THE Newstart unemployment benefit shrank so much relative to living costs that the cheapest capital city accommodation took all but $16.50 a day, the tax summit has been told.

Peter Whiteford, of the social policy research centre at the University of NSW, told the summit the cheapest one-bedroom accommodation in the Sydney region could be found at Wyong, on the central coast. The Melbourne equivalent would be Melton South on the north-western fringe.

"What seemed like a good idea ... has led to an enormous gap that can't go on" ... Judith Sloan. Credit:Virginia Star

"If you had an unemployment payment and rent assistance, after you paid your rent you would have $16.50 a day for everything else and looking for work," he said. Professor Whiteford was an economist with the Organisation for Economic Co-operation and Development.

Fourteen years ago, before Newstart and the pension were separately indexed, the unemployment benefit was 91 per cent of the single pension. It is now 65 per cent and projected to fall to 33 per cent.