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9.11 Unemployment benefits and the minimum wage


Australia’s primary unemployment benefit, Newstart Allowance, is paid to people of working age who are unemployed.

Newstart Allowance is designed to be temporary and is less generous than pensions (for example the Age Pension). Payments are means-tested so they are not received by those who can support themselves. Newstart Allowance and Youth Allowance (Other) also involve activity tests to ensure that recipients are actively looking for work.

The government also funds a range of services provided by Job Service providers to assist the unemployed find work. Jobseekers are assessed on how much help they will require to find employment and placed into one of four assistance streams.

Stream 1 jobseekers are assessed as ‘work ready’ while Stream 4 jobseekers have severe barriers to employment. Jobseekers receive assistance based on their level of need, for example Stream 1 jobseekers receive minimal help (such as help with their resume and job search) while Stream 4 jobseekers receive intensive assistance.

Rationale for government intervention

The primary purpose of income support to the unemployed is to provide a minimum adequate standard of living to people who are temporarily out of work and unable to support themselves through their savings or other means. The rate of unemployment benefit attempts to balance adequacy of support for people who are unemployed with the incentive for them to seek work and the cost to the Commonwealth.

Unemployment benefits are also designed to ensure that people have adequate resources to search for and obtain employment.

Current structure of the programme

To receive Newstart Allowance a person has to be unemployed and aged over 22. As at January 2014, the payment rate of Newstart Allowance was $501.00 per fortnight for single people, or $452.30 each for a couple (Department of Human Services, 2014).

Youth Allowance (Other) is paid to unemployed people aged 16 to 21. Youth Allowance (Student) is paid to similarly aged people who are still engaged in education. People aged 16 to 22 are encouraged to pursue education as a priority over work. As at January 2014, the payment rate for Youth Allowance (Other) was $414.40 per fortnight for a single person aged 18 and over and living away from home (Department of Human Services, 2014).

Newstart Allowance is paid to a variety of people – a large proportion of recipients are now either principal carer parents, have a partial capacity to work, are mature aged or have some combination of these characteristics (Joint Interagency Submission, 2012).

A range of other Newstart Allowance rates are available based on whether a recipient has dependent children; is aged 60 with nine consecutive months of unemployment or over; or a single principal carer of a dependent child.

Recipients who rent privately are also eligible for Rent Assistance which could be up to $124.00 per fortnight for a single person and $116.60 for a couple and certain concessions such as cheaper pharmaceuticals (Department of Human Services, 2014).

The rate of Newstart Allowance is substantially lower than the current minimum wage of $1,244.40 per fortnight or the rate of pensions, such as the Disability Support Pension which is $827.10 per fortnight (with supplements) for a single person (Fair Work Ombudsman, 2013; Department of Human Services, 2014).

Newstart Allowance is income tested, with payments reducing by 50 cents in the dollar for income over $62 per fortnight, increasing to 60 cents in the dollar if income is above $250 per fortnight. Newstart Allowance also has an assets test applied and if assets are above a certain threshold, the person is not eligible for the payment. For a single person, the asset thresholds are $196,750 for a homeowner and $339,250 for a non-homeowner (Department of Human Services, 2014)

Newstart Allowance is also activity tested. To continue to receive the payment, people must participate in approved activities such as looking for work or participating in formal employment programmes.


Current expenditure on Newstart Allowance is $8.4 billion per year, expected to increase to $8.7 billion by 2016-17 at a growth rate of 1.4 per cent each year in nominal terms (see Chart 9.11.1).

Current expenditure on Job Services Australia totals $1.3 billion, expected to decrease at around 0.9 per cent per year. Other significant expenditure on job search activities includes $173 million per year on the Indigenous Employment Programme and $750.4 million per year on Disability Employment Services.

Chart 9.11.1: Newstart Allowance projected expenditure

This chart shows expected future expenditure on Newstart Allowance over the five years from 2012-13 to 2016-17.  Expenditure is expected to increase from around $7.5 billion to around $8.5 billion over this period.


Source: National Commission of Audit.


A major driver of expenditure on Newstart Allowance is the state of the economy, in particular the rate of unemployment. Increases in the Consumer Price Index (CPI) will also drive growth due to payment rates and thresholds being indexed to the CPI.

In the 2013-14 Budget, the income test arrangements for Newstart Allowance were made more generous by increasing the income test free area from $62 to $100 per fortnight from March 2014. This threshold will also be indexed to CPI from July 2014 where previously it was not indexed. The Budget measure had a cost of $258 million over the forward estimates (Australian Government, 2013a).


Balance of incentives

There is a trade-off between the generosity of unemployment benefits; the incentive for people to gain paid employment; and the cost to tax payers.

Another important dimension is the relationship between the rate of income support and the minimum wage (see later discussion), as the main incentive to find employment is the income that can be obtained from work. If the level of income support is too close to the minimum wage then recipients have a reduced incentive to obtain work. Alternatively, if the minimum wage is too high relative to income support then Newstart Allowance recipients with low levels of skill or experience may be priced out of the labour market and may not be able to find employment.

Chart 9.11.2 below shows the proportion of new Newstart Allowance recipients by time on income support. This demonstrates that, while many recipients gain employment within a relatively short period of time (usually less than 12 months), a significant proportion, around 20 per cent, remain on income support for longer than two years (Joint Interagency Submission, 2012).

Chart 9.11.2: Newstart Allowance recipients by duration on income support

This chart shows the number of Newstart recipients by duration of time on income support over the period 2005-06 to 2011-12.  Most people on Newstart move off income support within 12 months, but a significant proportion stay on income support for 2 years or more.  The proportion of high duration Newstart recipients on income support has grown over this period.


Source: Joint Interagency Submission, 2012.

The long-term unemployed are not a homogenous group. A large proportion of the long-term unemployed include the mature aged, single parent carers and people with a disability. These groups currently collectively comprise approximately 40 per cent of the Newstart Allowance population (Joint Interagency Submission, 2012).

As shown in Table 9.11.1, around 28 per cent of people who are unemployed for longer than 52 weeks are aged between 15 and 24 years of age (Australian Bureau of Statistics, 2013a). Younger people also comprise the largest cohort of unemployed across all age groups.


Table 9.11.1: Newstart Allowance recipients by age

Age Cohorts

Per cent of total recipients











Source: Joint Interagency Submission, 2012.

Additional support to jobseekers

Additional obligations (activity requirements) to remain on the payment can decrease the attractiveness of being on Newstart Allowance. Alternatively, targeted cash payments for those who meet certain conditions could incentivise recipients to find employment.

A number of new policies have been announced by the former and current Governments to improve support for Newstart Allowance recipients to gain employment. These include:

  • the proposed increase to the income free area for Newstart Allowance to $100 per fortnight which will allow recipients to keep more of the extra money they earn in a part-time job while still on Newstart Allowance (Australian Government, 2013b);
  • relocation assistance of $3,000 to $6,000 to long-term unemployed jobseekers if they relocate to a high employment area to take up a job (Australian Government, 2013a); and
  • a Job Commitment Bonus of $2,500 to $6,500 for young Australians who have been unemployed for 12 months or more and on Newstart Allowance or Youth Allowance, which pays young people to get and keep a job (Australian Government, 2013a).

Similarly, the Government has committed to restore Work for the Dole for those under 50 years of age who have been on income support for six months or more (Liberal Party of Australia, 2013a). The exact nature of the new Work for Dole programme is currently being developed.

The minimum wage

The level of the national minimum wage – and the subsequent amount of employment it implies – is essentially a societal choice.

A high minimum wage can be detrimental to the group of low-skilled or inexperienced workers it is designed to help. It can price many people out of the labour market and force them onto unemployment benefits or out of the workforce completely. Lack of employment opportunities prevents individuals from achieving their potential and reduces the productive capacity of the economy.

Younger workers currently make up a high proportion of people on the minimum wage. A high minimum wage may prevent younger people in particular from obtaining employment. As shown in Chart 9.11.3, youth unemployment is currently around 12 per cent nationally, compared to the general unemployment rate of around 6 per cent. There are also large differences in the youth unemployment rates across States. For example, youth unemployment is around 17 per cent in Tasmania but around 10 per cent in Western Australia.

Chart 9.11.3: General and youth unemployment rates by State

This chart shows general and youth unemployment rates for Australia and by State.  Tasmania and South Australia have the highest rates of both general and youth unemployment.  Youth unemployment is higher than general unemployment in all States.


Source: ABS, 2013a.

Containment of growth in the minimum wage would increase job opportunities for unemployed workers as employers would be more willing to hire these workers at lower wages.

Compared to other advanced countries, Australia’s minimum wage has historically been one of the highest, being roughly equivalent to that of France in purchasing power parity terms since 2000 (OECD, 2012). This can be seen in Chart 9.11.4 below.

Australia’s minimum wage is currently $622.20 per week (around $32,000 per year), which is currently 56 per cent of Average Weekly Earnings.

Chart 9.11.4: Minimum wage, selected OECD countries, US$ in purchasing power parity terms

This chart shows Australia's relative minimum wage in purchasing parity terms compared to a range of other OECD countries. The chart shows that Australia has one of the highest minimum wage rates in the OECD.


Source: OECD, 2012.

Australia’s minimum wage is set nationally through Annual Wage Cases conducted by Fair Work Australia. Unlike some other countries Australia does not set different minimum wages in States and/or regions. The current national minimum wage applies to all jurisdictions. This is despite there being substantial differences in economic conditions across States.

As shown in Table 9.11.2 below, as the minimum wage is the same across the nation, the relativity of the minimum wage and Average Weekly Earnings in each jurisdiction differs markedly.


Table 9.11.2: Average Weekly Earnings by State











Average Weekly Earnings










Minimum wage as a percentage of State Average Weekly Earnings










Source: ABS, 2013b.

Potential areas for reform

Increasing the incentives for young people to find work

A wide range of employment assistance is currently provided to the unemployed. With the aid of Job Services Australia most young people find employment relatively quickly. Around 80 per cent of people aged 15-24 who are currently unemployed have been unemployed for less than 12 months (ABS, 2013a). In addition to the current employment assistance, the Government has also committed to introducing new support for job seekers, including cash bonus payments, relocation assistance and the Job Commitment Bonus.

Given the significant support available, it is reasonable to expect single, young, long-term unemployed people to improve their job prospects by requiring those aged 22 to 30 to relocate to a high employment area, when unemployed for longer than 12 months in order to continue to receive unemployment benefits. Currently the unemployed lose access to Newstart Allowance if they relocate to a low employment area without a good reason. This policy would extend that logic to require younger, long-term job seekers to relocate after 12 months to areas where they have a higher probability of obtaining employment, as a condition of continuing to receive Newstart Allowance.

Special exemptions would be available for people with dependent children or similar commitments. More than half of Newstart Allowance recipients are single (Joint Interagency Submission, 2012).

Support will be available to assist them make this transition. Based on the Government’s existing policies, relocation assistance will provide $6,000 if moving to a regional area to take up a job or $3,000 to a metropolitan area. If they were to find and keep work they would also be eligible for the Job Commitment Bonus of $2,500 if they kept their job and remain off welfare for a continuous period of 12 months. Another payment of $4,000 is available if they remain off welfare for 24 months (Australian Government, 2013b).

A tighter means test

Unemployment benefits are intended to be a safety net providing temporary support to job seekers to help meet the basic costs of living while they look for work. As shown in Chart 9.11.5 below, current income test arrangements mean that a single person with private income around $25,000 per year can still access Newstart Allowance. This is almost twice the maximum payment of Newstart Allowance and is relatively high for a safety net payment.

It is proposed that the income test taper rate be aligned with that recommended for pension payments of 75 per cent, to more appropriately target safety net payments. Under the new income test, a single person can still earn around $19,000 per year before losing access to Newstart Allowance.

This change to the Newstart Allowance income taper rate should also be flowed through to other allowances that are also currently assessed under these arrangements, that is Partner Allowance, Sickness Allowance and Widow Allowance.

Chart 9.11.5: Newstart Allowance payment rates and income tests

This chart shows Newstart Allowance payment rates and income tests. Under the  current income test a person on Newstart can earn around $25,000 a year before they become ineligible for Newstart. Under the proposed income test recipients will only be able to earn around $19,000 per year.


Source: Department of Human Services, 2014 and National Commission of Audit


Chart 9.11.6 shows how this proposal fits with existing policies.

Chart 9.11.6: Existing and recommended incentives to find work

This chart includes the National Commission of Audit's Newstart Allowance recommendations in the context of other recent policy changes in this area.


Source: National Commission of Audit.

Increasing job opportunities by containing growth in the minimum wage

While there is an array of policies designed to assist jobseekers, if the minimum wage is too high then many low-skilled or inexperienced people will find it difficult to gain employment. The level of the minimum wage is an important transition point from welfare to work, and from an entry-level job to higher level positions. This may inhibit the development of workplace skills and experience that could increase individuals’ wages over time. A relatively high minimum wage is also likely to act as an impediment to the effectiveness of government programmes to get people back to work.

The Commission proposes two areas of reform to improve job prospects for the unemployed. The first is to contain future growth in the minimum wage. The second is to introduce a degree of variation in the minimum wage across the country, to better reflect local labour market conditions.

The Commission proposes that the growth in the minimum wage be slowed by applying an indexation factor of CPI less one percentage point for a period of 10 years (growth of around 1.5 per cent per year) until it reaches 44 per cent of national Average Weekly Earnings. After this 10 year period has elapsed minimum wages should then be indexed to grow in line with national Average Weekly Earnings.

As shown in Chart 9.11.7, under this arrangement the minimum wage would continue to grow over time in nominal terms but at a slower rate than under current arrangements.

Chart 9.11.7: Proposed transition to a new minimum wage benchmark

This chart shows the expected transition path required to align the minimum wage rate to a benchmark of 44 per cent of Average Weekly Earnings. The minimum wage rate can be expected to grow by CPI-1 per cent to 2024, when full alignment is expected to occur, and thereafter grow  in line with growth in Average Weekly Earnings.


Source: National Commission of Audit.

This method would establish a ‘Minimum Wage Benchmark’, from which a degree of variation across the nation could be introduced. Having a uniform national minimum wage ignores substantial differences in local job markets. The demand for labour and the price employers are willing to pay for unskilled or inexperienced labour varies markedly across the country.

Having a single national minimum wage disadvantages workers attempting to gain a job in States like Tasmania and South Australia where wages and the costs of living are generally lower than in other States.

As Chart 9.11.8 shows, there are wide differences in wage rates between States and Territories. While the minimum wage is currently around 45 per cent of Average Weekly Earnings in the Australian Capital Territory, it is around 60 per cent in Victoria and 65 per cent in Tasmania.

Chart 9.11.8: Minimum wage as a proportion of State-based Average Weekly Earnings

This chart shows the shows the minimum wage as a proportion of State Average Weekly Earnings. It shows that Tasmania and South Australia have the highest proportions, while the Australian Capital Territory, Western Australia and the Northern Territory have  the lowest.


Source: Fair Work Ombudsman, 2013; ABS, 2013b.

The Commission recommends that a different minimum wage apply in each jurisdiction, with a transition period of 10 years. In particular, the Commission proposes the minimum wage in each jurisdiction be equal to the lower of the Minimum Wage Benchmark described above, or 44 per cent of Average Weekly Earnings in that jurisdiction by 2023. The wage would then increase in line with growth in that jurisdiction’s Average Weekly Earnings.

Chart 9.11.9 shows, on current trends, the likely impact of this policy on the various jurisdictions and the likely value of each State’s minimum wage at the end of a 10-year transition period from 2013 to 2023.

Chart 9.11.9: Potential jurisdictional minimum wage outcomes over a 10 year period

This chart shows the expected 10 year transition path for each State and Territory to align with the 44% minimum wage benchmark.


Source: Fair Work Ombudsman, 2013; ABS, 2013b; National Commission of Audit.

On current trends, the minimum wage in approximately half of the States would be set equal to the ‘Minimum Wage Benchmark’. This would include New South Wales, Western Australia, the Australian Capital Territory and the Northern Territory. Victoria, Queensland, South Australia and Tasmania, where Average Weekly Earnings are generally lower, would be set by the benchmark of 44 per cent of that jurisdiction’s Average Weekly Earnings.

The Commission recommends that, should this transition method imply a reduction in the nominal minimum wage in a particular jurisdiction, the wage should instead be kept constant until aligned with the 44 per cent of Average Weekly Earnings in that jurisdiction. This may apply to Tasmania, which on current trends would reach 44 per cent of Average Weekly Earnings in that State in a little over 10 years.

The Commission estimates that, on current trends, by the end of 2023 Victoria can be expected to have a minimum wage of $681.00, Queensland $702.00, South Australia $637.00 and Tasmania $622.00. The other States and Territories (ACT, NSW, Western Australia and Northern Territory) could be expected to have a minimum wage of around $722.00.

After this period, each State’s minimum wage will grow in line with State Average Weekly Earnings. This will ensure that the minimum wage in each State reflects local economic conditions.

The Commission suggests a review be undertaken after five years. This review point will allow recalibration of transition paths if Average Weekly Earnings deviate significantly from current trends.

Importantly, financial incentives to work would be maintained as the minimum wage is expected to still be more than double the rate of Newstart Allowance in most States by the end of the transition period (Newstart Allowance is expected to be around $320 by 2023‑24).

The recommendations are expected to make Australia’s minimum wage more comparable to other major economies including Canada, New Zealand and the United Kingdom.

Department of Employment to set the minimum wage

Currently the minimum wage is set by a special panel of the Fair Work Commission. This process is separate from government. Government is free to make submissions to the proceedings but cannot determine outcomes.

This proposal is to instead make the setting of the minimum wage an administrative process, possibly implemented by the Department of Employment.


The Commission considers that the Government should introduce these new arrangements to the extent it has constitutional power, or work with the States to ensure implementation.


Australian Bureau of Statistics (ABS) 2013a, Labour Force, Australia, cat. no. 6291.0.55.001, ABS, Canberra.

Australian Bureau of Statistics 2013b, Average Weekly Earnings, Australia, cat. no. 6302, ABS, Canberra.

Australian Government 2013a, Budget 2013-14, Australian Government, Canberra.

Australian Government 2013b, Mid-Year Economic and Fiscal Outlook 2013-14, Australian Government, Canberra.

Department of Human Services 2014, A Guide to Australian Government Payments, 1 January 2013-19 March 2014, Centrelink, Canberra.

Fair Work Ombudsman 2013, National Minimum Wage, viewed December 2013, <http://www.fairwork.gov.au/pay/national-minimum-wage/Pages/default.aspx>.

Joint Commonwealth Departments (Interagency) Submission 2012, Senate Inquiry on the Adequacy of the Allowance Payment System for Job Seekers and Others, Canberra.

Liberal Party of Australia and National Party of Australia 2013a, The Coalition’s Policy to Create Jobs by Boosting Productivity, Canberra.

OECD 2012, Labour; Earnings; Real Minimum Wages, OECD StatExtracts, OECD Publishing, Paris.