Opinion & Commentary
A budget stick for sole parents
While this week’s pension increase was widely though not universally welcomed, welfare groups such as the Australian Council of Social Services were quick to protest that sole parents were excluded from the government’s largesse.
The government is right not to pass on the increase to sole parents, though not for the reasons it has argued. The Treasurer Wayne Swan maintains that parents are entitled to a range of other payments which top up their pension. This justification hides a more important rationale.
The government needs to encourage more jobless parents, including sole parents, to work. Increasing the generosity of their welfare payments is not the way to achieve this.
In 1985, there were about 250,000 recipients of the single parenting payment. Twenty years later, the number had increased to 450,000. Having nearly half a million able bodied, working age people out of the workforce, often for an extended period, is not only expensive for the taxpayer, it also runs counter to the government’s long-term goal of increased workforce participation and undermines its aspiration for greater ‘social inclusion.’
About one in eight Australian children lives in a jobless household. Of these families, a significant proportion rely on either the single or partnered parenting payment. Poor policy decisions, combined with a recession, would undoubtedly lead to a jump in this number.
The social consequences of having too many families without any jobs can be devastating. Children of out-of-work parents are significantly disadvantaged compared to those with working parents. They have poorer health, developmental and educational outcomes. Much of the child poverty in Australia can be attributed to family joblessness. Tackling this kind of unemployment would go a long way towards eradicating child poverty.
After growing inexorably throughout the 1980s and 1990s, for the past decade or so, family joblessness in Australia has been slowly but steadily dropping. While it is difficult to know how much of this drop was caused by good economic conditions and how much was caused by policy reform, tax, welfare and labour market policies, all undoubtedly contributed in some way.
Tax cuts and the introduction of the Low Income Tax Offset, combined with rising wages, gave jobless parents an real incentive to start working. As the real value of wages falls during the recession, further tax relief will ensure the incentive remains.
The Rudd Government knows that increasing the pension for sole parents who now make up nearly three quarters of jobless families would undermine this incentive.
Despite the protestations of the welfare lobby, a recession is also the wrong time to undo the welfare to work reforms implemented by the previous government. The experience of the past decade clearly demonstrates that tough mutual obligation requirements push the number of families without jobs down. Relaxing these tough welfare rules could see the number again begin to rise.
Beyond creating incentives for jobless parents to work, and introducing penalties for those who don’t, policy makers must also foster an environment conducive to the creation of low-skilled jobs. These are important, for they are where most jobless families and those on welfare are clustered.
It remains to be seen how the Rudd Government’s new ‘Fair Work’ legislation will affect job creation and retention in practice, but any policies which make low-skilled labour more expensive to hire could lead to a jump in the number of out-of-work parents.
During a downturn, it is preferable for people to have the option of lower-paid jobs, rather than simply being forced onto the unemployment queue.
More parents will become unemployed during the recession, that is inevitable. But the real work in tackling family joblessness will be in addressing the number of parents who are not in the workforce at all.
As of late 2008, only 10 per cent of jobless families were unemployed and looking for work. While it is probable that this proportion will rise in coming months, it would have to increase tenfold to match the number of jobless parents who don’t participate in the labour force all. For these families, policy reforms are what matter.
Thanks to the sound policy reforms and the economic good times of the past decade, the number of jobless families has been dropping, but we now face the danger of that trend reversing as the country slides into recession.
But if tax, welfare, and labour market reforms are wound back, this danger will become a certainty. The government’s tough budget stance on pensions for sole parents suggests it might yet heed this message.
Jessica Brown is a Policy Analyst at The Centre for Independent Studies, and author of its paper, Breaking the Cycle of Family Joblessness in Australia, which was released in May.
