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Key points 

income support fell from 24.9% in 2002 to 22.1% in

The proportion of the working-age population

2012, the latest figures. If the number of income

receiving income support is around its lowest

support

level since the early 1990s.

‘sustainability’ of the system, then it is clearly more

Australia spent 8.6% of GDP on cash benefits in

sustainable today than it was a decade ago.

recipients

is

an

indicator

of

the

2013, less than almost all other OECD countries 

 

(including the US).

In fact, the number of people (not just the proportion

The Intergenerational Report projects rising Age

of the population) receiving a payment other than

Pension expenditure, but falling spending on

the Age Pension fell from 3 million in 2002 to 2.75

other payments, with no net change in spending

million in 2012. The proportion of the working-age

as a proportion of GDP by 2049-50.

population receiving income support is now around

Australia’s payment system is more tightly means

the lowest level since the late 1980s, as shown in

tested than that of any other OECD country.

Figure 1.

Newstart Allowance for single people is too low

Figure 1: Proportion of working-age population receiving income support Per cent 30

and indexation arrangements are inadequate.

25

Kevin Andrews, the Social Services Minister, recently

20

warned that the welfare system is “unsustainable” and that large, urgent changes must be made to the disability pension and unemployment benefits.1 Mr Andrews relied on a report by his department that

15 10 5

showed the number of income support recipients rose by around 174 000 over the past decade.

0 1972

1977

1982

1987

1992

1997

2002

2007

2012

Source: Peter Whiteford (ANU), personal correspondence.

What Mr Andrews did not mention is that, over the

The rise in the number of income support recipients

same period, the population grew by 3.22 million.

over the past decade is almost all about the Age

This means that the proportion of the population on

Pension. Age Pensioners rose from 9.3% to 10% of the population, while the proportion of the

1

The Australian, ‘Welfare must be reined in, says Kevin Andrews’, 21 January 2013.

population on Disability Support Pension rose a little

ACTU Economic Bulletin – February 2014 – Page 1


(from 3.4% to 3.6%). The proportion of people on

sustainable than those of almost all other advanced

unemployment benefits and other income support

economies. Figure 3: Cash benefit spending in 2013 in OECD countries

fell. Figure 2: Income support recipients by payment type Per cent of population 12%

Age pension (incl. veterans)

10% 8%

All other income support

6% Disability Support Pension

4%

Newstart & Youth Allowance (Other)

2% 0% 2002

2004

2006

2008

2010

2012

Source: DSS Statistical Paper No. 11 and ABS 3101. Doesn’t include FTB.

Australia spends less on welfare (ie. cash benefits to households) than nearly all other OECD countries. In 2013, we spent 8.6% of GDP on welfare; that’s less than Canada, New Zealand, the UK, and every other member of the EU. That’s even less than the

Austria France Italy Belgium Finland Portugal Spain Hungary Slovenia Greece Germany Luxembourg Denmark Poland Ireland Sweden Czech Republic OECD - Total Norway United Kingdom Estonia Netherlands Slovak Republic Switzerland New Zealand United States Israel Canada Australia Iceland

13.0

8.6 0

5

10 Per cent of GDP

15

20

Source: OECD Social Expenditures Database.

Not only is our spending relatively low, it’s not expected to rise in the coming decades. Treasury projects that total income support spending will be

famously frugal United States.2

about the same (as a proportion of GDP) in 2049-50 Many other OECD countries have endured high levels of unemployment in recent years, which pushes up social spending. Still, Australia’s welfare spending in 2005 (before the financial crisis) was still among the very lowest in the OECD, and below that of the United States. If a measure of ‘sustainability’ is the amount that’s spent on welfare (as a proportion of

as it was in 2009-10. As the population ages, we’ll spend more on the Age Pension. However, an often ignored consequence of the ageing of the population is that we’ll also spend less on family benefits. Spending on a range of allowances is also expected to fall (mostly because of the inadequate indexation arrangements, which must be improved).

the economy), then Australia’s system is clearly more

2

There are a few OECD countries for which the OECD doesn’t have 2013 data. One of these tends to spend more than us (Japan) and a few spend less (Turkey, Mexico, Korea). ACTU Economic Bulletin – February 2014 – Page 2


Figure 4: Social security spending in 2009-10 and 2049-50

In fact, Australia’s welfare spending is the most

2009-10 2049-50

Baby Bonus & PPL Child care benefit & rebate

tightly targeted of any OECD economy. Peter Whiteford of ANU (formerly of the OECD) has shown

FTB

that the bottom fifth of Australian households

Carer payments & Wife Pension

receive 12.4 times as much money in the form of

Youth Allowance

cash benefits as the top fifth of households. The next

Unemployment & PPP

highest ratio is 8.4 (New Zealand) and the OECD

Parenting Payment (Single)

average is just 2.1. There are a number of countries

DSP

for which the ratio is less than 1 – this means that

Age & service pensions 0

1

2 3 4 Per cent of GDP

5

high income earners in those countries receive more than low income earners. These figures are for all

Source: Intergenerational Report 2010.

households; the Australian ratio among working-age

Figure 5: Projected change in spending as a % of GDP

households is 15.1, versus an OECD average of 2.3. Baby Bonus & PPL

Figure 6: Ratio of cash benefits paid to the bottom quintile to those paid to the top income quintile

Child care benefit & rebate FTB Carer payments & Wife Pension Youth Allowance Unemployment & PPP Parenting Payment (Single) DSP Age & service pensions -1.0

-0.5

0.0 0.5 1.0 Percentage points

1.5

Source: Calculations based on Intergenerational Report 2010.

With total spending set to remain constant as a share of GDP, there is no looming crisis in income support spending in Australia. The only payment on which spending is expected to rise appreciably is the Age Pension, which Mr Andrews ruled out examining as part of the welfare review he has commissioned.

Australia New Zealand Denmark United Kingdom Finland Ireland Norway Netherlands Switzerland Canada OECD Czech Republic Sweden Belgium United States Slovak Republic Iceland Korea Japan Hungary Germany Spain Luxembourg Italy Greece France Austria Portugal Poland Mexico Turkey

12.4

2.1

0

Some

commentators suggest

that, while our

2

4

6 8 Ratio

10

12

Source: Whiteford 2010, Table 1.

spending on income support might be relatively low,

The figures above are from the mid-2000s. ABS

we spend too much on ‘middle class welfare’, and

figures from 2009-10 show that the ratio among all

this would be a relatively painless area in which to

households had risen to 14.7, suggesting that our

cut spending.

ACTU Economic Bulletin – February 2014 – Page 3

14


cash benefits became more targeted in the late 2000s.3

Around 78% of cash benefits to people of working

Figure 8: Share of total cash benefits paid to households in each quintile of equivalised disposable household income (2009-10) Lowest quintile Second quintile Third quintile Fourth quintile Top quintile Parenting payment

age went to the bottom fifth of households in 1982. In 2007-08, this was 70% - a little lower, but still very

DSP Unemployment/student

high. Most of the change is due to a rising share going to people below the median income, but above the

Family tax benefit

20th percentile – lower-middle income households.

Age pension

The share going to the top fifth of the working-age Veterans

population is around half of what it was in the early

0%

1980s. Figure 7: Share of cash benefits paid to the top half of the income distribution - working-age households

100%

Source: Calculations based on ABS 6537. Includes all households.

to income) distribution, which is to be expected given the wealth tests on those payments. The Age Pension Between 50th & 80th percentiles

6

is less tightly targeted to low-wealth households.

Our system is highly targeted, and has become more

4 2

80%

people in the bottom 40% of the wealth (as opposed

12

8

40% 60% % of total

The working-age payments also overwhelmingly go to

Share of cash benefits (%) 14

10

20%

targeted over time. Making the system even more Top 20%

tightly means tested would involve either reducing payment rates (which hurts the poorest) or raising

0

the ‘withdrawal rates’ on payments. Withdrawal rates refer to the amount of payment you lose if you Source: Whiteford, Redmond and Adamson 2011, Table 1.

earn an extra dollar from work. Higher withdrawal Most working-age payments are highly targeted to

rates mean higher ‘effective marginal tax rates’ –

low-to-middle income households, as shown in Figure

these are a disincentive to work extra hours, and

8. This shows that, for example, 81% of DSP goes to

make it harder for low-income people to get ahead.

people in the bottom 40% of the income distribution. One area in which our income support system is deficient

is

in

the

adequacy

of

allowances,

particularly for single people. A person on an average wage who loses his or her job and claims unemployment benefit will suffer a bigger fall in 3

ACTU calculation based on ABS 6537, Table 5.

income in Australia than in any other OECD country.

ACTU Economic Bulletin – February 2014 – Page 4


(2011; includes Rent Assistance), compared to 38% in

Figure 10: Newstart as a proportion of DSP, minimum wage, and average wage (net of income tax) Ratio

the UK, 47% in the US, 62% in Canada, and much

100%

Newstart is worth around 28% of the average wage

80%

Figure 9: Unemployment benefit in OECD countries (2011) Israel Luxembourg Slovenia Portugal Netherlands Switzerland Czech Republic France Slovak Republic Norway Iceland Belgium Canada Denmark Germany Spain Italy Chile Austria Japan Hungary Estonia Finland Ireland Poland United States Sweden Korea Turkey United Kingdom Greece New Zealand Australia

89 85 76 75 75 74 71 66 65 64 64 63 62 61 59 58 57 56 55 54 54 54 54 53 51 47 46 45 43 38 35 34 28 0

Newstart as a % of DSP

90%

higher ratios in many EU countries.

20 40 60 80 100 Percentage of the average full-time wage

70%

Newstart as a % of minimum full-time wage

60% 50% 40% 30% 20% 10% 1992

Newstart as a % of average full-time wage 1996

2000

2004

2008

2012

Source: ACTU calculations based on DSS historical payment figures; FWC; ABS 6302, historical tax scales from ATO. Does not include Rent Assistance. Includes Medicare Levy and LITO where applicable.

These gaps will continue to grow unless Newstart is indexed to some measure of wages.

Australia’s welfare spending is very low by advanced economy standards, and is not expected to rise (as a share of GDP) over the next few decades. The

Source: OECD Benefits and Wages Statistics. Single person with no children in first year of unemployment; includes housing and other benefits where applicable.

proportion of the population that receives income

Many of these countries have different forms of

who receive a payment other the Age Pension fell

social insurance, where the payment you receive is

over the past decade. There is no crisis of

related to the amount you’ve contributed over the

affordability in the Australian welfare system. The

years. Australia’s system, with a flat-rate, means-

pressing crisis is in the adequacy of allowances such

tested unemployment benefit, means that it’s normal

as Newstart, particularly for single people.

support has fallen. The absolute number of people

for our payment to be lower (as a proportion of the average wage) than the payment in most other OECD countries. However, it hasn’t always been this low. Newstart has fallen steadily as a proportion of

Please send any comments, corrections, criticisms or

average wages, the minimum wage, and the Disability

compliments

Support Pension. This is because Newstart is indexed

mcowgill@actu.org.au.

to

only to the CPI, while wages and pensions tend to rise in real terms over time. ACTU Economic Bulletin – February 2014 – Page 5

Matt

Cowgill

at


The tables and charts below summarise the latest

Figure 12: Change in employment in the year to December Thousands 150 122.0

available data about the Australian labour market. 100

Table 1: Summary of labour force figures Level

Monthly change

Yearended change

Employed persons

11,629,500

-22,600

54,600

- Full time employment

8,067,700

-31,600

-67,500

- Part time employment

3,561,800

9,000

122,000

56.5

65.5

53.3 54.6

50 1.3 0 -12.2 -50

Working age population

19,118,000

29,400

347,200

Employment-topopulation ratio

60.8%

-0.2

-0.8

Unemployment rate

5.8%

0.1

0.5

Unemployed persons

722,000

8,000

62,600

-55.2

-67.5

-100 Full time Males

Part time Females

Total Total

Source: ACTU calculations based on ABS 6202, seasonally adjusted.

Figure 13: Unemployment rate Per cent 6.5 6.0

Participation rate Underemployment rate (quarterly)

64.6%

-0.2

-0.6

7.6

-0.2

0.4

5.5 5.0

Source: ABS 6202, seasonally adjusted.

4.5 Figure 11: Change in employment between Nov and Dec 2013 Thousands 20 13.3 15 9.0 10

4.0 3.5 Seasonally adjusted

5

3.0 Dec 03

0

Source: ABS 6202.

-5

-15.1-16.4

Dec 13

-22.6

-30 -35

Dec 11

63

-19.5

-25

Dec 09

Per cent 64

-15 -20

Dec 07

Figure 14: Employment to population ratio

-3.2

-4.3

-10

Dec 05

Trend

62 -31.6 Full time Males

Part time Females

Total Total

61

Source: ACTU calculations based on ABS 6202, seasonally adjusted.

60 59 58 Dec 03

Seasonally adjusted Dec 05

Source: ABS 6202.

ACTU Economic Bulletin – February 2014 – Page 6

Dec 07

Dec 09

Trend Dec 11

Dec 13


Figure 15: Unemployment rates by State/Territory

Figure 18: Employment growth in the year to November 2013

Annual change in employment

7.1 7.7

Tas

Public Administration & Safety

5.7

SA

6.7 5.6 6.2

Vic

5.1

NSW

5.9

4.4 4.5

WA NT

4.0 4.2

ACT

4.5 4.0 0

2

Construction

34.5

Retail Trade

28.3

Health Care & Social Assistance

25.6

Other Services

22.9

Electricity, Gas, Water &…

6.0 5.7

Qld

77.2

12.4

Mining

6.1

Financial & Insurance Services

1.8

Transport, Postal &…

4 6 Per cent

Dec 2012

Arts & Recreation Services

Dec 2013

Rental, Hiring & Real Estate…

8

Source: ABS 6202, trend.

Figure 16: Participation rate 15+ (%) 66.0

15-64 (%) 77.0

0.3

Agriculture, Forestry & Fishing

10

76.5

65.5

76.0

65.0

75.5

64.5

1.7

-3.5 -4.4

Administrative & Support…

-6.9

Accommodation & Food…

-13.0

Education & Training

-13.7

Professional, Scientific &…

-19.4

Manufacturing

-27.3

Wholesale Trade

-32.9

Information Media &…

-50

-33.5

0 50 Thousands

Source: ACTU calculations based on ABS 6202, trend.

75.0

64.0

74.5

63.5

74.0 Dec 03

15-64 (LHS) Dec 05

Dec 07

15+ (RHS) Dec 09

Dec 11

63.0 Dec 13

Source: ABS 6202.

Figure 17: Underemployment and unemployment rates Per cent 14 12 10 Underemployment 8 6 4 Unemployment

2 0 Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Source: ABS 6202, trend.

ACTU Economic Bulletin – February 2014 – Page 7

100


Source: ABS 5206 and ACTU calculations. Non-farm.

Table 2: Summary of September quarter National Accounts

Quarterly change

Level

Yearended change

Figure 21: Annual growth in labour productivity (GDP per hour) Year-ended growth 5%

Quarterly real GDP

387031

0.6%

2.3%

4%

Real GDP per capita

16683

0.2%

0.6%

3%

Labour productivity (total economy)

-

0.0%

1.0%

2%

Labour productivity in the market sector

-

0.0%

1.5%

1%

Terms of trade

-

-3.3%

-3.5%

0%

Wages share of income

53.8%

0.0

-0.2

-1%

Profits share of income

26.7%

Fair Work Act

Work Choices

Seasonally adjusted

0.0

0.0

Source: ABS 5206.

-2% Sep 03

Sep 05

Sep 07

Trend

Sep 09

Figure 19: Growth in real GDP per year

Arts and recreation services

5%

8.4%

Mining

20-year average, 3.4%

4%

7.7%

Public administration and…

6.7%

Health care and social…

5.4%

Agriculture, forestry and fishing

3%

Financial and insurance…

2%

Rental, hiring and real estate…

5.3% 5.1%

Other services

Seasonally adjusted Sep 05

Sep 07

Trend

Sep 09

Sep 11

Sep 13

Retail trade

1.9%

Administrative and support…

1.8%

Transport, postal and…

1.7%

Professional, scientific and…

1.5%

Construction

Figure 20: Annual growth in nominal unit labour costs 8%

6% 20-year average, 2.5%

Information media and…

0.8% -0.4%

Manufacturing

-1.9%

Wholesale trade

-2.6%

Accommodation and food…

-3.3%

Electricity, gas, water and…

-4.6%

-15% -10% -5% 0% 5% 10% Annual GVA growth Source: ABS 5206.

2%

0% Seasonally adjusted Trend Sep 97

2.7% 2.1%

Source: ABS 5206 and ACTU calculations.

-2% Sep 93

4.4%

Education and training

1%

4%

Sep 13

Figure 22: Growth in output (gross value added) – year to September 2013

6%

0% Sep 03

Sep 11

Source: ABS 5206.

Sep 01

Sep 05

Sep 09

Sep 13

ACTU Economic Bulletin – February 2014 – Page 8


Figure 24: Headline and underlying CPI inflation Per cent 5%

Table 3: Summary of prices and wages data

Wage Price Index (WPI)

Latest quarter

Level

September

-

Year-ended change

4%

2.7% 3%

Full-time average weekly ordinary time earnings (AWOTE)

May

$1,421

5.3%

Real full-time AWOTE

May

$1,421

2.9%

Total average weekly earnings (AWE)

May

$1,105

4.9%

July

$622.20

2.6%

September

3.5%

-0.1ppts

Headline CPI

December

-

2.7%

Trimmed mean (underlying CPI)

December

-

2.6%

Employees’ cost of living (LCI)

December

-

1.3%

May

17.5%

-0.1%

2%

RBA's target band

1%

Headline CPI

National Minimum Wage per 38 hour week Average wage rise in fed enterprise agreements

0% Dec 03

Underlying CPI Dec 05

Dec 07

Dec 09

Dec 11

Dec 13

Source: ABS 6401.

Figure 25: Wage Price Index growth 4.5%

4.0%

Gender pay gap

Source: ABS 6345, ABS 6302, FWC, DEEWR Trends in Federal Enterprise Bargaining, ABS 6401, ABS 6467, ACTU calculations.

Figure 23: Annual growth in the CPI and workers’ cost of living (Employee LCI)

6%

3.5%

3.0%

2.5%

2.0% Sep 98

5%

Long-run average

Trend

Seasonally adjusted

Sep 03

Sep 08

Sep 13

Source: ABS 6345.

4%

Figure 26: WPI growth in the public and private sectors

3%

5.0%

2% 1%

4.5%

Underlying CPI Employee LCI

4.0%

0% -1% Dec 03

3.5% Dec 05

Dec 07

Source: ABS 6467, ABS 6401.

Dec 09

Dec 11

Dec 13 3.0% 2.5%

Private Public

2.0% Sep 03

Sep 05

Source: ABS 6345.

ACTU Economic Bulletin – February 2014 – Page 9

Sep 07

Sep 09

Sep 11

Sep 13


Figure 27: WPI growth in the year to September by industry 0% 1% 2% 3% 4% Electricity, gas, water and…

3.4%

Construction

Figure 30: Average weekly ordinary time earnings for full-time adults $0 $1,000 $2,000 Mining

3.2%

Mining

Professional, Scientific…

3.2%

Manufacturing

3.0%

Public administration and…

3.0%

Retail trade Health care and social…

2.8%

Rental, hiring and real…

2.8%

Other services

Information Media and…

$1,671.10

Financial and Insurance…

$1,645.30

Electricity, Gas, Water…

3.0%

Education and Training Public Administration… Construction

2.7%

Financial and insurance…

Transport, Postal and…

2.7%

Australia

2.7%

Administrative and…

2.6%

Information media and…

2.5%

Transport, postal and…

2.5%

Wholesale trade

$1,436.00 $1,425.10

All Industries

$1,420.90 $1,417.30 $1,354.10

Arts and Recreation…

$1,315.50

Rental, Hiring and Real…

$1,303.80

Administrative and…

$1,276.50

2.4%

Manufacturing

Education and training

2.4%

Other Services

2.3%

Accommodation and…

1.9%

Retail Trade

Source: ABS 6345.

$1,485.20

Wholesale Trade

Arts and recreation services Accommodation and food…

$1,622.90 $1,499.00

Health Care and Social…

2.4%

Professional, scientific and…

$2,423.50 $1,706.60

$1,251.40 $1,104.70 $1,049.80 $1,022.00

Source: ABS 6302.

Figure 28: Range of WPI growth rates across industries 7% Figure 31: Average annualised wage increase in federal enterprise agreements Per cent 5.5

6% 5% 4%

5.0

3% 4.5

2% Range of growth rates in all industries

1%

4.0

Australia 0% Sep 03

Sep 05

Sep 07

Sep 09

Sep 11

Sep 13

3.5

Source: ABS 6345 and ACTU calculations.

Figure 29: WPI growth in the year to September by State 0% 1% 2% 3% 4% SA

3.4%

WA

2.9%

NT

2.7%

Qld

2.7%

NSW

Sep 98

Sep 03

Sep 08

Sep 13

Source: Department of Employment, Trends in Federal Enterprise Bargaining.

2.8%

Australia

Tas

All current agreements 2.5 Sep 93

3.2%

Victoria

ACT

Agreements lodged in quarter

3.0

2.6% 2.5% 2.3%

Source: ABS 6345.

ACTU Economic Bulletin – February 2014 – Page 10


ACTU Economic Bulletin - February 2014