The Business Council of Australia welcomes the decision of the Senate to examine the adequacy of income support payments such as the Newstart allowance.

"The Newstart Allowance has not increased in real terms for some time and is clearly inadequate," BCA Chief Executive Jennifer Westacott said. "Entrenching people into poverty by expecting them to live on around $35 a day is not acceptable and only makes it more difficult for them to find work.

"One of the tough conversations we need to have in Australia concerns the long term affordability of the social safety net into the future, but what is essential is making sure that the people who need it most are being supported adequately," Ms Westacott said.

"This is why the BCA is calling on the government to commission a Productivity Commission inquiry into entrenched disadvantage.

"The BCA is also working with the Australian Council of Social Services and the ACTU on joint initiatives to explore the causes of entrenched disadvantage and to lift workforce participation particularly among groups who face significant barriers to finding work.

"Comprehensive reform of the tax system including consideration of tax transfer arrangements is essential if Australia is to maintain an affordable and meaningful welfare system that can continue to provide quality services to those in greatest need as our population ages," Ms Westacott said.

Ms Westacott said the BCA supported the Senate's Employment, Education and Training References Committee focusing in this inquiry on the adequacy of the allowance payments system in providing incentives to encourage people into work.

"The time is right, with Australia's economic fundamentals relatively strong, to give the social safety net a thorough health check to ensure it is affordable and effective into the future.

"The fundamental objective must be for people to be able to return to work as quickly as possible, which means ensuring support payments do not fall so low that they act as a disincentive to returning to work, " she said.