26 July 2012

Low CPI means low Newstart increase

Yesterday's CPI release prompted quite a bit of commentary about its possible implications for broader economic issues - for example, does it give the Reserve Bank sufficient impetus for another interest rate cut?  But the CPI is used for a whole lot more and in the tax-transfer system it's often used to reset things like rates and thresholds.  Income support rates are among those affected, and this (June quarter) CPI release is particularly important in that context because it's used to set the rates that will apply from 20 September.
In the light of the ongoing controversy over the rates of Newstart allowance and similar payments I thought it would be interesting to look at how the rates will be affected by this low CPI figure.
The first point to make is that the income support payments that are amended on 20 September are typically recalculated using the change in the CPI over a six month period.  In the current case that's the six months from the December quarter 2011 CPI to the June quarter 2012 CPI.  The index numbers for these two dates are 179.4 and 180.4 respectively.  That's not much of a change; in fact, after a bit of rounding, it's an increase of 0.6 per cent. 

For payments like Newstart allowance, that's pretty much the end of the process - CPI has increased over the six months by 0.6%, and, come 20 September, so will the payment rates.

For pension payments, other than parenting payment for single people, that's only the first of 3 tests.  The rate is worked out again using a different index - the Pensioner and Beneficiary Living Cost Index (PBLCI) and finally is compared to Male Total Average Weekly Earnings (MTAWE).  Whichever of these three calculations - CPI, PBLCI or MTAWE - gives the highest rate is that one that's used.  Parenting payment for single people uses the CPI and MTAWE tests, but not the PBLCI.

So, the only payments for which the new rates are known at this point are the Newstart type payments (except for student payments - they are indexed on a different date).  But we can work out what the pension rates would be after CPI adjustment, and we can say that the new pension rates will be at least that much (but very probably more).

Here's a table with the current rates, and the rates after CPI adjustment (my calculations - trust them at your peril).  We have a lot of cells with question marks, because those adjustments - PBLCI and MTAWE - are still to come.  Where an adjustment method isn't used for a particular payment the cell has n/a.

Current and post-CPI adjusted pension and NSA rates (fortnightly)

Current rate
CPI rate
PBLCI rate
MTAWE rate
Final rate
partnered pension
 $       524.10
 $ 527.20
single pension
 $       695.30
 $ 699.40
 $       627.50
 $ 631.30
single NSA (lower)
 $       489.70
 $ 492.60
 $    492.60
 $    2.90
single NSA (higher)
 $       529.80
 $ 533.00
 $    533.00
 $    3.20
partnered NSA
 $       442.00
 $ 444.70
 $    444.70
 $    2.70

The result is that, as one would expect, the increases to Newstart allowance rates are pretty low this time around.

The PBLCI figures will be available next week, so I'll update the table when they are released.  MTAWE takes longer to arrive, so the final pension rates are still some way off.

A gremlin crept into the table, making the CPI adjusted pension rates too high.  I've highlighted the corrected numbers in red.

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