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Are most people on the Newstart unemployment benefit for a short or long time?

  • Written by Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University

Since parliament has resumed three Liberal members - Dean Smith, Russell Broadbent and Andrew Wallace - have joined a group of Nationals calling for an increase[1] in the A$40 per day Newstart unemployment allowance.

Labor has already committed itself to both an inquiry and an increase[2], although it won’t specify the size of the increase. The Greens have introduced a bill that would increase Newstart by A$75 a week[3].

Defending the current level of Newstart on Monday, Finance Minister Mathias Cormann told the ABC’s Sabra Lane that the payment was “transitional”.

Most Australians were on it for only a “very short period[4]

LANE: Could you live on 40 bucks a day?

CORMANN: The Newstart allowance which is I guess, what you are now raising is a transitional payment for…

LANE: It is, and you’ve diverted straight away. Could you live on 40 bucks a day?

CORMANN: Newstart allowance is a transitional payment. It is a payment that is increased twice a year. It is indexed twice a year. Most Australians who are on Newstart allowance are on that payment for a very short period.

Greens senator Rachel Siewert actually did try to live on Newstart[5] for a week in 2012.

She introduced the bill[6] that would lift it (and the similarly-sized youth allowance, sickness allowance, special benefit, widow allowance, crisis payment and Austudy) by A$75 a week.

On Monday she asked the Senate to “not believe what the government says[7]

This is not a transition payment anymore. The employment situation in this country has changed from when the unemployment benefits first came in, and it’s certainly changed since 1994. People have to survive on this payment long-term.“

Liberal Wendy Askew responded[8]:

These allowances are not designed as a long-term payment for people, and this is shown by the fact that around two-thirds of job seekers who are granted Newstart exit income support within 12 months.

So what’s the truth? Are most Australians who go onto Newstart on it for only a short time, or are most of those who are on Newstart on it for a long time?

Short term, or long term?

As it happens, both claims are sourced from the same Department of Social Services publication, DSS Payment Trends and Profile Reports[9].

It says 257,494[10] Australians went on to Newstart between June 2015 and June 2016. Most of them (191,6800) hadn’t previously been receiving income support.

In the same 12 month period, 274,113 Australians left Newstart, 212,320 of them out of the income support system altogether.

If most of those who went on it in that year also went off it in that year then the government would be correct in saying that "two-thirds of job seekers who are granted Newstart exit income support within 12 months”.

Read more: FactCheck Q&A: is a week's worth of Newstart equal to what a politician can claim for one night in Canberra?[11]

But it would leave most of the rest of the 732,100 Australians on Newstart on it for an increasingly long time.

The table below shows that in June 2016, 73% of Newstart recipients were classified as long-term (one year or more), up from 71% the previous June.

image Duration refers to duration on any income support payment and for some will be longer than their current duration on Newstart. Source: DSS[12]

Graphically, it is possible to see that in June 2016, there were both

  • fewer Australians on Newstart than in the previous year (more had left Newstart than taken it up), and

  • a greater proportion of them on it for more than a year

Number of Newstart recipients by duration on income support, ‘000

image Source: Department of Social Services[13] The apparent contradiction between most of the people who enter Newstart quickly leaving it and most people who are on Newstart being on it for a long time appears to reflect a confusion between flows and stocks. The International Encyclopedia of the Social Sciences[14] illustrates the difference using a bathtub. The level of water in the bathtub is a stock, the water coming from the faucet is an inflow, and the draining of the water through the drain is an outflow. If we plug the drain and turn on the faucet, the net inflow will be positive, and the stock of water in the bathtub will be rising. If, instead, we close the faucet and open the drain, the net inflow of water will be negative, and the stock of water in the bathtub will fall. Between 2015 and 2016 about 260,000 people flowed in to and out of Newstart, and as it happened more flowed out than flowed in. But those who remained were increasingly likely to have been on Newstart for a long time, probably due to the so-called “scarring” effect[15] that makes people less job-ready (and less attractive to employers) the longer they have been out of work. Most current Newstart recipients are long-term The proportion of Newstart recipients on payments for more than a year has climbed from 69% in 2014 to 73% in 2016, and according to the latest Department of Social Services[16] figures, to 76.5% in 2018. Senator Siewert’s observation that most Newstart recipients have to survive on it long-term is correct. At any one time the overwhelming majority of the people on the $40 per day have been on it for more than a year. Read more: FactCheck: do 99% of Newstart recipients also receive other benefits?[17] What’s more, it appears that the decline in the total number of people on Newstart has not been because more of the people on Newstart have been able to get a job, but because the flow into Newstart has slowed. That is probably a positive development, although there is also the possibility that it is happening because of the onerous compliance burdens of job search[18], together with the increasing inadequacy of Newstart.

Authors: Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University

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