Increasing Newstart would be a costly failure
The campaign to increase the base rate of Newstart Allowance has focused on the hand to mouth existence of those on the payment, who receive a minimum of $35 a day before other payments like Rent Assistance are added.
The welfare lobby want a $50 a week increase in the base rate of Newstart - an increase that will cost taxpayers anywhere between $8 billion and $15 billion over the forward estimates.
Even the Business Council of Australia (BCA) argues the payment ‘itself now presents a barrier to employment and risks entrenching poverty.’ While the payment certainly provides for a frugal existence, there has been little discussion about how a $50 a week increase in payments will help people move off welfare and into work.
At the moment, Newstart appears to be doing its job as a short term payment between jobs. Around 30% of Newstart recipients move off income support within three months and more than 70% of Newstart recipients move off it within 12 months.
If the government proceeds with a $50 a week across the board increase in Newstart Allowance, the government will be spending hundreds of millions of taxpayer dollars without the prospect of moving more people off welfare and into work.
Understandably, the situation facing the long term unemployed is different. As the BCA argues, Newstart payments are so meagre that they act as a barrier to work in the long run because people cannot afford to buy the things they need to get a job.
Over time, short term discretionary items like haircuts, dry-cleaned suits, car registration and insurance, become long term necessities, especially for people looking for work. In other words, the low rate of payment acts as a poverty trap, therefore justifying the increase the welfare lobby wants.
However, the long term unemployed face more than just financial barriers to entering the workforce because the poverty trap they are in is much more complicated. Some have a mild disability or mental health issues. Others may have a drug or alcohol addiction, while others may have gambling problems.
Data from the Australian Bureau of Statistics on the job search experience of long term unemployed people shows that an individual’s own ill health or disability and the large number of applicants for available jobs are the most common barriers to entering the workforce.
While an increase in the base rate of the dole will improve the wellbeing of long term welfare recipients, it will not do much to break down these barriers to employment and help long term dole recipients move off welfare and into work.
This is a crucial point. An increase in the base rate of Newstart, which will cost taxpayers at least $2 billion a year, is unlikely to improve the employment prospects of either the short term or the long term unemployed Newstart recipients.
On top of this, increased financial payments will reduce the financial gap between the dole and the minimum wage, which for some people will reduce the incentive to move off welfare and into work as well.
At this stage, one of the likely policy outcomes is an increase in the income free threshold of Newstart Allowance by around 50%, which will allow people on Newstart to earn more money from working before they start having their welfare payments withdrawn. However, this measure will also allow more people to claim welfare for longer.
The campaign to increase Newstart by $50 a week is unlikely to go away unless the government actually increases the base rate of Newstart Allowance, which means spending a lot of taxpayer money with minimal impact on employment participation. To solve this problem, more money needs to come with more responsibility.
Any increase in Newstart Allowance payments (perhaps in the form of a jobseeker’s bonus) needs to be tied to tougher job search and activity test requirements. There is no point reducing financial barriers to employment without ensuring that the additional money is used to look for work.
Given the multi-billion dollar price tag on a $50 a week increase in the base rate of Newstart Allowance, mutual obligation is key to ensuring that taxpayers get value for money, because at the end of the day, the best form of welfare is a full time job.
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