A new underclass of 100,000 asylum seekers, living on as little as $220 a week and with no rights to work, could be created in just five years if current trends continue.
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Charities have warned they are unable to cope with the rising tide of impoverished asylum seekers, with one centre in Melbourne's south-east closing its doors to new clients after being ''swamped'' with requests for food aid.
The government introduced its ''no-advantage'' policy on August 13, saying people who arrived by boat would have their protection claims processed no more quickly than those who waited for a humanitarian visa in a refugee camp. Since then, a record 19,760 people have sought Australia's protection.
Since October 2011, 16,477 people have been released on bridging visas while their claims for protection are considered. Of these, 7256 are subject to the government's no-advantage policies, meaning they have no rights to work and are eligible for just 89 per cent of the dole - about $220 a week.
Immigration Department secretary Martin Bowles insisted at a parliamentary hearing on Tuesday there had been no ''freeze'' on processing asylum seekers' refugee applications - even though not one of the 19,760 who arrived after August 13 has had their claim processed.
He confirmed that even asylum seekers found to be refugees could be forced to wait up to five years for a permanent protection visa while living in the community.
Heather Holst, the chief executive of housing charity HomeGround, said her agency was bracing for more asylum seekers to be released. She said the agency had recorded a 195 per cent rise in clients from Pakistan, and an increase of 182 per cent in housing requests from asylum seekers from Afghanistan.
''We're just seeing this big group of asylum seekers with very limited income,'' she said.
This included a husband and wife forced to live for months in a garage with no toilet. The pair were allowed to use the toilet inside the adjoining house at set times.
''I just think they're unintended consequences of releasing people into the community,'' Ms Holst said. ''I just don't think they've thought this through.''
A centre in Dandenong that caters for asylum seekers said on Tuesday it could not care for any more families on bridging visas. Asylum Seekers Centre manager David Spitteler told Fairfax local magazine the Dandenong Journal he had been forced to make the decision because the centre had been swamped with requests.
The Coalition stepped up its attacks on asylum seekers' behaviour, with Liberal senator Michaelia Cash questioning why there were no behavioural standards set for asylum seekers released on bridging visas, as there were for those living in community detention.
There had been 17 incidents of ''possible criminal conduct'' involving asylum seekers on bridging visas, the hearing was told, including two who had been convicted.
