Household compensation: direct cash assistance based on essential expenditure not income

Releasing its first official carbon pricing position paper today, the Australian Council of Social Service reaffirmed its strong support for the pricing of carbon pollution but said low income households should be given direct cash assistance that is properly indexed to meet real cost of living increases. And it wants assistance based on essential expenditure not income because of the inequities in Australia’s tax and transfer systems.

ACOSS CEO, Dr Cassandra Goldie said, “While we agree that the taxation and transfer systems provide the best and fairest means to channel assistance for people on low incomes, the existing social security system is inequitable and inefficient, and simply basing cash assistance on income exaggerates these deficiencies.

“At the core of this inequity are the punitively low rates of payment for people who are unemployed, single parents and students, which sees people on Newstart, for instance, receive $128 a week less those on pensions.

“In 2009, ACOSS had welcomed the vital increase of $32 per week in pensions. However, people on allowances like Newstart are now being left seriously behind. Both the Henry Review and the OECD have recommended that Newstart and other allowances be increased by around $50 per week. This hasn’t happened, leaving about 600,000 people having to survive on just $34 per day.

“Under the previous CPRS assistance for households came in the form of a percentage increase in pensions, allowances and tax benefits that tapered out as incomes rose. Whilst ACOSS supported this at the time as an administratively easy solution, we now believe it would have come at a personal cost to millions of people in Australia.

“By way of illustration and in round numbers, as designed under the CPRS, assistance for recipients of income support with a $25/t carbon price was an increase in payments of 2.5% to meet a 1.0% impact on the cost of living expenses for of an average household or about $10 per week (fuel excluded).

“For a single adult pensioner who currently receives $335.45 per week, 2.5% is $8.38; and for a single adult unemployed person in receipt of Newstart at $237.45 per week, 2.5% is $5.90.

“In both cases the assistance is less than modelled impact on expenditure of $10 per week. If assistance is based on household income rather than household expenditure, inequity in the transfer systems is perpetuated and exaggerated.

“ACOSS prefers that cash assistance comes in the form of a standard dollar rate rather than a percentage increase. The standard dollar rate should address the modelled impact and provide a buffer for unanticipated impacts, as occurred with the introduction of the GST.

“Cash assistance should address a range of household characteristics to a reasonable extent. It should be paid from mechanism commencement, and be indexed and adjusted annually. Compensation should address all cost impacts from carbon price, including retail energy prices and others like food.

“In addition to adequate cash assistance, there should be a significant and sustained investment in improving energy use efficiency in low income households. Energy efficiency measures should be implemented whether funded through revenue from the carbon price mechanism or otherwise.

“ACOSS also wants to ensure that the community services sector is not compromised by the introduction of a carbon price. Not-for profit providers of a wide range of critical community services are exposed to increases in the costs of basics like energy, food and fuel. Most are simply unable to pass through cost increases via higher charges but, instead, seek revenue increases or reduce services. Any diminution in the quantity or quality of these services impacts directly and immediately on individuals and households living in poverty and on low, fixed income households.

“ACOSS looks forward to continue to engage constructively on this important issue, because we believe pricing carbon pollution is urgent, and so is the need to get it right,” Dr Goldie said.

Media Contact: Fernando de Freitas 0419 626 155

ACOSS Carbon Price and Low Income Household Position Paper