Morrison government defends Newstart amid criticism it is among lowest welfare payments in OECD

<span>Photograph: Matt King/Getty Images</span>
Photograph: Matt King/Getty Images

The Morrison government has defended Newstart allowance as affordable and well targeted as it faces criticism sparked by research showing it is one of the lowest unemployment benefits in the developed world.

Facing calls for a $75 a week increase, which would cost $3.3bn a year, the Department of Social Services said the Australian social security was a “safety net” that “differs markedly from the social insurance approaches of most OECD countries”.

In a submission to a Senate inquiry into Newstart, the government said it intended to “focus on strengthening the balance sheet and reducing debt” once the budget returned to surplus and pushed back against criticism the payment was indexed to the consumer price index.

The accounting firm KPMG is among organisations that have put the spotlight on indexation of the dole, telling the Senate inquiry Newstart would be only $90 per week today if it was benchmarked to inflation after the second world war. Newstart is currently $279.50 for a single person.

But the government argued tying benefits to inflation was a “widely used approach to ensuring that payment rates maintain their value in real terms”.

“For example, Canada, the United Kingdom and the United States generally adjust social security benefits according to changes in the CPI for a preceding period.”

pension vs newstart

In the UK, the decision to tie benefits to inflation was made in 2011 during the Conservative-led government’s austerity push was dubbed an “insidious cut” by critics. New Zealand, whose social security system is most like Australia’s, benchmarked its unemployment benefits to wages rather than inflation this year.

Analysis by the Australian National University academic Peter Whiteford has found Newstart is the second-lowest payment in the OECD for a short-term unemployed person on two-thirds the average wage and the lowest when housing benefits are included.

In his inquiry submission with academics from ANU and the University of NSW, Whiteford and his colleagues acknowledged there were large differences between the systems, but added: “The support provided by the Australian system has become relatively less generous when compared to other OECD nations.”

Analysis from the Australia Institute, also provided to the inquiry, said Newstart was also the third-lowest unemployment benefit in the OECD for a newly unemployed minimum wage worker. It also said Australia performs “relatively poorly in terms of maintaining the unemployed when compared with poverty lines”.

But the Morrison government dismissed the comparisons, saying most countries required contributions from employers and employees or were paid for by higher taxes.

“Australia does not provide income replacement or universal [non-means tested] income support payments,” it said. “Income support payments in Australia are set at flat rates so the same maximum rate applies for all recipients in similar circumstances, irrespective of previous earnings or taxes paid.

“Assistance is paid for as long as the recipient meets the eligibility criteria. The focus on income replacement in other countries means these systems cost considerably more than the safety net approach used in Australia.”

The government has remained steadfast in its opposition to an increase to Newstart, but did increase the age pension through changes to deeming rates.

The Council on the Ageing, which campaigned for the change, said Newstart was also inadequate for older Australians, who are the fastest-growing cohort of people on the unemployment payment.

Using existing government data, the Council on the Ageing (Cota) estimated that Newstart recipients aged over 55 spent an average of seven years on income support.

“Older people in particular are struggling to make ends meet as they search for paid employment, or wait to reach age pension eligibility age,” Cota said. “In the interim, many are forced to go without some of the most basic requirements of living – food, medications and healthcare.”

While Labor and the Greens have demanded the government raise the payment, some Coalition MPs have also called for an increase. Nationals MPs have been particularly vocal, including the former deputy prime minister Barnaby Joyce.

Government data provided to the committee by the Department of Social Services confirms that people living in regional Australia are also overrepresented among Newstart recipients.

It shows that 33.9% of Newstart recipients (233,000) live in regional Australia, which makes up only 26.1% of the population.

The Senate inquiry will hold public hearings on Thursday and Friday.