on young people who do not have family care and support but may not be assessed as independent to make sure that this does not undermine the Review’s goals of supporting those most at risk of long term income support reliance (which can include young people who do not have family care and support for various reasons).

Supplements

The current supplements system plays an important role in targeting need and helping with costs of living. NWRN agrees in principle with the rolling of cost of living supplements in the maximum basic rate of income support payments and preserving other supplements which target specific extra costs or responsibilities. The key thing is that existing and future social security recipients are not disadvantaged in this process.

Employment and labour market

NWRN is pleased to see an emphasis on engagement with employers and recognition of improvements needed to employment services and to address labour market issues. Better assessment and referral arrangements, promotion of wage subsidies, better jobs and skills matching, placement and post placement support, a national jobs plan for people with disability and mental health conditions, support for volunteering and better pathways from school to work all have our broad support.

Simplification and administration

Much of the complexity of the current system results from the very specific targeting of payments to need. Assuming the new system will also be carefully targeted, it remains to be seen whether the new payment architecture does in fact simplify the cost of administration or whether it replaces one complex system with another. The huge cost of redesigning the whole system needs to be considered in this context.

NWRN agrees that the IT system for administration needs a radical overhaul. Proposals to integrate real time data from the ATO and other measures that would streamline reporting requirements and reduce debts have our support.

Summary of key changes for youth, people with disability and carers

The NWRN Submission to the Welfare Review Taskforce can be found here.