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