A sad and sorry history of Newstart
Tuesday, 19th November 2019 at 8:00 am
Much has been made of the fact federal government unemployment benefits haven’t increased in real terms since 1994. But why has the freeze gone on so long? We look back at the history of Newstart and the long-running battle to raise the rate.
It wasn’t meant to be this way.
Newstart was meant to be – if not a panacea – then at least a new start for tackling entrenched disadvantage in Australia.
The unemployment benefit (or dole) had been in effect since its introduction in 1945, when World War II and memories of the Great Depression were fresh in the nation’s consciousness. It was the brainchild of Prime Minister John Curtin who was inspired to create a post-war world free from deprivation and discrimination.
This benefits scheme was designed for a labour market where full-time employment for a male-dominated workforce was the norm and unemployment was only seen as a short-term issue.
The legislation survived mostly untouched until the 1970s, when periods of recession caused an upsurge of people going on – and staying on – the dole.
By the early 1990s, it was clear a fresh approach was needed. No longer was unemployment “a short-term aberration,” as parliamentary researcher Geoff Winter noted, with unemployed Australians now stuck out of work for extended periods.
Back in 1973, 37,000 people (0.5 per cent of the working age population) were on unemployment benefits. By June 1993, this had blown out to 914,000 people – or 8 per cent of working age people.
Unemployment was now to be seen as a fact of Australian life.
A new hope
So in February 1990, the Hawke government laid out its new template to help the unemployed. The aim was to build on existing employment and training programs while placing greater emphasis on preparing unemployed people for work.
Newstart – the Active Employment Strategy – was born on 1 July 1991. This more “active” method was designed so the longer a person was unemployed, the more help the government would offer to get them back to work.
All good in theory. Except that in its resolve to get people working, the government now decided to apply increasingly strict rules to encourage job seekers to seek jobs.
And enforcing these rules was outsourced to a new network of private job providers with little accountability.
Somewhere along the way, the whole idea of a world free from deprivation and discrimination began to fray.
In March 1994, the Keating government increased Newstart by $2.95 a week above the rate of inflation.
No one knew back then, but this would be the last time Newstart was raised in real terms.
The big freeze
In 1997, the Howard government decided instead to tie the payment to inflation (unlike the pension which is tied to wages). This effectively froze the payment permanently.
And with wages now rising more quickly than inflation, the gap between the age pension and Newstart began to grow. And grow. In the mid-1990s, Newstart was around 90 per cent of the pension. This proportion has now fallen to around 60 per cent. To give you a sense of what that actually means, if unemployment payments in Australia had been tied to inflation back in 1945, Newstart’s current weekly rate of $280 would today only be $90.
At the same time, the obligations for welfare recipients have slowly become more onerous.
Fast forward to July 2006. The Howard government introduced new Welfare to Work laws. Suddenly, people with disability deemed to have some ability to work were no longer eligible to apply for the Disability Support Pension (DSP). Instead, they were pushed onto the lower Newstart rate – and forced to seek at least 15 hours a week of work.
“Somewhere along the way, the whole idea of a world free from deprivation and discrimination began to fray.”
Jobseekers were also targets. Now three “participation failures” within a year (failing to show at a job interview, for instance, or keep an appointment with your “job provider”) could mean losing your payments for eight weeks.
By the late noughties, both sides of politics seemed mired in apathy on the whole topic. Then…
In came Kevin07
Kevin Rudd swept to power in 2007 after more than a decade of conservative government, promising hope and change. But when it came to Newstart, officially or otherwise he continued a bipartisan strategy of pretty much ignoring people on the benefit.
In September 2009 his government announced one of the largest age pension increases in Australian history, raising the payment by $30 a week. Newstart recipients got nothing.
Ditto for Rudd’s Household Stimulus Package in 2009, which helped boost people on the age and disability pensions, carer payments and family tax benefit – while Newstart recipients were again overlooked.
The backlash begins
The first major report to call for an increase to Newstart came in 2010, when then Treasury secretary Ken Henry released the Henry Tax Review.
Henry was concerned about the growing gap between the pension and Newstart.
The report said unless the rules were changed, it was likely that by 2040 a single pensioner would be paid more than twice as much as a single unemployed person. By 2050, Newstart would shrink to just one-third of the pension.
Henry called for the government to boost Newstart by about $50 a week (equivalent to around $63 a week today).
This never eventuated.
Fun fact; it’s now
— VCOSS (@VCOSS) July 3, 2018
By now, Australia’s tough approach to welfare was causing murmurs overseas.
In November 2010, the OECD said the current level of Newstart “raised concerns about its adequacy” as an income-support payment.
By 2011, even the Business Council of Australia was calling for an increase. In a submission to a Senate inquiry the following year, the council stated that the payment “no longer meets a reasonable community standard of adequacy and may now be so low as to represent a barrier to employment”.
Business as usual
The Labor government, now under Prime Minister Julia Gillard, responded by announcing plans in 2012 to move single unemployed parents onto Newstart once their children turned eight.
It was actually the Howard government’s Welfare to Work laws in 2006 that pushed new parenting payment applicants onto Newstart – but Gillard’s changes meant even those receiving the benefit before 1 July 2006 were no longer eligible.
The move – part of a plan to save the government about $700 million over four years – affected up to 100,000 people and helps explain why single parents (most of them women), are now three times more likely than other householders to live below the poverty line.
It was the Gillard government that in 2012 also introduced tougher eligibility requirements for the DSP. The changes had their intended effect. The number of new DSP participants fell from a peak of almost 89,000 in 2009-10 to around 32,000 in 2016-17. Most applicants were forced onto Newstart – and $170 less a week. These days, 42 per cent of Newstart recipients have an illness or disability preventing them from working full-time – up from 25 per cent in 2014.
In 2015, there was ANOTHER review calling for action on Newstart.
Patrick McClure’s Review of Australia’s Welfare System noted a surge of Newstart recipients with little or no capacity to work full-time, which left people on the payment for longer. McClure said a panel of experts should meet every four years to review the level of income support payments – including Newstart – against changing community living standards. The panel would then recommend a payment adjustment to government.
This never eventuated.
The following year, a study by The Australia Institute showed the level of financial support for the unemployed now sat 30 per cent below the poverty line. By the end of 2016 even global professional services firm KPMG would be calling for a $50 a week increase to Newstart (this demand has since risen to $90).
Why hasn’t Newstart been increased?
For the record, here are some of the reasons successive governments have given for not raising the rate:
- It’s possible to live on the payment – In 2013, Labor Social Services Minister Jenny Macklin said she could live on the $38 a day that Newstart recipients received (even though she’d reportedly spent $1,577 a day on travel, comcars and hotel rooms the previous year).
- The payment is transitional – “Most Australians who are on Newstart allowance are on that payment for a very short period,” Finance Minister Cormann has said. But according to data cited by ACOSS, two thirds of people on Newstart are on the payment for a year or longer.
- “The best form of welfare is a job” – This has been a key Coalition talking point, especially since Scott Morrison became prime minister. Not everyone is convinced. Comedian Shaun Micallef countered: “Welfare is what you get when you don’t have a job. It’s the complete opposite of a job. The best form of something can’t be the opposite of it, you’re conflating two things that don’t coexist.”
- 99 per cent of people on Newstart get other forms of welfare – While this is correct, others point out this is only because recipients also receive the Energy Supplement, which only adds $4.40 a week.
Back on the see-saw
Still in 2016, the Coalition government outlined budget plans to scrap the Energy Supplement for new recipients of Newstart. That would have meant an extra $4.40 a week gone, and would have taken Australia’s support for the unemployed a further 2 per cent below the poverty line. Those cuts failed to go through after being opposed by Labor, the Greens and the Nick Xenophon Team.
Undeterred, the Turnbull government tried a different tack in the 2017 budget, announcing changes to the welfare system including plans to establish a drug testing trial for 5,000 new recipients of Newstart and Youth Allowance.
“The best form of welfare is a job.”
Shaun Micallef has zero time for that rubbish. #RaiseTheRate
How good is satire? pic.twitter.com/bia3vIS7Om
— VCOSS (@VCOSS) July 24, 2019
And when the Greens introduced legislation in 2017 to increase Newstart and Youth Allowance by $110 a fortnight, Labor voted with the Coalition to ensure the bill failed.
Around this time, the Australian Council of Social Service (ACOSS) launched its “Raise the Rate” campaign.
The peak welfare group demanded that the federal government immediately lift the single rate of Newstart, Youth Allowance and other related payments by at least $75 per week, and index allowances to wages.
The campaign has so far garnered the support of close to 100 community organisations across Australia – as well as that of less obvious backers.
“These days, 42 per cent of Newstart recipients have an illness or disability preventing them from working full-time – up from 25 per cent in 2014.”In May 2018, Deloitte economist Chris Richardson said the Turnbull government was now in a strong budget position and should turn its attention to struggling Newstart recipients. He urged the government to remedy “embarrassingly inadequate unemployment benefits” by indexing Newstart to wages and immediately boosting the payment by $50 a week.
“That would be $3 billion well spent,” Richardson said.
(Spoiler alert: the 2018 budget did not raise Newstart. Rather it outlined plans to deduct up to 15 per cent of welfare payments for recipients with unpaid court fines – supposedly to help people “stay out of jail”).
The campaign to raise Newstart then gained an unlikely ally in former Prime Minister John Howard – the man who started the Newstart freeze all the way back in 1997.
“I think the freeze has probably gone on too long,” Howard admitted in May 2018.
The Salvation Army agreed. Later that month, they published research that revealed the average Newstart recipient was living on just $17 a day after accommodation expenses.
A Deloitte report in September 2018 presented an economic case for reform, finding that a $75 a week increase to Newstart and Youth Allowance would cost the budget $3.3 billion a year, but create 12,000 new jobs by 2020-21 and lift wages.
The rumblings continue
Labor – which had failed to raise Newstart during its six years in government from 2007 to 2013 – now faced pressure to commit to an immediate payment increase if it won the 2019 election.
But in December 2018, opposition leader Bill Shorten told Labor’s national conference that the ALP would review, rather than immediately raise, the rate of Newstart if elected. Maybe they would have gone on to increase the $40-a-day payment, but they weren’t elected.
Instead, in May 2019, the Coalition government won what many believed was an “unwinnable” federal election.
Still the rumblings continued, even in government ranks. Liberal Senator Dean Smith, former deputy PM Barnaby Joyce, Liberal Senator Arthur Sinodinos and Nationals Senator Matthew Canavan all publicly called for an increase. Even One Nation leader Pauline Hanson and Katter’s Australian Party leader Bob Katter pledged their support for raising the payment.
By July, there was enough public pressure for the Senate to launch an inquiry into the rate of Newstart. Harrowing stories have emerged of Newstart recipients losing homes, skipping meals, self-harming, and rationing their insulin. The inquiry report is due in March 2020.
But the Coalition government is standing firm. In October, Social Services Minister Anne Ruston stated that raising Newstart would simply “give drug dealers more money and give pubs more money”.
Australian unemployment payments meanwhile remain the second lowest in the OECD. And every Newstart recipient seeking an entry-level role must compete with more than five other people for the same job.