17/03/2020 - 10:04

Smarter welfare to engage all

17/03/2020 - 10:04

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A redesign of Newstart and a rethink of how payments are reduced when people re-enter the workforce could make the welfare system more effective for the most vulnerable.

Australia will need to consider how to best allocate its welfare budget to meet the needs of all. Photo: Gabriel Oliveira

A redesign of Newstart and a rethink of how payments are reduced when people re-enter the workforce could make the welfare system more effective for the most vulnerable.

Poverty remains a key challenge for governments across Australia, despite a $180 billion spend on welfare programs in the 2020 financial year, an increase of 62 per cent during the past decade.

The Newstart unemployment payment is among the most contentious issues, politically; currently, more than 700,000 recipients earn up to $559 per fortnight.

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Australian National University professor Robert Breunig, who is director of the Tax and Transfer Policy Institute, said the payment was a one-size-fits-all solution.

“Newstart is tricky. There are people getting Newstart unlikely to get a job any time in the future and may never get a job again,” Professor Breunig said.

“If you’re 50 years old in an industry shut down by globalisation, it’s going to be difficult for you to get a job.

“And Newstart is pretty inadequate to live on.

“But if you’re 22 years old looking for a job, we want Newstart to be inadequate to live on because we want to push those people to get jobs.

“The biggest period of wage increases is generally in the first 12 years of their lives, so it’s really important for those people to be working or studying.

“It’s pretty disastrous not to be engaged in economic activity because they get on a trajectory where they can’t get jobs later in life.”

A solution might be two different types of Newstart, he said, with a bigger payment for those over a certain age unable to find employment.

“It’s important to recognise there are real trade-offs,” professor Breunig said.

“The evidence from around the world and from Australia is pretty unambiguous.

“Making payments to people out of work more generous provides a small disincentive for people to work, so at the margin there are going to be some people who end up not working because of that.

“That’s actually worse for those people.”

Centre for Independent Studies research fellow Glenn Fahey agreed Newstart could be rethought as separate programs.

“The biggest problem ... is we treat the system as one size fits all,” Mr Fahey said.

“We’ve got a single Newstart payment that goes to all kinds of recipients.”

While the number of people on the payments was falling, the average time for recipients was rising, he said.

Recipients of the Newstart payment could be broken down into at least two groups, Mr Fahey said, depending on the time period for which they received payments.

The need to increase payment rates was not as critical for short-term recipients, he said.

“These people are receiving it for a short period of time and otherwise drawing upon (savings) … and not at huge risk of being unemployed long term,” Mr Fahey said.

He said about 15 per cent of recipients had been on the payment for 10 years or more, and for those people it should be reconsidered if Newstart was effective.

Often there were significant barriers to them finding work, and Mr Fahey said it was probably unacceptable that people would be living on the Newstart amount for that period of time.

“Sometimes in the effort to simplify the system, we’ve actually removed payments that are better for some people,” he said.

Grattan Institute budget policy director Danielle Wood said the Newstart rate should be lifted by $75 a week, as it was far too low to put people in a position to become active jobseekers.

A second concern was the rate at which welfare benefits were reduced when people return to the workforce.

In some circumstances, a Newstart recipient moving to part-time work will keep less than 30 cents of each dollar earned.

“There’s a significant drop off [in Newstart] when your income gets above $25,000,” Ms Wood said.

“Essentially you hit a cliff.

“We should look at the taper … to provide an incentive for people to go back to work if they can only get part-time work, which is increasingly common.

“[That would] allow them to transition back into the workforce without finding their payment cuts off.”

That problem was even more pronounced for women who were second earners returning to work after having children, she said.

Pressing issues

Professor Breunig said there was a good case for raising rent assistance, particularly for pensioners, as housing prices had increased in recent decades.

Another issue that needed to be addressed was single parenting payments, Mr Fahey said.

When single mothers re-enter the workforce they pay tax on income, see a rapid reduction in welfare payments, and also have to pay childcare fees.

The single parent payment is $787.70 per fortnight, and reduces at a rate of 60 cents for every dollar earned if a recipient makes more than $104 in a fortnight.

“It has a real potential to become a big problem, single mothers taking time off work and facing a high disincentive to return to work,” Mr Fahey said.

“The short-term cost is nothing compared to the long-term cost of being out of the workforce.”

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