A new rate component is born

In an earlier series of posts I wrote about how income support payment rates are indexed, using the September 2012 indexation round as an example.  Calculations for the next round of increases will kick off on 23 January when the Australian Bureau of Statistics (the ABS) releases the CPI figure for the December 2012 quarter.  This is the starting point for working out the rates that will apply from 20 March 2013.

However, this time round the indexation process will differ from the standard arrangement described in my earlier posts.  That’s because part of the rate increase that would usually flow from increases in the CPI (and also the pensioner and beneficiary living cost index – PBLCI - for most pensioners) is going to be siphoned off to help form a new income support rate component – the clean energy supplement.

The basic idea is to take out of the CPI (and PBLCI) the part of the indexation increase that the Treasury attributes to the effect of carbon pricing and make it a separate payment, along with a 1% “bonus”.  The carbon price is assumed to have added 0.7% to the CPI, so when this is added to the 1% bonus the new clean energy supplement is going to be, roughly speaking, 1.7% of the income support payment.  This summary of the Bill that introduced the change gives more background to that process, or you might want to check out the Explanatory Memorandum for the Bill.

Not all payments will get the clean energy supplement as part of the 20 March changes.  Family payments will pick it up from 1 July, with youth allowance and Austudy payment not being affected until 1 January 2014.

So, how much will this clean energy supplement (CES) be?  The actual amounts can’t be calculated until the CPI (and PBLCI) is released.  However, the TD Securities-Melbourne Institute inflation figure released today has an estimated 0.3% increase in the CPI for the December quarter.   Based on that estimate (and assuming I’ve managed to follow the legislation correctly!) the CES amounts should be pretty close to the figures in the table below.

Payment	CES (fortnightly)
partnered pension*	10.00
single pension*	13.30
parenting payment single	11.40
parenting payment partnered	7.60
Newstart allowance single (lower rate)	8.50
Newstart allowance single (higher rate)	9.20
Newstart allowance partnered	7.60

* pension CES amounts may also be affected by the PBLCI

These changes to the way the indexation will work on 20 March mean that it will be important to ensure comparisons between, for example, Newstart allowance rates at various points in time also include the CES amounts for 20 March onward.  If not, then it will appear that the non-pension income support payments (like Newstart) have fallen in value relative to the CPI, when in fact the total package will have increased in real (CPI adjusted) terms due to the 1% bonus.

The following table shows how the rates of selected income support payments would have changed if the standard CPI method had been applied, compared with the CES adjusted method.

You can see that the maximum basic rates under the March CPI system are lower than they would have otherwise have been, but that the overall increase including the CES is higher.

Comparisons across time can be tricky, and have just become even more so!