Income support payments and work

5.8 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, these barriers are multi-faceted. Stakeholders have argued that the willingness of employers to hire mature age persons significantly contributes to joblessness for persons in this age group.^[8] Mature age persons may also have multiple barriers to employment, in addition to age. For example, National Welfare Rights Network (NWRN) noted that ‘some 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 on job seekers, Professor Peter Whiteford has noted that

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

5.9 While income support payments are aimed primarily at alleviating poverty, the different qualification requirements and payment rates attached to various payments also reflect judgments about recipients’ expected relationship to the labour force.

5.10 The primary income support payments are categorised into two groups—pensions and allowances. Pensions, including the Age Pension, Carer Payment, Parenting Payment,^[12] and Disability Support Pension, have historically been provided on the basis that recipients were not expected to undertake paid work. Pension recipients generally have no requirement to seek work as a condition of payment. They are paid at a higher rate to reflect the expectation that the pension will be their sole source of income for an extended period.^[13]

5.11 Allowances for job seekers, including the main working age payment, Newstart Allowance, have traditionally been paid on the basis that recipients were willing and able to work. Recipients were not expected to need income support for an extended period.^[14] Allowance payments are also made to students, again on the basis that the period of time on income support will be limited.^[15]

5.12 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.^[16] Allowances are also paid at a lower rate than pensions to act as an incentive to obtain paid employment, or in the case of students, because the payment is intended to be supplemented by other means.^[17]

5.13 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.^[18] In 2009, the Pension Review also emphasised that pensions paid to those below Age Pension age should actively support people to participate in employment.^[19]

Adequacy of allowance payments

5.14 It has been been argued that the current rate of Newstart Allowance^[20] is set too low to achieve its primary purpose of providing an adequate minimum standard of living, as well as to enable effective job search activity.^[21] This may be particularly so for mature age job seekers, who are likely to have more financial commitments.^[22]

5.15 The adequacy of the allowance payment system for jobseekers is currently the subject of inquiry by the Senate Education, Employment and Workplace Relations References Committee (Allowance Payment Inquiry).^[23] A number of submissions to the Allowance Payment Inquiry argue that the rate of payment of Newstart Allowance creates barriers to work.^[24] For example, the Business Council of Australia argued that

trying to survive on $35 a day [the approximate daily base rate for a single person receiving Newstart Allowance] is likely to erode the capacity of individuals to present themselves well or maintain their readiness for work.^[25]

5.16 NWRN submitted to the ALRC that the rate of payment is a barrier to workforce participation, arguing that ‘income support payments need to provide a sufficient income to enable people to look for work and to cover job search costs including transport and telephone costs’.^[26]

5.17 The gap between pensions and allowances increased markedly in 2009 with the increase to pension amounts introduced by the Secure and Sustainable Pension Reforms Package.^[27] This gap is also widening due to the different indexation methods for each payment.^[28] The Tax Review noted that, ‘if the current indexation arrangements remain in place … by 2040 a single pensioner would be paid more than twice as much as a single unemployed person’.^[29]

5.18 NWRN argued that this gap ‘creates perverse incentives for unemployed people to seek higher, non-activity-tested payments especially when they are older and have been unemployed for lengthy periods of time’.^[30] The Tax Review has also noted that the differences in rates of payment can ‘create disincentives to work or incentives to move to higher payments’.^[31]

Means testing and employment income

5.19 The means tests for income support payments have two parts: an income test and an assets test. Payment is calculated by applying the test that results in the least amount of payment.^[32]

5.20 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.^[33]

5.21 The income test allows a person to earn some employment income while 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.^[34]

Transitions between income support and work

5.22 In addition to the income test, a number of aspects of the design of income support payments help to ease the transition between income support and work, or to allow persons with fluctuating earnings to combine work and income support.

5.23 ‘Working Credit’ aims to encourage people of workforce age who receive income support payments to take up full-time, part-time, or casual work.^[35] 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.^[36] Accrued working credits are then used to offset employment income, effectively increasing the income free area for a payment.^[37]

5.24 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.^[38] Work Bonus is discussed more fully below.

5.25 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.^[39] Concession cards are discussed more fully below.

5.26 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, made up entirely or partly of employment income, a recipient can be paid certain supplementary benefits and remain eligible for a concession card.^[40] In addition, payment may be resumed without reapplication during this period if income is reduced sufficiently for the income support payment to be payable again.^[41]

5.27 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.