Australia Markets closed

How the government is failing Newstart recipients – and the economy

Newstart is failing the economy. Here's how. Source: Getty

Raising Newstart is one option that can boost the economy, RBA deputy governor Guy Debelle yesterday revealed, but the government is turning a blind eye.

While Minister for Social Services Anne Ruston dodged the topic of Newstart at the Australian Council of Social Services’ (ACOSS) conference yesterday, Debelle did not.

“There are a number of things which are out there which would provide stimulus to the economy – this [Newstart] is one of them.”

And the experts agree

Debelle’s comment echoes the stance of KPMG’s chief economist and partner, Brendan Rynne, who stated that raising Newstart had both economic and social benefits. 

“While Australia needed to cut back some areas of public expenditure which were adding to the deficit for little gain, there were other areas where investment would pay dividends in the long run. Raising Newstart was one of them,” Rynne stated.

“Why is this? We...argued – and continue to do so – that the low level of this payment was actually forming a barrier to employment, as it was insufficient to allow unemployed people to actively conduct a job search. So it was actually worsening the deficit in the long-run.

“The key here is that Newstart recipients are amongst the poorest people in society – so they spend, rather than save, almost all they receive. So while payments higher up the scale have more debatable value in terms of economic stimulus, there is no question that this policy will act as an effective fiscal stimulus by boosting the consumption side of the economy.”

Instead, Minister Ralston pointed to the government’s $180 billion spend on the welfare system.

"We want to give people the tools to overcome the challenges that life will inevitably throw up from time to time and to help them take ownership of their lives," the minister told the conference.

Is a job really the best form of welfare?

While the government may push that ‘a job is the best form of welfare,’ the RBA’s jobs data revealed that may no longer be the case.

The RBA deputy governor said lower-skilled workers have been left behind when it comes to jobs growth.

“Some have assumed that the jobs that have been created in recent years are lower-skilled or lower-paid jobs,” Debelle said. “However, when we break down the occupation-level data by skill type or pay level, this is not the case. The strongest growth in employment over the past decade has been in highest-skilled (as defined by the ABS) jobs.”

And Newstart recipients are feeling the crunch of a tightening job market.

Harriet, who spoke to Yahoo Finance earlier this year, revealed that though she had completed a Master’s in Public Health, she struggled to find work in Adelaide and Melbourne.

“I was relentlessly applying for about 10 months,” she told Yahoo Finance.

But forced into an entry-level organisation unrelated to her degree, she felt it was “dead-end”, and Harriet’s story is not uncommon.

Rental payments the biggest budget-eater

Affording the cost of living is tough for Newstart recipients, with rent being the biggest budget-eater.

Hobart is the least affordable city to rent in Australia for the second year in a row, followed by Adelaide, the latest Rental Affordability Index (RAI) data shows. 

But, the situation is far worse for those on Newstart, who spend 77 per cent of their pay on rent in every capital city. 

National Shelter executive Adrian Pisarski said there is not one place in Australia where Newstart recipients can rent affordably. 

“Newstart renters in metro Sydney require 4.5 times their current income to achieve affordability,” Pisarski said.

“The most affordable places we have are in regional SA, and even there someone on Newstart needs to pay 47 per cent of their income to rent. 

“The RAI evidence is conclusive: all Newstart recipients who are renting are living in poverty. The situation is only marginally better for single and dual pensioners who also face unaffordable rents everywhere in Australia.”

The situation is even more dire for older Australians – particularly women. 

“We know older women are the fastest growing cohort experiencing homelessness and we’d expect increased rates of homelessness among older people based on these findings,” Pisarski said.

And Conny Lenneberg, executive director of the Brotherhood of St Laurence, said: “Our social security safety net is letting down fellow citizens.

“There is an urgent need to raise Newstart and its very modest rental supplement and to increase subsidised social housing.”

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.