Jobseekers get about $345 less than pensioners each fortnight. This gap is hurting, and is set to widen without change

The government’s Economic Inclusion Advisory Committee has just published its second report^[1]. It was set up by Treasurer Jim Chalmers and Minister for Social Services Amanda Rishworth in 2022 to provide:

non-binding advice on boosting economic inclusion and tackling disadvantage, including policy settings, systems and structures, and the adequacy, effectiveness and sustainability of income support payments.

I am one of the members^[2].

This year, the report tackled a burning question: why has the gap between unemployment payments and age pensions widened?

Unemployment and related payments for working-age people were given a welcome increase in the 2023–24 budget. But they remain well below pensions, and far from adequate on all measures.

Way below the pension

After the latest regular indexation increase in March, a single jobseeker gets about A$258 per fortnight less than a pensioner in basic payments, and $345 per fortnight less than a pensioner on payments including supplements.

It’s important to understand what’s led us to this point.

The committee’s first report^[3] last year noted that the amounts paid are set through a complex historical process that has involved “long periods of inaction” interspersed with “bursts of activity” to address the previous inaction.

The amounts paid out are regularly increased, typically via “indexation^[4]” to either wages growth or inflation (prices growth).

Indexation of pensions and benefits was enshrined in legislation in 1976, but at times of high inflation was suspended.

By 1982, unemployment payments were about 80% of the single pension.

From 1983 onwards, the Hawke government increased unemployment payments relative to pensions so that by the time Paul Keating left office as prime minister in March 1996 the rate for a single adult facing unemployment had climbed to 92% of the basic pension.

What widened the gap?

The gap began to widen increasingly quickly from 1997, when the Howard government “benchmarked” pensions to 25% of “male total average weekly earnings”.

This means that although pensions increased in line with the consumer price index, as did unemployment payments, they had to be lifted further to ensure they couldn’t fall below 25% of male total average earnings, whereas unemployment payments did not.

By the early 2000s, the single unemployment payment was worth around 87% of the support for a pensioner, including supplements.

Read more: Boosting JobSeeker is the most effective way to tackle poverty: what the treasurer's committee told him^[5]

As real wages grew strongly during the mining boom of the early 2000s, the gap widened further to $142 per fortnight ($179 including supplements) by 2009.

And then, although wages were growing less strongly as a result of the global financial crisis, the gap widened again.

The Rudd government lifted single pensions substantially following the recommendations of the 2009 Harmer Review^[6].

Support for unemployed singles fell from 79% of the single pension to just 68% – the biggest gap so far. For couples, the gap fell from 83% to 81%.

The pandemic sparked a brief reprieve

The gap continued to widen until early 2020, when the temporary $550 a fortnight Coronavirus Supplement^[7] almost doubled the effective JobSeeker payment, lifting it above the age pension for a short period.

In April 2021, after the gap returned, the Morrison government helped narrow it by lifting JobSeeker by $50 per fortnight, and in 2023 Treasurer Jim Chalmers lifted it a further $40 per fortnight.

But over the past 30 years, the gap has still widened significantly, mainly as an effect of deliberate policy choices to lift support for pensioners.

But from here on, things are set to get worse

Under current indexation and benchmarking arrangements, it is inevitable this gap will continue to widen.

This can be seen in all of the projections of the Intergenerational Reports^[8] prepared for the government since 2002.

The latest 2023 report assumes average earnings will increase by 3.7% per year and prices by 2.5% per year over the next 40 years. If this happens, the single rate of JobSeeker will fall to less than half of the pension by 2063.

The improvements achieved through payment increases in 2022 and 2023 would be undone by 2035.

This would lead to much higher rates of relative poverty among working-age benefit recipients in the future. Child poverty would also increase substantially.

The committee has recommended the government commit to a substantial increase in the base rates of JobSeeker and related working-age payments as a first priority, and spell out the time frame in which it will happen.

To ensure this doesn’t need to keep happening, we have also recommended the government improve the indexation arrangements to make sure payments for the unemployed don’t fall behind.

It would still need to regularly review and monitor the relationship between working-age payments and widely accepted measures of community living standards, including wages, but not nearly as often.

References

1. ^{^} second report (www.dss.gov.au)
2. ^{^} one of the members (images.theconversation.com)
3. ^{^} first report (ministers.treasury.gov.au)
4. ^{^} indexation (www.dss.gov.au)
5. ^{^} Boosting JobSeeker is the most effective way to tackle poverty: what the treasurer's committee told him (theconversation.com)
6. ^{^} Harmer Review (www.dss.gov.au)
7. ^{^} Coronavirus Supplement (www.abc.net.au)
8. ^{^} Intergenerational Reports (treasury.gov.au)