Simulation of Welfare System Reveals Raising Newstart Would Reduce Poverty Gap

Raising Newstart by around $300 per fortnight and the Age Pension by $11, while other welfare payments are cut, would reduce the poverty gap by 11 per cent, according to new analysis.

Using an algorithm developed by the Australian National University’s Centre for Social Research and Methods, a model of changes and implications to welfare payment and poverty levels were revealed in a new working paper.

The centre’s principal research fellow, Ben Phillips, told Pro Bono News the model was a world first, and could inform into the future a different way of looking at the welfare system in Australia and how it could be altered to improve certain outcomes.  

Phillips said in order to minimise poverty in a budget neutral sense, the PolicyMod formula used by the researchers suggested increasing Newstart, while at the same time reducing other forms of payments, was the most effective way to do it.

“You would increase that quite substantially by anywhere between $200 and $300 dollars per fortnight. That’s moving from $551 a fortnight now to stay up around $800 per fortnight,” Phillips said.

The Age Pension would also rise by $11, and Rent Assistance increased by $10 a fortnight. The increases would be paid for by slightly decreasing the Family Benefits Tax (FBT) and Single Parent payments (SPP).

The report found that by doing that, the poverty gap for those receiving FTB decreased from $4,358 to $1,383 per year or 68 per cent, while those receiving the SPP would face an increase in their poverty gap from $97 to $382 per year.

“The reductions for family payments suggests that these payments are currently paid to many households and income units that are either not in poverty or have low poverty gaps,” the paper said.

While Phillips said raising Newstart was a “no brainer” in order to reduce poverty, he said the report only focused on the reduction on poverty, and that there were other objectives of the welfare system that didn’t include poverty such as workforce incentives.

“If you increase the Newstart payment too much some might suggest that is a deterrent for people working,” he said.  

“But I think there’s no doubt the payment has gotten far too low over the past few decades and needs to be increased.”

He said while this modelling system was in its infancy, he hoped the government considered it as a way to inform policy in the future.  

“We’re not out there saying that this is the new perfect system but we hope that it does provide a new lens… and perhaps [leads to] some changes based on this sort of modelling that might improve the lives of low income Australians.”