This article is more than 2 years old

This article is more than 2 years old

A proposal to increase Newstart allowance by $75 a week would lead to a boost in consumer spending, creating more than 10,000 jobs and lifting wages, a new report shows.

The report by Deloitte Access Economics, released on Monday morning, said the policy to increase the incomes of more than 700,000 people by $10.71 a day would cost the federal budget $3.3bn a year.

But a “prosperity dividend” would see the government collect an extra $1bn in taxes as a result of a stronger economy, and the proposal was also projected to create 12,000 extra jobs in 2020-21 and increase wages by 0.2%.

It comes amid debate about the rate of Newstart, which at $272.90 for a single person has not risen in real terms in more than two decades. It will increase by $2.20 this week as a result of indexation.

The Australian Council of Social Service (Acoss), business groups, unions and a former prime minister, John Howard, have all argued for an increase, but the government has so far dismissed those calls.

Greens will push for $75 Newstart increase as Howard weighs in Read more

The report, which was commissioned by Acoss, acknowledged the economic benefits would “tend to fade over time”, but said “the most compelling reasons to adopt this reform revolve more around fairness than they do around prosperity”.

A person on Newstart lives on “around 36% of the average wage after tax, and a little more than half of what someone working full time on the minimum wage”, the report said.

The bulk of the economic benefits from increasing the payment would go to the bottom 5% of Australian income earners, who would receive “six times the dollars going to the highest income quintile”. The “poorest of the poor” would receive 28 times the relative boost to their disposable incomes, than the top income quintile.

Regional areas “most in need of help” would be key winners from increased spending.

A negative consequence of the “catch up” increase was a slight increase in interest rates, currently at a record low, which would see fewer homes being built.

The chief executive of Acoss, Cassandra Goldie, said the report “confirms what we knew”.

“An increase to Newstart and youth allowance will benefit every single community in Australia, particularly regional communities doing it tough,” she said.

“Raising the rate of Newstart and related payments will help hundreds of thousands of people struggling to put a roof over their head and food on the table with an income of less than $40 per day.”

When he was treasurer, Scott Morrison defended not increasing Newstart in the 2018 budget by saying 95% of recipients also received other assistance or payments.

“Newstart is not intended to be a payment you live on,” he said. “It supports you while you get yourself back into work.”

The current rate is the equivalent to living on $38.99 a day. The report said a single person who also receives the maximum rent assistance and the energy supplement would be living on about $49.24 a day.

Previous research has shown that those on Newstart live on as little as $17 a day after their housing expenses and bills.

Labor, which describes the payment as too low, says it will pursue a “root and branch” review before committing to an increase.

The Greens, who back the Acoss proposal, have introduced legislation to increase the payment that will be debated next month.

“This is a reform that would help some of the most disadvantaged members of our community, those who struggle with even the basics like being able to afford food,” a Greens spokeswoman, Rachel Siewert, said on Monday.

“The parliament now has the chance to make a concrete difference to people’s lives and ensure that people in our community aren’t living in poverty while they look for work.”

Last week a separate report from Acoss and Jobs Australia found the nation was failing to help its long-term unemployed, with 15% of those on Newstart having received it for more than five years.