Why cutting JobSeeker will push 650,000 into poverty

Changes to the JobKeeper and JobSeeker schemes are expected to be announced in the federal government’s economic update.

Modelling undertaken by The Australia Institute (TAI) suggests that more than 650,000 Australians would end up below the poverty line if the JobSeeker allowance is returned to its pre-coronavirus level. Some 505,000 people would still be below the poverty line if the original JobSeeker rate were to be increased by $75 a week.

TAI also warns that cutting income support would also hammer property investors by reducing tenants’ ability to pay rent:

Modelling commissioned by The Australia Institute shows the impact on poverty that the coronavirus supplement has had and what will happen if it is removed completely at the end of September. It will also look at the impact on poverty if the supplement of $275 per week is replaced by an increase in the base rate of $75 per week.

The introduction of the coronavirus supplement did an enormous amount to reduce poverty in Australia. With that single change 425,000 people were lifted out of poverty. However, the supplement has a legislated end date on the 24th of September 2020.

The recession brought on by the pandemic has already increased unemployment by two per cent and it is expected to increase further before the end of September. If the supplement is removed in September, as legislated, this would result in more than 650,000 people will be pushed into poverty.

If the supplement is instead replaced by an increase in the base rate of $75 per week, 505,000 people will be pushed into poverty. Increasing the base rate by $75 does improve the situation slightly but not enough to stop half a million people from entering poverty.

Of those being placed into poverty as a result of the removal of the coronavirus supplement at the end of September, 120,000 will be children aged 0 to 14. Poverty in childhood can have crippling lifelong effects on the child’s cognitive development, social, emotional and behavioural development as well as a range of adverse health outcomes. If the supplement is instead replaced by an increase in the base rate of $75 per week, about 90,000 children will be moved into poverty.

The vast majority of those moved into poverty either rent or have a mortgage. Comparing the number of people who will be in poverty if the supplement is removed in September with the number of people who were in poverty before the pandemic, about half a million either have a mortgage (242,000) or rent (246,000). Most of the remaining own their home outright or are in public housing.

If the supplement is removed, there is little doubt that for many Australians it will become increasingly difficult for people to pay a mortgage or pay for rent. This will not only mean a likely increase in homelessness but also increasing pressure on the banking system.

Additionally, if hundreds of thousands of additional people fall into poverty all at the same time, there will be a potential increase in people being unable to pay rent. This would have a knock-on effect to those who own residential investment properties. Investment property owners also face consequences as a result of the ending of the coronavirus supplement.

Replacing the coronavirus supplement with a $75 increase in the base rate will not significantly decrease the number of renters and mortgagees going into poverty. 211,000 mortgagees and 165,000 renters will still face poverty. A smaller fall compared to no increase, but still a significant impact on the lives of hundreds of thousands of Australians.

Spot on. Unemployment is high because there is insufficient demand in the economy. Removing income support will reduce spending and demand even further, keeping unemployment higher for longer.

JobSeeker should be maintained at an elevated level until unemployment returns to ‘normal’ and then should be raised permanently by at least $95 a week and indexed to growth in average weekly earnings.

Now is not the time for budget austerity.

Unconventional Economist

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