The unemployed will have their Coronavirus Supplement cut from $550 a fortnight to $250 after September, in an extension of the supplement that will run until December 31.
Those on JobKeeper will get $1,200 a fortnight from September 28 to January 3, with a lower rate of $750 if they worked less than 20 hours a week in February.
The full payment will fall to $1,000 a fortnight from early January, remaining until March 28. The second tier rate will fall to $650.
The present rate is $1,500 a fortnight for all recipients.
From late September, an unemployed person on the basic payment will go from receiving $1,115.70 a fortnight to $815.70.
Under the changes, those on JobSeeker will be able to earn up to $300 a fortnight compared with the present $106 before their income support is tapered.
“We will make further decisions about JobSeeker closer to the end of the year or potentially even in the [October] budget,” Scott Morrison said.
He acknowledged some elevated support will be needed into the new year.
“We need to make those decisions closer to the time, to have a better understanding of where the economy is at – remembering the JobSeeker arrangements has more an impact on incentives on the labour market. JobKeeper does not have those same disincentives,” he said.
“But I want to be very clear – I am leaning heavily into the notion that we would anticipate, on what we know right now, that there obviously would need to be some continuation of the COVID supplement post-December.”
The revisions to JobKeeper and JobSeeker, announced by Morrison and Treasurer Josh Frydenberg, recognise a continuing financial floor is vital while starting to wean businesses and individuals off the present levels of payments as the economy transitions.
The revision comes amid great uncertainty given the second COVID wave in Victoria, with that state on Tuesday announcing a tally of 374 new COVID cases and three more deaths.
The government has not changed the basic JobSeeker (unemployment) rate, although Morrison, under questioning at his news conference, did not rule out this being done later.
The existing higher JobKeeper and Coronavirus Supplement rates will remain until late September.
Tougher eligibility conditions will mean businesses will have to show the required turnover reduction to remain in the JobKeeper scheme.
Employers will have to demonstrate the turnover falls (30% for businesses with turnover under $100 million, 50% for larger ones) in the June and September quarters to be eligible for the December quarter payment.
They will again need to reassess their eligibility for the March quarter payment, showing they have had the relevant falls in the June, September and December quarters.
The number of people on JobKeeper, which has been supporting some 3.5 million workers, will reduce substantially under the new arrangements and as the economy improves. Frydenberg said Treasury estimated about 1.4 million people would remain eligible in the December quarter and one million in the March quarter.
Those on JobSeeker will have mutual obligation requirements reintroduced. From August 4 people will have to reconnect with employment services and undertake four job searches a month. They will be obliged to accept a job that has been offered though this process. There will be a higher rate of job search from the end of September.
The extension of JobKeeper will cost an estimated $16.6 billion on top of the earlier estimated $70 billion. The Coronavirus Supplement extension is costed at $3.8 billion.
Shadow treasurer Jim Chalmers said: “Labor is inclined to support what the Government has announced when it comes to JobKeeper.”
The Australian Industry Group said the new two-tiered JobKeeper payment “is a sensible adoption of the New Zealand wage subsidy approach”
It would “go a long way to sharpening the work incentives that were dampened by the flat rate of JobKeeper in the initial phase.
“While the phase-down of the amount of the subsidy will put more pressure on businesses, it is a fiscally responsible move and will help businesses transition to a greater degree of self-reliance in these extreme economic circumstances.”
The St Vincent de Paul Society questioned the different timeframes for the extension of JobKeeper and JobSeeker, and the reintroduction of mutual obligation requirements for JobSeeker.
“At the end of the day, COVID affects everyone and both those payments should be in place till the end of March. It’s not clear why the JobSeeker arrangements have only been extended to December this year,” CEO Toby oConnor said.
The government is about to make an historic decision.
The JobSeeker unemployment benefit (previously called Newstart) has scarcely increased in real terms since 1994.
In that time general living standards, as measured by real gross domestic product per capita, have almost doubled, climbing 83%.
Other benefits such as the age pension have broadly kept pace with living standards. They climb in line with wages rather than the slower-growing consumer price index.
In dollar terms the single rate is now just A$565.70 per fortnight, close to the poverty line and well below the $860.60 paid to single pensioners. Back in the early 1990s it was close to the pension.
The Organisation for Economic Co-operation and Development said in 2010 Newstart had fallen so low as to call into question its effectiveness in “enabling someone to look for a suitable job”.
In March, as the scale of the looming job losses from coronavirus and the responses to it became clear, the government effectively doubled JobSeeker, boosting the $565.70 single payment and other lower payments by a $550 per fortnight coronavirus supplement in an acknowledgement that unemployed people “need to meet the costs of their groceries and other bills”.
The increase took effect from April 27, but was temporary, for six months after it received royal assent, meaning it is due to expire in late September.
The economic statement due on Thursday will provide an opportunity for the government to cushion the blow by either extending the life of supplement or permanently lifting JobSeeker.
It’ll also provide an opportunity for it to say no, allowing JobSeeker to collapse back to where it was.
An increase suggested to the recent Senate inquiry by the South Australian Centre for Economic Studies was $80 to $120 per week, enough to restore it to where it was relation to other benefits in the early 1990s.
But the government will need to get over its seemingly ideological premise that the unemployed are in some way responsible for their own misfortune and are usually undeserving of the support needed to meet living costs.
In explaining their position in April, after the the government had temporally doubled JobSeeker, Coalition Senators Wendy Askew and Hollie Hughes, argued that a permanent increase could carry with it “disincentive effects in respect of engagement with the workforce”.
Put plainly, they were concerned that if JobSeeker was boosted to a reasonable level (as it has been, temporarily) people mightn’t want to work.
Yet the transcript of evidence given by treasury officials at the inquiry reveals the department has never been asked to examine that question.
Asked whether the treasury had ever done any modelling of an increase in the payment now known as JobSeeker, deputy secretary Jenny Wilkinson relied “no”. Asked again: “You’ve never done that?” she replied “no”.
Others have done the analysis.
Deloitte Access Economics believes an increase would boost the size of the economy and boost the number of people employed by 12,000.
A compromise that might be acceptable to members of the Coalition who oppose lifting JobSeeker but support “job-ready” training programs, might be an increase in the JobSeeker allowance of, say, $80 per week, split into two.
Half of the increase would be a cash increase without conditions, the other half would be provided for accredited training.
With conditions in place to ensure participation in bona fide training, the increase could drive the skills development both employers and the unemployed want.
The training that would emerge would be market-driven, responding to the post-COVID-19 needs of employers and potential employees.
The Productivity Commission has implicitly endorsed such an approach, reporting in May that there was “a manifest capacity to better allocate the $6.1 billion in government spending on vocational education and training to improve outcomes”.
JobSeeker could help, both supporting Australians who are out of work and supporting them to get back into work.
There are now less than three months to go before the expanded JobSeeker payment is due to end.
As a result, there is a growing political debate about what should happen to the unemployment payment that was roughly doubled in April.
While the government is reportedly considering a revamp of both the JobSeeker and JobKeeper payments, we believe a much broader rethink is needed of the way we provide income support to people without a market income.
Instead of an unemployment payment – or the dole – we need a liveable income guarantee.
It’s increasingly clear a “snapback” to the pre-pandemic way of doing things is not realistic.
The recent upsurge in coronavirus cases reminds us the new normal will see all sorts of economic and social activity constrained and subject to sudden lockdowns.
As a June Grattan Institute report has also shown, we need more fiscal stimulus, not a return to pre-pandemic fixations on debt and deficits.
Thousands of hardworking Australians, many of whom have never been unemployed before, will be thrown out of work – some of them for a long time.
The system of unemployment benefits that was in place before COVID-19 worked on the assumption there were plenty of jobs for anyone capable of filling them.
Unemployment was therefore seen as reflecting personal defects – either unwillingness to work or, more charitably, a lack of particular skills needed for “job readiness”.
This assumption was clearly untrue, even before the pandemic. As the long history of booms, busts and economic crises have shown us, all workers are vulnerable to losing their job through no fault of their own.
The failure of labour markets to provide full employment is also seen in the increasing levels of underemployment, particularly among young people.
Underemployed workers are, by definition, willing and able to work, and ineligible for unemployment benefits. But they are nonetheless unable to secure a full-time job.
For an unacceptably high proportion of young people, the experience of the labour market has been one of stringing together part-time gigs, while trying unsuccessfully to start a career. Official measures of youth unemployment hit 16% in May. A further 25.8% of young Australians between 15 and 24 years old were underemployed.
Even before coronavirus, there was a pressing need to reform the way we support unemployed people.
JobSeeker (or its predecessor, Newstart), had not been increased in real terms since 1994. Business, community groups and researchers were among the loud chorus pushing for an increase to the payment which, on average, is about A$45.50 a day.
But to respond to the post-pandemic era, we need to make more comprehensive changes to the way we support unemployed and underemployed Australians, that acknowledge the scarcity of jobs.
Moving forward, we should adopt the concept of a liveable income guarantee or living wage. The living wage is closely linked to the idea of participation – starting from the principle everyone has a right to a liveable income and a responsibility to contribute to society.
Ideas of this kind, under names including “universal basic income”, “guaranteed minimum income” and “participation income” have been discussed since the 1960s.
They have attracted more attention in recent years as the failure of the current economic system to deliver full employment and broad improvements in living standards has become more apparent.
Many people already productively contribute to society in different ways, such as caring, but their work is largely obscured by the narrow measure of formal employment.
The social security system only partially supports those unable to work due to age, disability, unemployment, or caring needs. And support for all of these categories has been cut back and subjected to conditionality under successive governments, operating on the ideology of market liberalism.
There are many possibilities of what contributions could be included and “paid for” under a liveable income guarantee. Most of them have some precedent, but have not been considered as part of a comprehensive program of social participation. The options include:
All of these productive activities should be given the same terms, income and assets test as the pension.
Including supplements, a single pensioner currently receives up to $944.30 per fortnight. This is paid to the aged, people with disability and carers.
Without the Coronavirus Supplement, a single person on the JobSeeker Payment receives $574.50 a fortnight (including the Energy Supplement).
We estimate the annual cost of a policy along the lines suggested above would be less than $30 billion. About $10 billion a year would be needed to set all benefits equal to the age pension. The cost of expanded eligibility for the liveable income guarantee is harder to estimate, but unlikely to be more than $20 billion a year.
Most of this could be financed simply by forgoing the tax cuts for high income earners legislated by the Morrison government after it won the 2019 election.
When it comes to government checks on people’s participation in their chosen community activities, we need to look to the tax system.
Currently the welfare system imposes strict compliance rules to prevent cheating at the outset. By contrast, the tax system is operated on the basis of self-assessment.
Taxpayer declarations are assumed to be true in the first instance, but subject to auditing. The liveable income guarantee should operate like this, where people submit their own participation declaration, as we do with our tax returns.
Looking ahead, we need to focus on cooperation rather than competition.
This means giving everyone the opportunity to contribute to society, whether or not they generate a market income. A liveable income guarantee will be a crucial step towards this goal.
This article was the product of discussion among a group that also included author Tim Dunlop, Western Sydney University emeritus professor Jane Goodall and QUT senior lecturer Dr Jenni Mays.
John Quiggin, Professor, School of Economics, The University of Queensland; Elise Klein, Senior Lecturer, Crawford School of Public Policy, Australian National University, and Troy Henderson, Lecturer in Political Economy, University of Sydney, University of Sydney
The Morrison government’s changes to welfare payments were among its most significant responses to the coronavirus crisis.
But this huge increase will not last, with the $550 fortnightly supplement due to expire in late September.
If we want to keep unemployed Australians out of poverty in future, significant changes will be required to the base rate of JobSeeker.
According to my analysis, an increase of $185 a week is needed.
A political debate is now brewing about what happens next to the JobSeeker Payment.
Prime Minister Scott Morrison appears to be holding firm to the idea that the increased payments will stop later this year.
As he recently said,
we’ve put a COVID supplement in place for the period of the pandemic and that’s what we’ve budgeted for and that’s what our policy is.
There are currently about 1.6 million Australians receiving the JobSeeker Payment, while the Coronavirus Supplement also goes to recipients of other payments, including Youth Allowance, Parenting Payment, Farm Household Allowance and Special Benefit.
In December 2019, there were more than 400,000 people receiving these payments – and possibly more now.
It is also possible that many of the estimated 6.1 million people currently on JobKeeper will need to claim JobSeeker as the former is phased out. So, would the government really halve income support for more than two million people at the end of September?
As the Grattan Institute has pointed out, cutting income support in this way this would be “a recipe for a second downturn”.
While the Coronavirus Supplement is a crucial element of support for newly unemployed Australians, it is not well designed. This reflects the speed with which it was developed and the fact it was intended to be temporary.
The chart below shows how the supplement combines with the basic JobSeeker Payment for a single person, and how the package of assistance changes by hours of work per week, paid at the minimum wage of $19.49 per hour.
What is most striking here is the “benefit cliff”: a person working 27 hours per week takes home around $720, but a person working 28 hours takes home $508. This is the result of the loss of the entire Coronavirus Supplement when the last dollar of JobSeeker is lost under the current income test.
This also creates significant anomalies: a person working up to three hours per week would have a higher disposable income than someone working 28 to 31 hours per week. And someone working 38 hours would have a lower disposable income than someone working between 19 and 27 hours.
The same benefit cliff applies to couples, but because of the relaxation of the couple income test, the effect is not felt until higher levels of income.
At the moment, these anomalies and the benefit cliff are not very pressing because many people on payments will have reduced hours of work, if any.
But as workplaces open up and people return to employment, these design issues will become more problematic. Put simply, the Coronavirus Supplement in its current form should not be continued.
This means that to continue to adequately support unemployed Australians and avoid a double dip economic downturn, the basic rates of payments need to be increased.
Last month, a Senate inquiry released its report into the adequacy of Newstart/JobSeeker.
The report by non-government members made 27 recommendations, including:
once the Coronavirus Supplement is phased out, the Australian Government increase[s] the JobSeeker Payment, Youth Allowance and Parenting Payment rates to ensure that all eligible recipients do not live in poverty.
They also recommended that
the Australian Government set a national definition of poverty. The Government should immediately commence work in collaboration with academic experts and the community sector to determine this definition.
Clearly, we need to look at how to make the payment more adequate immediately, without waiting for an inquiry to determine how much is enough – a process that could take months.
There is a simple benchmark already available that can be used. This is the rate of pension paid to the aged, people with disability and carers. Including supplements, a single pensioner currently receives up to $944.30 per fortnight.
When the Coronavirus Supplement ends, a single person on the JobSeeker Payment will receive $574.50 (including the Energy Supplement) – a gap of $370 per fortnight or $185 per week.
Setting working-age payments at the same rate as pensions will significantly simplify our overly complex system and provide a consistent treatment of all adults.
It will reduce incentives for people to seek to qualify for higher payments.
It would also mean that if the federal government sets up an inquiry into poverty standards – as the Senate recommended – we would not have to worry about anomalies in current payment rates. We could focus on clear principles of adequacy for all Australians instead.
In January, the Australian Council of Social Service called for a minimum $95 a week increase to Newstart.
How to tweak JobKeeper, if we must
This would have applied at the time to around 850,000 people, at a cost of about $3.8 billion a year.
I estimate that an increase of $185 per week could cost around $7.4 billion, but this does not factor in the projected increase in the number of people needing support.
If we have more than two million people on working age payments in September this year, this would imply a rough budget cost of around $17 billion in a full year.
Raising JobSeeker payments is a substantial budgetary cost. But the current cost of the Coronavirus Supplement over a full year is likely to exceed $30 billion.
The alternative of cutting rates is also extremely costly: a deep increase in poverty among millions of Australian households and the likelihood of a double dip recession.