Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697638165399.pdf (Australia)
Senate Community Affairs References Committee: Newstart Enquiry Submission from Brian Howe AO Guaranteeing a fair and adequate income for the poor I want to especially address in this submission the adequacy of Newstart and related payments, make a brief reference to international standards of payments for the unemployed and the destitute, discuss the changing context for social policy in Australia, the current approach to setting income support payments and finally the diversity of circumstances unemployed people may face.
I have no claims to expertise in systems of social security, nor have I experienced extended periods of unemployment.

However, I served as the Minister for Social Security in the Hawke Government (1984-1990) and I know from that experience and from discussions with my predecessor in the portfolio how difficult it is to maintain and/or improve the adequacy of social security payments.

I have avoided partisan statements in this submission.
I recognise the importance of the only national poverty enquiry ever conducted in Australia, that conducted by Professor Ronald Henderson of Melbourne University, then of the Economic Institute of Applied Economic and Social Research.

The enquiry was established under Prime Minister McMahon in 1969, extended in scope by Prime Minister Whitlam in 1972 and completed in 1975.

Perhaps of greatest significance, Professor Henderson established a methodology for measuring poverty.
Using this instrument, he was able to estimate the numbers of people in Australia living in poverty or near poverty creating what became known as the ‘Henderson poverty line’, and I understand that the Melbourne Institute has updated the poverty line to this day.

Henderson’s poverty line while an important indicator of poverty and inequality in Australia has not been given any official status either in the Australian system of wage determination or in the Commonwealth Government’s social security system.
The Whitlam Government promoted the need to link pension and benefits to a broader community living standard (25% Average Award Male Earnings) and the Howard Government legislated this benchmark for pensioners but not beneficiaries in 1997.

It is important to note that Henderson saw the similarities between the Australian approach to social security to that operating in Britain, especially its categorical nature.
For Henderson, the danger in categorical payments is that they attract rules and qualifications that may reflect a prejudice against the poor: the suggestion of two classes of poverty ‘the deserving’ and the ‘undeserving’ and the associated stigma and discrimination.

It was primarily for this reason that Henderson recommended to the Australian Government the introduction of a ‘Guaranteed Minimum Income’ (GMI).
From a social policy perspective, the principle advantage of the GMI is that it withdraws money above an adequacy level through the tax system as opposed to applying a ‘means test’ thus substantially removing ‘poverty traps,’ technically described as Effective Marginal Tax Rates (EMTR) that tend to work as disincentives against paid work.

Even more importantly the GMI establishes a legislated standard that if adopted in Australia, would make clear this nation’s determination to rid Australia of poverty.
Unemployment benefits, now known as Newstart, traditionally have been associated with a very steep taper as a disincentive to malingering but effectively operate as a disincentive to work in a modern economy where the route from unemployment into work is often via a casual job and often a ‘poor’ job.

Australian pensions and benefits had always been seen as a fundamental right and the GMI is consistent with that intention.
Of course, we live in a very different world to Henderson and it is important to emphasise the importance of some of the social and economic changes that have occurred since this time.

Henderson essentially found that families where there was a full-time worker, were almost universally not in poverty.

The reasons for this finding went back to the Higgins wages determination in 1908.
Higgins ruled that McKay was obliged to pay his employees a wage that guaranteed them a standard of living that was reasonable for "a human being in a civilised community", regardless of his capacity to pay.

This gave rise to the legal requirement for a basic wage, which dominated Australian economic life for the next eighty years.
Adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support paymentsin AustraliaSubmission 413 The post war period of full employment for (mostly) male employees and their families, strong unions and regulated wages and conditions helped create a situation where, as Henderson found, poverty was concentrated among those families where there was no full-time worker, especially the aged and disabled.
Henderson found that lack of income causing poverty at that time was largely the result of inadequate pensions and benefits.

As we know now Henderson conducted his enquiry at the end of ‘full employment’ as it had been earlier defined for male breadwinners with massive changes then occurring in the nature and distribution of work.
Full employment, as it had been with full time (most often) male workers often holding life time jobs, began to disappear and be replaced by much greater diversity in employment that no longer guaranteed a ‘basic wage’ as the universal floor.

The shift away from tariff protection to a much more open economy has created risks that underlie the importance of systems of social protection.

The changes in the economic and social landscape has seen new challenges emerge in relation to employment.
With the increase in access to universal secondary and then post-secondary education, women who formerly occupied a marginal part of the workforce took on a much larger role in paid work, although continuing to undertake the majority of unpaid duties at home.

The digital revolution has impacted on every aspect of not only working life, also life more generally.

Labour markets took on a more dynamic character with great challenges for people to hold together the different aspect of their lives.
Profound changes at work are complemented by significant changes in family life with parenting being delayed as education continues for many people into adulthood.

Younger people are dissaving while in education so the settling down process is extended into the third decade.

The high cost of housing tends to mean that more people are renting for longer and deferring children and there is increasing stress for both renters and people buying homes.
There is stress too in work with higher levels of unemployment and under employment with the numbers of people in casual or fixed term employment numbering 20-25% of the work force.

There is frictional unemployment but there is also long-term unemployment at a very high level.

Bob Gregory at the ANU has long been one of Australia’s most prominent labour market economists.

Gregory’s view is that policy responses to unemployment have been counterproductive.
In his view, the ‘make work ‘pay policy promoted by both sides of Federal parliament has tended to lengthen the queues of the unemployed essentially because it sends the wrong signals destroying feelings of self-worth and confidence and tending to become a self-fulfilling prophecy (Gregory).

As Gregory suggests Australia has never had the numbers before in long term unemployment and that has resulted in massive costs while people at the front end of the system are not paid adequate benefits.
To quote Gregory, “government has adopted a ‘make work pay’ policy over the last two decades and indexed allowances for Consumer Price Index increases and allowances have fallen by 25–35 per cent, relative to community living standards.

Pensions continue to be indexed by average wage changes.

Why has government abandoned the Henderson recommendations?
Is there any evidence that a ‘make work pay’ policy is working?” See “The Henderson Question, The Melbourne Institute and 50 years of welfare policy,” May 2013, The Australian Economic Review.

Unemployed Australians have always received lower payments than age or disability pensioners.

But since 1997, when the Howard government started indexing pensions to average weekly earnings but continued to index unemployment payments to the Consumer Price Index, the gap has widened significantly.
(Wider gap following major increases in pensions in 2009).

In 1997 a single unemployed person received 92% of what a single pensioner was paid, today the ratio is 61%, amounting to a gap of roughly $360 a fortnight.

There has also since 1997 been a significant shift in incomes of those unemployed and those in work with benefits a significantly lower percentage of the minimum wage.

Note also that the Newstart payment has fallen during this period to a much smaller share of median household income.
Further the government funded Social Policy Research Centre (SPRC) at the University of NSW has looked at Newstart income support payments against new estimates of minimum living costs for unemployed people and low wage workers covering five basic family types.

The estimated weekly budgets for unemployed people and low wage workers covering five basic family types.
The estimated weekly budgets for unemployed people were $434 (single Adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support paymentsin AustraliaSubmission 413 person) $660 (couple); $767 (couple with one child) $940 (couples with two children) and $675 (single parent with one child).

SPRC found that social security payments for unemployed families are below these minimum standards in all cases, with the shortfall varying between $47 and $126 a week.
SPRC conclude that ‘These shortfalls cast serious doubt over the adequacy of existing social security safety net provisions and suggest that increased payment levels are urgently needed especially for those in receipt of Newstart’ (source Peter Whiteford, ANU).
No doubt there will be submissions to this enquiry suggesting possible increases in Newstart but in my view it is also important to recognize that Australia’s social security system, especially with respect to benefits and allowances, is not being set at any clear standard.

This submission illustrates the gap that exists in incomes set at a rate where people could live at a reasonable standard of living.
Perhaps in the period since Henderson, there has been an erosion of the understanding in the Australian community of just how critical income is to the wellbeing of people of lower socioeconomic status.

People who have little capital or savings tend to live very much from day to day always facing the challenge of making do with not enough.

It has long been known that ‘the poor pay more’ and of course are prey to exploitation.
The poor are also vulnerable to narratives, such as the ‘culture of poverty,’ that are not evidenced based and tend to blame and stereotype as opposed to understand the complexity of life with little money.

Of course, poverty is more than insufficient money to live on as Peter Saunders (SPRC) has demonstrated, but on the other hand adequate funds are necessary to enable people to live lives that they value.
It is therefore important to pay people who are unemployed at a rate that is based on evidence that has been accumulated by the experts in the field looking at more than daily necessities (food and clothing) but also the costs of housing and transport.
Henderson in the Poverty Enquiry nearly fifty years ago in measuring and surveying poverty in Australia lifted the veil on the poverty and inequality that impacted so severely on a minority of Australians and set a standard that has been maintained ever since in the Poverty line.
Academic Peter Whiteford has convincingly demonstrated with respect to benefits and allowances that Australia is not only failing the Henderson test but provides for the unemployed (now including increasing numbers of people with disabilities and single parents) among the lowest levels of replacement income in the OECD.

People on unemployment benefits are facing a challenge to make the transition from unemployment to employment , or from underemployment to a better paying or more satisfactory job.
The income they receive in that transition is not unimportant.

It is a source, or should be a source of dignity and a degree of independence.

If people are not able to live on $40 dollars a day or to rent suitable accommodation, or to travel to an area where there are more job opportunities the danger is that they will be dependent on benefits for a long time.
Increasingly single parents are on Newstart but as we saw with the Jobs Education and Training (JET) scheme it was very difficult for single parents to combine child care, training and a job.

Similarly, with people with disabilities there are many challenges in working without experiencing a period of poverty prior to gaining employment.
But as Henderson recognised, the fundamental problem with the categorical benefits system is that it stigmatises the Newstart person as someone who is ‘down on his or her luck’, a ‘no hoper’, not as a citizen with rights.

That is why it is important to reconsider the concept of a Guaranteed Minimum Income or Universal Basic Income as it is termed today.

The fundamental problem with Newstart is the conditionality of the payment betrays an attitude to the unemployed that they are not citizens with rights.
It is recognised that large amounts of investment are involved in designing and implementing systems of social protection.

The danger flowing from ‘razor gangs’ and ‘Expenditure Review Committees’ is that while they provide for rigorous scrutiny of expenditure outlays they do not provide the same scrutiny for tax expenditures.

I noted recently an estimate of tax expenditure supporting superannuation of $19 billion dollars that flowed from concessions to superannuants and the superannuation industry.
National savings are important however assuming that superannuation is providing retirement income, that together with the age pension is a massive commitment to one demographic while the unemployed are being given much less favourable treatment.

The objective of the Australian social security system was always to give the greatest protection to those most in need.

As the system fragments the danger is that we will find Government promoting greater inequality.
Adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support paymentsin AustraliaSubmission 413 As Bob Gregory concluded from his research, Ronald Henderson may just have been right: that Australia did need a standard that ensured that people forced to live without adequate income deserve, as citizens, a right to an income that insulated them and their families from poverty.
Australia is one of the wealthiest countries in the OECD with among the lowest support payments for the unemployed in that wealthy group of countries.

Australia benchmarks its economic performance against these countries.

This year marks the fiftieth anniversary of the commencement of the landmark Henderson enquiry.

Perhaps it might be time for a serious examination of Henderson’s proposals to create a fairer tax and social security system that does not discriminate against the poor.
Brian Howe Adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support paymentsin AustraliaSubmission 413