Strengthening Income Support Bill 2021 | NYCA Submission

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Strengthening Income Support Bill 2021 | NYCA Submission

Introduction

 

The National Youth Commission Australia (NYCA) welcomes the opportunity to comment on the Social Services Legislation Amendment (Strengthening Income Support) Bill 2021. It is the Commission’s view that the changes to income support payments arising from the Bill are completely inadequate.

 

This submission addresses Parts 1, 3 and 4 of the Bill. It then proposes a complete revision of the income support system for young people via a Youth Income Guarantee.

 

Part 1 of the Bill – Increasing working age payments

 

The proposed increase of $50 per fortnight to Jobseeker Payment, Youth Allowance, Austudy, and Parenting Payment is completely inadequate and will force income support recipients to again live in poverty. People reliant on income support will now be forced to choose between paying for food, rent or medicine. Their health and wellbeing will suffer. Their ability to gain work will be reduced, even as the economy recovers, because they will lack the resources to meet the costs of searching for work (e.g. phone, internet, and travel costs).

 

In announcing the meagre increase to Jobseeker post-March 2021 the Prime Minster lauded that it equated to 41% of the national minimum wage and was commensurate with what it was during the Howard era.   It was inadequate than and it is inadequate now. It certainly doesn’t make for a sophisticated way of determining what the rate should be.

 

The NYCA believes that a budget standards method to calculate the minimum income for healthy living should be used to determine the level of income support for young people. In 2016, the Social Policy Research Centre at the University of NSW estimated that a single adult on Newstart required around $866 per fortnight to cover the minimum cost of healthy living. Indexing that in the same manner as the Aged Pension results in $965 per fortnight being the income required to cover the minimum cost for healthy living for an unemployed single adult in January 2021.

 

Young people’s income support should be comprised of a base rate of support and incentive payments to encourage participation in education, training and/or effective job search activities. Combined, the base rate and incentive payments should match or exceed the minimum cost of healthy living.

 

The Commission proposes that the base rate should be set at 85 per cent of the minimum income for healthy living for an unemployed single adult. As at January 2021, this is around $820 per fortnight for young people living away-from-home or who are independent. Setting the base rate at 85 per cent of the minimum income for healthy living when combined with incentive payments should ensure that young people who rely on income support for long periods do not become impoverished and suffer from ill-health, particularly poor mental health.

 

The at-home rate should be set at a sufficient level to meet expenses but not too low to provide an incentive to unnecessarily leave the family home. The current at-home rate of Youth Allowance is 55 per cent of the away-from-home rate. This relativity should not change. The at-home rate should be set at 55 per cent of the away-from-home and independent rate or $450 per fortnight.

 

Participation incentive payments should be in addition to the base rate. This payment applies when young people undertake accredited education or training or undertake activities as determined with an employment service. Setting the incentive payment at 30 per cent of the away-from-home and independent rate would exceed the gap between the base rate and the minimum income for healthy living. This would be a profound shift in design, away from punishment for non-compliance to explicit rewards for participation.

 

Part 3 of the Bill – Ordinary waiting periods

 

The ordinary waiting period of one week should be permanently abolished. Any waiting period introduces significant uncertainty to young people seeking to gain a foothold in a precarious labour market. Many jobs young people gain are casual or jobs in the gig economy and so can end at any time. Having a waiting period for income support if a job ends unexpectedly increases uncertainty and reduces the incentives to undertake casual or gig employment.

 

Part 4 of the Bill – Income free areas and taper rates

 

The income free area applying to unemployed income support recipients proposed in the Bill is far too low. The low-income free area is a disincentive to seek work. Increasing the income free area to $437 per fortnight, the same rate as students on Youth Allowance, will provide a better incentive to work.

 

The existing income test cuts in when young people begin to pay income tax, reducing the rewards from work. The combined effect of income test taper rate and income tax is the ‘effective marginal tax rate’. The taper rate at 50-cents in the dollar plus the actual marginal tax rate of 19 cents for incomes over $18,000 per year creates an effective marginal tax rate of 69 cents above the income free threshold. The effective tax rate becomes 79 cents in the dollar at the 60-cent taper rate. These are higher than the top marginal tax rate of 47 cents applied to annual incomes over $180,000. At a minimum the higher taper rate of 60 cents in the dollar should be abolished.

 

The proposed Youth Income Guarantee

 

 As currently designed, Australia’s social security system provides neither security, nor appropriate incentives and support for young people to pursue education or employment. Australia needs a different model of income support that is simple, coherent and provides adequate support for young people trying to find a foothold in a casualised and uncertain labour market.

 

The Commission is proposing a Youth Income Guarantee, a single income support payment for 16 to 24-year-olds comprised of a base rate of payment plus incentive payments for participation in education, training and job search. It provides sufficient support for those who need short-term help between full-time jobs and those who need to rely on payments for several years or more. It recognises that even if young people on income support work part-time, those part-time jobs are often low-paid and insecure and do not necessarily guarantee a path to secure, well-paid employment.

 

The proposed Youth Income Guarantee provides incentives to study or undertake other activities than enhance employment prospects. Education, training and other activities will enhance the employment prospects of young people.

 

A single payment for young people would ensure that they are better prepared for employment, encourage greater use of incentives for work or study, reduce youth poverty, reduced youth homelessness and lower debt amongst young people.

 

The Commission will be releasing a more detailed proposal for the Youth Income Guarantee in the near future.

 

Conclusion

 

The increases to payment rates proposed in the Social Services Legislation Amendment (Strengthening Income Support) Bill 2021 are completely inadequate and will entrench poverty among income support recipients. These rates should be increased substantially. The changes to the income tests are also inadequate. The income free area should be raised and the 60 cents in the dollar taper rate abolished.

 

The whole income support system for young people needs to be completely revised. The Commission’s proposed Youth Income Guarantee will re-design the youth income support system to respond to the economic and social challenges now facing young people for employment in a post-COVID-19 Australia. Fair and equitable income support arrangements with strong incentives for education and employment would be the mainstay of the system, complemented by effective supports and services for those who need them. It is part of a suite of strategies that combine to create the Youth Futures Guarantee and a stronger future for all young people in Australia.

 

Keith Waters

CEO

Youth Development Australia, and

National Youth Commission Australia

4th March, 2021

The Youth Futures Guarantee

 

The Youth Futures Guarantee lays out a framework of reforms and initiatives that will support young people meet the challenges of the future, but these also benefit Australian businesses and the wider Australian community. The Guarantee consists of nine pillars reflecting the priority concerns expressed to the Commissioners at public hearings, community consultations, in submissions and during the Youth Futures Summit:

 

  • Education and training
  • Job creation
  • Employment services
  • Income security
  • Housing and homelessness
  • Health and wellbeing
  • Transport
  • Local community support
  • Climate justice

 

Within each pillar the Commission has identified contributions from governments, Not for Profit organisations, businesses and communities that will improve the lives of young people and assist in their transition from adolescence to adulthood. The income support system has a key role to play and not just in improving income security for young people. Well-designed income support arrangements underpin success in all areas such as education, training, employment, housing, health and wellbeing.

 

About the National Youth Commission Australia’s Inquiry into Youth Employment and Transitions

 

The National Youth Commission Australia’s (NYCA) Inquiry into Youth Employment and Transitions was launched in March 2019 to develop ideas on how young people could be better prepared and supported in their transition from school to work, now and in the future.

 

The Inquiry heard from 1,200 individuals and organisations at public hearings and community consultations across all states and the Northern Territory over a total of 47 days. Of the 1,200 people who Commissioners and workshop leaders met face to face, more than half were young people of school age or in early adulthood, both in and out of the workforce. The Commission also convened focus groups with young people late in 2020 to gather information on their experiences of income support.

 

The Commission convened the Youth Futures Summit in August 2020, which brought together over 1,000 participants in a week-long virtual event to discuss some of the biggest issues facing young people in 2020. Participants included young people, educators, employers, community service workers and policy makers from around Australia. The Inquiry’s interim findings report, What Future?, and the proposed Youth Futures Guarantee were released during the Summit.

 

 

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