Opinion & Commentary
Dole must not be first option
The bad news keeps on coming, and economists agree: unemployment is going up and more of us are headed for the dole queue.
In December about 500,000 people were looking for work— an unemployment rate of 4.4%— but if the direst predictions of eight to nine percent unemployment materialise, the number of jobless could double.
For a country of just over twenty million people, this is a considerable number to support on the public purse. More than five billion dollars was spent on assistance to the unemployed in 2007-08, and the latest estimates have this year’s figure increasing by another two billion.
However, it is worth remembering that government spending on the unemployed makes up a relatively small portion of our welfare bill. In 2006-07, at a time when unemployment was low and still dropping, seventeen percent of working age Australians received income support. Many of these worked in part-time jobs, but nevertheless the figures make it clear: regardless of the official employment rate we are already a nation addicted to government support.
In the 2006-07 financial year, nearly 150,000 people received Parenting Payment Partnered, the payment available to parents whose partners are not in the labour force. Nearly 400,000 received Parenting Payment Single, the payment for single mums or dads whose kids have not reached school age. Nearly 70,000 collected Youth Allowance, an income support payment for people aged 16-20 and not working. More than 700,000 were on Disability Support Pension.
All up, taxpayers spent more than $25 billion on income support payments to working age Australians.
This might seem alright in the good times, but when the going gets tough these huge welfare bills contribute to the inevitable deficit which future taxpayers will have to repay. This liability reduces our capacity to fund tax cuts which might provide a boost to jobs and stimulate the economy.
Arguably even more importantly, the people who rely on government benefits miss out on the spoils of the good times and get left even further behind in the bad. The OECD has often repeated its refrain on poverty: it is work, not welfare that helps people climb the social ladder.
Most of us are proud to live in a society which provides the aged, the infirm and those who are genuinely in need with a means of support and very few would call for the abolition of these payments. But the sheer number of people who rely on the taxpayer for their income should be ringing alarm bells.
At the height of the boom in 2007, ANU economist Bob Gregory warned that once ‘hidden’ unemployment was taken into account – jobless single parents, older unemployed people moved onto disability support pension for want of anywhere else to put them – the ‘real’ unemployment rate was somewhere in the range of ten to twelve percent.
Gregory argued that the boom years presented a “unique opportunity” to move some of them back into the labour market.
With the economy now contracting and the jobless rate going up it looks like this opportunity to address rising welfare dependency may have been missed. But this does not mean that further reform has to be put on hold until the economy picks up again. Rising unemployment will make welfare reform harder but no less necessary.
With the prospect of growing dole queues, welfare groups have this week lobbied to relax job-search requirements and abandon the penalties for not meeting them. The Federal Government has also signalled it wants to water down penalties in time for the commencement of new Job Network contracts on 1 July. However, without the right system of carrots and sticks in place jobseekers will be less likely to move into jobs when they become available.
A good example is that of jobless parents. Unsurprisingly, the number of kids living with parents who did not work grew during both the 1980s and 1990s recessions. However when the unemployment rate fell again, the number of jobless families did not fall to the same degree. For whatever reason, some parents just didn’t go back to work. Some researchers have concluded that it’s the way the welfare system is designed: a rational person may decide that moving from welfare to a low-paid job for not much more money is just not worth their while.
Addressing rising unemployment is the government’s most immediate and important social policy challenge, but we shouldn’t fool ourselves that it is the only one. While our welfare system must be flexible enough for the inevitable expansion that rising unemployment brings, it must continue to send out the message that everyone who can work, should. Our ‘missed opportunity’ should spur us on with further welfare reform. That way, when the good times eventually roll again, no one gets left behind.
Jessica Brown is a Policy Analyst at the Centre for Independent Studies.
