Australian Government Set to Increase Jobless Benefit After Pandemic Supplement Ends in March
The Australian government is set to introduce a permanent rise in the JobSeeker payment rate by $50 a fortnight. This will be the first real increase to the unemployment benefit in Australia since 1994. It is also the largest increase since 1986 and is expected to cost the country $9 billion dollars over the next four years
The proposal, which was discussed during a Liberal Party meeting on Tuesday, will be fast-tracked into legislation before the end of March. The government aims to offer the unemployed a decent safety net without disincentivising them to get back to work, especially at a time when regional areas and some businesses are struggling to fill job vacancies.
Prime Minister Scott Morrison said the changes to the JobSeeker rate were tied to the vaccination roll-out.
“We are moving from short-term emergency measures to long-term arrangements that people can rely on should they find themselves out of work,” he said.
But Morrison noted that the welfare benefit should be weighed against the burden it places on taxpayers.
“Our social safety net is a social contract,” he said. “It is a contract between the government and Australians, but it is also a contract between Australians, and what you’ve heard today is about getting the balance of that right.”
The base rate of JobSeeker, formally known as Newstart, was $565 a fortnight—or $40-a-day—before the introduction of the COVID-19 supplement in March 2020. The supplement, which is scheduled to end on March, 28 provided an extra payment of $550 fortnight, until Sep. 25, 2020 when it tapered down to $25 a fortnight and then down again to $150 on Jan, 1, 2021.
Challenge of Fairness and Incentive Balance
However, not everyone is happy with the increase.
The Australian Council of Social Service (ACOSS)—who have been calling for a permanent increase of at least $25 a day ($375 per fortnight)—said the increase essentially gives only a $3.75 increase per day to those on welfare payments.
“This is a heartless betrayal of millions of people with the least, including hundreds of thousands of children, single parents, people with disability, older people, students, people dealing with illness and injury, and others relying on income support,” said ACOSS CEO Cassandra Goldie on Tuesday.
“Today, the Government has turned its back on those with the least, plunging people further into poverty. It’s a cruel decision that shows a complete lack of humanity and empathy. It comes as devastating news for so many and will have serious consequences for people’s lives, including homelessness and crushing debt.
Speaking at the Feb 3 national press club, Reserve Bank governor Philip Lowe also expressed his favour of lifting JobSeeker payment, mainly for the sake of safety net, saying “it is kind of a fairness issue on what’s the appropriate level of support we should provide to people who are unemployed.”
While the modest increase is far less than what some welfare groups and economists had expected, the government is cautious about the disincentive effect and further budget blow-out from a higher unemployment benefit.
Earlier this month, the finance minister Simon Birmingham has urged the young, single, able-bodied people currently in JobSeeker to move to the regions to find work, encouraging them to make use of the $6000 relocation allowance to take up a job.
He said the demand for workers in the regions went well beyond agriculture and there were shortages in many other sectors including mining and drilling, construction, domestic tourism, cleaning and crucial care.
Birmingham’s comments came amidst growing anecdotes about businesses struggling to find workers, including regional and metropolitan areas.
“I have hoteliers in Adelaide saying that they’re struggling to get people to fill shifts, I’ve had cleaning companies working in the quarantine hotels, now challenging areas of work that we do have to recognise that there are job opportunities there,” he told ABC host Ali Clarke on Feb 12.
He also warned that the government debt would increase by nearly 50 billion dollars if interest rates move back to their long term average five years faster than anticipated, justifying the government’s decision to wind down JobKeeper and JobSeeker subsidies.
“The current budget deficit is the highest in peacetime history for Australia as a share of the national economy,” he said. “and that’s why we have to be mindful of sticking to the principles that our government laid out at the start of this economic crisis, that the types of temporary measures we would put in place would be just that.”
Potential Impact on Budget and Economic Recovery
Most economists also believe that increasing the nation’s unemployment benefits during the pandemic would provide a much-needed boost to the economy as a dollar that goes to the unemployed is much more likely to be spent than a dollar to others.
A Deloitte Access Economics report commissioned by The Australian Council of Social Service last September has projected that the total removal of the COVID supplement to JobSeeker would cost the Australian economy $31.3 billion in gross domestic product and around 145,000 full time jobs across 2020-21 and 2021-22. The analysis is based on the assumption that the full cut takes effect since January 1 2020.
The organisation’s latest analysis estimates a permanent $80-a-fortnight increase in JobSeeker would cost the budget about $2.7 billion in 2020-2021, and a cumulative $7.5 million over the three-year period to 2023-3024. The extra cash would flow to more than 1.4 million unemployed people receiving the supplement.
In October 2020, the federal government budgeted a record $34.1 billion on JobSeeker in 2020-2021 and $17.3 billion in 2021-22. By the mid-year budget update in December 2020, the figure has been reduced by 1.2 billion this year and $1.1 billion in 2021-22, with fewer people expected to be on JobSeeker.
The latest ABS figure shows that January 2021 has recorded the fourth consecutive monthly rise in employment, with unemployment rate dropping to 6.4 percent from 6.6 percent in last December, adding further positive signs that Australia’s economy is bouncing back quickly from COVID-19.