Why are Australia’s unemployment payments so inadequate? Experts say they have been deteriorating for decades

by Admin
May 5, 2024

The Albanese government’s Economic Inclusion Advisory Committee released its second report recently.

For some reason, it released the report on the Friday between Anzac Day and the weekend, so it didn’t get much media coverage.

That was unfortunate, because the committee tackled some important questions.

Why are Australia’s unemployment payments so inadequate? And why has the gap between unemployment payments and age pensions been widening for decades?

Here’s what the committee had to say about them.

What did the committee call for?

The committee made 22 recommendations to the federal government on ways to best improve economic inclusion and create a more equal and prosperous nation.

It said its recommendations had been made with regard to their fiscal impact, their effect on workforce participation, and the long-term sustainability of the social security system.

But the committee said its five priority recommendations were to:

“Substantially increase JobSeeker” and related working-age payments, and immediately improve the indexation arrangements of the payments.
Increase the rate of Commonwealth Rent Assistance to better reflect the high rents actually charged in the private rental market.
Commit to a “full-scale redesign” of Australia’s employment services system to underpin the government’s goal of full employment, and to replace the current system, which “worsens economic exclusion” with one that “promotes economic inclusion”.
Implement a national early childhood development system that is available to every child, beginning with abolishing the activity test for the child care subsidy to guarantee access to a minimum three days of high-quality care.
Renew the culture and practice of Australia’s social security system to support economic inclusion and wellbeing.

The committee’s experts said that last point was really important.

“Australians who receive income support payments can face strong antipathy, commonly finding themselves misrepresented as ‘dole bludgers’, ‘welfare cheats’, ‘rorters’, ‘leaners’ and so on, when the actual evidence for welfare fraud and intentional evasion of mutual obligation requirements is miniscule,” they said.

“This has fostered a punitive attitude that extends from parts of the media to the parliament, the government, and the administration of the social security system.

“The result is a social security system insufficiently informed by the real-life circumstances of people it is supposed to support.

“Such demonstrably false premises lead inevitably to poor public policy, with services that are often harmful, unfair, complex, costly to administer, counterproductive and bound to fail.

“Starting with government and social security agencies, leadership is needed to replace ill-informed, negative and discriminatory language and attitudes towards people receiving income support with ones that are accurate, positive and conducive to good policy making.”

Would a rise in JobSeeker affect incentives for paid work?

The committee said the “negative effect” of a higher JobSeeker payment on someone’s incentive to work was likely to be small.

It said that was likely to be true even if the JobSeeker payment was increased to 90 per cent of the Age Pension.

Why? Because the JobSeeker payment is currently so low that if you increased it to that amount, someone would still be much better off financially in paid employment.

As at September 20, 2023 (the numbers used in the report):

JobSeeker payment (single, no children): $379 a week ($54 a day)
Age Pension payment (single), including supplements: $548.35 a week ($78 a day)
National Minimum Wage (38 ordinary hours at $23.23 an hour): $882.80 a week ($126 a day)

That means the Jobseeker payment is only worth 69 per cent of the Age Pension and 42.9 per cent of the minimum wage.

If you increased the JobSeeker payment by 30 per cent (by $16.36 a day) to $70.36 a day, it would still only be worth:

90 per cent of the Age Pension
55.9 per cent of the minimum wage

Is there evidence to suggest that increasing JobSeeker by that amount would have a “disincentive effect” on employment?

The committee said when thinking about that question, you have to focus on the size of the gap between an income support payment and the wages someone could earn by moving to employment.

But, it said, when looking for authoritative studies to understand what might happen to employment in Australia if JobSeeker was lifted by that amount, there’s a problem: the level of the JobSeeker payment was so low compared to other countries, and Australia’s minimum wage was relatively high, that international studies weren’t really relevant to Australia’s situation.

It noted the level of benefits for the short-term unemployed in Australia was the lowest in the OECD.

See the graphic below.

The committee said since the level of JobSeeker — when compared to average labour market earnings in Australia — was much lower than in most other developed countries, the welfare gain from an increase in JobSeeker would likely be much higher than in comparable countries.

“This is reinforced by evidence that JobSeeker recipients on average are forced to decrease their spending after moving onto the payment; for example, by 10.5 per cent in the first year after job loss,” it said.

The committee also pointed out that the gap between Australia’s Age Pension and the JobSeeker payment had been steadily increasing since the late 1990s.

See the image below.

Why has the gap between unemployment payments and age pensions been growing?

The committee said levels of social security payments had been set in Australia by parliament “through a complex historical process, usually involving long periods of inaction or “set and forget”, interspersed with bursts of activity that have been necessary as a result of previous inaction”.

But the most important influence on the deteriorating adequacy of unemployment benefits comes from changes to indexation arrangements almost 30 years ago.

“In March 1996, the lower single adult rate of [unemployment] payment was around 92 per cent of the basic rate of the pension,” the committee said.

“Including the supplements available to pensioners but not available to people unemployed, the total payments were about 90 per cent of the support available to pensioners.

“In 1997, the Howard government legislatively ‘benchmarked’ pensions to 25 per cent of Male Total Average Weekly Earnings; this meant that if the price indexation increased in March and September each year left the single rate of pension below this, then it was raised to this level.

“As the change did not apply to the higher rate or the partnered rate of allowances for people unemployed, over time a gap developed between the pension rate and the partnered and higher single rates of benefit/allowance.”

The committee said that legislative benchmarking began to have a discernible effect after 1998, and the gap had grown over time through different economic and political cycles.

And last month, a group of high-profile economists wrote to Prime Minister Anthony Albanese urging him to “substantially increase” JobSeeker and related payments in the upcoming budget.

“Against any measure, these payments are inadequate to support people with no or limited employment and entrench disadvantage in the community,” they warned in their letter.

“The current rate of JobSeeker … falls below all existing measures of poverty, budget standards and other income support payments like pensions.

“People receiving JobSeeker report not having enough money for food, healthcare, and housing, and routinely end up in debt.”

The signatories included professors Jeff Borland, Roger Wilkins, John Quiggin, Guyonne Kalb, Beth Webster and Deborah Cobb-Clark, associate professor Ben Phillips, economists Saul Eslake, Chris Richardson, Nicki Hutley and Angela Jackson, and former Liberal Party leader John Hewson.

But Treasurer Jim Chalmers has told his Labor colleagues to dampen their expectations about this month’s federal budget containing big welfare spending measures.