Spring 2018

Budget standards research on the adequacy of Newstart Allowance

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Photo: Victor Garcia/Unsplash.

It has long been accepted that the level of Newstart Allowance (NSA) is too low. The number of organisations that have urged the government to address this glaring inadequacy has increased steadily since The Henry Tax Review proposed almost a decade ago an increase of ‘about $50 a week’ in the payment for single people to restore parity with the couple rate. A similar increase has since been proposed by others, but the passage of time and rising prices add urgency to the need for action.

A recent report from the Social Policy Research Centre (SPRC) applied a budget standards approach to assess the adequacy of NSA and other components of the Australian social safety net. The approach has a long history in Australia, having been first used by Justice Higgins to cost the basic needs of working families and set the basic wage in the 1907 Harvester Judgement.

The approach involves the painstaking task of identifying every single item that a family needs to achieve a specified standard of living, pricing those items and adding them up to derive the weekly cost. The budget obviously varies with the size of the family and with the standard itself and these will affect how the budgets are specified, costed and developed.

The standard underpinning the new budget standards is designed to allow each individual to lead a full and healthy life in all of its dimensions. This has obvious implications for what people consume, own and do. It means, for example, omitting items like tobacco products, too much ‘junk food’ and excessive consumption of alcohol that are inconsistent with healthy living, but also including a modest allowance for some form of regular exercise (in our case, going to a local swimming pool every week).

Some items will also vary in price according to where they are located, housing being the most obvious example, while others will depend in subtle ways on family circumstances. Furniture, for example, will incur more ‘wear and tear’ when there are children in the family, leading to a reduced lifetime that will increase the weekly cost of a given item.

Table figures: Single adult estimated standard budget 433.68, safety net income 337.68, net gap -96.00; Couple with no children: standard budget 660.25, safety net income 552.84, gap -107.41; Couple with one child: standard budget 766.74, safety net income 708.28, gap -58.46; Couple with two children: standard budget 940.37, safety net income 814.13, gap -126.24.
Table 1: New Budget Standards and Safety Net Incomes for Unemployed Families, June 2016

There is no ‘correct’ way to develop the budgets, but the best that can be done is to draw on the wide range of data that is available from surveys and to draw on decades of hands-on research experience. This means that the budgets are not a panacea and should always be used in conjunction with other adequacy benchmarks, including poverty lines and relative income thresholds (expressed as percentages of average earnings, for example). They need to be firmly grounded in everyday experience, as ours were, by reflecting information provided by focus groups held with low-income Australians who talked about how they go about making ends meet on a frugal budget. The budgets are conservative and provide no allowance for even the smallest luxuries.

The biggest single item is housing costs, which are based on data on rents collected by the Real Estate Institute of Australia. Each family is assigned a dwelling and location (within a capital city) and the average rents for those dwellings in Australia’s three largest cities (Sydney, Melbourne and Brisbane) were used.

The new budgets have been derived for families where the main (male) breadwinner is unemployed and receiving NSA. Budgets were estimated for single people, and couples with zero, one and two children. The first child in each family is a six-year-old girl and the second child a 10-year-old boy. Table 1 compares the estimates with what each family would receive if receiving NSA plus any relevant add-ons. The weekly budgets vary between $434 a week for a single person and $940 a week for the couple with two children. In all cases, they are well below the safety net incomes: the gap varies between $96 a week below for a single person and $126 for a couple with two children.

These figures were produced several years ago and are already somewhat out of date. The CPI increased by just over four per cent between June 2016 and June 2018, so that the adequacy gap for a single person would now be almost exactly $100 a week, while that for a couple with two children would be $131.

Politicians are often asked if they could live on Newstart, and they generally say ‘Yes’, although as one famous miscreant once said, ‘They would say that, wouldn’t they?’ A more telling question to ask is whether they could live on $100 a week less than the new budget standard. In order to do this, they would have to make savings from the already very conservative budgets each and every week. This would involve, for example, spending nothing on either transport or personal care, or nothing on either food or recreation, since these budgets add up to around the $100 that would need to be saved.

Savings of this magnitude might be possible for a week or two, but they’re not sustainable without compromising the healthy living concept on which the budgets have been constructed. Yet this is precisely what decades of inaction by our politicians have condemned those unfortunate enough to depend on NSA to go through—each and every week. No wonder that even conservative bodies like the Business Council of Australia and the OECD are now calling for an increase.

The new budget standards show clearly what many have been saying for years: that the level of Newstart is woefully inadequate. We estimate that an increase in the single payment rate of around $100 a week is urgently needed to restore its ability to support a minimal level of decent living. Once restored, the adequacy of NSA (and other payments) should be constantly reviewed—as is done with the minimum wage, which seems to work well and attracts wide community support.

The current practice of automatically indexing NSA to the CPI has let politicians off the hook by allowing them to avoid making the tough decisions that improve adequacy but at a cost to the budget. There is nothing ‘automatic’ about how safety net payments are indexed since the method reflects the choices of those responsible for the system. Improving the adequacy of the incomes received by unemployed Australians and their families should be the first step in any concerted effort to address overall economic inequality. The evidence is in and now we need to get on with it!

Peter Saunders holds a Research Chair in the Social Policy Research Centre, University of New South Wales.

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