Australia’s social security system

7.3 The primary purpose of Australia’s social security, or transfer, system is to provide individuals with a ‘minimum adequate standard of living’.^[1] The main Australian Government transfers are income support payments and payments to individuals and families. These include age and other pensions, Newstart Allowance and other allowance payments, Family Tax Benefit and supplementary payments.^[2] Income support payments are made to people identified as being unable to support themselves through work or savings. A person’s need for support is measured by means testing of income and assets.

7.4 Concession cards provide additional assistance to persons receiving income support, as well as to those with low incomes and seniors who meet a separate income test. These cards provide access to a range of discounts or subsidies on Commonwealth, state, territory and local government fees and charges.^[3]

7.5 The legislative basis of the social security system is the Social Security Act 1991 (Cth) (the Social Security Act) and the Social Security (Administration) Act 1999 (Cth). The legislative basis for family payments is A New Tax System (Family Assistance Act) 1999 (Cth) and A New Tax System (Family Assistance Act) (Administration) Act 1999 (Cth). The Guide to Social Security Law and the Family Assistance Guide, produced by the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), provide guidance to decision makers in implementing this legislation.^[4]

7.6 Social security law is administered by the Department of Human Services (DHS) through Centrelink. Policy responsibility is spread between the Department of Education, Employment and Workplace Relations (DEEWR), FaHCSIA and the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE).

7.7 The social security system has been the subject of two recent major reviews. In 2010, the Tax Review considered social security in the wider context of a review of the tax and transfer system.^[5] In 2009, the Pension Review considered pension payments for seniors, carers and people with disability.^[6] In addition, in 2012, the Senate Education, Employment and Workplace Relations References Committee conducted an inquiry into the ‘adequacy and appropriateness of the allowance payment system for job seekers and others, the appropriateness of the allowance payment system as a support into work and the impact of the changing nature of the labour market’ (the Allowance Payment Inquiry).^[7]

7.8 This section outlines some of the major elements of the design of income support payments, focusing on how these may affect a person’s participation in the workforce. Reform to income support payments may have some impact on reducing barriers to work for mature age job seekers. However, the ALRC recognises that these barriers are multi-faceted, and unlikely to be resolved by law reform alone. For example, stakeholders have argued that the lack of willingness of employers to hire mature age persons contributes significantly to joblessness for persons in this age group.^[8]

7.9 Mature age persons may also have multiple barriers to employment, in addition to age. For example, the National Welfare Rights Network (NWRN) noted that ‘Indigenous job seekers may have to address issues of not just age discrimination, but also discrimination on the basis of race’.^[9] The Older Women’s Network NSW Inc (OWN) and the Premier’s Council for Women South Australia noted that there may be gendered differences in the barriers to work faced by mature age job seekers.^[10] Commenting generally, Professor Peter Whiteford has cautioned against seeing social security reform as a standalone remedy for the difficulties faced by many job seekers:

the problems of the most disadvantaged and long-term jobless appear to include very low levels of educational attainment … lack of access to reliable transport … and complex personal problems including poor health and disabilities … While it is possible that poorly designed tax and transfer systems might exacerbate these problems, it is difficult to see that transfer reform can resolve them.^[11]

Categories of income support payments

7.10 Income support payments are aimed primarily at providing a minimum adequate standard of living. However, the different qualification requirements and payment rates attached to various payments also reflect judgments about recipients’ expected relationship to the labour force.

7.11 The primary income support payments are categorised into two groups—pensions and allowances. Pensions have historically been provided on the basis that recipients were not expected to undertake paid work. These include: Age Pension, Carer Payment, Parenting Payment,^[12] and Disability Support Pension. Pension recipients generally are not required to seek paid work as a condition of payment. They are paid at a higher rate than allowances to reflect the expectation that the pension will be a person’s sole source of income for an extended period.^[13]

7.12 Allowances for job seekers, including the main working age payment, Newstart Allowance, are paid on the basis that recipients are willing and able to work, and not expected to need income support for an extended period.^[14]

7.13 Allowances for job seekers have ‘activity test’ or ‘participation’ requirements, obliging the recipient to seek work or participate in some other labour force preparation activity as a condition of payment.^[15] Allowances are also paid at a lower rate than pensions to act as an incentive to obtain paid employment.^[16]

7.14 The distinction between pensions and allowances has become less pronounced in recent years. For example, the shift towards a ‘social’ rather than a ‘medical’ model of disability has seen more emphasis on the capacity of people with disability to work.^[17] In 2009, the Pension Review also found that pensions paid to those below Age Pension age should actively support people to participate in employment.^[18] In addition, while allowance payments were historically designed as short term payments, a large proportion of Newstart Allowance recipients spend long periods of time on the payment.^[19]

Means testing and employment income

7.15 The means test for an income support payment has two parts: an income test and an assets test. Payment is calculated by applying the test that results in the least amount of payment.^[20]

7.16 The income test and the assets test have two structural elements: a ‘free area’, and a ‘withdrawal rate’ or ‘taper’. The free area allows a person to have a threshold level of income or assets before eligibility for the full rate of payment is affected. The withdrawal rate subsequently gradually reduces the rate at which a payment is made as income and/or assets increase. In other words, payment ‘tapers out’ as a person’s private means increase.^[21]

7.17 The income test allows a person to earn some employment income while still receiving an income support payment. The settings of the income test differ between types of payments, reflecting the different grounds upon which payments are made. For example, because pension recipients are not expected to support themselves through paid work, pension payments generally taper out more slowly than allowance payments. This allows a pension recipient to combine income support and employment income for longer.^[22]

7.18 In addition to the income test, other aspects of income support payment design help to smooth the transition between income support and work, or to allow persons with fluctuating earnings to combine work and income support.

7.19 ‘Working Credit’ aims to encourage people of workforce age who receive income support payments to take up full-time, part-time, or casual work.^[23] When a person’s total income (including employment income) is less than $48 per fortnight, working credits are automatically accrued, up to a maximum of 1,000.^[24] Accrued working credits are then used to offset employment income, effectively increasing the income free area for a payment.^[25]

7.20 ‘Work Bonus’ allows Age Pension recipients to receive employment income up to $250 per fortnight without its being assessed as income under the pension income test.^[26] Work Bonus is discussed more fully below.

7.21 An income support payment recipient who is below Age Pension age may also qualify for supplementary benefits during an ‘employment income nil rate period’. Where income support payment is not payable because of ordinary income that is made up entirely or partly of employment income, a recipient can be paid certain supplementary benefits and remain eligible for a concession card.^[27] In addition, payment may be resumed without reapplication during this period if income reduces to a level where income support is payable again.^[28] The Allowance Payment Inquiry recommended that the period of time that a person may resume payment without reapplication after ceasing to receive income support be increased to one year.^[29]

7.22 Concession cards are also available for a period on return to work, and alternative concession cards are available to some beyond the pension and allowance cut-outs.^[30]

7.23 Other specific elements of payment design allow a person receiving Disability Support Pension or Carer Payment to work while remaining qualified for payment. These are discussed below.