Poverty in the age of coronavirus The impact of the JobSeeker coronavirus supplement on poverty Removing the coronavirus supplement in September will push over 600,000 people into poverty including 120,000 children and half a million people who rent or have a mortgage. This will have a profound impact on the lives of many children for the rest of their lives and significantly impact housing and banking in Australia. Discussion paper Matt Grudnoff July 2020 ABOUT THE AUSTRALIA INSTITUTE The Australia Institute is an independent public policy think tank based in Canberra. It is funded by donations from philanthropic trusts and individuals and commissioned research. We barrack for ideas, not political parties or candidates. Since its launch in 1994, the Institute has carried out highly influential research on a broad range of economic, social and environmental issues. OUR PHILOSOPHY As we begin the 21st century, new dilemmas confront our society and our planet. Unprecedented levels of consumption co-exist with extreme poverty. Through new technology we are more connected than we have ever been, yet civic engagement is declining. Environmental neglect continues despite heightened ecological awareness. A better balance is urgently needed. The Australia Institute’s directors, staff and supporters represent a broad range of views and priorities. What unites us is a belief that through a combination of research and creativity we can promote new solutions and ways of thinking. OUR PURPOSE – ‘RESEARCH THAT MATTERS’ The Institute publishes research that contributes to a more just, sustainable and peaceful society. Our goal is to gather, interpret and communicate evidence in order to both diagnose the problems we face and propose new solutions to tackle them. The Institute is wholly independent and not affiliated with any other organisation. Donations to its Research Fund are tax deductible for the donor. Anyone wishing to donate can do so via the website at https://www.tai.org.au or by calling the Institute on 02 6130 0530. Our secure and user-friendly website allows donors to make either one-off or regular monthly donations and we encourage everyone who can to donate in this way as it assists our research in the most significant manner. Level 1, Endeavour House, 1 Franklin St Canberra, ACT 2601 Tel: (02) 61300530 Email: [email protected] Website: www.tai.org.au ISSN: 1836-9014 Summary Modelling commissioned by The Australia Institute shows the impact on poverty that the coronavirus supplement has had and what will happen if it is removed completely at the end of September. It will also look at the impact on poverty if the supplement of $275 per week is replaced by an increase in the base rate of $75 per week. The introduction of the coronavirus supplement did an enormous amount to reduce poverty in Australia. With that single change 425,000 people were lifted out of poverty. However, the supplement has a legislated end date on the 24th of September 2020. The recession brought on by the pandemic has already increased unemployment by two per cent and it is expected to increase further before the end of September. If the supplement is removed in September, as legislated, this would result in more than 650,000 people will be pushed into poverty. Figure 1 – Relative gap between family of four living off unemployment payments and the Henderson poverty line if the coronavirus supplement is removed in September 15 10 5 0 -5 Jun 1989 Jun 2013 Jun 1975 Jun 1977 Jun 1979 Jun 1981 Jun 1983 Jun 1985 Jun 1987 Jun 1991 Jun 1993 Jun 1995 Jun 1997 Jun 1999 Jun 2001 Jun 2003 Jun 2005 Jun 2007 Jun 2009 Jun 2011 Jun 2015 Jun 2017 Jun 2019 Sep2020 -10 -15 Percentage fromthe povertyline -20 -25 If the supplement is instead replaced by an increase in the base rate of $75 per week, 505,000 people will be pushed into poverty. Increasing the base rate by $75 does improve the situation slightly but not enough to stop half a million people from entering poverty. Of those being placed into poverty as a result of the removal of the coronavirus supplement at the end of September, 120,000 will be children aged 0 to 14. Poverty in childhood can have crippling lifelong effects on the child’s cognitive development, social, emotional and behavioural development as well as a range of adverse health outcomes. If the supplement Poverty in the age of coronavirus 1 is instead replaced by an increase in the base rate of $75 per week, about 90,000 children will be moved into poverty. Figure 2 – Increase in people in poverty if coronavirus supplement is removed 250,000 200,000 150,000 100,000 50,000 Increase Increase in poeple living in poverty - Age 0 - 14 Age 15 - 24 Age 25 - 44 Age 45 - 64 Age 65 and over The vast majority of those moved into poverty either rent or have a mortgage. Comparing the number of people who will be in poverty if the supplement is removed in September with the number of people who were in poverty before the pandemic, about half a million either have a mortgage (242,000) or rent (246,000). Most of the remaining own their home outright or are in public housing. Table 1 – Additional people falling into poverty if the supplement is removed, by tenure Housing tenure Additional people in poverty Buying 242,000 Private Rental 246,000 If the supplement is removed, there is little doubt that for many Australians it will become increasingly difficult for people to pay a mortgage or pay for rent. This will not only mean a likely increase in homelessness but also increasing pressure on the banking system. Additionally, if hundreds of thousands of additional people fall into poverty all at the same time, there will be a potential increase in people being unable to pay rent. This would have a knock-on effect to those who own residential investment properties. Investment property owners also face consequences as a result of the ending of the coronavirus supplement. Replacing the coronavirus supplement with a $75 increase in the base rate will not significantly decrease the number of renters and mortgagees going into poverty. 211,000 mortgagees and 165,000 renters will still face poverty. A smaller fall compared to no increase, but still a significant impact on the lives of hundreds of thousands of Australians. Poverty in the age of coronavirus 2 Introduction As part of the Federal Government’s response to the coronavirus pandemic, unemployment payments were increased by $275 per week ($550 per fortnight) with the introduction of the coronavirus supplement. This almost doubled the base rate of JobSeeker (formerly Newstart) from $282.85 per week ($565.70 per fortnight) for singles to $557.85 per week ($1,115.70 per fortnight). This single change lifted 425,000 Australians out of poverty. The supplement is due to end on the 24th of September.1 If the amount paid in JobSeeker returns to the original rate at the end of September, those people who have been lifted out of poverty will go back into poverty. The impact of this will be magnified by the fact that the coronavirus recession has increased the number of unemployed. Unemployment has increased by 2.3 percent from 5.1 per cent in February 2020 to 7.4 per cent in June 2020.2 It is expected that the unemployment rate will to continue to rise to around 10 per cent in the coming months.3 The Australia Institute commissioned Communities in Numbers to look at the impact that the coronavirus supplement has had on the number of people in poverty. And to estimate the number of people that would be living below the poverty line if the supplement is removed in September. The modelling will also look at the impacts of poverty by age and housing tenure. During recessions, businesses shut down permanently. Many others cut back production as demand for their products and services falls. This means that many people lose their job and the number of unemployed increases. Because all these people lose their jobs at the same 1 Santoreneos A (2020) ‘They miss out”: JobSeeker boost lasts five months, not six, Yahoo! Finance, 1 May, available at <https://au.finance.yahoo.com/news/jobseeker-boost-lasts-five-months-not-six- 231913289.html> 2 ABS (2020) 6202 – Labour Force, Australia, June 2020, Australian Bureau of Statistics 16 July, available at <https://www.abs.gov.au/AUSSTATS/[email protected]/ProductsbyCatalogue/6050C537617B613BCA2583680010275 3?OpenDocument> 3 RBA (2020) Statement on Monetary Policy – May 2020: Economic Outlook, Reserve Bank of Australia, available at <https://www.rba.gov.au/publications/smp/2020/may/economic- outlook.html#:~:text=The%20Australian%20economy%20is%20expected,cent%20in%20the%20June%20quar ter.> Poverty in the age of coronavirus 3 time, the unfortunate outcome is that many people will not be able to find employment. There are currently 13 unemployed people for every job vacancy.4 Removing the supplement in the middle of a recession is likely to see many more people forced below the poverty line than was the case before the coronavirus supplement was introduced. UNEMPLOYMENT PAYMENTS AND THE POVERTY LINE The reality is that Australia’s unemployment payments have been inadequate for many years. The Australia Institute has been tracking unemployment payments in relation to the Henderson poverty line for some time.5 Before the introduction of the coronavirus supplement there had been no increase in the real value of unemployment payments for approximately 26 years. Over this period, the adequacy of these payments has steadily dropped from just above the Henderson poverty line to well below the poverty line.6 Before the coronavirus pandemic a household of two adults and two children living on unemployment payments was about 20 per cent below the poverty line.