NewStart allowance gap grows wider

PENSIONERS can look forward to an extra $6.70 per fortnight when payments are adjusted this month unemployed Australians just $2.90.

By InvestSMART · 6 Mar 2012

By InvestSMART ·
6 Mar 2012

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PENSIONERS can look forward to an extra $6.70 per fortnight when payments are adjusted this month unemployed Australians just $2.90.

Treasurer Wayne Swan yesterday ruled out any immediate attempt to address the disparity between the pension and NewStart, which is widening with each half-yearly adjustment.

Once close to the pension, NewStart is now only two-thirds of it and is on track to amount to less than half of it by 2040.

The pension is indexed to male wages, typically climbing 4.5 per cent per year. NewStart and student and sole-parent allowances increase with the lower consumer price index, typically by 2.5 per cent per year.

Speaking to the National Press Club, Mr Swan acknowledged there was "a case about the gap that has opened up", but said: "How we can deal with that in the longer term is a difficult one given that the fiscal pressures and so on the government is facing."

Australian Council of Social Service chief Cassandra Goldie said NewStart was now so low, at $35 per day, it was hard for people on it to present themselves for jobs.

"There is a growing consensus ranging from business organisations, economists, the union movement, to the broad community and social services sector that the current rate is simply not enough and is hindering their efforts to find paid work," she said.

Asked whether the disparity would worsen for another 10 years, Mr Swan said he wouldn't make predictions and that his priority was getting people into jobs.

He offered no hope to veterans also wanting their military superannuation pensions indexed by male wages rather than the CPI.

"We said we would have an inquiry in 2007 and we did have an inquiry into indexation and that inquiry knocked it back," he said.

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Frequently Asked Questions about this Article…

What is causing the pension and NewStart allowance gap to widen?

The gap is driven by different indexation rules: the pension is indexed to male wages (typically about 4.5% a year) while NewStart is indexed to the lower consumer price index (CPI, about 2.5% a year). Those half‑yearly differences mean the pension rises faster than NewStart, widening the gap over time.

How much did pensioners and unemployed Australians receive in the latest payment adjustments?

According to the article, pensioners received an extra $6.70 per fortnight in the adjustment this month, while unemployed Australians on NewStart received an extra $2.90 per fortnight.

How big is NewStart compared with the pension today and in the future?

NewStart was once close to the pension but is now around two‑thirds of the pension. If current indexation trends continue it is on track to amount to less than half of the pension by 2040.

Why are NewStart and other allowances indexed to the CPI instead of wages?

The article explains that NewStart, student and sole‑parent allowances are linked to the consumer price index (CPI), which typically grows more slowly than wages. That policy choice is why those payments rise at about 2.5% a year rather than the higher wage‑linked rate.

What did Treasurer Wayne Swan say about fixing the NewStart–pension disparity?

Treasurer Wayne Swan acknowledged there was a case about the growing gap but ruled out any immediate attempt to fix it. He said long‑term solutions are difficult given fiscal pressures and that his priority is getting people into jobs; he also declined to predict whether the gap will worsen over the next decade.

How does the low NewStart rate affect jobseekers, according to social services groups?

Cassandra Goldie of the Australian Council of Social Service said NewStart is so low (about $35 per day) that it makes it hard for people to present themselves for jobs. She noted a growing consensus—from business groups, economists, unions and the social services sector—that the current rate is not enough and is hindering efforts to find paid work.

Were veterans’ military superannuation pensions changed to be indexed to wages?

No. The Treasurer offered no hope of switching veterans’ military superannuation pensions to male‑wage indexation. He noted a 2007 inquiry looked at indexation and rejected that change.

What is the government's stated priority for reducing unemployment and supporting NewStart recipients?

The government’s stated priority, as noted by Treasurer Swan, is to focus on getting people into jobs rather than immediately adjusting indexation arrangements for NewStart or the pension, citing the fiscal constraints the government faces.