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Changes to the COVID-19 social security measures: a brief assessment



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ISSN 2203-5249

RESEARCH PAPER SERIES, 2020-21 30 JULY 2020

Changes to the COVID-19 social security measures: a brief assessment Michael Klapdor

Social Policy Section

Executive summary • On 21 July 2020 the Government announced changes to the income support measures

introduced in response to COVID-19, including:

- a reduction in the Coronavirus Supplement amount from $550 to $250 per fortnight

- changes to the JobSeeker Payment and Youth Allowance (Other) income tests and

- the end to some temporary eligibility changes.

• Lowering the Coronavirus Supplement rate will reduce the level of assistance available to

several million income support recipients and will take effect during the final quarter of 2020. Based on Government estimates, there is a risk that this may coincide with a peak in unemployment levels.

• The lower rate of the supplement will reduce the work disincentive arising from the design of

the payment.

• The new income test will allow JobSeeker Payment and Youth Allowance (Other) recipients to

earn more income before their payment rate is reduced under the income test.

Changes to the COVID-19 social security measures: a brief assessment 2

Contents

Executive summary ........................................................................ 1

Introduction ................................................................................... 3

Background to the COVID-19 Economic Response social security measures ....................................................................................... 3

Proposed changes .......................................................................... 4

Table 1: changes to COVID-19 Economic Response social security measures ........................................................................................... 4

Changes to the income test ............................................................ 5

Impact on payment rates .................................................................... 5

Figure 1: JobSeeker Payment rate under the current and proposed income tests and Coronavirus Supplement rates (single, no dependent children) .......................................................................... 6

Impact on disposable income ............................................................. 6

Figure 2: net disposable income under current and proposed JobSeeker Payment income test and Coronavirus Supplement rates (single, no dependent children, no private health cover) ................ 7

Will the changes require legislation? .............................................. 7

Cost of the measures ...................................................................... 8

Impact of the changes .................................................................... 8

Changes to the COVID-19 social security measures: a brief assessment 3

Introduction On 21 July 2020 Prime Minister Scott Morrison and Treasurer Josh Frydenberg announced changes to the income support measures introduced in response to COVID-19.1 This Research Paper examines the announced changes to the social security measures, which include a reduction in the Coronavirus Supplement amount from $550 to $250 per fortnight, changes to the JobSeeker Payment and Youth Allowance (Other) income tests, and the end to some temporary eligibility changes. The changes will have the effect of both reducing the level of assistance available to several million income support recipients, as well as reducing some of the current work disincentives arising from the design of the measures introduced in response to COVID-19.

Background to the COVID-19 Economic Response social security measures In March 2020 the Government announced two packages of measures as part of its response to the COVID-19 pandemic. The social security measures included in these packages included:

• two $750 lump sum payments to some social security and veterans’ payment recipients 2

• a Coronavirus Supplement of $550 per fortnight to recipients of JobSeeker Payment, Parenting

Payment, Youth Allowance, Farm Household Allowance, Special Benefit, Partner Allowance, Widow Allowance and student payments and3

• improved access to income support through changed eligibility criteria for JobSeeker Payment

and Youth Allowance; and the waiver of the assets tests and some waiting periods for certain payments.4

On 30 March the Government also announced a relaxation of the partner income test, lowering the rate at which payment rates are reduced due to partner income.5

In response to the pandemic, the Government suspended mutual obligation requirements, such as job search requirements, for certain payment recipients until 8 June 2020.6

The economic impact of COVID-19, combined with the measures to expand eligibility to social security, saw the number of people in receipt of the main income support payments for the unemployed (JobSeeker Payment and Youth Allowance (Other)) double from around 820,000 in December 2019 to 1,640,000 at the end of May 2020.7 At the end of June 2020, a total of around 2.2 million social security payment recipients were receiving the Coronavirus Supplement.8

1. S Morrison (Prime Minister) and J Frydenberg (Treasurer), Transcript of press conference: Australian Parliament House, media release, 21 July 2020. 2. M Klapdor, ‘COVID-19 Economic response—social security measures part 2: $750 lump sum payments’, FlagPost, Parliamentary Library blog, 23 March 2020. 3. M Klapdor, ‘COVID-19 Economic response—social security measures part 1: temporary supplement and improved access to

income support’, FlagPost, Parliamentary Library blog, 23 March 2020. 4. Ibid. 5. S Morrison (Prime Minister) and J Frydenberg (Treasurer), $130 billion JobKeeper Payment to keep Australians in a job, media

release, 30 March 2020. 6. M Cash (Minister for Employment, Skills, Small and Family Business) and A Ruston (Minister for Families and Social Services), COVID-19 mutual obligation arrangements extended, media release, 27 March 2020; M Cash (Minister for Employment, Skills,

Small and Family Business) and A Ruston (Minister for Families and Social Services), Gradual return of mutual obligation requirements, media release, 31 May 2020. 7. M Klapdor and C Giuliano, The impact of COVID-19 on JobSeeker Payment recipient numbers by electorate, Research paper series, 2020-21, Parliamentary Library, Canberra, 14 July 2020, p. 6. 8. Senate Select Committee on COVID-19, Answers to written Questions on Notice by the Department of Social Services, Question

reference number SQ20-000498.

Changes to the COVID-19 social security measures: a brief assessment 4

Proposed changes Table 1 sets outs the measures announced in the previous packages and the changes to these measures announced on 21 July 2020.

Table 1: changes to COVID-19 Economic Response social security measures COVID-19 Economic Response social security measures Changes announced 21 July 2020

$550 per fortnight Coronavirus Supplement for selected payment recipients paid from 27 April to 24 September.

Reduced to $250 per fortnight from 25 September until 31 December 2020.

Expanded eligibility criteria for JobSeeker Payment and Youth Allowance (Other) to allow stood-down permanent employees and sole traders, casuals and contract workers with reduced work to qualify. Criteria apply from 23 March to 24 September.

Will remain in place until 31 December 2020.

Waiver of the assets test for JobSeeker Payment, Parenting Payment, Youth Allowance, Austudy and ABSTUDY Living Allowance from 23 March to 24 September.

Reinstated from 25 September 2020.

Waiver of the Liquid Assets Waiting Period for JobSeeker Payment, Youth Allowance and Austudy from 23 March to 24 September.

Reinstated from 25 September 2020.

Those in receipt of a payment prior to 25 September will not have to serve any potential waiting period when it is reinstated—only new claimants from 25 September.

Waiver of the one-week Ordinary Waiting Period from 12 March to 24 September. Will remain in place until 31 December 2020.

Reduction in the amount by which payment rates are reduced (the taper rate) for partner income from 23 March to 24 September.

Will remain in place until 31 December 2020, but taper rate will increase from 25 September 2020: from 25 cents for each dollar of partner income over $996 per fortnight, to 27 cents for each dollar of income over $1,165 per fortnight.

Waiver of the Newly Arrived Residents Waiting Period for JobSeeker Payment, Youth Allowance, Austudy, Parenting Payment, Special Benefit and Farm Household Allowance (the waiting period is usually four years for these payments) from 23 March to 24 September.

Will remain in place until 31 December 2020.

Waiver of the Seasonal Worker Preclusion Period from 23 March to 24 September. Will remain in place until 31 December 2020.

Changes to the COVID-19 social security measures: a brief assessment 5

COVID-19 Economic Response social security measures Changes announced 21 July 2020

Suspension of mutual obligation requirements from 24 March to 8 June. Modified requirements were reintroduced from 9 June 2020.

From 4 August 2020 jobseekers will be required to participate in appointments with jobactive providers, agree to a Job Plan, undertake job search and other activities if safe to do so. However, payment suspensions and financial penalties will not apply except where a jobseeker refuses an offer of suitable employment (in which case their payment will be cancelled).

Sources: Department of Social Services (DSS), ‘Coronavirus (COVID-19) information and support’, DSS website, last updated 21 July 2020; Australian Government, Extension of additional income support for individuals, Fact sheet, The Treasury, last updated 21 July 2020; S Morrison (Prime Minister), J Frydenberg (Treasurer) and A Ruston (Minister for Families and Social Services), JobKeeper payment and income support extended, media release, 21 July 2020; Australian Government, ‘Advice about COVID-19 coronavirus’, JobSearch website, last updated 24 July 2020; M Cash (Minister for Employment, Skills, Small and Family Business) and A Ruston (Minister for Families and Social Services), Gradual return of mutual obligation requirements, media release, 31 May 2020.

Changes to the income test Further to these changes, the Government announced a new measure to allow recipients of JobSeeker Payment and Youth Allowance (Other) to earn more private income before their payment rate is reduced under the income test. From 25 September to 31 December 2020, the income-free area (the amount of income a person can earn before their payment rate is reduced) will increase from $106 per fortnight for JobSeeker Payment and $143 for Youth Allowance (Other) to $300 per fortnight. A person’s fortnightly payment rate will be reduced by 60 cents for each dollar of income over $300.9

The change will allow these payment recipients to earn more income before having their payment rate reduced and will increase the income cut-off point at which a person’s JobSeeker Payment or Youth Allowance (Other) rate reaches zero under the income test. This is significant because the Coronavirus Supplement is not included in the income-tested rate—an individual can receive the full supplement amount as long as they receive even a small amount of the qualifying payment.

Impact on payment rates Figure 1 compares the current income test arrangement with the model proposed to take effect from 25 September 2020. It shows the total amount of income support payable to a single JobSeeker Payment recipient with no dependent children at different levels of private income.

Figure 1 shows that the current model provides a higher level of support until the income test reduces the payment rate to zero (when private income is just under $1,100 per fortnight) but the proposed model will allow for a higher level of private income before the person loses eligibility for JobSeeker Payment.

9. S Morrison (Prime Minister), J Frydenberg (Treasurer) and A Ruston (Minister for Families and Social Services), JobKeeper payment and income support extended, media release, 21 July 2020.

Changes to the COVID-19 social security measures: a brief assessment 6

Figure 1: JobSeeker Payment rate under the current and proposed income tests and Coronavirus Supplement rates (single, no dependent children)

Notes: Based on payment rates as at July 2020. Rate includes Energy Supplement and applicable Coronavirus Supplement rate (but excludes Rent Assistance and other supplementary payments payable in some circumstances). Source: Parliamentary Library estimates.

Impact on disposable income Figure 2 shows the estimated effect of the proposed income test on a single JobSeeker Payment recipient’s net disposable income at different levels of private income (including the impact of tax and the income test). It shows that the current design of the Coronavirus Supplement creates significant disincentives to earn private income beyond the point at which no JobSeeker Payment rate is payable—an individual would have a much lower disposable income overall if they earned $1,100 in private income than they would if they only earned $1,000 in private income. This is not due to the high rate of the supplement, but the fact it is excluded from the income test and does not gradually taper off as private income increases.

Figure 2 shows that the proposed model still maintains this disincentive but that there is a less dramatic drop in income due to the proposed lower rate of the supplement. The proposed model also allows for a slightly higher level of private income before a person loses eligibility for JobSeeker Payment.

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$ JobSeeker Payment rate (per fortnight)

$ Private income (per fortnight)

Current Proposed

Changes to the COVID-19 social security measures: a brief assessment 7

Figure 2: net disposable income under current and proposed JobSeeker Payment income test and Coronavirus Supplement rates (single, no dependent children, no private health cover)

Notes: Based on payment rates as at July 2020. Rate includes Energy Supplement and applicable Coronavirus Supplement rate (but excludes Rent Assistance and other supplementary payments payable in some circumstances). Source: Parliamentary Library estimates.

Will the changes require legislation? The changes may be implemented through legislation or through legislative instruments made by the Minister for Families and Social Services. Changes made via legislative instrument do not have to be passed directly by both Houses of the Parliament but they can be vetoed (disallowed) by the House of Representatives or the Senate.10

The Coronavirus Economic Response Package Omnibus Act 2020 included amendments to allow the Minister to make certain changes to the Coronavirus Supplement via legislative instrument. Changes that can be made without legislation include setting a different rate for the supplement and extending the period the supplement is paid—by up to three months at a time.

Separate provisions in the Coronavirus Economic Response Package Omnibus Act 2020 provided broad powers to the Minister for Families and Social Services to change any qualification criteria and any payment rate for any social security payment via a legislative instrument.11 These powers will expire on 31 December 2020. The proposed changes to the income test and to the partner

income test could be implemented using these powers.

10. The Senate, ‘19: Disallowance’, Guides to Senate Procedure, The Senate, Canberra, last reviewed June 2019. 11. M Klapdor, ‘COVID-19 Economic response—social security measures part 1: temporary supplement and improved access to income support’, op. cit.

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$ Net disposable income (per fortnight)

$ Private income (per fortnight)

Current Proposed

Changes to the COVID-19 social security measures: a brief assessment 8

Cost of the measures In the Economic and Fiscal Update released on 23 July 2020, the Government set out the total cost of all the social security measures announced in response to COVID-19, including the changes described in Table 1 and the new income test arrangements: $18.8 billion.12 The two lump-sum payments of $750 to certain payment recipients are estimated to cost an additional $9.4 billion.13

Impact of the changes The Prime Minister, Treasurer and Minister for Families and Social Services stated in a joint media release that the extended and reduced Coronavirus Supplement ‘reflects the gradually improving economic and labour market conditions and is designed to ensure there are appropriate incentives for all payment recipients to seek out employment or study opportunities’.14

The $300 per fortnight rate reduction for the Coronavirus Supplement will reduce payments to more than 2.2 million recipients who are currently benefiting from the extra assistance.15 The reduction will occur in the December quarter of 2020 when the Government expects the unemployment rate to peak.16 However, the supplement still offers a much higher level of assistance than the standard rate of the qualifying payments.

The adequacy of the standard rate of JobSeeker Payment and other allowance payments has been an issue of concern for policy experts, community sector advocates and business groups for over a decade and the COVID-19 pandemic has seen a renewed push from these advocates for a permanent increase.17 The Australian Council of Social Service called for the full $550 supplement amount to be maintained until ‘it is replaced with a permanent, adequate increase’.18

The proposed changes to the income test allow for a higher level of income to be earned by JobSeeker Payment and Youth Allowance (Other) recipients, but the design of the Coronavirus Supplement continues to offer a significant disincentive to increase earnings for those near the cut-off point. The income test changes, combined with a proposed reduction in the rate of the JobKeeper Payment, will likely see more individuals eligible to receive both a social security payment and JobKeeper Payment at the same time.

The reinstatement of the assets test and liquid assets waiting period on 25 September may see a reduction in the number of income support recipients as those with significant assets become ineligible. However, no data is currently available as to how many individuals have benefited from these waivers.

12. J Frydenberg (Treasurer) and M Cormann (Minister for Finance), Economic and fiscal update: July 2020, pp. 160-162. 13. Ibid., p. 163. 14. Morrison, Frydenberg, and Ruston, op. cit. 15. In June 2020, the Department of Social Services estimated there would be around 2.3 million Coronavirus Supplement

recipients in September 2020. Senate Select Committee on COVID-19, Answers to written Questions on Notice by the Department of Social Services, Question reference number SQ20-000443. 16. Frydenberg and Cormann, op. cit., p. 2. 17. D Arthur, ‘The adequacy of jobseeker payments’, Parliamentary Library briefing book: key issues for the 46th Parliament, Parliamentary Library, Canberra, 2 July 2019, pp. 138-141. 18. Australian Council of Social Service, Millions face income losses as JobSeeker supplement reduced and anxiety about future remains, media release, 21 July 2020.

Changes to the COVID-19 social security measures: a brief assessment 9

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