Defined Terms and Documents

Community Affairs References Committee - The Senate -

Report on poverty and financial hardship  -  March 2004

Senate Community Affairs References Committee Secretariat

Mr Elton Humphery (Secretary)

Ms Christine McDonald (Principal Research Officer)

Mr Peter Short (Senior Research Officer)

Ms Leonie Peake (Research Officer)

Ms Ingrid Zappe (Executive Assistant)

The Senate

Parliament House

Canberra ACT 2600

Phone: 02 6277 3515

Fax: 02 6277 5829

E-mail: community.affairs.sen@aph.gov.au

Internet: http://www.aph.gov.au/senate_ca

This document was produced by the Senate Community Affairs References Committee

Secretariat and printed by the Senate Printing Unit, Parliament House, Canberra.

Senator Steve Hutchins, Chairman ALP, New South Wales

Senator Sue Knowles, Deputy Chairman LP, Western Australia

Senator Gary Humphries LP, Australian Capital Territory

Senator Meg Lees APA, South Australia

Senator Jan McLucas ALP, Queensland

Senator Claire Moore ALP, Queensland

Senator the Hon Eric Abetz LP, Tasmania

Senator Lyn Allison* AD, Victoria

Senator Mark Bishop ALP, Western Australia

Senator Kim Carr ALP, Victoria

Senator Grant Chapman LP, South Australia

Senator Helen Coonan LP, New South Wales

Senator Trish Crossin ALP, Northern Territory

Senator Kay Denman ALP, Tasmania

Senator Alan Eggleston LP, Western Australia

Senator Chris Evans ALP, Western Australia

Senator the Hon John Faulkner ALP, New South Wales

Senator Alan Ferguson LP, South Australia

Senator Jeannie Ferris LP, South Australia

Senator Michael Forshaw ALP, New South Wales

Senator Brian Greig** AD, Western Australia

Senator Brian Harradine IND, Tasmania

Senator Len Harris PHON, Queensland

Senator Ross Lightfoot LP, Western Australia

Senator Joseph Ludwig ALP, Queensland

Senator Sue Mackay*** ALP, Tasmania

Senator Brett Mason LP, Queensland

Senator Kerry Nettle AG, New South Wales

Senator Julian McGauran NATS, Victoria

Senator Shayne Murphy IND, Tasmania

Senator Kerry O’Brien ALP, Tasmania

Senator Marise Payne LP, New South Wales

Senator John Tierney LP, New South Wales

Senator John Watson LP, Tasmania

Senator Ruth Webber ALP, Western Australia

* for matters relating to health

** for matters relating to family and community services

*** for matters/hearings relevant to Tasmania

Terms of reference..................................................................................................1

Conduct of the inquiry............................................................................................1

Structure of the Report ...........................................................................................2

The Committee’s approach to poverty....................................................................3

What is poverty?.....................................................................................................5

Poverty and inequality..........................................................................................10

Measuring poverty................................................................................................12

Income-based poverty lines...............................................................................13

Budget standards ...............................................................................................15

Consensual approach .........................................................................................17

Living standards studies ....................................................................................18

Problems in measuring poverty ............................................................................20

Data sources.......................................................................................................20

Definition of income..........................................................................................21

The measure of resources ..................................................................................22

Alternative measures of poverty...........................................................................24

Deprivation indicators .......................................................................................24

Use of expenditure data.....................................................................................27

The income unit.................................................................................................28

Time period .......................................................................................................29

Equivalence scales.............................................................................................29

Updating poverty lines .........................................................................................30

Conclusion............................................................................................................31

The origins of poverty research............................................................................33

The Henderson Commission of Inquiry ............................................................33

Extent of poverty in Australia ..............................................................................35

Who is in poverty today?...................................................................................41

Poverty by State/Territory .................................................................................43

Income inequality .................................................................................................45

Impact of the GST .............................................................................................49

Impact of taxes, transfers and other benefits.....................................................50

Wealth distribution ............................................................................................52

Conclusion............................................................................................................53

The changing labour market.................................................................................56

Unemployment and underemployment ................................................................57

Joblessness and poverty........................................................................................59

Creating more jobs ...............................................................................................60

Full employment................................................................................................61

Job creation schemes .........................................................................................62

Conclusion.........................................................................................................64

Role and effectiveness of the Job Network ..........................................................65

Conclusion.........................................................................................................69

Long-term unemployed ........................................................................................70

Skill development and work experience ...........................................................71

The working poor .................................................................................................73

Life for the low paid ..........................................................................................75

Addressing the problem of low pay ..................................................................79

Conclusion.........................................................................................................84

Casualisation.........................................................................................................85

Conclusion.........................................................................................................89

Labour-hire ...........................................................................................................90

Changing industrial relations environment ..........................................................93

Income support arrangements...............................................................................97

Adequacy of income support payments ...............................................................99

Payments . how adequate is the ’safety net’? ....................................................99

Income based poverty measures......................................................................100

Budget standards .............................................................................................101

Hardship measures...........................................................................................102

Payment structure ............................................................................................105

Level of payment.............................................................................................107

Concessions .....................................................................................................108

Participation costs............................................................................................110

Compliance requirements and penalties.............................................................112

Conclusion.......................................................................................................117

Poverty traps.......................................................................................................117

Housing and poverty...........................................................................................121

Homelessness .....................................................................................................124

Supported Accommodation Assistance Program............................................127

Groups with special housing needs ....................................................................128

Addressing housing access and affordability .....................................................128

Public and community housing .......................................................................129

Rent assistance.................................................................................................134

Private investment in low-cost housing...........................................................136

Home ownership..............................................................................................137

Tenants’ rights and tenancy databases .............................................................137

National housing strategy................................................................................140

The relationship between education and poverty ...............................................143

Literacy and numeracy ....................................................................................147

Retention and participation rates.....................................................................149

Conclusion.......................................................................................................151

Poverty and early childhood education ..............................................................152

Conclusion.......................................................................................................155

School education ................................................................................................156

Educational costs .............................................................................................157

Breakfast clubs for schoolchildren ..................................................................159

Quality of education ........................................................................................160

Public education ..............................................................................................162

Programs to improve educational outcomes ...................................................164

Conclusion.......................................................................................................167

Poverty and access to tertiary education ............................................................168

Conclusion.......................................................................................................171

Poverty and health ..............................................................................................173

Access to Medicare.............................................................................................175

Decline in bulk-billing.....................................................................................175

Addressing the decline in bulk-billing ............................................................178

Conclusion.......................................................................................................179

Access to public hospitals ..................................................................................179

Australian Health Care Agreements................................................................180

Impact of the private health insurance rebate..................................................182

Conclusion.......................................................................................................183

Access to ancillary and specialist health services ..............................................183

Access to preventive health and related services ...............................................185

Access to maternal and child health services .....................................................186

Access to dental care ..........................................................................................186

Conclusion.......................................................................................................189

Access to utilities................................................................................................191

Consumer credit regulation ................................................................................193

Availability of credit........................................................................................195

Loan defaults and debt recovery .....................................................................196

Fringe credit providers ....................................................................................197

Pawnbrokers ....................................................................................................202

Consumer education ........................................................................................202

Funding of financial counselling services .......................................................203

Conclusion.......................................................................................................204

Gambling ............................................................................................................204

Response to problem gambling by increased State regulation........................206

Conclusion.......................................................................................................210

Woman and poverty ...........................................................................................211

Women and work ............................................................................................212

Impact of part-time and casual of work...........................................................213

Women in retirement.......................................................................................215

Child care.........................................................................................................216

Domestic violence ...........................................................................................218

Women in rural and regional areas..................................................................219

Migrant women and poverty ...........................................................................220

Sole parents.........................................................................................................223

Low income sole parent families.....................................................................224

Sole parents and work .....................................................................................228

Income support payments................................................................................229

Child Support Scheme.....................................................................................237

Conclusion.......................................................................................................239

Children in poverty . an overview .....................................................................241

Characteristics of children in poverty ................................................................245

Sole parent families and couples with children...............................................246

Unemployment and low wages .......................................................................248

Families receiving government benefits..........................................................249

Children with parents from non-English speaking backgrounds ....................250

Children living in poverty ..................................................................................251

The impact of poverty on children .....................................................................255

Social and economic costs of child poverty .......................................................259

Responding to child poverty...............................................................................261

National approach............................................................................................261

Initiatives to reduce the incidence and impact of child poverty......................264

Conclusion..........................................................................................................266

Rates of poverty..................................................................................................269

The impact of poverty on young people.............................................................270

Youth labour force participation ........................................................................274

15 to 19 year olds ............................................................................................275

20 to 24 year olds ............................................................................................277

Unemployment rates........................................................................................277

Access to full-time employment......................................................................278

Improving the transition from school to work.................................................279

Income support ...................................................................................................282

Impact of activity testing and breaching on youth ..........................................284

Youth and Centrelink ......................................................................................285

UK Gateway to the New Deal program ..........................................................286

Conclusion..........................................................................................................287

Students and poverty ..........................................................................................289

Income support for students ............................................................................289

Work commitments .........................................................................................292

Cost of living ...................................................................................................294

Student debt .....................................................................................................296

Impact of poverty on students .........................................................................298

Conclusion.......................................................................................................299

Measuring Indigenous poverty ...........................................................................301

Nature and extent of Indigenous poverty and disadvantage ..............................302

Addressing social and economic disadvantage ..................................................304

Unemployment ................................................................................................304

Community Development Employment Projects............................................306

Housing and infrastructure ..............................................................................308

Education.........................................................................................................309

Health ..............................................................................................................315

Indigenous children .........................................................................................316

Indigenous youth issues...................................................................................318

The criminal justice system.............................................................................319

Conclusion..........................................................................................................321

The urban-rural/regional divide..........................................................................323

Social and economic disparities .........................................................................328

Unemployment ................................................................................................328

Incomes............................................................................................................329

Health ..............................................................................................................330

Education.........................................................................................................330

Addressing poverty and disadvantage in regional and rural areas .....................331

Improved access to services ............................................................................331

Regional development strategies.....................................................................332

Job creation initiatives.....................................................................................333

Capacity building.............................................................................................334

Conclusion..........................................................................................................335

Older people .......................................................................................................337

Factors contributing to poverty of older Australians ......................................339

Changing industrial conditions........................................................................339

Unemployment, underemployment and low wages ........................................340

Changing nature of families ............................................................................341

Government income support ...........................................................................342

Inadequate retirement income .........................................................................345

Housing and aged care.....................................................................................347

Ill health and disability ....................................................................................350

Rate payments .................................................................................................350

Conclusion.......................................................................................................351

Migrants and refugees ........................................................................................352

Protection Visas and eligibility for entitlements .............................................352

Waiting periods for migrants accessing income support ................................357

Employment and housing issues .....................................................................358

Conclusion.......................................................................................................361

Poverty and disability .........................................................................................363

Support and assistance for people with disabilities............................................365

Funding for disability services ...........................................................................367

Level of unmet need ........................................................................................367

Factors relating to poverty and disadvantage .....................................................368

Income support and related payments .............................................................369

Employment ....................................................................................................373

Education.........................................................................................................378

Housing and accommodation assistance .........................................................380

Transport..........................................................................................................383

Access to information......................................................................................384

Support and assistance for carers .......................................................................384

Financial security for carers ............................................................................385

Respite care .....................................................................................................386

Community service sector ..................................................................................389

Provision of services........................................................................................391

Increasing demand for services .......................................................................392

Impact on welfare services of people being breached.....................................395

Emerging and complex problems from people seeking assistance .................396

Impact on welfare workers of increasing demands.........................................397

Beyond emergency support . longer term outcomes ......................................400

Early intervention and prevention programs ...................................................402

Cooperation and increased community capacity.............................................403

Conclusion.......................................................................................................405

Local government...............................................................................................406

Conclusion.......................................................................................................409

Centrelink ...........................................................................................................409

Access to and attitude of Centrelink staff .......................................................410

Pressure on agencies from people directed by Centrelink ..............................414

Centrelink liaison with community sector.......................................................414

Conclusion.......................................................................................................417

The need for a national strategy .........................................................................419

Whole of government approach ......................................................................420

A national approach to poverty alleviation ........................................................423

Agreed national poverty benchmark measure.................................................423

National anti-poverty strategy .........................................................................424

Ireland’s National Anti-Poverty Strategy ........................................................425

Consultative mechanisms to develop strategy.................................................426

National poverty reduction targets ..................................................................428

Establishment of an anti-poverty body............................................................430

Conclusion.......................................................................................................433

Structural changes aimed at reducing poverty ...................................................434

Social and economic sustainability ....................................................................437

Conclusion..........................................................................................................439

LIST OF PUBLIC SUBMISSIONS, TABLED DOCUMENTS AND OTHER

ADDITIONAL INFORMATION AUTHORISED FOR PUBLICATION BY

THE COMMITTEE................................................................................................471

WITNESSES WHO APPEARED BEFORE THE COMMITTEE AT

PUBLIC HEARINGS.............................................................................................485

BIBLIOGRAPHY ..................................................................................................503

This examination of poverty and disadvantage in Australia was undertaken for two

reasons.

Firstly, there is growing evidence within our community that the strong economic

gains of the last two decades have not been shared fairly. While our economic

indicators have continued to reach upwards, so has the level of inequality, poverty,

homelessness and housing stress, long term unemployment, suicide and child abuse.

Secondly, there has been no comprehensive or wide-ranging study such as this on

poverty for over 30 years. This study was based on the most reliable, authoritative and

up-to-date data available. This was sourced from:

Underpinning our report is how rapid growth of inequality . especially during the last

decade . is driving more and more Australians into deprivation and disadvantage.

What we found is that Australia is losing the fight for the fair go, that inequality is

accelerating and that there is an increasing loss of opportunity in our community

which denies an increasing number of Australians a legitimate chance at success.

Current levels of poverty in Australia are unacceptable and unsustainable. Whilst there

is considerable academic debate on what constitutes deprivation, there can be no

denying the growth in poverty throughout the last decade.

The table below indicates a consensus that the numbers of Australians living in

poverty generally ranges from 2 to 3.5 million . with one study finding 1 million

Australians in poverty despite living in a household where at least one adult works. In

addition, there are now over 700 000 children growing up in homes where neither

parent works and a great risk that many youths will never find full-time employment.

Without concerted action, these children and youth will become tomorrow’s

disadvantaged adults.

-1000

-500

0

500

1000

1500

1984 1988 1993 1998

Top 20% - real*

Top 20% - actual

Bottom 20% - actual

Bottom 20% - real*

Henderson poverty line 1999 3.7 . 4.1 million (20.5 . 22.6% of population)

St Vincent de Paul Society - 3 million

Australian Council of Social Service 2000 2.5 . 3.5 million (13.5 . 19% of population)

The Smith Family 2000 2.4 million (13 % of population)

Brotherhood of St Laurence 2000 1.5 million

The Australia Institute - 5 . 10% of population

This cycle of poverty demonstrates how poverty is becoming more entrenched and

complex. This is evidenced by the fact that the kind of economic growth Australia is

achieving has been unable to lift many Australians out of poverty.

Importantly, the committee had its attention drawn by a number of submissions to the

close association between poverty and inequality . and inequality of opportunity. This

is illustrative of a marked shift from Australia’s egalitarian traditions, and evidenced in

the rapid widening in the income gap over recent years.

* Real Incomes expressed in constant 1998/99 dollars

No more clearly is this drawn than by the rapid change in income inequality and

wealth distribution over the last decade. As can be seen below, the income shares for

both the lower and middle quintiles of the population have decreased . with the

middle becoming increasingly polarised.

The crucial fact is that the widespread financial stress of poor households is due

directly to a decline in their real incomes. It must be stressed that for the common

index of inequality, the Gini coefficient, a movement of 0.01 has deleterious effects on

poverty.

As can be seen above, the reality is that incomes have not kept pace with the increased

costs of services. The deprivation detailed above is grounded in, and nurtured by,

growing inequality and lack of access to such services. There is now a ’poverty of

participation’ by the disadvantaged in institutions of social mobility and security .

such as:

Perhaps the most salient example of the prevalence of poverty and disadvantage is the

striking finding that 21 per cent of households, or 3.6 million Australians, live on less

than $400 a week . less than the minimum wage. The persistence of low-pay and lowincomes

arising from the growth in inequality is clearly the major driver of poverty.

This report has challenged traditional assumptions that joblessness is often a sufficient

reason for the presence of poverty. The committee has heard that over 1 million

Australians are living in poverty despite living in a household where one or more

adults are in employment. By contrast, the 1975 Henderson report found that only

2 per cent of households with an adult employed fulltime could be classified as poor.

The rise of the ’working poor’ as this group has come to be known demonstrates that

they are the new face of poverty in post-industrial Australia.

The prevalence of working poor households in poverty is due simply to low-wage

employment. Driving this change has been a casualisation of the workforce in the last

two decades and a more recent weakening of the industrial relations systems. Between

August 1988 and 2002 total employment of casual workers in Australia increased by

87.4 per cent (141.6 per cent for men and 56.8 per cent for women). By August 2002

casual workers comprised 27.3 per cent of all employees, an increase of 7 percentage

The committee has found that this development entails a radical break with Australian

tradition. The main bulwark against poverty since the Harvester judgement has been

secure employment opportunities and just or living wages. This report has now found

that over 1 million Australians are finding that this certainty has been taken away from

them . through no fault of their own.

The committee found that many members of the low-wage working poor are placed in

similar situations. They are often employed casually or part-time, in low skill and

service industries resulting in little bargaining power with their employers. Most

crucially, their low wages are unable to be increased due to the inaccessibility of

fulltime work or because of unpaid overtime. Moreover, because of the precariousness

and uncertainty of their employment, career progression and training is often

unavailable.

The committee has also found that the rise in workforce casualisation is the result of

attacks on Australia.s traditional industrial relations system, which emphasised full

employment opportunities and provided protection against attempts to reduce workers

job security.

Moreover, the working poor are increasingly finding a poverty of access to

community services due to moves by the current Federal Government to ’user-pays’

models. A salient example of this has been the impacts on families arising from

Medicare bulk-billing. Many working poor families now not only struggle to afford

visits to their family doctor, but are also more likely to compound their health

problems by avoiding visiting the doctor due to the cost.

Finally, the committee is extremely concerned about the intergenerational implications

the welfare and prosperity of all our people. The report has detailed the clear

diminution of children’s opportunities and the limitations placed on upward mobility

of disadvantaged families. However, if the processes that have given rise to a new

class of poverty-stricken working people are allowed to continue, then Australia may

never regain its egalitarian tradition.

Almost every submission to this inquiry focused in one way or another on the role of

Government in combating poverty. What united most submissions . especially those

from charities and the community sector . is that Government should offer a hand up,

and not a hand out, to those living in poverty.

The vast bulk of evidence to the inquiry found that Government is failing this

expectation. On one hand, as the table below demonstrates, many payments to

vulnerable Australians are well below the poverty line, and must contribute to these

people either living in, or being at risk of poverty.

On the other, the committee found that Government initiatives are largely failing to provide the necessary

opportunities to the people who need them, especially in the form of employment

services and family payments.

Single adult unemployed $185 N/A $45 $230 $294 78%

Single, away from home,

18-20 unemployed

$150 N/A $45 $196 $294 67%

Couple unemployed . 0

children

$333 N/A $43 $376 $393 96%

Sole Parent unemployed .

1 child

$211 $101 $53 $365 $378 97%

Sole Parent unemployed .

3 children

$211 $228 $60 $499 $536 93%

Couple unemployed . 1

child

$333 $63 $53 $449 $473 95%

Couple unemployed . 3

children

$333 $190 $60 $583 $632 92%

Single adult student $151 N/A 0 $151 $238 63%

Single student, away from

home, 18-25

$151 N/A $45 $196 $238 82%

Single Age/Disability

Pensioner

$211 N/A $45 $256 $238 108%

Age/Disability Pensioner

couple . 0 children

$352 N/A $43 $395 $338 117%

Sole Parent not in labour

force . 1 child

$211 $101 $53 $365 $322 113%

Sole Parent not in labour

force . 3 children

$211 $228 $60 $499 $481 104%

Without prejudicing the importance of the working poor in understanding poverty,

unemployment remains a key reason for deprivation and disadvantage. It is

unfortunate then, that the committee has found significant shortcomings in the

Government’s Job Network model of employment services that are failing the

unemployed. This is because at no stage is there a significant guarantee that the longterm

unemployed will receive the necessary case-management or training to find

employment through the system. This report has therefore recommended significant

changes to the way the Job Network operates.

The committee has also had its attention drawn to the poverty traps created by the

present family payments system. This system, which governs both income support

payments (such as Newstart) and family payments (such as the Family Tax Benefit)

creates effective marginal tax rates as high as 80 per cent. This is because earnings

over a certain level attract additional tax but also result in a reduction in the amount of

payment received. The committee agrees with the many submissions that argued this

acts both as a significant barrier to additional work to increase family incomes and

limits family incomes at a level inappropriate to the circumstances of many families.

A particularly current debate for all Australians . housing affordability . has created

significant ’housing stress’ for those at the lower end. The inquiry heard that many

families are spending over 30 per cent of their incomes on either rent or mortgage

repayments . often to the detriment of other family expenses. Because of the increases

in both rents and house prices over the last decade, the rise in housing stress is closely

linked to lower disposable incomes, and ultimately poverty. Of concern to the

committee was the lack of interest shown by the current Government in low-cost

housing, the absence of a national housing strategy and a decrease in the

Commonwealth’s funding of public housing stock.

1992-93 1485.4 1758.7 1199.0 1419.6

1993-94 1419.6 1662.5 1401.0 1640.8

1994-95 1509.6 1649.4 1453.0 1688.2

1995-96 1489.8 1688.4 1552.0 1758.9

1996-97 1353.4 1510.1 1647.0 1837.7

1997-98 1207.4 1328.4 1484.0 1632.7

1998-99 1276.6 1402.3 1505.0 1653.2

1999-2000 1331.0 1431.0 1538.0 1653.6

2000-01* 1406.5 1442.7 1717.0 1761.2

2001-02* 1392.3 1392.3 1815.0 1815.0

paid to State and Territory Governments.

The committee was also shocked by the nature and extent of children’s poverty

throughout the inquiry. Not only were the detrimental effects to life chances of

concern to the committee, but also the extent of deprivation suffered by children in

families living in poverty. In many cases Commonwealth programs offer little in

response to the complex needs of children . such as literacy interventions, nutrition

and parenting skills . where children are disadvantaged. For this reason the committee

has made significant recommendations in regard to early intervention strategies and

support services for families with poverty stricken children.

Underpinning these selected examples is a common need to ’poverty-proof’

community services and rebuild the ladders of social mobility. This means a linking

up of government services at all levels and across responsibilities to ensure whole-ofgovernment

responses to poverty. This carries with it the recognition that

disadvantage is increasingly concentrated and geographic and hence the implication

that such a response must be localised and holistic.

Whilst the report has a number of recommendations of poverty interventions, it must

be stressed that these must occur in conjunction with ensuring both employment

opportunities for those that can work, and income dignity for those that cannot.

These key findings presented below serve to illustrate a compelling case that Australia

will face a crisis of poverty and disadvantage in the coming years. They carry with

them the implication that Australians are increasingly at risk of falling into poverty

and indeed more so now than at anytime during the post-war era.

What is most disturbing however, is the common theme that while poverty is

becoming more entrenched and more intractable, the Commonwealth is increasingly

abrogating its responsibility to tackle this great indignity inflicted on the Australian

people.

Economic growth is vital but only because it represents the path to greater prosperity

for everyone. The evidence to this inquiry demonstrates that the kind of prosperity we

are achieving is being captured by a few at the long term expense of the many.

The Commonwealth’s indifference to, or acceptance of, increasing poverty and

inequality as the inevitable by product of a market economy in a globalised world, is

out of step with the views of Australians who believe in a fair go for all.

Indeed this has never been the Australian way. Modern Australia was founded on a

strong economy and a just society. Secure and dignified employment was the

cornerstone of this endeavour. The rise of the working poor due to casualisation, low

pay and the weakening of job security demonstrate how this thread in Australia’s

institutional fabric has been torn away.

We ought not automatically assume the solutions of the past will solve the problems

of today. However, this committee has made substantial recommendations to ensure

that we are able to give hope to those Australians living in poverty in line with our

traditions via:

payments system that acts as barrier to increasing working families’

incomes (recommendation 15);

low wage economy (recommendation 1);

workers through strengthening their employment entitlements

(recommendations 8, 9, 10); and

living and an inquiry into the nature of low-pay in Australia

(recommendations 6, 7).

The growing gulf between the headline economic figures and social outcomes at the

community level also requires that key Government social and economic responses to

build capacity be better joined and devolved. Without whole of government action

targeted at economic growth, job creation and improved social cohesion at a local

level, the geographic chasm the St Vincent de Paul Society describes as ’Two

Australias’ will only widen.

Nowhere is the ’Two Australias’ description more appropriate than in the level of

access to public services and institutions of social mobility. The committee has found

that those Australians living in . or at risk of . poverty are either finding that many

public services are either inaccessible or more poorly resourced than in areas of lesser

disadvantage. Resolving this requires political will, and it is incumbent on the

Commonwealth to ensure that all Australians are able to access the services they

deserve. In this regard the committee has recommended:

profile and resources of the school concerned (paragraph 7.102);

additional population and preventive health measures (paragraphs 8.24-

8.25, 8.50);

(paragraph 8.68);

the necessary and appropriate assistance and training options for the

unemployed (paragraph 4.51);

services and a national public infrastructure development plan (paragraphs

14.43, 14.45); and

communities currently provided by Centrelink be bolstered and more

focused on building social and economic capacity (paragraphs 17.93-

17.94).

It must also be stressed that a central reason why poverty is becoming more

entrenched and complex is because of the increasing prevalence of social risk. Risks

such as weak connections to the labour market, poor educational development and

family dysfunction are both symptomatic and causes of poverty. The ’cycle of poverty’

that these risks then create clearly demands interventions made at both the family,

community and individual level that are sufficiently localised and tailored to break the

cycle. Major examples and recommendations in this report are:

support system (paragraph 11.94);

literacy (paragraphs 7.49-52);

(paragraphs 7.103-7.104); and

There is also a failure on the part of the Commonwealth to harness institutions such as

the Council of Australian Governments (COAG), so crucial in a Federal system, to

coordinate effort to address disadvantage. If we are serious about tackling poverty and

poverty of opportunity, coordinated effort between Governments (including local

governments) is a must.

It is for this reason that the committee has recommended the development of a

National Poverty Strategy. Nothing else can harness the necessary political will to

comprehensively fight poverty. This report has found that piecemeal and inconsistent

responses to poverty are inadequate and ineffective as long term approaches. The

development of the National Poverty Strategy will involve:

importance and nature of the issues raised by poverty and poverty of

opportunity and to agree on a broad plan of action;

government and across policy areas; and

Following on from this, it is the committee’s recommendation that a statutory

authority or unit reporting directly to the Prime Minister be established to:

and

Finally, the committee would like to stress there is little room for complacency or

delayed action. Although Australia by world standards is a wealthy country, the level

of poverty in our community is increasing and becoming increasingly entrenched. The

committee is compelled to this view after hearing the daily experiences of Australians

living in poverty, from pensioners who go to bed early because they cannot afford

heating and students slipping into prostitution to support their studies.  Indeed it is

often the most vulnerable Australians that are most at risk of poverty, such as:

The indignities these Australians face must not be tolerated by Government as the

unfortunate, but acceptable by-product of modern society. In the same way that we

cannot afford continuing poverty as a nation, we cannot deny the same life chances to

those Australians who most need the opportunity for a fair go.

Poverty and inequality in Australia today represent a fundamental test of our national

resolve and values. If we are serious as a community about our claim to be a fair

society . indeed the land of the fair go . then concerted action is required.

4.32 That the Commonwealth Government develop a national jobs strategy

to:

. promote employment opportunities, particularly permanent full-time and

permanent part-time jobs;

. set long-term targets for increased labour force participation;

. develop better targeted employment programs and job creation strategies;

. ensure a substantial investment is made in education, training and skill

development; and

. bring a particular focus on improving assistance to young people making the

transition from school to work, training or further education to prevent lifelong

disadvantage.

4.33 That the Commonwealth conduct a review into the dynamics of the

labour force, especially in relation to skill shortages.

4.51 That the Commonwealth Government:

. introduce a training guarantee for long term unemployed or at risk jobseekers

under the Job Network;

. introduce quality controls in the form of case management provided to

jobseekers;

. provide automatic entitlement to case management for long-term

unemployed people and unemployed youth;

. provide caps on the number of unemployed persons a case manager can

assist within a job service environment to reduce the incentive to churn; and

. consider the feasibility of introducing a ’training and hiring’ model (referred

to in paragraph 4.65).

4.52 That the Commonwealth Government introduce a range of measures, in

addition to subsidised employment services, to address structural

problems in the labour market.

4.66 That a transitional jobs scheme for the very long term unemployed be

introduced, whereby people who have been unemployed for over two years

would be provided with six months employment at a training wage in the not-forprofit

and public sectors.

4.90 That the Australian Industrial Relations Commission establish a new

minimum wage benchmark based on a wage level that enables a single full-time

worker to achieve an adequate standard of living relative to contemporary

community standards.

4.104 That the Commonwealth Government conduct an inquiry into low-paid

employment and that this inquiry examine:

. the nature and extent of low-paid employment in Australia;

. the introduction of a workable floor in relation to the minimum hours of

work offered by employers;

. the problem of casualisation and employment security;

. the feasibility of attaching standards in relation to wages and conditions to

Government funding of services; and

. the wages and conditions pertaining to contract labour.

definitions of ’full-time’ and ’permanent part-time’ work.

4.123 That the Commonwealth legislate to guarantee the right to standard

entitlements, such as annual leave and sick leave, for casual workers converting

to permanent part-time work.

4.133 That the Commonwealth legislate to guarantee the right to standard

entitlements, such as annual leave and sick leave, for labour hire workers.

5.30 That the Commonwealth Government:

. consider increasing the base rates of allowances to the level of pension

payments and that these payments be indexed to 25 per cent of MTAWE;

and

. consider the feasibility of introducing this reform by 2005.

5.41 That the Commonwealth and the States review their approach to

concessions by:

. establishing common eligibility criteria for concessions by removing

anomalies in the level and scope of concessions between pensioners and

allowees;

. that priority for access to concessions be directed to low income pensioners

and allowees; and

. that information be widely disseminated on the nature and extent of

concessions available.

5.50 That the Commonwealth Government introduce a means-tested

participation allowance, to broaden and replace existing payments, to meet the

additional costs, up to a prescribed level, associated with jobsearch, work

experience or further education and training activities of jobseekers.

5.70 That the breaching and penalty system be amended in line with the

recommendations of the Pearce Review; namely that:

. all penalties should be fully recoverable if the jobseeker takes reasonable

steps to comply with the relevant obligation;

. the duration of penalties should not exceed eight weeks; and

. the rate of reduction in allowance should not exceed 25 per cent.

5.84 That the Commonwealth Government review social security income

tests:

. to reduce the high effective marginal tax rates for many unemployed people

with casual or part time work;

. reduce the high effective marginal tax rates for families caused by the

combined effect of income tests for Family Tax Benefit A, Child Care

Benefit and Youth Allowance, in cases where a family has children attracting

more than one payment.

6.22 That the Commonwealth Government provide a commitment to the

continued operation of the Supported Accommodation Assistance Program.

6.43 That base funding arrangements for public housing be increased under

the Commonwealth-State Housing Agreement.

6.44 That the Commonwealth and the States:

. increase funding for the maintenance of current housing stock;

. increase funding for new public housing stock; and

. develop strategies to increase investment from the private sector into public

housing.

6.65 That, in supporting the current review being undertaken by the working

group into residential tenancy databases, the Commonwealth Government, in cooperation

with the States, develop national guidelines as a matter of priority in

relation to the operation of tenancy databases.

6.70 That the Commonwealth Government develop a national housing

strategy in consultation with key stakeholders including State Governments,

community housing providers, the construction industry and the finance sector;

and that this national strategy involve:

. the development of specific strategies to achieve growth in the supply of

affordable housing through both public and private investment, particularly

for low income groups;

. a review of the effectiveness of Commonwealth Rent Assistance in providing

affordability and access to the private rental market; and

. a review of the relative funding priorities in relation to social housing and

Commonwealth Rent Assistance.

7.30 That the Commonwealth work with State and Territory education

departments to identify those students who are at most risk of poor literacy and

numeracy attainment and provide additional funding to enhance literacy and

numeracy programs so as to meet the national literacy and numeracy goals.

7.31 That the National Report on Schooling in Australia provide the results

of literacy and numeracy benchmarking by socioeconomic group.

7.49 That the Task Force on Child Development, Health and Wellbeing

develop as a matter of urgency a national program for early childhood education.

7.50 That the Commonwealth, in conjunction with the States and Territories,

develop initiatives to improve participation in early childhood education.

7.51 That the Commonwealth, in partnership with the States and Territories,

develop and contribute to the funding of early childhood education.

7.52 That the Task Force on Child Development, Health and Wellbeing

develop and implement special literacy programs for parents wanting to develop

the skills to assist their children with early childhood learning.

7.70 That the Commonwealth provide funding to establish school breakfast

programs in disadvantaged areas.

7.102 That the Commonwealth provide additional funding for schools based

on the socioeconomic profile of the school community to improve services

provided to disadvantaged students.

7.103 That the Commonwealth work with the State and Territory

Governments to develop effective policies and identify successful programs that

improve retention rates of young people in danger of leaving school early and reengage

early school leavers to return to education at school or TAFE; and to

provide additional support for those programs.

7.104 That the Commonwealth provide additional funding for the TAFE sector

aimed at providing support for those students wishing to complete their school

education in TAFE institutions.

8.50 That the Commonwealth provide additional funding for preventive

health and related measures, and that this funding be directed particularly at

socioeconomically disadvantaged areas.

8.68 That a jointly funded Commonwealth-State national dental health

scheme be established to improve access to dental services for people on low

incomes, and that it be modelled on the former Commonwealth Dental Health

Program.

9.8 That public and private utilities have in place hardship provisions that

provide for the reduction or waiver of debt to ensure that customers genuinely

unable to pay for the provision of utilities retain access to these essential

services.

9.21 That all States and Territories require credit providers to undertake a

satisfactory assessment process prior to an increase in the credit limit available to

a client to determine that person’s creditworthiness.

9.40 That the Consumer Credit Code be amended:

. to impose additional requirements for high cost loans provided by fringe

credit providers, relating to:

. disclosure of the comparison rate (the total cost of the loan, including

interest and all fees and charges to a single percentage rate) on the loan

offer;

. disclosure of a statutory warning on the loan offer that the particular

loan is an expensive form of credit; and

. disclosure of information regarding the cancellation of direct debit

authorities and avenues for complaints on the loan offer.

. to clarify that all credit providers must disclose an annual percentage rate

(APR).

. to prohibit the taking of security over essential household goods.

. to prevent fringe credit providers from circumventing the application of the

Code by setting up the credit transaction as a pawnbroking or broker

arrangement.

9.44 That a Ministerial Council on Pawnbroking be established to review the

adequacy of existing regulation of the industry.

9.48 That State and Territory Governments fund more community education

programs in relation to credit and credit-related matters.

9.49 That credit providers be required to provide clear, ’plain English’

information on credit products to potential clients.

9.52 That Commonwealth and State and Territory Governments increase

funding to financial counselling services.

9.74 That the Commonwealth Government, in co-operation with State

Governments through the Ministerial Council on Gambling, continue the

development of a national approach to problem gambling, and that this approach

examine:

. the adequacy of current regulatory mechanisms;

. the need for further harm minimisation and prevention measures; and

. the adequacy of support services for problem gamblers and their families.

10.31 That the Commonwealth provide additional funding to increase the

number of child care places available, particularly in disadvantaged areas.

10.98 That the Child Support Agency review its debt collection procedures to

ensure that debt repayment is made on a regular and timely basis so as to not

disadvantage custodial parents and their children.

11.94 That the Commonwealth, in cooperation with the States and Territories,

develop a comprehensive system of community-based early childhood and

parenting support for all families.

11.95 That the Commonwealth and State and Territory Governments

cooperate to ensure that additional intensive services are funded for

disadvantaged families experiencing multiple and complex problems which

impact on the care of children. Further, that the provision of such services in

Indigenous communities be given a high priority.

11.96 That the Commonwealth conduct an audit of existing rules relating to

parents receiving income support payments to ensure these do not place children

at risk of hardship.

11.97 That the Commonwealth develop and implement a community

education campaign for new parents aimed at improving the nutrition of children.

12.57 That the Commonwealth provide funding for the expansion of access to

the New Apprenticeships scheme, particularly in rural and regional areas.

12.58 That the Commonwealth work with industry and unions to maximise the

take up of apprenticeships in areas where there are recognised skills shortages

and to ensure that training is relevant to enterprises and apprentices themselves.

12.59 That the Commonwealth undertake a review of New Apprenticeships to

evaluate the effectiveness of policies; recruitment and selection; progression

through the scheme; and employment outcomes after training.

12.82 That the Commonwealth initiate an employment assistance program,

based on the United Kingdom Gateway program, to provide youth with intensive

assistance and an agency providing comprehensive support for youth pathways.

12.86 That the Commonwealth and State Governments implement strategies to

improve access to employment opportunities for young unemployed people, in

particular those young people living in rural and remote areas.

12.88 That the Commonwealth provide additional funding to community

organisations to enable them to provide education, training and housing

assistance packages to young homeless people.

12.90 That the Commonwealth progressively lower the age of independence

test for Youth Allowance from 25 to 21 years.

12.91 That the Commonwealth review its income support programs for young

people to fully recognise changes in the Australian labour market.

12.93 That Centrelink expand forms of service delivery which are responsive

to the needs of young people, particularly young homeless people.

12.108 That the parental income test for Youth Allowance be increased and

maintained as a percentage of Average Weekly Earnings.

12.119 That Rent Assistance be extended to those receiving Austudy payments.

13.13 That the Commonwealth, in conjunction with State Governments,

provide a range of incentives to stimulate the growth of industries and

employment in Indigenous communities.

13.14 That the Commonwealth and State Governments, in co-operation with

the private sector, establish partnerships with Indigenous communities to

promote employment opportunities.

13.21 That Community Development Employment Projects participants have

Indigenous people.

13.27 That the Commonwealth provide additional funding for Indigenousspecific

housing programs.

13.50 That the Commonwealth work with the States and Territories to develop

strategies to improve access of Indigenous children to early childhood education

facilities.

13.51 That the Commonwealth provide additional funds specifically for

improving Indigenous literacy and numeracy.

13.52 That the Commonwealth investigate the impact of the changes to

ABSTUDY on the participation of Indigenous students and implement changes

to improve ABSTUDY assistance to Indigenous students.

13.57 That the Commonwealth and the States continue to implement programs

and strategies to improve access to health care services for Indigenous people.

13.66 That the Commonwealth provide additional funding to improve the

affordability of child care for Indigenous children.

13.78 That the Commonwealth provide additional funding for Aboriginal and

Torres Strait Islander Legal Services.

13.79 That the States provide additional assistance for programs that address

recidivism and post-prison release support services for Indigenous people.

14.42 That the Commonwealth and State Governments maintain and expand

services in such areas as health, education, housing and transport to rural and

regional areas.

14.43 That the Commonwealth and State Governments set national minimum

standards for access to essential community services, such as health, education

and welfare services in rural and regional areas.

14.44 That State Governments maintain and expand regional development

strategies in rural and regional areas.

14.45 That the Commonwealth Government develop a national public

infrastructure development program targeted to regional areas focusing on such

areas as transport, hospitals and schools.

14.46 That State Governments encourage the expansion of labour-intensive

private sector services in regional areas by improving education and training and

other public infrastructure and/or providing tax concessions or other subsidies to

encourage employers to relocate to regional areas.

14.47 That State Governments support local employment and social

development initiatives in rural and regional areas.

15.27 That the Commonwealth increase support to educational and other

programs which enable older Australians to remain active members of the

workforce.

15.34 That the Commonwealth Government review the special needs of

ageing carers in relation to retirement income and income support.

15.39 That the Commonwealth, in conjunction with the State and Territory

Governments, ensure that there are adequate guidelines in place to protect older

Australians who use home equity conversion products.

15.50 That the Commonwealth Government provide additional funding for

programs which provide support services for the aged homeless including

additional funding to ensure greater access to aged care accommodation.

15.93 That the Commonwealth enable Temporary Protection Visa holders to

access English language training and employment assistance in addition to

existing services.

15.95 That the Commonwealth Government investigate additional avenues to

enable migrants and refugees to have qualifications recognised and to upgrade

skills to ensure that migrants and refugees are able to find appropriate

employment as soon as possible following arrival in Australia.

16.25 That the Commonwealth introduce a disability allowance to meet the

additional costs associated with disability.

16.36 That the Commonwealth re-commit to employ people with disabilities

in the public sector in proportions that reflect their representation in the wider

community.

16.37 That the Commonwealth Government and the States continue to

implement strategies to promote greater employment of people with disabilities

in the private sector.

16.52 That the Commonwealth and the States continue to implement programs

and strategies to improve access to educational opportunities for people with

disabilities, including the recommendations of the Senate Employment,

Workplace Relations and Education References Committee report on the

16.77 That the Commonwealth Government review:

. the level of income support provided to carers, especially the rate of Carer

Allowance;

. the income support and other support needs of carers with special needs,

such as young carers and ageing carers (also the subject of a separate

recommendation); and

. the level of respite care provided for carers.

16.78 That where young carers have primary care responsibilities in their

families, adequate financial support measures be available, including removing

current restrictions that discourage young people from combining paid work or

study with their caring responsibilities.

16.79 That, as a matter of priority, the Commonwealth relax the rules for adult

carers who live adjacent or near to the person they are caring for to enable them

to receive Carer Allowance.

17.40 That the Commonwealth increase the current level of emergency relief

funds allocated to agencies.

17.56 That the Commonwealth government streamline the funding

arrangements for all its community funding programs.

17.57 That the Commonwealth conduct an audit of its community funding

programs to determine:

. whether they are located in the areas of greatest need;

. the degree to which complementary services are co-located;

. that there is an identifiable continuum of services from capacity building

through to tertiary and crisis support.

17.58 That COAG conduct an audit similar to that in the previous

recommendation to determine the adequacy of Commonwealth, State and local

government funded community services in local communities.

17.93 That Centrelink Community Service Centres be resourced to establish

local management advisory committees with membership drawn from its

customer base, emergency relief providers, local schools, the police, employers

and community representatives to sensitise service delivery to local needs.

17.94 That Centrelink CSCs be resourced to act as community service hubs for

Commonwealth government-funded programs to ensure there is a greater

connection between income support and other human service delivery.

18.46 That a comprehensive anti-poverty strategy be developed at the national

level and that this involve:

. an initial summit of Commonwealth, State and local governments, the

welfare sector, unions, the business sector, community groups, income

support customers and relevant experts in the field to be held to highlight the

importance of the issue and agree on a timetable for action;

. a commitment to achieve a whole of government approach. That is,

coordinated action across policy areas such as employment, health,

education, income support, community services, housing and other relevant

areas to reduce poverty and poverty of opportunity;

. not longer than a 12-month period of consultation.

18.47 That a statutory authority or unit reporting directly to the Prime Minister

be established with responsibility for developing, implementing and monitoring a

national anti-poverty strategy and that this entity:

. establish benchmarks and targets to measure progress against a series of antipoverty

objectives;

. report regularly to the Parliament on progress against the strategy; and

. undertake or commission research into a range of poverty-reduction

measures.

1

1.1 On 21 October 2002, the Senate, on the motion of the Committee Chair, Senator

Steve Hutchins, referred the issue of poverty and financial hardship in Australia to the

Committee for inquiry and report. The full terms of reference were to inquire into and

report on the following matters:

1. (a) the extent, nature and financial cost of:

(i) poverty and inequality in Australia,

(ii) poverty amongst working Australians,

(iii) child poverty in Australia, and

(iv) poverty in Australian communities and regions;

(b) the social and economic impact of changes in the distribution of work, the

level of remuneration from work and the impact of under-employment and

unemployment;

(c) the effectiveness of income-support payments in protecting individuals and

households from poverty; and

(d) the effectiveness of other programs and supports in reducing cost pressures on

individual and household budgets, and building their capacity to be financially

self-sufficient.

2. That, in undertaking its inquiry, the committee also examine:

(a) the impact of changing industrial conditions on the availability, quality and

reward for work; and

(b) current efforts and new ideas, in both Australia and other countries, to identify

and address poverty amongst working and non-working individuals and

households.

1.2 The inquiry was advertised regularly through the Senate’s fortnightly column in

The Australian and through the Internet. Invitations were also sent to the

Commonwealth and State Governments and other interested organisations and

individuals. The Committee received 259 public submissions and 15 confidential

submissions. The Committee also received a large volume of additional information

both at and after the public hearings. A list of the individuals and organisations who

made a public submission to the inquiry and the additional information authorised for

publication by the Committee is at Appendix 1.

2

1.3 The Committee heard evidence on 17 days between April and August 2003 in all

State and Territory capital cities. The Committee also held hearings in regional centres

in Queensland, New South Wales and Victoria. In addition, Committee members

visited a number of community centres to observe first hand the services provided at

these facilities. 340 witnesses gave evidence at the hearings representing a wide range

of organisations and perspectives in relation to the inquiry. Members of the

Committee were especially moved to hear the personal testimonies of many

individuals of the impact of living in poverty. The list of witnesses who gave evidence

at the Committee.s public hearings and the inspections undertaken by the Committee

is provided in Appendix 2. The transcripts of the public hearings can be accessed

through the Internet at: http://www.aph.gov.au/hansard.

1.4 The Committee has received much assistance through this inquiry and would

like to express its deep appreciation and thanks to a number of people:

and information, or gave evidence to the inquiry. In particular the

Committee would like to thank the representatives from the many

St Vincent de Paul Conferences and all the other individuals who appeared

and shared their personal stories;

visit and who shared their valuable time in meeting and discussing issues

with the Committee members that provided them with a range of valuable

insights into the practical issues associated with poverty;

Council and the Community Council on Palm Island for assisting with

arrangements for the inspections undertaken in their areas; and

and the provision of statistical and other information.

1.5 The Committee’s terms of reference are extensive, reflecting that poverty is a

very broad concept. By necessity this has been a wide ranging and complex inquiry. In

reflecting this, the report has been divided into three main sections.

1.6 Firstly, chapters 2 and 3 deal with defining and measuring poverty and the nature

and extent of poverty in Australia. The second section, chapters 4 to 9, examines key

issues or indicators central to poverty . unemployment, income support, housing,

education and training, health and other issues of access to utilities, consumer credit,

and problem gambling. Groups within society that are at particular risk of poverty are

covered in the third section, chapters 10 to 16. They are women and sole parents,

children and families, youth and students, Indigenous Australians, rural and regional

communities, older people, migrants and refugees, and people with a disability.

Finally the Committee discusses the role played by and the impact that poverty has

3

had upon a range of service providers including community and welfare agencies,

local government and Centrelink, and concludes with an outline for future directions

and the need for a national approach to poverty alleviation.

1.7 The discussion in chapter 2 notes that poverty as a concept is difficult to define

and many conflicting views were put to the Committee as to what constitutes poverty

and how best to measure it.

1.8 Poverty is broadly defined in absolute and relative terms. Absolute poverty

refers to people who lack the most basic of life’s requirements: food, housing or

clothing. With the exception of some remote Indigenous communities and homeless

people who sleep rough and have no material possessions, it is generally argued that

the meaning of poverty in Australia differs to that of absolute deprivation or

subsistence existence.

1.9 Relative poverty is defined not in terms of a lack of sufficient resources to meet

basic needs, but rather as lacking the resources required to participate in the lifestyle

and consumption patterns enjoyed by others in society. The Smith Family emphasised

this point by titling its submission ’Barriers to Participation’. Poverty in Australia is

regarded as fundamentally about a lack of access to the opportunities most people take

for granted . food, shelter, income, jobs, education, health services, childcare,

multidimensional concept that goes beyond just material deprivation; it also includes

exclusion from social networks and isolation from community life.

1.10 The Committee agrees with these views, so that when it refers to poverty in this

report it is referring to a concept of deprivation, of lack of opportunity to participate

fully in society, of social isolation and exclusion.

1.11 The Committee has viewed poverty as an overarching concept, underneath

which are the range of many key issues or indicators of poverty . unemployment,

housing, health, education . that have often been treated as separate issues and

addressed individually in a number of inquiries and reports. The Committee has tried

to demonstrate the interconnectedness of these individual components . by focussing

from two angles: that of the key issues central to poverty and the groups at major risk

of poverty . and how these components link and impact upon each other under the

overarching banner that is poverty in Australia.

1 National Statement on Poverty by 13 major community service organisations, dated 31 January

2002.

4

5

2.1 This chapter provides an overview of issues relating to poverty and the

measurement of poverty. Specifically, it addresses issues related to the differing

definitions of poverty, the ways in which poverty may be measured and various

problems that arise in any attempt to measure poverty. These issues have been the

subject of extensive debate and controversy over many decades. That this is the case is

not surprising. As one submission noted ’in effect the measurement of poverty and

2.2 Poverty as a concept is difficult to define and during the Committee’s inquiry

there were differing views amongst participants as to what constitutes poverty or how

best to measure it (a problem shared with academic researchers and the community

generally). One study has argued that the only point of general agreement is that

people who live in poverty must live in a state of deprivation, a condition in which

2.3 Submissions and other evidence to the inquiry provided a range of approaches to

the conceptualisation and definition of poverty. Poverty can be broadly defined in

absolute or relative terms. Absolute poverty refers to people who lack the most basic

of life’s requirements and is measured by estimating the numbers of individuals or

families who cannot provide for the necessities of life such as housing, food or

clothing. Commentators have generally argued that the meaning of poverty in a

relatively advanced country like Australia is quite different from the absolute

deprivation or subsistence which exists in many developing countries and therefore

However, the Aboriginal and Torres Strait Islander Commission (ATSIC) noted that

some remote Indigenous communities are in absolute poverty in Australia, measured

by poor infrastructure with associated diseases that are largely eradicated in other

3 Greenwell H, Lloyd R & Harding A, ’An Introduction to Poverty Measurement Issues’,

NATSEM Discussion Paper No 55, December 2001, p.10.

6

commented that instances of infant mortality and malnutrition amongst Indigenous

Other examples of absolute poverty include the homeless or those at risk of

homelessness and/or those with very few material possessions who rely on social

security benefits and charities just to ’get by’.

2.4 In affluent Western countries like Australia poverty is usually conceived in

relative rather than absolute terms. Relative poverty refers to individuals or families

that have low incomes or other resources relative to other individuals or families.

Relative poverty is defined not in terms of a lack of sufficient resources to meet basic

needs, but rather as lacking the resources required to participate in the lifestyle and

2.5 Evidence to the Committee has generally defined poverty in relative terms as is

illustrated in the definitions provided below.

Poverty is an enforced lack of socially perceived necessities. This definition has three core

elements:

Poverty has two elements:

below community norms and expectations.

While financial disadvantage is an important part of the problems for the poor and

disadvantaged, equally important is the inequality of opportunity. It is this lack of opportunity

which brings about poverty and/or prevents people from escaping the poverty cycle.

2000, p.25.

7

Poverty includes social, psychological and spiritual dimensions, in addition to financial

hardship.

The inevitable consequence of adopting such an inclusive understanding of the nature of

poverty is to appreciate the breadth of the impact which poverty has on a person’s ability to

function as a full member of society. It is not just a matter of being unable to buy things, but

of being unable to participate . of being excluded and isolated from one’s fellow human

beings.

Poverty is essentially the lack of the means to live.

The Christian tradition understands that people have, in addition to basic physical needs such

as food, shelter and clothing, other basic needs, such as the need for education, the need to

participate in society and contribute to the common good, the need for intellectual, cultural

and creative activity, the need to participate in religious activity and community and the need

for rest and recreation. Without these other basic needs being met, human beings may survive

but do not flourish.

Poverty is both:

clothing and health) resulting primarily, but not only, from inadequate income; and

education, recreation and social relationships).

"Adequacy" is defined in relation to community standards and may change over time, as do

standards of living for the community as a whole.

2.6 While definitions of poverty vary, they generally share common features. As

noted above, ACOSS defines poverty as an enforced lack of socially perceived

necessities, which has a number of core elements which it shares with other

definitions of poverty.

2.7 Necessities are resources . goods and services . that people cannot reasonably

live without. The adequacy of resources and whether or not they are necessary needs

to be gauged according to people’s needs. Poverty is usually defined with reference to

a set of basic human needs . physical survival and comfort, and the need to participate

in the economic and social life of the community. This suggests that poverty has two

forms which ACOSS refers to as ’subsistence poverty’ . an inability to meet basic

physical needs, and ’participation or social poverty’ . an inability to meet social needs.

8

Examples of subsistence poverty include inadequate diet, sub-standard housing or

denial of basic health services. Examples of participation poverty include an inability

to meet regularly with family or friends, to travel to job interviews, to afford school

books and excursions for children, or to complete an education. These forms of

poverty are closely related but are distinct. People may have all the resources they

need to subsist but lack the resources required for social participation. Participation

poverty has much in common with the idea of social exclusion, a term that usually

2.8 Similar arguments were provided by Professor Peter Saunders of the Social

Policy Research Centre who argued that despite the apparent diversity in the

definitions of poverty most encompass a number of core features. These are that

poverty is a situation in which resources are not adequate to meet basic needs and that

any definitions usually embody community perceptions of poverty in some way. He

argued that a definition of poverty as an enforced lack of socially perceived

necessities captures the critical aspects of poverty succinctly. It also emphasises the

fundamental point was constantly raised in evidence to the inquiry.

2.9 Several submissions argued that the lived experience of the poor should also be

taken into account in defining poverty. One submission noted that ideally submissions

to a poverty inquiry such as this inquiry should not be written by professional social

analysts, economists or even welfare practitioners but should be written by the poor

themselves . ’only those who are, or have been, genuinely poor can do justice to the

submission referred to a number of social surveys of disadvantaged people which

demonstrated their capacity to present a detailed and multifaceted understanding of

2.10 The Committee recognises these issues and was deeply moved by the personal

descriptions from those people experiencing poverty and those working directly with

the poor and disadvantaged ’at the coalface’. The Committee’s many hearings

conducted throughout urban and regional Australia provided an opportunity to hear

directly of the experiences and difficulties of people living in poverty and those

working closely with them, especially through welfare agencies. Their collective

insights were particularly valuable and provided a useful reference point for framing

many of the Committee’s approaches to poverty alleviation. A number of these

individual contributions are provided below.

Council).

9

A lot of people that have been here have spoken of how they came to be in poverty. I am

speaking as someone who lives in poverty.It does not matter how a person comes to live in

poverty, and it does not matter what it says in the dictionary as its definition; poverty is

everything. You cannot afford basic needs. The first thing that you let go of is

yourself...When you are sitting down trying to work out a budget on $342, straightaway you

see $48 for groceries and $28 for toiletries and other necessities . that is $70 already. Then

you add rent on to that. That is not having a car . which is a luxury, I believe . or a

telephone, because it is not a necessity. The needs of life are not covered by what is put in. It

does not matter whether you are on unemployment or a pension. You break it down: it is not

enough for anybody to sustain a standard of living.

I live in a moderately middle-class suburb.It is not totally affluent but I know some people

around me in the cul-de-sac and up the street who cannot afford heating. They go to bed at

dark. They cook their dinner early, they turn on their electric blanket and they take their

dinner to bed with them so that they will not have to turn on the heating. They cannot afford

wood. They cannot afford their oil heater and their oil heaters are sitting there unused and

going rusty. That is not just one or two people; there are many. People say, "What a good

idea! Right." So for quite a number of people that is the norm in what is not a poor suburb.

These are people who have worked hard all their lives. They are not on pensions, they are not

eligible for a pension, but they cannot afford heating.

What I hear is absolute pain, the pain of poverty. Let us not walk away from that: it is a very

painful experience. I am still haunted by the story of a person who did not appear at but

whose story was told at a recent Just Jobs conference. This was a man who lived in the Huon

Valley who had become totally isolated by his poverty, to the degree that he did not leave or

very rarely left his home. He remained shut up in his house because of the shame, the feelings

of rejection and the sense of isolation from his community. When we have people who are

shut up in their homes because of the experience of poverty, people who are not interacting

with others, then I think we have a serious problem on our hands.

Like millions of other low-income Australians, I am one of the hidden poor, just keeping

afloat. We are flat out treading water out here. We are making very little headway towards

our aspirations, and we are one crisis or catastrophe away from the poor box. We are living

on the edge.

We live in the shadows of the dismal statistics. We are not mad, bad, sad or totally

dysfunctionally overwhelmed by our life circumstances. Many of us are highly skilled and

well educated. We are all doing what we can to contribute to society with the resources we

have. Our poverty is poverty of resources, services and opportunities.it is getting too hard to

make ends meet, let alone work towards our dreams.

10

I want to stress in relation to this delegation that we are not policy experts but we are experts

on the lived experience . the lived experience of these people who have suffered the pain and

heartache of poverty in the city of Sydney. It is clear from the stories we will hear today that

poverty is on the increase. I have a clear example of this. I am a coordinator of our night

patrol service. Here tonight in Sydney . at Martin Place, Kings Cross, Central Station and

down the back of Kent Street we work with homeless people. In 1998 we worked with

23,000 cases. In 2002 we worked with 43,000 cases. That is a 20,000 increase in the number

of people we work with every year. I am not just talking about men with alcohol and drug

addiction, I am talking about men, women and children. Only last Tuesday an unregistered

Commodore car followed us around the back of Kings Cross. It was a family of three

children and a single father, looking for something to eat and for some kind of support from

us.

I move on to poverty. Personal family stress, constantly juggling finances or being in debt, no

spare money to cover unexpected expenses, like the broken-down fridge or hot water service,

even birthdays and celebrations, never being able to make lifestyle choices like going to the

movies or going out for dinner. Because of those sorts of things people never develop a real

sense of hope.

My memory of one instance of real poverty, which I guess is why we are all here today,

relates to a call for assistance we had from a client. We got a phone call from this fellow and

I said, ’Before we come and see you, what’s your problem?. He said, ’I’m hungry’ ’To save me

the time, could you tell us what your basic requirements are?’ This will stagger you. His

answer was, ’Seven loaves of bread, some pasta, some vegemite, some cereal, three litres of

milk, some meat sauce and a couple of incidentals.’ We went and bought it. It cost $39.71.

So we went around to this chap’s place in Pottsville, which is a pretty nice area to live, but it

was a run-down place. It was I guess earmarked for redevelopment. We went inside with the

client . and let us call him Trevor . and he was there with his two young boys. These kids

were perhaps 10 and 12. We walked in with the bags of food and their eyes just lit up. We sat

down at a battered camp table with four chairs . you know the fold-out gear . put the bags of

food on the table and then started to talk. The kids straightaway got the bags of food, looked

inside them and started to put the food away.So we were there and we were asking what

else we could do for him. ’You’ve done absolutely more than enough,’ he told us. ’I’ll be right.

There are more deserving people.’ My companion on that day was the mayor of a well-known

inland town in central New South Wales.he came away, like me, thinking that that was real

poverty, just to see the way those kids operated. That guy had pride. He did not want any

further help. He reckoned that was his help and that was going to get him over the line. They

got all those loaves of bread, and you can imagine what they were going to do.

Council).

2.11 ’Poverty’ and ’inequality’ are distinct concepts although the terms are often used

interchangeably. One submission has defined ’poverty’ as a state where people lack

11

access to the resources required to maintain a socially-defined ’acceptable’ standard of

life, whereas ’inequality’ may be defined as a condition where people have fewer

resources than others in society. It has been noted that poverty may increase even as

inequality is reduced. This may occur, for example, if reductions in income inequality

are brought about by increasing taxation to the point where it undermines economic

incentives. Equally, it is possible for poverty to be reduced even as inequality widens.

This has been the case in recent years in the United States, where child poverty has

been progressively reduced since the 1980s even though tax cuts have almost certainly

2.12 The acceptance of poverty as a relative concept means that poverty and

inequality are related. One study notes that:

Relative poverty can exist only where there is inequality, but this does not

mean that poverty and inequality are the same. Not all forms of inequality

will imply relative poverty, only those in which some individuals or groups

fall well below the average. The eradication of relative poverty will require

some reduction in inequality, but how much and at what cost will depend

2.13 Many approaches to poverty are based on drawing a ’poverty line’ which makes a

distinction between the poor and the non-poor. Other researchers however tend to

continuum of low incomes rather than to a single poverty line cut-off point and focus

on the consequences of low incomes for standards of material well-being and social

participation. Inequality of income, alone, then assumes relatively less importance as a

precondition for poverty, being combined with other dimensions of inequality,

including inequality of access to stable employment, affordable housing, quality

2.14 Submissions to the inquiry noted that when discussing inequality it is important

to consider all aspects influencing the various dimensions of inequality, including but

focus on income can be misleading if they exclude other indicators such as access to

12

that traditional forms of inequality such as income inequality have been expanded in

2.15 Submissions also emphasised that poverty in many cases is a precursor to other

forms of disadvantage. A study for Jesuit Social Services identified a concentration of

disadvantage using a composite measure of social disadvantage, including income

levels, educational levels, unemployment, low birth weight, child maltreatment,

childhood injuries, psychiatric admissions, mortality, crime and emergency relief. The

study found most of these indices of disadvantage to be cumulative and mutually

reinforcing. The broad concentration of disadvantage has been confirmed by a range

2.16 There are a number of ways in which poverty may be identified:

poverty.

necessary to afford a clearly defined ’basket of goods’ which are required to

maintain a minimum acceptable lifestyle.

is a minimum necessary income and to draw a poverty line at this point.

of low income people and compare them to those in the wider community.

Each of these approaches is discussed below.

2.17 As noted earlier, estimates of poverty are usually estimates of relative poverty.

Relative poverty is generally measured by drawing a ’poverty line’ at an income level

considered necessary to maintain an ’acceptable’ standard of living. Professor

Saunders pointed out that any measure of poverty adopted must be independent of the

government of the day. He added:

.independent of government in the sense that we do not want to prejudge

what we get out of it at the end of the day. If we are going to develop a

measure that is going to endure, it has to last under today’s government,

tomorrow’s government and the government in 10 or 20 years time, and we

13

2.18 Most Australian poverty research relies on income based poverty lines. These

measures set a poverty line at some fraction of a statistically derived reference point

derived from the overall distribution of income. They usually take the form of

measures such as incomes below half the mean (average) income, or half the median

income (that point where half earn more and half earn less than).

2.19 A common method of setting these poverty lines is to base the standard used on

a measure of average community income. Generally some group in the population,

such as a family comprising two adults and two children is chosen as the standard. For

them, poverty is defined as having an income less than some fraction of the mean or

median income. This is sometimes referred to as the ’headcount’ index and can be used

to measure the incidence of poverty among particular groups in the population, for

example, the elderly, single adults, or couples with children. This approach was

adopted by Professor Ronald Henderson when he developed his ’poverty line’ which

was originally set equal to the minimum wage plus child endowment in Melbourne in

2.20 The advantage of income benchmarks are that they can be defined in terms of

well-known statistical indicators and the poverty line which results is simple to update

and understand. It also places the concept of poverty in the context of the distribution

of income or resources within the community. But the choice of a particular

proportion of average incomes to represent a ’low’ income is necessarily an arbitrary

2.21 A major limitation of this measure of poverty is that it is sensitive to the level at

which the poverty line is set. As poverty lines are typically set in income ranges where

large proportions of social security recipients are clustered, small movements in the

poverty line can result in large apparent increases or decreases in poverty. Another

disadvantage of the headcount index is that it takes no account of the severity of

poverty, that is, how far below the poverty line the poor actually are. As a result,

government policies that raise the income of the very poorest will have no discernible

impact on the headcount poverty rate if they do not raise the incomes of the poor

2.22 There remains a continuing debate as to whether such an approach should be

based on the mean or median income level. The most frequently used measures

include:

20 The poverty line developed by Professor Henderson is referred to as the ’Henderson poverty

line’. Professor Henderson was Chairman of the Commission of Inquiry into Poverty that was

established in 1972 and is discussed in more detail in chapter 3.

14

international studies, such as those undertaken by the OECD;

the European statistical agency, as its main indicator, and has been adopted

by the Social Protection Committee of the EU as the first of its primary

indicators of social exclusion; or

where there has been a long tradition of publishing data on households with

below half mean income. This was also the main indicator used in the

recent Smith Family reports into financial disadvantage in Australia.

2.23 As noted above, many studies of relative poverty base their poverty line on some

proportion of the median income of the population. This is calculated by ranking all

income in descending order, establishing the income of the person in the middle of the

income distribution ranking, and then defining the poverty line as some proportion of

the income that they receive. As noted above, the proportion of median income chosen

2.24 The main argument in favour of the median is that it is less sensitive to extreme

(very low or very high) incomes. Against this, while mean income is more sensitive to

extreme incomes it is dependent on the level of all incomes. A rise in the incomes of

all those in the upper half of the income distribution would, for example, cause mean

income but not median income to rise. If the poverty line were tied to median income,

such a change would thus have no impact on the poverty line and hence on poverty,

even though the relative position of those on low incomes would clearly have

2.25 Some studies calculate poverty lines based on mean or average incomes. As

many people receive fairly modest incomes but only a relatively few earn very high

incomes, the mean income in the population is usually higher than the median. Basing

the measurement of poverty on some proportion of the mean income will therefore

usually produce a higher, more generous poverty line.

2.26 Defining poverty as some proportion of mean income is as arbitrary as using a

median-based measure. Because the mean is sensitive to extreme values at either end

of the income distribution, it follows that if a small number of people at the top of the

distribution significantly increase their incomes this will inflate the mean and will

therefore increase any poverty line based on it. This will in turn increase the number

57, 2002, p.12.

15

of people found to be ’in poverty’, even though most people’s living standards will not

2.27 In an attempt to overcome the disadvantages of the headcount approach an

alternative poverty indicator . the poverty gap . is sometimes used. The poverty gap

takes account of both the numbers below the poverty line and the depth of poverty.

The poverty gap estimates the total gap between actual incomes and the poverty line

for those who are in poverty. The poverty gap gives more weight to those whose

financial situation is worst relative to their poverty line. The aggregate money value of

the poverty gap indicates the minimum financial cost of raising all poor families to the

poverty line.

2.28 As a measure, the poverty gap overcomes some of the shortcomings of the

headcount ratio. It changes not only when people are moved from one side of the

poverty line to the other, but also as a result of any change that increases the income

of any poor family, where this is not offset by equal income reductions for other poor

families.

2.29 The poverty gap is useful when analysing the impact of changes to income

support payments on income poverty. The use of poverty gaps also makes poverty

estimates less sensitive to small changes in the incomes of those close to the poverty

line. This is because the poverty gap gives less weight to those closest to the poverty

line and is thus less sensitive to changes in their income relative to the poverty line. A

difficulty that the poverty gap does not overcome is that it is unaffected by

2.30 A second research method is the budget standards approach. This approach to

defining poverty attempts to calculate ’objectively’ what level of income people need

to buy the goods and services they require to maintain an ’adequate’ standard of living

and construct a poverty line around this measure. The approach uses a combination of

expert judgements and surveys of actual expenditures of people on low incomes to

develop detailed ’minimum’ household budgets. This approach prescribes a basket of

goods and services that fulfils the ’necessities’ of a standard family and then

determines the average or minimum price of the basket. The basket of goods is usually

defined in terms of food, clothing, shelter and other items needed for basic survival.

2.31 A number of studies have argued that this minimum income approach appears to

provide a commonsense, simple and objective approach to poverty. One study notes

that it ’appears to be divorced from personal values of either harshness or compassion.

25 Saunders & Tsumori, pp.12-13.

16

It seeks to describe poverty objectively as lack of the income needed to acquire the

minimum necessities of life. Those who lack the necessities to sustain life are by

2.32 Professor Saunders argued that the principal strength of this approach is its

explicit attempt to derive the cost of meeting needs at a given standard of living across

all areas of consumption. In addition, the fact that every item that enters the budget is

identified precisely, as are the assumptions used for costing, means that the approach

can be used to check what differences it makes if particular items are changed or

omitted altogether. The approach also utilises prevailing social norms and standards to

develop the budgets, thus building on existing knowledge about minimum standards

where they exist. Finally, the budgets can be disaggregated to examine how much is

needed to meet the standards in a limited range of areas, or to explore differences in

2.33 An example of this approach is the project completed in 1998 by the Social

Policy Research Centre (SPRC), funded by the former Department of Social Security,

which produced a low cost ’indicative budget standard’ for Australia. The work was

based on focus groups of low income people and by examination of the actual

was derived by compiling a comprehensive list of items which most people buy or are

deemed to need. The standard was calculated by pricing each item and calculating the

total income which households of varying compositions require to pay for these items.

ACOSS commented on the usefulness of this approach and that the next step was

going to be a major study of living standards ’to look directly at what essentials people

miss out on’. This project, however, was not undertaken which ACOSS argued was

2.34 Several problems have been identified with this approach. A major problem is

disagreement amongst researchers over what constitutes a ’minimum’ amount of goods

and services that would provide an acceptable standard of living. Specifically, it has

been rarely possible for experts to specify minimum standards for necessities other

than food. Allowances for other items are usually based on observation of the

spending pattern of low income households . a procedure that is inconsistent and

unsatisfactory. One study notes that ’the claim that the subsistence approach is

scientific and pays minimum attention to value judgments is denied by the arbitrary

17

that this approach is very complex to operationalise and requires a large number of

2.35 Moreover, a subsistence standard has seldom been maintained over time .

poverty lines based on this approach have generally become more generous in their

poverty definitions in the light of changing circumstances. It is also argued that this

approach has little relevance in a society as diverse as Australia where living

standards are generally far above the minimum required for merely physical

2.36 One study notes that a further problem with this approach is that there may be an

’upward bias’ in the minimum income estimate because it does not allow sufficiently

for the choices that are made between items that meet similar needs. The study

suggests that the SPRC’s calculation of a minimum low cost budget may be much

2.37 Another approach to measuring poverty is to base it on the opinion of the general

population. Under this approach, sometimes referred to as the ’consensual approach’,

surveys are conducted where people are asked what they consider to be the minimum

amount of income they need to ’make ends meet’, and a poverty line is estimated

around the point where the answers converge.

2.38 A number of studies have argued that these survey-based approaches to defining

poverty lines appear logical given that the concept of relative poverty is defined with

reference to prevailing social norms. If poverty is a standard of living below a socially

accepted norm, it would appear to make sense to ask members of the public to define

2.39 However, it has also been argued that these approaches have major difficulties.

The answers to the questions asked have been found to be very sensitive to the

wording used in the surveys. The studies also generally find that there is little

consensus over what a minimum income might be . partly because people tend to be

over-generous when defining minimum incomes for others which they will not have to

pay for themselves, and partly because people’s perceptions of what is ’necessary’ for

others tends to reflect the standard of living to which they themselves are accustomed.

’Poverty lines’ based on this method tend as a result to be set at relatively ’generous’

33 See SWPS, pp.36-39.

34 Saunders & Tsumori, p.11.

35 For a discussion, see Saunders & Tsumori, pp.8-9.

18

’consensual’ poverty line is difficult to identify. Consequently, few studies have

2.40 The weaknesses of income-based and budget standards methods have led many

researchers to advocate direct measurement of poverty through surveys of people’s

access to various necessities of life.

2.41 While no Australian study has systematically attempted to measure deprivation

(as distinct from living standards generally) across the community as a whole, many

research studies commissioned by community agencies and Governments have

examined aspects of deprivation within particular groups and communities. Some

have used survey questionnaires, while many are anecdotal in nature. In Australia, a

number of national studies relating to living standards in general (as distinct from

deprivation) have been conducted since Professor Henderson’s Melbourne survey.

2.42 This study was conducted in the late 1980s by Richardson and Travers. It used a

set of indicators to evaluate the living standards of a representative sample of all

Australian households. The indicators ranged across economic resources, housing,

employment, education, family and social relations, and recreation. The indicators

were clustered into groups of common themes (e.g. social participation) and the

population was grouped according to households’ scores in regard to each cluster. The

scores were then compared across a number of clusters to establish whether some

people were consistently better or worse off.

2.43 The main advantages of this study were the breadth of indicators used, the ability

to check whether the different dimensions of deprivation were related in a consistent

way, and to compare them with the resources available to people in terms of income,

assets, and family support.

2.44 However, the study had a number of drawbacks. The first is common to most

general studies of living standards. Although many questions were asked to gauge

people’s general standard of living, few were developed specifically to measure

deprivation. The second drawback was the essentially arbitrary nature of the choice of

indicators of living standards, and the development of indices of deprivation from the

data. A third problem was that people were not asked whether they lacked an item

through choice or lack of resources, a critical question for deprivation studies.

37 Greenwell, Lloyd & Harding, p.19.

19

2.45 The study found that there were consistent relationships between deprivation in

different dimensions of life, such as lacking material goods, poor health, and social

participation. The study also found that there was a consistent relationship between

2.46 This study was conducted by the Australian Institute of Family Studies in the

early 1990s. It was also a comprehensive study of general living standards . using

similar ’dimensions’ of well-being to those adopted by Richardson and Travers.

2.47 One of the strengths of this study was the emphasis placed on how the

respondents perceived the importance of each item, which somewhat reduced the

reliance on the judgements of the researchers themselves. The researchers also asked

people whether they lacked items through choice or a lack of resources.

2.48 The ALSS study shared a major drawback of the ASLS discussed above. It is a

general living standards study with few indicators that go directly to deprivation.

Moreover, it was also narrower in scope in that it covered only households with

children in certain outer urban areas of Australia.

2.49 The ALSS study also found a consistent set of relationships between different

dimensions of deprivation, and a clear relationship between deprivation and low

income. The bottom 20 percent of households ranked by equivalent disposable income

were found to consistently lack ’basic’ resources and experience financial stress to a

much greater extent than the top 80 per cent. This included such items as lacking

money for school excursions, getting behind with bill payments and living in

2.50 In the mid 1990s, the former Department of Social Security and the ABS

collaborated to develop an official Australia-wide living standards survey, although

public funding was not secured to complete this project. However, on the basis of the

developmental work already under way, the ABS developed a module of 16 indicators

of financial stress, which it added to its regular Household Expenditure Survey. The

questions asked in the financial stress module included possession of certain

household ’essentials’, participation in social activities, the capacity to pay bills, raise

money for an emergency, save, and action taken by people when they lacked

resources to meet their needs (for example, pawning goods).

2.51 The main advantage of this survey is that it was incorporated into the ABS

collection of major surveys of income and expenditure, providing a rich data source

20

for comparing financial stress with the income and expenditure of different groups.

The same survey (the HES) is often used by researchers to estimate the number of

people with household incomes below income-based poverty lines. The ABS found

that people’s level of financial stress was inversely related to income, with much

higher levels of stress being experienced among the bottom 20 per cent of households,

although only a minority of them suffered moderate or higher stress.

2.52 ACOSS argued that the main weakness of the survey from the standpoint of

poverty research is its small number of questions and narrow scope. Financial stress is

only one indicator of deprivation, and it may mislead if used on its own. The survey

did include indicators of a lack of basic household goods and restrictions on social

life. However, these were so few in number as to heighten the general concern about

the arbitrariness of the indicators used in deprivation studies. In such a small survey,

the choice of indicators, and the way in which indices of deprivation are derived from

them, is even more critical than in the larger living standards studies discussed

2.53 A study by Bray used the financial stress study to measure the extent of

people’s responses to certain clusters among the 16 indicators of financial stress. One

cluster including items such as ’going without a meal’ suggested a more severe form of

deprivation, while another including such items as ’not having family and friends over

once a month for a meal’ suggested a less severe form of deprivation. On this basis,

Bray developed two separate sets of indices of ’hardship’ and ’missing out’. ACOSS

argued that while these methodological judgements made sense conceptually, they

were judgements based on limited data. The ’hardship’ index relied on just four

indicators, the lack of one of which constituted ’some hardship’ while the lack of two

or more constituted ’multiple hardship’. The results would be highly sensitive to the

2.54 There are a number of difficulties in measuring poverty. These relate to the data

sources used, questions related to the appropriate measure of income and other

resources, the use of expenditure data, the income unit and time period used and the

choice of equivalence scales. These issues are discussed below.

2.55 Most poverty analysis in Australia is based on surveys of household income

conducted by the Australian Bureau of Statistics (ABS). The ABS has conducted

41 Bray J, ’Hardship in Australia’, FaCS Occasional Paper No.4, 2001.

21

periodic income surveys since 1969. Detailed information relating to income from

these surveys was first released for the 1982 Income and Housing Survey, allowing

organisations to conduct analyses of income distribution and poverty. Since then,

information has been released for the 1986 Income Distribution Survey, the 1990

Survey of Income and Housing Costs and Amenities and the Surveys of Income and

Housing Costs conducted from 1994-95 to 2000-01, except for 1998-99.

2.56 Limitations in the scope and methodology of the income surveys affect the

accuracy of poverty measurement. Although the methodology used for each survey

has remained substantially the same over the years, the surveys have varied not only

in frequency but also in scope, sample size and definitions used. In particular, there

was a significant change in approach after 1990. The frequency of surveys was

increased . they were conducted annually for four years and are currently conducted

bi-annually . and the sample size has been halved. The definition of ’dependent

ABS stated that it had incorporated a range of methodological improvements in

household income distribution and measurement designed to bring the data into line

2.57 The ABS income surveys measure gross cash income, which includes income

from wages and salaries, self employment, government cash benefits, investments and

other categories such as workers compensation, superannuation and royalties.

2.58 Some limitations of the ABS definition of income have been noted in several

studies:

can include both cash and in-kind receipts from government (such as fringe

benefits and pensioner concessions), private businesses and other

households.

capital gains and losses, but it includes regular annuities, private pensions

and superannuation.

for the same sample of people. Successive income surveys comprise a

series of cross-sectional surveys rather than a longitudinal survey, which

would ask the same people questions in relation to their incomes at regular

intervals. As a consequence, it is not possible to determine whether a large

43 Greenwell, Lloyd & Harding, p.2.

22

number of people are moving into and out of poverty or whether most of

the poor remain in poverty for extended periods.

2.59 A person’s standard of living depends on a number of factors both tangible .

such as access to income and/or wealth . and intangible such as the degree of

satisfaction derived from work and other activities, or the extent of interaction with

friends and/or the wider community. Such factors are difficult to measure directly so

poverty measurement relies on some proxy or ’indicator of resources’ that can provide

a reasonable approximation of each person’s standard of living.

2.60 Most poverty research examines the cash income received by families on the

assumption that income provides a good guide to living standards. One study notes,

however, that income is an indirect measure of poverty because it examines the

resources on which living standards depend but does not directly measure the living

2.61 Other studies have, however, emphasised the importance of income. The

Henderson poverty inquiry emphasised the point that an adequate income is

fundamental to a person’s security, well-being and independence. It enables a person

to provide for the basic essentials of life, permits freedom of choice and freedom to

participate in activities of choice. It also contributes greatly to personal freedom and

2.62 There are several measures of income that can be used to indicate a person’s

standard of living, including private income (such as wages and salaries, selfemployment,

interest, rent and dividends); gross income (private income plus

government cash benefits); disposable income (gross income minus income tax); and

final or social income (disposable income plus government non-cash benefits such as

health or education services). Final income ought to provide the most comprehensive

indication of a person’s well-being but it is difficult to define and measure. Disposable

income is easier to measure and like social income, reflects income after government

interventions, thus giving a better indication of the income people have available to

spend. Consequently, disposable income is the predominant indicator of resources

used in poverty studies.

pp.24-36.

46 Harding & Szukalska, p.26.

23

2.63 As noted above, the living standards of individuals and families are affected by a

range of other factors in addition to their cash income, including the receipt of in-kind

income such as fringe benefits and pensioner concessions and the provision of

partially or fully subsidised government services such as Medicare. A recent study by

the Smith Family, discussed further in chapter 3, analyses the impact of not only cash

incomes and government transfer (social security) payments but also indirect taxes

of assets may also be important. The economic wellbeing of two individuals on a

similarly low income may be very different if one owns their home while the other is

renting. This is an important issue when looking at poverty amongst the aged.

2.64 Some commentators have argued that expenditure on items that are essential to

living costs, such as costs related to housing, health, childcare, work-related costs and

child support payments, should be subtracted from income to give a better indication

of ’discretionary income’. Australian studies that have attempted to measure

discretionary income have generally adjusted income for only housing costs. This is

primarily because the income surveys only include housing costs and because the

Henderson poverty inquiry set an important precedent by calculating poverty both

before and after housing costs had been taken into account.

2.65 The case for using after-housing income relies on the fact that housing is such a

home or renting privately will have much of their income ’locked up’ in housing costs,

reducing their other general consumption and associated standard of living. Their

’after-housing income’ is significantly lower than their disposable income and so they

are more likely to be in ’after-housing poverty’. By contrast, those families who own

their own home or are in government housing typically have much lower housing

costs. More of their income is available for general consumption than would otherwise

be the case and so they are less likely to be in after-housing poverty. Another

advantage of using the after-housing income approach is that it will vary with the

different costs of housing in different regions, thereby reflecting one of the sources of

regional variations in the cost of living.

2.66 An argument against the after-housing income approach is that, although having

some form of housing is essential and not discretionary, there remains discretion in the

quality of housing and the corresponding housing costs. A family that places a high

priority on housing relative to other goods and services will spend more on housing

and thus will have lower after-housing income. In effect, the after-housing measure

49 The income that remains after all housing costs have been met is referred to as ’after-housing

income’. Disposable income is sometimes referred to as ’before-housing income’ to indicate that

housing costs have not been deducted.

24

distorts poverty measurement so that the families that place a high value on the quality

2.67 Given the difficulties involved in devising a comprehensive measure of a

person’s standard of living, several researchers have suggested that studies of poverty

and deprivation should attempt to examine poverty using several indicators, try to

incorporate qualitative studies of the non-monetary factors that affect poverty and

incorporate life cycle and wealth studies that estimate the well-being of people over

the course of their lifetime. In practice, such comprehensive studies are rarely

conducted and poverty researchers generally content themselves with reporting on one

facet of the complex mix of elements that influence the standard of living of members

taking account of these varying approaches and attempting to blend them to give an

2.68 Two main alternative approaches to income poverty measures have been

suggested . these are the development of deprivation indicators and the use of

expenditure data.

2.69 A number of submissions argued that deprivation indicators need to be

developed as alternatives to, or complementary measures to, income poverty statistics.

Observing the level of deprivation experienced by those on low incomes is a way of

2.70 Professor Saunders stated that deprivation measures provide a direct indicator of

poverty status because they reveal that basic needs are not being met. This is in

contrast with resource-based poverty indicators such as income, which are indirect in

the sense that they imply that poverty is present, but do not actually confirm this

through direct observation. Because deprivation reflects a situation of unmet need that

is actually observed and thus experienced, it provides strong support for the claim that

poverty exists. At the same time, it is possible to identify which forms of deprivation

are regarded as unacceptable in the community by surveying public opinion, thus

51 See, for example, Greenwell, Lloyd & Harding, p.15.

52 Greenwell, Lloyd & Harding, p.15.

25

2.71 Deprivation indicators need to be broadly defined to include not only the

material goods needed to meet minimum consumption standards, but also those

activities that are broadly regarded as necessary to support participation in society.

The list thus needs to include such items as being able to send a child on school

excursions; having enough to afford to buy presents for family members on important

occasions; having enough to pay household bills on time; and not having to rely on

welfare agencies, or food or clothing banks to get by.

2.72 The deprivation approach has been employed in a number of recent European

poverty studies, particularly in the United Kingdom. The UK Poverty and Social

Exclusion Survey (PSE) provides a framework for defining poverty in terms of

deprivation and exclusion indicators. The survey conducted in 1999 measured

different dimensions of poverty and social exclusion in the lives of adults and

children. The PSE poverty measure was developed in two stages. In a first survey,

adults were asked which of a list of items and activities for children, and a second list

for adults, they considered everyone should be able to afford in Britain today and

which they should not have to go without. The list included food and clothing items;

items and activities to allow children and adults to participate in society; and for

children, items to assist educational development. In the second survey a different

group of respondents were asked to identify items and activities that children and

adults did not have because they could not be afforded. Results from both surveys

were used to construct a poverty measure based on items or activities that children and

adults had to go without to be defined as poor. For children and adults, a threshold of

Several submissions commented that the PSE was a good example of a recent survey

2.73 A variation on this approach is the Irish ’consistent poverty’ approach, which

combines an income-based approach and a deprivation approach. The concept of

consistent poverty forms the basis of the Irish Government’s National Anti-Poverty

Strategy and defines a household as being in poverty if they have both low incomes

and have a score of 1 or more on the deprivation scale. The Irish scheme is discussed

further in chapter 18.

2.74 In Australia, the 1998-99 HES undertaken by the ABS collected data on a

number of indicators of financial stress. These items may be considered a form of

’deprivation’ measure in that they largely focus on items which a household may have

gone without due to financial constraints. In the HES, information was collected on a

number of items such as how households compared their standard of living with that

of two years ago; if households are usually able to afford such things as a week’s

holiday away from home; have a night out once a fortnight or have friends over for a

meal; and whether in the previous year, because of shortage of money, a household

26

was unable to pay utility or insurance bills; sought financial help from family or

friends or a community organisation; or went without a meal or heating.

2.75 Detailed analysis of the HES survey was reported in the study by Bray referred

to earlier. This analysis identified that the set of financial stress questions used by the

ABS fell into three discrete components. These are:

reported by 38.3 per cent of households;

households; and

to pawn or sell items or obtain assistance from welfare agencies . reported

2.76 Submissions argued that a comprehensive set of deprivation indicators should be

developed in Australia. ACOSS noted that they should be designed to measure the

lack of key necessities required for subsistence as well as social and economic

participation. Ideally, these should be clustered into a number of dimensions of living

standards, or capacities to meet basic physical and social needs, for example, access to

education and shelter. ACOSS argued that the appropriateness of these indicators in

Australia should be tested by surveying the public as to whether they represent

community opinion as to what constitutes a lack of necessities according to the

2.77 Professor Saunders suggested that a step in this direction has already been taken

by the ABS through the inclusion of a series of questions on financial stress and

hardship in the latest 1998-99 HES (referred to above). He suggested that the ABS

should expand its coverage in future HES and other household surveys or that a

special social survey focusing on deprivation and its relationship to other indicators of

living standards similar to the UK Poverty and Social Exclusion survey could be

2.78 FaCS suggested that deprivation approaches . although current data are

relatively limited . as well as longitudinal analysis of household incomes, offer

greater potential for policy and program development than income poverty

57 Bray, p.ix.

27

2.79 Some submissions argued that expenditure data could also be used to supplement

income data to measure living standards, given that reported incomes may be an

unreliable indicator of a person’s actual standard of living.

2.80 An expenditure poverty measure would rank people according to their

expenditure, such that people with particularly low spending would fall into the

category of ’expenditure poverty’. Evidence from ABS household expenditure surveys

indicates that expenditure is consistently more unevenly distributed than income. This

appears to be the case because people on high incomes devote some of their incomes

to savings while people on low incomes, especially those temporarily on low incomes,

2.81 A recent study for the Smith Family focused on the spending patterns of low

income households, based on the 1998-99 HES. The study found that:

to the necessities of life than high-income households. More than half of

the weekly budget of low-income households is devoted to three spending

categories . food, housing and transport.

spending to just two of the necessities of life . housing and food. Almost

half of them were in housing stress (paying more than 30 per cent of their

income on housing).

were in severe financial disadvantage, with almost half of their weekly

2.82 The use of expenditure data, however, has a number of problems. The most

notable is that generally expenditure on consumption rather than consumption itself is

being measured. Furthermore, it may be possible to sustain a standard of living during

periods of low income by running down past savings or incurring debts, but this

situation will not be sustainable. Low consumption may thus conceal rather than

to consider income and expenditure not as alternative indicators of poverty, but rather

61 Greenwell, Lloyd & Harding, p.14.

28

2.83 While poverty calculations rank people according to income and then identify

those who fall below a predetermined poverty line it is also important to establish

whose income they should be ranked by. The income unit refers to the group within

which income is assumed to be shared. The assumption widely accepted in academic

research is that in most families the income earned by each member of the family is

shared.

2.84 Possible income units include the individual, the nuclear family, the extended

family or the household. The income unit used in poverty studies can make a major

difference to poverty estimates. Generally, the broader the definition of the income

unit, the lower the level of poverty is likely to be. The most common income unit in

Australian poverty research is the ’ABS income unit’ The ABS defines an ’income unit’

as a couple (married or de facto) with dependent children; a couple without dependent

children; a sole parent; or a single person. Income is assumed to be shared by one

person or a group of related persons within a household. Income sharing is assumed to

take place within married or de facto couples, and between parents and dependent

children.

2.85 No income unit can capture the ’income-sharing group’ precisely. One problem

common to the ABS income unit, the extended family and the household is the

appropriate treatment of dependent children. As they get older, children gradually gain

greater financial independence but the exact point at which they are predominantly

self-sufficient will vary greatly between families. This suggests that each of the

potential income units may be too broad because they include people where little

income sharing remains.

2.86 Some commentators have argued that common definitions of the income unit are

too narrow. For example, young people living away from home, and therefore treated

as separate income units, may well receive substantial financial support from their

parents and thus not really be an independent unit. Similarly, it has been argued that

different cultural attitudes towards income-sharing, particularly among Indigenous

communities, often mean that income is shared much more widely amongst these

communities than the ABS income unit or even the household.

2.87 FaCS indicated that with most income analysis it prefers the household as the

basis of analysis. One reason for this is the structure of income support payments, for

example living at home rates, which acknowledge the presence of others in the

household. Further, even where income pooling might be partial, people living in the

house generally gain some benefits from the expenditure and assets of others, ranging

29

2.88 There has been little research undertaken in Australia that examines the most

appropriate definition of the income unit for poverty analysis as such a study requires

information on the intra-household allocation of resources . for which there is little

2.89 As household incomes fluctuate over time, the period over which the income is

received can influence results. The time period used is frequently dictated by the

available data. Time periods that are frequently used within sample surveys include

the week, the month, and the year. Generally, longer time periods result in more equal

income distributions. The ABS income surveys include both ’current weekly income’

(that is, income in the week immediately preceding the relevant survey) and annual

2.90 FaCS noted that Australian income distribution analysis is unusual because of

the general reliance placed on using current income rather than annual income. The

main reason for this is the general view that current income is more accurately

reported, especially in relation to income support payments. The consequence of this

is that poverty estimates using current income may indicate greater income inequality

whereas the use of annual income would smooth out fluctuations in household

2.91 Equivalence scales attempt to account for the differences in the size and

composition of different income units . they show the amount of income required by

families of different size and composition. Larger income units need a greater income

than a small income unit to attain the same standard of living. The composition of

income units also needs to be accounted for as some members of the income unit

create greater ’costs’ than others. For example, it is likely that an income unit needs a

greater income to support older children than younger ones. Equivalence scales show

how much more income a couple requires to reach the same standard of living as a

single person. For instance, if an equivalence scale gives a single adult a value of 1

and a couple with no children a value of 1.7, then the assumption is that the couple

requires 70 per cent more income than the single person to reach a comparable

standard of living. The value is less than 2 because of assumed economies of scale,

such as the sharing of housing costs. The equivalence scale used can have an

important impact on the apparent degree of poverty and on the characteristics of those

66 Harding & Szukalska, pp.28-29; Greenwell, Lloyd & Harding, pp.16-17.

67 Harding & Szukalska, pp.28-29; Greenwell, Lloyd & Harding, pp.6-7.

30

deemed to be in poverty, thus an equivalence scale that ascribes high costs to children

will tend to place more families with children in poverty.

2.92 There is no agreement in Australia about what is the most appropriate

equivalence scale to use. The Henderson equivalence scale has been used in many

poverty studies in Australia. The detailed Henderson scales take account of the needs

of families that vary with the age, gender, labour force status and number of adults

and children within a family.

2.93 The trend in international comparative studies has been towards simpler

equivalence scales that only vary with the number of people . or sometimes the

number of adults and children . within a family. The equivalence scale adopted by the

EC Eurostat poverty studies allows the assumed needs of a family to vary in line with

the number of adults and children . with the first adult being given a value of 1,

second and subsequent adults a value of 0.5 and children a value of 0.3 each. One

disadvantage of this equivalence scale is that it does not allow for economies of scale,

2.94 Once a poverty line has been established it is important to determine how it

should be updated over time, especially to determine trends in poverty over time and

for assessing the adequacy of income support payments. Poverty lines can be updated

according to movements in prices or movements in incomes. Updating by movements

in prices adjusts the poverty line for changes in the cost of living whereas updating for

movements in incomes adjusts for changes in the standard of living. The consumer

price index (CPI) is typically used to update poverty lines in accordance with

movements in prices.

2.95 There are several ways to update poverty lines in accordance with movements in

incomes. Studies in Australia have variously used average weekly earnings, household

disposable income per capita and movements in average or median equivalent

disposable incomes. While there is debate about which of these methods is most

appropriate, updating in accordance with movements in incomes has generally been

preferred to movements in prices in Australia. This is related to the preference for

2.96 The poverty line used by the Henderson poverty inquiry to estimate poverty in

1972-73 was set at 56.5 per cent of seasonally adjusted AWE in 1972-73. The

Henderson poverty line was designed to be compared with after-tax or disposable

income but the poverty line was updated (until the 1980s) according to movements in

Harding, pp.17-18.

70 Greenwell, Lloyd & Harding, p.20.

31

before-tax seasonally adjusted AWE. In response to criticisms of this method of

updating the poverty line, since 1981 the Henderson poverty line has been updated by

increases in seasonally adjusted household disposable income per capita. It had been

argued that movements in disposable income per capita provides a better measure of

changes in community living standards than movements in pre-tax average weekly

2.97 This measure has in turn been criticised by some researchers because it has led

to a substantial increase in the value of the poverty line, well in excess of increases in

the CPI or AWE . ’this means that the Henderson poverty line has become less and

less ’austere’ as time has gone on, for it has been inflating at twice the rate of the

poverty is relative, then it is logically appropriate that the poverty line should increase

in real terms when real community incomes are growing and that seasonally adjusted

household disposable income per capita or a similar index is the appropriate measure

2.98 Poverty is difficult both to define and to measure. The varying concepts of

’poverty’ employed, data limitations and different methodologies all impose

limitations on the degree to which poverty can be quantified. Poverty relates to

individual standards of living which are influenced by a range of tangible factors .

such as access to income and other financial resources . and intangible factors, such

as social and family ties, which are largely unquantifiable but which can influence a

person’s overall standard of living. Despite these limitations, research into poverty and

the development of measures of poverty are important in establishing the nature and

extent of poverty in the community and in the development of appropriate policy

responses.

2.99 Further research in the area of poverty can only lead to a broader understanding

of its causes and effects and lead to improved ways to address the problem. The

St Vincent de Paul Society noted that ’regrettably, the polemical debate over poverty

Committee concurs with this sentiment and firmly believes that protracted debate over

various poverty measures or the suitability of different poverty lines should not

overshadow a thorough and ongoing discussion of solutions to a very serious national

problem.

32

33

3.1 This chapter provides an overview of the nature and extent of poverty in

Australia. It provides a discussion of the origins of poverty research in Australia,

especially the work of Professor Henderson beginning in the 1960s. The chapter then

analyses recent statistics related to poverty and inequality in Australia, including an

overview of the groups most at risk of being in poverty today and recent studies of

income and wealth distribution.

3.2 The first systematic attempt to estimate the extent of poverty in Australia was

undertaken in the mid-1960s by researchers at the Melbourne University’s Institute of

Applied Economic and Social Research (IAESR). The research team, led by IAESR

Director Professor Ronald Henderson, conducted a survey of living conditions in

Melbourne and estimated the extent of poverty in Melbourne using a poverty line

based on a two-adult, two-child family set at an income equal to the value of the basic

wage plus child endowment payments. The study found that one in sixteen of

Melbourne’s population was living in poverty in 1966.

3.3 The poverty benchmark in this study was chosen because of its relevance to

Australian concepts of the minimum income, and also because as a proportion of

average earnings it was similar to poverty lines used in other countries. It was

regarded by the research team as an austere measure, likely to produce lower-bound

estimates of poverty. The equivalence scale used to derive poverty lines for other

family types was, in the absence of any reliable Australian estimates of relative needs,

derived from a survey of household budgets and costs undertaken in New York in the

1950s.

3.4 Community and political pressure following the release of the 1966 survey into

poverty in Melbourne led to calls for a national inquiry to determine whether the

problems highlighted in this study applied to the nation as a whole. A Commission of

Inquiry into Poverty was established in August 1972 by the Prime Minister, Mr

McMahon. Professor Henderson was appointed as Chairman of the inquiry (the

inquiry was subsequently referred to as the Henderson Inquiry). After the 1972

election the new Prime Minister, Mr Whitlam, expanded the Commission’s size and

34

scope with specific responsibility to focus on the extent of poverty and the groups

most at risk of experiencing poverty; the income needs of people in poverty; and

issues related to housing and welfare services. These topics were addressed in the

3.5 The poverty line described above was subsequently used by the Henderson

Inquiry to produce the first authoritative estimates of poverty in Australia. The

information on poverty was based on data from an ABS income survey undertaken in

August 1973. The report’s main focus was on identifying the extent of poverty due to

inadequate income, in the sense of being low income relative to need. The income unit

chosen was a married (or defacto) couple or single person, with or without dependent

children. A unique feature of the Henderson poverty line was that it allowed poverty

to be estimated both before and after housing costs. After-housing costs were derived

by deducting actual housing costs from income and comparing the remaining income

3.6 The Henderson Commission’s main findings were as follows:

poverty line. A further 8 per cent were defined as ’rather poor’, having an

income of less than 20 per cent above that line.

costs were taken into account. Those renting from private landlords were

the poorest group.

not in the workforce.

very poor people.

However, less than 10 percent were very poor after housing, because a

large number were home-owners.

poverty line comprised large families on wages on or just above the

minimum wage.

basis. After housing, however, the difference was not as significant.

35

3.7 There have been a number of recent studies that have attempted to estimate the

extent of poverty in Australia; however, these estimates vary widely. Submissions to

the inquiry, often drawing on these studies, have also presented a range of estimates.

A number of recent poverty estimates are presented in Table 3.1.

3.8 The table shows that the Centre for Independent Studies (CIS) has estimated that

estimates are much higher. The Smith Family has estimated that 13 per cent of the

pp.27-28.

Smith Family, 2001, pp.22-23.

36

Poverty rates based on the Henderson poverty line estimate that 20.5 per cent of the

population was in poverty (after paying for housing costs) or 22.6 per cent in poverty

income units were below the poverty line and very poor, with a further 13.7 per cent

3.9 The CIS estimate of 5 per cent of the population in chronic, long term poverty is

based on a number of assumptions. These assumptions include that half to two-thirds

of those below the poverty line at any one time are transitional; perhaps half or more

are under-reporting their true income; and including the value of government services

would raise the final incomes of lower income groups by about 50 per cent. The CIS,

however, provides little quantifiable data to support their claims and concede that their

3.10 By contrast, as noted above, poverty rates based on the Henderson poverty line

have reported much higher estimates of poverty . up to 23 per cent of the population.

Serious concerns have been raised over how this poverty line has been updated over

time to account for changes in community incomes. It has been argued by some

researchers that updating this poverty line by increases in seasonally adjusted

household disposable income per capita grossly inflates the poverty estimates. The

Smith Family has argued that the Henderson poverty line produces a picture of an

’ever-rising tide’ of poverty because it is set at an ever-increasing proportion of family

3.11 ACOSS stated that depending on the poverty lines used and taking into account

housing costs there are between 2.5 million (13.5 per cent) and 3.5 million people (19

per cent) living in poverty in 2000, with between 800 000 and 1.3 million children in

cautious estimate (using the half median income measure) more than 1.5 million

people were living below the poverty line in 2000 . ’whichever way it is measured,

Council stated that in Australia today approximately 3 million people are poor . and

2000, p.38.

7 King A, ’Income Poverty since the early 1970s’, in Fincher & Nieuwenhuysen, p.78.

9 Harding & Szukalska, p.36.

37

3.12 Recent studies commissioned by the Smith Family on poverty in Australia have

generally reported poverty estimates midway between the figures produced by the CIS

poverty line is set at half the average family income of all Australians.

Australians were in poverty in 1999, compared with 14.6 per cent in 1982.

period, the major factor underlying this fall was a 20 per cent fall in the

poverty rate among dependent children.

headed by a person aged 65 years or more. On an after-housing basis, only

six per cent of all poor Australians live in households headed by an aged

person.

poverty live in families where the head is not in the labour force, while

over one quarter are in families where the head is unemployed.

adult earners, over 40 percent live in families where one or both adults in

the family works. About one-fifth of all those in poverty live in families

where both parents work.

income source is government cash benefits.

children. Children living in sole parent and larger families continue to face

3.13 The report defined ’financial disadvantage’ or ’poverty’ in terms of a family

whose income is less than half the average family income. The study justified its use

of the ’half average income’ poverty line arguing that it better captures relative

deprivation in times of rising income inequality than using a figure based on median

incomes. As the top income earners become better off, then the poor are relatively

worse off. That is, they are poorer in relative terms. Using the ’half average income’

poverty line denotes acceptance of the proposition that the living standards of the poor

should be measured against the living standards of all the population, including the

13 Harding & Szukalska, pp.8-9, 22-23.

38

survey, updated to May 1999. Income in the study included wages and salaries,

workers compensation and superannuation, dividends and rents, income from selfemployment

and child support payments.

The data sources for this study were various ABS national income surveys conducted

over the 1990s. Poverty estimates based on this study are summarised in Table 3.2.

The study also contains a large collection of other data on poverty in Australia.

11.3 11.7 12.0 12.6 13.0 (a)

8.2 8.2 8.6 8.4 8.7 (b)

(a) half average income poverty line

(b) half median income poverty line

3.15 The table shows that poverty increased from 11.3 per cent to 13 per cent of the

population over the period from 1990 to 2000, when the poverty line is set at half the

average family income of all Australians (the study’s preferred measure). In 2000

almost one in eight Australians or 2.4 million people lived in poverty. The study

pointed to the persistence of poverty despite a decade of economic growth. The report

noted that ’strong economic growth over the past decade has not produced comparably

3.16 The data shows that estimated poverty rates are sensitive to the poverty line

used. As previously noted, the Smith Family studies justify their use of the ’half

14 Harding, Lloyd & Greenwell, p.2.

15 Harding, Lloyd & Greenwell, p.v.

39

average income’ poverty line on the grounds that it better captures relative deprivation

3.17 The other main findings of the study are detailed below.

time.

government cash benefits, which increased from 24 per cent in 1990 to

31 per cent in 2000. As a result of this shift, by 2000 government cash

benefits were the main family income source for about 60 per cent of poor

Australians . up from 46 per cent in 1990.

Australians aged 15 years and over who were unemployed lived in poverty.

Poverty increased among the unemployed in the late 1990s.

primary income source remained unchanged over the 1990s. Having a job

appeared less of a protection against poverty than in the past, with the risk

of being in poverty among all Australians aged 15 years and over and

working part time rising from 10.7 per cent in 1990 to 11.7 per cent in

2000. Part-time work appeared to be associated with greater vulnerability

to poverty than having full-time work. For the vast majority of wage and

salary earner families, having a full time job was sufficient to ensure that

the family was not in poverty.

women, with the somewhat higher number of sole parents and older

women in poverty being offset by the large number of single men and men

aged between 15 and 64 years in poverty.

decade poverty among those in the 50 to 64 year age bracket was higher

than for people aged 25 to 49 or over 65 years.

rates among the aged. While the risk of being in poverty was previously

much lower for the aged than for those of workforce age, now the risk is

relatively similar. However, if poverty is assessed after housing costs have

been met a different picture emerges. For the aged, due to their high home

ownership rates, the risk of being in poverty did not change during the

16 Harding, Lloyd & Greenwell, p.2.

40

1990s. Conversely, poverty among adults aged 25 to 44 years has become

more serious, with almost one-fifth of adults aged 25 to 44 years in poverty

on an after-housing basis.

changes reflect real variation or sampling error for the smaller States. NSW

had the highest poverty rate in 2000, with 13.9 per cent of its residents in

poverty. Poverty also increased in the other States, with only Queensland

and Tasmania remaining relatively unchanged.

average gap between a poor family’s income and the poverty line

increasing from $112 in 1990 to $118 in 2000 (after accounting for the

3.18 The Centre for Independent Studies has criticised the above Smith Family study

into poverty trends arguing that the extent and nature of poverty identified in the study

has been exaggerated.

3.19 The CIS has three main criticisms of the study, namely:

of poverty, whereas most people think of poverty in absolute terms.

income the study has exaggerated the extent of poverty in Australia.

conclusions to be drawn about the extent of poverty. The problems include

under-reporting of incomes especially by welfare recipients and the self

employed and the exclusion of certain sources of income, such as income

3.20 These arguments have been disputed by Professor Peter Saunders of the Social

Policy Research Centre. In relation to the first argument, he has argued that while

most people think of poverty in subsistence terms, this is not the same as supporting

an absolute definition of poverty. A subsistence notion of poverty emphasises that

poverty is a situation where basic needs cannot be met, but this is consistent with the

goods and services that are required to meet those needs being defined relatively . in

the sense that they will depend on the general lifestyles, living standards and values of

the community at a particular point in time.

17 Harding, Lloyd & Greenwell, pp.23-24.

41

3.21 In regard to the second point, Professor Saunders argues that neither the mean

nor median income alone provides information about how well needs are being met,

although the mean is preferred by some researchers because it better captures relative

deprivation in times of rising income inequality. He did concede, however, that most

poverty researchers prefer to link poverty lines to median income rather than mean

income. In relation to the third CIS argument, he argues that while the ABS data may

be unreliable there is no reliable research to support that claim. He also argues that it

is not clear what impact the inclusion of many subsidised services would have on the

3.22 Evidence to the Committee and a range of studies into poverty and deprivation

has shown that poverty is more likely to occur among particular groups in the

Indigenous Australians, the unemployed and people dependent on social security

benefits. This is not an exclusive list of those groups experiencing poverty, but serves

to identify those most commonly referred to in studies into poverty and evidence

received during the inquiry. Further discussion of poverty and disadvantage among

these groups and others is contained in later chapters of the report.

19 Saunders P, ’Getting Poverty Back onto the Policy Agenda’, Smith Family Research and Social

Policy Briefing Paper, No.10, March 2002, pp.1-3.

Family); 163, pp.11-12 (ACOSS); 118, p.7 (VCOSS).

42

3.23 A study by the Smith Family/NATSEM has illustrated the distribution of poverty

A Smith Family study estimated that of every 100 poor Australians:

3.24 Indigenous Australians face a far greater risk of poverty than other Australians,

and is indicated in high levels of joblessness, low levels of formal education, poor

nature and extent of poverty among Indigenous people is discussed in chapter 13.

3.25 In addition to the groups listed above, other smaller population groups are also

vulnerable to poverty including people with drug and alcohol problems; domestic

violence survivors; people living in caravan parks; people with caring responsibilities,

including young carers; problem gamblers; recently released prisoners and some

groups whose poverty remains undocumented in any substantial way (for example

amongst broad population groups it is likely that smaller population groups can

experience high levels of economic hardship where low incomes are compounded by

3.26 Poverty is increasingly associated with low pay. The Australian Liquor,

Hospitality and Miscellaneous Workers Union (LHMU) noted that the crisis of low

pay contributes strongly to poverty as low paid workers are often also the ’jobless

21 Harding & Szukalska, p.16. The data are based on after-housing poverty (that is, those in

poverty after paying for housing costs).

69, p.14 (Victorian Government).

43

poor’. Low-paid workers tend to ’churn’ through a series of low-paid jobs interspersed

with periods of unemployment . as such the unemployed and the low paid are often

the same people at different times. In addition, a large proportion of poor people live

in households with a wage earner (the wages of the low paid thus support the poor);

people who earn low pay are generally found in households which have a low income;

and low paid workers become retires . low wages project disadvantage into the future,

3.27 Poverty is also associated with where people live. There is growing evidence of

regional disparities, with geographic concentrations of great wealth and great

disadvantage within areas of all major capital cities and between cities and rural

3.28 The extent of poverty varies between the States and Territories with evidence

indicating that the smaller, less populous States generally exhibit the highest incidence

of poverty and deprivation (although the extent of poverty often varies depending on

the indicator used). Table 3.3 reproduces Smith Family data on poverty levels in the

States.

% % % % % % % %

Before housing costs 14.1 12.3 12.9 15.9 12.4 15.4 8.9 8.9

After housing costs 18.1 15.5 18.6 18.9 16.2 18.7 12.4 12.4

Family, 2000, p.17.

3.29 As the table shows, poverty levels (on a before-housing cost basis) were greatest

in South Australia, Tasmania and NSW. Poverty levels in all the States and Territories

increased after housing costs were taken into account, although the pattern of poverty

across the States was similar. South Australia, Tasmania and Queensland had the

highest proportion of people in poverty after housing costs are removed, while the

lowest proportion was recorded in the ACT and the Northern Territory (12.4 per cent).

3.30 ABS data show that, in 2001, the proportion of people in ’low income’

households (before housing costs) was highest in Tasmania (27 per cent) and the

44

2000-01 indicate that average levels of incomes varied between the States. Three

States had disposable household incomes below the national average of $469 per

week. Tasmania was the poorest State with mean weekly income 17 per cent below

the national average income level, followed by South Australia (9 per cent below) and

Queensland (6 per cent below). NSW and Victoria both recorded incomes at 3 per

cent above the national average, with Western Australia at about the national level.

The ACT recording the second highest average income (24 per cent above the

3.31 Submissions and witnesses commented on the particular features of poverty in

the various States. SACOSS noted that South Australia is a low income state with

average (mean) incomes, on both a before and after-housing basis, the lowest in the

country. High levels of poverty have been contained by the State’s lower housing

SACOSS stated, however, that the rate of poverty has doubled since the early 1980s.

Rates of inequality have also doubled, but South Australia is less unequal than the

3.32 Tasmania, like South Australia, is a low income State, with high levels of

unemployment (and low labour force participation), low rates of pay for those

employed and high levels of part-time and casual employment. Tasmania is also a

high-cost state in terms of the ’basket’ of essential goods and services required by all

indicator of disadvantage is the high take-up of welfare payments . some 40 per cent

3.33 In Western Australia, WACOSS pointed to growing levels of deprivation within

the community, noting that it is the most geographically vast and isolated State in the

27 ’Low income households’ refers to those persons in the bottom 20 per cent of persons ranked by

Northern Territory had the highest mean income . 34 per cent above the national average .

although the ABS indicated that this probably overestimated average income levels as data

from sparsely settled areas of the NT were excluded from the study.

45

country and ’faces unique and complex issues’ in relation to poverty, especially related

to its remoteness, high living costs and the problem of poverty amongst Indigenous

3.34 In Queensland the geographical differences in poverty and disadvantage were

highlighted. Submissions and other evidence noted that poverty is particularly

concentrated in a number of regions such as parts of the Cape and Gulf regions . both

areas with large Indigenous populations, certain regional centres and areas on the

the 1980s to the mid 1990s, with poverty rates almost doubling during that period . ’of

great concern is that poverty rates in Queensland have been and continue to be

consistently high in comparison with national rates and in comparison with other

3.35 In Victoria, VCOSS pointed to the growing disparity in income levels between

regional/rural areas and metropolitan areas and specific areas within metropolitan

3.36 In the Northern Territory, NTCOSS indicated that the level of poverty in the

Territory is often hidden and that on all indicators the Territory has the highest level

of poverty of any State or Territory. NTCOSS commented that poverty is influenced

by remoteness, a large Indigenous population, geographical distances with a small

population spread over a large area and high population mobility which poses

challenges in providing adequate physical and social infrastructure. These factors also

3.37 Studies into trends in income inequality over recent decades and submissions to

the inquiry point to increasing income inequality in Australia. As the Salvation Army

noted ’strong economic growth over the last decade has not resulted in the highly

(WACOSS).

p.4 (Queensland Government).

Council); 98, pp.5-6 (BSL); 163, pp.67-71 (ACOSS).

46

increasing inequality. In relation to earnings, studies have found increasing inequality

since the 1980s. An ABS study concluded that inequality in the distribution of wage

and salary earnings of full-time adult employees increased in the 1980s and that this

the inequality in full-time wage and salary earners incomes, as measured by the Gini

coefficient, increased from 0.224 in 1990, to 0.271 in 1994-95 to 0.275 in 1999-

has been increasing dispersion of earnings since 1979, with the top percentiles

recording stronger growth than the bottom percentiles. Since the mid 1980s three

trends were evident:

real terms, while those at the top remained stable after an initial fall;

remained stable, while those at the top consistently increased in real terms;

and

3.39 Earnings distribution statistics reflect the impact of the market on the distribution

of economic rewards. A more complete picture is provided by taking into account the

impact of government tax and transfer (social security) programs. By assessing the

impact of these programs it is possible to determine the distributional impact of social

security benefits and the impact of income taxes on the distribution of income.

3.40 As noted above, income distribution statistics, which take into account the

impact of the tax-transfer system, show a trend towards increasing inequality in

3.41 As the table shows, one measure of the spread of incomes across the population

is indicated by the percentile ratios. The P90/P10 ratio shows that in 2000-01, the top

10 per cent of households received 3.97 times the income of the bottom 10 per cent.

41 The Gini coefficient varies between 0, when income is equally distributed, and 1, when income

43 ’Income’ in the study refers to disposable income, that is income from employment, investments

and transfers from government (such as pensions, allowances and benefits), private institutions

and other households, after the deduction of income tax and the Medicare levy. See ABS,

47

This ratio has increased from 3.77 in 1994-95, thus showing increasing inequality over

P90/P10 ratio 3.77 3.74 3.66 3.77 3.89 3.97

P80/P20 ratio 2.56 2.58 2.54 2.56 2.64 2.63

P80/P50 ratio 1.55 1.57 1.56 1.56 1.57 1.56

P20/P50 ratio 0.61 0.61 0.61 0.61 0.59 0.59

Lowest quintile % 7.9 8.1 8.3 7.9 7.7 7.6

Second quintile % 12.8 13.0 13.1 12.8 12.6 12.5

Third quintile % 17.7 17.7 17.8 17.6 17.6 17.7

Fourth quintile % 23.7 23.9 23.7 23.8 23.7 23.6

Highest quintile % 37.8 37.3 37.1 37.9 38.4 38.5

All persons % 100.0 100.0 100.0 100.0 100.0 100.0

Low income (a) % 10.8 10.9 11.0 10.8 10.5 10.5

Middle income (b) % 17.7 17.7 17.8 17.6 17.6 17.7

High income (c) % 37.8 37.3 37.1 37.9 38.4 38.5

Gini coefficient no. 0.302 0.296 0.292 0.303 0.310 0.311

the household’s size and composition.

(a) Persons in the second and third income deciles.

(b) Persons in the middle income quintile.

(c) Persons in the highest income quintile.

44 P90 is the income level dividing the bottom 90 per cent of the population from the top 10 per

cent. P10 is the income level dividing the bottom 10 per cent of the population from the rest of

the population.

48

3.42 Another measure of income distribution is provided in the income shares going

to groups of people at different points in the income distribution. The table shows that,

’high income’ group (that is, the 20 per cent of the population in the highest income

group declined from 10.8 per cent to 10.5 percent of income over the period 1994-95

to 2000-01, whereas the income share of the high income group increased from 37.8

to 38.5 per cent over the same period. The ’middle income’ group’s share of income

remained relatively stable. The ABS concluded that its analysis of the latest income

distribution statistics support ’a conclusion of some increase in inequality’ since 1994-

3.43 Professor Saunders, commenting on the ABS data, noted that since 1995-96,

47 per cent of the total increase in income was received by those in the top quintile.

He added that ’almost half of the economy-wide increase in income generated by

economic growth under the Howard Government was of no benefit to the bottom fourfifths

3.44 An earlier study by Harding and Greenwell reflected these trends. The study

based on ABS income surveys found that income inequality increased between the

late 1980s and the mid-1990s and there was some evidence to suggest that this trend

had continued (which was confirmed in the ABS study cited). The increase in

inequality was driven by declines in the income shares of the bottom 10 per cent, and

to a lesser extent, the middle 20 per cent of Australians during the 1990s, and an

3.45 This trend towards increasing inequality was reinforced in evidence from

ACOSS. Drawing on Smith Family research, ACOSS noted that using three different

poverty lines ’all three show a gradual but significant increase in income poverty over

45 The ABS uses the second and third deciles and not the lowest decile to indicate ’low income’

because of some underreporting of income by low income households in the lowest income

decile and the reporting of low or negative business incomes in this decile which may distort

48 Refers to disposable (after income tax) income, adjusted for differences in household size. See

Harding A & Greenwell H, ’Trends in Income and Expenditure Inequality in the 1980s and

1990s’, NATSEM Discussion Paper No 57, June 2002, p.21.

49

3.46 Not only are income levels low for large numbers of Australians but critical

expenditures on a range of necessities have been rising at a faster rate than the level of

inflation. For example, Table 3.5 shows that since 1989-1990 the following costs have

increased.

3.47 Submissions commented on the adverse financial impact that the GST is having

on low income groups. They noted that the costs for many products and services have

substantially increased since the introduction of the GST, especially in relation to

clothing and other necessities, utility prices, insurance, and household services

including repairs and maintenance. It was commented on that the compensation

50

arrangements in relation to tax cuts and pension increases for low income households

3.48 FaCS advised the Committee that information on the distributional impact of the

GST on different income groups will not be available until the release of data from the

2003-04 ABS Household Income and Expenditure Survey. This data will not be

3.49 Studies have shown that the trend towards increasing earnings dispersion, in

particular, has been mitigated by the redistributive impact of taxes and transfer (social

security) payments and other benefits. One study noted that in 1999-2000, for

example, social transfers reduced income inequality (as measured by the Gini

coefficient) by 22.2 per cent, while income taxes reduced it by an additional 12.1 per

cent. In that year, the two main distributive instruments of the welfare state combined

3.50 A comprehensive study in the Smith Family submission showed the

redistributive effect of taxes, transfers and indirect benefits. The study looked at the

impact of government cash transfers (such as pensions), income taxes, selected

indirect taxes and indirect benefits, such as health, education, housing and welfare.

This study is particularly valuable as previous studies referred to above generally

provided in Table 3.6.

3.51 The study shows that direct cash benefits, such as the age pension and

unemployment allowances, are heavily skewed towards lower income groups. Indirect

benefits, via the use of free or subsidised social services, are also skewed towards

lower income groups but are not nearly as targeted towards lower income groups as

the direct cash benefits. In particular, the second lowest and middle income quintiles

receive higher indirect benefits than the lowest income quintile.

Seniors).

51

Bottom Next Middle Next Top All

20% 20% 20% 20% 20% 20%

$ pw $ pw $ pw $ pw $ pw $ pw

Gross income 233.6 440.4 787.4 1132.2 1826.7 884.8

Disposable income 232.7 418.2 666.3 899.8 1311.9 706.3

- Education 43.5 85.8 106.8 81.0 51.0 73.6

- Health 92.8 106.2 87.6 74.0 61.8 84.4

- Welfare 49.3 45.6 26.4 12.1 2.3 27.1

- Housing 12.6 3.4 1.0 0.4 0.2 3.5

Total indirect benefits 198.3 241.0 221.8 167.5 115.3 188.7

Disposable income + indirect

benefits

431.0 659.2 888.0 1067.3 1427.2 895.0

Selected indirect taxes 38.8 60.8 86.1 95.4 114.7 79.2

Final income 392.2 598.3 802.0 971.9 1312.5 815.8

Ratio of final income to

disposable income

1.7 1.5 1.2 1.1 1.0 1.2

Average number of usual

residents

2.0 2.7 3.1 2.8 2.4 2.6

plus indirect benefits minus indirect taxes.

households have negative private incomes (eg small businesses with losses).

3.52 The impact of selected indirect taxes including petroleum, alcohol and tobacco

taxes is also included in the study. Such taxes are regressive, taking a greater

proportion of the income of low income households than of high-income households.

Indirect taxes paid by low-income households, for example, amount to an estimated

$38.80 per week . or just under 17 per cent of disposable income. For high income

households, indirect taxes are much higher at $114.70 per week, but this represents

only 14 per cent of disposable income. ’Final income’ in the study refers to private

earnings, social security cash payments, indirect benefits such as education and health

and the impact of indirect and income taxes. As the table indicates, low income

households are net beneficiaries from these indirect benefits and taxes, with such

indirect benefits and taxes increasing final income by 70 per cent relative to

disposable income. For high income households, indirect taxes paid cancel out

indirect benefits received, leaving their disposable and final income at the same level.

52

The study shows that the incomes of low-income households are significantly raised

3.53 Wealth plays an important role in generating well-being. Not only do assets,

such as investments, generate income for households, but others, such as owneroccupied

housing, provide a flow of benefits such as reduced housing costs. In

addition assets, if liquid, can be used to smooth consumption over periods of limited

earnings, or illiquid assets can be used as a source of collateral for such purposes. The

SVDP noted that:

There can be no rational discussion of poverty without consideration of

wealth.Poverty exits against a backdrop of wealth. To understand poverty

in our community, we need also to address the environment of wealth in

3.54 Wealth is more unevenly distributed than income and trends indicate that it is

25 per cent of the wealth was concentrated in the hands of just 5 per cent of the

population . this had increased to 29 per cent by 1998. The wealth held by the top two

quintiles grew between 1967 and 1998 while the wealth of the bottom three declined.

The study concluded that ’the trend towards greater wealth equality from the start of

3.55 The estimated distribution of wealth in 2000 and projections to 2030 is detailed

in Table 3.7. The table shows that in 2000, the bottom 50 per cent of the population

held just 7 per cent of the wealth, whereas the top one percent held 13 per cent of the

wealth. The top 5 per cent of the population held 32 per cent of the wealth. The table

indicates that the distribution of wealth will become more concentrated over the next

30 years. The share of the bottom 50 percent is estimated to decline from 7 per cent in

2000 to 5 per cent in 2030, while the share of the top 10 per cent is projected to

increase from 45 per cent to 50 percent over the same period.

56 Kelly S, ’Simulating Future Trends in Wealth Inequality’, Paper presented at the 2002

Australian Conference of Economists, October 2002, p.3.

53

% % % %

Top 1% 13.9 11.7 11.8 11.7

Top 5% 31.6 29.2 30.9 32.7

Top 10% 45.3 43.1 46.1 49.5

Top 20% 64.0 62.7 66.4 70.0

Bottom 50% 7.0 6.7 5.7 4.9

property, superannuation and interest-bearing deposits.

2002 Australian Conference of Economists, October 2002, p.12.

3.56 Evidence presented to the Committee and recent studies provide a profoundly

disturbing picture of the extent of poverty and deprivation in Australia. While the

numbers of those living in poverty varies between studies, even the most conservative

estimates point to substantial numbers of people in material deprivation, struggling to

make ends meet and largely excluded from social and economic participation in the

wider society. Those most at risk of poverty today cover a wide range of groups living

in various circumstances and spread throughout the country . ranging from

Indigenous Australians, the unemployed, sole parent families, people on low wages

and young people.

3.57 Evidence to the inquiry and specialist reports have also highlighted a trend

towards increasing income and wealth inequalities in Australia. Statistics indicate that

the dispersion of earnings and income have become more unequal in Australia,

especially since the 1980s. While the impact of taxes, transfers (social security

payments) and other benefits, such as education, health and welfare has resulted in

some redistribution of income, inequality remains unacceptably high in this country.

3.58 The wider society must now face the consequences of increasing levels of

poverty and disadvantage in this country. In succeeding chapters the Committee has

outlined a series of strategies to address the persistence of poverty and deprivation in

this country that sadly co-exists amid affluence and general material prosperity . a

prosperity that has failed to be adequately shared by all Australians.

54

55

4.1 Unemployment, particularly long-term unemployment, is the most significant

post-war years through to the mid-1970s, Australia, like most advanced Western

countries, maintained very low levels of unemployment. Since the mid-1970s the

achievement of full employment has progressively lost ground as a policy priority,

with the consequence that large numbers of Australians have been denied this basic

right to work. As a consequence, unemployment and underemployment have remained

at unacceptably high levels for over two decades and this has led to major social and

economic costs for the community.

4.2 Unemployment has serious economic, social and emotional impacts.

Unemployment puts severe financial and emotional stresses on families and leads to a

loss of self esteem and social status. These can lead to family conflict and separations;

to psychological and physical health problem; to homelessness and to a range of

disadvantages for children growing up in these families. The effects of

unemployment, however, reverberate beyond the jobless . unemployment reduces

economic output and national income and the wider community is adversely affected

with further demands placed on governments via the social security system and on the

charitable sector.

4.3 This chapter looks at the changing labour market over recent decades, the

definitional issues around unemployment and underemployment, and the relationship

between joblessness and poverty. The chapter then reviews various issues related to

unemployment and the changing labour market and strategies to address problems in

relation to these issues. These include:

56

conditions.

4.4 Over recent decades there have been significant changes in the nature of

employment in Australia. Evidence to the inquiry indicated the following trends:

community services has grown, while that in the manufacturing and

utilities sectors has declined.

the proportion of lower-paid jobs within the service sector. Casual

employment increased by 68 per cent in the 1990s. Permanent jobs

increased by only 5.3 per cent over the same period, but the number of fulltime

permanent jobs actually fell by about one per cent. By August 2002,

27.3 per cent of all wage and salary earner jobs were casual and 66 per cent

of these were part-time.

average duration of unemployment (see below).

in both low and higher skilled jobs and decreases in intermediate skill level

jobs.

employees; by 2002 the ratio had declined 4.1 percentage

points to 67.5 per cent. The pattern of rising wage inequality was

ABS statistics.

57

4.5 In January 2004, there were 574 100 unemployed people in Australia (582 700

in seasonally adjusted terms), with an unemployment rate of 5.6 per cent (5.7 per cent

aged 15 years and over who was working less than one hour a week in the survey

week, had been actively looking for work and was currently available for work.

4.6 As noted above, since the early 1970s unemployment rates have increased

significantly . the August unemployment rate averaged 3.7 per cent during the 1970s,

7.3 per cent during the 1980s and 8.9 per cent during the 1990s. There has also been a

very substantial increase in the average time spent unemployed. The average duration

of unemployment increased from approximately 12 weeks in the 1970s to 41 weeks

during the 1980s. Subsequently it rose to around one year during the 1990s. As a

consequence of this trend, the rate of long-term unemployment . an indicator of the

number of persons unemployed for more than one year . more than doubled between

1980 and 1998. In January 2004, the number of long-term unemployed equalled

1.2 per cent of the labour force, the number of long-term unemployed persons was

equal to 21.4 per cent of all those unemployed, and more than half (52 per cent) of

4.7 The growth in unpaid overtime also contributes to unemployment, especially in

the services sector. One submission noted that in 2001-02 unpaid overtime had

overtaken the amount of hours all people who were registered as unemployed could

have worked and as such if this overtime had been ’paid’ it would have removed all

unemployment. The submission noted that ’if there is any sign that industrial

conditions have declined, then it is the amount of unpaid overtime. The [human] cost

4.8 The official unemployment rate alone, however, underestimates the total number

of people wishing to work. An element of unemployment is ’hidden’ . that is,

individuals who have given up looking for work and/or jobs with suitable hours (also

known as discouraged job seekers) and others with marginal attachment to the

workforce (for example, students and care-givers). When hidden unemployment is

taken into account the adjusted unemployment rate is significantly higher. In

September 2002, while there were 628 500 people officially unemployed, there were

an additional 672 100 workers who preferred to work more hours (of these, 244 800

5 Key Demographic Trends, pp.7-8; and recent ABS statistics.

Coalition).

58

had actively looked for more hours and were available to work more hours) and

4.9 Official unemployment statistics thus significantly underestimate the actual level

of unemployment, particularly among females. Over the last decade, hidden

unemployment accounted for, on average, 16 per cent of total male unemployment

(official plus hidden unemployment). For females, the share of hidden unemployment

as a proportion of total unemployment was much higher, equal to an average of 36 per

4.10 ACOSS in a recent study noted that if hidden unemployment was included in

ABS statistics, the unemployment rate would be double the official rate. In September

2002, ACOSS estimated there were 1 344 000 unemployed, including the hidden

unemployed, corresponding to an unemployment rate of 12.9 per cent, compared to

the official unemployment rate of 6.3 per cent. Some groups, especially mothers,

mature age people, Indigenous Australians and people with disabilities have much

4.11 The Australia Institute argued that the labour market statistics need to

incorporate information on how many hours people would prefer to work as well as

how many hours they do work. By collecting data on these items it would be possible

to measure the nature and extent of unemployment, underemployment and overwork

4.12 In addition to hidden unemployment there is the issue of underemployment.

Underemployment may be defined as a situation where individuals are employed, but

their skills and productive ability are not being fully utilised. Examples include

workers employed in jobs not commensurate with their skills and persons employed

part-time but wishing to work more hours. Data for August 2003 indicate that one

third of all male part-time employed persons would like to work more hours; the

corresponding proportion for female part-time employed persons is 22.3 per cent. The

Centre of Full Employment and Equity at the University of Newcastle (CofFEE)

estimated that in August 2002, while the official unemployment rate was 5.9 per cent,

8 Preston, p.163.

(The Australia Institute).

59

4.13 Evidence to the inquiry indicated that a strong relationship exists between

poverty and employment status. Smith Family data on poverty rates of all people aged

15 years and over by their labour force status reveal that only 4.6 per cent of

Australians who hold a full time job live in a family that is in poverty, however, the

poverty risk increases to 11.7 per cent among Australians aged 15 and over who are

working part-time. More than half of all Australians who are unemployed live in a

4.14 Professor Saunders of the Social Policy Research Centre, using a different data

set, stated that the poverty rate for jobless families, that is, with no employed member,

is almost seven times higher than the poverty rate among families with one employed

person. Having two employed persons in the family causes a further reduction in the

poverty rate.

4.15 Professor Saunders noted that there is a very large reduction in poverty

when there is one full-time worker than when there are two workers in paid

employment. This highlights the fact that it is not so much access to any form of

employment that reduces the risk of poverty (although this does have a positive

4.16 Professor Saunders emphasised the importance of increasing the number of fulltime

jobs and suggested that:

Generating high employment growth should thus be a crucial component of

any poverty alleviation strategy, but generating a growing number of fulltime

jobs is even more critical. These findings as to the significance of fulltime

employment for poverty reduction cast a warning given Australia’s

poor record of full-time job creation in recent decades. Although joblessness

is clearly a major contributing factor to poverty among working-age

families, it does not automatically follow that any form of employment

growth will produce substantial inroads into the poverty population. Job

Smith Family, 2001, p.12.

60

4.17 One study noted that employment trends over the last decade reflected a decline

in full-time employment:

growth of part-time employment. Over the decade 1990-2000, 25 per cent

of the employment growth occurred in full-time jobs while 75 per cent was

in part-time jobs.

away from permanent full-time employment towards casual employment.

Over the decade the number of permanent full-time jobs fell by 51 000 but

the number of full-time casual jobs increased by 333 000.

employees was evident among part-time employees. Part-time permanent

employment increased by 355 000 but part-time casual employment

increased by 492 000. The labour market has overwhelmingly moved away

4.18 Evidence to the Committee indicated the importance of stimulating adequate

employment growth to address the problem of unemployment. The Brotherhood of St

Laurence (BSL) stated that:

There are not enough jobs. There is currently only one job available in the

economy for every six job seekers. No matter how good your labour market

programs, if you are not addressing the lack of jobs, then you are never

4.19 In the period from the immediate post-war years to the mid 1970s Australia, like

most advanced Western countries, maintained very low levels of unemployment. The

era was marked by the willingness of governments to maintain levels of aggregate

demand that would create enough jobs to meet the preferences of the labour force.

Unemployment rates during this period were usually below 2 per cent.

4.20 Evidence indicated that the post-war commitment to full employment has now

been replaced by a government commitment to ’full employability’ only, that is, that

CofFEE argued that this policy is aimed at making people work-ready assisted

no.2, June 2002, p.275.

61

through a range of government programs that vary in their effectiveness . ’but we are

focusing on a diminished goal of full employability and we are forgetting that the

major aim is to create a macroeconomic environment in which you have enough jobs

4.21 Various proposals were advanced to increase the number of jobs. These

included:

priority;

quality of new jobs generated;

health, community services, education and environmental programs;

training, skill development, high productivity, and high quality, high wage

employment; and

4.22 Many submissions argued that full employment should be a major goal of

government. Unemployment represents a significant underutilisation of valuable

human resources. In addition, high and persistent unemployment acts as a form of

social exclusion. The costs of unemployment are significant and include not only

income and output loss, but the deleterious effects on individual self-confidence and

skill levels. Many unemployed people feel demoralised and socially isolated. The

wider community is also adversely affected and there are increased burdens on the

4.23 The Australian National Organisation of the Unemployed (ANOU) stated that

full employment should be the centrepiece of national policy:

.[this] is founded upon our belief that every adult who wishes to engage in

paid work should have the right to do so. This right cannot be fulfilled

unless the work available meets the human need to obtain an income, to

Advocacy); 211, p.6 (Unemployed Workers Group -Townsville/Thuringowa).

62

contribute to society and to gain a status in the community through this

4.24 The BSL also stated that ’there needs to be a commitment to full employment,

which seems to have completely dropped off the agenda over the last 15 to 20 years.

That comes a lot from an overly narrow economic focus and the desire to control

4.25 Some groups, however, cautioned that a definition of full employment needs to

be relevant to contemporary circumstances. The Centre for Public Policy noted that:

.we would need to think about what we actually mean by full employment.

Many people working part-time chose to work part-time . they are not

working part-time in the sense that the Brotherhood suggested. They are not

necessarily looking for additional hours; they are looking for that part-time

4.26 Several submissions argued for the implementation of various job creation

schemes to increase the total quantum of jobs available. The CofFEE has developed a

comprehensive public sector job creation proposal. The proposal calls for the

introduction of a Job Guarantee for all long-term unemployed people and a Youth

Guarantee, which would provide opportunities for education, technical training and/or

a place in the Job Guarantee program for all 15-19 year old unemployed people.

Details of the proposal are provided below.

The proposal for a Community Development Job Guarantee (CD-JG) has been developed by

the Centre of Full Employment and Equity (CofFEE) and requires that two new employment

initiatives be introduced. These are a Job Guarantee for all long-term unemployed (people

who have been unemployed longer than 12 months) and a Youth Guarantee, comprising

opportunities for education, technical training, and/or a place in the Job Guarantee program

for all 15-19 year olds who are unemployed.

These initiatives would significantly augment the current labour market policies of the

Federal Government.

63

Under this proposal, the Federal Government would maintain a ’buffer stock’ of jobs that

would be available to the targeted groups. The CD-JG would be funded by the

Commonwealth but organised on the basis of local partnerships between a range of

government and non-government organisations. Local governments would act as employers,

and CD-JG workers would be paid the Federal minimum award. Any unemployed teenager

(15-19 year old) who was not participating in education or training would receive a full-time

or part-time job. Equally, all longterm unemployed persons would be entitled to immediate

employment under this scheme. CD-JG positions could be taken on a part-time basis in

combination with structured training.

The aim of the CD-JG proposal is to create a new order of public sector jobs that support

community development and advance environmental sustainability. CDJG workers could

participate in many community-based, socially beneficial activities that have

intergenerational payoffs, including urban renewal projects, community and personal care,

and environmental schemes such as reforestation, sand dune stabilisation, and river valley

and erosion control. The work is worthwhile; much of it is labour intensive requiring little in

the way of capital equipment and training; and will be of benefit to communities experiencing

chronic unemployment. It is in this sense that the proposal represents a new paradigm in

employment policy.

To implement the CD-JG Proposal at a national level would require an estimated net

investment by the Commonwealth of $3.27 billion per annum. The net investment required to

employ all unemployed 15-19 year olds under the Youth Guarantee component of the

proposal would be $1.19 billion. On the other hand, $1.96 billion is required to employ all

long-term unemployed persons aged 20 and over. Clearly, the stronger is the private sector

activity the lower this public investment becomes.

The creation of 265 300 CD-JG jobs would be required to eliminate youth unemployment and

to provide jobs for people aged 20 years and over who are long-term unemployed. As a

result, national output would rise by $7.71 billion; private sector consumption would rise by

$2.38 billion; and an additional 68 900 jobs would be created in the private sector. The full

implementation of the CD-JG proposal would thus yield an additional 334 200 jobs. The

unemployment rate would fall to 4.0 per cent, after taking account of the labour market

participation effects.

4.27 CofFEE indicated to the Committee that its proposal had widespread local

support in Newcastle from the business community, unions and community and

welfare organisations. The Newcastle City Council also indicated its support for the

proposal to be piloted in the local Hunter region. CofFEE stated that to implement the

proposal in the Hunter would require net investment by the Commonwealth

4.28 Evidence indicates that public sector job creation initiatives are an important

element in labour market policies in many OECD countries. One submission noted

64

that an OECD examination of the effectiveness of labour market programs concluded

that direct creation of jobs through public service employment programs may be the

only way to help many of the unskilled long-term unemployed. These job creation

programs have become more effective over time as they have become more flexible,

OECD study, however, concluded that direct job creation in the public sector shows

that this approach has been of little success in helping unemployed people get

permanent jobs in the open labour market. The study noted that as a result there has

been a trend away from this type of intervention in the recent past, but it appears to be

making a comeback now in some OECD countries, especially in Europe, usually as

part of a ’reciprocal obligation’ on the unemployed in return for continued receipt of

benefits. However, OECD countries continue to spend large amounts on public sector

job creation programs and the policy debate about the utility of this type of

4.29 Other job creation proposals were also discussed during the inquiry. Australia @

Work informed the Committee of its co-operative venture that combines low cost

housing initiatives and related job creation activities. The group pointed to its

Bulahdelah Working Village project which seeks to support a small community of 30

families in the rural town of Bulahdelah. The project will facilitate 45 new jobs for coop

4.30 The Committee believes that the Commonwealth Government needs to be more

pro-active in creating employment opportunities for Australians, especially in the

creation of full-time jobs. Meaningful employment for the country’s citizens is

fundamental to their economic and social well-being, and also that of the nation.

4.31 Breaking down the barriers to employment must be a national priority. This

requires a concerted effort on two fronts . increasing the total quantum of jobs by

building on the foundations of strong economic growth, and improving the

opportunities for disadvantaged people to get their fair share of secure and decent jobs

(which is discussed later in this chapter).

(Australia @ Work).

65

4.34 The Job Network provides subsidised employment services to Australia’s

unemployed, especially targeted at the more disadvantaged jobseekers. The Job

Network replaced the Commonwealth Employment Service in 1998. Most publicly

subsidised employment services were contracted out to for-profit and not-for-profit

agencies under purchaser-provider contracts determined by the Department of

Employment and Workplace Relations (DEWR). The first contract (JN1) with these

providers came into operation in May 1998, the second (JN2) in early 2000 and the

latest three-year contract on 1 July 2003 (JN3). Centrelink was established as a

Government operated gatekeeper to the system and as the single benefit payments

agency.

4.35 The Job Network has three major functions:

providers match and refer eligible jobseekers to suitable vacancies, notified

by employers. Under JN3, the job placement function is not directly part of

the Job Network as general recruitment agencies and others outside the

existing Job Network will fulfil this role.

program to jobseekers unemployed for at least 3 months.

this is the most personalised and intensive form of assistance offered by the

66

Job Network. The types of assistance provided includes work experience,

vocational training, job search techniques and language and literacy

training.

4.36 The major change in the new arrangements from July 2003 is that jobseekers

will be allocated to a single Job Network provider for the life of their unemployment

episode. They will automatically go through cycles of assistance of varying intensity

as their unemployment spell increases. Where jobseekers are referred to

complementary programs, such as Work for the Dole, Job Network providers will

retain contact with them and ensure continuing job search activities. Jobseekers

unemployed for 12 months, or those at very high risk of enduring unemployment, will

receive more extensive assistance for a period of 6 months through the customised

assistance component of Intensive Support. This can include job matching, training,

job search assistance, work experience and post-placement support. Job Network

providers will get access to a funding pool (the Job Seeker Account) to subsidise

particular forms of assistance to jobseekers . these services include fares, counselling,

wage assistance and training. Of the various functions, the intensive phase of

assistance (customised assistance) is the most important as it is targeted at the most

disadvantaged jobseekers.

4.37 JN3 implements an Active Participation Model of employment placement and

jobsearch. Under this new system there is an emphasis on guaranteeing access to a

’continuum of service’, with the nature of that service increasing over time if the

individual is at high risk of unemployment. It aims to provide assistance that is better

targeted and timelier.

4.38 In addition to paying commencement fees when job seekers start in the intensive

phase of assistance (which has been changed to fee-for-service payments in JN3), the

Government also rewards providers for outcomes. For example, under JN3, a provider

will receive outcome payments of over $6600 if it successfully gets a job that lasts at

least 26 weeks for a job seeker who has been unemployed for 3 years or more. This

will be supplemented by fee-for-service and Job Seeker Account payments for that job

4.39 With continued long-term unemployment, the role of labour market programs

has become even more important, especially in enabling disadvantaged job seekers to

become more competitive in the labour market and to get a foothold in paid work.

Current programs are performing poorly in this respect.

4.40 Submissions argued that the long term unemployed and highly disadvantaged

jobseekers have not been well served in terms of quality of assistance delivered and

67

however, that the reforms under JN3 may go some way to addressing these problems.

Catholic Welfare Australia noted that the intensive support initiatives under JN3

recognises that providing more active support earlier in a person’s experience of

unemployment will have greater potential to reduce the person moving into long term

4.41 Studies indicate that the employment impact of Job Network programs for job

seekers has been negligible. A DEWR evaluation concluded that Intensive Assistance

provided only negligible benefits for job seekers, and the likelihood of being in

Productivity Commission review of the Job Network also found that, using a variety

of assessment methods, the Job Network programs have to date had only a modest

effect on job seekers’ chances of gaining employment . ’this finding is consistent with

evaluations of previous Australian and overseas labour market programs, and is in line

While under the Job Network, intensive services are supposedly targeted to more

disadvantaged jobseekers, some groups have consistently lower employment

outcomes, including older job seekers (aged 55-64 years), those on unemployment

benefits for more than two years, job seekers with less than year 10 education,

4.42 A major objective of the Job Network is to reduce the numbers of long-term

unemployed. Several reports have highlighted the ineffectiveness of Job Network

programs on outcomes for the long-term unemployed. One study noted that long-term

unemployment statistics ’tracked the reduction in unemployment during the Working

Nation period, but there is evidence of persistence in the period following the

this system to assist disadvantaged clients is clearly reflected in the increases in longterm

unemployment.

4.43 Several studies have compared the Job Network with previous labour market

programs. ACOSS stated that employment outcomes for long-term unemployed

people under the Job Network are less favourable compared with the former Working

Nation programs. Another study examined ABS data on unemployment levels for

males, females and long-term unemployed youth and concluded that ’it appeared that

Australia).

32 Productivity Commission, p.xxvii.

33 Productivity Commission, pp.5.6-5.9.

34 Cited in Productivity Commission, p.5.10.

68

argued that the Job Network has produced outcomes which are broadly similar to

those achieved under previous labour market programs, the Productivity Commission

noted that labour market conditions at the time of Job Network have been more

4.44 The BSL stated that the Job Network’s previous funding model provided strong

incentives to focus resources on people who are easy to place rather than those with

greater barriers to employment. By focusing on immediate outcomes, it discouraged

investment in quality services with the potential to address causes of labour market

focused and the payment system provides the greatest rewards to those providers who

4.45 Evidence to the Committee suggested a decline in the quality of support

provided, a move away from holistic assistance, and a reduced focus on the broader

welfare and personal needs of jobseekers. The Productivity Commission’s review

found that many jobseekers under JN2 received little or no assistance while in

Intensive Assistance . the highest assistance category in the Job Network. The

Commission noted that ’when all the evidence is reviewed, including anecdotal

information provided by job seekers and providers, it still appears that a significant

jobseekers being ’parked’ . registered with the provider but provided with no

assistance . because the cost of removing barriers is too high relative to the outcome

payment. The Commission noted that many providers often direct their services to

jobseekers that are likely to be responsive and ’park’ those with either insurmountable

or high barriers to work. The former funding arrangements provided weaker financial

incentives to provide assistance to those limited job prospects. The Commission

argued that the Active Participation Model in JN3 is likely to reduce parking

4.46 The Productivity Commission noted that although Intensive Support under JN3

offers a higher level of interaction with job seekers, some job seekers with large

barriers to employment may not get much direct assistance from the Job Network. The

35 Cited in Productivity Commission, p.5.12.

36 Productivity Commission, p.5.12.

p.3.

39 Productivity Commission, p.9.13.

40 Productivity Commission, pp.xxxii-xxxiii.

69

Commission suggested that there may be grounds for providing more tailored and

4.47 A further concern raised in evidence, which may directly affect poverty levels of

disadvantaged jobseekers, is the removal of any notion of job quality from the

achievement of employment outcomes. For example, Job Network providers in the

past received the same payment for placing a job seeker in a low skilled, low paying

job with no prospects for development as for placing someone in a job offering good

arrangements under JN3 do address this problem to some extent with, for example,

higher outcome payments payable to Job Network providers placing highly

disadvantaged jobseekers.

4.48 Active labour market programs, which aim to improve the ’employability’ of

young people and long-term unemployed are only one part of an employment strategy

. the other aspect of this strategy is the need to provide effective links between the

unemployed and sustainable jobs.

4.49 The Committee notes the concerns expressed relating to the inadequacies of the

Job Network in terms of quality of assistance delivered and employment outcomes for

the long term unemployed and highly disadvantaged jobseekers. The Committee notes

that changes introduced to Job Network arrangements in July 2003 may go some way

to addressing the concerns expressed, especially in providing greater flexibility and

individualised support services to jobseekers, but believes that further substantial

changes to the Job Network are required.

4.50 The Committee also considers that further measures to address the structural

failure of the labour market to create sufficient employment opportunities need to be

implemented to complement the employment services provided through the Job

Network.

41 Productivity Commission, p.9.29.

70

4.53 One of the most disadvantaged groups in Australia is the long-term unemployed.

Evidence to the Committee emphasised that effective employment assistance policies

are vital in order to identify the barriers that are preventing their access to the labour

market and to improve the job prospects of this particularly vulnerable group. In

January 2004, there were 124 500 Australians who had been unemployed for

52 weeks or more, comprising 21.4 per cent of the total unemployed.

4.54 In Australia, unemployment rose substantially with recessions in each of the last

three decades. Jobs growth was too weak to reduce it to previous levels in the ensuing

recoveries. This and other factors led to a sharp increase in long-term unemployment

as shown in Figure 4.1.

71

4.55 The length of time people are unemployed directly correlates with their

likelihood of living in poverty. Some 79 per cent of people who have been

4.56 ACOSS stated that in February 2003, out of 663,600 people registered for

unemployment benefits with Centrelink, 394,500 people, or 59 per cent, had been

registered for 12 months or longer. This compares with July 1991 when only 23 per

cent of people were registered for over 12 months, indicating a large rise in the

proportion of long-term unemployed over the last decade. Further, of those who have

been out of work for at least a year, the majority have been unemployed for over two

4.57 The long-term unemployed are much more likely than employed people or shortterm

unemployed people to have low education and skill levels, a chronic illness or

disability, to live in a region of high unemployment, and to have an unstable

employment history. Reducing long-term joblessness therefore requires a combination

of strong jobs growth and labour market assistance and training policies to help these

disadvantaged job-seekers to secure a reasonable share of the jobs created.

4.58 Reducing long-term unemployment is critical to achieving economic outcomes

that are both efficient and equitable. In general, the longer a person is unemployed the

greater the costs of each additional period of unemployment, both to the person and to

society. Material hardship, and the physiological and psychological damage resulting

from unemployment, are all likely to increase as the duration of unemployment

4.59 Persistent long-term unemployment has caused a large group of Australians to

live under extended economic hardship. A high proportion of long-term

unemployment among the unemployed indicates that the burden of unemployment is

concentrated on a relatively small number of people, who often are at risk of

permanent detachment from the labour market.

4.60 Many submissions indicated that insufficient attention has been paid to

education, training, and skill development for unemployed people. They argued that

more training assistance should be provided for the long-term unemployed including

the upgrading of numeracy and literacy skills, as well as general communication skills

to enhance their employability. Catholic Welfare Australia proposed that cash

payments should be provided (of $1000 per year of study completed) for long-term

72

unemployed jobseekers who undertake and complete a recognised course which will

4.61 Submissions emphasised that effective employment assistance is critical to

enabling people who are unemployed to move into work as early as possible. ACOSS

and other groups argued that there is only limited assistance available to overcome

barriers to work. As noted above, a revised model of employment assistance was

provision of higher level assistance for people who have been unemployed for one to

two years or who are identified as at very high risk of long-term unemployment. This

includes provision of a Job Seeker Account whereby Job Network providers will be

able to purchase or provide assistance for job seekers to address their barriers to

employment.

4.62 Groups argued that in order to combat the labour market disadvantage facing the

majority of long-term unemployed jobseekers, substantially more assistance is

required. The BSL argued that while the Job Seeker Accounts may improve the

4.63 Of particular concern to many is the lack of assistance for those who are the very

long-term unemployed and who fail to get an outcome through customised assistance.

After two attempts at Customised Assistance there is no further substantial assistance

provided. A person who is unemployed for a very long time is so disadvantaged

within the labour market that moving into sustained employment is unlikely without

should be introduced targeting long term unemployed or at risk jobseekers who have

not got an outcome within three months of undertaking Customised Assistance. The

Guarantee would provide incentives for Job Network providers to spend more on

appropriate training and on wage subsidies, and provide job seekers with appropriate

help that they need. The cost would be met in equal part by the provider and the

4.64 Another gap identified during the inquiry is the lack of effective programs to

provide work experience for the long-term unemployed. Employers often prefer to

appoint jobseekers with recent work history, and the longer someone is out of work,

the more uncompetitive they become. Work experience can overcome this in part, and

provide on-the-job training in work practices and expectations of employers. A serious

73

strategy to reduce long-term unemployment must provide for greater opportunities for

4.65 ACOSS suggested that a transitional jobs scheme could be introduced, whereby

people who have been unemployed for over two years would be provided with six

months employment at a training wage, and with significant wage subsidies, in the

not-for-profit and public sectors. Wage subsidies would be primarily funded through

on the Swedish ’training and hiring’ model which provides public subsidies to

employers who temporarily release low-skilled workers to upgrade their qualifications

4.67 Submissions also argued that targeted policies to reduce the cost to employers of

employing long-term unemployed and disadvantaged jobseekers, for example, by way

of direct subsidies, tax exemptions or rebates need to be developed. These need to

operate over a reasonably long timeframe, as employers tend not to respond to shortterm

4.68 Until relatively recently to be in paid work but poor used to be a contradiction in

Australia. In the 1970s, the Henderson poverty inquiry found that less than two per

cent of families with an adult in full-time employment could be described as poor.

Rather, poverty was mainly a problem for those who could not get waged work. Since

the 1990s, however, having employment is no longer a guarantee of staying out of

poverty. The phenomenon of the ’working poor’ refers to the situation where

households fall below a defined poverty line even when family members are in paid

employment.

4.69 ACOSS stated that some 365,000 Australians were living in ’working poor’

households in 2000. These are families and single people whose main source of

income is wages and salaries but whose incomes are below the poverty line, using the

74

before-housing half average income poverty line. Although this represented just

3.2 per cent of people living in such wage-earning households, it represented 15 per

4.70 Worsening wage inequality is a major contributor to the widening social

divisions in society. This problem has been exacerbated by the increasing numbers of

people unable to secure full time permanent work and forced to take casual and part

either full-time or part-time increased slightly over the decade 1990-2000. While 10.7

per cent of all Australians working part-time were in poverty in 1990, by 2000 this

had increased to 11.7 per cent. For wage and salary earning families there was a

marginal increase in the risk of being in poverty in all four earnings category (namely,

one part-time earner, one full-time earner, two earners . at least one part time . and

commissioned by the Smith Family found that one in five poor Australians live in a

4.71 The demographic characteristics of low-paid workers show that women, workers

with no post-secondary educational qualifications and younger workers are

overrepresented in this group. One study found that whereas 45 per cent of all wage

and salary earners are women, they make up 54 percent of low paid workers. Almost

half (46 per cent) of low paid employees are persons who had left school before

completing secondary school. Also, younger adults, those aged under 30 years, have a

higher representation in the low paid group than older workers. As to geographical

location, workers living in rural areas and small urban centres were more likely to be

in low paid jobs. Persons born in a non-English speaking country also have a slightly

4.72 Severely limited opportunities are often part of the life experiences of low wage

working poor individuals and their families. A lack of financial resources often has

adverse flow-on effects for workers and their families. A lack of money can led to

reduced access to preventive health and other services; reduced educational

opportunities for their children and a disincentive for them to participate in postsecondary

education; and a reduced ability to participate in social activities and in the

56 Harding, Lloyd & Greenwell, pp.13-14.

2000, p.9.

75

wider society generally. Lack of financial resources also reduces a worker’s asset base

with more likelihood that their financial difficulties will persist into old age.

4.73 A study by Eardley examined the growth of the ’working poverty’ in Australia

different measures of low pay in the literature, the most widely used approach is to

define an hourly earnings threshold level which reflects the level of remuneration for

work undertaken in a job. A person earning under this cut off is deemed to be working

for low pay. The study defines ’low pay’ as two-thirds of the median hourly rate for all

waged workers. The measure included both men and women, and full-and part-time

employees.

4.74 The study found that the phenomenon of working poverty in Australia is an

increasing problem with the proportion of low-paid workers who are also in poor

families increasing to about one in five in 1995-96. Only part of this is due to the

increasing prevalence of involuntary part-time and casual work. In 1981-82, one in ten

low-paid adult employees lived in poverty, as defined by the Henderson poverty line .

this had increased to one in five by the mid-1990s. The growth in poverty among

those in full-year, full-time work appears to have risen significantly, with a particular

increase among single person households. While the unemployed as a group are still

more likely to live in poor families than even low paid employees, employment seems

to be becoming a much less effective safeguard against poverty than in the past.

4.75 The current system of enterprise bargaining severely disadvantages low-paid

workers. The Australian Liquor, Hospitality and Miscellaneous Workers Union

(LHMU) stated that bargaining at the enterprise level is most suited where workers are

employed in large enterprises providing long-term employment in fixed locations.

This does not exist in many service establishments which are characterised by indirect

employment relations, the dispersal of workers in the same industry across many

establishments, and high rates of casualisation and turnover. In addition,

subcontracting makes enterprise bargaining difficult because the employer for whom

workers perform their labour is not the direct employer with whom workers are

4.76 The Committee received a substantial amount of evidence during the inquiry

from many individuals in low wage employment. The personal experiences of these

people provided a very valuable insight for the Committee about the difficulties faced

59 Eardley T, ’Working but Poor? Low Pay and Poverty in Australia’, SPRC Discussion Paper No.

76

in making ends meet and providing for themselves and their families. Some of these

4.77 This evidence of these people indicated that for low paid employees:

housing and utilities); and

carry a level of debt in order to make ends meet and to go without things

and activities associated with full and active participation in society.

under 10. I currently work at the Flinders Medical Centre Community Child Care Centre as a

child-care worker and I have been there for 10 years. I am also an LHMU member. I work on

a casual rate because I choose to, as I will get more money per hour, $15.35 an hour doing 24

hours a week, and I forgo my sick leave and holiday pay as I am better off getting the extra

hourly rate.

We used to get a health care card. We no longer do, because my partner’s and my combined

income is $50 over the limit. Due to not having a health care card, we get no help with school

fees and have to pay the full doctors fees, as there is no bulk-billing in my area. The family

payment system does not seem to support families where both parents are part-time or casual.

We have inadvertently incurred family allowance debts because we have to estimate our

future incomes, and quite often have had to pay back. A number of times we could have been

eligible for parenting payment but have not bothered to fill out the forms because it is too

much hassle to fill them out and it is only for one or two fortnights. The next fortnight you

are not eligible for it. You get knocked off. You have to go back and fill the forms out again.

My life could be worse, but when I see people like CEOs and managers earning so much

money, obviously the money is there for us to be paid better so that I could afford to take my

children on holidays, to go to the movies et cetera and to do household repairs, and maybe to

run two cars. I would like the committee to look into the reasons why, if the money is there to

pay CEOs and managers such large amounts of money, low-wage earners cannot have a

better lot.

5 February 2003, tabled at hearing 30.4.03.

77

worked at the hotel for almost nine years. My job is in the uniform and/or valet attendant

area. I receive approximately $306 per week after tax. I work approximately 21 hours a week.

I have five dependent children between the ages of two and 13. I am a single parent,

unfortunately. I would like to work more hours a week, but I cannot manage due to my

parenting responsibilities. In any case, I try to work every second weekend just to get extra

money from the penalty rates to help pay the bills. I am sorry, but I am a bit upset. I cannot

remember the last time I was able to take a break or to have a holiday.

I find it very difficult to manage my basic costs such as clothes, health, transport and

education. The living wage pay rise I receive is so small. It is a bit of help, but it needs to be

bigger to make any real difference. What can the committee do to make sure that in any

future pay increase I receive real help? I have been forced to take unpaid leave for the birth of

my children. This has forced our family into financial hardship. What can the committee do

to make sure that working families do not continue to suffer when children arrive? Can you

ensure that paid maternity leave becomes a right for all workers, especially the low paid,

especially us? We are working for peanuts.

Brisbane Lions Club at the Gabba. I enjoy the customers and the social interaction in

hospitality. I am a casual worker. I used to work two shifts at the Queensland Turf Club, a

mid-week shift and a Saturday shift. I had worked at the turf club for seven years and I had

had these shifts for two years when the manager took me off the mid-week shift. This left me

with only one shift at the turf club and one shift at the Brisbane Lions Club. I now take home

$160 a week. I also receive some money from Centrelink. Losing a shift is a lot to someone

who is on their own and relying on this money. You do not have any choices when you are

casual. You do not want to cause trouble. Managers can make decisions based on personality

instead of on work ethic, and they do this all the time. I am an honest and hard worker. It is

not because of my work that I lost this shift; it is because of favouritism and personalities.

I am on my own.I am 54 years of age, and I would like to retire by the time I am 60. It is

difficult to be on your feet all day. I feel like I have done the hard work in life, but I have no

option but to stick it out.

I manage on the income that I get. I put away anything extra that I can. I am currently paying

off my house, but it is getting hard because everything is going up. It is getting harder to

manage day to day. I cannot afford a car, and it takes me 1½ hours to get from Green

Meadows to Ascot because I need to get a few buses. I also cannot afford to go on holidays.

Casuals in hospitality have no security. We want to be treated fairly. I would like to ask: what

can the government do to make sure that we can keep our shifts and that we have as much

security as other people?

4.78 The ACTU commissioned a study, based on HES data, on the financial stress

experienced by households whose principal source of income is employee income.

The study provides empirical evidence of the financial struggle experienced by

78

’working poor’ households. The data for the first quintile households is provided

below.

58.5 per cent or 477,477 households . responded that they just managed to break even

most weeks while a further 17.9 per cent (146,100 households) said they spend more

money than they get. That is, more than three quarters of the first quintile households are

just breaking even or are spending in excess of their income.

564,810 households said it was worse (27 per cent) or the same (42.2 per cent). Only

27.3 per cent felt their present standard of living better than 2 years ago.

from home for at least one week per year was that they could not afford to.

problems in the past year.

households reported that they could not.

fortnight.

shortage of money, and 10.3 per cent responded that they had not paid registration or

insurance bills on time due to shortage of money.

week.

bought second hand clothes is that they couldn’t afford to buy new ones. The same

proportion . 14.1 per cent said they had sought financial help from friends or family due

to shortage of money.

leisure or a hobby activity is that they couldn’t afford to.

households responded that they would need to rely on a loan from family or friends. A

further 15.6 per cent would need to rely on a loan from a bank/building society/credit

union, and 9.2 per cent a loan on a credit card.

4.79 The evidence indicates that for low paid, low income working families life is a

struggle involving significant levels of financial stress and disadvantage. It also shows

a lack of capacity to participate socially in activities enjoyed by others.

79

4.80 The Australian Liquor, Hospitality and Miscellaneous Workers Union (LHMU)

argued that the low-wage labour market has emerged through the intersection of two

processes, namely:

inadequate hours, casual work, ’casualised’ part-time work, short job tenure,

contracting and undervalued, insecure employment; and

’individual’ bargaining over industry standards, with a diminished ’safety

4.81 The LHMU added that the low-paid labour market is characterised by the

interlocking dynamics of low pay . low hourly rates of pay and fragmented work

experiences that provide inadequate, insecure levels of employment. In the low-paid

labour market, many workers who may receive reasonable hourly rates of pay are

nonetheless unable to secure adequate weekly or yearly work to constitute a liveable

wage. The union noted that the consequences of an entrenched low-paid labour market

’go beyond employment. These consequences include poverty, inequality and

4.82 As discussed in chapter 3, poverty is increasingly associated with low pay. The

LHMU stated that, in fact, the low-paid and the jobless poor are often the same people

at different stages in their lives, ’churning’ through a series of poorly paid jobs and

spells of unemployment. In addition, thousands of poor individuals, including

4.83 During the inquiry a number of options were suggested to address the problem of

low paid workers. These issues are discussed below.

4.84 A number of organisations, including the LHMU, argued that there was a need to

raise minimum wages for low paid workers. The union argued that:

Achieving fair wages in our society in part depends on our ability to raise

wages at the bottom of the labour market. We must ensure that low-paid

80

4.85 In order to raise minimum wages the LHMU argued that it would be necessary

to establish an adequate income benchmark. The LHMU pointed to research

conducted by the Social Policy Research Centre which calculated a ’modest but

adequate’ benchmark for a range of household types to achieve an adequate standard

of living relative to contemporary community standards. Australia has not had a

minimum wage calculated on an analysis of household budgets since the Basic Wage,

4.86 ACOSS argued that the Australian Industrial Relations Commission should

establish a new minimum wage benchmark based on a wage level that enables a single

full-time worker to live in ’modest comfort’ and to participate in contemporary society.

4.87 Minimum full-time wages have fallen well behind average wages over the last

20 years, especially in the early years of the shift towards enterprise bargaining,

before the present round of ’Living wage’ cases was instituted in 1996. The minimum

wage has now fallen to just 50 per cent of average earnings, a reduction of 15 per cent

81

4.88 The ACTU also stated that there has been an ongoing decline in the relative

value of the Federal minimum wage over the course of the last decade, and

particularly since 1996. The ACTU added that:

.the minimum rates adjustment process.concluded some time round the

early nineties, depending on which awards and classifications you are

talking about. Since that time, there has been an ongoing decline. An

indicator of that is that the federal minimum wage is now, for the first time,

worth less than half of average earnings. It has dropped to 49.9 per cent of

4.89 There is continuing debate over whether higher minimum wages lead to higher

unemployment. The empirical evidence as to whether low paid workers are priced out

of the labour market due to higher minimum wages is equivocal. An OECD study

concluded that higher minimum wages are not a major cost on jobs, at least in the case

of adults but they do seem to have more of an impact on youth employment. Other

studies have reported that there is no clear evidence either way that higher minimum

4.91 The Committee believes that the establishment of a new minimum wage