Not the time for more tax cuts: time to boost Newstart and minimum wages

Unlike tax cuts, raising Newstart and the minimum wage will effectively reduce poverty and boost the economy, argues The Australian Council of Social Service’s submission to the Fair Work Commission.

CEO of the Australian Council of Social Service, Cassandra Goldie, said: “Instead of handing out tax cuts as misguided election sweeteners, the government should take real action to tackle poverty and strengthen the economy.

“Both an urgent $75 per week rise in Newstart and a substantial rise in minimum wages are the fundamental steps we must take in any serious effort to reducing poverty.

“People on the lowest incomes – including Newstart and minimum wages – must spend the money they receive to cover the very basics like food and rent, so boosting their incomes is a far more effective way to bolster economic growth than more tax cuts.

“A rise in Newstart would particularly benefit businesses in the regions struggling the most with high unemployment.

“Increasing Newstart and the minimum wage would increase consumer spending, creating new jobs; while at the same time, a stronger Newstart would give people the support they need to get through tough times and into these jobs.

“One in six children live in poverty in our wealthy country and in order to reduce child poverty we need to reverse government funding cuts to family payments and expressly consider these cuts in the setting of the minimum wage.

“In the past decade, more than $12 billion has been cut from payments for individuals and families with low incomes, including by dumping all single parent families from the single parent payment on to the low Newstart Allowance once their youngest child turns eight.

“We need government and business to both play their part to for people on the lowest 40% of incomes – both people relying on income support and wage earners, who in reality are often the same people at different stages of life, sometimes week to week,”

“We are the richest country in the world and no one should live in poverty, whether they have paid work or not. This requires action from both government and business,” Dr Goldie said.

BACKGROUND:

Wages, age pension and Newstart – 1993-2019

Twenty-five years ago, when Newstart Allowance was last increased, the minimum wage was around 60% of the median fulltime wage and Newstart Allowance was 25% of the minimum wage (before tax).

Up to the GFC in 2008, most incomes grew strongly, especially corporate profits. There was also a dramatic rise in housing costs. Yet Newstart and minimum wages (two of the main incomes of the lowest 40% of households by income) have barely grown above inflation.

In 2018, the minimum wage was just 49% of the median fulltime wage (a relative decline of 18%). Having been frozen in real terms since 1994, Newstart Allowance fell behind even further (by 24%), to 19% of the median wage.

Although this decline in the lowest incomes was partly compensated by lower unemployment and more paid working hours, those who lacked the opportunity to obtain employment or more working hours fell behind the rest of the community, increasing poverty and inequality.