Raise not cut JobSeeker for recovery

Via

Australian National University calculations suggest JobKeeper and the boosted JobSeeker payment have saved about 2.2 million people from poverty.

It’s a remarkable outcome without precedent in Australia.

JobKeeper was set at A$1,500 per fortnight and the Coronavirus Supplement was set high enough to double JobSeeker and associated payments, increasing them to about $1,115 per fortnight.

Both are well above the poverty line, which according to our modelling is around $816 per fortnight.

From the end of September both will be cut. JobKeeper will fall to $1,200 per fortnight for those who previously worked 20 or more hours per week and to just $700 for those who previously worked less than 20 hours per week.

The payment to people on JobSeeker and related benefits will fall to $815.

Beyond December, JobKeeper will fall to $1,000 and $650 per fortnight and the Coronavirus Supplement will end, returning JobSeeker to $565.70 per fortnight.

Three quarters of a million more

Our estimates suggest that by themselves these changes will push an extra 740,000 Australians into poverty, lifting the total number in poverty from from 1.1 million to 1.84 million.

Partly offsetting this, the improvement in the economy forecast in the July Economic and Fiscal Update should it be realised would cut the number of Australians in poverty by about 140,000.

These numbers tell us two important things.

One is that the Newstart unemployment benefit (now called JobSeeker) was too low.

Treasurer Josh Frydenberg seemed to acknowledge this when he announced the doubling in March, saying it would allow unemployed people to “meet the costs of their groceries and other bills”.

The other is that without (and even with) JobKeeper, many, many more people would have been pushed on to it.

We define poverty an equivalised household income of less than half the median household income.

What it would do to the poverty gap

We define the “poverty gap” as the total difference in income between those households below that poverty line and the poverty line.

Prior to COVID-19 it was A$5.9 billion.

Should the unemployment rate stay at its present 7.5% after JobKeeper is withdrawn and JobSeeker returned to normal we expect it to climb to $6.5 billion.

Should it linger at the 10% forecast by the Reserve Bank, we expect it to climb to $6.9 billion.

It’s in all of our interests to minimise it for any given level of government support.

The ANU Centre for Social Research and Methods has developed an algorithm for calculating the optimal mix of government supports to achieve a range of policy goals including minimising poverty.

The mix it suggests would cut the poverty gap from $6.5 billion to $5.6 billion under the 7.5% unemployment scenario and from $6.9 billion to 5.8 billion under the 10% unemployment scenario.

How to minimise the damage

If the total level of welfare expenditure were to remain unchanged on pre-JobKeeper and Coronavirus supplement settings, the single JobSeeker would be increased substantially from $551 to $821 per fortnight and the age pension single rate from $902 to $915 per fortnight.

The increases would be offset by reductions in the Parenting Payment from $770 to $737 per fortnight (single), Family Tax Benefit Part A for children under 13 years of age from $218 to $154 per fortnight and Rent Assistance from $137 to $131 per fortnight.

We have also modelled the optimal setting for a 20% increase in government support and a 20% cut.

What our algorithm proposes wouldn’t eliminate poverty (it would cut it by between 14% and 15%) but it would enable to the government to achieve a lot without spending more money.

An essential part of whatever solution it adopts has to be an increase in JobSeeker. Without it an extra 740,000 Australians will be in poverty.

We’ll say it again, make the Job Seeker increase permanent. It should have been done years ago. Literally everybody can see the sense in it: business, charities, press, opposition, the drover’s dog.

A Labor-controlled Senate inquiry on COVID-19 recommended permanently raising the rate of JobSeeker in recent weeks (sub titles added for clarity):

Interim Finding;

The rate of JobSeeker is inadequate at $40 per day. The committee is concerned that the Australian Government is withdrawing fiscal support too early in the recovery phase by reducing the Coronavirus Supplement at the end of September 2020 and again in January 2021, and that this will have negative consequences for the economy…

Recommendation:

The committee recommends that the Australian Government permanently raise the rate of JobSeeker at the Mid-Year Economic and Fiscal Outlook or in the 2021–22 Budget…

Discussion:

It has been widely acknowledged for years, by business and community stakeholders alike that the permanent rate of JobSeeker at $40 a day is totally inadequate, often forcing recipients to live well below the poverty line.

The committee agrees that the original rate of JobSeeker is inadequate.

Research from the Australian National University’s Centre for Social Research and Methods shows that the introduction of the Coronavirus Supplement and the JobKeeper payment ‘reduced measures of poverty and housing stress, with both now below what they were prior to COVID-19’.

However, the researchers also found that this ‘protective impact has been reduced somewhat by the July policy announcement to make these supplementary payments less generous’.

The Grattan Institute has argued for a sustained increase to the JobSeeker rate to around $750 a fortnight on the basis that the ‘Coronavirus Supplement has been very important for sustaining spending and incomes through this period’.

The committee is concerned that the further reductions in the supplement just after Christmas will plunge almost two million recipients of the supplement into greater financial hardship at a time when the economy needs sustained fiscal stimulus to protect jobs and businesses.

The committee recommends that the government monitors the economic impact of reducing the coronavirus supplement and reports back to the Senate with any data on the impact of the reductions.

The committee urges the government to permanently increase the rate of JobSeeker from its current rate of just $40 a day at the earliest opportunity—either in the upcoming Mid-Year Economic and Fiscal Outlook or in the 2021–22 Federal Budget.

There is no reason why people on JobSeeker should be paid a far lower rate than those on the Age Pension – many pensioners of whom are wealthy due to owning their home:

JobSeeker should be brought up to parity with the Age Pension, which would also move it in line with the poverty line.

Allowing JobSeeker to fall back to its poverty level of $40 a day would be economically harmful and self-defeating, as it would dampen domestic demand.

It would ensure a slower economic recovery, higher unemployment than necessary, and increased financial suffering and homelessness.

Permanently lifting JobSeeker should be a national economic and social priority.

David Llewellyn-Smith
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Comments

  1. Hernando de Soto

    If you’re looking for a headline summarizing of the disappearance of the middle class in Australia:
    “64 Target Stores to be converted into K-Marts, the rest shut down”

    Not converted into David Jones or Myer, the middle class are getting poorer, not richer.

    • Noticed similar with Japan over the past twenty years (being there and back over that time). Many goods and services, particulaly food items, has become either expensive and very good quality, or cheap and crap. Middle or mid ranged stuff has thined. Smaller market for it. Always thought, it was coming here too. And here we are.

      Except Toyota Corolla and Yaris, they’re still cheap and good quality.

      • I’d be more prepared to pay for expensive and high quality if the high quality part of it were guaranteed, but half the time it’s just expensive crap.

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