4.3 Further savings in other Commonwealth spending areas
The Commission’s Phase One Report focused on the Commonwealth’s 15 largest and fast growing programmes as well as a number of other large spending areas including reforming general revenue assistance to the States; options to place military superannuation arrangements on a more sustainable financial footing; and other potential savings options.
With further investigation, the Commission has reviewed around 95 per cent of total Commonwealth outlays.
After excluding spending related to tax expenditures; terminating programmes; and programmes for which there are limited direct policy levers such as public debt interest, the Commission has identified scope to reform a number of social welfare programmes and local government initiatives.
Parenting Payment Single provides important support to sole parents with young children, recognising their reduced capacity to work. Parenting Payment Single was historically linked to the Age and other pensions. Until changes were made to the Age and Disability Support Pensions and Carer Payment as part of the Secure and Sustainable Pensions reforms in 2009, the rates and income tests were the same.
The maximum rate of Parenting Payment Single (currently $725.10 per fortnight including the Pension and Clean Energy Supplements) is indexed twice a year by CPI. The rate is also benchmarked to 25 per cent of Male Total Average Weekly Earnings.
The maximum rate of the payment is now around $120 lower than the pensions per fortnight (including supplements), but still maintains some similar characteristics. Historically, pension rates have been set with regard to community standards by indexing the rate of payment by wages rather than simply maintaining its value in real terms. This ensures that a pensioner’s standard of living continues to have some reference to the incomes of the broader community.
The policy rationale for using Male Total Average Weekly Earnings as a benchmark is weak as the increase in female labour force participation means a wage measure covering only males is an anachronism in the context of contemporary Australia. Average Weekly Earnings is a more appropriate benchmark for payments, given that women are a major part of the labour force. Benchmarking to Average Weekly Earnings still recognises that pensions should have regard to community standards through benchmarking to wages.
In the Phase One Report the Commission recommended that the maximum base rate of the Age and Disability Support Pensions and Carer Payment be changed over time to be equal to, and then grow in line with, 28 per cent of Average Weekly Earnings. Consistent with this recommendation, it is also recommended that the benchmark for Parenting Payment Single be changed to 25 per cent of Average Weekly Earnings.
The re-alignment over time could be achieved by indexing the current maximum rate of Parenting Payment Single by CPI until it reaches the new benchmark.
As shown in Chart 4.1 below, on current trends the transition can be expected to be completed by around 2027-28 (in just under 15 years time). The proposed transition to the new arrangements will mean that although sole parents’ payment will be less than it otherwise would be, it will not fall in either real or nominal terms.
Chart 4.1: Transition to new Parenting Payment Single benchmark
Source: National Commission of Audit.
Recommendation 17: Parenting Payment Single – establishing a new benchmark
Parenting Payment Single provides important support to sole parents with young children, recognising their reduced capacity to work. The Commission recommends that changes be made to make it more sustainable by:
- changing current Parenting Payment Single indexation arrangements to a new benchmark of 25 per cent of Average Weekly Earnings; and
- transitioning to this arrangement, approximately over a 15 year period, by indexing the Parenting Payment Single maximum rate by the Consumer Price Index until it is equal to 25 per cent of Average Weekly Earnings.
Access to education is important to enable people to reach their potential, to engage in the workforce and to make a productive contribution to society. As well as supporting Australia’s economic competiveness, education is a key driver of social mobility, economic prosperity and social cohesion. For these reasons, government has an important role in supporting people to participate in education.
These payments provide income support for young people who are unable to work full time as they are studying. There is scope to change some of the payments’ eligibility to better target this assistance.
Currently, Relocation Scholarships are available to dependent Youth Allowance recipients who move away from the family home to study. The scholarships provide a minimum of $4,145 in the first year and $1,036 in subsequent years of study to all eligible students, with a higher rate of $2,073 provided to students moving from regional or remote areas in their second and third years of study. The scholarships are automatically provided to all eligible students and are provided to students moving within capital cities.
In addition to Relocation Scholarships, all students receiving Youth Allowance also receive Student Start-up Scholarships of $2,050. Legislation is currently before Parliament to convert Student Start-up Scholarships to an income-contingent loan, to be paid back after any Higher Education Loan Programme debt is fully repaid.
Assistance with the costs of relocating may be important in enabling some young people to participate in education. However, this assistance could be better targeted. It is recommended that Relocation Scholarships be converted into a voluntary income-contingent loan, similar to the Student-Start-up Scholarships. This would require students to decide if they really needed this assistance. The Commission recommends that the relocation loans be limited to the first year of relocation, and that they no longer be provided to students moving within their home capital city.
In its Phase One Report the Commission recommended changes to the Higher Education Loan Programme, including increasing the interest rate on loans from CPI to a rate that covers the government’s cost of borrowing; reducing the threshold for student loan repayments to the minimum wage; and indexing repayment thresholds by CPI instead of Average Weekly Earnings. It is recommended that these changes would also apply to the new Relocation Loans.
Currently students can continue to receive Youth Allowance and Austudy while travelling overseas for any reason for up to six weeks. The Commission recommends that the rules for these payments be aligned with those for other working‑age payments, which would only allow payment to continue for up to six weeks if the recipient is required to travel overseas for specific circumstances (for example, as a requirement of their study, to receive medical treatment or in an acute family crisis). There is little rationale for student payments to have more generous portability rules than other working-age payments.
Recommendation 18: Better targeting assistance to students
Youth Allowance assists young people to participate in education. However, this assistance could be better targeted. It is recommended that:
- Relocation Scholarships be converted into a voluntary income contingent loan, similar to Student-Start-up Scholarships; only be offered in the first year of relocation; and that students moving within cities no longer be eligible; and
- portability rules for Youth Allowance and Austudy be aligned with those for other working age payments, allowing payment to continue for up to six weeks if the recipient is required to travel overseas for specific circumstances.
Currently recipients of Newstart, Widow and Sickness Allowance who are aged 60 or over and have been receiving payments for at least nine months continuously receive a higher rate of payment than younger recipients and also receive Telephone Allowance.
Higher rates were introduced in 1990. As recipients were only five years away from being eligible for Age Pension, it was considered appropriate to assist them with the higher rate.
There is little rationale for recipients aged over 60 to receive higher rates of assistance than those under 60. Accordingly it is recommended that the rate of these allowances for those over 60 be reduced to align with those for other recipients.
Recommendation 19: Better aligning working-age payments
Currently, people aged 60 or over receiving certain working-age payments receive a higher rate than younger recipients.
The Commission recommends that the rates of Newstart, Widow and Sickness Allowance for those aged over 60 be aligned with those for other recipients.
Currently, recipients of certain income support payments who are studying may be eligible for the Pensioner Education Supplement (of up to $62.40 per fortnight) and the Education Entry Payment (a lump-sum of $208). The Commission notes the Education Entry Payment generally duplicates the assistance provided by the Pensioner Education Supplement, and assistance with start-up costs that is available through Job Services Australia when recipients commence study. It is recommended that the Education Entry Payment be abolished.
Also recipients of the Pensioner Education Supplement currently receive the payment throughout the year, including during vacation periods. The Commission recommends that the Supplement only be provided to recipients during study terms or semesters.
Recommendation 20: Reforming education supplements
A range of assistance is available to income support recipients who commence study. To reduce duplication and better target assistance the Commission recommends that:
- the Education Entry Payment be abolished; and
- the Pensioner Education Supplement only be provided to recipients during study terms or semesters.
The Housing Help for Seniors programme was announced by the former Government in the 2013-14 Budget, having been informed by the work undertaken by the Advisory Panel on Positive Ageing. A trial of the scheme is scheduled to proceed from 1 July 2014.
The trial would create an exemption from the Age Pension means test for seniors who downsize their home. If they downsize to a home of lesser value, they will be able to place at least 80 per cent of the excess sale proceeds (to a cap of $200,000) into a special account, which will be exempt from the pension income and assets tests for up to 10 years, or until a withdrawal is made from the account, whichever occurs first.
In the Phase One Report the Commission recommended replacing the current Age Pension income and assets tests, from 2027-28, with a single comprehensive means test which would deem income from a greater range of assets, including the value of the principal residence in excess of $750,000 for coupled pensioners and $500,000 for a single pensioner.
The Commission recommends that the Government not proceed with the trial, as it treats seniors with a similar level of wealth differently, in terms of Age Pension eligibility, depending on whether they have recently downsized their home.
The effect of the programme will be to introduce a new exemption and will move the Age Pension towards a less comprehensive means test arrangement.
This is counter to the directions implied by the Commission’s other recommendations in this area, which are intended to make the Age Pension more sustainable over the longer term.
Recommendation 21: Housing Help for Seniors
There is a pressing need to ensure that the cost of the Age Pension remains sustainable and targeted to those in genuine need. The proposed Housing Help for Seniors programme will introduce a new exemption that would treat seniors with a similar level of wealth differently, in terms of Age Pension eligibility, depending on whether they recently downsized their home.
The Commission recommends that the Government not proceed with the announced trial of Housing Help for Seniors.
As detailed in the Phase One Report, the Commission proposed that a comprehensive review of the roles and responsibilities between the Commonwealth and State governments be undertaken to ensure that: policy and service delivery is as far as is practicable delivered by the level of government closest to the people receiving those services; each level of government is sovereign in its own sphere; and duplication between the Commonwealth and the States is minimised.
The Commission recommended that the States be provided access to the Commonwealth Personal Income Tax base and that the Commonwealth lower its Personal Income Tax rates to allow room for the States to levy their own income tax. The impact of lower revenue collections for the Commonwealth would be offset through an equivalent reduction in other financial assistance payments to the States.
This approach applies equally well in assessing the Commonwealth’s relationship with local government.
The Commission recommends that should such reforms be made to address vertical fiscal imbalance and horizontal fiscal equalisation, the States should make greater use over the longer term of access to the Personal Income Tax base to fund their expenditure responsibilities. This includes support for local government.
In the interim, to the degree that the Commonwealth continues to provide grants to local governments, these should be untied, rather than tied to particular activities. This would give local government clearer responsibility for delivering local services and greater accountability to the communities they serve.
The Commonwealth’s largest source of funding to local government is through untied Financial Assistance Grants, composed of general purpose grants ($787.3 million in 2013‑14) and untied roads funding ($349.3 million in 2013-14). Funding in 2013-14 is lower than trend and reflects a decision by the former Government to bring forward $1.1 billion from 2013-14 to be paid in 2012-13.
Both components of Financial Assistance Grants are paid to the States to be passed onto local government.
The Commonwealth also provides a broader range of small tied grants to local and State governments. While funding for these programmes is often on a short-term and terminating basis, and some of the programmes may have merit, whether they continue should be a matter for the State or local government.
The Safer Suburbs Programme - Taxi Security Scheme ($3.8 million over 4 years from 2013-14) aims to address crime and anti-social behaviour around taxi ranks by providing grants for community safety measures, including installation of Closed Circuit Television systems, improved street lighting and youth diversion programs. In 2013, the programme was extended to cover grants for measures to improve the safety of taxi drivers at taxi ranks.
The Digital Productivity Initiative ($39.2 million over 4 years from 2013-14) provides assistance to enhance the digital economy and improve levels of technology use. This includes: programmes for local government to provide online customer support, community engagement, and building and development of applications; and programmes providing assistance to universities to support the utilisation of high definition videoconferencing.
The Liveable Communities ($20 million over 2 years from 2011-12) programme was established to support improved alignment of urban planning and design with the National Urban Policy and Council of Australian Governments principles. This programme has now terminated.
The Commonwealth also provides a range of small tied grants to fund State government responsibilities.
Keys2drive ($11.5 million over 4 years from 2013-14) is a learner driver education programme owned and delivered by the Australian Automobile Association and state motoring clubs. Its objectives are to enhance learner driving experiences and increase safety during the first six months of the provisional period.
The Seatbelts on Regional School Buses ($3 million over 4 years from 2013-14) programme provides funding for eligible school bus operators to subsidise the installation of seatbelts on new buses or retrofit existing buses. The programme aims to increase the number of seatbelt-equipped school buses operating on high speed roads in rural and regional areas.
Accountability of government spending would be enhanced if these and other tied Commonwealth grants ceased, and to the extent that programmes are identified as priorities, local or State governments provide them to the communities they serve.
Recommendation 22: Payments to local government
The Commission's Phase One recommendations on addressing the degree of vertical fiscal imbalance within the Federation propose that the States have access to the personal income tax system so they are in a better position to fund their own priorities. This will include support for local government. In this situation, the need for separate tied funding from the Commonwealth will diminish.
The Commission recommends that tied grants to local governments cease, and to the extent that programmes are identified as priorities, local or State governments provide them to the communities they serve.