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Community Affairs Legislation Committee

GRAY, Prof. Matthew, Director, Centre for Social Research and Methods, Australian National University

PHILLIPS, Mr Ben, Associate Professor, Centre for Social Research and Methods, Australian National University


CHAIR: I now welcome Mr Ben Phillips and Professor Matthew Gray. Thank you for appearing before the committee today. I note that we have had an opening statement circulated. Do you want to speak further to that, or will we go straight to questions?

Prof. Gray : Straight to questions.

CHAIR: Senator Siewert and Senator McCarthy, I'm confirming that you have received that opening statement via email? Okay, we'll go to Senator Siewert to start the questions.

Senator SIEWERT: Can you update your figures on the number of people who will be living in poverty when the payment drops to less than $44 a day? Do you have updated information on how it will impact on the rates of poverty in Australia?

Mr Phillips : We're doing modelling on that at the moment. I think it's fair to say that, with the increase from around $570 a fortnight to $620 a fortnight, there will be a small reduction in poverty in Australia. The numbers we're talking about at the moment are, roughly speaking—I don't have the exact figures in front of me; I can get that to senators if you're interested—that around four million people would be in poverty with the current situation we've got with elevated unemployment numbers. That would come down by roughly between 100,000 and 150,000 persons, so it's a small reduction in both poverty rates and poverty gaps. That's what we would be currently estimating. I'm happy to get the more precise numbers from our modelling to you. I don't have those exact numbers in front of me at the moment.

I guess the poverty rates that are of most interest at the moment, from the modelling that I've been doing and as I see it, are the sorts of poverty rates and poverty gaps we see for those whose main source of income is the JobSeeker payment—the allowances, as we sometimes call them. We're looking at a poverty rate at the moment for those groups, say pre-COVID, of around about 85 per cent—I think it was 83 per cent on our most recent numbers. I think, with the small increase, we're seeing that rate being reduced to around 80 per cent, so about a three percentage point reduction in the poverty rate. Poverty gaps are similar in terms of the relative magnitude of the reduction. When we were at the peak of COVID, say in around June 2020, where we had the $550 per fortnight supplement, our modelling suggested that the poverty rate would have been around the mid-20 per cent, so about a 75 percentage point reduction. That was a very significant reduction for those people whose main source of income is those allowances or the JobSeeker payments.

The overall reduction in poverty across the whole economy is obviously a lot smaller than that—we're only talking about a couple of percentage points—because most people in Australia are not currently on the JobSeeker payment. Of course, it has been elevated in recent months. I think that's where I would put that at the moment.

Senator SIEWERT: When you're looking at where the payment dropped by 75 percentage points, was that at the peak payment for the COVID supplements?

Mr Phillips : That's correct, yes. We would estimate that the pre-COVID poverty rate for people on the unemployment payment, or the JobSeeker payment, was about 80 per cent or thereabouts. When the JobSeeker supplement, the COVID supplement of $550 per fortnight, was added, that number reduced and about 25 per cent of those persons were now in poverty. So there was a very, very significant reduction in the poverty rate. Of course that was entirely driven by the JobSeeker payment increasing from $565 per fortnight to around $1,115 per fortnight, which is some way above the poverty line as we measure it.

Senator SIEWERT: In terms of the stepdown of the payment, did you have an opportunity to look at the impact on poverty rates then?

Mr Phillips : Yes. For the people who were on that payment prior to COVID, basically it returns to the previous rate. With the slight increase we have seen in the JobSeeker payment by $50 a fortnight, there is a small reduction in that poverty rate. So, instead of it being around 83 per cent, it has come down to about 80 per cent. That shouldn't be surprising, because the payment is still well below the poverty line and so most households who rely on that payment will still be in poverty regardless. From the current rate, or where it will be going, of $620 a fortnight, you'd need to increase it to at least $850 to get a really significant reduction in the poverty rate.

Senator SIEWERT: Sorry, could you say that again? You'd need to increase it to—

Mr Phillips : If you wanted to get a really material reduction in the poverty rate, the JobSeeker payment would need to be at a rate that's closer to the poverty line or indeed above the poverty line. There are various different measures of what the poverty line is. If you use the half-median measure, which many researchers in Australia tend to use, you're looking at a figure of around $850 per fortnight or a little bit above that, depending on exactly how you measure it. Just using that as a baseline, you'd need to increase the payment by $250 per fortnight or a little bit more. That would get most people who are on that payment at least to the poverty line or a little bit above the poverty line and you would get a very significant reduction in the overall poverty rate. It's a little more complicated because the poverty analysis we do is at the household level; it's not necessarily for individuals. Some individuals are the household; in other households you might have a group house situation or you might have a couple with kids or a single parent. It becomes a little more complicated. But I think it's fair enough to say that, if you increase the payment by, say, $250 per fortnight, the poverty rate will decline very, very significantly. It would go from being around 80 per cent to being somewhere around 25 to 30 per cent. That is a little bit closer to where the rest of the population is. The rest of the population has a poverty rate somewhere around 13 to 14 per cent in normal times. So it's still well above that rate, but it's getting down to a level that's more closely aligned with other welfare payments, such as the parenting payment single or disability support. It would still be higher than the age pension. The poverty rates are a little bit lower for the age pension.

Senator SIEWERT: The Prime Minister is justifying this increase by saying it takes it back to where Newstart was at the end of the Howard government, with a benchmark of 41.2 per cent of minimum wage for JobSeeker. Can I please ask you to comment on tying it to that payment and the fact that it's going back quite a long way, tagging it to the minimum wage.

Mr Phillips : I think since the GFC, which was around 2008, there hasn't been a particularly large increase in wages relative to the CPI. So things haven't changed dramatically over that period. Most of the problem with regard to the gap between Newstart and, say, wages or community living standards, as we call it in some of our research, really happened prior to the GFC, in the 1990s and in the 2000s. I don't doubt the numbers. I'm sure that they're correct. If you go back to around 2007, when John Howard was last Prime Minister, that's probably about right. But I think most of the issue really happened when we had very strong growth in the economy in the previous two decades before that. That's where that wedge really developed significantly.

Prof. Gray : I'll just add that the long-term problem is indexation to CPI, rather than wages, so an increase of $50 a fortnight, because of how wage growth returns above CPI have been over the longer term, will very quickly be eroded.

Senator SIEWERT: So what should we then be setting or using as the benchmark?

Prof. Gray : What the rate is in the end requires a trade-off and a value judgement. If we go back to 1993, I think that the unemployment benefit was about 90 per cent of the single rate of the age pension. When we've done modelling and asked the question, 'If you did not change expenditure on the social security payment, how would you adjust the relativities between the payments in order to minimise poverty?' We got an estimate of increasing the unemployment benefit to about $830 per fortnight. So it's rather similar to what it was in 1993 and, as indicated, that's getting close to what a conventional relative poverty line would be. It would lead to very significant reductions in financial hardship and stress.

Senator SIEWERT: I want to go to the issue where there's a lot of commentary about the increased payment decreasing people's willingness to look for work. My reading of Professor Borland's work is that that's in fact not the case. I'll ask whoever wants to take the question about your view on those comments—that the high rate decreases people's willingness to look for work.

Prof. Gray : It's important to consider workforce incentives, but the rate has fallen so far relative, for example, to the minimum wage, that it's difficult to see how a substantial increase—and, certainly, $50—could have an impact, really, on incentives to work. Even if there were much more substantial increases—even if it were increased to something around $800 or higher—it would still be well below people in the labour market.

I think that the relaxation of the income test, which is designed to increase incentives to take part-time employment and get a foothold in the labour market, is probably a positive thing. I think that what the evidence shows is that sometimes people are concerned about making that transition into very part-time, insecure employment. They're worried about what the implications of that might be for their benefit. But, certainly, if you could move into employment you would be in a much stronger financial position than on JobSeeker, even with an increase of more than $50 per fortnight.

Mr Phillips : I'll make another point. If you go back to the early 1990s I think that the JobSeeker payment, or whatever it was called at the time, was around 55, 56 or 57 per cent of the minimum wage. Currently, I think it's about 42 per cent—

Prof. Gray : It's 37—

Mr Phillips : It's 37 per cent with the old rate. With the new rate at $620 I think it's in the low 40s. We actually found that back then there were shorter durations on the welfare payment—the Newstart payment or the JobSeeker payment.

There are other things which complicate that story. I think that in recent decades we've seen a larger share of, say, single parents who have been on that payment and who we would expect to be less likely to find employment. And also there are probably fewer people on disability support payments and more people on the JobSeeker payments, and that's muddied the waters. But I still think that at the relatively more generous JobSeeker amount back in the early 1990s, we were finding the durations on those unemployment payments wasn't that dramatic and that they were actually shorter than what we have today.

Prof. Gray : There is in fact some evidence that if benefits become too low then someone can get into a vicious cycle which, while people may have a stronger financial incentive to find employment, can in fact make it harder—especially the longer they're on benefits.

Senator SIEWERT: Can I ask you to comment on the issues around poverty and housing stress, in terms of how the coronavirus supplement impacted on housing stress? What's your view on the payment when it goes back to $25 a week?

Mr Phillips : I think it's a very similar story. I think, with the housing stress numbers that we do modelling of, we find very similar results to what we get with, for example, the poverty rate or the poverty gap. When you add a lot more money into the system, as was relatively generously done in 2020 at the peak of COVID, with the additional $550 per fortnight, there was absolutely a very large reduction in poverty gap, poverty rate and housing stress numbers, particularly for those who were low-income renters, which I think would be my main concern around housing affordability issues in Australia. And, of course, when you go the other way and you take away the large supplement—the $550 COVID supplement—and return it to more normal levels or more typical levels of the JobSeeker payment, of course housing stress numbers do go right back up again. For a low-income renter household, once you take out their rent amount—you might add a little bit in for, for example, the rent assistance amount, which is up to about $130 per fortnight—you're still finding that there's not a lot of money left over and they'll certainly still be in poverty, be that 'after housing poverty', as we call it, or another measure, which is housing stress, which some other researchers would also use.

Senator SIEWERT: I have a supplementary question. It's about the timing of the reduction in the payment and rental deferrals and mortgage holidays coming to an end at virtually the same time.

Prof. Gray : It's a good question. It's going to depend very much on what happens to the economy as the level of fiscal stimulus is withdrawn. Certainly research we've done has shown that—and I don't have the figures in front of me—there was a substantial minority of renters who did receive rental breaks and deferrals in their mortgage payments. My understanding is that, given the economy has been, in my view, remarkably robust and has not been as bad as was feared, but, yes, the extent to which—there must be some concerns about and a balance needs to be struck about the withdrawal of the different levels of additional support or the reduction in the additional levels of support that have been provided, or other not necessarily direct financial assistance but reductions. Of course, it's complicated, because landlords also require rental income and so on. They have their own mortgages. Many of them are older people, for example; it's an important part of their income. And it's important for our financial institutions that they also are able to remain robust. So there's obviously got to be a balance struck, but I do have some concerns about what might happen.

Senator SIEWERT: Thank you.

CHAIR: Just before I go to Senator McCarthy, you mentioned during your discussion—I just wanted you to elaborate a little bit further on the indexation. You've talked about doing it in a revenue-neutral way, to go back to the way previously. Back in 2009, the ALP changed the indexation for pensions but not for allowances. Now you're sort of talking about reversing that and doing it in a revenue-neutral way. Could you elaborate a little bit more on that? Would that then necessitate reducing the pension to facilitate it? How much by?

Mr Phillips : Yes. There are multiple ways you could, of course, do this. With the modelling work that we did, we did a range of scenarios. One of those scenarios is: if you weren't wanting to change the overall welfare or social security expenditure in Australia, if you increase the Newstart payment, as it was called previously, or the JobSeeker payment, that obviously necessitates a need for reduction in other areas. Politically, that is, of course, very challenging to do. The obvious place where you would go with that, or where our modelling suggests you would go with that—and it's not necessarily something that I'm advocating or that we're advocating, but it is the outcome of our modelling—is that the age pension is the area where poverty rates, poverty gaps and financial stress tend to be lower, and also there are a lot of people on it. Most people in the social security system, of course, are on the age pension, not the JobSeeker payment. I think there are about 2½ million on the age pension, whereas in normal times there are only about 700,000 people on the JobSeeker payment.

Prof. Gray : The model also suggests, interestingly, that you'd probably reduce PP(S).

Mr Phillips : Yes.

Prof. Gray : That's parenting payment (single).

CHAIR: Interesting. I don't think that one's going to fly. The only other question I had was about property.

Prof. Gray : Just to be clear, though, we're not necessarily suggesting it should be done in a revenue-neutral way. Our modelling would say that, if your objective is to reduce poverty, that's what you would do.

CHAIR: Just on that, could you clarify what you mean when you're talking about poverty—the definition.

Prof. Gray : Yes.

CHAIR: Obviously, there are a lot of different definitions out there, so in what capacity are you talking about poverty?

Mr Phillips : The work that we've done in the past was looking at the poverty gap. The poverty rate is one measure, and that's just where you're looking at less than half of the median disposable income for households across Australia. The gap measure we use looks at, I guess, the depth of poverty. An age pensioner may, for example, be $1 below the poverty rate—the poverty line, I should say—and our modelling would suggest that's not nearly as bad as being under the poverty line by, say, $200 per week, which many people on allowances are. So we account for the depth of poverty that many households face.

New research that we're doing at the moment with a group called Social Ventures Australia is looking at this in a different way, and that's looking at financial stress. That's looking at things like whether you are skipping meals because you can't afford to pay for those meals or whether you can't afford to pay electricity bills or heating costs because of a lack of money. This is another way of looking at it. That's something we're looking into at the moment. It's a different way of looking at it.

But, in terms of poverty, it's just the standard half-median measure that we're using, and we're using a gap measure, because we would expect that the depth of poverty is as important as—or, indeed, probably more important than—the actual rate of poverty.

CHAIR: Excellent. I will go to Senator McCarthy. I've just realised we are running very short on time.

Senator McCARTHY: Professor Gray, can I just go back to some things that you said in response to Senator Siewert, just to understand a little bit more. Are you saying it's better to leave the income-free area at $300 rather than reduce it to $150? I believe it was you.

Prof. Gray : My reading of the evidence is that there can be some issues with people who have been on unemployment related benefit, particularly for a longer term, moving into the labour market. One way of trying to address that is to increase the financial incentive for taking up a short-hours low-paid job and hence retaining more of the benefit. So I think that there is some evidence to support creating financial incentives for people to make that sort of first step into employment, because there is also evidence that, once you get a foothold, that can build confidence, build a CV, build work related skills and hence lead to moving into more hours of work or a better job.

Senator McCARTHY: So what do you think may happen to long-term unemployment payments? I'm just trying to understand where you're going with your thinking on that.

Prof. Gray : Sorry, I didn't quite understand the question about long-term unemployment payments. I think that unemployment benefits are likely, as far as I can see, to remain at a relatively low level, as they are in most countries, so therefore you want to make sure there's incentive for people to move into paid employment. You also need to balance that against making sure there's sufficient income to have their basic needs met. So I think there's some evidence to support the view that measures to increase the financial incentives to take up even part-time employment have longer-term beneficial effects in trying to reduce the likelihood of people becoming long-term unemployed.

Senator McCARTHY: Okay. I am conscious of time, so these next questions can go to any of you. How many people do you expect will lose their job when JobKeeper ends in March?

Mr Phillips : I have not done any modelling on that. It's a concern that I have. I forget the exact number of people on JobKeeper at the moment; it might be in the order of a million people, or a little bit over. I think Treasury has done modelling that suggests that 100,000 people would move into the JobSeeker category. Jeff Borland from the University of Melbourne did some research that suggests it might be a little bit higher. I have not personally done modelling on that. It's a concern, but I don't have a number for you, I'm sorry to say.

Senator McCARTHY: Have you done any modelling on how many will end up on unemployment benefits?

Mr Phillips : My response would be the same: I've not done modelling of people transitioning from JobKeeper to JobSeeker. No doubt some will, but the exact number I'm not sure of, and I suspect any modelling of it would be quite speculative, to be frank. Whether it's Treasury doing that or whether it's academics or anyone else, it's a difficult area to model.

Senator McCARTHY: Do you think there will be a problem with long-term unemployment? Will it get worse post pandemic?

Prof. Gray : The evidence from past economic downturns is that, while the unemployment rate can come down relatively quickly, you do have a problem of long-term unemployment and that can take a lot longer to come down. So measures to help people retain connection to the labour market and move back into employment and to prevent them from becoming long-term unemployed are very important to preventing long-term, scarring effects and a ratcheting up of the unemployment rate over time.

Mr Phillips : I would add that the evidence from this current recession is that it has been a bit of a V-shaped recovery. That has not been the case for everybody, but we have returned quite quickly. We've done better than in previous recessions. Hopefully that continues. But I think there will be particular markets around the country—say, areas where there's a large employment base of tourism—where this may not be the case and where there will be specific regional issues.

Prof. Gray : And older workers too.

Mr Phillips : Yes.

Senator McCARTHY: I know you haven't done the modelling on how many are expected to lose their job when JobKeeper ends, but are there enough jobs for everyone who needs one?

Prof. Gray : Well, there's unemployment in the economy, and it would appear to be more than just frictional unemployment, where people are moving between jobs—'frictional' is the wrong word for it, but you always have a level of unemployment, between the people entering the labour market and the people changing jobs. So there is a problem, and there are quite significant numbers of discouraged or marginally attached workers—people who don't have a job and would like a one but are not actively looking, quite often because they think the prospects of finding a job are very low.

Mr Phillips : Also on that point, increasingly the JobSeeker payment has a larger share of people who have what's called a partial capacity to work, including single parents and older workers. Even though there may well be jobs, it's difficult for them to get jobs. There are structural barriers in their life to getting employment. So I think that's another thing that needs to be taken into account. There are also regions where there are much higher rates of unemployment than, say, in the middle of a CBD area. It's a complicated matter. It's not a matter of simply saying, 'Across Australia there are X number of jobs and Y number of people who are unemployed.' It's a lot more complicated than that, and for some people it's a lot more challenging to find work because their own circumstances are quite challenging. That's one of the big issues with the JobSeeker payment. Increasingly, you have more people in this situation. It's much more challenging for some of them to get paid employment, and, even where they can, it's often only for a very small numbers of hours. At the current rate, unfortunately, they will be stuck well below the poverty line, potentially for many, many years. Ideally that wouldn't be the case, but that's how it is in Australia.

CHAIR: Thank you. There have been no questions taken on notice. Thank you very much for your time today and for giving evidence.