Thursday, September 01, 2016

How the government rounded on Newstart

Most of the really bad decisions made by governments are mistakes, ones they are reluctant to admit. The decision to withdraw $4.40 a week from unemployed Australians is one of them.

No credible organisation thinks it should. The Business Council says Newstart is so low it "presents a barrier to employment and risks entrenching poverty". The Organisation for Economic Co-operation and Development says it raises issues about its effectiveness in "enabling someone to look for a suitable job".

Even the Coalition-dominated inquiry into Newstart found there was a "compelling case" for boosting it, but refrained from recommending it for budgetary reasons. But actually cutting the payment ... no one has ever suggested it, not until the Coalition tried it.

It had its first go within weeks of taking office in 2013. In its sights was the twice-yearly $105.80 "income support bonus" added to Newstart by Labor as part of its "Spreading the Benefits of Boom" package.

Worth around $5.40 a week to someone on unemployment benefits, it had to go because it was funded by the minerals resource rent tax which the Coalition had promised to abolish. The Palmer United Party, whose votes it needed, agreed on one condition: that it stayed until after the next election. The bonus is scheduled to vanish on September 20, the first date after the election that it would have been paid.

Having encountered surprisingly little resistance in its attack on the incomes of the lowest paid, in May the Coalition went back for more.

Newstart recipients, along with pensioners, Austudy and Abstudy recipients, those on carers' allowances and seniors health cards, family benefits, parenting payments and youth allowances also get a small "energy supplement". It used to be called the Clean Energy Supplement, because it was brought in to compensate for the introduction of the carbon tax. For a single Australian on unemployment benefits, it's worth $4.40 a week.

Along with the Energy Supplement, it's the only increase beyond inflation Newstart recipients have received in a generation.

The logic for removing it is that the government should "no longer compensate people for a tax that no longer exists", as Treasurer Scott Morrison said when introducing the legislation on Wednesday.

But it's logic he has proudly failed to apply to better-off Australians, who get to keep their compensation – delivered as tax cuts – and were given more in the May budget.

As he boasted back then: "When you get rid of a carbon tax and then you keep the tax relief, that turns from being compensation to a tax cut."

What he and his advisors may not have realised back then (they certainly didn't point it out) is that what seems like simply returning Newstart recipients to where they would have been had the supplement not been introduced, it in fact makes them worse off. It represents a real cut to the incomes of unemployed Australians, the first ever.

All that's needed to understand how is some maths.

Newstart is normally increased twice each year in line with inflation. The next increase on September 20 will be one of the lowest ever, just 0.18 per cent, because inflation has all but stalled.

But when the carbon tax came in, inflation jumped. Rather than increase the allowance in line with that jump, the government withheld 0.7 percentage points, because that was the amount it believed was due to the carbon tax, which was to be compensated for separately by the Clean Energy Supplement.

Removing the Clean Energy Supplement without putting back the 0.7 points that was lost leaves new entrants to Newstart worse off than if their benefits had never been fiddled with. The increases in energy prices that flowed from the carbon tax were real, as the Coalition never tired of telling us.

Estimates prepared for the Australian National University by social security analyst David Plunkett suggest that new entrants to Newstart will be $3.60 a week worse off than had the whole thing never happened, in addition to being $5.40 a week worse off from the removal of the Income Support Bonus.

Most won't notice. Morrison confirmed on Wednesday that existing recipients would continue to receive the supplement. Only the new ones would suffer.

The split comes at a cost of introducing still more unfairness. If it gets through we are about to have two classes of Newstart recipients, existing ones on very low incomes, getting around $13,720 plus $4.40 a week, and newer ones on even less, getting only $13,720.

Most members of parliament get more for spending nights away from home. To its great shame Labor was sucked in during the campaign, apparently not doing its maths either. It backed the removal of the supplement and booked the savings for itself should it take office.

But it knows about the maths now, and it may be prepared to admit its mistake. The government should too. It'd hardly be its first backdown, but it would be nice if it offered it first as a gesture of goodwill. It surely can't have intended to leave unemployed Australians worse off than they were 10 years ago, can it?

In The Age and Sydney Morning Herald